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SUPREME COURT OF INDIA
N.V. Ramana, Sanjiv Khanna, Krishna Murari, JJ.
GURU NANAK INDUSTRIES, FARIDABAD AND ANOTHER – APPELLANT(S)
VERSUS
AMAR SINGH (DEAD) THROUGH LRS – RESPONDENT(S)
Civil Appeal Imps. 6659-6660 of 2010
Decided on : 26-05-2020
Partnership Act, 1932 – Sections 37 and 48 – Dissolution of a partnership firm – There is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’ – On retirement of partner, reconstituted firm continues and retiring partner is to be paid his dues in terms of Section 37 of Partnership Act – In case of dissolution, accounts have to be settled and distributed as per mode prescribed in Section 48 of Partnership Act – When partners agree to dissolve a partnership, it is a case of dissolution and not retirement – In present case, there being only two partners, partnership firm could not have continued to carry on business as firm – A partnership firm must have at least two partners – When there are only two partners and one has agreed to retire, then retirement amounts to dissolution of firm – Primarily it is a money matter where accounts have to be settled and payment etc. has to be made by legal representatives of a deceased partner – Judgment and decree passed by Additional District Judge and sustained by High Court upheld – Appeals dismissed with directions. (Paras 12, 13 and 14)
Facts of the Case:
Trial court dismissed the suit filed by Amar Singh and partly decreed the suit filed by Guru Nanak Industries and Swaran Singh primarily by relying upon letter dated 24th August 1988 and also the receipt dated 17th October 1988 observing that there is discrepancy in the two versions given by Amar Singh, first version being that his signature on the letter dated 17th October 1988 was forged and the second version being that the receipt had been manipulated by adding the last sentence.
Findings of the Court:
The case is rather old and Swaran Singh and Amar Singh have expired. Primarily it is a money matter where the accounts have to be settled and payment etc. has to be made by the legal representatives of Swaran Singh.
Result : Appeals dismissed.
Based on the legal document provided, here are the key points regarding the case Guru Nanak Industries v. Amar Singh (Dead) through LRS:
Case Status and Outcome - The Supreme Court dismissed the appeals filed by the Appellants (Guru Nanak Industries and Swaran Singh's legal representatives) and upheld the judgment and decree passed by the Additional District Judge, Faridabad, which was previously sustained by the High Court (!) . - The Court upheld the decision that the partnership firm was dissolved rather than merely a partner retiring (!) . - The Court granted a final direction to the parties to attempt a settlement through the Supreme Court Mediation and Conciliation Centre; if no settlement is reached within three months, the matter will proceed for the passing of a final decree (!) .
Legal Principles Established - There is a clear distinction between the 'retirement of a partner' and the 'dissolution of a partnership firm' under the Partnership Act, 1932 (!) . - In case of retirement, the reconstituted firm continues, and the retiring partner is paid dues under Section 37; however, in case of dissolution, accounts must be settled and distributed as per Section 48 (!) . - A partnership firm requires at least two partners to exist; if there are only two partners and one agrees to retire, the retirement amounts to the dissolution of the firm (!) . - When partners mutually agree to dissolve the partnership, it constitutes a dissolution case, not a retirement case (!) .
Facts and Evidence Analysis - The partnership firm was initially constituted by four persons, but a fresh deed was executed on 6th May 1981 between only two partners: Swaran Singh and Amar Singh (!) . - The Appellants claimed Amar Singh retired on 24th August 1988 and accepted payment of his share capital and loan advances, evidenced by a letter dated 5th October 1988 and a receipt dated 17th October 1988 (!) . - The Trial Court dismissed Amar Singh's suit for dissolution but partly decreed the Appellants' suit, relying on the receipt which the Court later found manipulated (!) . - The First Appellate Court corrected the Trial Court's view, finding that the receipt dated 17th October 1988 was manipulated by adding a contradictory last sentence regarding dissolution (!) . - The First Appellate Court held that a letter dated 24th August 1988, signed by both partners, confirmed they were still partners and that disputes had been settled, supporting the claim that Amar Singh had not resigned (!) . - Official records from the Sales Tax and Income Tax Departments supported the finding that the partnership firm was not dissolved on 24th August 1988 (!) . - The Supreme Court found that the receipt Exhibit P-9 contained a contradiction: the first portion mentioned a part payment towards settlement, while the last sentence claimed total settlement and dissolution, which could not be reconciled (!) . - The Court accepted that while Amar Singh received some payments (Rs. 1,00,000/- by demand drafts and Rs. 1,00,000/- in cash), the receipt indicated only a "part payment" towards the settlement, meaning the accounts were not fully settled (!) . - Witness Sukhdev Singh (son of Swaran Singh) deposed that the firm owned specific plots and machinery, and accepted values for factory plots and goodwill, supporting the need for full account settlement (!) . - The Court rejected the Appellants' argument that Amar Singh was entitled only to his capital credit under the partnership deed, ruling instead that the evidence showed a mutual agreement to dissolve the firm (!) . - The Court determined that the date of dissolution of the firm should be taken as 24th August 1988, not 31st March 1989 as previously decided by lower courts (!) .
