Sardar Hardutt Singh vs Ch. Mukha Singh and others

Jaswant Singh, J.—This civil second appeal is directed against the judgment and decree dated May 20, 1971 of the Sub Judge (Chief

Judicial Magistrate), Jammu, whereby he affirmed the judgment and decree dated December 19, 1970. of the Munsiff, Jammu, dismissing the

appellant's suit for dissolution of partnership and rendition of accounts.

It appears that the appellant sought the dissolution of partnership known as 'Naiya Kashmir Transport Company, Jammu, which was brought

into existence vide deed dated February 10, 1964. on the grounds that the partnership was at will, that the defendants Nos. 1 to 7 were not

interested in promoting the partnership business and had started a new firm known as M/s. Ashoka Transport Service Jammu, that the said

defendants had in collusion with each other been acting in a manner which had prejudicially affected his interests and had caused huge loss to him,

that in breach of the partnership agreement the defendants had withdrawn the entire amount from the Jammu and Kashmir Bank which stood to the

credit of the partnership, that in spite of the fact that the partnership had earned profits of thousands of rupees since the dispute between the parties

began the defendants had shown that it was running at a loss, that mutual confidence amongst the partners having been lost the partnership business

could not be carried on save at a loss and that it was just and equitable that the partnership be dissolved.

The suit was resisted on various grounds. The main defence taken by the contesting defendants was that the suit was not maintainable as the

conditions laid down in clause 18 of the aforesaid partnership agreement had not been fulfilled in that one month's notice which was mandatory had

not been given, the balance sheet had not been prepared and the amount due to or from each partner had not been paid. The defendants further

contended that the suit was also not maintainable as under clause 10 of the agreement all the disputes between the parties had to be referred to

arbitration.

On the pleadings of the parties the following issues were framed:-

1/- Whether the suit is not maintainable by virtue of clause 18 of the Partnership Deed, admitted by the parties. without one month's prior notice,

which admittedly the plaintiff has not given? O. P. Ds.

2/- Whether M/S Naya Kashmir Transport Coy, is registered under the Partnership Act? O. P. P.

3/- In case Issue No. 2 is disproved whether the suit is not maintainable? O. P. Ds.

4/- Whether the suit is not maintainable by virtue of clause 10 of the Partnership Deed, without referring the same to the arbitration? O. P. Ds.

5/- Whether the partnership is at ""Will"", if yes, what is its effect on the suit? O. P. P.

6/- In case Issue N. 5 is disproved, whether the plaintiff is entitled to get the partnership dissolved, if yes. under what circumstance? O. P. P.

7/- In case of dissolution of the partnership, which of the parties, or which one from amongst the parties are the accounting parties and what are

the shares of the partners in the partnership? O. P. P.

8/- To what relief the parties are entitled to? O. P. Parties.

The trial court decided Issues Nos 1, 2, 4, 5, and 6 against the plaintiff and Issue No. 3 in his favour. In view of its findings it abstained from

recording any finding regarding Issues Nos. 7 and 8.

On appeal the learned Sub Judge. Jammu, also came to the conclusion that as the provisions of Section 44 of the Partnership Act were subject

to contract between the parties, one month's notice in accordance with clause 18 of the partnership agreement had not been given by the plaintiff,

debit and credit statement had not been prepared and accounts had not been settled and all disputes between the parties were referable to

arbitration, the suit was not maintainable. He accordingly dismissed the appeal. It is against this decision that the present appeal has been preferred.

Appearing on behalf of the appellants Mr. Kotwal has urged that the findings of the courts below that the suit was not maintainable are

erroneous, that contract between the parties is subject to the provisions of the Partnership Act, that Section 44 of the Act is not controlled by S.

43 thereof, that the suit fell within the purview of Section 44 of the Act and that since the defendants had sought opportunities to file the written

statement they could not invoke the provision of Section 34 of the Arbitration Act.

Mr. S. P. Gupta learned counsel for the respondents has on the other hand urged that clause 18 of the agreement is wide enough to cover all

suits for dissolution whether based on the grounds contained in Section 43 or Section 44 of the Partnership Act. that Section 43 was not controlled

by Section 44 of the Act, and that the suit was not maintainable in view of the clauses 18 and 10 of the Partnership agreement and Section 43 of

the Act.

