Retiring partners are discharged from liability if the creditor acknowledges the reconstitution of the partnership and accepts the new partners in a loan agreement.

ORAL ORDER

(PER: HON'BLE MR. JUSTICE D K SINGH)

1. The present writ petition has been filed impugning the order dated 09.05.2025 passed by the Debts Recovery Appellate Tribunal, Chennai (DRAT) in Regular Appeal No.110/2017 and the order dated 27.01.2016 passed by the Debts Recovery Tribunal, Bengaluru (DRT) in the Original Application No.1458/2013.

2. The petitioners were the partners of M/s. Srishti Components, a partnership firm registered under the provisions of the Indian Partnership Act, 1932 . Initially, the respondent No.2-partnership firm was constituted with the petitioners and the respondent No.3-Smt. Preetha Menon as its partners. The firm was constituted with the object of setting up a small scale industrial unit for manufacturing of Metal Press Components used in mechanical, electrical and automobile industries. The partnership firm applied for a loan of Rs.35,00,000/- from the respondent No.1-Canara Bank for the purchase of machinery and an additional amount of Rs. 15,00,000/- as working capital for the firm. The Bank, vide Sanction Letter dated 23.06.2008, sanctioned a term loan for Rs. 35,00,000/- for the purchase of machinery and an overdraft facility upto a limit of Rs. 5,00,000/- was given in favour of the firm.

3. The term loan of Rs. 35,00,000/- was repayable with an interest @14.75% per annum in 55 equated monthly instalments of Rs.92,792.50 each commencing from 30.04.2009. The last instalment was to be paid on or before 31.12.2013. The overdraft facility was initially valid upto 30.06.2009 as per the Sanction Letter dated 23.06.2008. The petitioner No.1 and the respondent No.2-firm stood as guarantors and by a Composite Hypothecation Agreement dated 04.07.2008, the newly purchased machinery as well as the raw materials, stock in process, finished goods, stores and spares of the firm were pledged as security for the loan advanced to the partnership firm by the Canara Bank. The petitioner No.1 and the respondent No.3 also executed Guarantee Agreements dated 04.07.2008 in favour of the Bank.

4. In 2009, the petitioner No.1 retired from the firm for health reasons. The firm was reconstituted, whereby two new partners viz., Sri Naresh Babu-respondent No.4 and Sri T. Janeeth Kumar-respondent No.5 were inducted as new partners to the firm. It appears that the petitioner No.2 also retired from the firm. The Reconstitution Deed dated 18.02.2009 was executed wherein it was acknowledged in the recitals that the retiring partners would be relieved from their commitments towards the partnership firm. After reconstitution of the partnership firm on 18.02.2009, the new partners, along with the respondent No.3-Smt. Preetha Menon, were responsible for operation and management of the firm without any involvement of the petitioners.

5. As mentioned above, the first instalment for repayment of the term loan of Rs. 35,00,000/- advanced by the Canara Bank to the firm was due on 29.04.2009 and before the said date, the petitioners had retired from the firm on 18.02.2009.

6. The retirement of the petitioners from the firm and the reconstitution of the partnership firm were brought to the notice of the respondent No.1-Bank vide letter dated 30.11.2009 issued by the petitioner No.1. After receipt of the said letter, the Bank asked the partnership firm and its new partners to execute a fresh Composite Hypothecation Agreement and Guarantee Agreements. Accordingly, the fresh Composite Hypothecation Agreement including the Guarantee Agreements were executed on 16.04.2009 by the new partners with the respondent No.1-Bank for the sanctioned loan amount.

7. It was also br