Full Judgment Text
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PETITIONER:
SALIGRAM RUPLAL KHANNA & ANR
Vs.
RESPONDENT:
KANWAR RAJNATH
DATE OF JUDGMENT01/05/1974
BENCH:
KHANNA, HANS RAJ
BENCH:
KHANNA, HANS RAJ
BEG, M. HAMEEDULLAH
CHANDRACHUD, Y.V.
CITATION:
1974 AIR 1094 1975 SCR (1) 358
1974 SCC (2) 642
ACT:
Indian Partnership Act. ss. 42 and 47-Scope of-Dissolution
of a firm constituted for a fixed term-Mutual rights and
obligations of partners after dissolution suit for rendition
of accounts-Limitation.
HEADNOTE:
A partnership consisting of the appellants and the
respondent had entered into a lease agreement with the
Custodian of Evacuee Property in respect of a mill and took
possession of the mill on 31st August, 1952. The period of
partnership was for 5 years being the period of the said
lease. The partners having failed to pay one instalment of
rent the Custodian served on the partners a show cause
notice on 12-2-54 why the lease should not be terminated. On
account of certain financial difficulties the parties
entered into a second agreement on February 24, 1954.
Disputes having arisen between appellants and the
respondent, the appellants filed a suit on December 20. 1960
alleging that after the termination of the lease by the
Custodian on May 25, 1954 the two appellants and the respon-
dent had orally agreed not to dissolve the partnership in
spite of the termination of the lease and prayed for a
declaration that the partnership between them and the
respondent was still subsisting on the terms and conditions
set out in the partnership deed dated 24th February, 1954.
They also prayed for rendition of the partnership accounts.
The respondent on. the other hand alleged that there was no
oral agreement between the parties and that the claim for
rendition of accounts was barred by limitation.
The trial court held that the appellants had failed to prove
that there was an oral agreement between the parties and
that the claim for rendition of accounts was barred by
limitation.
On appeal the High Court upheld the findings of the trial
court.
Dismissing the appeal,
HELD :-(1) No inference of implied agreement can be drawn
from the material on record. [371E]
According to section 42 of the Indian Partnership Act,
subject to a contract between the partners a firm is
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dissolved if constituted for a fixed term by the expiry of
that term. This provision makes it clear that unless some
contract between the partners to the contrary is proved. the
firm, if constituted for a fixed term would be dissolved by
the expiry of that term. [371G-H]
In the instant case it was indicated in the agreement of
partnership that the period of partnership had been fixed at
5 years because that was the period of the lease of the
mills and the lease was terminated on May 25, 1954. [372B-C]
According to s. 47 of the Indian Partnership Act after the
dissolution of the firm the authority of each partner to
bind the firm and the other mutual rights and obligations of
the partners continue notwithstanding the dissolution so far
as may be necessary to wind up the affairs of the firm and
to complete transactions begun but unfinished at the time of
dissolution but not otherwise. The word ’transaction’ in
section 47 refers not merely to a commercial transaction of
purchase and sale but would include also all other matters
relating to the affairs of the partnership. The completion
of a transaction would cover also the taking of necessary
steps in connection with the adjudication of a dispute to
which the firm before its dissolution was a party. In the
instant case after dissolution, the partnership subsisted
merely for the purpose of completing pending transactions,
winding up the business and
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adjusting the rights of partners and for these purposes and
these only the authority, rights and obligations of the
partners continued [374B-D, F-G]
(3)The suit for rendition of accounts brought by the
appellants on December 20, 1960 was barred by limitation.
In the absence of a contract to the contrary there could be
no survival of the firm after August 30, 1957 when the
period of partnership expired. [373D-F]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 143
of 1969.
(Appeal by Special Leave from the Judgment & Decree dated
the 22nd March, 1968 of the Bombay High Court in Civil
Appeal No. 23 of 1963).
S. T. Desai, K. L. Hathi and P. C. Kapur for the
appellants.
K. S. Cooper, A. B. Diwan, Vasant Kotwal and I. N. Shroff
for the respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This appeal by special leave is directed against
the judgment of a Division Bench of the Bombay High Court
affirming on appeal the decision of the learned single Judge
whereby a suit for dissolution of partnership and rendition
of accounts filed by the two plaintiff-appellants, Saligram
Ruplal Khanna and Pessumal Atalrai Shahani, against Kanwar
Rajnath defendant-respondent was dismissed. The,
partnership which was sought to be dissolved carried on
business under the name and style of "Shri Ambernath Mills
Corporation’ (hereinafter referred to as SAMCO). The
property which according to the appellants belonged to the
partnership consisted of three mills at Ambernath. One of
them was a woollen mill, the other was a silk mill and the
third was an oil and leather cloth factory with land,
bungalows and shawls attached thereto. In addition to that,
there was a bobbin factory at Taradeo with offices at
Bombay, Ahmedabad and other places. For the sake of
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convenience the above property may be described, as it was
done in the High Court, as "Ambernath Mills". Although the
case involves a tangled skein of facts, the points which
survive for determination in appeal are rather simple.
The Ambernath Mills originally belonged to a company called
Ahmed Abdul Karim Bros. Private Ltd. The mills were
declared to be, evacuee property in September 1951 and the
Custodian took over the management of the mills in pursuance
of the provisions of the Administration of Evacuee Property
Act, 1950. It was then decided that the mills should be
managed by displaced persons who had been industrialists in
Pakistan. A private limited company was formed of 31
persons for taking over the management of the mills. Rs.
