Procedure of Dissolution of Partnership Firm: Two Partners Firm
Table of Content:
- Guru Nanak Industries Faridabad vs Amar Singh (D) Thru Lrs [2020 SCC online SC 469]
- Background of the case
- The decision of the trial court
- Issues raised
- The ratio of the court
- The decision of the court
- Case Laws:
- Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and Others, [(2003) 3 SCC 445]
- Erach F.D. Mehta v. Minoo F.D. Mehta, [(1970) 2 SCC 724].
Partnerships and related businesses are governed by the Indian Partnership Act, 1932. The act defines the partnership as ‘except that the date of dissolution of the firm would be taken as 24th August 1988 and not 31st of March 1989’. When it was individually taken it refers to as partners but it is collectively known as Partnership Firm. This act exclusively deals with provisions related to the retirement and dissolution of partnership and partnership firms.
Guru Nanak Industries Faridabad vs Amar Singh (D) Thru Lrs [2020 SCC online SC 469]
Background of the case
Guru Nanak Industries is a partnership firm started by four partners on May 2nd, 1978. But on 6th May 1981 two of them resigned from the firm and after then the firm was run by the remaining two partners named Sawarn Singh and Amar Singh and the profit and loss sharing ratio between them is 60: 40. On 29th March 1989, the firm, Guru Nanak Industries and Sawarn Singh file a civil suit against Amar Singh. They claimed that Amar Singh was retired from the firm on 24th August 1988 and in the lieu of that he accepted the payment of Rs 89, 277.11 as his part of share capital and admitted that he would not be entitled to any profit and loss of the firm in future. In addition to this, he had taken a loan from the firm on the very same date.
A reliance was given to the bank statement of Bank of India which stated that
“Amar Singh was paid amounts of Rs.1,00,000/- and Rs.50,000/- by way of pay orders and another amount of Rs.1,00,000/- in cash for which he had executed receipt dated 17th October 1988 (Exhibit P-9).”
Moreover, after retirement, Amar Singh started a proprietary business that deals in the same machinery and also under the name Guru Nanak Mechanical Industries.
On 29th April 1989, Amar Singh filed another suit for the dissolution of the partnership firm by contending that he had never resigned from the firm. Due to the dispute going between him and Sawarn he had written a letter to the bankers to stop the operation of the bank account. Further, Amar Singh writes another letter to the Bank in the capacity of the partner which was also signed by Sawarn Singh to continue the operation of the bank account as the dispute between them has been resolved. But the receipt received is forged and manipulated by Sawarn Singh.
Sawarn Singh was died during the proceedings of the trial court and represented by his widow.
The decision of the Trial Court
Trial Court dismissed the suit filed by Amar Singh. With regard to the suit filed by the firm Guru Nanak Industries and Sawarn Singh the court had partly decreed the suit by relying upon:
- The letter was signed by both the partners for continuing the operation of the Bank Account.
- The receipt which is claimed as forged by Ammar Singh.
Against the decision of the trial court, Amar Singh filed the first appeal which is accepted by the High Court and the appeal filed by the appellant was rejected by the High Court.
- Whether the present case deals with the ‘dissolution of partnership Firm’ and ‘Retirement of a Partner’ as the same as a direct effect upon the rights of the parties?
- Whether the plaintiff was entitled to gain any profit from the firm?
The ratio of the court
- The receipt alleged to be forged reads as follow:
“Received with thanks a sum of Rs.1, 00,000/- (Rupees One Lac only) by cash from S. Sawarn Singh, Mg/ Partner of M/s. Guru Nanak Industries (Regd.), Plot No. C.P.-6&7, N.H.5, Rly. Road, Faridabad (Haryana) on account of part payment of the settlement made between both the partners of firm. The above amount is being received by the undersigned with regard to dissolution of our partnership on 24.8.1988. With the receipt of this amount my total amounts are settled. Nothing is due to me from S. Sawarn Singh & his firm.”
- The main aim of the appellant is that as Amar Singh had resigned from the bank, therefore, as per clause (10) of the Partnership deed would only be entitled to the capital outstanding in his books of account. But the same was rejected on the ground that the evidence on record proves that Amar Singh had not resigned from the firm.
- According to section 37 of the Partnership Act, 1932, on the retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues.
- According to section 48 of the Partnership Act, 1932 In case of dissolution, accounts have to be settled and distributed as per the mode prescribed by the section.
- when the partners agreed to dissolve the firm it amounts to dissolution and not retirement and the court held this by relying on Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and Others, [(2003) 3 SCC 445]. When there are only two partners and one has agreed to retire, then the retirement amounts to the dissolution of the firm and it was stated by relying upon the ruling of Erach F.D. Mehta v. Minoo F.D. Mehta, [(1970) 2 SCC 724].
- As the case takes a long time to dispose of both the partners were dead and the evidence provided by them when they were alive revealed that Amar Singh had started his own business.
- The court refers the case for the last time before the Supreme Court Mediation and Conciliation centre to settle the matter between the parties and if the settlement had not to be done within three months then the matter will go back to the Trial Court to pass a final decree.
Court had dismissed the appeal preferred and upheld the judgment passed by the Additional District Judge, Faridabad, and sustained by the High Court except that the date of dissolution of the firm would be taken as 24th August 1988 and not 31st of March 1989.
The apex court via this judgment restated that to survive a partnership business there must be more than one partner. Even the definition of partner provided under the act emphasis that ‘relation between the partners’ which clearly depicts that there must be more than one partner and if there are only two partners then in case of retirement also the firm will be led to dissolution.