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2025 Supreme(Ker) 2249
IN THE HIGH COURT OF KERALA AT ERNAKULAM
Sathish Ninan, J.
Jose, S/o Joseph – Petitioner
Versus
George Joseph, S/o Joseph And Ors. – Respondents
RFA NO. 183 of 2006, RFA NO. 186 of 2006
Decided On : 15-03-2024
Advocate Appeared:
For the Petitioner: K.Paul Kuriakose, T.A.Rafeek (Cherthala), Zachariah George.K.
For the Respondent: Sri.G.Sreekumar (Chelur), R.Sanjith, Sri.Shaji P.Chaly, C.S. Sindhu Krishnah
An agreement for the transfer of partnership shares is contingent upon reconstitution, necessitating the consent of all partners; absence of such consent results in frustration of contract and failure of consideration for issued cheques.
Headnote:(A) Partnership Act - Section 29 - Negotiable Instruments Act - Section 43 - Dishonoured cheques - The agreement for share transfer required consent from all partners for reconstitution of the firm, which was not obtained; thus, the agreement became impossible to perform, leading to failure of consideration for cheques issued, rendering them unenforceable. (Paras 10, 11, 12)
(B) Contract Frustration - A contract becomes frustrated when the essential basis on which it was formed ceases to exist; the failure to achieve reconstitution meant the cheques were unsupported by valid consideration. (Paras 10, 13)
Facts of the case:
The suits arose from dishonoured cheques issued by a defendant for the purchase of a retiring partner's shares. The reconstitution of the partnership failed due to lack of consent from other partners.
Findings of Court:
The transfer of shares under the agreement was dependent on successful reconstitution, which could not occur; thus, the cheques were not supported by consideration.
Issues: The court addressed whether the transfer of shares was dependent on the reconstitution of the firm and whether the contract became impossible to perform.
Ratio Decidendi: The court held that the agreement was contingent upon reconstitution, and without the necessary consent from other partners, it became impossible to perform.
Result: The appeals are allowed, and the suits are dismissed.
| Table of Content |
|---|
| 1. defendant appeals for dishonoured cheques (Para 1 , 2) |
| 2. defendant's claim regarding financial constraints and contract frustration (Para 3) |
| 3. trial court decrees in favor of the plaintiff (Para 4) |
| 4. key issues identified for determination (Para 5 , 6) |
| 5. arguments from both parties on contract validity (Para 7 , 8) |
| 6. court's interpretation of contract terms and intent (Para 9 , 10 , 12) |
| 7. partnership act provisions on transfer of interest (Para 11) |
| 8. court rules on failure of consideration for cheques (Para 13) |
JUDGMENT :
Sathish Ninan, J.
These appeals are by the defendant in suits for money under dishonoured cheques. The plaintiff and the defendant in the suits are the same.
2. The plaintiff and the defendant, along with certain others, were carrying on a business in partnership, under the name and style “Universal Rubbers”. Ext.B3 is the partnership deed dated 01.10.1993. The plaintiff decided to retire from the firm. The defendant agreed to purchase the shares of the plaintiff for a total consideration of Rs.10 lakhs. Ext.A1 agreement dated 25.01.1997 was entered into between the parties with regard to the same. The payments were to be effected in three instalments. Towards the payment, Ext.A2 cheque dated 30.06.1997 for Rs.3 lakhs, Ext.A3 cheque dated 31.12.1997 for Rs.3.5 lakhs and Ext.A6 cheque dated 01.05.1998 for Rs.3.5 lakhs, thus totalling to Rs.10 lakhs were issued. On the very same day Ext.B1 partnership reconstitution deed was also executed. However, the cheques were dishonoured for the reasons of insufficiency of funds and incompleteness of signature. It is accordingly that the suits were filed.
3. According to the defendant, the firm was in financial constraints. The plaintiff was not ready to invest more money into the firm. Hence it was not possible to go ahead with the business of the firm. The plaintiff expressed his willingness to retire from the firm. However, funds were not available to pay off the plaintiff's dues. Since the plaintiff insisted for some documents to convince his wife that the money invested is secured, he was issued with the cheques. The plaintiff had promised that it will not be encashed. The reconstitution did not happen since the other partners were unwilling. The transfer of shares and the payment was to happen only after the reconstitution. Reconstitution having failed, Ext.A1 agreement for sale of shares became frustrated and the cheques became unsupported by consideration. Accordingly it was prayed that the suit be dismissed.
4. The trial court, relying on Ext.A1 held the cheques to be supported by consideration and decreed the suit.
5. I have heard Sri.Paul Kuriakose K., the learned counsel for the appellant-defendant and Sri.G.Sreekumar (Chelur), the learned counsel for the respondent-plaintiff.
6. The points that arise for determination are :-
(i) Is the contention of the defendant that the transfer of shares under Ext.A1 agreement is dependent on the reconstitution of the firm, sustainable?
(ii) Has there been a completed transfer of shares under Ext.A1 agreement?
(iii) Has Ext.A1 contract become impossible to perform resulting in frustration of the contract?
7. The contention of the appellant is that, the agreement between the parties was that the plaintiff will retire from the firm and transfer his shares to the defendant. The firm will be reconstituted. The transactions formed an integral unit. One cannot be segregated from the other. Retirement and reconstitution having failed, there is frustration of Ext.A1 agreement. Consequently there has been failure of consideration under Exts.A2, A3 and A6 cheques, it is argued.
8. The learned counsel for the respondent would on the other hand contend that, a bare reading of Ext.A1 would reveal that there has been a completed transfer of the interests of the plaintiff thereunder, and that it is towards its value that the cheques were issued. The proposed retirement and reconstitution is of no consequence since, Section 29 of