25,000 were contributed by each one of those persons in that
connection. The appellants and the respondent too were
members of the company. Appellant No. 1 and the respondent
had migrated at the time of partition from Gujarat in West
Punjab. The respondent was a big industrialist and left
behind extensive properties in Pakistan. He held verified
claim of rupees 23 lakhs in lieu of property left by him in
West Pakistan. The first appellant had a verified claim of
5-L177SupCI/75
360
Rs. 22,000 in respect of residential property left in
Pakistan. In addition to that, he had a disputed claim in
respect of industrial properties. The second appellant had
a verified claim of about Rs. 80,000. The two appellants
and the respondent were associated by the Custodian with the
management of the Ambernath Mills. By August 1952 all the
members of the private limited company dropped out. It was
accordingly decided by the Custodian to grant, a lease of
the Ambernath Mills to the respondent and the two
appellants. On August 30, 1952 two documents were executed.
One of the documents was an agreement of partnership between
the two appellants and the respondent for carrying on the
business of Ambernath Mill’s under the lease in the name and
style of Shri Ambernath Mills Corporation. The other
document was the agreement of lease executed by the
Custodian of Evacuee Property as lessor and the appellants
and the respondent carrying on business in partnership under
the name and style of SAMCO, as lessees. The subject-matter
of the lease was Ambernath Mills. It was stated in the
lease that the lessees had appointed the respondent as their
chief representative with full powers of control, management
and administration of the entire demised premises. The
lease was to be for a period of five years to be computed
from the date on which the possession of the demised
premises was handed over to the lessees, subject to sooner
determination thereof on any of the contingencies provided
in clause 21 or on the breach of any condition on the part
of the lessees or in the event of any dispute among the
lessees resulting in the closure of the mills. it was also
provided that the lessees would purchase and the lessor
would sell to the lessees at an agreed price the stocks of
raw materials, unsold finished goods, consumer’s stores,
spare parts, cars and trucks and other movables which had
already been vested in the lessor, as well as three diesel
generating sets purchased by the lessor. III the event of
any difference on the question of the price, the same was to
be fixed through one or more experts. The sale was to be
completed within a period of three months from the date of
the agreement. The lessees were authorised to take as
partner one or more displaced persons who had filed claims
under the Displaced Persons Claims Act, 1950 subject to the
prior approval of the Government. The agreement also
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contained a provision for reference of any dispute arising
out of the agreement of lease to arbitrators chosen by the
parties by mutual consent. The annual rent payable by the
lessees was fixed at Rs. 6,00,000 payable in four quarterly
instalments of Rs, 1,50000 each on or before 30th day of
each quarter. The lessees also undertook to deposit or
furnish bank guarantee in the, sum of Rs. 7.00,000 as
security for the payment of the value of raw material,
unsold finished goods,, stores. spare parts and other
articles. Clauses 17 to 21 of the agreement of lease read
as under :
"17. It is agreed between the Lessor and the
Lessees that when the entire claims of the
lessees filed by them under the Displaced
Persons Claims Act, 1950, for all their pro-
perties are determined and the compensation
payable to them
361
by the Government of India is ascertained, the
market value of the entire demised premises
shall be determined by an expert appointed in
that behalf by the Government of India,
Ministry of Rehabilitation, and such value as
is determined shall be taken as price for
acquisition by the lessees of the full
proprietary interest in the demised premises
in the manner shown in the next succeeding
paragraph.
18.The Lessees, being all displaced persons
from Pakistan and having left large properties
in Pakistan, have all of them put in claims in
respect of their proper-ties and other assets
left by them in Pakistan under the Displaced
Persons Claims Act, 1950. When the claims
under the said Act of the Lessees are verified
and determined and compensation payable in
respect thereof has been ascertained the
compensation payable to the Lessees shall be
taken into consideration, and it has been
agreed as a term of this Agreement between the
parties hereto with the concurrence of Govt.
of India, Ministry of Rehabilitation, that on
such total compensation being arrived at the
Lessees shall be allotted proprietary rights
in the demised premises, in the manner shown
viz., in case the value of the aggregate
compensation payable to the Lessees is
equivalent to the value of the demised
premises
as assessed, the Lessor shall convey the
demised premises absolutely to them as full
proprietors thereof, their interest in the
demised premises being in proportion to the
compensation payable to each of the Lessees
and the respective shares in the proprietary
interest shall be adjusted according to the
amount of compensation payable to each as
finally determined.
19.In case the aggregate amount of
compensation payable by the Government of
India to the Lessees exceeds the value of the
demised premises as determined, the demised
premises will be conveyed to the Lessees,
their share inter se being in the proportion
of the amount of compensation payable to each.
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20.It is further agreed that in case the
aggregate amount of compensation payable to
the Lessees falls short of the value fixed for
the demised premises, the Lessor shall be
entitled to associate with the Lessees in the
ownership of the proprietary interest to be
allotted as aforesaid other displaced persons
who have left industrial concerns in Pakistan,
so that the total compensation payable to the
Lessees and the others thus associated is
equivalent to the total value of the demised
premises and the said demised premises shall
then become the absolute property of the
Lessees and others thus associated in
proportion to the total compensation payable
to each as finally determined.
362
21.The lease to be granted pursuance hereto
shall be liable to determination earlier on
the settlement of the claims of the Lessees
and the allotment and transfer of the full
proprietary interest in the demised premises
as provided in clauses 17 to 20 hereof;
provided that if the value of the full
proprietary interest in the demised premises
exceeds the amount of compensation payable to
the Lessees and part of such proprietary
interest is allotted to other persons as pro-
vided in clause 20 hereof, the Lessees shall
be at liberty to continue the lease for the
unexpired residue of the term on the terms and
conditions and yearly rent prescribed here-
under, the yearly rent being adjusted
proportionately to the extent of the
proprietary interest allotted and tr
ansferred
to the Lessees."
According to the partnership agreement executed by the two
appellants and the respondent on August 30, 1952, each
partner had agreed to contribute a capital of Rs. 1,00,000.
