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2014 DIGILAW 497 (MAD)

Halima Bai v. Sparkle-Ads-Firm

2014-02-26

PUSHPA SATHYANARAYANA

body2014
JUDGMENT 1. This appeal is directed against the Decree and Judgment dated 27.01.2009 passed in final decree application in I.A.No.13516 of 2008 in O.S.NO.5151/1996, on the file of the VII Additional City Civil Court, Chennai. 2. The plaintiff in whose favour a preliminary decree was passed for accounts of the first defendant partnership firm from 03.04.1992 to 17.01.1994 and for 1/4th share in the assets and liabilities of the first defendant Partnership Firm, has filed the final decree application in I.A.No.13516/2008. Aggrieved by the order passed in the said Interlocutory Application, the above appeal is preferred. 3. For the sake of convenience, the parties are referred to as stated in the suit. 4. The case of the plaintiff is that the first defendant is the partnership firm comprising of four partners i.e. the plaintiff and 2 to 4 defendants by virtue of partnership deed dated 03.04.1992. The partnership firm was engaged in advertising business and allied matters. Each of the partner has contributed a sum of Rs.10,000/- towards share capital and the partnership was one at will. Whileso, the plaintiff expressed her willingness to retire from the partnership firm and sent letter on 17.01.1994. The said letter was acknowledged by the defendants 2 to 4 by letter dated 24.01.1994, confirming that the plaintiff was deemed to have retired from the partnership firm with effect from 18.01.1994. Though the plaintiff retired from the partnership firm, the existing partners reconstituted the deed of partnership and carried on their business. It was contended by the plaintiff that the partnership firm did not settle her accounts on retirement despite several demands and that she demanded to settle all her share in respect of transactions from 03.04.1992 to 18.01.1994, till the date of settlement of her dues. The plaintiff also had given break-up of the amounts that she is entitled to from the partnership firm in paragraph 8 of the plaint, as follows: PLAINTIFF'S ONE FOURTH SHARE Building Rs.7 Lakhs 1,75,000 Land Rs.85,000/- 21,250 Hoarding Rs.80,000 (3 Nos) 20,000 3 Wheeler Rs.40,000/- 10,000 2 Wheeler Rs.16,000/- 4,000 Phone Rs.20,000/- 5,000 Furniture (Office) 20,000 God will 2,50,000 Profits 2,50,000 Miscellaneous 45,750 Total 8,01,000 5. The suit was contested by the defendants who are the other partners on the ground that the plaintiff was acting detrimental to the interest of the partnership firm. The suit was contested by the defendants who are the other partners on the ground that the plaintiff was acting detrimental to the interest of the partnership firm. It was further contended that the suit was not maintainable as the plaintiff only retired voluntarily from the partnership firm and the partnership firm was not dissolved as alleged by her. 6. Before the trial Court, the plaintiff examined herself as P.W.1 and Exs. A1 to A16 were marked on her side. On the side of the defendants, D.W.1 was examined and Exs.B1 to Ex.B43 were filed on behalf of them. 7. Based, on the pleadings as well as the based on the oral and documentary evidence, the learned VII Additional City Civil Court had decreed the suit declaring that the plaintiff retired from the first defendant, partnership firm on 17.01.1994 and declared further that the plaintiff was entitled to preliminary decree for accounts from 03.04.1992 to 17.01.1994 and entitled to 1/4th share in the assets and liabilities profits in the partnership firm. Insofar as the relief of injunction is concerned, the suit was dismissed. Based on the preliminary decree, the interlocutory application in I.A.No.13156 of 2008 was filed for passing of the final decree in which a commissioner was appointed. The defendants/respondents herein also filed their counter and calculated the assets and liabilities out of which 1/4th share of the plaintiff was arrived at. The list of assets and liabilities and 1/4th share entitled to by the plaintiff was furnished in paragraph 11 of the counter affidavit filed by the defendants/respondents. Though the plaintiff had calculated her share from the partnership as Rs.9,00,000/-, the defendants in the counter had stated that there is no documents to substantiate the claim of the plaintiff for such higher sum and that she is entitled to only Rs.2,36,934/-. Based on the affidavit and counter and the arguments of the counsels, the final decree was passed declaring that the plaintiff/appellant was entitled to Rs.2,36,934/- 8. Aggrieved by the order dated 27.01.2009, in I.A.No.13516 of 2008, this Appeal has been filed. 9. The counsel for the appellant contended that the final decree was not in consonance with the preliminary decree and the Court had not taken into consideration averments in the written statement which is basically wrong. Aggrieved by the order dated 27.01.2009, in I.A.No.13516 of 2008, this Appeal has been filed. 