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Judgment
This Letters Patent Appeal is from the judgment and decree of a learned single Judge of this Court in A S. No. 154 of 1977 affirming the decree passed in O.S. No. 203 of 1970 dismissing the suit O.S. No. 203 of 1970 on the file of the Subordinate Judge, Guntur filed by appellants 2 to 4 herein, sons of the first appellant.
The suit was instituted by three plaintiffs, appellants 2 to 4 herein, for partition of the joint family properties consisting of immovable properties as mentioned in plaint -- A schedule and joint family business (iron, hardware etc.,) as disclosed in plaint -- B schedule. As already stated, defendant No. 3 is the father of the three plaintiffs. Defendants Nos. 1, 2, 4, 5 and 6 are brothers of defendant No. 3. Defendant No. 7 is the mother of defendants 1 to 6. The 8th defendant is the firm known by the name of M/s. Kola Pullaiah and Sons, Guntur. Kola Pullaiah, the father of defendants 1 to 6, carried on business in iron and hardware and other goods in Guntur originally in his own name and after sons were born to him, he changed the name of his business as M/s. Kota Pullaiah and Sons. The joint family business was converted into joint family partnership business on 1-4-1957 under Ex. B-41. As by that time, the 3rd defendant Sambasiva Rao, the father of the plaintiffs was in Government service, he was not shown as a partner. But his share of 1 Anna 3 paise was shown in the share of his father Kola Pullaiah. The total share of Pullaiah was thus 4 Annas 6 paise (3 annas 3 paise + 1 anna 3 paise). Defendants 1, 2 and 4, each was given 3 Annas share. As by the dale of Ex. B-41 the 6th defendant was a minor, the partnership was reconstituted under Ex.B-40 on 1-11-1958 taking defendant No. 6 also as a partner. Once again under Ex.B-42 on 11-4-1967, the family business was continued as joint family partnership business and the partners were allotted the following shares:
Defendant No. 1 -- 22 ps Defendants Nos. 2 and 4 -- 20 ps each Defendant No. 5 -- 17 ps Defendant No. 6 -- 7 ps Kota Pullaiah -- 14 ps
Kota Pullaiah, father of the six defendants was given 14 paise share which included the 7 paise share of the 3rd defendant, Sambasiva Rao. But, however, Sambasiva Rao''s name was not shown as one of the partners. Under Ex.B-44, the partition deed, A -- Schedule properties comprising a residential house in Guntur, was given to defendant No. 1. Shop rooms were given to the other brothers and defendant No. 3, father of the plaintiffs, was allotted a vacant site in Nallapadu admeasuring 1048 square yards, which at that time, was valued at Rs. 500/-. Pullaiah died on 1 -5-1970. The partnership was dissolved under Ex.B-l09 on 19-4-1970. Subsequently, a fresh partnership came into being consisting of defendants 1,2,4,5 and 6 thus excluding Pullaiah, their father. The plaintiff as sons of defendant No. 3, sought a decree for partition and separate possession of their share of the properties as the sons of defendant No. 3. The 3rd defendant supported the claim of his sons -- the plaintiffs, whereas the paternal uncles of the plaintiffs resisted the suit contending that the business was that of the partnership in which defendant No. 3 not being a partner, the plaintiffs, as sons of defendant No. 3 could not claim any share therein. In the course of evidence, the factual position that defendant No. 3 ''s share was shown in the share of Pullaiah, the father, was established. The learned Trial Judge, had taken the view that as the 3rd defendant alone was entitled to the share in the partnership since his share also was shown in share of his father, the plaintiffs cannot claim independently any right in the shares of the father and the only remedy open to them was to work out their rights separately. On that view, the learned Judge dismissed the suit. That view was affirmed on appeal by the learned single Judge of this Court.
Before us, Sri Chandra Sekhar Rao, learned counsel for the appellants, has contended that that in view of the admitted position of defendant No.3''s share having been shown in the share of Pullaiah, his father, on the date of the death of Pullaiah on 19-4-1970. a sum of Rs. 37,757.78 ps was standing to his credit in the accounts as admitted by the defendants in their evidence and marked as Ex. B-114. Out of this amount of Rs. 37,757.78 ps, the 3rd defendant was entitled to half of the share since that included his half share also (7 paise) and after the death of his father, he was entitled along with his five brothers and mother to an additional l/7th share. Besides this amount, it is not in dispute that Items 1 and 2 of plaint -- A schedule property which are immovable properties allotted to the sharp of Pullaiah, the 3rd defendant is entitled to l/7th share.
