V. Anantha Raju and Others vs T.M. Narasimhan and Others

P.S. Dinesh Kumar, J.—This is an appeal filed by the plaintiffs against judgment and decree dated 18.8.2008 passed in O.S. No. 5622/2004 on the file of XXXIII Addl. City Civil and Sessions Judge at Bangalore.

For the sake of convenience, the parties shall be referred to as per their status in the Court below.

The case of the plaintiffs/appellants before the trial Court is that a firm in the name and style of M/s Selwel Combines (''firm'' for short) was constituted in the year 1986 and registered in the year 1990. It was reconstituted on 30.10.1992. The reconstituted firm consisted of the first plaintiff and defendants 1 to 5 as partners of the firm; the contribution of defendants 1 to 5 towards capital of the firm was Rs. 25,000/- and that of first plaintiff was Rs. 50,00,000/- (Rupees Fifty Lakhs); the first defendant was the managing partner with authority to operate bank accounts; the first plaintiff was entitled to a share of 50% and defendants 1 to 5 were cumulatively entitled for 50% with the share of each one of them having been quantified at 10% each.

The firm was again reconstituted on 18.8.1995 whereby the second plaintiff and defendants 6 to 11 were admitted as partners of the firm; defendants 12 to 16 being minors were admitted to the benefit of the firm. In terms of the reconstitution, the first plaintiff was entitled to 25 % share and second plaintiff who is son of the first plaintiff was also entitled 25 % share. The first defendant continued as the managing partner with authority to operate the bank account.

By an amendment dated 22.5.1996 to the Deed of Reconstituted Partnership dated 18.08.1995, the 12th defendant was admitted as a partner and defendant Nos. 13 to 16 continued to be entitled only to the benefit of the firm.

The firm had envisaged to carry out business in land and property development.

The firm under a registered lease deed dated 2.11.1992 obtained property bearing No. 30, Cunningham Road, Bangalore-52, measuring about 2972 sq.mtrs, on lease for a period of 99 years. In furtherance of its objects, the firm developed the said property by constructing a commercial building thereon and leased the building in favour of 17th defendant which was yielding Rs. 22,05,532/- p.m. as monthly rent as on the date of filing of the suit. The firm had an accumulated sum of Rs. 11 crores which had remained undistributed; the first defendant had made certain withdrawals amounting to couple of lakhs of rupees and not accounted for the same; it was also observed that several payments had been made to various individuals/institutions which were also not accounted for. Plaintiffs being majority stake holders held a meeting on 03.05.2004 and passed a resolution withdrawing authorization given to the first defendant to operate the current account No. 664 maintained with the 18th defendant-bank and further resolved that the account be operated jointly. On 8.5.2004, plaintiffs got legal notices issued to defendants 1 to 12 informing about the resolution dated 3.5.2004 and also demanded for accounts right from inception of the firm and their share of profit. They also demanded the first defendant to account for the unauthorized withdrawals. They received a reply dated 12.5.2004 from the first defendant stating inter alia that the plaintiffs were not entitled to 50 % share but were entitled only to 10 % share in the profit and loss of the firm. The plaintiffs got issued a rejoinder dated 7.6.2004 and called upon the first defendant to comply with the demands contained in the legal notice dated 8.5.2004 issued on their behalf.

It is the further case of the plaintiffs that in the accounts submitted to the Income Tax department under the seal and signature of the managing partner (first defendant), the share of the plaintiff was mentioned as 50%. The plaintiffs got a show-cause notice dated 17.6.2004 issued to the first defendant calling upon him to explain the misdeeds leveled against him in the notice. This was followed by a meeting held on 18.6.2004 wherein it was resolved that first defendant should be expelled from the firm. The said resolution was communicated to all partners. Copies of the notices having been served upon defendant Nos. 18 and 19, the firm''s bank account was frozen. The first defendant filed a suit against the said action of the bank and obtained an injunction.

