A. Venkatachalam Chettiar vs A. Kaliappa Chettiar and Others

Venkataraman, J.—This is a suit for a declaration that the partnership between the Plaintiff and the four Defendants which was formed on

21st June 1954 (exhibit P-1) became dissolved on 14th April 1959 or if the Court finds that there was no dissolution, to dissolve the partnership

with effect from a date which may be fixed by the Court and for the taking of accounts. To understand the terms of the partnership which was

formed in 1954 we must go back to the dissolution of a prior partnership which existed between the parties between 1949 and 1953 and was

dissolved on 16th August 1953.

The Plaintiff and the four Defendants are the sons of one Arunachalam Chettiar. The fourth Defendant Murugesa Chettiar was given in adoption

to Gangadhara Chettiar (brother of Arunachalam Chettiar). According to the Plaintiff, the brothers were divided. The Plaintiff and Defendants 1 to

4 were running a partnership called K.P. Arunachalam Chettiar and Sons with business in brassware and metal industries. It had branches in

Tiruppur, Coimbatore, Tiruchirappalli and Madras. It was this partnership which was dissolved on 16th August 1953 with effect from 13th April

1953, the beginning of the Tamil year Vijaya. The business at Madras under the name and style of Aruna Metal Industries (A.P. Arunachalam

Chettiar and Sons, Madras) was allotted to the first Defendant, Kaliappa Chettiar. The business at Coimbatore and Tiruppur were allotted to

Chidambaram Chettiar, the third Defendant. The business at Tiruchirappalli was allotted to the Plaintiff Venkatachalam, the second Defendant

Ramalinga and the fourth Defendant Murugesa. The fact of the arrangement was evidenced by exhibit D-1 which was signed by the five partners

and also Arunachalam Chettiar, the father. In equalising the shares, Kaliappa, the first Defendant, was to pay Rs. 36,000 at the rate of Rs. 9,000

to each of the other four partners (the Plaintiff, Defendants 2, 3 and 4).

Kaliappa, the first Defendant, was carrying on the business at Madras as the sole proprietor for some time. But according to the plaint he was

unable to manage it by himself and wanted his brothers also to come in as partners. Accordingly, on 21st June 1954 they entered into the

arrangement evidenced by exhibit P-1 followed by the instrument of partnership exhibit P-2, dated 25th June 1954, by which the partnership was

formed with effect from the beginning of that Tamil year, 13th April 1954. The machinery and other assets in the Madras business were valued at

Rs. 50,000 and that was taken as the contribution of the first Defendant. The other four partners contributed Rs. 12,500 each so that the total

capital was Rs. 1,00,000. This contribution of Rs. 12,500 by each of these was made up as follows: First, there was a sum of Rs. 9,000 which, as

stated already, was due from the first Defendant to each of the four brothers under the arrangement of 16th August 1953. Secondly, there was a

sum of Rs. 500 as interest on the said sum of Rs, 9,000 for the Tamil year Vijaya, 13th April 1953 to 12th April 1954. Thirdly, there was a sum of

Rs. 2,500. To understand this, it is necessary to state that under the arrangement of 16th August 1953 (exhibit D-1), some of the immovable

properties belonging to the erstwhile partnership had been allotted to the four partners excluding the first Defendant in the equalisation of shares.

After the arrangement of 16th August 1953 the first Defendant wanted to have a share in those properties as well. The other four consented to this

and in return each of the four partners was credited with Rs. 2,500.

Fourthly, there was a sum of Rs. 500 which according to exhibits P-1 and P-2 was contributed in cash by the four persons, namely, Plaintiff,

second Defendant, third Defendant and fourth Defendant. It was thus that the Plaintiff, second Defendant, third Defendant and fourth Defendant

contributed Rs. 12,500 each (Rs. 9,000 plus Rs. 500 interest plus Rs. 2,500 plus Rs. 500). The profits and losses were to be shared in proportion

to the capital contributed by each, that is, first Defendant 8 annas share in the rupee and the other four persons 2 annas share each in the rupee.

The goodwill of the business was valued at Rs. 5,000 and the first Defendant was credited with the sum of Rs. 5,000 and it was to bear interest at

7 1/2 per cent per annum. By this arrangement, the goodwill became an asset of the newly constituted firm. Under exhibit P-2, the second

Defendant, who incidentally was the eldest of the brothers, and the first Defendant were constituted managing partners. By April 1956 the second

Defendant desired to be relieved, and on 15th April 1956 a resolution was passed (exhibit D-3) relieving him from the management and

constituting the first Defendant as the sole managing partner. A fresh deed of partnership, exhibit P-3, was drawn up on 9th May 1956 to evidence

this change in the management. Under exhibit P-3 the first Defendant had to send trial balances, to his four partners once in three months and had

to consult them on matters of policy and where expenditure in excess of Rs. 500 had to be incurred. But according to the Plaintiff, the first

Defendant did not act up to his obligations and the Plaintiff decided to retire from the business and wrote a letter exhibit P-4, dated 14th October