The amount of Rs. 25,000 already paid by each partner to the
Custodian was regarded as part payment of the capital of
rupees one lakh. Each partner had one third share in the
partnership, but it was provided that the shares would be
adjusted by the respondent if fresh partners were taken in
the partnership. The respondent was to be the managing
partner and was entitled to assign work in the partnership
to the two appellants. It was agreed that the appellants
were not to interfere directly or indirectly in any manner
with the management and control of the business by the
respondent. The respondent was also authorized to form a
limited liability company for running the business of the
partnership with the consent of the Custodian and the
appellants agreed to join the company as shareholders on
such terms and conditions as might be agreed when such
company was formed. The period of the partnership was five
years "being the period of said lease".
The partnership took possession of Amberath Mills on August
31, 1952. The respondent directed the first appellant to be
incharge of the administration of the mills at Ambernath,
while the second appellant, being an engineer, was placed
incharge of the properties, machinery and stores of the
mills. The respondent was in overall charge of the
concerned.
It appears that the partnership made some progress in the
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first few months. The stocks of raw material, finished
goods, stores and other movables which were deemed to have
been purchased by SAMCO under the terms of the agreement of
lease were in the meantime valued by an auditor appointed by
the Custodian at rupees 30 lakhs. The Custodian called upon
the partnership in April 1953 to pay a sum of rupees 7 lakhs
or to furnish a bank guarantee for the said amount as
provided in the agreement of lease. This payment could not
be made by the partnership. There was also difficulty in
paying the sixth instalment of the rent. A cheque for Rs.
1,50,000 was issued but the same was dishonored.
Subsequently, arrangements were made to pay Rs. 1,00,000.
An amount of Rs. 5,0,000 out of the sixth instalment
remained unpaid.
36 3
On February 12, 1.954 the Custodian served a notice on the
respondent and the two appellants to show cause why the
agreement of lease should not be cancelled on account of
breach of conditions in the matter of the payment of the
sixth quarterly instalment of rent and the failure to
deposit or furnish bank guarantee for the amount of Rs.
7,00,000. A writ petition was thereupon filed by, the
partnership on February 16, 1954 in the Bombay High Court
for quashing the notice issued by the Custodian.
In the meantime, the second appellant sent letter dated
February 8, 1954 to the respondent suggesting that his share
in the partnership be reduced to 1 anna in a rupee or to
such other fraction as the respondent thought fit. A
similar letter was addressed by the first appellant. On
February 24, 1954 the parties entered into a second agree-
ment of partnership. It was agreed in the new partnership
agreement that the share of the first appellant would be 3
annas and that of the second appellant 1 anna in a rupee.
The respondent was to have the remaining 12 annas share. It
was also agreed that the two appellants would not have the
right, title and interest in the name, capital, assets and
goodwill of the partnership. It was provided that the new
partnership would be deemed to have been formed as from
October 1, 1953. Accounts for the period from August 30,
1952 to September 30, 1953 were to be made up on the basis
of the partnership agreement dated August 30, 1952 and the
profits and losses for that period were to be distributed
accordingly. The capital of the partnership was agreed to
be arranged by the respondent and he was to be the managing
partner in control of the entire affairs of the partnership.
He was also to get interest at 6 per cent on all finances
arranged by him. The appellants agreed to carry on such
duties in the concern as might be assigned to them by the
respondent. The period of the partnership was to be "the
Outstanding period of the lease".
The writ petition referred to above filed by the partnership
to quash the notice of the Custodian was allowed by a single
Judge of the Bombay High Court on March 31, 1954. On appeal
filed by the Custodian, a Division Bench of the High Court
as per judgment dated April 13, 1954 set aside the order of
the single Judge and dismissed the writ petition.
Certificate of fitness for appeal to this Court was granted
by the High Court on May 5, 1954. Stay order was also
issued on that day restraining the Custodian from
dispossessing the respondent and the appellants from
Ambernath Mills. Appeal against the decision of the
Division Bench of Bombay High Court was then filed in this
Court. The Custodian of Evacuee Property made an order on
May 25, 1954 cancelling the agreement of lease of Amberanath
Mills dated August 30, 1952. The possession of the mills
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was voluntarily delivered by, the partnership to the
Custodian on June 30, 1954.
Representations were made on behalf of SAMCO to the Minister
of Rehabilitation during the later half of 1954 for being
allowed to retain Ambernath Mills. A communication was also
addressed on December 14, 1954 to the Minister of
Rehabilitation suggesting, inter alia, that the claim of the
Custodian against the partnership in respect
364
of arrears of rent and the value of raw material and other
goods should be referred to arbitration.
The Displaced Persons (Compensation and Rehabilitation) Act,
1954 came into force on October 9, 1954. On March 10, 1955
the Central Government issued notification under section 12
of that Act acquiring the Ambernath Mills. An advertisement
was then issued by the Central Government for the sale of
Ambernath Mills. Tenders for the purchase of the mills were
required to be submitted by July 9, 1955. On June 7, 1955 a
representation was made by SAMCO that in view of the
pendency of its appeal in the Supreme Court in respect of
the Custodian’s notice for cancellation of the lease, the
Ambernath Mills should not be sold. On July 7, 1955 the
partnership submitted a tender for the purchase of the mills
in accordance with the Government advertisement. The offer
was for an aggregate amount of Rs. 55,55,555. On October
14, 1955 the partnership made another offer to purchase the
mills for an aggregate amount of Rs. 75,00,000 on terms and
conditions to be mutually agreed upon. The offer of October
14, 1955 Was made after the last date for the receipt of
tenders. The appeal referred to above filed by the
partnership in this Court against the judgment of the Bombay
High Court was dismissed by this Court on November 10, 1955
vide reported case Rai Bahadur Kanwar Raj Nath & Ors. v.
Pramod C. Bhatt, Custodian of Evacuee Property(1). This
Court held that the Custodian had the power of cancelling
the lease under section 12 of the Administration of Evacuee
Property Act and that the notice issued by the Custodian was
valid. This Court, however, left open the question whether
the partnership had any right to purchase the mills under
the agreement of lease.
