Guru Nanak Industries, Faridabad & Anr. V/s. Amar Singh (Dead) Through Lrs.

IN THE CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 6659 6660 OF 2010 GURU NANAK INDUSTRIES FARIDABAD AND ANOTHER VERSUS AMAR SINGHTHROUGH LRS JUDGMENT SANJIV KHANNA J Four persons including two brothers Swaran Singh and Amar Singh both of whom have since died and are represented by their legal representatives had constituted a partnership firm Guru Nanak Industries on 2nd May 1978. On 6th May 1981 a fresh partnership deed was executed between Swaran Singh and Amar Singh as the other two partners had resigned. The partnership firm was primarily in the business of manufacture and sale of print machinery for paper polythene etc. Initially profits and losses were to be divided in the ratio of 69:31 between Swaran Singh and Amar Singh. However with effect from 1st April 1983 profit and Civil Appeal Nos. 6659 66610 loss sharing ratio was altered between Swaran Singh and Amar Singh to 60:40 respectively On 29th March 1989 Guru Nanak Industries and Swaran Singh filed a civil suit against Amar Singh claiming that the latter had retired from partnership with effect from 24th August 1988 and had voluntarily accepted payment of his share capital of Rs.89 277.11p. In addition he had been advanced loan from the funds of the partnership firm on the same date. Amar Singh had agreed that he would not be entitled to profits and liabilities of the firm. In support reliance was placed upon intimation dated 5 th October 1988 sent by Amar Singh to Bank of India the bankers of the partnership firm. It was stated that Amar Singh was paid amounts of Rs.1 00 000 and Rs.50 000 by way of pay orders and another amount of Rs.1 00 000 in cash for which he had executed receipt dated 17th October 1988as a partner which letter was also signed by Swaran Singh as a partner stating that the dispute between the partners had been settled and the bank may allow operation of the account. Amar Singh had pleaded that the receipt dated 17th October 1988 is forged and has been manipulated as he had signed and given papers to Swaran Singh The trial court dismissed the suit filed by Amar Singh and partly decreed the suit filed by Guru Nanak Industries and Swaran Singh primarily by relying upon letter dated 24th August 1988was forged and the second version being that the receipt had been manipulated by adding the Two appeals preferred by Amar Singh were accepted by the first appellate court observing that the receipt dated 17th October 1988 Civil Appeal Nos. 6659 66610 was certainly manipulated by adding the last sentence. Letter dated 24th August 1988 in fact supported the case of Amar Singh that he had not resigned as the letter was signed by both Amar Singh and Swaran Singh wherein Amar Singh has been described as a partner. Official records in the Sales Tax Department and Income Tax Department also support the case of Amar Singh that the partnership firm was not dissolved on 24th August 1988. Accordingly Amar Singh was held to be entitled to the prayer for partition of movable and immovable property wherein 40% belonged to Amar Singh and 60% belonged to Swaran Singh. The accounts would be rendered and settled as on the date of institution of the suit for dissolution of partnership that is 29th April 1989. Amar Singh would also be entitled to interest @ 9% per annum Swaran Singh who had died when the civil suits were pending before the trial court and represented by his widow filed two appeals before the Punjab and Haryana High Court which have been dismissed by the impugned judgment dated 18th May 2009 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 Civil Appeal Nos. 6659 66610 which have been affirmed by the High Court as they are born out from the records. Exhibit P 5 a letter dated 24 th 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 24 th August 1988. This letter also records that Amar Singh ‘had to completely withdraw his share and accounts’ 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 by cash from S. Swaran Singh Mg Partner of M s. Guru Nanak Industries Plot No. C.P. 6&7 N.H.5 Rly. Road Faridabads o. Swaran Singhin 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 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 Civil Appeal Nos. 6659 66610 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 deeddated 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 Singh3 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 firm2 SCC 724 Therefore in view of the aforesaid discussion we dismiss the appeals and uphold the judgment and decree dated 24th September 2004 passed by the Additional District Judge Faridabad and sustained by