1958. The Plaintiff stated in that that he would like to retire immediately, but contemplated that a meeting of all the partners might be necessary and

he wanted to know the reactions of the first Defendant. In other words, exhibit P-4 was only a tentative proposal. The first Defendant sent a reply

on 20th October 1958 (exhibit P-5) welcoming the desire of the Plaintiff and stating that he would be amenable to any just settlement. Copies of

both exhibits P-4 and P-5 were sent to the remaining partners. On 18th December 1958, the third Defendant wrote a letter exhibit D-8 to the first

Defendant stating that as already discussed, he would like to retire with effect from the end of that Tamil year, that is, 13th April 1959. On 23rd

December 1958, the second Defendant and the fourth Defendant also wrote similar letters exhibits D-9 and D-10 expressing their desire to retire

with effect from the end of the Tamil year. The Plaintiff too sent the letter exhibit P-6, dated 23rd December 1958, requesting the first Defendant

to settle the accounts up to the end of that Tamil year (13th April 1959).

On 8th January 1959, the first Defendant wrote a letter exhibit P-7 to the Plaintiff sending copies to the other four partners. In exhibit P-7, he

referred to the Plaintiff''s letter of 23rd December 1958 (exhibit P-6) and the letters of 18th December 1958 and 23rd December 1958 of the

other three partners and confirmed that their connection with the Madras business would cease with effect from the end of the Tamil year, 13th

April 1959. But he described the arrangement as individual retirement of each of the four partners excluding himself, that is to say, of the Plaintiff,

second Defendant, third Defendant and the fourth Defendant. He referred to the statement of account which he had sent up to the end of the

previous Tamil year, 13th April 1958 and promised to send an account in due course up to the end of the Tamil year ending with 13th April 1959.

He also indicated the manner in which the amount due to the partners would be paid. Thus, so far as the third Defendant was concerned besides

the sum of Rs. 10,000 which he immediately wanted, the rest of what was due to him could be left with the first Defendant for the next Tamil year

Vikari, that is, 14th April 1959 to 12th April 1960 at six per cent rate of interest. The amounts due to the second Defendant, and fourth Defendant

would be left with him indefinitely and it was to carry interest at the rate of six per cent. The plaint states that by this letter of 8th January 1959 read

with the preceding letters to the first Defendant (exhibits P-6, D-8, D-9 and D-10), the partnership, dated 21st June 1954, became dissolved with

effect from 14th April 1959,

The Plaintiff wrote accordingly on 20th April 1959 the letter exhibit P-8 to the first Defendant asking him to value the business as on 14th April

1959 and make the necessary distribution and for convening a meeting of all the partners to finalise the dissolution. The first Defendant sent a reply

exhibit P-9, dated 27th April 1959, disputing for the first time the terms of the partnership, exhibits P-1 and P-2, in particular denying the capital

contribution of Rs. 12,500 by each of the other four partners. He called into question the antecedent arrangement of 16th August 1953 and stated

that he was duped by his brothers. He also averred that the Plaintiff was wrong in thinking that the firm became dissolved with effect from 14th

April 1959 if it meant that the first Defendant could have no right to carry on the business after that date. The first Defendant claimed that what had

happened was only an individual retirement of each of the other four partners and left the first Defendant free in the field to carry on business as the

sole proprietor and at best the Plaintiff could only claim his share as on 13th April 1959. The first Defendant claimed that the goodwill belonged

exclusively to him.

The Plaintiff sent a reply exhibit P-10, dated 8th May 1959. refuting the insinuations and contentions of the first Defendant and reiterating the

genuineness of the arrangement of 16th August 1953 and 21st June 1954. The first Defendant sent a reply exhibit P-11, dated 19th May 1959.

The Plaintiff sent his reply exhibit P-12, dated 2nd June 1959. The first Defendant sent a letter, dated 19th June 1959 (exhibit P-13). After some

further correspondence, the Plaintiff finally filed the suit on 12th July 1961. He states that the partnership became dissolved on 14th April 1959 and

in case the Court finds that there was no dissolution, he prays that the Court may declare the partnership to be dissolved on a date to be fixed by

it. He wants accounts to be taken with effect from 14th April 1959, or such other date as may be fixed by the Court.

