MOHAMMAD IQBAL v. MOHD HANIF — 1975 DIGILAW 118 (MP)

JUDGMENT : ( 1. ) THIS order will also govern the disposal of Miscellaneous (First) Appeals Nos. 76 of 1975 and 85 of 1975. ( 2. ) ALL these appeals arise out of a suit filed by the appellant Mohammad iqbal for a declaration that the partnership firm "messrs Kalekhan Mohammad hanif" was dissolved with effect from 29-10-1974, for payment to the plaintiff such amount as may be found due on settlement of the accounts of the said firm, and for certain other ancillary reliefs. ( 3. ) DURING the pendency of the suit, the plaintiff filed an application for appointment of a Receiver and, later on, also filed an application for an injunction restraining the defendants from carrying on the business of the firm during the pendency of the suit The application for injunction was dismissed by the trial Court as not pressed ; while the application for appointment of a Receiver was allowed and defendant No. 1 Mohammad Hanif (respondent No. 1) was appointed Receiver of the property of the dissolved firm. Being aggrieved thereby, the plaintiff has filed this appeal (Miscellaneous (First) Appeal No. 49 of 1975 ). The plaintiff, along with defendant No. 4, has also filed an appeal against the order of the trial Court dismissing his application for grant of an injunction. This appeal has been registered as Miscellaneous (First) Appeal No. 85 of 1975. The defendants, other than defendant No. 4 who seems to have joined hands with the plaintiff, have filed a separate appeal against the order of appointment of Receiver. This appeal has been registered as Miscellaneous (First) Appeal No. 76 of 1975. All these appeals were heard together as they arise out of the same case. ( 4. ) THE material facts, which were not disputed before me, are as follows : the parties are closely inter-related. The plaintiff is the real brother of defendants Nos. 1 to 3, all of them being sons of late Kale Khan. Defendants nos. 4, 6, 8 and 9 are the sons of defendant No. 1, while defendants Nos. 7, 10, and 11 are the sons of defendant No. 2. Defendants Nos. 5 and 12 are the sons of defendant No, 3. In the year 1930, Kale Khan had started a bidi business. This business was, later on, carried on in the name and style of "messrs Kale Khan mohammad Hanif", a partnership firm. 7, 10, and 11 are the sons of defendant No. 2. Defendants Nos. 5 and 12 are the sons of defendant No, 3. In the year 1930, Kale Khan had started a bidi business. This business was, later on, carried on in the name and style of "messrs Kale Khan mohammad Hanif", a partnership firm. During his minority, the plaintiff was admitted to the benefits of the partnership. On attaining majority, he was admitted as a full-fledged partner of the firm. The firm is a leading concern in bidi business in the country with numerous branches in and outside the State of madhya Pradesh. After the death of Kale Khan in 1966, the partnership firm was re constituted from time to time. The last reconstitution took place on 23-4-1972. ( 5. ) IT appears that relations between the parties became strained mainly because the plaintiff had married outside the family against the wishes of his brothers. This affected the smooth running of the partnership concern. As the plaintiff wanted to take effective part in the business of the firm, he served on the defendants a notice, dated 1-1-1972. Thereafter, relations between the parties rapidly deteriorated and ultimately the plaintiff issued instructions to the Banks not to allow defendant No. 1 to operate the accounts of the partnership. These instructions were subsequently withdrawn; but thereafter defendants Nos. 1 to 3 opened accounts in the Banks in their personal names in respect of the partnership moneys. ( 6. ) ON 28-10-1974, the defendants got a notice under section 72 of the indian Partnership Act (hereinafter referred to as the Act) published in the local daily hitavada dissolving the firm and re-constituting it, after excluding the plaintiff and defendant No. 4, in the old name. This new firm as re-constituted carried on the business of the old firm with the assets thereof. Soon after, the plaintiff brought the instant suit. ( 7. ) SHRI S. D. Sanghi, learned counsel for the appellant, submitted that the learned Judge of the lower Court rightly passed an order of appointment of Receiver of the property of the dissolved firm; but he urged that it was not proper for him to appoint defendant No. 1 as the Receiver in the circumstances of the case. ( 7. ) SHRI S. D. Sanghi, learned counsel for the appellant, submitted that the learned Judge of the lower Court rightly passed an order of appointment of Receiver of the property of the dissolved firm; but he urged that it was not proper for him to appoint defendant No. 1 as the Receiver in the circumstances of the case. He further urged that the newly constituted firm could not carry on the business of the old firm with the assets of the dissolved firm and, therefore, the plaintiff was entitled to an injunction under section 53 of the Act restraining the new firm from carrying on the business of the old firm. He also urged that defendant No. 1, by his conduct, had forfeited the confidence of the plaintiff and as such was not at all a fit person to be appointed as receiver of the property. Someone else should, therefore, be appointed as the receiver. ( 