Saligram Ruplal Khanna & Anr. versus Kanwar Rajnath

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358

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SALIGRAM RUPLAL KHANNA & ANR

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v.

KANWAR RAJNATH

May, I, 1974

[H. R. KHANNA, M. H. BEG, AND Y. V. CHANDRACHUD, JJ.j

¶9

Indian Partnership Act. ss. 42 and 47-Scope of-Dissolution of a finn constituted for a fixed term-Mutual rights and obligations of partners after dissolution suit for rendition of aCC'o1111f's-Lin1!tation.

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A partnership consisting of the appellants and the respondent had entered into a lease agreement· with the Custodian of Evacuee Property in respect of a mill and took possession of the mill on 31st August, 1952. The period of partnership was for 5 years being tne period of the said lease. The partners having failed to pay one instalment of rent the Custodian served on the partners a show cause notice on 12-2-54 why thi; lease should not be terminated. On account of certain financial difficulties the parties entered into · a second agreement on February 24, 1954.

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Disputes having arisen between appellants and the respondent, the appellants filed a suit on De~ember 20. 1960 alleging lhat after the termination of' the lease by the Custodian on May 25, 1954 the two appellants and the respondent had orally agreed not to dissolve the partnership in spite of the termination of the lease and prayed for a declaration that the partnership between D them and the respondent , was still subsisting on the tern1s and conditions set out in the partnership deed dated 24th February, 1954. They also prayed for rendition of the partnership accounts. The respondent on. the other hand alleged that there was no oral agreement between the parties and that the claim for rendition ·of accountS was barred by limitation.

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The trial court held that the appellants had failed to prove that there was an oral agreement between the parties and that the clai.m for rendition of accounts was barred by limitation.

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On appeal the High Court upheld the findings of the trial court. Dismissing the appeal,

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HELD :-( 1) No inference of' implied agreement can be drawn from the rnaterial on record. [371 E]

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According to section 42 of the Indian Partnership Act. subject to a contract between the partners a firm is dissolved if constituted for a fixed term F by the expiry of that term. This provision makes it clear that unless some contract between the partners to the contrary is proved, the firm, if constituted for a fixed te.rm \VOu\J be dissolved by the expiry of that tern1. [371G-Ji] In the instant case it was indicated in the agreement of partnership· that the period of partnership had been fixed at 5 years bei.:ause that was the period of the lease of the mills and the lease was _terminated on bi1ay 25, J 954. [372B-C] G

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According to s. 47 of the Tndian Partnership Act after the dissolution of the firm the authority of each partner to. bind the firm and the other mutual rights and obligations of the pa1tr.·rs continue notwithstanding the dis·solution so far as may be necessary to win.d up the affairs of the firm and to complete transactions begun but unfinished. at the time of dissolution but not otherwise. The· word 'transaction' in section 47 refers not merely to a commercial transaction of purchase and sale but would include also all other matters relating to the affairs of the partnership. The completion of a tranH saction would cover also the taking of necessary steps in connection with the adjudicati'on of a dispute t whic? the firm before. its dis~olution was a party. In the instant case after dissolution. the partnership subsisted merely for the purpose of completing pending transactions, winding up the business and

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s. R. KHANNA v. RAJNATH (Khanna, J.)

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359

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adjusting the rights of partners anQ for these purposes and. these only the authority, rights <ind obligations of the partners continued. [374B·D, F-G]

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(3) The suit i'or rendition of accounts brought by the appellants on December 20, 1960 was barred by limitation. In the absence of a contract to the contrary there could be no survival. of the firm after August 30, 1957 when the period of partnership expired. [373D-F]

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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 143 of 1969 . (Appeal by Special Leave from the Judgment & Decree dated the 22nd March, 1968 of the Bombay High Court in Civil Appeal '.'Jo. 23 of 1963).

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S. T. Desai, K. L. Hathi and P. C. Kapur for the appellants.

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K. S. Cooper, A. B. Diwan, Vasant Kotwal and I. N. Shroff for the respondent.

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The Judgment of the Court was delivered by

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KHANNA, J.-This appeal by special leave is d[rected against the judgment of a Division Bench of the Bombay High Court affirming on appeal the decision of the learned single Judge whereby a suit for dissolution of partnership and rendition of accounts filed by the two piaintiff-appellants, Saligram Ruplal Khanna and Pessumal \Atalrai Shahani, against Kanwar Rajnath defendant-respondent was dismissed. The partnership which was sought to be dissolved carried on business under the name and style of "Shri Ambernath Mills Corporation" (hereinafter referred to as SAMCO). The property which according to the appellants belonged to the partnership co1isistcd of three mills at Ambernath. One of them was a woollen mill, the other was a silk mill and the third was an oil and leather cloth factory with land, bungalows and chawls attached thereto. In addition to that, there was a bobbin factory at Taradeo with offices at Bombay, Ahmedabad and other places. For the sake of convenience the above property may be described, as it was done in the High Court, as "Ambernath Mills". Although the case involves a tangled skein of facts, the points which survive for determination in appeal are rather simple.

¶42

The Ambernath Mills originally belonged to a company called Ahmed Abdul Karim Bros. Private Ltd. The mills were declared to be evacuee property in September 1951 and the Custodian took over the management of the mills in pursuance of the provisions of the Administration of Evacuee Property Act, 1950. It was then decided that the mills should be managed by displaced persons who had been industrialists in Pakistan. A private limited company was formed of 31 persons for taking over the management of the mills. Rs. 25,000 were contribnted by each one of those persons in that connection. The appellants and the respondent too were members of the company. Appellant No. 1 and the resoondent had migrated at the time of oartition from Gujarat in West Punjab. The respondent was a big industrialist and left behind extensive properties in Pakistan. He ~eld verified claim of rupees 23 lakhs in lieu of property left bv him in . West Pakistan. The first appellant had a verified claim of 5-L177SupCl/75

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[1975] l s.c.R.

