Case: GURUNANAK INDUSTRIES, FARIDABAD AND ANOTHER Vs. AMAR SINGH(DEAD) THROUGH LRS

had been settled. The subsequent letter dated 5th October 1988 relied by the appellants and written by Amar Singh states that there has been mutual understanding and agreement between him and Swaran Singh and as a result he had left the firm with effect from 24th August 1988 and, therefore, he would not be responsible in the event of any loan being granted after 24th August 1988. This letter also records that Amar Singh had to completely withdraw his share and accounts. 8. The receipt Exhibit P-9 dated 17th October 1988, which is a disputed document, reads as under: Received with thanks a sum of Rs.1,00,000/- (Rupees One Lac only) by cash from S. Swaran Singh, Mg/ Partner of M/s. Guru Nanak Industries (Regd.), Plot No. C.P.-6&7, N.H.5, Rly. Road, Faridabad (Haryana) on account of part payment of the settlement made between both the partners of firm. The above amount is being received by the undersigned with regard to dissolution of our partnership on 24.8.1988. With the receipt of this amount my total amounts are settled. Nothing is due to me from S. Swaran Singh & his firm. There is a contradiction in the earlier portion and the last sentence of the said receipt. The first portion refers to payment of Rs.1,00,000/- from Swaran Singh, partner of Guru Nanak Industries, on account of part payment of settlement between the two partners. The last sentence does not gel and, in fact, contradicts the first portion. The manipulation is apparent from the photocopy of the receipt that has been placed on record as Annexure-13/A with the documents. The words retiring partner have been typed later on. They also cannot be reconciled with the subsequent line, that is, For Guru Nanak Industries (Regd.). 9. Amar Singh accepts that he had received payment of Rs.1,00,000/- and Rs.50,000/- by way of demand drafts. We would accept that Amar Singh had also received payment of Rs.1,00,000/- in cash. Amar Singh, in his written statement, had referred to three immovable properties, viz. CP No. 6&7, Neighbourhood No.5, Railway Road, N.I.T, Faridabad; plot situated in Timber Market, Parvesh Marg, Railway Road, Faridabad – 121002; and Plot No.8, measuring 4098 sq.yards allotted by HUDA situated in Industrial Area, Sector-5, Faridabad . In addition, as per Amar Singh, the partnership firm had constructed factory sheds on two properties. Amar Singh, in his written statement, had given details of the machinery, finished goods and material, stock in trade, vehicles etc. In addition, he had furnished particulars of different FDRs having maturity value of Rs.7,71,920/-. It is claimed that the partnership firm has goodwill of more than Rs.10,00,000/-. 10. Sukhdev Singh (PW-2), s/o. Swaran Singh (who had died before he would enter the witness box), in his cross-examination, has accepted that the firm was the owner of plot Nos. CP 6&7, NH-5, Faridabad and Plot No.8, Sector-5 measuring 4098 sq.yards. He could not recollect the machinery as on date of dissolution, that is, 24th August 1988. He could not deny the suggestion that at the time of dissolution the value of the factory plots was Rs.25,00,000/- each or that the goodwill of the firm was at least Rs.10,00,000/-. He did not know whether his father had encashed FDRs of Rs.77,000/- (sic – Rs.7,77,000/-) in the name of the partnership firm. However, he accepted as correct that the value of the machinery owned by the firm on the date of dissolution could be Rs.17,00,000/-, though he was not sure. Similarly, he could not answer whether the value of the finished goods or furniture and fixtures, on the date of dissolution, was Rs.17,00,000/- and Rs.17,50,000/- respectively and that stock in hand was Rs.3,60,000/-. 11. The primary claim and submission of the appellants is that Amar Singh had resigned as a partner and, therefore, in terms of clause (10) of the partnership deed (Exhibit P-3) dated 6th May 1981, he would be entitled to only the capital standing in his credit in the books of accounts. However, the argument has to be rejected as in the present case there were only two partners and there is overwhelming evidence on record that Amar Singh had not resigned as a partner. On the other hand, there was mutual understanding and agreement that the partnership firm would be dissolved. This is apparent from even the version put forward by Swaran Singh and deposed to by his son, Sukhdev Singh (PW-2). Even the letter dated 5th October 1988 refers to the fact that Amar Singh is to completely withdraw the share and accounts which means that the things were yet to be settled. The receipt Exhibit P-9 dated 17th October 1988 refers to part payment of Rs.1,00,000/- towards settlement between the two partners. It also refers to the date of dissolution as 24th August 1988, which clearly indicates that payments were still to be made whereupon the two sides would have completely severed their relationship although there was a mutual agreement that the date of dissolution was 24th August 1988. 12. There is a clear distinction between retirement of a partner and dissolution of a partnership firm. On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement [See – Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and Others, (2003) 3 SCC 445 ]. In the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. A partnership firm must have at least two partners. When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm [See – Erach F.D. Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724 ].