9. The counsel for the appellant contended that the final decree was not in consonance with the preliminary decree and the Court had not taken into consideration averments in the written statement which is basically wrong. It was further argued by the counsel for the appellant/plaintiff that the value of the immovable property should be fixed at the market rate and not as on date of the retirement of the partner. 10. It was contended by the plaintiff that so far as the liabilities of the firm is concerned, the defendants have not examined any of the persons who advanced the loans. The liabilities or outstanding loans as alleged by the defendants cannot be relied on and that genuineness of the accounts furnished by the defendants require clarification. Though the plaintiff/appellant had made such an allegation, there was no effort on the side of the plaintiff to establish that such allegation was bonafide. Infact, while deciding the final decree application, the Lower Court had taken into consideration Exs. B11, B17 to B21 and Ex.B8 and the inventory report of the Commissioner in Ex.C1. 11. It was contended by the learned counsel for the plaintiff that the value of the immovable property bearing Door No.7-C, 7th Floor bearing Door No.388, Pantheon Road, Egmore, Madras 8 is about Rs.75,00,000/- and it was also contended that the property bearing Door No.236/2,Chinnakkakkni Village, Mangalagiri Taluk value of which is Rs.25,00,000/-. Therefore, it is argued that the value of the assets belonging to the partnership comes to one crore, which has to be taken into consideration while deciding the share of the plaintiff. 12. This was opposed by the counsel for the respondents stating that based on the preliminary decree only, the final decree can be passed and the preliminary decree specifically and categorically has stated that the plaintiff is entitled to 1/4th share from the Partnership Assets and liabilities. On the basis of the value of the same between 03.04.1992 to 17.01.1994, the value of the properties or the liabilities to which the the plaintiff is entitled to can be assessed. The value can be assessed only on and prior to the date of retirement i.e. on 17.01.1994 and not the current value of the properties on the date final decree is passed. The value can be assessed only on and prior to the date of retirement i.e. on 17.01.1994 and not the current value of the properties on the date final decree is passed. It is not the case of the plaintiff that there are more properties belonging to the partnership firm other than what has been enlisted in the inventory taken by the Commissioner. The plaintiff also has not produced any documents to show that there are certain properties omitted or left out by the Commissioner. Therefore, based on the report of the Commissioner as well as the statements furnished by the other partners, the detailed amount was arrived at Rs.2,36,934/-. 13. Assailing the contention that the value of the asset has to be taken on the market value prevailing today, the attention was drawn to Section 37 of the partnership Act 1932, which reads as follows: "37.Right of outgoing partner in certain cases to share subsequent profits:- "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 outgoing 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 percent.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." 14. A reading of the Section 37 of the Indian Partnership Act, 1932 contemplates that the Court can grant relief to outgoing partner who has not been made a final settlement and the partnership is carrying out of the business with the surviving partners and the Court has jurisdiction to grant such relief based on the findings of the fact and it is immaterial that the plaintiff need to ask for the relief under Section 37 in the plaint. In support of his contention, the learned counsel for the appellant also placed reliance on the decision of the Supreme Court in Addanki Narayanappa and another Versus Bhaskara Krishnappa, (dead) and thereafter his heirs and othersreported in AIR 1966 SC 1300 . The relevant portion of the said Judgment is extracted hereunder: "...Under S. 37 the outgoing partner or the estate of a deceased partner, in the absence of a contract to the contrary, would be, entitled to at the option of himself or his representatives to such share of profits made since he ceased to be a partner as may be attributable to 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. The subject of dissolution of a firm and the consequences are dealt with in Ch. VI, Ss. 39 to 55. 5. It seems to us that looking to the scheme of the Indian Act no other view can reasonably be taken. The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net, partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges. It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by S. 