Defendants 2, 3 and 4 have filed statements supporting the Plaintiff. The first Defendant contests the claim of the Plaintiff and he reiterates the

stand which he took up in his letters exhibit P-9, dated 27th April 1959, exhibit P-11, dated 19th May 1959 and exhibit P-13, dated 19th June

1959. The details of his defence will be discussed in due course, but at this stage it is enough to mention the broad features of his defence. Though

there are some calculations in exhibit D-1, dated 16th August 1953, showing how that partnership was dissolved and how the first Defendant was

obliged to pay Rs. 9,000 to each of his four erstwhile partners for equalisation of shares, he would say that he did not understand the real basis of

that dissolution; that his brothers promised to inform him about it in duo course but failed to do so. He believed that they would act honestly, and

on that basis signed the agreement of 21st June 1954 (exhibit P-1) and the consequent instrument of partnership exhibit P-2, dated 25th June

1954, but the alleged capital contribution of his four brothers at Rs. 12,500 each was nothing but a myth. He found in due course that his brother,

the second Defendant, had manipulated the accounts. Anyhow, he was willing for the sake of peace and amity to allow his four brothers their share

on the footing of exhibit P-2 and that was why he wrote the letter exhibit P-7, dated 8th January 1959. But they backed out of the arrangement

which had been arrived at between them about the distribution of the amounts due to them as mentioned in exhibit P-7. In particular Defendants 2

to 4 wanted their money immediately after 13th April 1959. Thus the essential basis for his offer of 8th January 1959 contained in exhibit P-7 was

destroyed and that offer would not bind him any longer. He is free to question the so-called contribution of the Plaintiff and Defendants 2 to 4 and

their right to a share on the basis of their contribution. In any case he says that there can be no question of dissolution of the firm if by that is implied

a negation of his own right to continue the business. He asserts that from and after 14th April 1959, he became the sole proprietor of the business

at Madras and at best the other four persons would only be entitled to have their shares valued and paid over. He claims exclusive right to the

goodwill.

The issues which have been framed in the suit are these:

Whether under the document that preceded the formation of suit partnership the site of the suit factory was allotted to the first Defendant ?

Whether the document of partnership, dated 25th June 1954, is not genuine as contended by the first Defendant ?

Whether the Plaintiff and Defendants 2 to 4 contributed capital to suit partnership and if so, how much and in what form ?

Is it open to the first Defendant to contend that the Plaintiff and Defendants 2 to 4 did not contribute capital as per suit partnership agreement,

dated 25th June 1954 ?

Is the first Defendant estopped from questioning the capital contribution in partnership agreement, dated 25th June 1954 ?

Is the first Defendant estopped from reopening the agreement, dated 16th August 1953?

Does the Plaintiff retire from the suit firm with effect from 14th April 1959 and if so, it would amount to dissolution 1

If not, will it disentitle him from filing the suit ?

If there was no dissolution as on 14th April 1959 is the Plaintiff entitled to have the suit firm dissolved ?

Whether the first Defendant is bound to render accounts on the basis of his letter, dated 8th January 1959 ?

To what amounts, if any, are the parties entitled and if so, what directions have to be given ?

Is the first Defendant entitled for any relief in respect of Meenakshi Metal Industry and if so can he claim it in this suit ?

* * *

My answers to issues 2 to 6 are these:

Issue, 2.-The partnership, dated 25th June 1954, is genuine.

Issue 3.-The Plaintiff and Defendants 2 to 4 contributed a capital of Rs. 12,500 each but in the manner indicated in the accounts exhibits D-41 (d)

to (e) and D-43 (a) to (d) and not in the manner recited in exhibits P-l and P-2.

Issues 4 and 5.-Legally if fraud and misrepresentation had been established, it might have been open to the first Defendant to content that they did

not contribute capital according to exhibit P-2, dated 25th June 1954. In fact, however, there was no fraud and misrepresentation.

Issue 6. -If fraud and misrepresentation had been established with reference to exhibit D-1, dated 16th August 1953, then the first Defendant

could have avoided that deed by way of defence, but fraud and misrepresentation have not been established with reference to exhibit D-1.

Issue 10.-The first Defendant is bound to render accounts on the basis of his letter exhibit P-7, dated 8th January 1959.

No specific issue has been framed on the contention of the first Defendant regarding goodwill but it might be necessary to consider it under this

issue. Paragraph 7 of exhibit P-2 runs thus:

A further sum of Rs. 5,000 shall be credited to partner No. 3, A. Kaliappa Chettiar, as goodwill and this shall bear interest at 7 1/2 per cent per

annum.

This can only mean that the goodwill which belonged to the first Defendant when he was the sole proprietor during the period 13th April 1953

to 12th April 1954 was acquired by the newly formed partnership by paying a consideration of Rs. 5,000 exclusively to the first Defendant

together with interest thereon at 7 1/2 per cent. The contention of the first Defendant that the goodwill still belongs to him is obviously untenable. At

a later stage a curious interpretation was put upon this clause by the learned Counsel for the first Defendant that the sum of Rs. 5,000 mentioned in

Clause 7 of exhibit P-2 was only a compensation for the use of the goodwill during the subsistence of the partnership evidenced by exhibit P-2 and

that otherwise the ownership of the goodwill always belonged and was meant to belong to the first Defendant. There is no basis in Clause 7 of

exhibit P-2 for such an interpretation. The plain and obvious meaning of Clause 7 is that the goodwill became an asset of the partnership and this is

in keeping with Section 14 of the Indian Partnership Act which says:

Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the

stock of the firm or acquired, by purchase or otherwise, by or for the firm or for the purposes and in the course of the business of the firm, and

includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have

been acquired for the firm.