Notice under section 80 of the Code of Civil Procedure was
issued to the Custodian and the Central Government on
November 9, 1955 intimating the intention of the partnership
to file a suit for restraining the Custodian and the Central
Government from selling Ambernath Mills. The Central
Government on December 30, 1955 informed the partnership
that its offer to purchase the mills for Rs. 55,55,555 was
rejected. The partnership thereafter withdrew its
subsequent offer of purchase of the mills for Rs. 75,00,000.
On January 31, 1956 a suit was filed on behalf of the
partnership against the Custodian and the Central Government
for permanent injunction restraining them from selling
Ambernath Mills to any person other than the partners. The
said suit was dismissed by the City Civil Court Bombay on
October 8, 1956. An appeal was thereupon filed by SAMCO
against the decision of the City Civil Court. This appeal
too was dismissed by a Division Bench of the Bombay High
Court as per judgment dated January 14, 1957. This judgment
is reported as Shri Ambernath Mills Corporation v. G. B.
Godbole, Custodian of Evacuee Property & Anr. (2) It was
held by the Division Bench that the agreement of purchase
containing clauses 17 to 21 of the lease deed was indefinite
and vague in various particulars and that the agreement of
sale was not capable of
(1) [1955] 2 S.C.R. 977.
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(2) A.I.R. [1957] Bom. 119.
36 5
specific performance. The Division Bench further held that
the Central Government by virtue of notification dated March
10, 1955 acquired the mills free from all encumbrances and
that such right as SAMCO might have had of specific
performance of agreement of sale was in the nature of an
encumbrance. The Central Government, according to the
Division Bench, must be deemed to have acquired the mills
free from that encumbrance. No appeal was filed ’against
the above decision of the Bombay High Court.
The respondent, it would appear, started making efforts from
the middle of 1957 to get the Ambernath Mills for himself.
He was in Delhi for several months from June 1957 onwards.
On August 14, 1957 an agreement for sale of Ambernath Mills
to the respondent was executed by the respondent and the
President. The price of the mills was fixed at Rs.
50,11,000. Out of this amount, a sum of Rs. 2,00,000 was to
be paid on the execution of the agreement as earnest money
and in part payment of the purchase price. This amount
could be paid either in cash or by adjustment of net
compensation payable to the respondent or to other displaced
persons who might assign their verified claim in favour of
the respondent. A further sum of Rs. 28,00,000 was to be
paid within three months from the date of the agreement
either in cash or by adjustment of the net compensation
payable to displaced persons who assigned their verified
claims in favour of the respondent. The balance of Rs.
20,11,00,0 was to be paid in seven equal installments. It
was provided that if the respondent failed to pay the amount
of Rs. 28,00,000 within three months from the date of
agreement the earnest money of Rs. 2,00,000 paid by him was
to be forfeited. In addition to the above, the respondent
undertook to mortgage the mills for a sum not exceeding Rs.
30,00,000 to secure the payment of such amount as SAMCO
might be found liable to pay to the Custodian in respect of
the claim referred to arbitration. On September 20, 1957
the first appellant executed an agreement for the transfer
of his compensation claim amounting to Rs. 6,994. The
amount was to be repaid to the first appellant within three
years with interest at the rate of 6 per cent per annum. It
was stated in the agreement that the respondent was
contemplating to form a joint stock company to own, run and
manage the mills. The respondent agreed that in the event
of such a company being formed the first appellant would
have the option to purchase shares of the said company to
the extent of 50 per cent of the amount of his claim
compensation.
On August 12, 1957 the dispute between the Custodian on one
side and the two appellants and the respondent on the other,
which had been referred earlier in accordance with the
arbitration clause in the agreement of lease to ’the
arbitration of other arbitrators, was referred to the
arbitration of Mr. Morarji Desai. On November 13, 1957 the
respondent and the Custodian agreed before the arbitrator
that the dues of the Custodian against the partnership be
settled at Rs. 18,00,000. A consent award awarding Rs.
18,00,000 in favour of the Custodian against the partnership
was made by Mr. Morarji Desai on the following day, viz.,
November 14, 1957. The award was made a rule of the court
on May, 1, 1958.
366
The respondent was unable to submit to the Central
Government compensation claims to the extent of Rs.
30,00,000 within three months of the agreement dated August
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14, 1957. By April 1959 he submitted compensation claims to
the extent of Rs. 20,00,000. A supplemental agreement was
executed by the respondent and the president on April 29,
1959. In this agreement the President acknowledged the
receipt from the respondent of the sum of Rs. 20,00,000 by
way of adjustment of compensation claims. The respondent
undertook to pay the remaining amount of Rs. 30,11,000 and
Rs. 18,00,000 under the award of Mr. Morarji Desai, in all,
Rs. 48,11,000. It was agreed that the aforesaid amount
would be paid by the respondent in seven annual
installments. A second supplemental agreement was executed
by the President and the respondent on April 6, 1960, but we
are not concerned with that. On April 21, 1960 the grant of
the Ambernath Mills was made by the President to the
respondent. The same day the respondent executed in favour
of the President a mortgage of the Ambernath Mills for the
payment of Rs. 48,11,000. The sum was payable in seven
equal annual installments. On April 22, 1960 the respondent
took possession of Ambernath Mills which had been lying idle
for nearly six years since June 30, 1954. On May 7, 1960
the respondent sent a circular letter to all displaced
persons whose compensation claim had been transferred to him
informing them that possession of the mills had been handed
over to him by the Central Government. They were also
informed that statement of their accounts was being
prepared. One such letter was sent to the first appellant.
He also received a statement of account and in September
1960 a cheque for Rs. 204 was sent to him by way of
interest.
On October 7, 1960 the first appellant sent a letter to the
respondent complaining that his property had been attached
in execution of a decree for Rs. 271.44 which had been
obtained by a creditor against SAMCO. In this letter the
first appellant hinted that he was a partner of the
respondent. The respondent in response sent to the first
appellant a cheque for Rs. 271.44. It is also stated that
the respondent informed the first appellant on telephone
that he did not regard the latter as his partner. On
December 20, 1960 the two appellants filed the present suit.