Procedural History - The case involved Civil Appeal Imps. 6659-6660 of 2010, decided on 26-05-2020 by a bench of N.V. Ramana, Sanjiv Khanna, and Krishna Murari, JJ. (!) - The legal representatives of both deceased partners (Swaran Singh and Amar Singh) were involved in the proceedings (!) .
JUDGMENT
Sanjiv Khanna. J.
Four persons, including two brothers, Swaran Singh and Amar Singh, both of whom have since died and are represented by their legal representatives, had constituted a partnership firm -Guru Nanak Industries, on 2nd May 1978. On 6th May 1981, a fresh partnership deed was executed between Swaran Singh and Amar Singh as the other two partners had resigned. The partnership firm was primarily in the business of manufacture and sale of print machinery for paper, polythene etc. Initially, profits and losses were to be divided in the ratio of 69:31 between Swaran Singh and Amar Singh. However, with effect from 1st April 1983, profit and loss sharing ratio was altered between Swaran Singh and Amar Singh to 60:40 respectively.
2. On 29th March 1989, Guru Nanak Industries and Swaran Singh filed a civil suit against Amar Singh claiming that the latter had retired from partnership with effect from 24th August 1988 and had voluntarily accepted payment of his share capital of Rs.89,277.11p. In addition, he had been advanced loan from the funds of the partnership firm on the same date. Amar Singh had agreed that he would not be entitled to profits and liabilities of the firm. In support, reliance was placed upon intimation dated 5th October 1988 sent by Amar Singh to Bank of India, the bankers of the partnership firm. It was stated that Amar Singh was paid amounts of Rs.1,00,000/- and Rs.50,000/- by way of pay orders and another amount of Rs.1,00,000/- in cash for which he had executed receipt dated 17th October 1988 (Exhibit P-9). Further, Amar Singh, after retirement, had floated a proprietorship concern, namely, Guru Nanak Mechanical Industries with effect from 14th September 1988 and was manufacturing and selling the same machinery.
3. Amar Singh contested the suit and on 29th April 1989, filed a suit for dissolution of partnership and rendition of accounts. The plea and contention of Amar Singh was that he had never resigned. Some disputes had arisen between him and Swaran Singh on 19th August 1988 when he had written a letter to the bankers to stop operation of the bank account. Subsequently, he had written another letter dated 24th August 1988 (Exhibit P-5) as a partner, which letter was also signed by Swaran Singh as a partner, stating that the dispute between the partners had been settled and the bank may allow operation of the account. Amar Singh had pleaded that the receipt dated 17th October 1988 is forged and has been manipulated as he had signed and given papers to Swaran Singh.
4. The trial court dismissed the suit filed by Amar Singh and partly decreed the suit filed by Guru Nanak Industries and Swaran Singh primarily by relying upon letter dated 24th August 1988 (Exhibit P-5) and also the receipt dated 17th October 1988 (Exhibit P-9) observing that there is discrepancy in the two versions given by Amar Singh, the first version being that his signature on the letter dated 17th October 1988 (Exhibit P-9) was forged and the second version being that the receipt had been manipulated by adding the last sentence.
5. Two appeals preferred by Amar Singh were accepted by the first appellate court observing that the receipt dated 17th October 1988 (Exhibit P-9) was certainly manipulated by adding the last sentence. Letter dated 24th August 1988 (Exhibit P-5), in fact, supported the case of Amar Singh that he had not resigned as the letter was signed by both Amar Singh and Swaran Singh, wherein Amar Singh has been described as a partner. Official records in the Sales Tax Department and Income Tax Department also support the case of Amar Singh that the partnership firm was not dissolved on 24th August 1988. Accordingly, Amar Singh was held to be entitled to the prayer for partition of movable and immovable property wherein 40% belonged to Amar Singh and 60% belonged to Swaran Singh. The accounts would be rendered and settled as on the date of institution of the suit for dissolution of partnership, that is, 29th April
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