Scaria Paul vs Paracka Industries and Others

S.S. Satheesachandran, J.—Plaintiff is the Appellant. He is a partner of a registered firm, the 1st Defendant in the suit. Suit was laid for a

declaration that the 12th Defendant is not a duly accepted partner of the 1st Defendant firm and for a permanent prohibitory injunction to restrain

Defendants 1 to 11 from encumbering the plaint schedule property and also from inducting new partners to the firm, without the consent of all other

partners. Pending suit, the declaratory relief canvassed was given up and an adjudication was called for only with respect to the injunctions applied

for. The trial court, after examining the materials tendered, dismissed the suit holding that no cause of action had been made out by the Plaintiff. In

the appeal preferred by the Plaintiff against the dismissal of the suit, the lower appellate court partly decreed the suit, granting the Plaintiff a decree

of injunction restraining the Defendants 1 to 11 from encumbering the plaint schedule property without the consent of the existing partners of the

firm. However, the injunction sought for against alienation of the plaint schedule property was declined holding that Clause 20 of the partnership

deed (Ext. B-1) empower the managing partner or manager (sic) buy and sell landed properties. Plaintiff has filed this present appeal impeacl(sic)

the correctness of the decree to the extent, the injunction sought by him against Defendants 1 to 11 from alienating the plaint schedule property

without the consent of all the other partners of the firm, has been negatived by both the courts below.

The case set up by the Plaintiff for the reliefs claimed and the contentions raised by the contesting Defendants resisting such claims, in brief, can

be summed up thus:

Plaintiff is a partner of a registered firm, M/s Paracka Industries, which is the 1st Defendant in the suit. One among the partners of the 1st

Defendant firm, namely, Aliyakutty Paul passed away in 2002. His legal heirs, who are not partners of the firm, are impleaded as Defendants 12 to

18 in the suit. Defendants 2 to 11 are other partners of the firm. Alleging that without the consent of all other partners, the 2nd Defendant colluding

with some other partners, are making attempts to induct 12th Defendant in the place of deceased Aliyakutty Paul with the fraudulent intent to

encumber and alienate the plaint properties without the consent of all other partners of the firm the suit was laid for a declaration that the 12th

Defendant is not a duly accepted partner of the 1st Defendant firm and for injunction restraining Defendants 2 to 11 from encumbering or alienating

the plaint property without the consent of the other partners of the firm. The 2nd Defendant on behalf of the 1st Defendant as well filed a written

statement admitting that the Plaintiff with Defendants 2 to 11 are partners of the firm. He contended that the Plaintiff had no locus standi to institute

the suit and the 12th Defendant had been inducted as a partner of the firm with the consent of all the legal heirs of Aliyakutty Paul. Plaintiff has no

cause of action for instituting the suit and the 2nd Defendant, managing partner of the firm, as per the partnership deed, is competent to encumber

and alienate the properties, was the further contention of the 2nd Defendant. Some other Defendants namely, 3, 4, 6 to 12 and 18 filed a joint

written statement, in which, they adopted the contentions taken by the 2nd Defendant.

Pending suit, the 2nd Defendant passed away and his legal heirs were brought on record as additional Defendants 19 to 27, who filed an

additional written statement adopting the contentions taken by their predecessor, the 2nd Defendant.

Maintainability of the suit being challenged, it was considered preliminarily by the trial court. Suit was found to be maintainable, and then the trial

proceeded. The evidence consisted of P.W. 1 and Exts. A-1 to A-5 for the Plaintiff and Ext. B-1 and D.W. 1 for the contesting Defendants. The

declaratory relief canvassed in the suit that the 12th Defendant was not a duly accepted partner of the firm was given up in view of the stand taken

by the 2nd Defendant in his written statement that the firm had not been reconstituted with the 12th Defendant as a partner. The learned Munsiff,

after appreciating the materials tendered with reference to the pleadings, came to the conclusion that the Plaintiff has not made out a cause of action

for instituting the suit. On merits also, the learned Munsiff arrived at the conclusion that the Plaintiff has not succeeded in establishing the claim for

the discretionary relief of injunction applied for in the suit. Expressing the view that the Plaintiff has not approached the court with a definite case

and clean hands, the learned Munsiff held that he is not entitled to the relief of injunction, and the suit was dismissed.

