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1984 Supreme(AP) 239
Andhra Pradesh High Court
Judges : P.KODANDA RAMAYYA
Gurugubilli Chandran Naidu - Appellant
Versus
Achanti Pydisetti - Respondent
Decided On : 07-04-84
Borrowings by the firm would not constitute a capital of the firm and the distinction between the capital and an asset of the firm.
Headnote:
PARTNERSHIP - DISSOLUTION OF FIRM - FINAL DECREE PROCEEDINGS - CAPITAL CONTRIBUTION - BORROWINGS BY FIRM - NOT CAPITAL INVESTMENT - SHARING OF PROFITS AND LOSSES - IN PROPORTION TO CAPITAL CONTRIBUTION.
Fact of the Case:
Plaintiff filed a suit for accounts of the dissolved firm. The trial court dismissed the suit, holding that the plaintiff never invested any capital in the firm. On appeal, the High Court set aside the decree and directed that there is a partnership firm and there shall be a preliminary decree for taking the accounts of the dissolved firm. The trial court passed a preliminary decree, directing that the suit partnership firm which came into existence in February, 1969 stood dissolved on 7.7.1972 and the shares of the plaintiff and the defendant in the profits and losses of the suit partnership firm shall be in proportion to the respective amounts contributed by the plaintiff and the defendant towards capital of the suit partnership. Against the said judgment an appeal was filed by the defendant to this court regarding costs only. This court in judgment dated 3.10.1977 set aside the decree so far it relates to the granting of costs to the plaintiff and the remaining portion of the decree was confirmed, and thereafter the present decree dated 31.1.1979 was passed stating that the plaintiff is not entitled to any amount and he has not contributed any amount towards capital. Against the said judgment and decree, the present appeal is filed by the plaintiff.
Finding of the Court:
The High Court held that the borrowings by the firm would not constitute a capital of the firm and the distinction between the capital and an asset of the firm. The court further held that the plaintiff is not entitled to share any amount from the assets of the dissolved firm.
Issues: 1. Whether the plaintiff invested any capital in the firm? 2. Whether the joint borrowings from the State Finance Corporation and the state Bank of India constitute capital investment by both the partners?
Ratio Decidendi: 1. The court held that the plaintiff did not invest any capital in the firm, as the commissioner's finding that the plaintiff invested Rs. 3,300/- was rejected by the trial court on the ground that it was a borrowing made by the firm and the amount was paid back. The court also rejected the plaintiff's claim that he purchased a filter for the factory for a sum of Rs. 2000/-, as the trial court accepted the defendant's version that he purchased the same. 2. The court held that the joint borrowings from the State Finance Corporation and the state Bank of India did not constitute capital investment by both the partners, as the borrowings were made on behalf of the firm as such and it cannot augment the capital or cannot constitute investment by the partners separately.
Final Decision: The High Court dismissed the plaintiff's appeal and confirmed the trial court's decree that the plaintiff is not entitled to share any amount from the assets of the dissolved firm.
( 2 ) SRI C. oornaiah, the learned Counsel for the appellant raised two questions before me. (1) The court below erred in reversing the finding of the commissioner that the plaintiff invested Rs. 3,300/ -. (2) even assuming that he has not contributed any amount, the joint borrowings from the State Finance Corporation and the state Bank of India constitute capital investment by both the partners and they are entitled to share the assets on the basis of those borrowings.
( 3 ) THE Commissioner found that both the partners borrowed Rs. 5,000/- from the State Bank of India and as per Ex. X-3 an amount of Rs. 2700/- was paid to the bank and hence it must be taken that both of them contributed Rs. 1350/- each and to that extent the plaintiff must be deemed to have contributed Rs. 1350/ -. The court below rejected this theory on the ground that it is a borrowing made by the firm and the amount is paid back and Ex. X-3 does not show that the parties contributed or advanced the amount for the purpose of discharging the debt. The amount was paid by the plaintiff on behalf of the firm and the accounts of the firm also show that the amount was paid from the firm s funds and hence no credit can be given to the partners invidually and it is not an advance or contribution made by the partners and hence this item cannot be taken to be an investment by the plaintiff. A reading of Ex. X-3 and X-5 and the evidence of P. W. 1 clearly discloses that except stating that the amount was paid under Ex. X-3. It was not stated that the plaintiff paid his half share of rs. 1350/- and hence it must not be treated as a contribution by him and hence I agree with the view of the trial court that this amount cannot be treated as an advance or a contribution by the partners but it is a debt discharged by the firm and hence no credit can be given of this item as if the plaintiff contributed the said amount.
( 4 ) THE next item put forward by the plaintiff is a purchase of a filter to the factory for a sum of Rs. 2000/- and her that purpose he examined P. W. 7 who is supposed to be the mediator, and he deposed that the plaintiff purchased it for Rs. 1950/- contrary to the ev
