Supreme Court

Guru Nanak Industries, Faridabad and Ors. Vs. Amar Singh (Dead) through L.Rs.

MANU/SC/0453/2020

26.05.2020

Contract

When there are only two partners and one has agreed to retire, the retirement amounts to dissolution of the firm

In present matter, on 29th March 1989, Guru Nanak Industries and Swaran Singh filed a civil suit against Amar Singh claiming that, the latter had retired from partnership with effect from 24th August 1988 and had voluntarily accepted payment of his share capital. In addition, he had been advanced loan from the funds of the partnership firm on the same date. Amar Singh had agreed that, he would not be entitled to profits and liabilities of the firm.

Amar Singh contested the suit and on 29th April 1989, filed a suit for dissolution of partnership and rendition of accounts. The plea and contention of Amar Singh was that he had never resigned. Some disputes had arisen between him and Swaran Singh on 19th August 1988 when he had written a letter to the bankers to stop operation of the bank account. Subsequently, he had written another letter dated 24th August 1988 as a partner, which letter was also signed by Swaran Singh as a partner, stating that the dispute between the partners had been settled and the bank may allow operation of the account. Amar Singh had pleaded that the receipt dated 17th October 1988 is forged and has been manipulated as he had signed and given papers to Swaran Singh.

The trial court dismissed the suit filed by Amar Singh and partly decreed the suit filed by Guru Nanak Industries and Swaran Singh primarily by relying upon letter dated 24th August 1988 and also the receipt dated 17th October 1988 observing that there is discrepancy in the two versions given by Amar Singh, the first version being that his signature on the letter dated 17th October 1988 was forged and the second version being that the receipt had been manipulated by adding the last sentence.

Two appeals preferred by Amar Singh were accepted by the first appellate court observing that, the receipt dated 17th October 1988 was certainly manipulated. Letter dated 24th August 1988 in fact, supported the case of Amar Singh that he had not resigned as the letter was signed by both Amar Singh and Swaran Singh, wherein Amar Singh has been described as a partner. Official records in the Sales Tax Department and Income Tax Department also support the case of Amar Singh that the partnership firm was not dissolved on 24th August 1988. Accordingly, Amar Singh was held to be entitled to the prayer for partition of movable and immovable property wherein 40% belonged to Amar Singh and 60% belonged to Swaran Singh. The accounts would be rendered and settled as on the date of institution of the suit for dissolution of partnership, that is, 29th April 1989. Amar Singh would also be entitled to interest @ 9% per annum.

The primary claim and submission of the Appellants is that Amar Singh had resigned as a partner and, therefore, in terms of Clause (10) of the partnership deed dated 6th May 1981, he would be entitled to only the capital standing in his credit in the books of accounts. However, the argument has to be rejected as in the present case there were only two partners and there is overwhelming evidence on record that Amar Singh had not resigned as a partner. On the other hand, there was mutual understanding and agreement that the partnership firm would be dissolved. This is apparent from even the version put forward by Swaran Singh and deposed to by his son (PW-2). Even the letter dated 5th October 1988 refers to the fact that Amar Singh is to completely withdraw the share and accounts which means that the things were yet to be settled.

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, 1932. 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. In the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. A partnership firm must have at least two partners. When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm.

Therefore, the judgment and decree 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 is upheld. Appeal dismissed.

Tags : Firm Dissolution Agreement

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