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~UPREME COURT REPORTS

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360

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Rs. 22,000 in respect of residential property left in Pakistan. In addition to that he had a disputed claim in respect of industrial properties. The ;econd appellant had a verified claim of about Rs. 80,000. The two appellants and the respondent were associated by the Custodian with the management of the Ambemath Mills. By August 1952 all the members of the private limited company dropped out. It was accordin,gly decided by the Custodian to grant a lease of the Ambernath Mills to the respondent and the two appellants. On August 30, 1952 two documents were executed. One of the documents was an agreement of partnership between the two appellants and the respondent for carrying on the business of A01bernath Mills under the lease in the name and style of Shri Ambernath Mills Corporation. The other document was the agreement of lease executed by the Custodian of Evacuee Property as lessor and the appellants and the respondent carrying on business in partnership under the name and style of SAMCO as lessees. The subject-matter of the lease was Ambernath Mills. It was stated in the lease that the lessees had appointed the respondent as their chief representative with fnll powers of control, management and administration of the entire demised premises. The lease was to be for a period of five years to be computed from the date on which the possession of the demised premises was handed over to the lessees, subject to sooner determination thereof on any of the contingencies provided in clause 21 or on the breach of any condition on the part of the lessees or in the event of any dispnte among the lessees resnlting in the closure of the mills. It was also provided that the lessees would purchase and the lessor wonld sell to the lessees at an agreed pdce the stocks of raw materials, unsold finished goods, consumer's stores, spare parts, cars and trucks and other movables which had alreadv been vested in the lessor, as well as three diesel generating sets purchased by the lessor. In the event of any difference on the question of the price, the same was to be fixed through one or more experts. The sale was to be completed within a period of three months from the date of the agreement. The lessees were authorised to take as partner one or more clisplaced persons who had filed claims under the Displaced Persons Qaims Act, 1950 subject to the prior approval of the Government. The agreement also contained a provision for reference of any dispute arising out of the agreement of lease to arbitrators chosen by the parties by m'utual consent. The annual rent payable by the lessees was fixed at Rs. 6,00,000 payable in four quarterly instalments of Rs. 1,50.000 each on or before 30th day of each quarter. The lessees also undertook to deposit or fnrnish bank guarantee in the sum of Rs. 7.00,000 as security for the payment of the value of raw material, unsold finished goods, stores. spare parts and other articles. Clauses 17 to 21 of the agreement of lease read as under :

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"17. It is agreed between the Lessor and the Lessees that when the entire claims of the lessees filed by them under the Displaced Persons Oaims Act, 1950, for all their properties are determined and the compensation payable to them

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s. R. KHANNA v. RAJNATH (Khanna, J.)

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". Ir	A B	bytheGovernment of Indiaisascertained, the market value ofthe entire demised premises shall be determinedbyan expert appointedinthat behalfbytheGovernment of India, MinistryofRehabilitation, and such value asisdetermine<j shall be takenaspriceforacquisitionbyth·3lesseesot the full proprietary interest in the demised premises in the man- nershowninthe next succeeding paragraph.
..	c D E	18.The Lessees, being all displaced persons from Pakistanandhaving left large properties in Pakistan, haveall ofthem put in claims in resp3ctoftheir properties and other assets left by them in Pakistan under the Displaced Persons Claims Act, 1950. Whentheclaims under the said Act of the Lessees are verified and determined and compensation pay- able in respect thereof has been ascertained the compensa- tion payable to the Lessees shall be taken into consideration, andithasbeen agreed as a termofthis Agreement between the parties hereto withtheconcurrence of Govt.ofIndia, Ministry of Rehabilitation, that on such total compensation being arrived at the Lessees shall be allotted proprietary rights in the demised premises, in the manner shown_viz.,_in case the value of the aggregate compensation payabletqthe Lesseesisequivalent to the value of the demised premises asassessed, the Lessor shall convey the demised premises absolutely to themasfullproprietors thereof, their interest in the demised premises being in proportion to the compensatim payable to each of the Lessees and the respective shares in the proprietary interest shall be adjusted according to the amountofcompensation payable to each as finally deter- mined.
	F	19.Incasethe aggregate amountcffcompensation pay- able by the GovernmentofIndia to the Lessees exceeds the value of the demised premises as determined, the demised premiseswillbe conveyed to the Lessees, their share_inter_ _se_beinginthe proportion oftheamount of compensation payable to each.
..	G H	20.Itisfurther agreed that in case the aggregate amount ofcompensation payable to the Lesseesfallsshortofthe valuefixedfor the demised premises, the Lessor shallbe entitled to associate with the Lesseesinthe ownership of the proprietarv interestleibe allottedasaforesaid other displaced persons who have left industrial concerns in Pakistan, so that the total compensation payable to the Lessees and the others thus associatedisequivalent to the total value of the demised premises and the said demised premises shall then become the absolute prciperty oftheLessees and others thus asso- ciated in proportion tothetotal compensation payable to eachasfinallydetermined.

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[1975] ! S.C.R.

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SUPREME COURT (EPORTS

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The lease to be granted pursuance hereto shall be liable to determination earlier on the settlement of the claims of the Lessees and the allcment and transfer of the full proprietary interest in the demised premises as provided in clauses 17 to 20 hereof; provided that if the value of the full proprietary interest in the demised premises exceeds the amount of compensation payable to the Lessees and part of such proprietary interest is allotted to cher persons as pro· vided in clause 20 hereof, the Lessees shall be at liberty to continue the lease for the unexpired residue of the term on the terms and conditions and yearly rent prescribed hereunder, the yearly rent being adjusted proportionately to the extent of the prc1prietary interest allotted and transferred to the Lessees."

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According to the partnership agreement executed by the two appellants and the respondent on August 30, 1952, each partner had agreed to contribute a capital of Rs. 1,00,000. The amount of Rs. 25,000 already paid by each partner to the Custodian was regarded as part payment of the capital of rupees one lakh. Each partner had onethird share in the partnership, but it was provided that the shares would he adjusted by tile respondent if fresh partners were taken in the partnership. The respondent was to be the managing partner and was entitled to assign work in the partnership to the two appellants. It was agreed that the appellants were not to interfere directly or indirectly in any manner with the management and contrd of the business by the respondent. The respondent was also authorized tu form a limited liability company for running the business of the partnership with the consent of the Custodian and the appellants agreed to join the company as sharehclders on such terms and conditions as might be agreed when such company was formed. The period of the partnership was five years "being the period of said lease".