8. ) ON behalf of the defendants-respondents it was urged that, in the circumstances of the case, the appointment of defendant No. 1 as Receiver of the property was absolutely essential in the interests of all concerned, including the plaintiff. Shri K. A. Chitale and Shri M. C. Nihalani, who appeared for the respondents, fully supported the order of the trial Court and did not press their appeal against the said order. ( 9. ) ALTHOUGH it appears from the arguments of Shri Sanghi that the plaintiff was very much aggrieved by the fact that defendant No. 1 contrived to expel him from the partnership by dissolving the fiim and re-constituting a new firm in the old name after excluding him, it is not disputed that the partnership, being at will, it was open to the defendants to dissolve the firm. There can also be no doubt that it was open to the defendants to enter into a fresh agreement of partnership among themselves so as to constitute a new firm; but the serious question to be considered is whether the new firm could carry on the business of the old firm in the name of the said firm and with assets thereof. ( 10. ( 10. ) IT was vehemently argued by Shri Sanghi that the new firm was not entitled to carry on its business with the assets of the old firm and that by doing so it had virtually misappropriated the funds and assets of the old firm. According to him, the Managing Partners of the old firm could continue the business until final settlement of the accounts only for the benefit of the partners of the old firm and that only after the accounts have been fettled and the plaintiff has been given bis share, other partners can with the assets falling to their share carry on a new partnership business and not before that. In support of his contention he relied on sections 46 and 47 of the Act. ( 11. ) THERE can be no doubt that after the partnership is dissolved, every partner has, under section 46 of the Act, a right to have the business wound up and the property of the firm applied in payment of debts and liabilities of the firm and to have the surplus distributed amongst them. But it has to be borne in mind that winding up of the business of the firm may prove disastrous where the business is lucrative and some of the partners are keen to carry on such business in partnership amongst them. In such a case the strict enforcement of the right of a partner under section 46 of the Act may be prejudicial to the interests of the other partners. Moreover no one will be benefited by the closure of the business of such a firm. It was particularly to provide for such a contingency that section 37 of the Act has been enacted. Moreover no one will be benefited by the closure of the business of such a firm. It was particularly to provide for such a contingency that section 37 of the Act has been enacted. Section 37 reads as follows : "where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the out-going partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm : provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits : but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section. " The aforesaid section embodies a well recognised principle of partnership law which was stated by their Lordships of the Privy Council in Ahmed Musaji saleji and others v. Hashim Ebrahim, AIR 1915 PC 116. in the following terms: "it is well settled that in certain cases, when on the dissolution of a firm one of the partners retains assets of the firm in his hands without any settlement of accounts and applies them in continuing the business for his own benefit, he may be ordered to account for these assets with interest thereon, apart from fraud or misconduct in the nature of fraud. " ( 12. ) IN Udhavji Anandji Ladhav. Bapudas Ramdas Darbar, AIR 1950 Bom. 94. " ( 12. ) IN Udhavji Anandji Ladhav. Bapudas Ramdas Darbar, AIR 1950 Bom. 94. it was pointed out that section 37 of the Act embodies the well recognised principle of partnership law referred to above. ( 13. ) ALTHOUGH section 37 occurs in Chapter V which deals with changes in the firm without any dissolution, it is of general application. The language of the section is not very clear but it must be liberally construed so as to cover the case of a dissolved partnership as well because the underlying principle in either case is the same. The section applies where the firm continues without dissolution and also where the dissolved firm has been reconstituted and the partners of the new firm carry on the business with the properties and assets of the dissolved firm. ( 14. ) IN Mohanasunderim and others v. Neelambal and others, AIR 1955 Mad. 442 . it was held that where the surviving and continuing partner carries on the business of the firm with the property of the firm notwithstanding the dissolution section 37 is attracted. In Mansharam v. Tejbhan, AIR 1958 Punj. 5. the Punjab High Court held section 37 of the Act to be applicable even after the dissolution of the firm. ( 15. ) SHRI Sanghi referred to section 53 of the Act which confers on a partner after dissolution of the firm a right to restrain any other partner from carrying on any other business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up. This section is ancillary to section 46 but the grant of an injunction is discretionary and it would not be proper to exercise this discretion in favour