It was alleged in the plaint that after the termination of
the agreement of lease by the Custodian on May 25, 1954 the
two appellants and the respondent assembled and orally
agreed not to dissolve the partnership in spite of the
termination of the lease. The agreement between the parties
was further stated to be that "the partnership should be
continued for the purpose of acquiring on behalf and for the
benefit of the said partnership the properties Ex. 1
(Ambernath Mills) hereto and to exploit the said
industries". The respondent was stated to have made a
representation that he was acquiring the Ambernath Mills on
behalf of the partnership and that the agreement had been
executed in the respondent’s name because the Central
Government desired to deal with only one individual. It was
also stated that the respondent had admitted utilisation of
a sum of Rs. 2,00,000 out of the partnership fund for
payment of earnest money. The respondent
367
being a partner, according to the appellants, stood in a
fiduciary character vis-a-vis the appellants and was bound
to protect their interest. He could not gain for himself
pecuniary advantage by entering into dealings under
circumstances in which his interests were adverse to those
of the appellants. The properties and profits acquired by
the respondent were stated to be for the benefit of the
partnership also. In the plaint, as it was initially filed,
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the appellants prayed for a declaration that the partnership
between them and the respondent was still subsisting on the
terms and conditions set out in partnership deed dated
February 24, 1954 excepting the terms relating to the period
of partnership. Prayer was made for a declaration that the
Ambernath Mills belonged to the partnership and for
rendition of the partnership accounts. By a subsequent
amendment prayer was added that the partnership be dissolved
from the date of the filing of the suit.
The respondent in his written statement denied the alleged
oral agreement between the parties on or about May 25, 1954.
According to the respondent, the partnership stood dissolved
on March 10, 1955 when the Central Government acquired the
Ambernath Mills. According further to the respondent, the
funds of the partnership were utilized for the payment of
various creditors of the partnership and after those
payments were made the partnership did not have sufficient
funds to pay to the remaining creditors. With regard to the
negotiations for the acquisition of the mills, the
respondent stated that the first appellant was aware that
Ambernath Mills were being acquired by the respondent for
himself alone. The respondent denied that he ever told the
first appellant that the amount of earnest money of Rs.
2,00,000 for the purchase of the Ambernath Mills had been
paid out of funds belonging to the partnership. Allegation
was also made by the respondent that the first appellant had
requested that he might be given, some benefit in the nature
of appointment or agency in the business of Ambernath Mills.
The claim of the appellant for rendition of the accounts was
stated to be barred by, limitation. In an affidavit filed
on January 11, 1961 the respondent stated that in case it
was held that there was an oral agreement of partnership
between the parties, the same should be taken to have been
dissolved.
Learned trial judge held that the appellants had failed to
prove that there was an oral agreement between the parties
on or about May 25, 1954. It was further held that there
was no agreement, express or implied, to form a partnership
for acquiring the mills and for carrying on the business
thereon. The appellants were held not entitled to have the
mills treated as partnership assets by invoking principles
enunciated in section 88 of the Indian Trusts Act, to which
reference had been made on behalf of the appellants. The
learned judge also held the appellants claim for rendition
of accounts to be barred by limitation because in his view
the partnership had stood dissolved on May 25, 1954 when the
agreement of lease was cancelled. in any case, according to
the learned judge, the partnership must be deemed to have
been dissolved either on January 14, 1957 when the suit
filed by the two appellants and the respondent against the
Custodian and the Cent-
368
ral Government for permanent injunction was finally
dismissed in appeal by a Division Bench of the Bombay High
Court or on August 30, 1957 when the period of the lease
came to an end.
In appeal before the Division Bench the following four
contentions were advanced on behalf of the appellants :
"(1) that on 25th May 1954 the parties
expressly agreed to continue their partnership
for acquiring the Mills and exploiting them,
that a partnership at will thus came into
existence between them, and that therefore the
Mills acquired by the defendant car his
agreement with the President of India dated
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14th August 1957 and the subsequent grant by
the President of India on 21st April 1960 must
be held to be an asset of the said
partnership;
(2)that if such an express agreement is
held not to have been proved, an implied
agreement to the same effect should be
inferred from the conduct of the parties and
the correspondence between them;
(3)that, even supposing that there was no
express or implied agreement as stated above,
the rights acquired by the defendant as a
result of his agreement with the President of
India dated 14th August 1957 and the
subsequent Presidential grant are
impressed
with a trust in favour of the partnership
under section 88 of the Indian Trusts Act; and
(4)that, even if it is held that the Mills
are no longer an asset of the partnership, the
plaintiffs are still entitled to accounts of
the partnership which admittedly existed
between them and the defendant for working the
Mills under Agreement of lease dated 30th
August 1952."
The learned judges constituting the Division Bench repelled
all the contentions advanced on behalf of the appellants and
substantially agreed with the findings of the trial judge.
On the question of the limitation, the learned judges held
that the partnership had been dissolved at the latest on
November 10, 1955 when all the attempts of the partners to
get the Custodian’s order dated May 25, 1954 set aside came
to an end with the decision of the Supreme Court. The
present suit for rendition of accounts brought on December
20, 1960’ more than three years after the date of the
dissolution of the partnership was held to be barred by
limitation. In the result the appeal was dismissed.
