Full Judgment Text
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2741 OF 2009
ARISING OUT OF SLP (C) NO. 15685 OF 2008
USHA GOPIRATHNAM & ORS. ..APPELLANT(S)
VERSUS
P.S.RANGANATHAN (D) THR. LRs. & ORS. ..RESPONDENT(S)
J U D G M E N T
1. This appeal is directed against the final judgement and
order dated 22.01.2008 passed by the High Court of Karnataka
at Bangalore, whereby the High Court dismissed an appeal filed
by the Appellants herein and affirmed the order of the II
Additional Civil Judge (Senior Division), Bangalore Rural,
Bangalore dated 16.09.2006, which had dismissed a civil suit
filed by the Plaintiff/Appellants seeking dissolution of
Respondent No. 4/Partnership Firm, M/s. High Clere Stud and
Agricultural Farm.
Signature Not Verified
2. The Appellants before this Court
Parties before this Court:
Digitally signed by
NEETA SAPRA
Date: 2022.09.23
17:22:18 IST
Reason:
are the legal heirs of late Mr. Gopirathnam. Mr. Gopirathnam
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was one of the partners of the Respondent No. 4 Firm. The
partnership firm originally comprised of Mr. P.S. Ranganathan,
Mr. Lavakumar and Mr. Basanth Kumar, apart from Mr.
Gopirathnam. Respondent Nos. 1.1 and 1.2 are the legal heirs of
late Mr. P.S. Ranganathan. Respondent Nos. 2.1 and 2.2 are the
legal heirs of Mr. Lavakumar and Respondent No. 3 is Mr.
Basanth Kumar himself. Respondent Nos. 5 to 7 are subsequent
purchasers of certain properties originally owned by the Firm.
3.1 The factual
Facts leading to the filing of this Appeal:
background of the present case has a long history, which can be
traced back to 01.01.1966, when a deed of partnership was
entered into between Late Mr. Gopirathnam, Late Mr. P.S.
Ranganathan, Late Mr. Lavakumar and Mr. Basanth Kumar. The
partners were related to each other with Gopirathnam,
Lavakumar and Basanth Kumar being brothers and P.S.
Ranganathan being the brotherinlaw of Gopirathnam. The
partnership firm, which was named as M/s. High Clere Stud and
Agricultural Farms, was a “partnership at will”. In so far as
profitsharing ratio between the partners was concerned, the
partnership deed provided that the share of P.S. Ranganathan
2
would be 50%, Gopirathnam’s would be 20% and the other two
partners would have a 15% share in the profits. The losssharing
ratio was slightly different, with 50% of the losses to be borne by
Ranganathan and 25% each by Gopirathnam and Lavakumar.
Basanth Kumar did not have any share in the loss, because at
the relevant time, he was a minor and was admitted only to the
benefits of the firm.
3.2 The partnership firm was constituted with the object and
purpose of breeding livestock and carrying on agricultural
activities. For this purpose, the Firm purchased 39 acres of land
from one Mr. P.S. Devdas. Soon after the purchase of the land,
when the time came to repay Mr. Devdas, the Firm faced
immense financial difficulties. In fact, the Firm came under
severe pressure, with Mr. Devdas also having taken legal
recourse by filing a criminal case.
3.3 On 29.03.1973, which is around the same time when the
Firm was going through tough circumstances, it is alleged that
Gopirathnam sent a letter to Ranganathan, expressing his desire
to retire from the Firm. Ranganathan is said to have replied to
this letter on 15.04.1973 and accepted the resignation of
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Gopirathnam. Pursuant to this retirement, Gopirathnam is
alleged to have been paid Rs. 20,000 as full and final satisfaction
of his share in the Firm.
3.4 Parallelly, in 1975, the Firm happened to take a loan from
State Bank of India to meet the maintenance cost of race horses,
sink two bore wells and clear off outstanding dues. Interestingly,
the loan application mentioned Gopirathnam as a partner of the
firm. Later, around 1982, when this loan was not repaid, SBI
initiated legal proceedings to recover the loan and it arrayed
Gopirathnam as a Respondent for being a partner of the firm and
also for having executed a guarantee in favour of SBI.