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners." 14. The learned counsel for the appellant has also relied upon judgment of the Supreme Court in Parmuru Vishnu Vinodh Reddy Versus Chillakuru Chandrasekhara Reddy reported in (2003) 3 SCC 445 "48. The learned counsel for the appellant has also relied upon judgment of the Supreme Court in Parmuru Vishnu Vinodh Reddy Versus Chillakuru Chandrasekhara Reddy reported in (2003) 3 SCC 445 "48. Mode of settlement of accounts between partners -In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: (a) losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits; (b) the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:- (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii)in paying to each partner rateably what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits." Use of the word 'retire' in Section 32 of the Act is confined to cases where a partner withdraws from a firm and the remaining partners continue to carry on the business of the firm without dissolution of partnership as between them. Where a partner withdraws from a firm by dissolving it, it shall be dissolution and not the retirement. Retirement of a partner from a firm does not dissolve it, in other words it does not determine partnership inter se between all the partners. It only severs the partnership between the retiring partner and continuing partners, leaving the partnership amongst latter unaffected and the firm continues with the changed constitution comprising of the continuing partners. Section 32 provides for retirement of a partner but there is no express provision in the Act for the separation of his share and the intention appears to be that it would be determined by agreement between the parties. Section 37 deals with rights of outgoing partners. Section 32 provides for retirement of a partner but there is no express provision in the Act for the separation of his share and the intention appears to be that it would be determined by agreement between the parties. Section 37 deals with rights of outgoing partners. Although the principle applicable to such cases is clear but at times some complicated questions arise when disputes are raised between the outgoing partner or his estate on the one hand and the continuing or surviving partners on the other in respect of subsequent business. Such disputes are to be resolved keeping in view the facts of each case having due regard to Section 37 of the Act. Section 48 deals with the mode of settlement of accounts between the partners after dissolution of the partnership firm. 15. No doubt Section 37 speaks about the right of the outgoing partner. In the present case, wherein the plaintiff has categorically stated in the plaint itself that the partnership itself is dissolved on 18.01.1994, on which date, she exited the firm. Therefore she cannot be expected to claim profits of the partnership firm subsequent to her exit as there is no contribution from her side and the claim of 1/4th share of the plaintiff is arrived at based on her contribution towards her capital viz., Rs.10,000/-. Besides the plaintiff in the plaint has subsequently asked that the accounts of the partnership firm business may be taken directing the defendants 2 to 4 to pay a sum of Rs.8,00,000/- or such sums that may be found due to the plaintiff. What is meant by share of the partner is his/her proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged. This situation arises when the partnership firm is dissolved and the legal existence is taken away. In the present case, the partnership is not dissolved and only the plaintiff as a partner had voluntarily resigned and quit the firm. Therefore, she cannot claim in the subsequent profits made by the firm. This situation arises when the partnership firm is dissolved and the legal existence is taken away. In the present case, the partnership is not dissolved and only the plaintiff as a partner had voluntarily resigned and quit the firm. Therefore, she cannot claim in the subsequent profits made by the firm. Even presuming that immovable assets purchased from the plaintiff's participation in the firm as a partner and admittedly the partnership firm is continuing the business evenafter the exit of the plaintiff, the plaintiff can demand her share, be it an asset or liability based on the value on the date of her exit. Therefore, the finding of the Lower Court in determining 1/4th share of the plaintiff cannot be interfered and the appellant also has not established that the final decree is not in consonance with the preliminary decree. If the plaintiff is aggrieved by the preliminary decree in the absence of any appeal against the same, the plaintiff cannot agitate the same in the final decree proceedings. In the result, the Appeal is dismissed, after confirming the Judgment and decree of the Court below in I.A.No.13516/2008 in O.S.No.5151/1996 on the file of VII Additional Judge, City Civil Court, Chennai.