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The partnership took possession of Ambernath Mills on August 31, 1952. The respondent directed the first appellant to be incharge of the administraticirr of the mills at Ambernath, while the second appellant, being an engineer, was placed incharge of the properties, machinery and stores of the mills. The respondent was in overall charge of the concerned.

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It appears that the partnership made SClffie progress in the first few months. The stocks of raw material, finished goods, stores and ctther movables which were deemed to have been purchased by SAMCO under the terms of the agreement of lease were in the meantime valued by an auditor appointed by the Custodian at rupees 3() lakhs. The Custodian called upon the partnership in April 1953 to pay a sum cf rupees 7 lakhs or to furnish a bank guarantee for the said amount as provided in the agreement of lease. This payment could not be made by the partnership. There was also difficulty in paying the sixth instalment of the rent. A cheque for Rs. 1,50,000 was issued but the same was cjishonourcd. Subsequently, arrangements were made tci pay Rs. 1,00,000. An amount of Rs. 50,000 out of the sixth instalment remained unpaid.

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s. R. KHANNA v. RAJNATH (Khanna, ].)

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A On February 12, 1954 the Custodian served a notice on the res· pendent and the two appellants to show cause why the agreement of lease should not be cancelled cin account of breach of conditions in the matter of the payment of the sixth quarterly instalment of rent and the failure to deposit or furnish bank guarantee for the amount of Rs. 7,00,000. A writ petition was thereupon filed by the partnership on February 16, 1954 in the Bombay High Court fc~ quashing the B notice issued by the Custodian ..

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In the meantime, the second appellant sent letter dated February 8, 1954 to the respondent suggesting that his share in the partnership be reduced to 1 '}nna in a rupee or to such other fraction as the res" pendent thought fit. A similar letter was addressed by the first appellant. On February 24, 1954 the parties entered into a secqnd agreement of partnership. It was agreed in the new partnership agreement that the share of the first appellant would be 3 annas and that of. the second appellant 1 anna in a rupee. The respondent was to have the remaining 12 annas share. It was also agreed that the two appellants would not have the right, title and interest in the name, capital, assets and goodwill of the partnership. It was provided that the new partnership wc!llld be deemed to have been· formed as from October . 1 , 1953. Accounts for the period from August 30, 1952 to September 30, 1953 were to be made up on the basis of the partnership agceement dated August 30, 1952 and the profits and losses for that period were to be distributed accordingly. The capital of the partnership was agreed to be arranged by the respcl!l.dent and he was to be the managing partner in control of the entire affairs of the partnership. He was also to get interest at 6 per cent on all finances arranged by him. The appellants agreed to carry on snch dntics in the concern as might be assigned to them by the respondent. The period of the partnership was to be "the c111tstanding period of the lease".

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The writ petition referred to above filed by the partnership to quash the notice of the Custodian was allowed by a single Judge of the Bombay High Court on March 31, 1954. On appeal filed by the CusF todian, a Division Bench of the High Cciurt as per judgment dated April 13, 1954 set aside the order of the sing!e Judge and dismisser! the writ petition. Certificate of fitness for appeal to this Court was granted by the High Court on May 5, 1954. Stay Nder was also issued on that day restraining the Custodian frcim dispossessing the respondent and the appellants from Ambernath Mills. Appeal against the decision of the Division Bench of Bombay High Court was then G filed in this Court. The Custodian of Evacuee Property made an order on May 25, 1954 cancelling the agreement c~ lease of Amberanth Mills dated August 30, 1952. The possession of the mills was voluntarily delivered by the partnership to the Custodian on June 30 1954. ,

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Representations were made on behalf of SAMCO to the Minister H of Rehabilitation during the later half of 1954 for being allciWed to retam Ambernath Mills. A communication was also addressed on D~cember 14, 1954 to the Minister of Rehabilitation suggesting, inter aha, that the claim of the Custodian against the partnership in respect

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[1975] 1 s.c.R.

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SUPREME COURT REPORTS

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of arrears of rent and the value of raw material and c~her goods should be referred to arbitration.

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The Displaced Persons (Compensation and Rehabilitation) Act, 1954 came into force on October 9, 1954. On March 10, 1955 the Central Government issued notification under sectiqn 12 of that Act acquiring the Ambernath Mills. An advertisement was then issued by the Central Government for the sale of Ambernath Mills. Tenders for the purchase of the mills were required to be submitted by July 9, 1955. On June 7, 1955 a representation was made by SAMCO that in view of the· pendency of its appeal in the Supreme Court in respect of the Custodian's notice for cancellation of the lease, the Ambernath Mills should not be sold. On July 7, 1955 the partnership submitted a tender for the purchase of the mills in accordance with the Government advertisement. The offer was for an aggregate amount of Rs. 55,55,555. On October 14, 1955 the partnership made another ct1Ier to purchase the mills for an aggregate amount of Rs. 75,00,000 on terms and oonditions to be mutually agreed upon.· The offer of October 14, 1955 was made after the last date for the receipt of tenders. The appeal referred to above filed by the partnership in this Court against the judgment of the Bqmbay High Court was dismissed by this Court on November 10, 1955 vide reported case Rai Bahadur Kanwar Raj Nath & Ors. v. Pramod C. Bhatt, Custodian of Evacuee Property('). This Court held that the Custodian had the power of cancelling the lease under section 12 of the Administraticlll of Evacuee Property Act and that the notice issued by the Custodian was valid. This Court, however, left open the question whether the partnership had any right to purchase the mills under the agreement of lease.

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Notice under section 80 of the Code of Civil Prcl:edure was issued to the Custodian and the Central Govenment on No_vember 9, 9.55 intimating the intention of the partnership to file a sut for restrammg the Custodian and the Central Government from sellmg Ambernath Mills. The Central Government on Decemb.er 30, 1955 informed the partnership that its offer to purchase the mills for Rs. 55,55,555 was rejected. The partnership thereafter withdrew its subsequent offer f purchase of the mills for Rs. 75,00,000. On January 31, 1956 a smt was filed on behalf of the partnership against the Custodian and the Central Government few permanent injunction restraining them from selling Ambernath Mills to any perso .other than the partners. The said suit was dismissed by the City Cm! Cc1Urt Bombay on Octor. 8, 1956. An appeal was thereupon filed by SAMCO gamst the dcson of the City Civil Court. This appeal too was dismissed by a Div1S1on Bench of the Bombay High Cciurt as per. judgment dat~ January 14, 1957. This judgment is reported as Shri Ambernath Mills Co~pora tion v. G. B. Godbole, Custodian of Evacuee Property & Anr.(-) It was held by the Division Bench that the agreement f purchase co taining clauses 17 to 21 of the lease deed was indefimte and vague Ill varicius particulars and that the agreement of sale was not capable of

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(1) [1955] 2 S.C.R. 977.