4. Civil Suit by Appellant: Be that as it may, Gopirathnam
passed away on 27.12.1997. Three years post his demise, in the
year 2000, the legal heirs of Gopirathnam, who are also the
Appellants before this Court, filed a civil suit seeking dissolution
of the firm, rendition of accounts and partition of the Firm’s
property, on the ground that Ranganathan was acting against the
interests of the Appellants and the Firm. Notably, the suit was
filed by the Appellants in the capacity of partners of the firm. For
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this purpose, they pressed into service Clause 17 of the
partnership deed which provides as follows:
“17) The partnership firm shall not be dissolved
by the death or insolvency of any one or more of
the partners. The heirs or representatives in
interest of such dead partners shall be entitled
to be partners in the firm. The assessment of
the share of such partner shall be on the basis
of the audited statement of accounts for the
st
year ending 31 December previous to such
death or insolvency.”
5. Interim Protection pending the suit: On 25.10.2002 , when the
matter came up for hearing before the Trial Court, the Court
passed an order restraining the Respondents from alienating the
share of the Appellants. However, on 03.11.2004, during the
subsistence and operation of the interim order, the Firm was
dissolved with Lavakumar and Basanth Kumar giving up their
share in favour of Ranganathan. Soon thereafter, Ranganathan
also executed sale deeds qua the Firm’s property and entered into
joint development agreements with Respondent Nos. 57 herein.
It is important to note that while developing the land in
furtherance of the joint development agreements, 8 acres of land
was kept aside towards the share of the Appellants, which was of
course subject to the outcome of the suit.
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6. Decision of the Trial Court : The Civil Suit ultimately came to
be dismissed by the Trial Court on 16.09.2006. After perusing
the evidence on record and the arguments advanced. While
arriving at its decision, the Court held that the Appellants have
no locus to claim the reliefs sought for, since Clause 17 of the
partnership deed is not applicable as Gopirathnam had retired in
1973 and was not a partner till his death in 1997. The Court held
that the Appellants herein had not produced any cogent evidence
to disprove this factum of retirement, and even their argument on
Gopirathnam’s signature being fabricated, was left
unsubstantiated. With respect to the issue of the Appellants
becoming partners after the death of Gopirathnam, the Court
held that there is no concept of legal heirs becoming partners
automatically after the death of a partner. It was held that the
Appellants were obligated to assert and claim their rights as
partners by doing an overt act, which they did not. Lastly, the
Court also held that the suit is barred by limitation, as
Gopirathnam had retired in 1973 and the suit was instituted 27
years later.
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7. Appeal and interim orders pending appeals: Aggrieved by the
order of the Trial Court, the Appellants filed an appeal before the
High Court of Karnataka. By its order dated 12.10.2007, the High
Court also passed a similar interim order to that of the Trial
Court by directing Respondent Nos. 57 herein to reserve 8 acres
of land while carrying out the developmental works.
8.1 Decision of the High Court: The appeal came to be decided by
the High Court on 22.01.2008. In order to decide the appeal, the
High Court framed two questions, which are as follows:
a) Whether Gopirathnam retired from the partnership
firm because of the letter dated 29.03.1973 and hence he
th
ceased to be a partner of the 4 Respondent Firm
following the letter of acceptance dated 15.04.1973?
b) Whether the Appellants became the partners of the
Firm automatically by virtue of Clause 17 of the
Partnership Deed?
8.2 The High Court answered the first question in the
affirmative by holding that Gopirathnam had indeed retired in
1973. The argument of the Appellants that the letter dated
29.03.1973 was just an intention to retire and was not the final
letter of retirement was rejected by the Court by observing that if
his letter was not a final expression of retirement, then he should
have replied to the letter dated 15.04.1973 sent by Ranganathan
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accepting the retirement, which he evidently did not. The second
factor which prompted the Court to come to a conclusion that
Gopirathnam had retired in 1973 was by the fact that there was
no evidence regarding Gopirathnam receiving profits after 1973,
which ideally, he should have if he was a partner of the Firm.
This made the Court draw such an inference as he never cared to
protest about the nonpayment of profits right from 1973 till, he
died in 1997. With respect to the argument regarding non
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compliance with Section 32 of the Partnership Act, 1932 , the
2 3
Court held that Section 24 of the Act prevails over Section 32 ,
thereby meaning that the notice of retirement sent only to the
managing partner is sufficient and there is no legal necessity to
send a notice of retirement to each and every partner of a firm.
Further, the High Court also held that Gopirathnam signing a
loan application form and him being made a party to the suit
1
hereinafter referred to as ‘the Act’.