In the accounts also the first Defendant was credited with a sum of Rs. 5,000 for goodwill and interest was credited [see exhibits D-43(f), D-

43(h) and the subsequent entries]. I find, therefore, that the goodwill has become the property of the firm. The goodwill has to be valued according

to the principles governing it> Reference may be made to the decision of the Supreme Court in S.C. Cambatta and Co. Private Ltd. Vs.

Commissioner of Excess Profits Tax, Bombay, and the oases cited therein and also the relevant passages in I Andley on Partnership, twelfth

edition, pages 466 to 477.

Issues 7 to 9.-The facts bearing on these issues are briefly these. On 14th October 1958 the Plaintiff wrote a letter exhibit P-4 to the first

Defendant expressing his desire to cease his connection with the firm imme. diately. But he also added at the end that he awaited the reactions of

the first Defendant to his proposal and he also contemplated a meeting of the partners to give eflfeot to his desire. Exhibit P-5 is the reply, dated

20th October 1958 of the first Defendant in whioh he welcomed the proposal and added that he would abide by any just course which might be

suggested. Copies of exhibits P-4 and P-5 were sent to the other partners. So far as the Plaintiff was concerned, the next letter is exhibit P-6,

dated 23rd December 1958,by which he wanted the second Defendant to settle his account as at the end of that Tamil year Panguni, that is, as on

13th April 1959. So far as the other partners were concerned, they sent similar letters on 18th December 1958 and 23rd December 1958. Exhibit

D-8, dated 18th December 1958,is the letter of the third Defendant to the first Defendant and exhibits D-9 and D-10 are the letters by the second

and fourth Defendants, dated 23rd December 1958. As a matter of detail it may be mentioned that the Plaintiff, second Defendant and fourth

Defendant were partners of the business at Tiruchirappalli. Exhibit P-7, dated 8th January 1959, is the reply of the first Defendant to the Plaintiff

but a copy was addressed to the other partners as well. Therein he referred to the letter, dated 23rd Ddoem-ber 1958, of the Plaintiff (exhibit P-6)

and the letters, dated 18th Deoember 1958 and 23rd December 1958 of the other partners, namely, exhibits D-8 to D-10, and stated that it was

confirmed that they would all cease their connection with the firm with the end of that Tamil year and he was willing to pay them their share on that

basis. Of course, in paragraph 6 he indicated some arrangements about the actual disbursement of the money, which, however, need not concern

us on the question now under consideration. It appears from the later correspondence that the partners other than the first Defendant took

objection to his coatinuing the business at Madras as the sole proprietor after 13th April 1959 without settling their accounts.

The contention of the Plaintiff and Defendants 2, 3 and 4 on the above faots is that the firm becams dissolved with effeot from 14th April 1959

and that the rights of parties have to be worked out u/s 46 of the Act which runs:

On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the

property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their

representatives according to their rights.

On the other hand, the contention of the first Defendant is that the Plaintiff''s retirement took place on 14th October 1958 itself according to

the letter exhibit P-4, and that even if the date should be considered postponed to 13th April 1959 as expressed in exhibits P-6 and P-7, it would

still be only an act of retirement individually by the Plaintiff and that the case of the other partners, Defendants 2, 3 and 4, would also amount to

acts of individual retirement. In other words, he contend? that neither in law nor in fact would there be dissolution of the firm and that he would be

entitled to continue as the sole proprietor of the concern with effect from 14th April 1959. It is these contentions which are reflected in the issues

now under consideration.

In order to arrive at a proper decision on these contentions, it is necessary to extract the provisions of the Indian Partnership Act which are

relevant for our purpose, though they may be elementary,

""Partnership"" is the relation between persons who have agreed to share the profits of a business carried on by all or anyof them acting for all.

Persons who have entered into partnership with one another are called individually ""partners"" and collectively ""a firm"" and the name under which

their business is carried on is called the ""firm name"".

* * *

Where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership,

the partnership is ""partnership at will"".

* * *

(1) A partner may retire-

(a) with the consent of all the other partners,

(b) in accordance with an express agreement by the partners, or

(c) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

[Sub-sections (2) and (3) omitted.]

* * *

The dissolution of partnership between all the partners of a firm is called the "" dissolution of the firm "".

A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

* * *

(1) Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to

dissolve the firm.

(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the

communication of the notice.

At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:

* * *

(d) that a partner, other than the partner suing, wilfully or persistently commits breach of agreements, relating to the management of the affairs of

the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for

the other partners to carry on the business in partnership with him ;

* * *

(g) on any other ground which renders it just and equitable that the firm should be dissolved.