The only question for consideration is whether the appellants are entitled to claim a share in the joint family firm which was dissolved on 19-4-1970 under Ex.B-109 and whether defendant No. 3, the 1st appellant is entitled to a share in the immovable properties allotted to the share of his father late Pullaiah?
Arguments are advanced before us by Sri T. Veerabhadraiah, learned counsel for the respondents, contending that since the entire business was run as partnership business, the appellants have no right to claim a share in that business since they were not partners. If at all, defendant No. 3 was entitled to any share, he should have filed a suit for a share in the property of his father who died in 1970 and that right also is foreclosed to him because of the bar of limitation.
In opposition to this, Sri Chandra Sekhar Rao, contends that u/s 37 of the Partnership Act. on the date of dissolution of the partnership, in view or the admitted position, defendant No. 3 is entitled to claim a share from out of the amounts standing to the credit of late Pullaiah as the accounts were not settled and the reconstituted partnership firm continued the joint family business with the assets of the earlier firm in which was included the share of Kola Pullaiah.
We are inclined to accept the contentions of Sri Chandra Sekhar Rao in the plaint, it was specifically averred that the joint family business constituted the business of the joint family firm. No evidence whatsoever is found in the record nor our attention is invited to any part of the evidence to show that separate funds were procured for the firm. Pullaiah and Sons, and that the firm had lost the character of joint family business. Section 37 of the Partnership Act, which deals with right of an out going partner is in the following terms:
Right of outgoing partner in certain cases to share subsequent profits:--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 properly 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 on 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."
From a reading of the above provision, it is clear that at the time when the firm was dissolved under Ex. B-109, Pullaiah, the outgoing partner was entitled, at his option and after his death his legal representatives for a share of the profits as may be attributed to the use of his share of the property by the continuing firm or to interest at the rate of 6% per annum on the amount of his share in the property of the firm. Either of these two options was open only if there was no final settlement of accounts when the partnership firm was dissolved. This legal position could not be seriously disputed by Sri T. Veerabhadraiah, learned counsel for the respondents. If that be so, it follows that there was no necessity for the third defendant to file a separate suit much less can it be said that the plaintiffs, as the sons of defendant No. 3, cannot claim their shares in the amounts standing to the credit of their grand-father in the accounts of the dissolved firm.
Sri M. ChandraSekhar Rao, learned counsel for the appellants, however, sought to contend that rate of interest at six per cent prescribed u/s 37 of the Indian Partnership Act has no application to the instant case, as the accounts were settled and Rs. 37,757.74 ps was determined as the share of Kola Pullaiah and credited to his account and thereafter the sum was utilised by the firm re-constituted under Ex.B-110 and it is submitted that interest has to be calculated on the aforesaid amount at the rate at which the erstwhile partners had provided Cor, under the Partnership Deed i.e., at 12% whenever any share-capital was brought in by the partners and not at the rate of 6% as specified in Section 37. We are not inclined to accept the said contention of the learned counsel for the appellants for the reason that the settlement of accounts with the legal representatives was not completed and the distribution did not take place in the manner prescribed u/s 48 of the Partnership Act. Section 48 prescribes the manner in which the accounts have to be settled between the partners. The same is completed only when payments arc made to each partner rate ably towards advances, on account of capital and residue if any to be divided among the partners in proportions in which they arc entitled to share profits.
In the instant case, the amount payable to Kota Pullaiah was determined and the same was credited to his account and continued to be utilised by the reconstituted firm of the continuing partners. Section 37 lays down the substantive Saw relating to the liability of the surviving or continuing partners who without a settlement of accounts with legal representatives of the deceased partner utilise the assets of the partnership for continuing the business. In the circumstances, the legal representatives of Kola Pullaiah would have to exercise one of the options available to them u/s 37. As the firm or the reconstituted firm is no longer in existence, the only option available to the legal representatives of Kota Pullaiah including appellant No. 1 (defendant No. 3) would be to claim the share in the amounts which have been credited to Kota Pullaiah and continued to he used by the reconstituted partnership firm with interest thereon at 6% as per Section 37, referred to above. We accordingly reject the contention of learned counsel For the appellants claiming interest at 12% per annum.
As regards Items I and 2 of plaint - A Schedule properties, it is admitted that since the same were allotted to the share of Pullaiah, defendant No. 3 the first appellant herein is entitled to l/7th share and the same cannot be disputed. The defendant No. 3 is, therefore, entitled to partition of the said properties and for allotment of 1/7th share in items 1 and 2 in plaint -- A schedule property which was allotted to late Pullaiah. Accordingly, there shall be a preliminary decree to that extent and the decree and judgment of the Trial Court as also in A.S. No. 154 of 1977 are accordingly reversed and set aside to that extent.