the High Court except that the date of dissolution of the firm would be taken as 24th August 1988 and not 31st of March 1989 Civil Appeal Nos. 6659 66610 Counsel for the appellants at the time of arguments had expressed desire of the appellants to settle the matter with the respondents legal heirs of the Amar Singh. He had prayed for four weeks’ time. It appears that settlement has not been possible The case is rather old and Swaran Singh and Amar Singh have expired. Primarily it is a money matter where the accounts have to be settled and payment etc. has to be made by the legal representatives of Swaran Singh. The case record also reveals that Amar Singh had set up his own business in September October 1988 in the name of Guru Nanak Mechanical Industries similar to the name of the partnership firm. Swaran Singh had not objected. We would therefore give one more opportunity to the parties to appear before the Supreme Court Mediation and Conciliation Centre to explore possibility of a settlement. However in case of no settlement within a period of three months the matter would proceed before the trial court for passing of the final decree in accordance with law Civil Appeal Nos. 6659 66610 (SANJIV KHANNA NEW DELHI MAY 26 2020 Civil Appeal Nos. 6659 66610 Page 1

Summary: 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  On May 2, 1978 Swaran Singh and Amar Singh along with two other persons had constituted a partnership firm named Guru Nanak Industries, the partnership firm was primarily in the business of manufacture and sale of print machinery for paper, polythene etc. On May 6, 1981, a fresh partnership deed was executed between Swaran Singh and Amar Singh, as the other two persons resigned; the profit-sharing ratio between the two brothers was 69:31. With effect from April 1, 1983, the profit-sharing ratio was altered between Swaran Singh and Amar Singh to 60:40.The procedural history is;On March 29, 1989 Guru Nanak Industries and Swaran Singh filed a civil suit against Amar Singh and contented that Amar Singh had retired from partnership from August 24, 1988 and had accepted payment of share capital. It was also stated he had executed receipt dated October 17, 1988 and was amount of Rs. 1,00,000/- and Rs. 50,000/- , after retirement he had another industry namely, Guru Nanak Mechanical Industries selling the same machinery.The subsequent letter dated October 5, 1988 states that Amar Singh had left the firm with effect from August 24, 1988, and will not held responsible in any loan event granted.On April 29, 1989, Amar Singh filed suit dissolution of partnership and interpretation of accounts and pleaded that receipt dated October 17, 1988, was forged. He contested that there were some disputes between him and his brother on August 19, 1988, when he had written a letter to bankers of Bank of India to stop the operation. He had also contested that he had written another letter dated August 24, 1988, as a partner which was also signed by Swaran Singh. The trial court was dismissed the suitFirst appellate court held that Amar Singh was entitled to have 40% share in property and also entitled interest @ 9% per annum. Swaran Singh, represented by his widow wife, filed two appeals before the Punjab and Haryana Court which have been dismissed. ISSUE BEFORE THE COURT: Whether the judgment passed by Additional District Judge was appropriate?When dissolution of partnership firm took place? RATIO OF THE COURT: The court observed that subsequent letter dated 5th October 1988 relied by the appellants and written by Amar Singh stated that there had 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.The court observed that both Amar Singh and Swaran Singh signed a letter dated August 24, 1988, as partners of Guru Nanak Industries. There has been manipulation in the letter dated October 17, 1988, the words ‘retiring partner’ has been typed later. They also cannot be reconciled with the subsequent line, that is, “For Guru Nanak Industries (Regd.)”.The court held that 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 retirementThe court observed that on retirement of partner, the retiring partner is entitled to be paid his dues in terms of Section 37 of the Partnership Act. When there are only two partners and one partner retire, then the retirement amounts to dissolution of the firm (Erach F.D. Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724). DECISION HELD BY COURT: The court dismissed the appeal and upheld the decision passed by Additional District Judge.The parties will be given more opportunity to appear before the Supreme Court Mediation and Conciliation Centre after a period of three months.