At the outset the ground may be cleared in respect of the contention of the first Defendant that the Plaintiff retired from the business with effect

from 14th October 1958 itself according to the letter exhibit P-4. It will be seen that therein the Plaintiff qualified his desire by stating that he was

awaiting the reactions of the first Defendant and also contemplated a meeting of all the partners to give effect to his desire. Hence it cannot be

taken as a final decision taking effect from 14th October 1958 itself. The date was modified in the subsequent letter exhibit P-6, dated 23rd

December 1958 and that was accepted by the first Defendant in his letter exhibit P-7, dated 8th January 1959. Exhibit P-7 taken along with

exhibits D-8 to D-10 also shows that so far as the other partners also were concerned, it was agreed that they too should cease their connection

with the business with effect from 14th April 1959. Thus it may be taken for purposes of the contention of the first Defendant that the Plaintiff,

Defendants 2, 3 and 4 agreed to sever their connection with the firm with effect from 14th April 1959. So far as the first Defendant is concerned,

that would be the most favourable way of interpreting the correspondence. But even so, as a matter of law, it seems to me that the firm became

dissolved on 14th April 1959 and legally it would not be possible for the first Defendant to contend that there was any business left of which he

could claim to be the sole proprietor from 14th April 1959. Section 4 clearly shows that the partners are collectively the firm, which also shows

that there cannot be a firm unless there are at least two persons to constitute the firm. Now, in respect of the Plaintiff and Defendants 2, 3 and 4

who all wanted to cease their connection with the firm with effect from 14th April 1959, we cannot predicate whose connection would determine

first. We must take it that their connection would determine simultaneously with effect from the beginning of the calendar day 14th April 1959. In

such a situation the firm must, in law, be considered to have become dissolved, and the rights of the parties would be governed by Section 46. I do

not see how in law a situation could arise by which the first Defendant could claim that any residuary business was left of which he could claim to

be the sole proprietor.

It may be that having regard to the peculiar facts of this case, in the mode of working out the rights of parties u/s 46 he might be given a

preferen tial right by being allowed to purchase the shares of the other four partners at the market rate. But, in my opinion, that would not detract

from the fact that the business itself became dissolved and it would be necessary for the first Defendant to pay for that business before he could

claim to become the sole proprietor. If, for instance, he is not prepared to purchase the shares of the other four partners at the fair valuation which

may be arrived at by the parties or determined by Court in the absence of such an agreement, he cannot claim to be the sole proprietor. In other

words, he cannot automatically become the sole proprietor, and it is only by a direction of the Court giving him a preferential right to acquire the

share of the other four partners and his availing himself of such preferential right, he could become the sole proprietor.

Sri V. Balasubramaniam, learned Counsel for the first Defendant, relied on three decisions in support of his contention that on 14th April 1959

the first Defendant became the sole proprietor of the firm. But none of these decisions supports him in his contention. The first decision is that in

K.A. Dawood Sahib Vs. V.A. Sheik Mohideen Sahib and Another, . The father of the Plaintiff in that case and the first Defendant entered into a

partnership in 1920. Originally it was agreed that they should share equally the profits and losses. Later, however, by agreement the share of the

father of the Plaintiff was enhanced to 9 1/2 annas and the share of the first Defendant reduced to 6 1/2 annas. The Plaintiff''s father died in 1931.

In law there was a dissolution of that partnership. But the business was continued by the Plaintiff, who took the place of his deceased father, and

the first Defendant. This continued till 1933 when the first Defendant gave notice of dissolution. The question at issue was the shares to which the

parties, namely, the Plaintiff and the first Defendant were entitled, in respect of the business subsequent to the death of the Plaintiff''s father, on 10th

April 1931. It was found that there was no express agreement. The first Defendant contended, therefore, that on the principle of Section 13 of the

Indian Partnership Act, the shares would be equal. But this contention was rejected and it was held that Section 17 would apply and that the share

of the Plaintiff would be 9 1/2 annas in the rupee, and that of the first Defendant 6 1/2 annas. The material portion of Section 17 runs:

Subject to contract between the partners-

(a) where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they

were immediately before the change, as far as may be.

I do not see how the above decision can be of help in the present case. In that case the business was continued by the new partnership

between the Plaintiff and the first Defendant and that was why it was possible to invoke Section 17. But here the partnership became dissolved on

14th April 1959, and it is not suggested that a new partnership was formed between the first Defendant and the others after that date. The way,

however, in which the learned Counsel seeks to utilise the decision is that it is implicit in that decision that the business of the firm or the firm itself is

some legal entity which continues notwithstanding the change in the constitution of the firm, and that on that principle the business in this case also

had sufficient continuity to enable the first Defendant to become the sole proprietor when the others dropped out of the business. It is not possible

to read so much into the decision at all.

The next two decisions relied on by the learned Counsel are the decisions of the Supreme Court in Commissioner of Income Tax, West Bengal

Vs. A.W. Figgies and Co. and Others, and Dulichand Lakshminarayan Vs. The Commissioner of Income Tax, Nagpur, . There it is pointed out

that whereas in Scotch law, partnership is a legal entity, in English law a firm is not a separate entity and is only a convenient way of describing the

partners collectively and the Indian law is to a certain extent a compromise between the two but so far as the Indian income tax Act is concerned,

a firm is a separate assessable entity u/s 3 of that Act. But we are not concerned with an assessment under the income tax Act. So far as the case

before us is concerned, there is nothing in the decisions which supports the contention of the learned Counsel.

