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IN THE HIGH COURT OF ALLAHABAD
A. N. VERMA, PALOK BASU, J.
KUSUMA GUPTA - Appellant
Versus
SARLA DEVI - Respondents
F. A. F. O. 790 Of 1987
Decided On : 01/08/1988
PARTNERSHIP - INJUNCTION - DISSOLUTION OF FIRM - BALANCE OF CONVENIENCE - IRREPARABLE INJURY - S. 53 OF THE PARTNERSHIP ACT - APPLICATION - SCOPE AND PURPOSE - GRANT OF TEMPORARY INJUNCTION - PRINCIPLES GOVERNING - COURT'S DISCRETION - FACTORS TO BE CONSIDERED.
Fact of the Case:
Plaintiff filed a suit for dissolution of a partnership firm and an application for ad interim injunction restraining the defendants from utilizing the machinery or doing business in the firm's name during the pendency of the suit. The trial court granted the injunction, relying on Section 53 of the Partnership Act.
Finding of the Court:
The High Court held that the trial court erred in granting the injunction without considering the principles governing the grant of temporary injunctions, such as prima facie case, balance of convenience, and irreparable injury. The court found that the defendants had raised a serious dispute as to whether Section 53 of the Partnership Act applied to the facts of the case, as they claimed that the partnership had already been dissolved and a new firm had been constituted. The court also found that the balance of convenience was in favor of the defendants, as the closure of the running business would cause them greater injury than the plaintiff would suffer from the continuation of the business.
Issues: 1. Whether Section 53 of the Partnership Act applies to a case where the partnership has already been dissolved and a new firm has been constituted? 2. Whether the trial court erred in granting the injunction without considering the principles governing the grant of temporary injunctions?
Ratio Decidendi: 1. Section 53 of the Partnership Act applies to cases where the partnership is still subsisting and the partners intend to continue the business. It is intended to preserve the distributable assets of the firm pending the winding up of the affairs and to ensure that irreparable injury is not caused to the partners applying for the injunction. 2. The grant of temporary injunctions is governed by the principles of prima facie case, balance of convenience, and irreparable injury. The court must consider the comparative mischief or inconvenience of both parties and whether the injury to the plaintiff is unquantifiable or can be adequately compensated by damages.
Final Decision: The High Court allowed the appeal and set aside the injunction granted by the trial court, subject to certain directions. The defendants were directed to furnish a bank guarantee of Rs. 1,00,000/- with the trial court, to submit true and accurate accounts of the business every month, and not to transfer or alienate any fixed assets of the firm during the pendency of the suit. The trial court was directed to dispose of the suit within 3 or 4 months from the date of the order.
( 1 ) THIS appeal is directed against an interim injunction granted by the learned Second Additional Civil Judge, Shahjahanpur, restraining the appellants from either utilizing the machinery fixed in the concern Messrs Banda Khandsari Udyog, Shahjahanpur, or, from doing any business in the name of the same during the pendency of a suit instituted by Smt. Sarla Devi against the appellants and the respondents Nos. 2 to 5. It may be mentioned at the outset that the effect of the injunction issued by the Court below is that a running business has been brought to a standstill.
( 2 ) THE suit was filed on December 23, 1985 for dissolution of a partnership firm called Messrs Banda Khandsari Udyog as well for directing the appellants to render accounts of the firm. Simultaneously with the suit the plaintiff filed an application under O. XL, R. I of the Code of Civil Procedure for appointment of a receiver over the assets of the firm. By an ex parte order the Court below appointed a receiver against which order the appellants filed an appeal in this Court which is pending. In that appeal, this Court has passed an order suspending the operation of the order appointing the receiver but, at the same time, directed an advocate commissioner to prepare an inventory of the assets of the firm. It is after this order that the plaintiff filed the application for the ad interim injunction which was contested by the appellants. By the impugned order the plaintiffs application has been allowed overruling the objection of the appellants.
( 3 ) SHORTLY stated, the material plaint allegations are that the plaintiff and Pushpa Devi (respondent No. 3), the appellants (arrayed as defendants Nos. 2 to 4 in the suit) Satish Chandra, the defendant respondent No. 2 and Radheylal Gupta, defendant respondent No. 4, constituted a partnership firm on May 8, 1981 styled as Messrs Banda Khandsari Udyog, Shahjahanpur. The manufacture of Khandsari sugar was the business which the partners had agreed to engage in. The business continued without any trouble until 1983 whereafter a dispute arose between the plaintiff and the defendants with regard to the accounts for the years 1983-84 and 1984-85. The plaintiff alleged that the appellants were responsible for the manipulations in the accounts as a consequence of which the plaintiff expressed a desire to dissolve the partnership firm and since the defendants were in possession of the accounts, the suit was filed for dissolution of the partnership and rendition of accounts.
( 4 ) ON the allegations similar to those on which the suit was founded the plaintiff filed the application for ad interim injunction after nearly two years of the institution of the suit. The appellants filed an objection against the injunction application supported by an affidavit refuting the allegations contained in the injunction application and the affidavit filed in support thereof. The appellants in the affidavit in reply asserted that the partnership in which Smt. Sarla Devi (the plaintiff) and the other defendants were partners had already stood dissolved in November 1984. Smt Sarla Devi and other partners had retired from the partnership and accepted a cheque for Rs. 1,20,001/- in full and final settlement of the accounts. Thereafter the firm was reconstituted with the appellants and one Ram Kishore Gupta and Ashok Kumar Gupta as partners under a deed dated November 27, 1984. The reconstituted firm had been carrying on the business peacefully and without any objection for the last three years 1984-85, 1985-86 1986-87. It was also registered as such with the Sales Tax Department. A new bank account was also opened in the name of the reconstituted firm. The taxes for the year 1985-86 were deposited by the appellants and the other new partners of the reconstituted firm under the new sales tax registration granted to it. Huge investments had been made by the new partners two of whom are no parties to the suit. It was al
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