Syndicate Bank vs R. S. R. Engineering Works

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2003 Supreme(SC) 574

2003(4) Supreme 84
SUPREME COURT OF INDIA
(From Karnataka High Court)
Shivaraj V. Patil & K.G. Balakrishnan, JJ.
Syndicate Bank -Appellant
versus
M/s R.S.R. Engineering Works and Ors. -Respondents
Civil Appeal No. 1337 of 1995
With
Civil Appeal No. 3765 of 1995
Decided on 9-5-2003
Counsel for the Parties :
For the Appellant : Adarah B. Dial, Sr. Advocate, Ms. Sumati Anand and S. Ravinder Bhat, Advocates.
For the Respondents : Nikhil Nayyar and Mrs. Urmila Sirur, Advocates.

Headnote:Indian Partnership Act, 1932-Section 32-Liability of the retiring partner as against third party-Can be discharged only if there is an agreement made by retiring partner with third party and the partners of reconstituted firm-Bank loan availed by firm in 1974-Recovery suit-Plea of two partners respondents 2 & 3 that firm was dissolved and entire liability was taken over by respondent No. 4-Suit decreed against firm and respondent No. 4 and appeal by the Bank to hold respondents 2 and 3 also liable in decree dismissed by High Court-Appeal-No agreement between appellant bank and respondent No. 2 & 3 as regards their liability-Appellant bank had every right to proceed against all defendants in suit-Impugned decree was liable to be modified to hold respondents No. 2 & 3 also liable.
       Held : Under sub-section (2) of Section 32, the liability of the retiring partner as against third party would be discharged only if there is an agreement made by the retiring partner, with the third party, and the partners of the reconstituted firm. Of course, an agreement could be implied by the course of dealing between such third party and the reconstituted firm, after retirement of a partner. In the instant case, there was no agreement between the appellant bank and respondent Nos. 2 and 3 as regards their liability in respect of the dissolved firm. There is also no evidence to show that there was an implied contract between the appellant and respondent No. 4 who allegedly agreed to discharge the liabilities of respondent Nos. 2 and 3. It is also pertinent to note that there was no public notice under sub-Section (3) of Section 32 of the Indian Partnership Act by respondent Nos. 2 and 3. Even if there was a public notice, it may not alter the position as the alleged liabilities of respondent Nos. 2 and 3 were incurred by them prior to the so called dissolution of the firm. (Para 6)
       Further held : There is no a priori presumption to the effect that the creditors of a firm do, on the retirement of a partner, enter into an agreement to discharge him from liability. An adoption by the creditor of the new firm as his debtor does not by any means necessarily deprive him or his rights against the old firm especially when the creditor is not a party to the arrangement and then there is no fresh agreement between the creditor and the newly constituted firm. After the creditor has taken a new security for a debt from a continuing partner, it may be a strong evidence of an intention to look only the continuing partner for the payment due from the firm. (Para 9)

JUDGMENT

K.G. Balakrishnan, J.-The plaintiff appellant filed two suits against the respondents. First respondent in both the suits is a partnership firm engaged in engineering works. Respondent Nos. 2 to 4 are its partners. In the first suit, namely, O.S. No. 1921/80 which was filed for recovery of Rs. 59,775.95 with interest thereon, the plaintiff alleged that for the purpose of expansion of industry of the respondents, a loan of Rs. 40,000/- was sanctioned in favour of the respondents on 5-12-1974. The loan was to be re-paid after 9 months in instalments. The respondents had also executed the requisite documents in favour of the plaintiff bank. Respondent Nos. 2 and 3 in their written statement admitted that the respondents had borrowed Rs. 40,000/- from the appellant, but they contended that the first respondent firm was dissolved and the fourth respondent took over the entire liability and, therefore, they are not liable for the suit claim. The Trial Court passed the decree only against Respondent-1 and Respondent-4 for the suit claim.

2. The appellant filed a Regular First Appeal No. 632/87 before the High Court and prayed that decree shall be passed against all the respondents as all of them had joint and several liability. This plea was rejected by the High Court and the High Court affirmed the decree of the trial court. Aggrieved by the same, Civil Appeal No. 3765 of 1995 is filed.

3. In O.S. No. 1922/80 filed against these respondents, the plaintiff alleged that these respondents were given an overdraft facility to the extent of Rs. 20,000/- by the appellant bank and that the respondents availed that facility and committed default in paying the amount due from them and, therefore, the appellant filed the suit for recovery of Rs. 35,157.68/- with interest thereon. The respondents raised similar contention that the partnership was dissolved and the fourth respondent had taken over the entire liability and that the respondent Nos. 2 and 3 stood absolved of the suit liability. The Trial court accepted this contention and passed a decree in favour of the plaintiff against respondent Nos. 1 and 4. Aggrieved by the same, the appellant filed a Regular First Appeal being RFA No. 631/87 before the High Court and the High Court affirmed the trial court decree by its judgment and aggrieved by the same, Civil Appeal No. 1337 of 1995 is filed.

4. We heard learned Counsel for the appellant and also the learned Counsel for the respondents. The learned Counsel for the respondents contended that by virtue of Dissolution Deed dated 26-7-1976, R1 partnership firm was dissolved and the fourth respondent took over the entire liability and, therefore, the trial Court was justified in passing the decree against respondent Nos. 1 and 4. The respondents also contended that notice of dissolution of the firm was given to the plaintiff, but the appellant bank did not raise any objection and, therefore, it was urged that under Section 32(2) of the Indian Partnership Act, 1932, respondent Nos. 2 and 3 are not liable for any payment under the suit. The learned Counsel for the appellant, on the other hand, contended that the loan was availed of by these respondents in the year 1974 and respondent Nos. 2 to 4 jointly executed various documents and they have admitted the execution of these documents. It was further contended that the dissolution of the partnership on 28-7-1976 will not affect their liability to discharge the suit claim and inter se arrangement between the partners, namely, respondent Nos. 2, 3 & 4 is not binding on the appellant bank. The contention of the appellant is that in view of sub-Section 3 of Section 32 of the Indian Partnership Act, 1932, the respondent nos. 2 and 3 cannot escape the liability as regards the suit claims made by the appellant.

5. At the time when the appellant advanced the money to the first respondent firm, respondent Nos. 2, 3 & 4 were its partners. They admitted that they executed the requisite documents in favo

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2003 Supreme(SC) 574

Cases Referred (1)