The lower appellate court in the appeal preferred by the Plaintiff, after re-appreciating the materials tendered, differing from the view taken by

the trial court, held that the Plaintiff has made out the cause of action for the suit claim of injunction. Having regard to the terms of Ext. B-1

partnership deed, it was held that the managing partner has no right to pledge, hypothecate or encumber the property without the consent of the

other partners, and in that view of the matter, a decree of injunction restraining Defendants 1 to 11 from encumbering the plaint property was

granted in favour of the Plaintiff. However, the injunction sought against those Defendants from alienating the plaint schedule property was declined

holding that Clause 20 of Ext. B-1 partnership deed, which is quoted in the judgment of the lower appellate court, empower the 2nd Defendant to

buy and sell landed properties as and when needed on behalf of the firm. As against that part of the decree, negativing the claim of injunction

canvassed for to restrain Defendants 2 to 11 from alienating the plaint schedule properties, the Plaintiff has preferred this appeal.

I heard the learned Counsel on both sides. Though the 5th Respondent has not filed any written statement in the suit, at the time of hearing, the

claim of the Appellant/Plaintiff for the injunction canvassed for to restrain Defendants 2 to 11 from alienating the plaint schedule property is

supported by the counsel for that Respondent. Substantial questions of law formulated for hearing in the appeal pertained to the authority and

empowerment of one or more partners of the firm, singly or by a majority decision to alienate the plaint schedule property without the concurrence

of all the other partners of the firm, and that too, after the death of the 2nd Defendant, the previous managing partner, with the firm as of now

having no managing partner to carry on its activities. In appreciating the substantial questions of law formulated, the submissions made by the

counsel on both sides gave rise to another more significant question of law as to whether one or more of the partners can seek a decree of

perpetual prohibitory injunction against the firm or other partners without seeking for dissolution of the firm and settlement of accounts. The learned

Counsel on both sides addressed arguments in extenso on the above question, the answer to which it was agreed upon, has decisive effect in

disposing this appeal. Whereas the learned Counsel for the Appellant and also the 5th Respondent contended that there is no interdiction under the

provisions of the Partnership Act or the Specific Relief Act barring one or more partners from suing other partners for the relief of perpetual

prohibitory injunction to safeguard the interest of the court when the activities of such partners are against the interest of the firm the learned

Counsel appearing for the contesting Respondents contended that so far as the partnership business is concerned, the decision of the majority is

binding on the minority, and it is unfair for the court to interfere with the affairs of the firm except where its interference is called for to give effect to

the decision of the majority. The learned Counsel for the contesting Respondents stressing that there is no impropriety in the decision rendered by

the lower appellate court declining the perpetual prohibitory injunction sought for by the Plaintiff against alienation of the plaint schedule property

by other partners, however, fairly conceded that the interpretation placed on Clause 20 of Ext. B-1 partnership deed by that court to base its

conclusion to decline the injunction is not correct.

Before adverting to the question whether a suit of this nature as between the partners of a registered firm seeking restraint orders against some

partners from alienating the properties of the firm is entertainable or not, first of all, Clause 20 of the Ext. B-1 partnership deed has to be examined

on which, that alone, the lower appellate court has declined the injunction applied for by the Plaintiff. Clause 20 of Ext. B-1 partnership deed reads

thus:

The managing partner or manager has (sic is) also authorised to buy and sell landed properties as and when need on behalf of the firm.

The above clause empower the managing partner to dispose the plaint schedule property, an asset of the firm, without the consent of other

partners, was the view formed by the lower appellate court to refuse the injunction. Clause 17 of Ext. B-1 partnership deed was relied by the same

court to conclude that the Plaintiff is entitled to an injunction to restrain the other partners from hypothecating or encumbering the property, assets

or stock in trade of the firm. No detailed dilation over Clause 20 of Ext. B-1 partnership deed is called for as it has been fairly conceded by the

learned Counsel for the contesting Respondents that the terms thereunder read along with other provisions Of Ext. B-1 partnership deed, at best,

would only indicate of an authority on the Managing partner or Manager to execute a document on behalf of the firm, subject to the consent of all

the partners, and not of conferring any authority or empowerment to dispose or alienate the assets of the firm without the consent of the other

partners.