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(2) A.I.R. [1957] Born. 119.

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s. R., KHANNA v. RA.JNATH. (KTianna, ].)

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A specific performance. The Division Bench further held that the Central Government by 'irtue of notification dated March 10, 1955 acquired . the mills free from ·ail encumbrances and that such right as SAMCO might have had of sp::cific performance of agreement of sale was in the nature of an encumbrance. The Central Government, according to the Division· Bench, must be deemed tq have acquired the mills B. free from that encumbrance. . No appeal was filed· against the abov~ decision of the Bombay High. Court ..

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.. The respondent, it would appear, started making efforts from the middle of 1957 to get the Ambemath Mills for himself .. He was' . in Delhi fotr several months from June 1957 onwards. On August 14, · 1957 an agreement for sale of Ambemath Mills to the respondent was executed by the respondent and the President. The price of the mills c was fixed at Rs. 50,11,000. Out of this amount, a sum of Rs. 2,00.000 was to be paid on the execution of the agreement as earnest money ·and in part payment of the purchase price. This amount cc;.ild be paid either iii cash or by adjustment of net compensation payable to tlie respondent or to other displaced persons who might assign their verified c!aim in favour of the respcmdent A . further sum of Rs. 28,00,000 was to be paid within three months from the date of D the agreement either in cash or by adjustment of the net compensation payable to displaced persons who assigned their verified claims .in favour of the respondent. The balance ci. Rs; 20,11,000 was to be paid in seven equal instalments. It was provided that if the respondent failed to pay the amount of Rs. 28,00,000 within three months from the date 'of agreement the earnest money of Rs. 2,00,000 paid by' E him was to be· forfeited. In addition to the above, the respondent undertook to mortgage the mills for a sum not exceeding Rs,:~0,00,000 to secure the payment of such amount as SAMCO might· be found liable to pay to the CuStodian in respect of the claim referred to arbitration. On September 20, 1957 the first appellant executed an agreement for the transfer of his compensation claim amountin,g to Rs. 6,994. The amount was to be repaid to the first appellant ··within three F years with interest at the rate of 6 per .cent per annum. It was stated in the agreement that the respondent was contemplating to . foqn · a joint stock company to own, run and manage the mills. The resporule!lt. agreed that in the event of such a company being · fcaned the first appellant would have the option to purchase shares of the said company to the extent of 50 per cent of the amount of his claim compensation.

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¶115

On August 12, 1957 the dispute between the Custodian on one side and the two appellants and the respondent.on the other, which had been referred earlier in accordance with the· arbitration clause in the agreement of lease to the arbitration of other arbitrators, ·was referred to the arbitration of :Mr. Morarji Desai. On November 13, 1957 the respondent and the Custodian agreed before ·the arbitrator that the dues of the Custodian ·against the partnership be settled at Rs. 18,00,000. A consent award .awarding Rs. 18,00,000 in favour cf the Custodian against the partnership was made by Mr. Morarji Desai on .the fdlowing day, viz., November 14, 1957. The award was made a rule of the court ori May 1, 1958.

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[1975] 1.s.c.R.

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SUPREME COURT REPORTS

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366

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The respondent was unable to submit to the Central Government compensatiqn claims to the extent of Rs. 30,00,000 within three months of the agreement dated August 14, 1957. By April 1959 he submitted compensation claims to tuc extent of Rs. 20,0U,000. A supplememal agreement was executed by the respondont and tile !'rec.ide:ir on April 29, 1959. In this agreement the President acknowledged the receipt from the respondent of the sum df Rs. 20,00",000 by way of adjustment of compensation c1a1ms. The respondent undertook to pay the remaining amount of Rs. 30,11,000 and Rs. 18,00,000 under the award of Mr. Morarji Desai, in all, Rs. 48,11,000. It was agreed that the aforesaid amount would be paid by the respondent in seven annual instalments. A second supplemental agreement was executed by the President and the respondent on April 6, 1960, but we are not concerned with that. On April 21, 1960 the grant of the Ambernatli Mills was made by the President tel the respondent. The same day the respondent executed in favour of the President a mortgage of the Ambernath Mills for the payment of Rs. 48,11,000. The sum was payable in seven equal annual instalments. On April 22, 1960 the respondent took possessiqn of Ambernath Mills which had been lying idle for nearly six years since June 30, 1954. On May 7, 1960 the respondent sent a circular letter to all displaced persons whose compensation claim had been transferred to him informing them that possession of the mills had been handed c1Ver to him by the Central Government. They were also informed that statement of their accounts was being prepared. One suc)l letter was sent to the first appellant. He also received a statement of account and in September 1960 a cheque for Rs. 204 was sent to him by way of interest.

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On October 7, 1960 the first appellant sent a letter tc1 the respondent complaining that his property had been attached in execution of a decree for Rs. 271.44 which had been obtained by a creditor against SAMCO. In this letter the first appellant hinted that he was a partner of the respondent. The respondent in response sent to the first appellant a cheque for Rs. 271.44. It is also stated that the respondent informed the first appellant on telephone that he did not regard the latter as his partner. On December 20, 1960 the two appellants filed the present suit.

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· It was alleged in the plaint that after the termination of the agreement of lease by the Custodian on May 25, 1954 the two appellants and the respondent assembled and orally agreed not to dissolve the partnership in spite of the termination of the lease. The agreement between the parties was further stated to be that "the partnership should be continued for the purpose of acquiring on behalf and for the benefit of the said partnership the properties Ex. 1 (Ambernath Mills) hereto and to exploit the said industries". The respondent was stated to have made a representation that he was acquiring the Ambernath Mills on behalf c~ the partnership and that the agreement had been executed in the respondent's name because the Central Government desired to deal with only one individual. It was also stated that the respondent had admitted utilisation of a sum of Rs. 2,00,000 out of the partnership fund for payment of earnest money. The respcl!ldent

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s. R. KHANNA v. RAJNATH (Khanna, ].)

