Prem Prakash Kapoor vs Gobind Ram Kapoor and others

(1) The Plaintiff and defendants 2 to 5 are real brothers. Defendant No. 1 is their father. Defendant No. 6 is the Plaintiffs brothers son and the

grand son of defendant No 1. By an agreement dated May 1, 1969 the Plaintiff and defendants 1 to 5 entered into a partnership for carrying on

business in the sale and manufacture of various categories of cloth, woollemn and silken, under the name and style of M/s Kapoor & Co' ,

Srinagar. with its head office at Srinagar. The profit and loss was to be shared in the proportion entered in the deed. Defendant No. 6, who was

then a minor, was also admitted to the benefits of the partnership. The partnership business actually commenced from April 1, 1969. The relevant

provisions of the deed are these ;

(7) The partnership shall be deemed to have started from 141969 and shall be partnership at will.

(8) All partners except Shri Romesh Chander Kapoor (party of the sixth part) shall be actively engaged in the partnership business. Party of the

sixth part i. e. Shri Ri mesh Chander Kapoor being engaged in Army service shall be a sleeping partner only.

(10) That the partnership shall be liable to be determined by any party hereto giving a notice in writing not less than three months before the expiry

of the account year and by virtue of the aforesaid notice the partnership shall stand determined on the date of expiry of its then current financial

year. Provided that in case any partner retires during the currency of any year the proportionate share of profit or loss upto the date of retirement

shall be determined proportionately in accordance of the profit or loss of the last preceding year.

(12) That all necessary and proper books of accounts shall be kept by the partnership and shall not be removed from the place of business without

the consent of all the partners. The account books shall be open to inspection by each of the partner who shall be entitled to take such extracts

there form as they think fit.

(13) The books of account of the partnership business shall be closed on the last day of March every year when a profit or loss account and

balance sheet be prepared. The resultant profit or loss shall be adjusted in thepersonal accounts of the partners in accordance with the terms of this

partnership deed.

(14) All other matter not sufficiently covered by the above clause shall be decided by the mutual consent of the partners.

(2) Basing his claim on the aforesaid partnership deed the plaintiff has instituted this suit on 2891974 against the defendants for declaration that he

is a partner of the firm and for injunction restraining the defendants from interfering with his right to participate in the partnership business as also for

rendition of accounts; past, present and future. The plaintiff's case is that his capital investment in the firm was Rs. 25,000/ which he paid by

cheques and later on invested further sums on different occasions either by .cash or cheques which raised his capital investment to more than Rs.

50,000/ and' when added by the profit, that has accrued to him during the last five years, his investment in the firm amounts to more than rupees

two lacs. His further case to that he is entitled to participate in the affairs of the firm as also to know the details of business accounts, stocks and

other things connected therewith but, says he, he could not exercise this right as a private trip carried him outside the State and when he returned,

the defendants refused him access to the accounts and did not also allow him to participate in the management of the business and when he issued

notices to them to concede this right of him, he was told to his surprise on August 13, 1973, by letter addressed to him by defendant No. 4, that he

had ceased to be a partner from April 1, 1973. He adds that he approached his father, defendant No. 1 for an amicable settlement who agreed to

refer the matter to arbitration and infect executed an arbitration agreement designating Shri Maqsood AH and Piarey Lal Handoo as arbitrators,

but the arbitration agreement was never acted upon and was also invalid as other defendants did not join it.

(3) Alongwith the suit he made an application for the appointment of an adinterim receiver as also for the preparation of the inventory of the

partnership assets. On this application two commissioners were appointed to make inventories of che articles found in the shop, godown and

factory premises of the firm. The order was made exparte. The defendants have since made an application for recalling that order and also

opposed the prayer for appointment of adinterim receiver. At the hearing counsel for the defendants, however, reserved his right to press for the

recall of the order at some future date and simply opposed the request for the appointment cf receiver. In the meantime, on the application of the

plaintiff, it was ordered by this court on December 16, 1974 that the counsel for the parties will jointly sign the Account books maintained by the

firm.

(4) The defendants have not filed their written statement so far. In their objections as also at the hearing, the prayer for appointment of receiver

was opposed on their behalf mainly on the ground that the plaintiff, though originally a partner in the firm, had ceased to be so with effect from

April 1, 1973. They maintained that the partnership was a partnership at will, and was liable to be determined at the instance of any party thereto

and that it was so determined at the instance of defendants 2 and 4 adding that the said defendants had given a notice of dissolution as early as

June, 1972 and served it on the plaintiff and also notified it in the daily Hamdard, a newspaper originating from Srinagar, in its issue dated June 24

1972 and in consequence the partnership stood dissolved with effect from April 1, 1973 as envisaged by clause 10 of the partnership deed. They

maintained further that the plaintiff had been certifying the balance sheets of the firm by signing Form No. 12 as a partner of the firm under the

Income Tax Act right upto March 31, 1973 when he ceased to be a partner adding that from April 1, 1973 the defendants had constituted a new

partnership under the old name and style of 'M/s Kapoor & Co' on the terms and conditions contained in the agreement deed dated July 15, 1972

and were ever since carrying on the business of the firm to the exclusion of the plaintiff who had ceased to have any right title to participate in the

affairs of the firm.