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]7. Having heard counsel for the parties and having perused the relevant documents and oral evidence, we are not inclined to interfere with the findings recorded by the first appellate court, which have been affirmed by the High Court as they are born out from the records. Exhibit P-5, a letter dated 24th August 1988, was individually signed by both Amar Singh and Swaran Singh clearly stating that they were partners of Guru Nanak Industries. By this letter, Amar Singh had requested the bank to start operation of the account of the partnership firm stating that the disputes between the partners had been settled. The subsequent letter dated 5th October 1988 relied by the appellants and written by Amar Singh states that there has been mutual understanding and agreement between him and Swaran Singh and as a result he had left the firm with effect from 24th August 1988 and, therefore, he would not be responsible in the event of any loan being granted after 24th August 1988. This letter also records that Amar Singh had to completely withdraw his share and accountsThere is a contradiction in the earlier portion and the last sentence of the said receipt. The first portion refers to payment of Rs.1,00,000/- from Swaran Singh, partner of Guru Nanak Industries, on account of part payment of settlement between the two partners. The last sentence does not gel and, in fact, contradicts the first portion. The manipulation is apparent from the photocopy of the receipt that has been placed on record as Annexure-13/A with the documents. The words retiring partner have been typed later on. They also cannot be reconciled with the subsequent line, that is, For Guru Nanak Industries (Regd.)9. Amar Singh accepts that he had received payment of Rs.1,00,000/- and Rs.50,000/- by way of demand drafts. We would accept that Amar Singh had also received payment of Rs.1,00,000/- in cash. Amar Singh, in his written statement, had referred to three immovable properties, viz. CP No. 6&7, Neighbourhood No.5, Railway Road, N.I.T, Faridabad; plot situated in Timber Market, Parvesh Marg, Railway Road, Faridabad – 121002; and Plot No.8, measuring 4098 sq.yards allotted by HUDA situated in Industrial Area, Sector-5, Faridabad . In addition, as per Amar Singh, the partnership firm had constructed factory sheds on two properties. Amar Singh, in his written statement, had given details of the machinery, finished goods and material, stock in trade, vehicles etc. In addition, he had furnished particulars of different FDRs having maturity value of Rs.7,71,920/-. It is claimed that the partnership firm has goodwill of more than Rs.10,00,000/-10. Sukhdev Singh (PW-2), s/o. Swaran Singh (who had died before he would enter the witness box), in his cross-examination, has accepted that the firm was the owner of plot Nos. CP 6&7, NH-5, Faridabad and Plot No.8, Sector-5 measuring 4098 sq.yards. He could not recollect the machinery as on date of dissolution, that is, 24th August 1988. He could not deny the suggestion that at the time of dissolution the value of the factory plots was Rs.25,00,000/- each or that the goodwill of the firm was at least Rs.10,00,000/-. He did not know whether his father had encashed FDRs of Rs.77,000/- (sic – Rs.7,77,000/-) in the name of the partnership firm. However, he accepted as correct that the value of the machinery owned by the firm on the date of dissolution could be Rs.17,00,000/-, though he was not sure. Similarly, he could not answer whether the value of the finished goods or furniture and fixtures, on the date of dissolution, was Rs.17,00,000/- and Rs.17,50,000/- respectively and that stock in hand was Rs.3,60,000/-However, the argument has to be rejected as in the present case there were only two partners and there is overwhelming evidence on record that Amar Singh had not resigned as a partner. On the other hand, there was mutual understanding and agreement that the partnership firm would be dissolved. This is apparent from even the version put forward by Swaran Singh and deposed to by his son, Sukhdev Singh (PW-2). Even the letter dated 5th October 1988 refers to the fact that Amar Singh is to completely withdraw the share and accounts which means that the things were yet to be settled. The receipt Exhibit P-9 dated 17th October 1988 refers to part payment of Rs.1,00,000/- towards settlement between the two partners. It also refers to the date of dissolution as 24th August 1988, which clearly indicates that payments were still to be made whereupon the two sides would have completely severed their relationship although there was a mutual agreement that the date of dissolution was 24th August 198812. There is a clear distinction between retirement of a partner and dissolution of a partnership firm. On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement [See – Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and Others, (2003) 3 SCC 445  ]. In the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. A partnership firm must have at least two partners. When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm [See – Erach F.D. Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724  ].