1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION SECOND APPEAL NO.8 OF 2009 Mr.Vijaykumar Pandharinath Diwadkar .. Appellant V/s Nitin Jayant Diwadkar & Anr. .. Respondents WITH SECOND APPEAL NO.9 OF 2009 Mr.Vijaykumar Pandharinath Diwadkar .. Appellant V/s Nitin Jayant Diwadkar & Anr. .. Respondents Ms.S.S.Gokhale for the Appellant. Mr.Madhav Jamdar for Respondents. CORAM : R.G.KETKAR, J. DATE : 25th September, 2009. JUDGMENT: 1. These two appeals arise from the common judgment and decree dated July 10, 2008 passed by the learned District Judge-14, Pune, disposing of the Civil Appeal No.83 of 2005 preferred by the Respondents- original Plaintiffs and the Civil Appeal No.97 of 2005 preferred by the Appellant-original Defendant. These appeals were preferred against the judgment and decree dated November 5, 2004 passed by the learned 6th Joint Civil Judge, Junior Division, Pune in RCS No.611 of 1991. Since the parties are same in both the appeals and both the appeals arise from the common judgment and decree passed by the 2 Appellate Court arising from the judgment and decree rendered by the trial Judge, these appeals can be conveniently disposed of by this common Judgment. These appeals arise in the following facts and circumstances:- 2. The Respondents-original plaintiffs are the son and daughter of the Shri.Jayant Pandharinath Diwadkar, since deceased. During the life time of Jayant he had entered into the partnership business with the Defendants. The business was carried on in the name and style as M/s.K.P.Diwadkar and Brothers. The partnership deed was executed on April 5, 1989 and the business was conducted in accordance with the terms and conditions incorporated in the said deed of partnership. The share in the profit and loss of both the partners was equal. On account of death of Jayant on August 28,1990 the partnership business was dissolved. It is the case of the plaintiffs that the entire business assets, rights and interest of the said form were continued to be in actual physical custody and possession of the Defendant. He neglected to settle and clear the dues payable to the plaintiffs by rendering true and faithful accounts. The plaintiffs requested the defendant to settle the accounts, however, the Defendant failed and neglected to clear the accounts. The Defendant even refused inspection of accounts though the plaintiffs repeatedly requested him to do so. It is the further case of the plaintiffs that even after the death of Jayant, the Defendant continued and carried on business 3 using the name of the firm and its property both at Pune and Itarasi. The Defendant did not obtain consent of the plaintiffs for using the firm’s name. The Defendant remitted amount of Rs.24,400/- by Pay Order alongwith a covering letter dated December 21, 1990 purported to be the full and final settlement of the claim of the Plaintiffs. The plaintiffs replied the said letter on January 4, 1991 and objected to it and called upon the Defendant to take appropriate steps for settlement of their lawful dues. 3. The Plaintiffs instituted suit for settlement of account of the firm M/s.K.P.Diwadkar and Brothers as well as for permanent injunction restraining the Defendant from using the name of M/s.K.P.Diwadkar and Brothers. The appellant-Defendant filed Written Statement at Exh.38 and resisted the claim. He admitted that Jayant died on August 28, 1990 and also that the partnership of M/s.K.P.Diwadkar and Brothers stood automatically dissolved on account of death of Jayant. He admitted that the entire assets, rights and interest of the said firm were taken over by the Defendant as sole surviving partner. He however disputed that the plaintiffs requested him to settle the accounts. On the other hand he contended that the accounts were settled as on August 28, 1990 and whatever amounts were payable to the plaintiffs were paid by Pay Order by the Defendant. As the plaintiffs accepted the said Pay Order as and by way of full and final settlement of their claim, they are not entitled to maintain the present 4 suit. 4. The Defendant further submitted that the present suit was instituted with a view to harassing him. The plaintiffs even moved for cancellation of catering contract issued in favour of the Defendant and the matter was carried up to the Apex Court. Not only that, the Plaintiff No.2 instituted suit against him and the Pune Municipal Corporation which clearly indicates that the Plaintiff No.2 is vindicative and her actions are solely covered with a view to causing misery and torture to the Defendant. The parties led oral as well as documentary evidence before the learned trial Court. The trial Court