Case ID: 2799

Judgment:
ivil Appeal No. 1201 of 1966. Appeal by special leave from the judgment and order dated June 24	 1965 of the Bombay High Court in Appeal No. 79 of 1963. F. section Nariman	 K. D. Mehta and 1. N. Shroff	 for the appellants. M. C. Chagla and A. K. Verma	 for the respondents. The Judgment of the Court was delivered by Shah	 J. Dadiba Hormusji Boatwalla was one of the eight partners of Messrs Meghji Thobhan & Company a firm of Muccadams and cotton brokers. Boatwalla died on February 20	 1957. By virtue of cl. 8 of the deed of partnership the business of the firm was continued by the surviving partners. Khorshed and Nariman widow and son respectively of Boatwalla obtained letters of administration to the estate of Boatwalla and commenced an action in the High Court of Bombay for an account of the partnership between Boatwalla and the surviving partners and for an order paying to the plaintiffs the amount determined to be due to Boatwalla at the time of his death. The suit was resisted by the surviving partners who will hereinafter be called ` the defendants '. Tarkunde	 J.	 passed a preliminary decree declaring that qua Boatwalla the partnership stood 'dissolved on February 20	 1957	 but not in respect of the surviving partners	 and directed that an account be taken of the partnership upto February 20	 1957. Against that decree the defendants appealed under cl. 15 of the Letters Patent. In appeal the High 'Court modified the decree. The learned Judges held that the plaintiffs were not entitled to an account in the profits and losses of the firm after the death of Boatwalla	 nor to exercise an option under section 37 of the Partnership Act	 but that the plaintiffs were entitled only to interest at six per cent. per annum on the amount found due as Boatwalla 's share in the assets of the partnership including .the goodwill. They further declared that the interest of Boatwalla in the firm ceased on February 20	 1957	 and deleted the direction with regard to the dissolution of the firm as between Boatwalla and the defendants. With special leave	 this appeal has been filed by the defendants. The defendants contend that the plaintiffs as legal representatives of Boatwalla were not entitled to a share in the value of the goodwill of the firm because the goodwill of a firm may be taken into account only when there is a dissolution of the firm and in any event because Boatwalla had agreed that his interest in the goodwill shall cease on his death and the business shall 691 be continued by the surviving partners. The defendants do not challenge the decree of the High Court awarding to the plaintiffs Boatwalla 's share in the assets of the firm other than goodwill icy contend that in the goodwill of the firm the plaintiffs had to share. By section 14 of the Partnership Act	 1932	 it is enacted that "Subject to contract between the partners	 the property of the firm includes all property and rights and interest 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. " Goodwill of the firm is expressly declared to be the property of he firm. Counsel for the defendants relied upon section 55 of the Partnership Act which makes a provision with regard to sale of goodwill after dissolution. It is provided by sub section (1) of section 55 that : "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 along with other property of the firm. But it is not enacted thereby that goodwill may be taken into account only when there is a general dissolution of the firm	 and not when the representatives of a partner claim his share in the firm	 which by express stipulation is to continue notwithstanding the death of a partner. Nor do sections 39	 42 and 46 which were relied upon by counsel for the 'defendants support that contention. Under section 39 the dissolution of partnership between all the partners of a firm is called the "dissolution of the firm"; and by section 42 a firm is said to be dissolved subject to the contract between the partners on the happening of certain contingencies. Section 46 provides that on the dissolution of a firm every partner or his representative is entitled as against all the other partners or their representatives	 to have the property of the firm applied in payment of the debts and liabilities of the firm	 and to have the surplus distributed among the partners or their representatives according to their rights. These provisions deal with the concept and consequences of dissolution of the firm : they do not either abrogate the terms of the contract between the partners relating to the consequences to ensue in the event of the death of a partner when the firm is not to stand dissolved by 692 such death	 nor to the right which the partner has in the	 assets an( property of the firm. The Partnership Act does not operate to extinguish the right in the assets of the firm of a partner who dies when the partnership agreement provides that on death the partnership is to continue. In the absence of a term in the deed Of partnership to that effect	 it cannot be inferred that a term that the partnership shall continue notwithstanding the	 death of a partner will operate to extinguish his proprietary right in the assets of the firm. Clause 8 of the deed of partnership reads as follows "This partnership shall not be dissolved or determined by the death of any of _the parties hereto but the same shall be continued as between the surviving part:ners on the same terms and conditions but with such shares as shall then be determined. " Mr. Nariman says that goodwill is nothing but the right to the name	 the place of business and the reputation of the firm	 and when all these components of the right by express agreement between the partners devolve upon the surviving partners '. it follows that. the share of the deceased partner in the goodwill of the firm devolves upon the surviving partners and not upon his legal representatives. The goodwill of a business is however an intangible asset being the whole advantage of the reputation and connections formed with the customers together with the circumstances which make the connection durable. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years because of its reputation	 location and other features. An agreement between the partners that the name	 the place of business and the reputation of the firm are to be utilised by the surviving partners will not necessarily warrant an inference that it was intended that the heirs of the deceased partner will not be entitled 'to a s hare in the goodwill. Our attention was invited to Hunter vs Dowling( '); Smith vs Nelson(2); and Bachubai and L. 'A. Watkins vs Shamji Jadowji(3).The first two cases proceed upon the interpretation Of certain clauses in partnership Agreements It was inferred in those cases from the terms of the agreement that the right in the goodwill of a partner in a firm dying or retiring shall not survive to ' his legal representatives. Bachubai and L. A. Watkin 's case(") arose out of a case in which in the partnership agreement it was provided that (1) (2) 96 Law Times Reports. (3) 1. L. R. 9 Bom . 536. 694 the firm shall be the agents of a company: carrying on business as a manufacturer of cotton textiles so long as the firm carries on business in Bombay	 or until the firm should resign. The firm were appointed the agents of the Corn any and continued to act as agents. One of the	 partners died	 and a representative of the partner filed a suit	. claiming a certain share in the assets of the firm including the goodwill. It was observed by Sargent	 c. J	in rejecting the claim of the plaintiff to a share in the goodwill of the business as an asset of the firm	 that "Assuming_ (which may well be doubted) that the term "goodwill" is applicable to a business of this nature	 it is plain that it is attached to the name of the firm which	 by the partnership agreement itself is to be used by the surviving partners	 or partner for their own benefit. Such an arrangement between the partners must take away all value from the goodwill; even if it be not	 as Mr. Justice Lindley in his Treatise on Par tnership	 p. 887	 (3rd ed.)	 considers it to be inconsistent. with its being an asset at all" The	 learned Chief Justice expressed a doubt presumably relying upon old. English decisions that the goodwill of a firm may not be an asset at all. These observations do not set out any rule	 of interpretation of a deed 'of partnership. But the question is now settled by statutory enactment. Under the Partnership Act	 1932	 it is expressly declared that the goodwill of a business is ' an asset. Whether the goodwill has any substantial value may be determined on the facts of each case. We are unable to agree with Mr. Nariman that in interpreting a deed of partnership	 business whereof it is stipulated shall be continued by the surviving partners after the death of a partner	 the Court will not award to the legal representatives of the deceased partner a share in the goodwill in the absence of an express stipulation to the contrary. The goodwill of a firm is an asset. In interpreting the deed of partnership	 the Court will insist upon some indication that the right to a share in the assets is	 by virtue of the agreement that the surviving partners are entitled to carry on the business on the death of the partner	 to be extinguished. In the absence of a provision expressly made or clearly implied	 the normal rule. that the share of a partner in the assets devolves upon his legal representatives will apply to the goodwill as well as to other assets. The appeal therefore fails and is dismissed with costs. Appeal dismissed.

Summary:
D who was one of eight partners in a firm	 died on February 20	 1957. By virtue of a provision in the partnership deed	 the business of the firm was continued by the surviving partners. The respondents	 being the widow and son of D commenced an action for an account of the partnership between D and the surviving partners	 praying for an order for the payment of the amount determined to be due to D at the time of his death. A single judge of the High Court passed a preliminary decree directing that an account be taken of the partnership as on February 20	 1957. A Division Bench	 in appeal	 modified the decree holding that the respondents were entitled only to interest at 6 % p.a. on. the amount of D 's share in the assets of the partnership	 including good will. In appeal to this Court it was contended on behalf of the appellants that the respondents as legal representatives of D were not entitled to a share in the value of the good will of the firm because good will may be taken into account only when there is a dissolution and not otherwise; and. furthermore	 because D had agreed that his interest in the good will would cease after his death and the business shall be continued by the _surviving	 partners. HELD : Dismissing the appeal	 It could not be held that in interpreting a deed of partnership	 business. whereof	 it is stipulated shall be continued by the surviving I partners after the death of a partner	 the Court will not award to the legal representatives of the deceased partner a share in the goodwill in the absence of an express stipulation to the contrary. The good will of a firm is an. asset of the firm. In interpreting the deed of partnership	 the Court will insist upon	 some indication that the right to a share in the assets is	 by virtue of the agreement that the surviving partners are entitled to carry on the business on the death of the partner	 to be extinguished. In the absence of a provision expressly made or clearly implied	 the normal rule that the share of a partner in the assets devolves upon his legal representatives will apply to the good will as well as to other assets. [693 F H] There is no indication in section 55 of the Partnership Act that goodwill may be taken into account only when there is a general dissolution of the firm	. and not when the reprensentatives of a partner claim his share in the firm	 which by express stipulations is to continue not with standing the death of a partner. Nor do sections 39	 42 and 46 of the Act support such a contention.[691 F] Hunter vs Dowling	 [18951 ; Smith vs Nelson 96 Law Times Reports 313; Bachubai and L. A. Watkins vs Shamji Jadowji	 I.L.R. ; referred to. Cl/70 14. 690