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A being a partner, according to the appellants, stood in a fiduciary character vis-a-vis the appellants and was bound to protect their interest. He could not gain for himself pecuniary advantage by entering into dealings under circumstances in which. his interests were adverse to those c& the appellants. The properties and profits acquired by the respondent were stated to be for the benefit of the partnership also. In the plaint, as it was initially filed, the appellants prayed for a declaration

¶135

• B that the partnership between them and the respondent was still subsisting on the terms and conditions set out in partnership deed dated February 24, 1954 excepting the terms relating to the period of partnership. Prayer was made for a declaration that the Ambernath Mills belonged to the partnership and for rendition of the partnership acoounts. By a subsequent amendment prayer was added that the part-

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c nership be dissolved from the date of the filing of the suit.

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The respondent in his written statement denied the alleged oral agreement between the parties on or about May 25, 1954. According to the respondent, the partnership stood dissolved cin March 10, 1955 when the Central Government acquired the Ambernath Mills. According further to the respondent, the funds of the partnership were D utilized for the payment of various creditors of the partnership and after those payments were made the partnership did not have sufficient funds to pay to the remaining creditors. With regard to the negotia- · tions for the acquisition of the mills, the respondent stated that the first appellant was aware that Ambernath Mills were being acquired by the respondent for himself alon·o. The respondent denied that he ever told the first appellant that the amount of earnest money of Rs. 2,00,000 E for the purchase of the Ambernath Mills had been paid out of funds belonging to the partnership. Allegation was also made by the rs pondent that the first appellant had requested that he might be given some benefit in the nature of appointment or agency in the business of Ambernath Mills. The claim c the appellant for rendition of the accounts was stated to be barred by limitation. In an affidavit filed on January 11, 1961 the respondent stated that in case it was held that F there was an oral agreement of partnership between the parties, the same should be taken to have been dissolved.

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Learned trial judge held that the appellants had failed to prove that there was an oral agreement between the parties on or abcfllt May 25, 1954. It was further held that' there was no agreement, express or G implied, to form a partnership for acquiring the mills and for carrying on the business thereon. The appellants were held not entitled tc1 have the mills treated as partnership assets by invoking principles enunciated in section 88 of the Indian Trusts Act, to which reference had been made on behalf of the appellants. The learned judge also held the appellants claim for renditic1n of accounts to be barred by limitation because in his view the partnership had stood dissolved on May H 25, 1954 when the agreement of lease was cancelled. Jn any case, 2ccordiM to the learned judge, the partnership must be deemed to have been dissolved either on January 14, 1957 when the suit filed by the two appellants and the respondent against the Custodian and the Cent-

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(1975] J S.C.R.

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SUPREME COURT REPORTS

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ral Government for permanent injunction was finally dismissed in appeal A by a Division Bench of the Bombay High Court or on August 30 1957 when the period of the lease came to an end. '

¶145

Inappeal before the Division Bench the following four contenticns wereadvanced on behalfofthe appellants : "(I)that on 25th May 1954 the parties expressly agreed to continue their partnership for acquiring the Mills and ex- ploiting them, that a partnership atwillthus came into exis- tence between them, and that therefore the Mills acquired by the defendantcirhis agreement with the President of India dated 14th August 1957 and the subsequent grant by the PresidentofIndia on 21st April 1960 must be held to beanassetofthesaid partnership; (2)thatifsuch an express agreementisheld not to have been proved, an implied agreement to the same effect should be inferred from the conduct of the parties and the corres- pondence between them; (3) that, even supposing that therewasno express c~ ·implied agreementasstated above, the rights acquired by the defendantasa result of his agreement with the President of India dated 14th August 1957 and the subsequent Presi- dential grant are impressed with a trust in favour of the part- nership under section88of the Indian Trusts Act; and (4)that, even if itisheld that the Mills are no longer an asset of the partnership, the plaintiffs are still entitled to accounts of the partnershipwhichadmittcdlv existed between them and the defendant forwc~kingthe Mills under Agree- ment of lease dated 30th August 1952."
The learned judges constituting the Division Bench repelled all the contentions advanced on behalf of the appellants and substantially agreed with the findings of the trialjudge.Onthe question of the limitation, the learned judges held that the partnershlp had been dis- solved at the latest on November 10, 1955 whenallthe attempts of the partr.erstc1get the Custodian's order dated May 25, 1954 set aside came to an end with the decision of the Supreme Court. The present suit for rendition of accounts brought on December 20, 1960 more than three years after the dateofthe dissolution of the partnership washeld to be barred by limitaticin. Tuthe result the appealwas dismissed.

Inappeal before the Division Bench the following four contenticns
wereadvanced on behalfofthe appellants :
"(I)that on 25th May 1954 the parties expressly agreed
to continue their partnership for acquiring the Mills and ex-
ploiting them, that a partnership atwillthus came into exis-
tence between them, and that therefore the Mills acquired
by the defendantcirhis agreement with the President of
India dated 14th August 1957 and the subsequent grant by
the PresidentofIndia on 21st April 1960 must be held to
beanassetofthesaid partnership;
(2)thatifsuch an express agreementisheld not to have
been proved, an implied agreement to the same effect should
be inferred from the conduct of the parties and the corres-
pondence between them;
(3) that, even supposing that therewasno express
c~
·implied agreementasstated above, the rights acquired by the
defendantasa result of his agreement with the President of
India dated 14th August 1957 and the subsequent Presi-
dential grant are impressed with a trust in favour of the part-
nership under section88of the Indian Trusts Act; and
(4)that, even if itisheld that the Mills are no longer
an asset of the partnership, the plaintiffs are still entitled to
accounts of the partnershipwhichadmittcdlv existed between
them and the defendant forwc~kingthe Mills under Agree-
ment of lease dated 30th August 1952."

The learned judges constituting the Division Bench repelled all the
contentions advanced on behalf of the appellants and substantially
agreed with the findings of the trialjudge.Onthe question of the
limitation, the learned judges held that the partnershlp had been dis-
solved at the latest on November 10, 1955 whenallthe attempts of
the partr.erstc1get the Custodian's order dated May 25, 1954 set aside
came to an end with the decision of the Supreme Court. The present
suit for rendition of accounts brought on December 20, 1960 more
than three years after the dateofthe dissolution of the partnership
washeld to be barred by limitaticin.
Tuthe result the appealwas
dismissed.

