1. Partnership dispute — Death of partner — Clause in partnership deed for purchase of deceased partner's share — Suit for dissolution and rendition of accounts. (Para 1 , 2 , 3 )
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2017 Supreme(SC) 969
SUPREME COURT OF INDIA
Ranjan Gogoi, Navin Sinha, JJ.
KODENDERA K. UTHAIAH (D) BY LR. – APPELLANT(s)
VERSUS
P.M. MEDAPPA AND OTHERS – RESPONDENT(s)
CIVIL APPEAL No.2597 OF 2016
Decided On : 04-10-2017
Advocates Appeared:
For Appellant(s) : Baij Nath Patel, Ms. Romila, Ms. Sweta, Rajesh Mahale, Advs.
For Respondent(s): Mr. A. S. Bhasme, Adv.
For Appellant(s) : Baij Nath Patel, Ms. Romila, Ms. Sweta, Rajesh Mahale, Advs.
For Respondent(s): Mr. A. S. Bhasme, Adv.
Important Points
IMPORTANT POINT
When the partnership deed specifically provides for continuance of partnership even on demise of partner(s) and method of calculation of share of the deceased partner, sections 42(3) and 37 of the Partnership Act will have no application.
When the partnership deed specifically provides for continuance of partnership even on demise of partner(s) and method of calculation of share of the deceased partner, sections 42(3) and 37 of the Partnership Act will have no application.
Subject
Partnership - Dissolution of Partnership
Act Referred
Headnote
Partnership Act – Sections 37 and 42(c) – Clause 14 of Partnership deed showing clear intention of partners to continue the firm on death of any partner – Similarly, clause 14 provides for calculating dues on demise of any partner – Hence section 37 and 42(c) have no application. (Para 9)
Facts of the case:
The respondent was the plaintiff in O.S. No. 42/1991, seeking dissolution of the partnership firm and rendition of accounts. The suit was decreed in part, holding that the legal heirs of the deceased partner, were entitled to 1/4th share to be quantified in terms of Clause 14 of the partnership deed.
R.F.A. No. 231/1996 preferred by the plaintiff, against grant of partial relief, was allowed on 08.02.2006 directing dissolution of the firm and settlement of accounts “as of date”.
Finding of the Court:
The legal heirs of the deceased partner are, therefore, held entitled to 1/4th share with 10% interest per annum from 27.07.1990 till the date of purchase.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether failure to serve notice on all legal heirs rendered the purchase option inoperative and whether the firm should be dissolved by operation of law. (Para 5 , 6 )
3. Notice was effectively served; the partnership deed's specific purchase clause overrides statutory presumptions of dissolution and general rules for settling deceased partners' estates. (Para 8 , 11 , 12 )
4. A partnership deed clause providing for the purchase of a deceased partner's share overrides Section 42(c) and Section 37 of the Partnership Act. (Para 9 )
5. Appeal allowed — High Court's order for dissolution set aside — Legal heirs entitled to share and interest per deed, but not profits after death. (Para 13 , 14 )
6. Does a partnership deed clause providing for the purchase of a deceased partner's share override Section 42(c) of the Partnership Act?
Yes. A clause in the partnership deed that provides for the purchase of a deceased partner's share by surviving partners evinces a clear intention to continue the partnership, thereby overriding the statutory provision for dissolution upon the death of a partner under Section 42(c). (Para 9 )
7. When is Section 37 of the Partnership Act inapplicable regarding the estate of a deceased partner?
Section 37, which provides for the estate of a deceased partner to receive a share of profits or interest if the business continues without final settlement, does not apply if the partnership deed specifically provides the manner for calculating and paying the dues. (Para 9 )
8. Does the failure to serve notice on every single legal heir necessarily render a partnership deed's purchase option inoperative?
Not necessarily. If notice is served on the primary legal heir and others refuse acceptance or are impleaded as defendants, the option to purchase the deceased partner's share under the partnership deed can still be held as operational. (Para 8 , 13 )
JUDGMENT
NAVIN SINHA, J.
The respondent was the plaintiff in O.S. No. 42/1991, seeking dissolution of the partnership firm and rendition of accounts. The suit was decreed in part, holding that the legal heirs of the deceased partner, were entitled to 1/4th share to be quantified in terms of Clause 14 of the partnership deed.
R.F.A. No. 231/1996 preferred by the plaintiff, against grant of partial relief, was allowed on 08.02.2006 directing dissolution of the firm and settlement of accounts “as of date”. Aggrieved, the defendant has preferred the present appeal. The parties, for convenience, shall be referred to by their respective positions in the suit.
2. The facts, in brevity are, that the father of the plaintiff i.e. P.M. Medappa, along with three others constituted a registered partnership firm, M/s. Rums & Co. The partnership deed dated 27.01.1971, in Clause 14, stipulated that in the event of death of a partner, the remaining partners shall have the option to give a written notice within three months of the death, to the legal heirs of the deceased partner, for purchase of the shares of the deceased. The purchase price was to be the amount of the share of the deceased as determined at the last annual general accounts, inclusive of interest @ 10% per annum, upto the date of purchase. P.M. Medappa was deceased on 27.07.1990. The surviving partners, defendants 1 to 3, gave notice on 15.10.1990 in terms thereof to the plaintiff and defendants 4 to 9, being the legal heirs of the deceased partner.
3. The plaintiff preferred O.S. No. 42/1991 seeking dissolution of the firm and rendition of accounts, alleging refusal of the remaining partners to pay the legal heirs of the deceased partner, the due share under Clause 14. The suit was decreed in part by the Civil Judge on 03.01.1996 holding that the plaintiff and defendants 4 to 9 as legal heirs of the deceased partner, were entitled to 1/4th share to be worked out on basis of the last annual general accounts, together with interest @ 10% per annum from the date of death till the date of decree. Aggrieved by the grant of partial relief, the plaintiff preferred R.F.A. No. 231/1996. The High Court, by the impugned order, held that the notice dated 15.10.1990 had not been served on all the legal heirs of the deceased partner. Clause 14 therefore never became operational, directing dissolution of the firm and settlement of accounts “as of date” entitling the legal heirs to 1/4th share in the assets and profits of the firm with interest @ 6% per annum till settlement. Liberty was further granted to seek appointment of a receiver to take care and manage the assets of the partnership firm pending finalisation of settlement of accounts.
4. During the pendency of the litigation, the partnership underwent several changes, and today Subbaiah, the nephew of the original defendant no.2 is the sole proprietor of the erstwhile partnership business, permitted to be substituted by order dated 04.03.2016.
5. Shri R. Basant, learned senior counsel for the appellant-defendant submitted that the plaintiff in his evidence had admitted due service of the notice dated 15.10.1990. Clause 14 evinced an intention to the contrary for continuance of the partnership on the demise of a partner and therefore Section 42(c) of the Partnership Act (hereinafter referred to as “the Act”) providing for dissolution by operation of law on the death of a partner, has no application. The manner for calculation of the dues of the deceased partner was provided for in Clause 14. Section 37 of the Act, therefore, had no application. The remaining partners were always ready and willing to pay the legitimate dues in accordance with Clause 14. The plaintiff insisted on induction of the wife of the deceased partner, and refused settlement of accounts, raising unreasonable demands. The dues could not be paid as in the meantime the plaintiff filed the suit and the partners bonafide decided to await outcome of the suit. There was n