As against this, there are the observations in two decisions cited by the learned Counsel for the other partners in support of the view which I

am taking, and when the number falls below two, there can be only dissolution-vide Vvdachala v. Bangaraju ILR [1960] Mad. 455, 462 where it

was observed:

The expression retirement would be appropriate if there were more than two partners at that time and the partners other than the retiring partner

continued the business as a firm. In this ease, the Plaintiff and the Defendant were the only partners and the appropriate term in relation to the

severance of the Defendant from the business is dissolution and not retirement. and Chunilal v. Ahamed Bowther AIR 1960 Kar. 156, 157 where

it was observed that after retirement of one of the two partners, namely, Mohammed Mohideen Rowther, the other partner Noor Rowther could

not alone constitute a partnership and it ceased to exist. That of course is clear from the definition of partnership in Section 4 which is also

emphasised by Section 41(a) which says that a firm is dissolved by the adjudication of all the partners or of all the partners but one as insolvent.

My answers to the issues in question are accordingly these:

Issues 7 and 8.-In view of the simultaneous retirement of Plaintiff, Defendants 2, 3 and 4 in law a dissolution of the partnership resulted.

Consequently under issue 8 it has to be held that the Plaintiff is not disentitled to file the suit:

Issue 9.-This issue does not arise.

Issue 1,-The parties did not address themselves sufficiently to this issue either during the evidence or during the arguments addressed in the first

instance. I therefore, had the issue reargued, and it was stated by the Counsel for the Plaintiff and Defendants 2, 3 and 4 that the site of the factory

still stands in the name of the father of the parties. That statement was not disputed by the learned Counsel for the first Defendant. Under exhibit D-

1 the Plaintiff and Defendants 2, 3 and 4 agreed not to claim a share in that site if the father would give it to the first Defendant. That was at a time

when the Madras business was allotted exclusively to the first Defendant. If in the present suit the Madras factory eventually becomes the exclusive

property of the first Defendant on his paying the due market value of the shares of the other partners to them, the learned Counsel for the Plaintiff

and Defendants 2, 3 and 4 stated that their clients would still have no objection to the father giving the site to the first Defendant. A ticklish situation

would, however, arise if the first Defendant is not willing to pay the market value decided by the Court for the shares of the other four partners in

respect of the superstructure and the business. There is the possibility of one of the other partners, say the Plaintiff, being willing to purchase the

shares of the other four partners including the first Defendant''s at the market value determined by the Court. I put the question, what would

happen with respect to the site in such a situation. The learned Counsel appearing for the Plaintiff and Defendants 2, 3 and 4 stated that it could be

expected that the father would be sensible enough to give the site to the person who becomes the owner of the superstructure and the business as

a result of this suit. The learned Counsel for the first Defendant did not say anything. But finally they all agreed that nothing need be said about the

site in this suit because the site still stands in the name of the father who is not a party to this action.

Issue 12.-This issue was not argued at all by the learned Counsel for the first Defendant and the issue is answered in the negative so far as this suit

is concerned.

The partnership became dissolved with effect from 14th April 1959. The parties will be entitled to shares on the basis of exhibits P-1 and P-2,

namely, the first Defendant to a eight annas share and Defendants 2, 3, 4 and the Plaintiff to two annas share each. The books produced by the

first Defendant so far, and which may be produced hereafter, will prima facie be taken to be accounts of the business but with liberty to the other

parties to object to any entries. Up to 14th April 1959 there is no difficulty. But so far as the period after 14th April 1959 is concerned, the further

question arises about the rights of the parties. The learned Counsel for the Plaintiff and Defendants 2, 3 and 4 have urged that it is clear on the

evidence that the first Defendant has carried on the business of the erstwhile partnership even after 14th April 1959 utilising the assets of the

erstwhile partnership and that in such a situation the erstwhile partners, namely, the Plaintiff and Defendants 2, 3 and 4 must have the right to opt

either for interest at six per cent per annum on their share on 14th April 1959 or for the share of the profits which were earned in the business

carried on by the first Defendant by utilising the shares of the erstwhile partners. In support of this contention they rely on Section 37 of the Indian

Partnership Act and illustration (f) of Section 88 of the Indian Trusts Act. Section 37 of the Partnership Act runs:

Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the

firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the

absence of a contract to the contrary, the outgoing partner, or his estate is entitled at the option of himself or his representatives to such share of

the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of

six per cent per annum on the amount of his share in the property of the firm:

Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased

or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be,

is not entitled to any further or other share of profits ; but if any partner, assuming to act in exercise of the option does not in all material respects

comply with the terms thereof, he is liable to account under the foregoing provisions of this section.