2 Section 24: Effect of notice to acting partner — Notice to a partner who habitually
acts in the business of the firm of any matter relating to the affairs of the firm operates, as
notice to the firm, except in the case of a fraud on the firm committed by or with the
consent of that partner.
3
Section 32: Retirement of a partner —
(1) A partner may retire—
(a) With the consent of all the other partners,
(b) in accordance with an express agreement by the partners, or
(c) where the partnership is at will, by giving notice in writing to all the other
partners of his intention to retire.
(2) ………….
(3) ………….
(4) ………….
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filed by SBI is immaterial, as the said suit was decided without
any contest. Before concluding its findings on this issue, the
Court observed that Gopirathnam retired when the Firm was
going through tough times. Therefore, now when the Firm is
doing well, his legal heirs are not entitled to come back and seek
a share in the Firm, especially after a delay of 27 long years.
8.3 With respect to the second issue, the Court answered it in
the negative by holding that the Appellants do not automatically
become partners of the Firm by virtue of Clause 17 of the
partnership deed. The Court held that one of the fundamental
principles of partnership law is that the existence of a contract is
a sinequonon for the relationship of partnership. It was held
that the phrase ‘entitled to’, as it appears in Clause 17, does not
confer an automatic right but the said right is to be asserted by
doing a positive act, which the Appellants did not in this case.
9. After taking note of the basic facts we were of the opinion
that this is a fit case for amicable settlement as the contesting
parties are all closely related to each other. We put forth our
suggestion to the learned counsel appearing for the parties that it
would be in the larger interest, that they resolve the dispute in an
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amicable and peaceful manner. We must place on record the
positive response received from the learned counsels, who agreed
with the suggestion of the Court. We also indicated to the learned
counsels that as an extent of eight acres of land has all along
been secured, we may also consider passing an appropriate order
granting a portion of the land to the Appellants for doing
complete justice between the parties. However, we were not
inclined to take a unilateral decision. We, therefore, suggested
that we will proceed with the hearing and upon conclusion of the
submissions we will reserve the case for orders and the parties
may resort to mediation and intimate the result thereof within
four weeks.
10.1 Submission of parties: Shri Ranjit Kumar, Senior Advocate
along with Shri Ankur S. Kulkarni, AOR, appeared on behalf of
the Appellants. Their submissions can be broadly categorised
into 3 parts. First, that there can be no retirement which is
contrary to the intention of the parties. Second, that a retirement
is nonest in law if it has taken place in disregard to the statutory
framework. Third, that the Appellants herein became partners of
the Firm automatically after the death of Gopirathnam.
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10.2 In support of their first contention, it was submitted by
Shri Ranjit Kumar that no valid retirement had taken place
because(i) Gopirathnam’s signature on the letter dated
29.03.1973 through which he is said to have expressed his
intention to retire is different from his signature on other
admitted documents; (ii) the loan applications submitted before
SBI in 1975 and the suit instituted by SBI in 1982, show
Gopirathnam as a partner of the Firm; (iii) Gopirathnam had
given a personal guarantee to the loan and had also signed a
form for opening a bank account in the name of the Firm, both,
in the capacity of a partner after the alleged date of retirement;
(iv) the records maintained by the Stud Book Authority, Pune,
indicated that Gopirathnam was a partner of the Firm till his
death; (v) Clause 16 of the partnership deed allows a partner to
retire by giving a onemonth notice. However, there is no evidence
that Gopirathnam gave such a timebound notice; and (vi) by a
communication dated 09.10.2002, Ranganathan had called upon
the Appellants to meet the tax recovery officer to resolve the
property issues of the Firm. According to the Appellants, this
clearly shows that they were treated as partners and such
conduct of the Respondents should act as estoppel.
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10.3 In so far as the second submission goes, Shri Ranjit
Kumar contended that – (i) there is noncompliance with Section
32 of the Act as Gopirathnam did not give a notice in writing to
the other two partners indicting his intention to retire from the
Firm and simultaneously, there is no proof that the other
partners agreed to his alleged retirement; (ii) there is non
4 5
compliance with Sections 63 and 72 of the Act as the change in
the constitution of the Firm, post the retirement of Gopirathnam,
was not informed to the Registrar and, no public notice regarding
the retirement was given.
10.4 The last leg of Shri Ranjit Kumar’s submission dealt with
the Appellants becoming partners of the Firm automatically after
4
Section 63: Recording of changes in and dissolution of a firm.