In appeal before us Mr. S.T. Desai on behalf of the
appellants has frankly, conceded that he is not in a
position to challenge the concurrent findings of the trial
judge and the appellate bench that the appellants had failed
to prove that on May 25, 1954 the parties had expressly
agreed to continue the partnership for acquiring the mills
and ,exploiting them. Although Mr. Desai indicated at the
commencement
369
of the arguments that he would challenge the finding of the
appellate bench that the rights acquired by the respondent
as per agreement dated August 14, 1957 with the President
and the subsequent Presidential grant are impressed with
trust in favour of the partnership under section 88 of the
Indian Trusts Act, no arguments were ultimately advanced by
him on that score. Mr. Desai has, however, challenged the
finding of the trial judge and the appellate bench that no
implied agreement as alleged by the appellants could be
inferred from the material on record. The main burden of
the arguments of’ Mr. Desai, however, has been that the
appellants were entitled to the accounts of the partnership
which admittedly existed between the parties as per
partnership agreements dated August 30, 1952 and, February
24, 1954. According to Mr. Desai, there had been not dis-
solution of the firm prior to the institution of the suit
and the appellants’ suit for the rendition of accounts was
not barred by limitation. The High Court, it is urged, was
in error in holding to the contrary. The above contentions
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have been controverted by Mr. Cooper on behalf of the
respondent and, in our opinion, are not well-founded.
We may, first deal with the question as to whether the
implied agreement as alleged by the appellants can be
inferred from the material on record. In this respect Mr.
Desai has submitted that the appellants no longer claim any
interest in the ownership of Ambernath Mills which. now vest
in the respondent. It is, however, urged that an agreement
can be inferred from the conduct of the parties that
Ambernath Mills were to be run by the respondent in
partnership with the appellants, even though the ownership
of the same might vest in the respondent. In this
connection we find that no case of such an implied agreement
was set up in the trial court, either in the plaint or
otherwise, nor was such a case set up in appeal before the
Division Bench. What was, actually contended was that the
agreement was for acquiring the mills as an asset of the
partnership. The above stand of the appellants could
plainly be not accepted when one keeps in view the agreement
of lease dated August 30, 1952 as well as other documents on
record. The said agreement of lease shows that Ambernath
Mills would become the absolute property not only of the
appellants and the respondent but of all persons who were to
be associated with the lessees in the ownership of the
proprietary interest in proportion to the total compensation
payable to each of them. The agreement of lease further
contemplated that the lessee rights of the two appellants
and the respondent were to be distinct from the proprietary
interest in the demised premises and that the lessees were
at liberty, in spite of the transfer of proprietary
interest, to continue the lease for the unexpired residue of
the term on the terms and conditions of the lease and
payment of rent prescribed thereunder. The respondent
submitted representation, on August 9, 1954 on behalf of
SAMCO to the Custodian for the restart of the mills and
along with it the respondent sent copies of letter of
authority and particulars of verified claims of 30 displaced
persons. It is implicit in the representation that in case
Ambernath Mills was transferred, the same would vest in all
the 30 displaced persons whose claims were submitted,
370
There are two documents which run counter to the stand taken
oil behalf of the appellants in this Court that there was an
implied agreement that in case the respondent acquired the
ownership of the mills, the mills would be worked by the
respondent in partnership with the appellants. One of those
documents is agreement dated September 20, 1957 which was
signed by the first appellant and the respondent a day
before the respondent executed bond in favour of that
appellant in view of the fact that the first appellant
agreed to have his claim compensation amounting to Rs.
6,994, adjusted towards the price of Ambernath Mills. It
was stated in the agreement dated September 20, 1957 that
the respondent was contemplating the formation of a joint
stock company to own, run and manage the mills and it was
agreed between the parties that in the event of such company
being formed, the first appellant would have the option to
purchase shares of the said company to the extent of 50 per
cent of the amount of the adjusted claim compensation. In
case the option was exercised in favour of the purchase of
the shares of the company, the respondent was to ensure that
the said shares would be allotted to the first appellant at
par. It was further agreed that if the shares applied for
or any proportion thereof were not allotted to the first
appellant by the said company, the respondent would not in
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any way be liable to the first appellant on that account.
In the bond the respondent agreed to pay to the first
appellant interest at the rate of 6 per cent on the amount
of compensation from the date of the adjustment of the first
appellant’s claim ,compensation. Had the first appellant
any interest in the Ambernath Mills which were, being
acquired by the respondent, there could arise no occasion
for the execution of the agreement dated September 20, 1957
and the bond dated September 21, 1957. All that was agreed
by the respondent in those two documents was that in case he
promoted a company for owning, running and managing of the
Ambernath Mills, the first appellant would get a share of
the value of half of his ,claim compensation of Rs. 6,994.
The said amount when compared to the price of Ambernath
Mills was wholly insignificant. No question could arise for
the respondent borrowing money from the first appellant for
payment of price of the mills in case the acquisition of the
mills was for the benefit of the respondent as well as the
appellant. it may also be stated that the interest on
account of the above, compensation was duly paid by the
respondent to the first appellant.
Another document which has a bearing in the above context is
letter dated December 18, 1959 which was addressed by the
first appellant to the Collector of Bombay in connection
with the recovery of arrears of sales tax. The first
appellant in that letter stated that the responsibility for
the payment of such arrears of sales tax was that of the
respondent and the first appellant was no more in picture.
The above letter shows that the first appellant repudiated
his liability for the payment of the sales tax by
disclaiming his connection with the ,business in question.
Our attention has been invited by Mr. Desai to the following
observations contained in the judgment of the appellate
bench :
"There is no dispute between the parties that
the partners met on 25th May 1954, after the
Custodian’s order
371
terminating the Agreement of lease and decided
that they should try to have the Custodian’s
order set aside by pursuing the appeal in the
Supreme Court as well as by making
representations to the Ministry of
Rehabilitation in the Central Government. It
is also not disputed that either on 25th May
1954 or soon thereafter the parties decided
that they should also try to acquire the
proprietary interests in the Mills by relying
on clauses 17 to 21 of the Agreement. of-
Lease. What is disputed is whether it was
agreed between the parties that, after
acquiring the proprietary interest in the
Mills, the business of the Mills should be
carried on in partnership between the parties.
