Sardar Hardutt Singh vs Ch.Mukha Singh & Ors.

(1) This civil second appeal is directed against the judgment and decree dated May 20, 1971 of the Sub Judge (Chief Judicial Magistrate),

Jammu, whereby be affirmed the judgment and decree dated December 19, 1970, of the Munsiff, Jammu, dismissing the appellant's suit for

dissolution partnership and rendition of accounts.

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that in breach of the partnership agreement the defendants had withdrawn the entire amount from the Jammu and Kashmir Bank which stood to the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

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

condition laid down in clause IS of the aforesaid partnership agreement had not been fulfilled in that 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

(4) 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 ? OPP

(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 No. 5 is disproved, whether the plaintiff is entitled to get the partner, ship dissolved, if yes, under what circumstances ? O. P. P.

(7) In case of dissolution of the partnership, which of the parties, or which one from amongst the patties 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.

(5) The trial court decided Issue 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 Issue Nos 7 and 3.

(6) 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.

(7) Appearing on behalf of the appellants Mr. Kotwal has urged that the findings of the court below that the suit was not maintainable are

erroneous, that contract between the parties is subject to the provisions of the partnership Act, the Section 44 of the Act is not controlled by S. 34

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.

(8) 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 44 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.

(9) 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 determined at will he had also put forth several other grounds for its dissolution

which were clearly covered by Section 44 of the partnership Act, A reference to Section 11 of the partnership Act would show that contract

between the parties is subject to the provisions of the Act. A further scrutiny of Section 41. 42. 43, and 44 of the Act would show that they deal

with different kinds of dissolution 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 in to a contract to the contrary effect it has stated so in express terms just as in

Section 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.

(10) I am fortified in this view by the following observations made by the Privy Council in Rehmatunissa Begum Versus Prixe and others, A. I. R.

1917 Privy Council, 115:

`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, inspite of the terms in which the rights and obligation 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 under

Section 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.

(11) The following observations made in Smt Lilabati Rana v. Lalit Mohan Dey and others, A. I. R. 1952 Calcutta. 499 would also be found

helpful in this connection 3

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 S. 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 S. 41 to compulsory dissolution, Section ^2 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 S. 44 is about dissolution by the court. Section 45 to

55 deal with various contingencies after dissolution, method of taking accounts etc.

(12) The interpretation sought to be put by Mr. Banerjee on S. 43 if accepted, would have the effect of making S. 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 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 42 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 'sina que non' in each of those other

cases.

X X X X

(13) In the present case also, the plaint in one part is founded upon dissolution by service of the 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.

X X X X

(14) On a reading of the Section themselves, there is no doubt that the provisions contained in S. 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

Section 44. This objection, therefore, must be overruled.

X X X X

(15) Again the following passage occurring in the decision of the Madras High Court in Vali Venkat aswami and others v Gannabathulle

Venkataswami, A; I. R. 1954 Madras, 9 also lends support to my view.

The only cotention which requires consideration is the existence of Ci. 22 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 but he has no right to sell the same to outsiders.'1

(16) This clause it is contended, is a bar to the maintainability of the suit as the right to institute a suit for dissolution under S. 44 Partnership is

excluded by the clause Reliance was placed in support of this position and a decision of the Allahabad High Court in Smt; Protadi v. Bankey Lal,

A, I R. 1939 Allahabad 548 Under Section 1 (Partnership Act, the mutual rights and duties of the partnership of a firm are to be determined by the

contract between the parties and such contract between the parties and such contract may be express or implied But this is, however, made

subject to the provisions of the Act.

(17) Assuming for a moment that Cl 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 41, 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 under S 44 Section 11, therefore, does not override the provisions of S. 4J 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 Ss 12 to 17 and S. 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 effect in any manner the right of the partner to institute a suit for dissolution provided the grounds enumerated in S, 44

exist.

(18) the decision of the Allahabad High Court in A. I. R. 1939 Allahabad. 548, to which my attention has been drawn by the learned counsel for

the respondent cannot be relied upon as the court in the later decision namely W. R. Raghunath Prasad and others v. Gurdayal Prasad and ors, A.

I, R. 1956 Allahadad 194 observed as follows in respect there of.

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 v. Bankey Lal A, I. R. 1939 All. 543 and of the consideration that the appeal can be

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

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

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 agreement of such agreements must remain

subject to the provisions of the Act including S 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 S. 44 the agreement should give way to the clear provisions of S. 44. Such a view was

expressed in the case reported in v. Venkataswemi v. C. Venkataswatni A. I. R. 1954 Mad, 9 which dissented from the aforesaid Allahabad case.

(21) 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.

(22) But paragraph 18 of the second Schedule of the Code of Civil Procedure 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 para, graph 18 of the Second Schedule of the

Code of Civil Procedure in it.

(23) Thus neither clause 18 of the said partner, ship agreement not 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.

(24) 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 partnership 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 filing 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 under

Section 34 of the Arbitration Act sought opportunities for filing the written statement, they could not avail of the clause 10 of the agreement. I am

fortified in this view by a decision of this court in Radha Krishen Mirza Versus The State of Jammu and Rashmir, 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.

(25) The observations made in Union of India v. Girish Chandra and ors. A. I. R. 1953, All, 149, are also to the same effect.

(26) For the foregoing reason. 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 undetermined by it.

(27) The parties are directed to appear before the trial court for further directions on May 6, 1972.