(1) When a change occurs in the constitution of a registered firm any incoming,
continuing or outgoing partners, and when a registered firm is dissolved any person who
was a partner immediately before the dissolution or the agent of any such partner or
person specially authorised in this behalf may give notice to the Registrar of such change
or dissolution specifying the date thereof; and the Registrar shall make a record of the
notice in the entry relating to the firm in the Register of Firms, and shall file the notice
along with the statement relating to the firm filed under section 59.
(2) Recording of withdrawal of a minor – …..
5
Section 72: Mode of giving public notice — A public notice under this Act is given —
(a) Where it relates to the retirement or expulsion of a partner from a registered firm,
or to the dissolution of a registered firm, or to the election to become or not to become a
partner in a registered firm by a person attaining majority who was admitted as a minor to
the benefits of partnership, by notice to the Registrar of firms under section 63, and by
publication in the Official Gazette and in at least one vernacular newspaper circulating in
the district where the firm to which it relates has its place or principal place of business,
and
(b) in any other case, by publication in the Official Gazette and in at least one
vernacular newspaper circulating in the district where the firm to which it relates has its
place or principal place of business.
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the death of Gopirathnam. To buttress his submission, he relied
upon a judgement of this Court in Khushal Khemgar Shah and
6
Ors. v. Mrs. Khorshed Banu Dadiba Boatwalla and Anr. .
11.1 The main thrust of Shri Gurukrishna Kumar, Senior
Advocate appearing on behalf of Respondent Nos. 5 to 7 is that
the Appellants do not automatically become partners after the
death of Gopirathnam. He contended that such is the scheme of
the Act too. In support of his submissions, he relied on Sections
4 and 5 of the Act to contend that a partnership is creature of a
contract and not of status, with the only exception being Section
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30(5) of the Act. Further, he also placed reliance on Section 31 of
the Act to contend that any new partner can be inducted only
with the consent of all the then existing partners. He stated that
such a consent is absent in the facts of this case. In support of
these submissions, he relied on the decisions of this Court in
6 (1970) 1 SCC 415
7 Section 30: Minors admitted to the benefits of partnership –
(1) to (4) ……………..
(5) At any time within six months of his attaining majority, or of his obtaining
knowledge that he had been admitted to the benefits of partnership, whichever date is later,
such person may give public notice that he has elected to become or that he has elected not
to become a partner in the firm, and such notice shall determine his position as regards the
firm:
Provided that if he fails to give such notice, he shall become a partner in the firm
on the expiry of the said six months.
(6) ……………..
13
8
Commissioner of Income Tax v. Seth Govindram Sugar Mills , and
9
S.P. Misra & Ors. v. Mohd. Laiquddin Khan & Anr. .
11.2 Shri Gurukrishna Kumar, further countered the
submissions made by Shri Ranjit Kumar by contending that – (i)
no dispute qua the signature of Gopirathnam should be raised
before this Court, as there are concurrent findings by the courts
below on the same point; (ii) the communication dated
09.10.2002 was issued by Ranganathan to the Appellants when
they were arrayed as LRs of Gopirathnam in a decree for recovery
in favor of a Bank. Immediately thereafter, Ranganathan even
filed an application before the DRT expressly stating that
Gopirathnam had retired and that his LRs have nothing to do
with the Firm; (iii) even if certain documents bear the name of
Gopirathnam, it is immaterial as they will not create any rights in
favour of the Appellants, as the doctrine of holding out which is
applicable in cases like these, is meant only for the protection of
third parties and it does not affect the interse relationship of the
parties; and (iv) Gopirathnam never took any action for rendition
of accounts for twentyfive long years.
8 (1965) 3 SCR 488
9 (2019) 10 SCC 329
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11.3 Responding to the contentions of Shri Ranjit Kumar made
on certain legal aspects concerning Sections 24, 32, 63 and 72 of
the Act, Shri Gurukrishna Kumar contended that – (i) a reading
of Sections 32(i)(c) with Section 24 points that notice to the acting
partner who habitually acts in business of the firm operates as
notice to the firm. In light of this, it was submitted that a notice
given to Ranganathan would operate as a notice on the Firm; and
(ii) Sections 63 and 72 are only intended to protect third parties.
Not following the mandate of these provisions will not inure any
rights to the Appellants herein.