It is the defendant’s case that the
proprietary interest in the Mills was sought
to reacquired by the partners for certain
incidental advantages but that it was never
intended that the Mills after acquisition
should be run in partnership under the terms
agreed in the partnership deed of 24th
February 1954."
The above observations may have some bearing on the question
of the express agreement, but so far as such an agreement is
concerned,, it has already been pointed out above that the
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concurrent findings of the trial judge and the appellate
bench have not been challenged before us. No inference of
implied agreement mentioned by the learned counsel for the
appellants can be drawn from the above observations.
We are, therefore, of the view that no inference of the
implied agreement referred to by Mr. Desai can be drawn from
the material on record.
So far as the question is concerned as to whether the claim
for rendition of accounts was within time, we find that
according to clause 16 of the partnership deed dated August
30, 1952 the period of partnership was fixed at five years,
being the period of the lease, Clause 17 of the deed of
partnership dated February 24, 1954 provided that the
"period of partnership shall be the outstanding period of
such lease". The possession of Ambernath Mills under the
agreement of lease was delivered on August 31, 1952. The
period of five years of the lease was thus to expire on
August 30, 1957. As the partnership was for a fixed period,
firm would in normal course dissolve on the expiry of the
period of five years on August 30, 1957. No agreement
between the partners to keep the firm in existence after the
exPiry of the fixed term of five years has been proved.
According to section 42 of the Indian Partnership Act,
subject to contract between the, partners a firm is
dissolved-
(a) if constituted for a fixed term, by the expiry of that
term;
(b) if constituted to carry out one or more adventures or
undertakings by the completion thereof;
(c) by the death of a partner; and
(d) by the adjudication of a partner as an insolvent."
The above provision makes it clear that unless some contract
between
372
the partners to the contrary is proved, the firm if
constituted for a fixed term would be dissolved by the
expiry of that term. If the firm is constituted to carry
out one or more adventures or undertakings, the firm,
subject to a contract between the partners, would be
dissolved by the completion of the adventures or
undertakings. Clauses (c) and (d) deal with dissolution of
firm on death of a partner or his being ,adjudicated
insolvent.
It was indicated in the agreement of partnership that the
period of partnership had been fixed at five years because
that was the period ,of the lease of Ambernath Mills. The,
lease, however, ran into rough weather. On February 12,
1954 the Custodian served notice on the respondent and the
two appellants to show cause why the agreement of lease
should not be cancelled in accordance with the terms of that
agreement on account of the breach of conditions in the
matter of payment of instalment of rent and the failure of
the respondent and the appellants to deposit or furnish bank
guarantee for the amount of Rs. 7,00,000. The respondent
and the appellants challenged the validity of the above
notice by means of a writ petition and, though they suc-
ceeded before a single judge, the appellate bench of the
Bombay High Court upheld the validity of the notice. On May
25, 1954 the Custodian cancelled the lease of Ambernath
Mills and on June 30, 1954 got possession of the mills. The
respondent and the appellants assailed the decision of the
appellate bench of. the Bombay High Court in this Co-art,
but this Court also took the view as per judgment dated
November 10, 1955 that there was no legal infirmity in the
notice for the termination of the lease issued by the
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Custodian. After the above judgment of this Court, whatever
hope or expectation the partners of SAMCO had of running
Ambernath Mills on lease under the agreement of lease dated
August 30, 1952 came to an end and were extinguished.
In the meantime, as already stated earlier, the possession
of Ambernath Mills was handed over by the partners of SAMCO
to the ,Custodian on June, 30, 1954. On March 10, 1955 the
Central Government issued notification under section 12 of
the Displaced Persons (Compensation and Rehabilitation) Act,
1954 for acquiring the Mills. The mills were then
advertised for sale. The partners of SAMCO having been
thwarted for good in their efforts to get back the mills on
lease now made an effort to acquire the ownership of the
mills in accordance with clauses 17 to 21 of the agreement
of lease. Suit was accordingly brought by the respondent
and the appellants for permanent injunction restraining the
Central Government and the Custodian from selling the
Ambernath Mills to any person other than the partners of
SAMCO. The suit was dismissed by the City Civil Court and
the appeal filed by the partners of SAMCO too was dismissed
by a Division Bench of the Bombay High Court on January 14,
1957. The Division Bench held ’that the agreement of
purchase contained in clauses 17 to 21 of the agreement of
lease was indefinite and vague and such agreement of sale
was not capable of specific performance. It was further
held that in View of notification dated March 10, 1955 the
Central Government acquired the mills free from all
encumbrances. The rights of the partners of SAMCO which
were in the nature of an encumbrance were
373
held to be no longer enforceable. No appeal was filed
against the above decision of the Bombay High Court. As
such, the aforesaid judgment became final. Any expectation
which the partners of SAMCO could have of acquiring the
ownership of Ambernath Mills under clauses 17 to 21 of the
agreement of lease was also thus dashed to the ground.
View was expressed by the learned trial judge that the firm
of SAMCO stood dissolved on May 25, 1954 when the lease was
cancelled. Another date of dissolution, according to the
learned judge, could be January 14, 1957 when the suit filed
by the partners of that firm against the Custodian and the
Central Government for permanent injunction was finally
dismissed by the High Court. The appellate bench expressed
the view that the firm of SAMCO stood dissolved on November
10, 1955 when the Supreme Court dismissed the appeal
regarding the validity of notice. It is, in our opinion,
not necessary to dilate upon this aspect of the matter
because in any case there can be no manner of doubt that the
firm of SAMCO got dissolved and was not subsisting after
August 30, 1957 which was the date on which the period of
five years for which the partnership had been formed came to
an end. The, question as to-whether the firm got dissolved
earlier than August 30, 1957 is purely academic and is not
of much significance, because in any event in the absence of
a contract to the contrary there could be no survival of the
firm after August 30, 1957 when the period of partnership
expired. Calculating the period of limitation even from
that date, the suit for rendition of accounts brought by the
appellants on December 20, 1960 was barred by limitation.