As regards the share in the firm of Kota Pullaiah and Sons, as already noticed, admittedly a sum of Rs. 37,757.74 ps was credited to the account of Kota Pullaiah on the dissolution of the firm on 19-4-1970 under Ex. B-109. The said amount was not paid to Kota Pullaiah and continued to be utilised by the fresh partnership that was constituted under Ex. B-l10, dated 22-4--1970. Accordingly u/s 37 of the Partnership Act. reference to which has been made above, defendant No. 3 would be entitled to a half share therein amounting to Rs. 18,878.87 ps towards the seven paise share which was clubbed with the share of Kota Pullaiah. Defendant No. 3 would also be entitled to an additional l/7th share in the remaining half of the amount standing in the credit of Late Pullaiah which comes to Rs.2696.98ps. The total amount on this account falling to the share of defendant No. 3 would aggregate to Rs. 21,575.85 ps (Rs. 18,878.87 + Rs.2698.98).The 3rd defendant, as per Section 37 of the Partnership Act, is entitled to 6% interest thereon which works out to Rs. 34,953.12 ps from 19-4-1970 till 19-4-1997. The amount thus defendant No. 3 is entitled towards his share as principal and interest aggregates to Rs. 56,528.97 ps. However, it may be noted here that one of the brothers Kota Narayana Rao, 6th defendant in the suit, died and was not impleaded as a party respondent to L.P. A. No. 403 of 1985. Accordingly, the l/7th share (Rs. 8,075.57 ps) of Kola Narayana Rao who is not party to the appeal or to these proceedings would have to be excluded from the aforesaid amount. Excluding the said l/7th share of Narayana Rao, the defendant No. 3 would be entitled to a sum of Rs. 48,453.40 ps (Rs. 56,528.97 ps -- Rs. 8,075.57 ps). A money decree shall accordingly be passed for the said sum.
It may also be noted here as has been brought to our notice by Sri T, Veerabhadraiah, learned counsel for Respondent Nos. 1, 2, 3 and 5 that during the pendency of the proceedings before this Court, the mother of defendant No. 3 i.e., defendant No. 7 died on 29-10-1980 leaving behind a Registered Will and the respondent No. 2 herein, Kota Radha Krishna Murthy, is the legatee under the said Will, who was also taken over the liabilities of his mother. Accordingly, the 1/7th share which the mother would have been liable to pay to the defendant No. 3 would have to be added on to Respondent No. 2 -- Kola Radha Krishna Murthy and he shall be liable to pay and discharge the same.
To obviate the calculations and difficulty in apportionment, we have considered it appropriate to calculate the same with the assistance of the learned counsel and arrived at the amount that is liable to be paid by the respective defendants to Appellant No. 1 (defendant No. 3) as shown below :
A sum of Rs. 48,453.40 ps shall be payable by respondents Nos. I to 4 herein i.e., defendants Nos. 1, 2,4 and 5 in the following proportions :
Respondent No. I -- Kota Venkateswarlu --Rs. 9,690.68
Respondent No. 2 -- Kota Radhakrishna Murthy -- Rs. 19,381.36
Respondent No. 3 -- Kota Sankara Rao --Rs. 9,690.68
Respondent No. 4 -- Kota Narasimha Rao --Rs, 9,690.68
A money decree in favour of defendant No. 3 is accordingly passed for recovery of the sums payable in the proportions set out above against the respective respondents-defendants. The learned counsel for the respondents has undertaken to deposit the said amount into the trial Court within three months from today. In default, the defendant No. 3 shall be entitled to execute the said decree.
In the result, the appeal is allowed reversing the judgment and decree passed in O.S. No. 203 of 1970 as affirmed in A.S. No. 154 of 1977 and instead, a preliminary decree for partition of items 1 and 2 of plaint A schedule properly is hereby passed. The plaintiffs shall, however, work-out their equities from the share that may be allotted to defendant No. 3. Further, a decree for money in a sum of Rs. 48,453.40 ps (Rupees Forty Eight Thousand four hundred and fifty three and forty paise only) shall be passed in favour of defendant No. 3 and against respondents 1 to 4 herein i.e., defendant Nos. 1,2,4 and 5, in the proportions indicated above.
Having regard to the relationship between the parties, there shall be no order as to costs.
Appeal allowed.