I have given the matter my anxious consideration and am of opinion that this appeal must succeed. Though in his petition of plaint the appellant

averred that he was entitled to dissolution of, partnership as it was determinable at will he had also put forth several other grounds for its dissolution

which were clearly covered by S. 44 of the Partnership Act. A reference to S. 11 of the Partnership Act would show that contract between the

parties is subject to the provisions of the Act. A further scrutiny of Ss. 41, 42, 43 and 44 of the Act would show that they deal with different kinds

of dissolutions of a firm and neither Section 43 which deals with dissolution of Partnership at will by notice in writing nor contract between the

parties can control the provisions of Section 44 of the Act. Whenever the Legislature intended to leave it open to the partners to avoid the

operation of a particular provision of the Act by entering into a contract to the contrary effect it has stated so in express terms just as in Ss. 12 to

17 and Section 42. It can therefore, be safely said that Section 44 of the Act confers an absolute and independent right on a partner to have the

partnership dissolved on any of the grounds specified therein and it is not open to the parties to take away that right by means of a contract

between them.

I am fortified in this view by the following observations made by the Privy Council in Rahmatunissa Begum v. Price, AIR 1917 PC 116:

A Partner's claim to a decree for dissolution rests in its origin, not on contract. but on his inherent right to invoke the court's protection on

equitable grounds, in spite of the terms in which the rights and obligations of the partners may have been regulated and defined by the partnership

contract.

It is, not therefore, any contravention of Section 252 (Contract Act) for one of the partners to seek a dissolution or for the court to decree it u/s

254 of the Act when the partnership is working only at a loss, though the partnership agreement contemplated the continuance of the partnership

beyond the date at which the suit was instituted.

The following observations made in Lilabati Rana Vs. Lalit Mohan Dey and Others, would also be found helpful in this connection:

Mr. Banerjee contends that unless a notice in writing is served on all the other partners, a suit brought by a partner. for dissolution of the

partnership even on any of the grounds mentioned in Section 44 of the Indian Partnership Act. would not be competent. Chapter VI of the Indian

Partnership Act deals with the dissolution of a firm. Dissolution may be in one of different ways. Section 40 refers to dissolution by agreement, and

Section 41 to compulsory dissolution. Section 42 deals with the dissolution on the happening of certain specified contingencies. Section 43 refers

to dissolution of partnership at will by notice in writing and Section 44 is about dissolution by the court. Sections 45 to 55 deal with various

contingencies after dissolution, method of taking accounts etc.

The interpretation sought to be put by Mr. Banerjee on Section 43. if accepted, would have the effect of making Section 43 the controlling Section

of all the different kinds of dissolution. It is patent that no reference to any service of notice is made in Section 41 or 42 or 44 of the Act. It will

also appear that a service of notice is not possible in some of these cases. If a dissolution is to be effected after service of notice, then that notice

must be in writing as required by Section 43 of the Act. But on the other hand, if dissolution is sought for not on serving of notice but on fulfilling

certain conditions specifically mentioned in one of the Sections referred to above, then service of notice is not the ""sine qua non"" in each of those

other cases.

XX XX XX

In the present case also, the plaint in one part is founded upon dissolution by service of notice of a partnership at will. The prayer founded on that

part of the case is for a declaration that the partnership stood dissolved with effect from the date of service of such notice. But there is the

alternative prayer made in the plaint that the partnership be dissolved by a decree of the court and there are sufficient materials in the plaint in

support of that alternative prayer. Even if the first prayer which is based upon the service of a notice dissolving the partnership is hit by the

provisions contained in Section 43 of the Act and cannot be granted the court is still bound to consider the other alternative prayer. That prayer is

not founded on any service of notice, but on other materials referred to and relied upon in the plaint.

XX XX XX

On a reading of the Sections themselves, there is no doubt that the provisions contained in Section 43 of the Act do not control the other

provisions of this Chapter and that it is possible to have the partnership of a firm dissolved even when no notice in writing had been given as

required under Sec. 43. This objection, therefore, must be overruled.

Again the following passage occurring in the decision of the Madras High Court in Vali Venkataswami and Others Vs. Gannabathulla

Venkataswami, also lends support to my view.

The only contention which requires consideration is the existence of clause 28 of the partnership agreement which provides that:

If any partner is not willing to continue as partner in the said cinema, he should transfer and sell his share of the amount credited in his account

towards capital of the cinema to all other partners or to some of them or to one of them but he has no right to sell the same to outsiders.

This clause, it is contended, is a bar to the maintainability of the suit as the right to institute a suit for dissolution u/s 44. partnership is excluded by

the clause. Reliance was placed in support of this position on a decision of the Allahabad High Court in Smt. Dropadi Vs. Bankey Lal and Others,

. u/s 11, Partnership Act the mutual rights and duties of the partiers of a firm are to be determined by the contract between the parties and such

contract between the parties may be express or implied. But this is however, made subject to the provisions of the Act.