It is not disputed that the period of limitation for such a
suit is three years from the date of dissolution.
Mr. Desai has referred to letter dated November 17, 1955
addressed by the respondent on behalf of SAMCO to the,
National Bank of India Bombay requesting for the despatch of
three bales of wool tops to Ludhiana. In this letter an
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assurance was held to the Bank of cordial relations for the
future expected business. Reference has also been made by
Mr. Desai to the statement of the respondent in cross-exami-
nation that up to the end of December 1956 the firm was
actively interested in acquiring the mills. The above
letter and statement, in our opinion, would not militate
against the inference that the firm stood subsequently
dissolved on August 30, 1957. As already mentioned above,
no agreement to keep the firm in existence after the expiry
of the fixed period of partnership has been proved on the
record.
Reference has also been made on behalf of the appellants to
the consent given by the respondent on behalf of SAMCO on
November 13, 1957 to the award of Rs. 18,00,000, by Mr.
Morarji Desai in favour of the Custodian against SAMCO. It
is urged that this document would go to show that the firm
of SAMCO had not been dissolved before that date. We are
unable to agree. The arbitration proceedings had been
started as a result of application under section 20 of the
Arbitration Act filed, on April 21, 1955 when SAMCO was in
existence and was a running concern. The arbitration
proceedings related to a claim of the Custodian of Rs.
30,00,000 on account of the price of stocks of raw material,
stores and other movables as well as
374
about the arrears of rent. Counter-claim had also been made
by SAMCO against the Custodian for a sum of Rs. 17,67,080 as
per written statement dated December 18, 1956 filed in
arbitration proceedings. The consent which was given by the
respondent on November 13, 1957 was with a view to get the
dispute between SAMCO with the Custodian finally settled.
This was a necessary step for the purpose of winding up the
affairs of SAMCO and to complete transaction of arbitration
proceedings which had been begun but remained unfinished at
the time of dissolution. According to section 47 of the
Indian Partnership Act, after. the dissolution of a firm the
authority of each partner to bind the firm, and the other
mutual rights and obligations of the partners, continue
notwithstanding the dissolution, so far as may be necessary
to wind up the affairs of the firm and to complete
transactions begun but unfinished at the time of the
dissolution, but not otherwise. The word "transaction" in
section 47 refers not merely to commercial transaction of
purchase and sale but would include also all other matters
relating to the affairs of the partnership. The completion
of a transaction would cover also the taking of necessary
steps in connection with the adjudication of a dispute to
which a firm before its dissolution is a party. The legal
position in this respect has been stated on page 251 of
Lindley on Partnership (Thirteenth Edition) as under:
"Notwithstanding a dissolution each partner
can pay, or receive payment of, a partnership
debt; for it is clearly settled that payment
by one of several joint debtors, or to one of
several joint creditors, extinguishes the debt
irrespective of any question of partnership.
go, again, it has been held that a continuing
or surviving partner may issue a bankruptcy
notice in the firm name in respect of a
judgment obtained before the dissolution, and
that notice to him of the dishonour o
f a bill
of exchange is sufficient, and that he can
withdraw a deposit or sell the partnership
assets, or pledge them for the purpose of
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completing a transaction already commenced, or
of securing a debt already incurred, or the
over-draft on the partnership current account
at the bank."
The proposition, in our opinion, cannot be disputed that
after dissolution, the partnership subsists merely for the
purpose of completing pending transactions, winding up the
business, and adjusting the rights of the partners; and for
these purposes, and those only, the authority, rights, and
obligations of the partners continue (see page 573 of
Halsbury’s Laws of England Third Edition Vol. 28). We
would, therefore, bold that the consent given by the
respondent on November 13, 1957 to the award of Mr. Desai
would not detract from the conclusion that the firm of the
parties stood dissolved on the expiry of the fixed period of
partnership, viz., August 30, 1957.
The proposition of law referred to by Mr. Desai that a
dissolution does not necessarily follow because a
partnership has ceased to do business would not be of any
material help to the appellants because we are not basing
our conclusion of the dissolution of the firm of the parties
upon the fact that the partnership bad ceased to do
business.
375
On the contrary, we have arrived at the above conclusion in
accordance with the principle of law that a firm constituted
for a fixed term shall stand dissolved, in the absence of a
contract to the contrary, on the expiry of that term.
Likewise, the appellants can derive no help from the
decision of the Judicial Committee in Sathappa Chetty & Ors.
v. S. N. Subrahmanyan Chetty & Ors.(1) The said case did not
relate to a firm constituted for a fixed term and no
question arose in that case of a firm dissolving on the
expiry of the fixed term of partnership.
Our attention has also been invited to the correspondence
between the first appellant and the respondent during the
period from June to September, 1957. These letters reveal
that the first appellant entertained hopes and expectation
of deriving some benefit in case the respondent succeeded in
acquiring the Ambernath Mills. The exact nature of the
benefit was not, however, specified in the letters. The
respondent in his replies while not belying those hopes and
expectations took care not to make any commitment. After,
however, the respondent succeeded in acquiring the mills,
there developed a coolness in his attitude towards the first
appellant. This circumstance must necessarily have caused
disappointment and disillusionment to the first appellant.
The respondent, it seems, kept some kind of cannot dangling
before the first appellant during the delicate stage of his
negotiations with the Government for the acquisition of the
mills lest the first appellant did something to sabotage
those efforts. After acquisition of the mills by the
respondent, his attitude changed and he gave a cold rebuff
to the first appellant. The above conduct of the respondent
may have a bearing on the question of the award of costs,
but it cannot affect our decision on the point as to whether
the suit is within limitation or not.
We, therefore, dismiss the appeal but in the circumstances
without costs.
P.B.R. Appeal dismissed.,
(1) AIR 1927 P.C. 70.
177SupCI/75
376
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