framed necessary issues and answered them substantially in favour of the plaintiffs. The learned trial Judge held that the plaintiffs made out the case for issuing directions to the defendant to complete the accounts including the goodwill and assets and quantification of dues of M/s.K.P.Diwadkar and Brothers till the death of Jayant on August 28, 1990. He also held that the plaintiffs were entitled to interest at the rate of 6% p.a.from the date of the suit till realisation. He however held that no case for issuing injunction against the Defendant for using the name of the firm M/s.K.P.Diwadkar and Brothers was made out. The learned trial Judge considered the hand written chits of the Defendant and his son Sachin at Exhibits 59 to 74. He however did not accept the claim of the plaintiffs on the ground that these amounts in the exhibits are not reflected in the Income Tax Returns 5 and therefore are in the nature of number 2 transactions. He therefore did not consider amounts reflected in Exhibits 59 to 74 as income of the firm. Though the learned trial Judge held that the plaintiffs made out case for issuing direction to the defendant to complete the accounts including the goodwill among other things, in the operative order, the learned trial Judge did not include goodwill. The plaintiffs claim for treating the amounts reflected in Exhibits 59 to 74 also as income of the firm as also prayer for injunction was rejected by the learned trial Judge. This gave rise to the plaintiffs filing Civil Appeal No.83 of 2005. 5. The Defendant also preferred Civil Appeal No.97 of 2005 as the learned trial Judge substantially decided the suit against him. Both the appeals were heard and disposed of by the learned District Judge by the common judgment and decree dated July 10, 2008. The learned District Judge held that the plaintiffs are entitled to rendition of true and complete accounts of the firm M/s.K.P.Diwadkar and Brothers from its inception till August 28, 1990 including the goodwill and all assets of the firm. The learned District Judge also held that the plaintiffs are entitled to claim interest at commercial rate of interest of the nationalised banks. He also came to the conclusion that the trial Judge committed error in not considering the Exhibits 59 to 74. He negatived the relief of injunction restraining the Defendant from using the firm’s name. The Appellant-original Defendant has preferred 6 these appeals challenging the judgment and decree passed by the Appellate Court as also the trial Court. In support of these appeals, Ms.Gokhale, learned counsel for the appellant raised the following contentions:- (i)Having regard to the peculiar nature of business carried on by M/s.K.P.Diwadkar and Brothers, whether it can be said that any goodwill was acquired? (ii) Whether the learned District Judge was justified in awarding interest at commercial rate of interest of the nationalised banks? (iii) whether the learned District Judge committed serious error in relying upon Exhibits 59 to 74? 6. On the other hand, Mr.Madhav Jamdar, learned counsel for the plaintiffs supported the judgment and decree of the learned District Judge. 7. Before dealing with the controversy between the parties, let me consider the undisputed facts. There is no dispute about the relationship between the parties. There is also no dispute that the father of the plaintiffs was the real brother of the Defendant. He and the defendant were partners of the firm. It is also not in dispute that the father of the Defendant and Jayant started business in the year 1929 and obtained licence from the Railways for running the 7 business. The business was carried on under the name and style of M/s.P.S.Diwadkar and Sons. Soon thereafter, father of the Defendant got catering licences in respect of Nashik, Manmad, Kalyan, Mumbai and Pune Railway Stations. The firm was carrying on catering business. After the death of Defendants father, all the four brothers and defendant’s mother started business in the name of Divadkar and Brothers. After retirement of two partners, Defendant and Plaintiffs’s father continued the business under the name and style of M/s.K.P.Diwadkar and Brothers. It is thus evident that the catering business was started in the family as far back in the year 1929 and on account of reputation acquired by the firm, it also got catering contracts at different stations. 