IN THE HIGH COURT OF GUJARAT AT AHMEDABAD APPEAL FROM ORDER No 413 of 1999 For Approval and Signature: Hon'ble MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO 1 & 2: Yes 3 to 5: No -------------------------------------------------------------- RAJNIKANT HASMUKHLAL GOLWALA Versus NATRAJ THEATRE -------------------------------------------------------------- Appearance: MR ARUN H MEHTA for Appellants MR M.J. THAKORE for MR AJAY R MEHTA for Respondents Nos. 1 to 8 -------------------------------------------------------------- CORAM : MR.JUSTICE A.R.DAVE Date of decision: 28/09/1999 ORAL JUDGEMENT The appellants are some of the original defendants who have challenged the validity of the order passed below Ex. 5 dated 29th May 1999 in Special Civil Suit No. 19 of 1999 filed in the court of Civil Judge (S.D) at Navsari. 2. The relevant facts in a nutshell giving rise to the present litigation are as under:- 3. For the sake of convenience, parties to the litigation have been described as shown in the trial court. Plaintiff No. 1 is M/s. Natraj Theatre which is a partnership firm. Plaintiffs Nos. 2 to 6 and defendants Nos. 1 to 11 are partners of the said firm. It is not in dispute that plaintiffs Nos. 2 to 6 have assigned their rights as partners of the said firm to plaintiffs Nos. 7 and 8 whereas defendants Nos. 1 to 11 have assigned or sold their rights as partners of the said firm to defendant No. 12. At an earlier occasion plaintiffs Nos. 2 to 6 had agreed to sell or assign their rights to defendant No. 12 but subsequently no formal conveyance deed was executed and finally plaintiffs Nos. 2 to 6 had assigned their rights as partners to plaintiffs Nos. 7 and 8. Defendant No. 13 is an agent of defendant No. 12 who appears to be doing business on behalf of defendant No. 12 at present. Defendants Nos. 14 to 19 are officers of the State of Gujarat and the State of Gujarat, who are not concerned with this appeal. 4. Plaintiff No. 1 firm and plaintiffs Nos. 2 to 6 have filed Special Civil Suit No. 19/99 praying for a declaration that property named Natraj Theatre belongs to plaintiff No. 1 firm and plaintiffs Nos. 2 to 6 and defendants Nos. 1 to 11 are partners of the said firm and also for an injunction that defendants Nos. 1 to 13 should be restrained from entering the premises named Natraj Theatre which is a partnership property and they should not disturb possession of the partners of the said firm and should be restrained from doing business of the firm with regard to exhibition of films on behalf of plaintiff No. 1 firm etc. An application for interim injunction being application below Ex. 5 has also been filed. In the said application it has been prayed that during the pendency of the suit, by an interlocutory injunction, defendants Nos. 1 to 13 should be restrained from entering Natraj Theatre and from doing any business of the partnership firm. 5. After hearing the concerned parties, the trial court, by an order dated 29th May 1999, granted the injunction as prayed for by the plaintiffs. Being aggrieved by the said order, the present appellants who are some of the defendants who have assigned or sold their rights to defendant No. 12 have approached this Court. 6. Certain other relevant facts with regard to the history of the litigation be also taken note of at this stage. At an earlier point of time plaintiff No. 1 firm had given on lease the theatre, which is a partnership property, to M/s. Fortune Enterprise. There was some litigation between M/s. Fortune Enterprise on one hand and the partnership firm on the other. In pursuance of the said litigation, possession of the said theatre was handed over to plaintiff No. 1 firm on 16th May 1998. After some time, defendant No. 12 had taken possession of the theatre on the basis of the fact that some of the partners of the firm had sold their rights to him. Thereafter there was another litigation between plaintiffs Nos. 7 and 8 on one hand and defendant No. 12 on the other. It appears that at an earlier point of time except defendants Nos. 10 and 11, all the partners had either assigned or sold their rights or had agreed to sell their rights to defendant No. 12. Thus, defendant No. 12 was claiming rights held by plaintiffs Nos. 2 to 6 and defendants Nos. 1 to 9. He was also a power of attorney holder of some of the partners . In pursuance of the said authority or right, defendant No. 12 wanted to manage the business of the firm but it appears that he was prevented by plaintiffs Nos. 7 and 8 who were subsequently, by a deed of assignment dated 29.6.98, assigned shares of plaintiffs Nos. 2 to 6. It appears that after giving power of attorney in favour of defendant No. 12, plaintiffs Nos. 2 to 6 had revoked the same and a public notice was also given to that effect on 11.4.98. Defendants Nos. 10 and 11 were informed that people in their business circle believed that they had given power of attorney to defendant No. 12 to run business of plaintiff No. 1 firm and, therefore, to clarify the position, a public notice was given on 22nd Nov. 1997 by defendants Nos. 10 and 11 stating the fact that they had never given any power of attorney to defendant No. 12 and therefore defendant No. 12 had no right to do business on their behalf as partner of plaintiff No. 1 firm (But subsequently defendants Nos. 10 and 11 had also sold the property of the firm to defendant No. 12). Thus, plaintiffs Nos. 7 and 8 were assigned partnership rights of plaintiffs Nos. 2 to 6 whereas defendant No. 12 was having rights of defendants Nos. 1 to 11. 