View taken by the lower appellate court to decline the injunction on a wrong interpretation of Clause 20 of Ext. B-1 partnership deed was

erroneous, does not assist the Plaintiff to get the discretionary relief of injunction against Defendants, other partners of the firm. The learned Munsiff

has found that all the material allegations raised by him in the suit imputing the induction of the 12th Defendant as a partner by the 2nd Defendant,

without the consent of other partners, apprehension raised as to the alienation of the property and other assets of the firm, that he had been made

to sign a partnership deed without his consent, and that he was not allowed to inspect the accounts of the firm, are not proved by independent and

convincing evidence. He did not even plead of the existence of Ext. B-1 partnership deed in the plaint nor produce a copy of that deed, which

continued in force when the suit was instituted, and he conceded in his evidence as P. W. 1, that there was no obstruction to him in going to the

office of the firm were all taken note of by the court to conclude that he is not entitled to the discretionary relief of injunction.

Irrespective of the reasonings given by both the courts below, the claim of injunction canvassed by the Plaintiff necessarily require to be

appreciated with reference to the law applicable to the partnership firm, having due regard to Ext. B-1 partnership deed. A partnership firm is not

an independent legal entity. Though the CPC enable the firm to sue or be sued in its name, really the partners are the actual owners of the assets of

the partnership firm. The firm name is only a compendious name given to the partnership for the sake of convenience. The assets of the partnership

firm, stock in trade, properties and even goodwill are owned by the partners of the firm. While the partnership continues, all partners, who are

owners of the assets to the extent of their contribution in the firm are all interested in its assets; only on dissolution of the partnership firm, assets of

the firm are distributed among them on settlement of the accounts in accordance with their respective shares in the firm. Such being the relationship

of the partners with the firm, is it prudent to hold that one or more of the partners on entertaining any apprehension of mischief by other partners of

the firm is empowered to approach a civil court for the discretionary relief of a restraint order to prevent the other partners from committing the

apprehended mischief. The 1st Defendant in the suit is a registered firm. Ext. B-1 partnership deed spells out that it is a partnership-at-will.

Partnership-at-will is one where the partners have not fixed by contract, the duration of the partnership, or for its determination. That being so,

what will be the effect of an injunction if at all granted by the court in a suit of the present nature as canvassed by the Plaintiff also require to be

taken notice of. Even if injunction is granted to restrain one among the partners from alienating the plaint property, for all intends and purposes,

such restraint order is passed against him as a partner of the firm. That being so, if the firm is dissolved by such a partner giving notice in writing to

all the partners, what will be the value of the decree of injunction passed by the court is a moot point. The general rule is that in case of a

partnership terminable at Will, an injunction will not be granted if a dissolution is not prayed for, the reason simply is that Defendant, might

immediately dissolve the partnership, and in that event, the injunction may become futile. Though the learned Counsel for the Appellant relied on

illustrations given to Section 54 under the Specific Relief Act of 1877 to contend that the court is empowered to pass the discretionary relief of

injunction at the instance of one partner against the another in a deserving case, I find more than the absence of such illustration in the present Act,

Specific Relief Act of 1963, a court should be guarded as to how far and to what extent it can pass such restraint orders, and that too, of a

perpetual nature in relation to disputes between partners in a partnership firm, perhaps, with the exception in cases where dissolution of firm and

settlement of accounts is canvassed for. May be in a deserving case of exceptional nature, it is open to the court to pass prohibitory orders to

restrain a partner at the instance of another partner to insulate and protect the interest of the firm, but, where the partnership is a partnership-at-

will, there cannot be a decree for perpetual prohibitory injunction. It is for the partners themselves to resolve their differences by mutual discussion

and deliberation, and no doubt, they are to be guided by the terms of the partnership deed. Intervention of the court to settle the differences by

prohibitory orders at the instance of one partner against the other in the absence of the relief of dissolution of the firm and settlement of accounts is

not desirable and that does not suit with the provisions covered by the Partnership Act.

In the light of the discussion made above, it is only to be stated that the Appellant/Plaintiff is not entitled to the decree of injunction to restrain

the Defendants/the other partners of the firm from alienating the plaint schedule property. The learned Counsel for the Appellant requested for

continuation of the interim order of injunction passed in the appeal at least for a short period to enable him to seek appropriate relief before the

appropriate forum to protect the interest of the firm and its partners in accordance with law. The limited relief as above sought for is not opposed

to by the Respondents.

The interim order of injunction passed in the appeal shall continue to remain in force for one month from today. Subject to the above direction, the

appeal is dismissed directing both sides to suffer their costs.