8. Section 14 of the Indian Partnership Act, 1932 (for short “the Act”) deals with the property of the firm and reads thus:- “Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm, are deemed to have been acquired for the firm.” Perusal of Section 14 of the Act clearly indicates that the property of 8 the firm includes among other things the Goodwill of the business. Section 55 of the Act provides for sale of goodwill after dissolution and it reads thus:- “(1) In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets, and it may be sold either separately or alongwith other property of the firm ” 9. Perusal of Section 55 indicates that in settling the accounts of the firm after dissolution, the goodwill shall subject to the contract between the partners, be included in the assets and it may be sold either separately or alongwith the other property of the firm. Both the courts below, on appreciation of evidence have recorded the finding of fact that there was no contract between the partners in respect of the goodwill. If that be so, having regard to Section 14 and 55 of the Act, goodwill has to be included in the assets of the firm as the same is the property of the firm. Term “Goodwill” is not defined under the Act. The meaning of the term “Goodwill” is given in Advanced Law Lexicon, 3rd Edition Reprint 2007, R, J.), which reads as under:- “.......The goodwill of a business means every affirmative advantage, as contrasted with negative advantage that has been acquired in carrying on the business, whether connected with the premises of the business or its name or style and everything connected with or carrying with it the 9 benefit of the business. ......” “.......It includes reputation, connections of the firm or the owner which induces customers to deal with a particular firm or concern. It is treated as part of the assets of the firm......” “ .....Every positive advantage that has been acquired by the old firm in carrying on the business whether connected with the premises in which the business was carried on or with the name or any other matter, carrying with it the benefit of the business. It is the connection thus formed together with the circumstances whether of habit or otherwise which tend to make it permanent that constitute the goodwill......” “.....It is the value of the attraction to customers arising from the name and reputation for skill, integrity, efficient business management, or efficient service.” “......The goodwill of a business depends upon a variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it, and the back of competition and many other factors go individually or together to make up the goodwill, though locality always plays a considerable part.......” “.... The original definition by Lord ELDON in Crutwell v.Lye that goodwill was nothing more than “the probability that the old customers would resort to the old places” was expanded by WOOD V.C.. in Churton v.Douglas, (1859) John 174 to encompass every positive advantage ‘that has been acquired by the old firm in carrying on its business, whether connected with the premises in which the business was previously carried on or with the name of the firm, or with any other matter carrying with it the benefit of the 10 business.” Again the term “Goodwill” is explained in the 15th Edition of Lindey on The Law of Partnership, at Page No.247 as under:- “The term goodwill can hardly be said to have any precise signification. It is generally used to denote the benefit arising from connection and reputation; and its value is what can be got for the chance of being able to keep that connection and improve it. Upon the sale of an established business its goodwill may have a marketable value, whether the business is that of a professional man or of any other person, but whether or not the goodwill has a saleable value is a question of fact to be determined in each case.” In the context of valuation of Goodwill, on Page No.1050 of the same edition, it is stated as under:- “........Again, with almost any type of business, a large proportion of the goodwill may be dependent upon the continued services of one of the partners. A further factor of importance in determining the value of goodwill may be the presence or absence of a covenant restraining competition on the part of outgoing partners, since, if an outgoing partner can immediately set up a similar business in the same area as the partnership, the goodwill may not have any great value. Given that goodwill has a value, the actual process of valuing it is largely dependent upon the size of the business, and the type of goodwill to be valued......” 10.Ms.Gokhale submitted that having regard to the peculiar nature of the business carried on by the partnership M/s.K.P.Diwadkar and Brothers, it cannot be said that any goodwill was acquired. She submitted that the firm was carrying on business at Railway Stations. 