Based on the above pleadings in the plaint, the plaintiffs prayed for a judgment and decree against the first defendant to render the accounts of the firm from 30.10.1992 till the date of filing of the suit and a direction to release a sum of Rs. 5,48,06,729/- being their 50 % share in the profits.

The first respondent/defendant got filed a written statement contending inter alia that a partnership firm has an independent status and in the absence of arraying the firm as a party defendant, the suit was liable to be dismissed for non joinder of proper and necessary parties. It was also urged in the written statement that the plaintiffs had no cause of action to the suit. Though it is admitted in the written statement that the plaintiff No. 1 was inducted as a partner in the year 1992, it is denied that the first plaintiff has contributed Rs. 50 lakhs towards the share capital. It is asserted by the first defendant that it was made clear in the Partnership Deed that, the failure on the part of the first plaintiff to contribute the agreed sum of Rs. 50 lakhs on or before 31.3.1992 would disentitle the plaintiffs for 50% share, but they would be eligible only for 10% share. The first defendant has admitted in the written statement that the firm was reconstituted in the year 1995 and the defendants No. 6 to 11 were admitted as partners and defendants No. 12 to 16 were admitted for the benefit of the firm. Reference is also made in the written statement to the property bearing No. 30, Cunnigham Road, having been taken on lease for a period of 99 years by the firm and occupation of building by defendant No. 17. The first defendant has asserted that the accounts of the firm were correctly maintained, audited and income tax returns filed regularly. Adverting to the meeting held on 3.5.2004, the first defendant has denied that any such meeting was held by the plaintiffs and therefore, the resolutions, if any have no value in the eye of law. Referring to the legal notices, it is stated that though the contents of the legal notice are false and imaginary, the first defendant has got them replied suitably.

With regard to the noting of shares of plaintiffs at 25% each, the stand taken by the first defendant is that, it was a mistake which had crept in due to clerical error and that the plaintiffs have been informed as to what they are actually entitled to. Insofar as the averment with regard to the access to the accounts is concerned, the stand of the first defendant is that the plaintiffs have obtained copies of the assessments of the Income Tax which implies that they have had all the details of accounts in their knowledge and possession. In sum and substance, the first defendant has denied the plaint averments and asserted that plaintiffs are entitled for only 10% share.

The defendant No. 2 has also filed a written statement and taken a specific stand that the plaintiff No. 1 was inducted into the firm as a partner based on his assurance to invest Rs. 50 lakhs on or before 31.3.1993 to entitle him to get the benefit of 50 % share in the firm. It is stated in the written statement that by inadvertence, the share of the plaintiffs has been reflected as 50 % in some documents and the same is subject to rectification; such rectification was not done immediately owing to the cordial relationship between the parties and as such there was no actual distribution of funds in that ratio. With regard to the accounts of the firm, the second defendant''s specific stand is that the accounts of the firm were always available in the office and they were subjected to audit at the end of every financial year; all the partners have an uninterrupted access to the accounts. With regard to other averments in the plaint, the second defendant has replied in similar lines as that of the first defendant.

The fifth defendant has also filed a written statement and taken a categoric stand that the first plaintiff has utterly failed to keep up his promise with regard to the contribution of Rs. 50,00,000/- and therefore, the plaintiffs are not entitled for 50% share in the profit and loss of the firm.

Based on the pleadings of the parties, the Court below has framed the following 7 issues:-

"1. Whether the suit of plaintiffs is bad for non-joinder of necessary party that is M/s. Selwel Combines?

Whether the suit of plaintiff''s is bad for mis-joinder namely defendant No. 17 to 19?

Whether the suit of plaintiffs is barred by limitation?

Whether the plaintiffs prove that they have got 25% share each in the M/s Selwel Combines?

Whether the plaintiffs are entitled to the relief of Rs. 5,48,06,729/-?

Whether the defendant No. 1, 2 and 5 proves that the expelled plaintiffs have no locus-standi to seek accounts of the said firm?

