Prem Prakash Kapoor vs Gobind Ram Kapoor and others

Mufti Baha-Ud-Din Farooqi, J.—The plaintiff and defendants 2 to 5 are real brothers. Defendant No. 1 is their father. Defendant No. 6 is

the plaintiff's brothers' son and the grandson 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, woollen 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 1-4-1969 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 Romesh 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 past 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 partners who shall be entitled to take such extracts

therefrom 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 of loss shall be adjusted in the personal accounts of the partners in accordance with the terms of

this partnership deed.

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

Basing his claim on the aforesaid partnership deed the plaintiff has instituted this suit on 28-9-1974 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 is 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 a letter addressed to him by defendant No. 4, that

he bad 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 in fact executed an arbitration agreement designating Shri Maqsood Ali 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.

Along with the suit he made an application for the appointment of an ad interim receiver as also for the preparation of the inventory of the

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

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

opposed the prayer for appointment of ad interim 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 of 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.

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 or title to participate in The affair of the

firm

The short question to be determined is whether on the facts and circumstances of the present case ad interim receives can be justifiably

appointed.

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

thereunder has come to an end and the plaintiff has ceased to be a partner with effect from April 1, 1973. u/s 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 so the plaintiff under a certificate of posting. The address shown against the plaintiff

is mat 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 Hamdard dated June 24, 1972 which the plaintiff, on 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 sum of Rs. 15,000/- in three instalments of Rupees 5,000/- each

which fee sent by cheques and were duly received by the defendants. According to him the notice is fake 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 me

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 per cent, on the 1/10th

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 me plaintiff who even put it to the counsel for thee 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 in fact signed the form. The circumstance founded on the form cannot therefore be treated as a circumstance hostile to the plaintiff for the

present purposes 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 value of agreement dated May 1, 1969, has since come to an end. On the other hand it

must he 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 facie the defendants have not only

denied tins right to the plaintiff and excluded him from the business from April 1, 1973 but ever since they have also taken over the stocks to trade

and the business of the firm and dealt with it an 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 pendente lite.

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. Ramchandrayya v. Nethi Iswarayya, (AIR 1952 Hyd 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 Others Vs. Ram Niwas Munna Lal and Others, 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 sum of Rs. 1,20,000/-. In my opinion, in the matter of the appointment of a 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.

The learned counsel for the defendants relied on the decisions in cases reported as Sudhansu Kanta Vs. Manindra Nath, ; Bhagawan Ram Kairi

Vs. Radhika Ranjan Das and Others, ; Bank of Commerce Ltd. (In Liquidation) Vs. Arun Kumar Chowdhury and Others, ; AIR 1952 Hyd 17;

AIR 1936 Mad 966; Satis Chandra Giri Vs. Benoy Krishna Mukhopadhya and Others, and AIR 1936 Lab 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 a 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, damaged or destroyed or lost 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.

The learned counsel for the defendants next argued that the interests of 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

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

Commissioners. 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 therefrom 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.

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 u/s 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 non-joinder 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 v. B.K. Thapper decided on 10-1-1975 = (Reported in AIR 1976 J & K 30) 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:

Where 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.

The question still remains: who should be appointed receiver 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 as 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 from 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 requirements. 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 co-accountant with their accountant and the accounts of the firm are required to be maintained

under the joint signature of the two accountants, the nominee of the plaintiff in addition keeping watch over the business and its assets generally.

This was in fact 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. I

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.