11 It was not the property of the partnership firm and therefore it cannot be said that the said partnership firm acquired any goodwill. She also invited my attention to the Balance Sheet of the partnership firm which did not include the goodwill. At any rate, she submitted that on the earlier occasion this Court by an order dated September 27, 1995 passed in Civil Revision Application No.337 of 1992 categorically recorded a finding that the partnership firm did not acquire goodwill. It is not personal business of the appellants as they are running stalls on the basis of licences issued by the Railways. 11.On the other hand Mr.Madhav Jamdar, learned counsel for the plaintiffs submitted that both the Courts have recorded a finding of fact that the plaintiffs are entitled to rendition of accounts that includes goodwill. He also invited my attention to paragraph 15 of the judgment of the learned District Judge and submitted that in the first place, having regard to the provisions of Sections 14 and 55 of the Act and the evidence on record, the goodwill has to be included in the rendition of accounts. Secondly, he submitted that the goodwill is the property of the firm and it is the comprehensive term not restricted qua place of business viz.Railway Platform alone. He submitted that the very fact that the firm acquired reputation in food products even if the business is carried out elsewhere, considering the quality of the food products, the customers are bound to purchase food products even from the place other then Railway Platforms. The 12 Appellate Court in paragraph 15 of the impugned judgment has considered the submissions and recorded a finding that the Divadkar firm has acquired goodwill and reputation. Thirdly, Mr.Jamdar also relied upon the agreement dated February 23, 1989 executed between (i)Smt.Prabhavati Kamlakar Diwadkar (ii) Mr.Vilas Kamlakar Diwadkar (iii) Rajiv Kamlakar Diwadkar (iv) Mrs.Sulochana S.Sukhtankar, being the party of the first part and (i) Jayant Pandharinath Diwadkar and (ii) Mr.Vijaykumar Pandharinath Diwadkar (Appellant-Defendant herein) being the party of the second part. Under that deed, the party of the first part relinquished all their rights, title and interest in favour of the party of the second part in relation to the business of the firm M/s.K.P.Diwadkar and Brothers and the second party paid Rs.75,000/- for the credit balance standing of capital share in profits and goodwill. He thus submitted that even at that time, the goodwill was attached to the partnership firm and at the time of settling the accounts the party of the first part was paid a sum of Rs.75,000/- which included share of goodwill. Lastly he submitted that the order passed by this Court on September 27, 1995 was at the stage of interim relief, and the Courts below after full fledged trial and after considering oral as well as documentary evidence on record have recorded a finding that the partnership firm has acquired goodwill. 12.Considering the rival contentions I am clearly of the opinion that 13 having regard to Sections 14 and 55 of the Act, goodwill has to be included in the assets of the firm and the same is the property of the firm. The appellant has not brought on record any contract between the partners as contemplated under Section 55 of the Act. If that be so, naturally at the time of rendition of accounts, the goodwill has to be taken into account. If the submission of Ms.Gokhale, learned counsel for the appellant is accepted, the goodwill will have to be excluded altogether at the time of rendition of accounts. What is important to note is that the courts below have not quantified the goodwill. The goodwill will have to be included into the assets while settling the accounts. The courts below on appreciation of evidence on record held that the plaintiffs had made out the case for including goodwill. I do not find any good reason to take a different view in the matter. 13.In so far as submission of commercial rate of interest is concerned, in my view the learned District Judge was clearly justified in awarding interest at the commercial rate. Section 2(b) of the Act defines business to include every trade, occupation and profession. Section 34 of the Code of Civil Procedure 1908 and in particular explanation II thereto lays down that for the purpose of Section 34, the transaction is a commercial transaction, if it is connected with the industry, trade or business of the party. He submitted that the partnership firm was carrying on business of catering and the Appellate Court was justified 14 in awarding interest at the rate of nationalised banks. Ms.Gokhale relied upon the judgment of the learned Single Judge of Gujrat High Court