•

•

c

D

E

F

G •

Tu appeal before us Mr. S.T. Desai on behalf of the appellants has frankly conceded that he is not in a position to challenge the concurrent findings of the trial judge and the appellate bench that the appellants had failed to prove that on May 25, 1954 the parties had expressly agreed to continue the partnership for acquiring the mills and exploiting them. Although Mr. Desai indicated at the commencement

¶154

H

¶155

s. R. KHANNA v. RAJNATH (Kha1111a, ].)

¶156

3 6 !>

¶157

A of the arguments that he would challenge the finding of the appellate bench that the rights acquired by the respcndent as per agreement dated August 14, 1957 with the President and the subsequent Presidential grant are impressed with trust in favour of the partnership · under section 88 of the Indian Trusts Act, no arguments were ultimately advanced by him on that score. Mr. Desai has, hcrwever, challenged the finding of the trial judge and the appellate bench that

¶158

B no implied agreement as alleged by the appellants could be inferred from the material on record. The main burden of the arguments elf Mr. Desai, however, has been that the appellants were entitled to the accuunts of the partnership which admittedly existed between the parties as per partnership agreements dated August 30, 1952 and February 24, 1954. According to Mr. Desai, there had been nq dis-

¶159

c solution of the firm prior to the institution of the suit and the appelants' suit for the rendition of accounts was not barred by limitation. The High Court, it is urged, was in errcir in holding to the contrary. The above contentions have been controverted by Mr. Cooper on behalf of the respondent and, in our opinion, are not well-founded.

¶160

•

¶161

•

¶162

D We may first deal with the questicin as to whether the implied agreement as alleged by the appellants can be inferred from the material on record. In this respect Mr. Desai has submitted that the appellants no longer claim any interest in the ownership of Ambernath Miils which now vest in the respondent. 1t is, however, urged that an agreement can be inferred from the conduct of the parties that Ambernath Mills. were to be run by the respondent in partnership with the appellants,

¶163

E even though the crwnership of the same might vest in the respondent. In this connection we find that no case of such an implied agreement was set up in the trial court, either in the plaint or otherwise, nor was. such a case set up iu appeal before the Division Bench. What was actually contended was that the agreement was for acquiring the mills as an asset of the partnership. The above stand of the appellants cciuld plainly be not accepted when one keeps in view the· agreement of

¶164

F lease dated August 30, 1952 as well as other documents on record. The said agreement of lease shows that Ambernath Mills wou Id become the absolute property not only of the appellants and the respondent but of all persons whet were to be associated with the lessees in the crNnership of the proprietary interest in proportion to the total compensation payable to each of them. The agreement of lease further contemplated that the lessee rights c~ the two appellants and the res-

¶165

G pondnt were to be distinct from the proprietary interest in the demised. premises and that the lessees were at liberty, in spite of the transfer of proprietary interest, to continue the lease for the unexpired residue of the te on the terms and conditions of the lease and payment cd' . rent prescnbed thereunder. The respondent submitted representation on August 9, 1954 on behalf of SAMCO to the Custodian for the restart of the mills and along with it the respondent sent ccipies of

¶166

H letter of auth.on.ty ~~ articulars of veried claims of 30 displaced per~ons. It is 1mphc1t m the representat10n that in case Ambernath Milis was transferred, the same would vest in all the 30 displaced per,ons whose claims were submitted.

¶167

[1975] l s.c.R.

¶168

370

¶169

SUPREME COURT REPORTS

¶170

There are two documents which run counter to the stand taken on behalf of the appellants in this Court that there was an implied argecment that in case the respondent acquired the ownership of the mills, the mills would be. worked by the respondent in partnership with the appellants. One of those documents is agreement dated September 20, 1957 which was signed by the first appellant and the respondent a day before the respondent executed bond in favour of th_at appellant in view of the fact that the first appellant agreed to have his claim compensation amounting to Rs. 6,994 adjusted towards the price of Ambernath Mills. It was stated in the agreement dated September 20, 1957 that the respondent was contemplating the formation of a joint stock company to own, ruh and manage the mills and it was agreed bttween the parties that in the event of such company being formed, the first appellant would have the option to purchase shares of the said company to the extent of 50 per cent of the amount of the adjusted daim compensation. In case the option was exercised in favour of the purchase of the shares of the company, the respondent was to ensure that the said shares would be allotted to the first appellant at par. It was further agreed that if the shares applied for or any proportion thereof were not allotted to the first appellant by the said company, the respondent would not in any way be liable to the first appellant on that account. In the bond the respondent agreed to pay to the first appellant interest at the rate of 6 per cent on the amount of compensation from the date of the adjustment of the first appellant's claim compensation. Had the first appellant any interest in the Ambernath Mills which were being acquired by the respondent, there could arise no occasion for the execution of the agreement dated September 20, 1957 and the bond dated September 21, 1957. All that was agreed by the respondent in those two documents was that in case he promoted a company for owning, running and managing of the Ambernath Mills, the first appellant would get a share of the value of half of his claim compensation of Rs. 6,994. The said amount when compared to the price of Ambernath Mills was wholly insignificant. No question could arise for the respondent borrowing money from the first appellant for payment of price of the mills in case the acquisition of the mills was for the benefit of the respondent as well as the appellant. It may also be stated_ that the interest on account of the above compensat10n was duly paid by the respondent to the first appellant.

¶171

Another document which has a bearing in the above context is letter dated December 18, 1959 which was addressed by the first appellant to the Collector of Bombay in connection with the recovery of arrears of sales tax. The first apJ)ellant in that letter stated that the responsibility for the payment of such arrears of sales tax was that of the respondent and the first appellant was no more in picture. The above letter shows that the first appellant repudiated his liability for the payment of the sales tax by disclaiming his connection with the business in question.

¶172

Our attention has been invited by Mr. Desai to the following observations contained in the judgment of the appellate bench :

A

B

c

D

E i

F

•

G

H

"There is no dispute between the parties that the partners met on 25th May 1954, after ·the Custodian's order

¶183

371

¶184

s. R. KHANNA v. RAJNATH (Khanna, J.)