Section 88, Illustration (f) of the Indian Trusts Act runs:

Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the

interest of another person, by availing himself of his character, gains, for himself any pecuniary advantage, or where any person so bound enters

into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for

himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

* * *

Illustration (f). A and B are partners. A dies. B instead of winding up the affairs of the partnership retains all the assets in the business. B must

account to A''s legal representative for the profit arising from A''s share of the capital. Sri V. Balasubramaniam, learned Counsel for the first

Defendant, replied by urging that Section 37 of the Indian Partnership Act would not in express terms apply to a case where the firm is dissolved

and would apply only to a case where the business is carried on by the surviving or continuing partners as a new firm. It occurs in chapter V.

whereas dissolution of the firm is dealt with in chapter VI.

It is true that there is no express provision in chapter VI corresponding to Section 37. But there is Section 53 which may have to be taken into

account. It runs:

After a firm is dissolved, every partner or his representative may, in the absence of a contract between the partners to the contrary, restrain any

other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own

benefit, until the affairs of the firm have been completely wound up:

Provided that where any partner or his represen-tative has bought the goodwill of the firm, nothing in this section shall, affect his right to use the

firm name.

As pointed out in Mohanasundaram v. Neelambal (1955) 1 M.L.J. 279, 283, Section 53 may be taken as a corollary to Section 37 and the

principle contained in Section 37 of the Partnership Act, and Section 88, illustration (f) of the Trusts Act is of general application which would

apply even to a case like the present where after dissolution of the firm, the managing partner like the first Defendant carries on the business of the

erstwhile firm utilising the assets of the erstwhile partners. I shall now refer to the decided cases which are relevant on this point.

In Ahmed Musaji Saleji v. Hashim Ebrahim Saleji ILR (1915) Cal. 914 (P.C.) it was observed by the Privy Council at page 925:

It is well settled that in certain cases when on the dissolution of a firm one of the partners retains assets of the firm on his hands without any

settlement of accounts and applies them in continuing the business for his own benefit, he may be ordered to account for these assets with interest

thereon, and this apart from fraud or misconduct in the nature of fraud.

No doubt, that was a decision before the enactment of the Indian Partnership Act, 1930, but the principle will hold good even now.

The above decision of the Privy Council was followed by the Calcutta High Court in Mohommed Kamel v. Haji Hedayetulla (1921) ILR Cal.

It is of immediate interest to us because in that case the partnership was carried on only by two persons Fazil and Hedayetulla. On the death

of Fazil in 1915, the business was carried on by the other partner, and it was held that the Plaintiffs who were the legal representatives of Fazil

were entitled to the profits of the business earned subsequent to the death of Fazil and that they would be entitled to the same share as Fazil would

have taken if the partnership had not been dissolved. MOOKERJEE J. extracted the following principles enunciated in an English Case Yates v.

Finn (1880) 13 Ch. D. 839 at page 909:

The representatives of the deseased partner are entitled to say to the surving partner ''You have been using our testators'' money in trade, and

making profits by the use of it, and we are therefore entitled to an acoount of the profits you have made by continuing that money in the concern

and trading with it.

And observed as follows:

The profits may well be regarded as accretions to the property which has yielded them and ought to belong to the owner of such property, in

accordance with the maxim accessorium secuitor sum principale, the accessory right follows the principali see Crawshay v. Collins 33 E.R. 736,

Heathcote v. Hulme 37 E.R. 322. It may be observed that the rule thus laid down has been incorporated in Section 42 of the Partnership Act,

1890. The provisions of that Act are not applicable in this country; but the rule itself is manifestly consistent with the principles of justice, equity and

good conscience.

This decision was confirmed by the Privy Council in Haji Hedayetulla v. Mahomed Kamil (1923) 19 L.W. 425 (P.C.) where their Lordships

observed that the business has to be regarded up to the date of the final decree as a continuing business although Mohammad Fazil died in 1915.

The principle was applied in Bamakrishna Ayyar v. Mvihu-sami Ayyar (1928) ILR Mad. 672 and also in Alagappa v. Barnanathcm ILR [1949]

Mad. 877.

The question also arose in Mohanasundaram v. Neelambal (1955) 1 M.L.J. 279. The partnership there was entered into in 1945 between one

Narasimha Mudaliar and Arunachala Chettiar. Narasimha Mudaliar died in 1947. Thereafter Arunachala carried on a similar business in hides and

skins in his own name. The capital in the new business carried on by him was Rs. 5 lakhs but for that purpose he had utilised only a small portion of

about Rs. 6,000 from the erstwhile partnership which he had overdrawn. The representatives of Narasimha Mudaliar relied on Section 37 of the