of the plaintiff where it would be prejudicial to the interests of the defendant without conferring any corresponding benefit on the plaintiff. No doubt a partner cannot claim to use common property for his own business, but it must be borne in mind that after the dissolution of a firm the partners hold the assets of the partnership more or less as co-owners and, therefore, are entitled to use the property in their possession for the common benefit, the out going partner being entitled to claim his share of the profits accruing from the use of the common property. ( 16. ) IN the instant case ,it appears that the dissolution was brought about as the partners could not pull on well. It is difficult to apportion blame in this connection because the matters pertain to the realm of family relations primarily. When the relations of the members of the family deteriorated, the business relations were also affected and it ultimately led to dissolution of the firm. During the arguments before me an offer was made on behalf of the defendants that the plaintiff may join the new firm so that old business relationship may be restored. But the offer was not acceptable to the plaintiff. Shri Nihlani, learned counsel for defendant No. 1 submitted that immediately after the dissolution an offer was made to the plaintiff to have the accounts settled and to take whatever was due to him on account of his share. Ex. D-7 is a copy of the notice dated 28th October, 1974 whereby the plaintiff was requested to meet the defendants for settlement of the accounts at earliest. No reply was sent to this notice and the plaintiff hurried to file the present suit without even calling upon the defendants to pay his share on settlement of accounts by a notice or otherwise. It is in the light of these facts that the right of the defendants to carry on the business has to be viewed. ( 17. ) IF the defendants are forbidden to carry on the business a very lucrative business will come to an end and it may not be possible to revive it after a lapse of time. The plaintiff will not be benefited, in any way by the closure of the business while the defendants will suffer irreparable loss thereby. It, therefore, appears to be just and proper to allow the defendant No. 1 to carry on the business during the pendency of the suit, particularly because it was not disputed before us that he possesses mature experience of the business. Plaintiffs interest is amply safeguarded under section 37 of the Act and after accounts are gone into he will be entitled to the share of profits in case there are profits or to interest at the rate of 6% per annum on the amount of his share at his option. ( 18. Plaintiffs interest is amply safeguarded under section 37 of the Act and after accounts are gone into he will be entitled to the share of profits in case there are profits or to interest at the rate of 6% per annum on the amount of his share at his option. ( 18. ) THUS section 37 of the Act amply safeguards interest of the plaintiff in this case and it would not be proper to grant an injunction restraining the defendant No. 1 from carrying on the business of dissolved firm in the name of the new firm. The plaintiff is, therefore, not entitled to any injunction restraining the defendant No. 1 from carrying on the business in the name of the new firm. His application was rightly rejected by the trial Court and the appeal preferred by the plaintiff against the said order must also be dismissed. ( 19. ) AS regards the question of appointment of Receiver, defendant No. 1 was rightly appointed as Receiver by the trial Court. However, in view of the strained relationship between the parties and the fact that the defendants No. 1 and 2 have opened accounts in the Bank in their personal names in respect of the partnership property, even though this is said to have been done for facility of operating the account without any hindrance it would be but proper to appoint a joint Receiver. During the pendency of the appeal before this Court a joint Receiver, namely, Shri B. K. Dube has been appointed as Receiver under orders of this Court dated 23 4-1975 and he has been functioning in that capacity as such. Shri K. A. Chitale, learned counsel for defendant No. 1 frankly stated that he has no objection to the continuance of Shri B. K. Dube as Joint receiver if it is considered necessary with a view to safeguard the interest of the plaintiff. I very much appreciate this gesture on the part of the defendant No. 1. ( 20. ) THUS the appeal is partly allowed and the order of appointment of Receiver is modified only to the extent that Shri B. K. Dube who was appointed as Joint Receiver under order of this Court dated 23-4-1975 shall continue as Receiver during the pendency of the suit. In regard to the other matters the order of the trial Court shall stand. In regard to the other matters the order of the trial Court shall stand. I do not make any order as to costs of this appeal in the circumstances of this case. ( 21. ) THE appeal filed by the defendants against the order of appointment of Receiver is hereby dismissed as not pressed. The appeal filed by the plaintiff against the dismissal of his application for injunction by the trial Court is also dismissed, for the reasons given above. The parties shall bear their own costs of both these appeals. Appeals dismissed.