7. In the above circumstances, defendant No. 12 who had been assigned rights of defendants Nos. 1 to 11 on one hand and plaintiffs Nos. 7 and 8 on the other, who were assigned rights of plaintiffs Nos. 2 to 6 raised a dispute in the matter of management of Natraj Theatre. Both were claiming the right to do the business on behalf of the partners of the firm. In these set of circumstances, respondent No. 12, who was doing his business of exhibiting films in the name of M/s. Shrirang Exhibitors Pvt. Ltd., had filed Regular Civil Suit No. 116 of 1998 in the court of 2nd Joint Civil Judge (S.D) at Navsari against plaintiffs Nos. 7 and 8 praying for a permanent injunction for restraining them from interfering with enjoyment and possession of the suit property by defendant No. 12. 8. In the said suit, an application below Ex. 5 praying for interim injunction was filed. The said application was rejected by the 2nd Joint Civil Judge (S.D), Navsari, by his order dated 25th September 1998. Being aggrieved by the said order, defendant No. 12 had preferred Civil Misc. Appeal No. 103/98 and the said appeal was allowed. Thereby, plaintiffs Nos. 7 and 8 who were defendants in the said suit were restrained from obstructing present defendant No. 12 in the conduct and management of the business. 9. Being aggrieved by the above-referred order passed in Civil Misc. Appeal No. 103/98, present defendants Nos. 7 and 8 had filed Civil Revision Application No. 92 of 1999 in this Court which was dismissed by this court (Coram: N.N. Mathur, J.) on 11th February 1999. By virtue of the said decision, this court, in the said litigation, held that present defendant No. 12 had a right to do business in the premises of Natraj Theatre. Much reliance is placed upon this judgment by defendant No. 12 and therefore it is appropriate to make a reference to the said litigation. It is to be noted that the said litigation was between present defendant No. 12 who was assigned rights of defendants Nos. 1 to 11 and plaintiffs Nos. 7 and 8 who were assigned rights of plaintiffs Nos. 2 to 6. It is pertinent to note that in the said litigation no partner of plaintiff No. 1 firm was a party. In the instant case, the plaintiffs who are partners of plaintiff No. 1 firm have prayed that they should not be hindered or restrained from doing business of the partnership firm by defendants Nos. 1 to 13. Defendants Nos. 1 to 11 are partners of plaintiff No. 1 firm and as stated above defendant No. 12 is an assignee of defendants Nos. 1 to 11. As stated hereinabove, defendant No. 13 is an agent or manager who is doing business on behalf of defendant No. 12 and therefore defendant No. 13 is not having any right of his own but he only acts as an agent of defendant No. 12 who claims his rights through defendants Nos. 1 to 11. It is an admitted fact that no suit for dissolution of the firm has been filed by any of the partners. 10. After hearing the concerned parties and upon perusal of the judgment delivered in Civil Revision Application No. 92/99 referred to hereinabove, the trial court had granted interlocutory injunction as prayed for in Special Civil Suit No. 19 of 1999. By virtue of the said order, defendants Nos. 1 to 13 have been restrained from interfering with the peaceful possession of the plaintiffs with regard to Natraj Theatre and they have also been restrained from interfering with doing business of exhibiting films by the plaitiffs in the premises belonging to plaintiff No. 1 firm. 11. In the background referred to hereinabove, let me revert to the present appeal. 12. Ld. Advocate Shri A.H. Mehta appearing for defendants Nos. 2, 3, 5, 6, 7, 8, 9, 12 and 13 has challenged the validity of the impugned order on several grounds. He has mainly argued that the court below did not consider the fact that in another litigation being Civil Revision Application No. 92/99, this court had restrained plaintiffs Nos. 7 and 8 from interfering with the possession of defendant No. 12 who was in fact doing business in the name of M/s. Shrirang Exhibitors Pvt. Ltd. in Natraj Theatre. It has been further submitted that even in the said litigation a detailed order was passed by the learned Assistant Judge, Valsad at Navsari, in Civil Misc. Appeal No. 103/98 wherein present plaintiffs Nos. 7 and 8 and defendant No. 12 were parties. Certain findings which were arrived at by the said appellate court and by this court in the C.R.A. and observation made by this court in A.O. No. 228/99 decided on 22.4.99 were altogether ignored by the trial court while deciding the application below Ex. 5. He has further submitted that defendant No. 12 has been given rights of some partners of plaintiff No. 1 firm and therefore defendant No. 12 or his agent i.e. defendant No. 13 has a right to do business on behalf of the firm. He has submitted that when rights of the said partners have been assigned or sold to defendant No. 12, one can very well presume that substantial consideration must have been passed to the said partners of the firm from defendant No.12 and in the circumstances if defendant No. 12 is prevented from doing the business, it would be absolutely unjust and that would invariably put defendant No. 12 to substantial financial loss. It has also been submitted by him that as found by this court in C.R.A. No. 92/99, defendant No. 12 is very much in possession of the suit premises and he is doing the business as an assignee of all the partners and therefore there was no reason for the trial court to restrain defendant No. 12 from doing the business of the partnership firm. He has further submitted that the firm has not been duly registered and therefore the suit is not maintainable as per the provisions of sec. 69(1) and (2) of the Partnership Act, 1932 (hereinafter referred to as 'the Act'). 