Case: Kodendera K. Uthaiah (D) By Lr Vs. P.M. Medappa

2. The facts, in brevity are, that the father of the plaintiff i.e. P.M. Medappa, along with three others constituted a registered partnership firm, M/s. Rums & Co. The partnership deed dated 27.01.1971, in Clause 14, stipulated that in the event of death of a partner, the remaining partners shall have the option to give a written notice within three months of the death, to the legal heirs of the deceased partner, for purchase of the shares of the deceased. The purchase price was to be the amount of the share of the deceased as determined at the last annual general accounts, inclusive of interest @ 10% per annum, upto the date of purchase. P.M. Medappa was deceased on 27.07.1990. The surviving partners, defendants 1 to 3, gave notice on 15.10.1990 in terms thereof to the plaintiff and defendants 4 to 9, being the legal heirs of the deceased partner3. The plaintiff preferred O.S. No. 42/1991 seeking dissolution of the firm and rendition of accounts, alleging refusal of the remaining partners to pay the legal heirs of the deceased partner, the due share under Clause 14. The suit was decreed in part by the Civil Judge on 03.01.1996 holding that the plaintiff and defendants 4 to 9 as legal heirs of the deceased partner, were entitled to ¼th share to be worked out on basis of the last annual general accounts, together with interest @ 10% per annum from the date of death till the date of decree. Aggrieved by the grant of partial relief, the plaintiff preferred R.F.A. No. 231/1996. The High Court, by the impugned order, held that the notice dated 15.10.1990 had not been served on all the legal heirs of the deceased partner. Clause 14 therefore never became operational, directing dissolution of the firm and settlement of accounts as of date entitling the legal heirs to ¼th share in the assets and profits of the firm with interest @ 6% per annum till settlement. Liberty was further granted to seek appointment of a receiver to take care and manage the assets of the partnership firm pending finalisation of settlement of accounts4. During the pendency of the litigation, the partnership underwent several changes, and today Subbaiah, the nephew of the original defendant no.2 is the sole proprietor of the erstwhile partnership business, permitted to be substituted by order dated 04.03.2016.

Court's reasoning:
7. We have considered the respective submissions and perused the materials and evidence on record. The order sheet dated 02.12.2016 records that the appellant was required to file proof of deposit of Rs. 50 lacs. The office report states that only Rs. 25 lacs have been deposited. The attention of the Court was not invited to these facts during arguments, by learned Counsel for the parties and neither has any mention been made regarding the same in the written submissions filed by the partiesThe controversy with regard to service of notice on all the legal heirs of the deceased partner need not be dwelt upon at length, in view of the fact that it was in fact served on the plaintiff, and the rest of the notices were sent to the address of their mother, and acceptance refused by others. The plaintiff has admitted that he impleaded the other legal heirs as defendants 4 to 9, as they refused to join him as plaintiffsIn our considered opinion, it will have no application in the facts of the case in view of Clause 14 of the partnership deed, which also provides for the manner of calculating the dues. Similarly, Section 42(c) of the Act, providing for dissolution of the firm on the death of a partner, will also have no application in view of the aforesaid clause evincing a clear intention to continue the partnership on the death of a partnerAdmittedly, no final accounts till date of death has been furnished much less purchase of the share of the deceased been made till date by actual payment of the legitimate ¼th share to the legal heirs of the deceased partner12. It is not the case of the appellant that thex Returns of the Partnership firm were not filed within statutory time. If the returns were so filed, naturally the share of the deceased partner payable under Clause 14 till his demise on 27.07.1990 posed no difficulty for payment. The plea that in view of the pending litigation the dues were not paid is unacceptable and not bonafide. The legal heirs of the deceased partner are, therefore, held entitled to ¼th share with 10% interest per annum from 27.07.1990 till the date of purchase13. The finding that Clause 14 of the partnership deed was not complied with and, therefore, never became operational is held to be unsustainable and is set aside. The consequential direction for dissolution and settlement of accounts as of date for that reason, is also set aside. The legal heirs are held not to be entitled to any share in the profits after 27.07.1990. The liberty to move for appointment of receiver to take care and manage the assets of the partnership firm pending finalisation of accounts and settlement calls for no interference. The plaintiff is permitted to withdraw the deposit made before this court after due furnishing of proof of identity. The said amount shall be adjusted against the final dues found payable to the legal heirs after settlement of accounts.