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SUPREME COURT OF INDIA
Dr. D.Y. Chandrachud, CJI., J.B. Pardiwala, Manoj Misra, JJ.
M/s Crystal Transport Private Limited & Anr. – Appellants
VERSUS
A Fathima Fareedunisa & Ors. – Respondents
Civil Appeal Nos.7709–7710 of 2023
Decided On : 08-11-2024
Indian Partnership Act, 1932 – Section 37 – Settlement of accounts – Finding which appears on record, is to the effect that appellant company had taken over assets of firm – In light of provisions of Section 37 of 1932 Act, if appellant company is carrying on business with assets of firm, till a final settlement is made, plaintiff who would fall in category of an outgoing partner, would have right to seek for accounts and a share in profits which might be derived from his share in assets of firm – As to what extent business of appellant company is derived from assets of firm is a matter of evidence which parties may have to adduce in course of proceedings relating to preparation of final decree pursuant to order of remand – By impugned order matter has been remanded to trial court – No good reason to interfere with order impugned. (Paras 21, 22 and 23)
Facts of the case:
These two appeals are against common judgment and order of the High Court of Judicature at Madras1 dated 19.11.2019 passed in First Appeal No.328 of 2005 and Cross Objection No.10 of 2012 preferred against a final decree passed by the Court of II Additional District Judge, Pondicherry in I.A. No.33 of 1995 arising out of Original Suit No.286 of 1978 instituted by the first respondent, inter alia, for dissolution of a partnership firm.
Findings of Court:
As to what extent the business of appellant company is derived from assets of the firm is a matter of evidence which parties may have to adduce in course of proceedings relating to preparation of the final decree pursuant to the order of remand.
Result : Appeals disposed of
JUDGMENT
MANOJ MISRA, J.
1. These two appeals are against common judgment and order of the High Court of Judicature at Madras1 [High Court] dated 19.11.2019 passed in First Appeal No.328 of 2005 and Cross Objection No.10 of 2012 preferred against a final decree passed by the Court of II Additional District Judge, Pondicherry in I.A. No.33 of 1995 arising out of Original Suit No.286 of 1978 instituted by the first respondent, inter alia, for dissolution of a partnership firm.
FACTUAL MATRIX
2. The first respondent (i.e., the original plaintiff) instituted Suit No.286 of 1978 inter alia for: (a)dissolution, settlement of accounts and distribution of shares of a partnership firm, namely, Crystal Transport Service (for short the firm); (b) appointment of receiver to take charge of the management and assets of the firm till it is wound up; and (c) restraining the defendants from recovering, receiving or disposing of the property and effects of the firm.
3. The plaint case, inter alia, was that -- the firm was constituted in 1972-73 with four partners (i.e., the original plaintiff and defendants 1 to 3) each having one- fourth share; the partnership was at will; in 1978, without the consent of the plaintiff, defendants 1 to 3 diverted funds of the firm to a private limited company (defendant no.4 - appellant no.1 herein); and when the plaintiff demanded accounts from defendants 1 to 3, they refused. Hence, the suit.
4. The appellants contested the suit, inter alia, claiming that - the firm was constituted on 07.07.1971, with effect from 01.05.1971; it was not a partnership at will; a joint stock company was formed with the approval of the partners including the plaintiff; and by agreement dated 25.06.1978 all assets and liabilities of the firm were transferred to the fourth defendant (appellant no.1 herein).
5. The trial court passed a preliminary decree on 19.09.1988, inter alia, in the following terms: (i) the firm stands dissolved with effect from 07.10.1978 in terms of Section 42(b) read with Section 44 (g) of the Indian Partnership Act, 19322 [1932 Act]; (ii) the plaintiff has one-fourth share in the firm; (iii) accounts shall be taken up to the date of dissolution as per Order XX Rule 15 of the Code of Civil Procedure, 19083 [CPC] ; (iv) defendants 1 to 3 shall, inter alia, file statement of final accounts along with a balance sheet and a profit and loss account duly audited for the last 5 years since before the date of dissolution; (v) the prayer for appointment of a Receiver shall be considered after the final accounts, balance sheet, etc. are filed; (vi) suit against the fourth defendant (first appellant herein) is dismissed; and (vii) both sides shall bear their own costs.
6. Aggrieved with the trial court decree, the original plaintiff preferred First Appeal No.215 of 1988. The appeal was allowed vide judgment and order dated 08.08.1989 pursuant to which a preliminary decree was drawn inter alia in the following terms: (i) the firm shall stand dissolved with effect from 15.11.1978 (i.e., date of institution of the suit); (ii) Sri C.S. Narasimhan Advocate would be the Commissioner to take accounts from 01.05.1971 till 15.11.1978; (iii) while taking accounts the Commissioner shall have due regard to Sections 37 and 48 of the 1932 Act; (iv) the Commissioner’s fee shall be 10% of gross collections; (v) defendants 1 and 2 shall neither convert nor transfer or dispose of assets of the firm till the accounts are finally settled; and (vi) the decree shall bind the fourth defendant (i.e., the first appellant herein).
7. A second appeal preferred against the appellate decree failed. Hence, the aforesaid preliminary decree attained finality.
8. The Receiver/Commissioner appointed by the first appellate court could not comply with the task, therefore another Receiver was appointed. The defendants challenged the order changing the Receiver, which was disposed of by confirming his appointment with a direction that he would take charge of the man
Settlement of accounts – Outgoing Partner would have right to seek for accounts and a share in profits which might be derived from his share in assets of firm.
A partnership at will can be dissolved by notice from any partner, and a suit for accounts requires a formal dissolution request to be maintainable.
The central legal point established in the judgment is the requirement of mutual agreement for partnership dissolution and the significance of partnership deeds in determining the intention of the pa....
Partners are entitled to transparent bookkeeping; discrepancies in financial accounts justify judicial intervention for the rendition of accounts.
Impartiality in appointing a receiver is crucial; a managing partner cannot be appointed as a receiver of a dissolved partnership amid trust issues and financial misappropriation allegations.
The court established that maintaining status quo is preferable to appointing a receiver in partnership disputes, emphasizing the need for clear rights and balance of convenience.
An appellate court's review is confined to issues raised in the trial court; interference with established audit findings lacks jurisdiction without evidence of wrongdoing.
Point of law: Arbitration - Arbitral Award - Interference by Court - Scope of powers of Appellate Court under Section 37 of Arbitration Act are more limited than limited powers of the Court hearing t....
Even if plea of limitation is not set up as a defence, Court has to dismiss suit if it is barred by limitation.
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