(5) The short question to be determined is whether on the facts and circumstances of the present case adinterim receiver can be justifiably

appointed.

(6) The partnership deed dated May 1, 1969 set up by the plaintiff is not denied by the defendants. Their case is that the partnership created there

under has come to an end and the plaintiff has ceased to be a partner with effect from April 1, 1973. Under section 109 of the Evidence Act when

the question is whether certain persons are partners and it has been shown that they have been acting as such, the burden of proving that they have

ceased to stand to each other in that relationship is on the person affirming it. Accordingly it is for the defendants to show prima facie that their

partnership with the plaintiff has come to an end and the plaintiff has ceased to be a partner under the aforesaid deed. They have produced a copy

of notice dated June 1, 1972, which they say, was forwarded to the plaintiff under a certificate of posting. The address shown against the plaintiff is

that of Srinagar. The plaintiff denies the receipt of the notice saying that he was abroad and the question of his receiving the notice could not arise.

The defendants have also relied on the advertisement issued in the Daily Kamdard dated June 24, 1972 which the plaintiff, oa parity of reasoning,

denies having been noticed by him. He says that even in March 1973 money was invested by him in the firm to the tune of Rs. 15,000/ in three

installments of Rs. 5000/ each which he sent by cheques and were duly received by the defendants. According to him the notice is hake and

forged. Whether the plaintiff was served with any notice of dissolution is a question of fact to be determined at the trial. That stage is yet to come.

Presently the only document available on the record supporting the service is the certificate of posting. Weighed against the fact that even in March

1973 the plaintiff' made investments in the firm which have been duly received by the defendants and accounted for in the accounts of the firm, a

copy whereof has been submitted by the defendants, as also the fact that the notice was not followed up by the division of the assets and liabilities

in the manner required by the Partnership Act, as it ordinarily should have been, it is difficult to accept the certificate of posting as a prima facie

proof of the fact that the notice of dissolution was issued and served on the plaintiff, particularly so when the plaintiff has stated that he was residing

abroad at the relevant time. It may be noted here that no proper division of the assets and liabilities of the firm has been made after the issue of the

alleged notice nor even have they been evaluated. All that the defendants have done, as plainly conceded by them, was to prepare a credit and

debit account of the plaintiff and make a provision in the new partnership deed executed by them on July 15, 1972 that they will be liable to pay to

the plaintiff a premium of 10% on the 1/IOth of the stocks in trade of the erstwhile firm taken over by them together with the amount found

standing to his credit on an account being taken of profit and loss on March 31, 1973. Their allegation that Form No. 12 covering the income tax

returns of the firm had been signed by the plaintiff was vehemently refuted at the hearing by the counsel appearing for the plaintiff who even put it to

the counsel for the other side that if he could show that the plaintiff had signed any such form, he would not press his application. The counsel for

the defendants could not show that the plaintiff had infect signed the form. The circumstance founded on the formcannot therefore be treated as a

circumstance hostile to the plaintiff for the present purpose of the case. In this background it is difficult to hold that the material presently available

on record is enough to suggest prima facie that the partnership, which admittedly came into existence between the parties by virtue of agreement

dated May 1, 1969, has since come to an end. On the other hand it must be held that a prima facie case of partnership based on the said

partnership deed has been made out by the plaintiff. In that view the plaintiff is prima facie entitled to manage the affairs of the firm and to have

access to the accounts thereof. On admitted facts the defendants have not only denied this right to the plaintiff and excluded him from the business

from April 1, 1973 but ever since they have also taken over the stocks in trade and the business of the firm and dealt with it as their own after

entering into a new partnership between themselves effective from the said date. The assets of the firm both, capital and liquid are therefore clearly

exposed to manifest peril and must be preserved. I am therefore of the opinion that this is a fit case in which the court may appoint a receiver

pennente lite.

(7) It is true that the instant case is not one for dissolution of partnership when, as was contended by the learned counsel for the defendants, a

receiver may ordinarily be appointed. But that does not prevent the court from appointing one in a case like the present where a suit has been filed

by one of the partners for declaration, injunction and rendition of accounts and he has made out a prima facie case of partnership and his exclusion

from the management of the partnership. In G. Ratnchandrayya V. Nethi Iswarayya (AIR 1952 Hyderabad, 139) it was held that in a suit filed by

one of the partners for declaration and injunction if a prima facie case of partnership is made out and the grievance of the plaintiff is that he is

excluded from the management, the appointment of a receiver would be justified. This case was followed in Nihalchand L. Jai Narain and ors v.