What order to decree?"

On behalf of the plaintiffs, only second plaintiff has deposed as PW.1 and produced 19 documents. On behalf of the defendants, the first defendant is examined as D.W.1 and 28 documents have been produced. The trial Court has answered issue Nos. 1 to 4 in the negative and held that the plaintiffs are cumulatively entitled for a share of 10 % in the firm till 18.06.2004. With regard to issue No. 5, the trial Court has passed a preliminary decree under Order 20 Rule 15 of CPC and held that the 10% profit/loss could be worked out at the time of passing the final decree. It is further ordered by the Trial Court that the firm has to be arrayed as a party in the final decree proceedings; other defendants shall be at liberty to apply to the Court during the final decree proceedings for declaration of their respective share by paying necessary Court fee. The firm and the defendant No. 1 have been directed to produce all the accounts, balance sheets and returns filed before the Income Tax Authority from 30.10.1992 till 18.6.2004 before an independent auditor, who shall not be connected to the firm and appointed by the Court by consent of parties. With regard to issue No. 6, the trial Court has held that first and second plaintiff stood expelled from 18.6.2004 and they could seek for accounts.

Being aggrieved by the Judgment and Decree of the trial Court, the plaintiffs have preferred this appeal.

We have heard Sri S.K.V. Chalapathy, learned Senior Counsel for the appellants and Sri Shaker Shetty, learned Counsel for the respondents and perused the records.

The learned Senior Counsel for the appellants submits that the Judgment and Decree of the trial Court is unsustainable in law and liable to be set aside inasmuch as the suit is based on the admissions made by the first defendant in the reconstituted partnership deed and further amended deed dated 18.08.1995 and 22.05.1996, respectively and the Income Tax Returns for the period 2000-01 to 2002-03 which prove that the plaintiffs are entitled to 50% share. He submits that the Ex.D.3 - Partnership Deed dated 30.10.1992 makes it amply clear that the first plaintiff became a partner of the firm and would be entitled for 50% of the share in the profit/loss of the firm; the partnership was further reconstituted/amended twice after 1992 i.e., on 18.8.1995 and 22.5.1996; the original deeds of reconstituted/amended partnership made on the said dates are in the custody of the first defendant; that the plaintiffs had filed an interlocutory application (IA-4) before the trial Court under Order IX Rule 14 of CPC for summoning/producing the said documents; the said application was erroneously dismissed by an order dated 29.7.2008; the plaintiffs were not permitted to lead secondary evidence by producing the photocopies of the said documents. The learned Senior Counsel further submits that the defendants are also signatories to the said documents and therefore, if the said documents are brought on record they would establish that each of the plaintiffs are entitled for 25% share in the firm aggregating to 50% between both plaintiffs.

The next submission of the learned Senior Counsel is that the defendant No. 1 was the Managing Partner, in charge of all the affairs of the firm. The Income Tax Returns filed for the years 2001-02 to 2002-03 are the documents which have been drawn as per the instructions of the defendant No. 1 and the said documents reveal that the plaintiffs are entitled for 50 % share in the firm.

He contends that the Court below has erred in accepting the contention of the defendants that the share of the plaintiffs is wrongly shown as 50% in the Deed of Reconstitute dated 18.8.1995.

Thus, the main contentions urged on behalf of the plaintiffs may be summarized as follows:-

(i) that the originals of the documents i.e., Deed of Reconstitution and further amendment dated 18.8.1995 and 22.5.1996, respectively if brought on record would establish that the plaintiffs have 50% share in the firm but the said documents are in the custody of the first defendant;

(ii) that the defendant No. 1 is the Managing Partner who is in charge of the affairs of the firm has mismanaged the affairs;

(iii) that the Income Tax Returns clearly demonstrates that the plaintiffs are entitled for 50 % share in the firm;

(iv) the trial Court has erred in rejecting the IA No. 4 seeking a direction to the defendant No. 1 to produce the documents mentioned in paragraph (i) hereinabove and it has resulted in injustice to the plaintiffs.