13. He has further submitted that while granting an injunction, the court has to see whether balance of convenience in in favour of a person praying for such an injunction. Moreover, it is also the duty of the court to see that status-quo as on the date on which the suit is filed is maintained during the trial and therefore normally an injunction should be granted or refused in such a manner that the position which is prevailing on the date on which the suit is filed is maintained during the trial. In the circumstances, he has submitted that defendant No. 12 who was doing the business at the time of filing of the suit, should have been permitted to do the business during the pendency of the trial. 14. According to learned advocate Shri Mehta, the court has also to see prima facie case and has also to consider whether irreparable injury would be caused to the party against whom injunction is granted. In the instant case, defendant No. 12 is managing the business of the firm and in view of the fact that he has purchased rights of some of the partners, he has a right to do the business on behalf of those partners of the firm. 15. For the above-referred reasons, Ld. Advocate Shri A.H. Mehta has submitted that the order passed by the trial court is illegal and unjust and therefore this court should quash and set aside the said order. 16. On the other hand, Sr. Advocate Shri M.J. Thakore appearing for learned advocate Shri A.R. Mehta has submitted that the order passed by the trial court is just, legal and proper. He has submitted that the suit is maintainable looking to the provisions of sec. 69(1) and (2) of the Act because the firm has been duly registered and plaintiffs Nos. 2 to 6 are partners of the said firm and their names appear in the register maintained by the Registrar of Firms. It has been further submitted by Shri Thakore that it was not necessary for the trial court to consider or give any weightage to the findings arrived at in Civil Misc. Appeal No. 103/98 and C.R.A. No. 92/99 for the reason that the parties to the litigation in the said proceedings and the parties in these proceedings are absolutely different. He has further submitted that plaintiffs Nos. 2 to 6 are partners of the firm and they cannot be prevented from doing the business. He has submitted that as per the provisions of sec. 12 of the Act every partner has a right to take part in the conduct of the business unless there is any contract to the contrary. He has submitted that in the instant case, there is no contract contrary to the said provision and therefore plaintiffs Nos. 2 to 6, being partners of plaintiff No. 1 firm, cannot be restrained from doing the business. Moreover, he has submitted that it is never permissible to a partner of the firm to deal with partnership property as his own property. He has drawn my attention to the provisions of secs. 14 and 15 of the Act to show that the property of the firm is to be used by the partners exclusively for the purpose of the business. He has further submitted that as per the provisions of sec. 19 of the Act, no partner has any implied authority to transfer any immovable property belonging to the firm. He has thereafter submitted that in the instant case defendants Nos. 1 to 11 who are partners of plaintiff No. 1 firm have tried to dispose of the property of the firm as if the property belonged to the partners individually and the said action on the part of the said defendants is absolutely illegal. He has submitted that defendants Nos. 1 to 11 have sold the partnership property to defendant No. 12 and as the said sale or transfer is illegal, defendant No. 12 cannot get any right in the partnership property. It has been submitted by him that as the property of the firm could not have been transferred by the partners as their own properties, defendant No. 12 or defendant No. 13, claiming through defendant No. 12, would not get any right in immovable property of the partnership firm and thereby they would also not get any right to do the business. Moreover, he has also referred to the provisions of sec. 29 of the Act which deals with the rights of an assignee of a partner. He has submitted that according to the provisions of sec. 29, till the firm is dissolved, a transferee of the partner's interest would have a right to receive a share of profits of the transferring partner and therefore defendant No. 12 will have a right to get share of profits which defendants Nos. 1 to 11 are entitled to. It has also been submitted that as a transferee, defendant No. 12 cannot have any right in the assets of the firm unless the firm is dissolved. 