Ram Niwas Munna Lal and others (AIR 1968 Punjab, 523) and it was held that where a partner excludes another from the management of the

partnership affairs, a case is made out for appointment of a receiver and this doctrine is acted on even where the defendant contends that the

plaintiff is not a partner or that he has no interest in the partnership assets. That was a suit for specific performance of an agreement compelling the

defendants to execute a deed of partnership, dissolution of partnership and alternatively for a decree for a tuna of Rs. l,20,000/ In my opinion, in

the matter of the appointment of receiver the form of the suit does not matter. What really matters is that the relief by way of the appointment of a

receiver must be auxiliary to the relief claimed in the suit. That this is so in the present case can hardly be disputed. The argument of the learned

counsel cannot, therefore, be accepted.

(8) The learned counsel for the defendants relied on the decisions in cases reported as AIR 3965 Pat. 144 ; AIR 1953 Assam, 25, AIR 1965 Cal.

333; AIR 1952 Hydrabad 17, AIR 1936 Mad. 966 ; AIR 1926 Cal. 1092 and AIR 1937 Lah. 102 to support his contention that the present

case was not a fit case for the appointment of a receiver. In these cases the court has either refused to appoint a receiver or appointed one bearing

in mind the general principle that before an receiver can be appointed, the party seeking such appointment should make out that he has a strong

prima facie case in his favour and that the property is in danger of being wasted, damage 1 or destroyed or lest or is otherwise exposed to manifest

peril. The principle is unquestionable. Clearly it does not stand in the way of the plaintiff in the present case being granted the prayer for

appointment of receiver.

(9) The learned counsel for the defendants next argued that the interests cf the plaintiff were amply safeguarded by order dated December 16,

1974 of this court whereby the existing account books of the firm were required to be signed jointly by the counsel for the parties. That order was

made in the context of the apprehensions expressed by the plaintiff that the defendants were mutilating the entries or making new entries in the

account bocks to bring them in accord with the stock position as revealed in the inventories prepared under the directions of the court by the

Commissioner. So doing the court only took care to preserve the entries made in the account books in the past. That is not enough to preserve the

partnership property particularly the income accruing there from from day to day from dissipation or misuse which is inherent in the domain thereof

being left exclusively with the defendants, as they presently have, without any check or control. The order is not even sufficient to check and

control the entries that might be falsely made in the account books in future. That being so the argument of the learned counsel cannot be accepted.

(10) Finally the learned counsel for the defendants argued that the suit was not maintainable because the firm had not been made a party, as it

should have been under section 69 of the Partnership Act. There can be no doubt that all the partners are parties to the suit. Assuming that the

objection about the nonjoinder of the firm as a party is valid, the defect is simply of a formal nature which can be remedied by a proper

amendment. In Vijay Kumar and anr. V. B. K. Thapper and anr. decided on January 10, 1975 a similar objection was raised when the question

before the court was whether a receiver should be appointed or not. Repelling this objection it was observed by me :

Whether the court finds from the facts and circumstances on record that there is case for the appointment of receiver, it will not allow its hands to

be tied up by mere formal objections particularly so where the objection is one which can be corrected by amendment.

These observations are equally applicable to the present case. I find no force in this argument and reject it.

(11) The question still remains : who should be appointed and with what powers and functions? Here one cannot lose sight of the fact that the

partnership consists of a big business dealing with the manufacture and sale of cloth and other piece goods. It has a manufacturing unit in Srinagar

and associated with the unit are quota rights. The business of the partnership is conducted in a shop in Amirakadal which is the main business

centre of the City to which is also attached a godown nearby. Every business house has its own ways of dealing with the business and its suppliers

and customers. The ultimate object of every business house is to make greater profits and at the same time to give maximum satisfaction to those it

comes to deal with, be they its suppliers or customers. The members of each business house assiduously work to that end which a stranger, if let

in, will not do. Accordingly in the case of a running business, like the present, the court will not, except under compelling circumstances, let a

stranger take over the business and run it. There are not such compelling circumstances present in the instant case. In that view it will be proper if

the defendants, who are admittedly having control of the business and its assets, should be appointed joint receivers of the partnership property

and the business. They will be required to maintain proper accounts of the assets of the partnership both capital and liquid including the income

accruing form the business and submit quarterly returns to this court pending final conclusion of the suit. They will also be required not to draw

money from the business for personal use in excess of their normal requirement. Lest the defendants should misuse the property or cook up the

accounts, it will be proper if a nominee of the plaintiff is associated as a coaccountant with their account and the accounts of the firm are required

to be maintained under the joint signature of the two accounts, the nominee of the plaintiff in addition keeping watch over the business and its assets

generally. This as infect the mode suggested by the learned counsel for the plaintiff who plainly conceded that it was not proper to introduce a

stranger to take over a running business like the one in the present case. The suggestion has appealed to me and I have no hesitation in adopting

the same. 1 make an order accordingly. The plaintiff will give the name of his nominee within a couple of days. The defendants will associate him

with themselves to discharge the functions mentioned above. His salary or wages, whatever it might be, shall be borne by the plaintiff as was

undertaken at the hearing by the counsel appearing on his behalf. The application for receivership shall be filed.