Per contra, the learned Counsel for the respondents Shri Shekar Shetty, would mainly contend that the suit filed by the plaintiffs is wholly misconceived; there is absolutely no mismanagement on the part of the first defendant in managing the affairs of the firm; the claim of the plaintiffs with regard to 50% share in the profit based on the reconstituted/amended deeds dated 18.8.1995 and 22.5.1996, is untenable inasmuch as the plaintiffs have not fulfilled the condition precedent of contributing Rs. 50,00,000/- to the partnership firm in terms of partnership deed dated 30.10.1992 to stake the claim for 50% profit. He further submits that the figure of share mentioned as 25% to each plaintiffs in the deeds dated 18.8.1995 and 22.05.1996 are erroneous and have crept in due to sheer inadvertence/mistake. Similarly, figures found if any, in tax returns are also erroneous and have crept in due to mistake on the part of the accounts department and at any rate, it is a rectifiable mistake; the plaintiffs cannot not maintain a suit based on a clerical error. He further submits that trial Court was justified in rejecting I.A. No. 4 filed by the plaintiffs seeking a direction to the defendants to produce the documents inasmuch as the said interlocutory application filed by the plaintiff was not only highly belated, but also completely bereft of merit. He also points out that the plaintiffs did not challenge the order of rejection of the said I.A. by the trial Court and therefore accepted the said order. Accordingly, he prays for dismissal of the suit.

We have given our anxious consideration to the submissions made at the bar and perused the material placed before the Court by the parties.

The main thrust of the pleading and argument on behalf of the plaintiffs is that, in terms of the reconstituted partnership deeds dated 30.10.1992 (Ex.D.3), 18.8.1995 and the subsequent amendment dated 22.5.1996, the plaintiffs are entitled for a share of 50 % in the profit/loss of the firm. Under the partnership deed Ex.D.3, the share of the first plaintiff is described as 50%. The paragraph 23 of the said document deals with the sharing ratio of profit and loss in the firm wherein it is mentioned that the share of the first plaintiff is 50 %. However, it is expressly qualified that in the event, the first plaintiff failed to bring in Rs.50,00,000/- as his capital contribution to the firm on or before 31st March 1992, he would be rendered entitled to only 10 % of the profit/loss of the firm. It is relevant to note that the percentage of profit/loss in both contingencies of either the first plaintiff bringing in the share contribution of Rs. 50,00,000/- or otherwise has been expressly described as follows:

"23. Sharing of profits and Losses: Book profits of the firm shall be arrived at after providing for interest paid/payable to partner on their capital account balances as in para 22. Out of book profits, first salary allowable to any of the partners will be allocated. Balance profits or losses shall be shared as below:

If Sri V. Anantha Raju fails to bring in Rs. 50,00,000 as his capital contribution to the firm on or before 31st March 1992 he shall be entitled to only 10% of the profits of the firm and liable to share losses also at 10% of total losses. On that event, profits and losses shall be shared or borne as the case may be as follows:

Thus, the parties to the said deed had clearly understood the share pattern of profit and loss having been expressly recorded in the deed as above.

Insofar as the reconstituted partnership dated 18.8.1995 is concerned, the case of the plaintiff as averred in the plaint is that the first plaintiff would be entitled for 25% and the second plaintiff, who is the son of the first plaintiff would be entitled for 25%. Thus, in all, between the first and the second plaintiffs, the claim is staked at 50% of the profit/loss in the firm.

The case of the plaintiffs with regard to the reconstituted partnership dated 22.5.1996 is that by the said amendment, the 12th defendant was admitted as a Partner and defendants No. 13 to 16 continued to be entitled to the benefits of the Partnership w.e.f. 1996. Thus, the amendment dated 22.05.1996 does not materially affect the claim of the plaintiffs.