17. It has been fairly submitted by Shri Thakore that as plaintiffs Nos. 7 and 8 are assignees, who have been assigned rights of plaintiffs Nos. 2 to 6, plaintiffs Nos. 2 to 6 would not permit plaintiffs Nos. 7 and 8 to enter the premises of Natraj Theatre for doing the business on their behalf. Moreover, as a counsel appearing for plaintiffs Nos. 7 and 8, he has stated that plaintiffs Nos. 7 and 8 shall not enter the property of the firm for doing the business of the firm and they shall not interfere in the conduct or management of the business of the partnership firm. Thus, he has submitted that at present the right to do business would be exercised only by plaintiffs Nos.2 to 6 on behalf of the firm. He has thereafter very fairly stated that defendants Nos. 1 to 11, who are the partners of the firm, cannot be prevented from doing the business and therefore though they have assigned their rights and interests in the firm to defendant No. 12, defendants Nos. 1 to 11 cannot be prevented from doing the business and if defendants Nos. 1 to 11 are ready and willing to do the business of the firm, plaintiffs Nos. 2 to 6 would warmly welcome them so that business of the firm can be done in the interest of all the partners. 18. He has further submitted that by an agreement dated 7.10.97 plaintiffs Nos. 2 to 6 had agreed to sell their interest in the property of the firm to defendant No. 12. The said agreement was a conditional one and as the conditions incorporated in the said agreement had not been fulfilled, the final conveyance deed was never executed and therefore as per the provisions of sec. 54 of the T.P. Act, such an agreement would not create any interest or charge on the property which was subject-matter of the said agreement in favour of defendant No. 12. Thus, he has submitted that defendant No. 12 has not been given any right in respect of the property of the firm by plaintiffs Nos. 2 to 6. 19. Senior advocate Shri Thakore appearing for the plaintiffs has also submitted that from the period from which defendant No. 12 has taken over the business of the firm, the firm has started incurring losses. So as to support his version, he has placed on record certain material which has already been placed before the trial court. Ld. Advocate Shri A.H. Mehta appearing for some of the defendants has submitted that the said material cannot be looked into by the court. In reply to the said submission, Senior advocate Shri Thakore has submitted that by virtue of an interim order, it was directed that accounts of the firm should be submitted to the trial court by defendant No. 12 regularly and he is relying upon such accounts which have been presented before the trial court by defendant No. 12 and which is forming part of the record of the trial court. Upon perusal of the said accounts, it appears that the business is running into losses. Sr. Advocate Shri Thakore has submitted that as the partnership business is running into losses, the partners of the firm shall always remain liable to the third parties if some liability is incurred by the firm to the third parties. Looking to the nature of liability of the partners towards third parties, plaintiffs Nos. 2 to 6 might be called upon to pay the dues of the firm. He has therefore submitted that in such a set of circumstances, defendant No. 12 cannot be permitted to do the busiess of the firm. 20. After hearing the learned advocates and upon perusal of the relevant documents, it appears that the following legal issues have arisen in this appeal from order. The first and the foremost issue is with regard to the right of an assignee or a transferee of a partners interest. If an assignee or a transferee of a partner's interest has no right to do the business or to participate in the management of business, defendant No. 12, who is an assignee of the right and interest of defendants Nos. 1 to 11 shall not have any right to enter Natraj Theatre for the purpose of doing the business of the firm. If defendant No. 12 has no right to do the business as an assignee of some of the partners of the firm, defendant No. 13, who is an agent of defendant No. 12, cannot have any right to do the business on behalf of defendant No. 12. Section 29 of the Act is the relevant section which deals with the rights of a transferee of a partners interest. It reads as under: "29. Rights of transferee of a partners interest.- (1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitles the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners. (2) If the firm is dissolved or if the transferring partners ceases to be a partner, the transferee is entitled against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution." On a bare perusal of the said section it is crystal clear that a transferee of a partner's interest in the firm cannot have a right to interfere in the conduct of the business but he can have a limited right to receive the share of profits of the transferring partner during the continuance of the firm. Thus, sec.29 makes it abundantly clear that the rights of the transferee are on a distinctly lower plane than those of his transferor. The transferee is not entitled to participate in the business but he has to content himself by receiving the share of profits which