•

A

B

c

D

terminating the Agreement of Lease and decided that they should try to have the Custodian's order set aside by puru ing the appeal in the Sul?rme Court as w~~ a.s by makmg representations to the Mirustry of Rehab1htatton m the Central Government. It is also not disputed that either on 25th May 1954 or soon thereafter the parties decided that they should also try to acquire the proprietary interests in the Mills by relying on clauses 17 to 21 of the Agreement of Lease. What is disputed is whether it was agreed between the parties that, after acquiring the proprietary interest in the Mills, the business of the Mills should be carried on in partnership between the parties. It is the defendant's case that the proprietary interest in the Mills was sought to be acquired by the partners for certain incidental advantages but that it was never intended that the Mills after acquisition should be run in partnership under the terms agreed in the partnership deed of 24th February 1954."

¶191

The above.observations may have some bearing on the question of the express agreement, but so far as such an agreement is concerned, it has already been pointed out above that the concurrent findings of the trial judge and the appellate bench have not been challenged before us. No inference of implied agreement mentioned by the learned counsel for the appellants can be drawn from the above observations.

¶192

We are, therefore, of the view that no inference of the implied agreement referred to by Mr. Desai can be drawn from the material on record.

..

•

E

E So far as the question is concerned as to whether the claim for rendition of accounts was within time, we find that according to clause 16 of the partnership deed dated August 30, 1952 the period of partnership was fixed at five years, being the period of the lease. Clause 17 of the deed of partnership dated February 24, 1954 provided that the "period of partnership shall be the outstanding period of such lease". The possession of Ambernath Mills under the agreement F of lease was delivered on August 31, 1952. The period of five years of the lease was thus to expire on August 30, 1957. As the partnership was for a fixed period, firm would in normal cour'e dissolve on the expiry of the period of five years on August 30, 1957. No agreement between the partners to keep the firm in existence after the expiry of the fixed term of five years has been proved'. Accordin~ to section 42 of the Indian Partnership Act, subject to contract bet;een the G partners a firm is dissolved-

¶197

" (a) if constituted for a fixed term, by the expiry of that term;

¶198

(b) if constituted to carry out one or more adventures or undertakings by the completion thereof;

¶199

H

¶200

( c) by the death of a partner; and

¶201

!d) by the adjudication of a partner as an insolvent."

¶202

The above provision makes it clear that unless some contract between!

¶203

[ 197 5] 1 s.c.R.

¶204

SUPREME COURT REPORTS

¶205

.3 72

¶206

the partners to the contrary is proved, the firm if constituted for a fixed term would be dissolved by the expiry of that term. If the firm is constituted to carry out one or more adventnres ()f undertakings, the firm, subject to a contract between the partner~, would be dissolved .by the completion of the adventures or undertakings. Clauses ( c) ~nd ( d) deal with dissolution of firm on death of a partner or his bemg .adjudicated insolvent. '

¶207

It was indicated in the agreement of partnership that the period of partnership had been fixed at five years because that was the period .of the lease of Ambernath Mills. The lease, however, ran into rough weather. On February 12, 19~4 the Custodian served notice on the respondent and the two appellants to show cause why the agreement of lease should not be cancelled in accordance with the terms of that .agreement on account of the breach of conditions in the matter of payment of instalment of rent and the failure of the respondent and the .appellants to deposit or furnish bank guarantee for the amount of Rs. 7,00,000. The respondent and the appellants challenged the validity of the above notice by means of a writ petition and, though they succeeded before a single judge, the appellate bench of the Bombay High Court upheld the validity of the notice. On May 25, 1954 the Custodian cancelled the lease of Ambernath Mills and on June 30, 1954 got possession of the mills. The respondent and the appellants assailed the decision of the appellate bench of the Bombay High Court in this Court, but this Court also took the view as per judgment dated November 10, 1955 that there was no legal infirmity in the notice for the termination of the lease issued by the Custodian. After the above judgment of this Court, whatever hope or expectation the partners of SAMCO had of running Ambernath Mills on lease under the agreemen! of lease dated August 30, 1952 came to an end and were extinguished.

¶208

In the meantime, as already stated earlier, the possession of Ambernath Mills was handed over by the partners of SAMCO to the Custodian on June 30, 1954. On March 10, 1955 the Central Government issued notification under section 12 of the Displaced Persons (Compensation and Rehabilitation) Act, 1954 for acquiring the Mills. The mills were then advertised for sale. The partners of SAM CO having been thwarted for good in their efforts to get back the mills on lease now made an effort to acquire the ownership of the mills in accordance with clauses 17 to 21 of the agreement of lease. Snit was accordingly brought by the respondent and the appellants for permanent injunction restraining the Central Government and the Custodian from selling · the Ambernath Mills to any person other than the partners of SAMCO. The suit was dismissed by the City Civil Court and the appeal filed by the partners of SAMCO too was dismissed by a Division Bench of the Bombay High Court on January 14, 1957. The Division Bench held that the agreement of purchase contained in clauses 17 to 21 of the agreement of lease was indefinite and vague and such agreement of sale was not capable of specific performance. It was further held that in view of notification dated March 10, 1955 the Central Government acquired the mills frt;e from an encumbrances. The rights of the partners of SAMCO which were m the nature of an encumbrance were

A

B

C

D

E

F

G

H

S, R. KHANNA v. RAJNATH (Khanna, J.)

¶218

373

¶219

A held to be no longer enforceable. No appeal was filed against t~e above decision of the Bombay High Court. As such, the aforesaid judgment becaine final. Any expectation which the partners of SAMCO could have of acquiring the ownership of Ambernath Mills under clauses 17 to 21 of the agreement of lease was also thus dashed to the ground.

