Guru Nanak Industries, Faridabad & Anr. V/s. Amar Singh (Dead) Through Lrs.

On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act

Case name:Guru Nanak Industries, Faridabad & Anr. V/s. Amar Singh (Dead) Through Lrs.
Case number/Citation:Civil Appeal No. 6659-6660 of 2010
Court:Supreme Court of India
Bench:Hon’ble Justice N.V. Ramana Hon’ble Justice Sanjiv Khanna Hon’ble Justice Krishna Murari
Decided on:May 26, 2020
Relevant Act/Sections: Section 37&48of Partnership Act, 1932

BRIEF FACTS AND PROCEDURAL HISTORY:

  • On May 2, 1978 Swaran Singh and Amar Singh along with two other persons had constituted a partnership firm named Guru Nanak Industries, the partnership firm was primarily in the business of manufacture and sale of print machinery for paper, polythene etc. On May 6, 1981, a fresh partnership deed was executed between Swaran Singh and Amar Singh, as the other two persons resigned; the profit-sharing ratio between the two brothers was 69:31. With effect from April 1, 1983, the profit-sharing ratio was altered between Swaran Singh and Amar Singh to 60:40.
  • The procedural history is;
  • On March 29, 1989 Guru Nanak Industries and Swaran Singh filed a civil suit against Amar Singh and contented that Amar Singh had retired from partnership from August 24, 1988 and had accepted payment of share capital. It was also stated he had executed receipt dated October 17, 1988 and was amount of Rs. 1,00,000/- and Rs. 50,000/- , after retirement he had another industry namely, Guru Nanak Mechanical Industries selling the same machinery.
  • The subsequent letter dated October 5, 1988 states that Amar Singh had left the firm with effect from August 24, 1988, and will not held responsible in any loan event granted.
  • On April 29, 1989, Amar Singh filed suit dissolution of partnership and interpretation of accounts and pleaded that receipt dated October 17, 1988, was forged. He contested that there were some disputes between him and his brother on August 19, 1988, when he had written a letter to bankers of Bank of India to stop the operation. He had also contested that he had written another letter dated August 24, 1988, as a partner which was also signed by Swaran Singh. The trial court was dismissed the suit
  • First appellate court held that Amar Singh was entitled to have 40% share in property and also entitled interest @ 9% per annum. Swaran Singh, represented by his widow wife, filed two appeals before the Punjab and Haryana Court which have been dismissed.

ISSUE BEFORE THE COURT:

  • Whether the judgment passed by Additional District Judge was appropriate?
  • When dissolution of partnership firm took place?

RATIO OF THE COURT:

  • The court observed that subsequent letter dated 5th October 1988 relied by the appellants and written by Amar Singh stated that there had been mutual understanding and agreement between him and Swaran Singh and as a result he had left the firm with effect from 24th August 1988 and, therefore, he would not be responsible in the event of any loan being granted after 24th August 1988.
  • The court observed that both Amar Singh and Swaran Singh signed a letter dated August 24, 1988, as partners of Guru Nanak Industries. There has been manipulation in the letter dated October 17, 1988, the words ‘retiring partner’ has been typed later. They also cannot be reconciled with the subsequent line, that is, “For Guru Nanak Industries (Regd.)”.
  • The court held that there is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’. On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement
  • The court observed that on retirement of partner, the retiring partner is entitled to be paid his dues in terms of Section 37 of the Partnership Act. When there are only two partners and one partner retire, then the retirement amounts to dissolution of the firm (Erach F.D. Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724).

DECISION HELD BY COURT:

  • The court dismissed the appeal and upheld the decision passed by Additional District Judge.
  • The parties will be given more opportunity to appear before the Supreme Court Mediation and Conciliation Centre after a period of three months.

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