Assuming for a moment that CI. 22 of the partnership deed amounts to a contract to the contrary, the question is whether it is open to the partners

to contract out of the right conferred by S. 44, Section 44. it may be observed is not made subject to the contract between the parties and gives a

right to the partners to seek the assistance of the court to have partnership dissolved on grounds specified in the Section. Section 11 makes the

contract between the parties subject to the provisions of the Act, and Section 44 being one of the provisions of the Act. the contract is

undoubtedly subject to the right u/s 44. Section 11. therefore, does not override the provisions of Section 44. In the Act itself whenever the

Legislature intended that the right conferred under a particular Section is to be subject to the contract between the parties, it has expressly stated

so, for example Sections 12 to 17 and Section 42. On a plain reading therefore of the provisions of the Act it seems to me clear that the clause in

the partnership deed would not affect in any manner the right of the partner to institute a suit for dissolution provided the grounds enumerated in

Section 44 exist.

The decision of the Allahabad High Court in Smt. Dropadi Vs. Bankey Lal and Others, , to which my attention has been drawn by the learned

counsel for the respondents cannot be relied upon as the court in the latter decision namely Ranjit Singh Vs. State, . observed as follows in respect

thereof.

It is also argued by the learned counsel for the appellants that the right to sue for dissolution of partnership has been conferred on them by Section

44, Partnership Act and that, therefore, it could not be controlled by any stipulation in the deed of partnership. We consider that this contention has

force, but in view of the case reported in Smt. Dropadi Vs. Bankey Lal and Others, and of the consideration that the appeal can be disposed of on

another point, we do not express any final opinion on the contention.

There are certain provisions of the Act which confer rights on partners but make them subject to contract between them. They are to be found in

Sections 12 to 17. Similarly there are certain provisions e.g. those contained in Section 19 (2) which are subject to usage or custom of trade. But

Section 44 is not subject to any such limitation. The right conferred by this Section on parties is absolute. Section 11 lays down:

Subject to the provisions of this Act, the mutual rights and duties of the partner of a firm may be determined by contract between the partners, and

such contract may be express or may be implied by a course of dealing. Such contract may be varied by consent of all the partners and such

consent may be express or may be implied by a course of dealing.

It will follow from the language of this Section that, while partners can regulate their rights by mutual agreements, such agreements must remain

subject to the provisions of the Act including Section 44. If. therefore, there is anything in an agreement which takes away the right to sue for

dissolution of Partnership-which right is conferred on a partner by Section 44-the agreement should give way to the clear provisions of Section 44.

Such a view was expressed in the case reported in Vali Venkataswami and Others Vs. Gannabathulla Venkataswami, . which dissented from the

aforesaid Allahabad case.

It may be mentioned that the learned Judges who decided the Allahabad case had this very partnership deed before them for consideration and the

then suit was also for dissolution of partnership. That decision was given in 1939 i e before the enactment of the Arbitration Act.

But paragraph 18 of the second Schedule of the CPC was then in force and the attention of the learned Judges was not invited to that provision of

law. We have gone through the judgment and we find no reference to paragraph 18 of the Second Schedule of the CPC in it.

Thus neither C1. 18 of the said partnership agreement nor Section 43 of the Partnership Act could operate as a bar to the suit and the findings

of the courts below in this regard are clearly erroneous.

The finding of the courts below that the suit is not maintainable in view of clause 10 of the partnership agreement is also erroneous. According

to Section 34 of the Arbitration Act if a person who has been a party in an arbitration agreement brings a suit ignoring that agreement the

defendant's remedy if he wants to rely on that agreement is to make an application for the stay of the suit before the written statement or taking any

other steps in the proceedings. As in the instant case, the defendants instead of filing an application asking for the stay of the suit u/s 34 of the

Arbitration Act sought opportunities for filing the written statement, they could not avail of clause 10 of the agreement I am fortified in this view by

a decision of this Court in Radha Krishen v. State of Jammu and Kashmir. AIR 1964 J & K 75, where it was held as follows:

If a party after knowing the case against him prays for an adjournment to file the written statement, that will be deemed to be a step in the

proceedings.

The observations made in Union of India (UOI) Vs. Girish Chandra and Others, . are also to the same effect.

For the foregoing reasons. I allow this appeal with costs, set aside the judgments and decrees of the courts below, and remand the case to the

trial Court for decision in accordance with law after determination of Issues Nos. 7 and 8 which were left undetermined by it.

The parties are directed to appear before the trial Court for further directions on May 6, 1972.