in the case of Jagjivan Mulchand Chokshi V/s.Manilal Mohanlal Soni, AIR 2005 Gujarat 293 and submitted that since there was no relationship between the parties as lender and borrower, this cannot be termed as commercial transaction, and consequently, the plaintiffs are not entitled to the rate of interest awarded by the learned District Judge. In my opinion, proviso to Section 34 of the Code of Civil Procedure lays down that where liability in relation to the sum adjudged has arisen out of the commercial transaction, the court may award interest exceeding 6% but not exceeding contractual rate of interest or where there is no contractual rate, the rate at which the monies are lent or advanced by the nationalised banks in relation to the commercial transactions. In my opinion, the commercial transaction is a wide connotation and may include the transaction of money lending. Consequently, reliance placed by Ms.Gokhale on the judgment in Jagjivan (supra) is of no assistance. The Appellate Court has considered this aspect in paragraph 16 of the judgment and accordingly awarded interest treating the transaction as of commercial nature. In my opinion, the learned District Judge has properly exercised discretion while awarding interest as per Section 34 of the Code of Civil Procedure and the same does not call for interference at the hands of this Court. 15 14.Lastly Ms.Gokhale contended that the learned District Judge committed serious error in relying upon Exhibits 59 to 74. She submitted that the learned trial Judge considering the admissions given by the Plaintiff No.2 in cross-examination did not consider these documents. She submitted that even taking into account Exhibits 59 to 74 at the highest it will establish that the partners of M/s.K.P.Diwadkar and Brothers did not show true and correct income in the Income Tax Returns submitted on behalf of the partnership firm. They were guilty of fraud, in that they deprived the Government of its revenue. The plaintiffs being the heirs and legal representatives of one of the partners Jayant, cannot take advantage of these facts. The partners of the said firm committed fraud on the revenue authorities in not disclosing true income in the returns filed by them. In support of this submission, she relied upon the judgment of this Court in the case of Guddappa Chikkappa Kurbar V/s.Balaji Ramji Dange Vol.XLIII Bombay Law Reporter 681. 15.On the other hand Mr.Jamdar, learned counsel for the plaintiffs submits that the perusal of the returns on record would indicate that the partnership firm was flourishing and the partners having 50% share each were getting good returns. He invited my attention to the profit derived during the period from (i) April 1, 1989 to March 31, 1990 at Exh.74. The total profit for this period was to the tune of Rs. 17,74,282/- and each partner viz.Jayant and the Defendant got Rs. 16 8,87,141/-each, (ii) January 1990 to March 1990. The total collection for this periiod was Rs.3,05,706/- and each partner received profit of Rs.1,52,853/- (iii) April 1, 1990 to June 30, 1993 (three months). The total collection for this period was Rs.1,48,000/- and each partner received Rs.74,000/- as and by way of profit. As against this, under covering letter dated December 21, 1990 the defendant remitted a Pay Order of Rs.24,402.90 towards the full and final settlement of the claim of the plaintiffs. He further submitted that this was hurriedly prepared as also without giving inspection of the books of accounts to the plaintiffs. 16.In so far as judgment of this Court in the case of Guddappa (supra) is concerned, Mr.Jamdar submitted that the same has no application in the facts and circumstances of the present case. In the case of Guddappa (supra) the facts were that in 1923 there was a decree passed against the appellants-original defendants 1 and 2. The said decree was put to execution. On January 3, 1928, the defendants executed what purported to be the sale deed in favour of the respondents-plaintiffs. On the basis of purported sale deed dated January 3, 1928, the plaintiffs sued for possession. The courts below held that in fact no consideration passed on that sale deed, that it was a part of fraudulent attempt on the part of the defendants to defeat their creditors and that the deed on which the plaintiffs sued was in effect a benami transaction. The learned trial judge dismissed the 17 plaintiffs suit on the ground that to grant a decree in favour of the plaintiffs would be to assist him in perpetrating fraud. The defendants were still in possession, and the plaintiff, unless he can get a decree for possession from the court, will not be able to gain