¶220

.. B SAMCO stood dissolved on May 25, 1954 when the lease View was expressed by the learned trial judge that the firm of was cancelled. Another date cf dissolution, according to the learned judge, could be January 14, 1957 when the suit filed by the partners of that firm

¶221

• against the Custodian and the Central Government for permanent injunction was finally dismissed by the High Court. The appellate bench expressed the view that the firm of SAMCO stood dissolved on

¶222

c November 10, 1955 when the Supreme Court dismissed the appeal regarding the validity of notice. It is, in our opinion, not necessary to dilate upon this aspect of the matter because in any case there can be no manner of doubt that the firm of SAMCO got dissolved and was not subsisting after August 30, 19_?7 which was the date on which the period of five years for which the partnership l.!_ad been formed came to an end. The question as to whether the firm got dissolved earlier

¶223

D than August 30, 1957 is purely academic and is not of much significance, because in any event in the absence of a contract to the contrary there could be no survival of the firm after August 30, 1957 when the period of partnership expired. Calculating the period of limitation even from that date, the suit for rendition of accounts brought by the appellants on December 20, 1960 was barred by limitation. It is not disputed that the period of limitation for such a suit is three

¶224

E years from the date of dissolution.

¶225

Mr. Desai has referred to letter dated November 17, 1955 addressed by the respondent on behalf of SAMCO to the National Bank of India Bombay requesting for the despatch of thrne bales of wool tops to Ludhiana. In this letter an assurance was held to the Bank of cordial relations for the future expected business. Reference has also been made by Mr. Desai to the statement of the respondent in cross-exainiF ~ation that. up to ~e end of cember 1956 the firm was actively interested m acqmrmg the mills. The above letter and statement in our opinion, would not militate against the inference that the firm stod subsequently dissolved on August 30, 1957. As already mentioned above, no agreement to keep the firm in existence after the expiry of the fixed period of partnership has been proved on the record.

¶226

•

¶227

G

¶228

H

¶229

Reference has also bem made on behalf of the appellants to the consent given by the respondent on behalf of SAMCO on November 13, 1957 to the awai:d of · 18,00,000 by Mr. Morarji Desai in favour of the Custodian agamst SAMCO. It is urged that this document would go to show that the firm of SAMCO had not been . diss.olvd before that date. We are unable to agree. The arbitration proceedmgs hd ben started .as a result of application under section 20 of.the Arb1trat10n Act filed. on April 21, 1955 when SAMCO was in existence and was a running concern. The arbitration proceedings rel.ated to a claim of the Custodian of Rs. 30,00,000 on account of the pnce of stocks of raw material, stores and other movables as well as

¶230

[1975] I s.c.R.

¶231

SUPREME COURT REPORTS

¶232

374

¶233

about the arrears of rent. Counter-claim had also been made by SAMCO against the Custodian for a sum of Rs. 17 ,67 ,080 as per written statement dated December 18, 1956 filed in arbitration proceedings. The consent which was given by the respondent on November 13, 1957 was with a view to get the dispute between SAMCO with the Cu'todian finally settled. This was a necessary step for the purpose of winding up the affairs of SAMCO and to comylete transaction of arbitration proceedings which had been begun but ~mained unfinished at the time of dissolution. According to section 4 7 of the Indian Partnership Act, after the dissolution of a firm the authority of each partner to bind the firm, and the other mn!t1al rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind np the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise. The word "transaction" in section 4 7 refers not merely to commercial transaction of purchase and sale but would include also all other matters relating to the affairs of the partnership. The completion of a transaction would cover also the taking of necessary steps in connection with the adjudication of a dispute to which a firm before its dissolution is a party. The legal position in this respect has been stated on page 251 of Lindley on Partnership (Thirteenth Edition) as under :

¶234

"Notwithstanding a dissolution each partner can pay, or receive payment of, a partnership debt; for it is clearly settled that payment by one of several joint debtors, or to one of several joint creditors, extinguishes the debt irrespective of any question of partnership. So, again, it has been held that a continuing or snrviying partner may issue a bankruptcy notice in the firm name in respect of a judgment obtained before the dissolution, and that notice to him of the dishonour of a _bill of exchange is sufficient, and that he can withdraw a deposit or sell the partnership assets, or pledge them for the purpose of completing a transaction already commenced, or of secnrin!'! a debt already incurred, or the over-draft on the partnership current account at the bank."

¶235

The proposition, in our opinion, cannot be disputed that after dissolution, the partnership subsists merely for the purpose of completing pending transactions, winding up the business, and adjusting the rights of the partners; and for these purposes, and those only, the authority. rights, and obligations of the partners continue (see page 573 of Halsbnry's Laws of England Third Edition Vol. 28). We would, therefore, hold that the consent given by the respondent on November 13, 1957 to the award of Mr. Desai would not detract from the. conclusion that the firm of the parties stood dissolved on the expiry of the fixed period of partnership, viz., August 30, 1957.

¶236

The proposition of law referred to by Mr. Desai that a dissolution does not necessarily follow because a partnership has ceased to do business would not be of any material help to the appellants because we are not basing our conclusion of the dissolution of the firm of the parties upon the fact that the partnership had ceased to do business.

A.

B

c

D

E

F

G

H

•

•

s. R. KHANNA v. RAJNATH (Khanna, /.)

375

..

•

A Oa tpe contrary, we have arrived at the above conclusion in accordance with the principle of law that a firm constituted for a fixed term shall stand dissolved, in the absence of a contract to the contrary, on too expiry of that term. likewise, the appellants can derive no help from the decision of the Judicial Committee in Sathappa Chetty & Ors. v. S. N. Subrahnianyan Chetty & Ors.(') The said case did not relate to a firm constituted for a fixed term and no question arose in

¶252

B that case of a firm dissolving on the expiry of the fixed term of partnership.

¶253

Our attention has also been invited to the correspondence between

¶254

tbc first appellant and the respondent during the period from June to September, 1957. These letters reveal that the first appellant entertained hopes and expectation of deriving some benefit in case the

¶255

c respondent succeeded in acquiring the Ambemath Mills. The exact nature of the benefit was not, however, specified in the letters. The respondent in his replies while not belying those hopes and expectations took care not to make any commitment. After, however, the respondent succeeded in acquiring the mills, there developed a coolness in his attitude towards the first appellant. This circumstance must necessarily have caused disappointni'ent and disillusionment to the first

¶256

D appellant. The respondent, it s~s, kept some kind of carrot dangling before the first appellant during the delicate stage of his negotiations with the Government for the acquisition of the mills lest the first appellant did something to sabotage those efforts. After acquisition of the mills by the respondent, his attitude changed and he gave a cold rebl!ff to the first appellant. The above conduct of the respondent may have a bearing on the question of the award of costs, but it cannot affect

¶257