Admittedly, the relief sought for by the plaintiffs in the suit is for Rendition of Accounts and Disbursement of the sum claimed therein on the premise that the plaintiffs are entitled for 50 % share in profit/loss of the firm. A careful analysis of the facts disclosed in the pleadings and the submissions at the bar would primarily guide us to peruse the Partnership Deed dated 30.10.1992, which is a first document under which the first plaintiff was admitted as a Partner. As noted hereinabove, the parties to the said document had understood that as per the terms of the Partnership allotment of 50 % share to the first plaintiff was contingent upon the first plaintiff bringing in Rs. 50 lakhs, as his contribution to the Partnership firm on or before 31.3.1992. Therefore, the question that now falls for our consideration is as to whether or not the plaintiffs are entitled for 50 % share in the profit/loss of the firm in the absence of demonstrating infusion of Rs. 50 lakhs as their share in the capital of the firm. There is absolutely no averment much less an assertion in the legal notice - Ex.P1 dated 8.4.2004 which emanated at the earliest point of time with regard to the contribution of Rs. 50,00,000/- which ought to have been made by the first plaintiff to the capital of the firm. The first defendant has got the said legal notice replied as per Ex.P14 dated 12.5.2004 stating inter alia that since the first plaintiff had failed to comply with the obligation to bring in Rs. 50 lakhs on or before 31.3.1993, the plaintiffs were not entitled to the share of 25% each. The plaintiffs have got a rejoinder dated 7.6.2004 (Ex.P15) issued to the defendant''s Advocate. Even in the said rejoinder, there is no whisper with regard to the fulfillment of condition of bringing in Rs. 50 lakhs into the Partnership by the first plaintiff in terms of the Deed of Partnership dated 30.10.1992. On the other hand, it is asserted on behalf of the plaintiffs that there should be no doubt with regard to the 50% share of the plaintiffs as the same is evident from the reconstituted Partnership dated 18.8.1995 and as reiterated in the subsequently amended Deed of Partnership dated 22.5.1996. It is relevant to note that the plaint is filed on 31.7.2004 after exchange of legal notice, reply and rejoinder. Even in the plaint, there is no averment with regard to the compliance of the condition of bringing in the contribution of Rs. 50 lakhs in terms of the Partnership dated 30.10.1992 (Ex.D3). The defendants in the written statement have reiterated their defence which they had taken in the reply to the legal notice. Among other things, it is specifically contended therein by the defendants that the first plaintiff did not comply with the condition of bringing in the contribution of Rs. 50 lakhs. Based on the pleadings, the trial Court has framed issue No. 4 which deals with the entitlement of the plaintiffs at the rate of 25 % share to each plaintiff.

The first plaintiff has not entered the witness box. His son, the second plaintiff is examined as PW. 1. In the cross - examination with regard to the contribution, this witness has negated the suggestion that the contribution has not been brought in by the first plaintiff. He has deposed that he did not know as to whether he has produced any document to show that Rs. 50 lakhs has been contributed. In the further cross-examination conducted in the question and answer form, the second plaintiff in paragraph - 12 has stated as follows:-

"Q. Your father was agreed to pay Rs. 50 lakhs before the closer of the financial year in which year he was inducted? (sic)

A. My father was suppose to pay the capital of Rs. 50 lakhs on or before 31.03.1992. (sic)

I do not know whether there are any document to show that my father had contributed Rs. 50 lakhs on or before 31.03.1992 are 31.03.1993. It is true that if my father would contribute Rs. 50 lakhs within specified date he will be entitled for 50% share other wise 10% share."

In the light of the above discussions, we hold that the first plaintiff did not fulfill his obligations of bringing in Rs. 50 lakhs as his contribution in terms of the Partnership Deed dated 30.10.1992. Therefore, as per the agreed terms in paragraph - 23 of the said Deed, the share of the first plaintiff stood relegated to 10%.