12. Shri Raghavendra S. Srivatsa, AOR, who appeared on behalf
of Respondents Nos. 14 put forth the contention that – (i) postal
acknowledgement to Ranganathan’s letter dated 15.04.1973
bears the signature of Gopirathnam. In that view of the matter, it
is clear that it was the intention of Gopirathnam to retire from
the Firm; (ii) no reliance should be placed on the records of the
Stud Book Authority, as Gopirathnam was shown as a partner in
1998 even though he died in 1997 and that the name of
Lavakumar was never shown although he was a partner; and (iii)
Gopirathnam retired when the firm was going through tough
times. It was Ranganathan who rescued the sinking ship and
15
gave it a new lease of life. It would be unfair to allow the
Appellants to come back and seek a share in the Firm, especially
at a time when the Firm is thriving.
13. Having heard the parties in detail we reserved the case for
orders on 03.08.2022. After four weeks, on 01.09.2022 the
learned counsels informed this Court that the parties could not
arrive at any settlement.
14. Conclusion: We have given our anxious consideration to the
dispute in hand. Our impression that the parties must settle
their disputes amicably got strengthened after we heard the
parties in detail. Adversarial litigation focuses on the enquiry into
the truth or otherwise of every disputed fact, which most of the
time is technical in nature. By the end of it, when a Court takes a
decision, there is no scope for reconciliation or sharing, which is
essential for enduring happiness in a family. We are of the view
that a decision based on adjustment of equities between the
parties will be far more beneficial than rendering a decision
based on inferences drawn on contested facts and pure legalities.
15. It is apparent from the record that from the very inception
of the legal proceedings, the interests of the parties were secured
16
with the Trial Court passing an order directing the
Defendant/Respondent to set aside an extent of eight acres of
land. This was an interim order subject to the outcome of the
proceedings. Though the suit was dismissed, the interim order
continued during the subsistence of the appeal before the High
Court. Even this Court by its order dated 13.04.2009 had
directed the Respondents to ensure that the said eight acres are
kept vacant. In fact, even Respondents Nos. 5 to 7 have kept
aside the eight acres of land outside the development that they
have undertaken. This submission was recorded in the order
dated 28.01.2013. By virtue of these two orders, eight acres of
land is vacant and free from any encumbrance.
16. Orders passed by the Trial Court, High Court as well as this
Court to keep aside eight acres of land was only to secure the
probable share of the Appellants, in the event they succeeded.
Though, the Appellants have lost in the suit as well as in the
appeal, a direction can be given for granting a portion of the said
land to the Appellants so that their claim to some extent stands
satisfied. We are inclined to take this step because the parties are
closely related to each other. Our order is confined only to a
small extent and this will not deprive the Respondents of the
17
fruits of the litigation in which they have succeeded concurrently.
The Appellants have also been contesting the case for more than
two decades. Having considered the matter in detail, we are of the
opinion that such an order could enure to the benefit of not only
the Appellants, but also that of the Respondents herein, for
building and reviving the relationship between the close members
of the family.
17. In view of the above, while upholding the impugned
judgment passed by the High Court of Karnataka, we direct that
the Appellants will be entitled to three acres, out of the eight
acres of land set aside under the orders passed by the Trial
Court, the High Court and also by this Court. It has come on
record that the Firm had leased an extent of one acre to M/s
Karnataka Dyeing and Processing Company, a registered
partnership firm in which the first Appellant is one of the
partners and this partnership had also made certain investments
in the leased portion of the property. We direct that the three
acres to be allotted to the Appellant should include this one acre
of land. The remaining two acres shall be allotted by the
Respondents to the Appellants from the eight acres, which may
ideally be abutting the said one acre so that the Appellants can
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enjoy a contiguous piece of three acres of land. We will, however,
leave it to the Respondents to decide upon the location of the two
acres as per their choice. These directions shall be complied
within a period of three months from today.
18. For the reasons stated above, Civil Appeal No. 2741 of 2009
against the judgment of the High Court of Karnataka dated
22.01.2008 is disposed of with the direction that the Appellants
be entitled to an extent of three acres out of the eight acres of
land set aside as per the orders of this Court dated 13.04.2009
and 28.01.2013. The specific area to be allotted to the Appellants
shall be in accordance with the directions given in the above
paragraph. These directions shall be complied by the
Respondents within a period of three months from today.
19. The parties shall bear their own costs.
……………………………….J.
[B.R. GAVAI]
……………………………….J.
[PAMIDIGHANTAM SRI NARASIMHA]
NEW DELHI;
SEPTEMBER 23, 2022
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