Partnership Act and wanted a share of the profits in the new business started by Arunachala Chetty. On the facts it was held that Arunachala could

not be said to have carried on the business of the erstwhile firm with the property of the firm and that was the reason why the relief prayed for by

the Plaintiffs therein was decreed to them. But the whole discussion referring to Section 53 as a corollary to Section 37 proceeds on the footing

that the principle of Section 37 would apply even though the new business alleged to be carried on by Arunachala was not carried on as a firm but

only by himself. In other words, though Section 37 in express terms mentions only a plurality of persons carrying on the business of the old firm it

was assumed that the principle would apply to a case where only one of the persons carries on or is alleged to carry on the business of the old

firm. That was why reference was made to Section 53 of the Act as a corollary to Section 37. After all, as a matter of principle, there can be no

difference between the case expressly provided in Section 37 and the case where the managing partner carries on the business of the dissolved

firm utilising the assets of the erstwhile firm. Perhaps it may not be out of place to point out that u/s 13 of the General Clauses Act (X of 1897)

words in the singular shall include the plural and vice versa, and though the plural is used in Section 37 it can be understood as referring to the

singular also. To avoid any possible misunderstanding it may perhaps be pointed out that this conclusion is not in any way affected by the decision

of the Privy Council in Suleman v. A bdul Latif (1930) ILR 58 Cal. 208 (P.C.) where it was observed that in a suit for dissolution, interest should

normally be allowed to the Plaintiffs only from the date of the final decree by which the amount if any is found due from the Defendants to the

Plaintiffs. The principle of that decision is that it is only on accounts being taken it could be ascertained if anything is due from any partner to his co-

partners. In that case there was no question of the managing partner continuing to use the assets of the erstwhile partner. It was a simple case of

dissolution. In a later case of the Privy Council in Lala Hakim Rai v. Lala Ganga Ram (1943) 1 M.L.J. 16 (P.C.) interest was allowed from the

date of the plaint on the ground that the assets were retained by the managing partner for two years after the dissolution for his own purposes. That

again was not a case where any question u/s 37 of the Partnership Act arose.

As pointed out in Ramakrishna Ayyar v. Muthusami Ayyar ILR (1928) Mad. 672 it is only alter the accounts subsequent to 14th April 1959

are taken with reference to Sections 37 and 53 of the Act that the Plaintiff and Defendants 2, 3 and 4 can be asked, to elect between their

remedies whether to claim a share of the profits or interest at six per cent.

As already indicated, there are some special circumstances why a preferential right may be given to the first Defendant to buy off the shares of

the other partners and continue the business. Firstly he owns a eight annas share, secondly he was the managing partner and thirdly whereas the

other partners have their own businesses at Tiruchirappalli, Coimbatore and Amma-palayara, this is the only business of tho first Defendant. .

When I indicatsd this to the learned Counsal for the Plaintiff, Defendants 2, 3 and 4 they did not put forth any serious objection to the first

Defendant taking over the shares of the other partners, but they suggested that the first Defendant should pay the market value for them. That of

course is only just and reasonable.

Another point was raised by the learned Counsel for the Plaintiff, Defendants 2, 3 and 4 and that relates to the quota of raw materials which

the firm has been getting hitherto. The learned Counsel for the Plaintiff, Defendants 3 and 4 have urged that in spite of the dissolution, some portion

of the quota hitherto alloted to the business should be secured to them. I think it is only fair that some portion of the quota which was formerly

assigned to the business by the authorities concerned should be made available to all the partners. But the authority is not before the Court and I

can only give an indication that it will be just and equitable that all the partners should have quota rights.

Another point mentioned by the learned Counsel is about the patent. It was agreed by all the Counsel that this should be made available for

division between all the partners.

On the question of costs it is obvious that the first Defendant''s refusal to meet the claims of the other partners is totally unjustified and it would

not be unjust to ask him to bear the costs of all the other four partners, But I think it sufficient to give the following directions. He will pay the

Plaintiff the Court-fee paid by the Plaintiff on the plaint on a valuation of Rs. 20,000 and the full oosts on that basis. Under Order V, Rule 15 of the

High Court-Fees Rules, 1956 (Original side) costs can be determined only at the time of the final decree and if it turns out that the amount which is

due to the Plaintiff exceeds Rs. 20,000, the first Defendant will have to pay oosts on 2/3 of the amount in excess of the sum of Rs. 20,000. So far

as the other partners, namely, Defendants 2, 3 and 4 are concerned the first Defendant will pay 2/3 of their costs as finally ascertained. The first

Defendant will bear his own costs.

After this judgment was pronounced Sri Srisailam, learned Counsel for Defendants 3 and 4, brought it to my notice that I had omitted in the

judgment what I had indicated during the arguments, namely, that as regards goodwill, the name Aruna Metal Industries, adding within brackets

(A.P. Arunaohalam Chettiar and Sons) would form part of the goodwill and could be exclusively used only by the person who becomes the owner

thereof as a result of the final decree in the suit, but at the same time it would be permissible for the partners other than the one who becomes the

owner of Aruna Metal Industries to use the name A.P. Arunachalam Chettiar and Sons alone, omitting of course the name Aruna Metal Industries.

It is hereby made clear that the above direption which I indicated during the arguments will be part of this judgment.