The next question which falls for our consideration is with regard to the income tax returns. It is the case of the plaintiffs that since there is a mention with regard to their entitlement of 50 % in the re -constituted deed, amended deeds dated 18.08.1995, 22.05.1996 and corresponding entries in the income tax returns, they are entitled for 50 % share. On the other hand, the defence of the defendants with regard to this claim is that, there has been a clerical or accounting error/mistake and the same is rectifiable mistake and the profits are not yet distributed and therefore the plaintiffs are not entitled for 50% share. It is relevant to mention here that though there is mention with regard to income tax returns, the same have not been placed on record by the plaintiffs.

It is settled in law that, it is for the plaintiff to aver and prove his case. A plaintiff has to succeed on the intrinsic strength of his case and not on the default, if any, of the defendant. The entitlement of 50 % in the profit/loss of the firm would accrue to the benefit of the plaintiffs if and only if the first plaintiff had complied with the condition of bringing in Rs. 50 lakhs as his contribution in terms of the deed of Partnership dated 30.10.1992. This goes to the root of the matter and central to the controversy inter se between the parties and forms the foundation of the plaintiffs'' case. Unless, the plaintiffs prove to the satisfaction of the Court that the first plaintiff had discharged his obligation of bringing in the sum of Rs. 50 lakhs as his contribution, no superstructure can be built using collateral/stray documents. For the very same reason, even if the reconstituted Partnership Deed dated 18.8.1995 and further amended Partnership Deed dated 22.5.1996 are executed by all the partners describing the share of the plaintiffs in profit/loss of the firm as 50 %, the same shall not inure to the benefit of the plaintiffs. Therefore, in our considered opinion, there was no error in rejecting IA No. 4 filed under Order 11 Rule 14 of CPC inasmuch as the said two documents would stand or fall depending upon the proof with regard to the factual matrix of infusion of capital of Rs. 50 lakhs by the first plaintiff or otherwise, as per the agreed terms contained in Partnership Deed dated 30.10.1992.

Insofar as the income tax returns are concerned, we notice that the plaintiffs have referred to production of income tax returns for the years 1994-95 to 2000-01 as document No. 8, the same appears to have not been marked in the Court below. Only a letter dated 27.4.2004 (Ex.P.16), issued by the Deputy Commissioner of Income Tax is brought on record. Be that as it may, we hold that the income tax returns, per se, cannot over ride the agreed terms and conditions in the deed of partnership. The Partnership Firm is an entity which functions on the mutual agreement of the parties. There is no dispute with regard to the Partnership Deed dated 30.10.1992 (Ex.D3). Consequently, the partners are governed by the express terms and conditions contained therein. There is no other document brought either before the trial Court or before this Court to substantiate the fulfillment of the obligation of having brought the sum of Rs. 50 lakhs as contribution by first plaintiff. In the circumstances, we are of the considered view that the claim of the plaintiffs is untenable in law.

Before resting his case, Sri Shaker Shetty, learned Counsel appearing for the respondents/defendants submitted that should the plaintiffs/appellants were to show any document to the satisfaction of the Court even now to establish that the plaintiff No. 1 has brought in Rs. 50 lakhs as his contribution, this Court may consider the case of the plaintiffs.

In reply, learned Senior Counsel Sri S.K.V. Chalapathy, instructed by the Counsel on record, who was in turn instructed by a plaintiff or his representative present in the Court submitted that the plaintiff had made certain payments through Bank of Madhura which stood amalgamated with ICICI Bank and as such he has no records to produce.

Be that as it may, in view of our categoric and firm opinion that the benefit of 50 % share in the profit/loss of the firm could accrue to the plaintiffs only if the first plaintiff had fulfilled his obligation of bringing in Rs. 50 lakhs, we hold that the present appeal does not merit any consideration.

Accordingly, the appeal fails and the same stands dismissed.

In the circumstances, there shall be no order as to costs.