Smt. Kusuma Gupta And Others v. Smt. Sarla Devi And Others

Amarendra Nath Varma, J.:— This appeal is directed against an interim injunction granted by the learned Second Additional Civil Judge, Shahjahanpur, restraining the appellants from either utilizing the machinery fixed in the concern Messrs Banda Khandsari Udyog, Shahjahanpur, or, from doing any business in the name of the same during the pendency of a suit instituted by Smt. Sarla Devi against the appellants and the respondents Nos. 2 to 5. It may be mentioned at the outset that the effect of the injunction issued by the Court below is that a running business has been brought to a standstill.

2. The suit was filed on December 23, 1985 for dissolution of a partnership firm called Messrs Banda Khandsari Udyog as well for directing the appellants to render accounts of the firm. Simultaneously with the suit the plaintiff filed an application under O. XL, R. I of the Code of Civil Procedure for appointment of a receiver over the assets of the firm. By an ex parte order the Court below appointed a receiver against which order the appellants filed an appeal in this Court which is pending. In that appeal, this Court has passed an order suspending the operation of the order appointing the receiver but, at the same time, directed an advocate commissioner to prepare an inventory of the assets of the firm. It is after this order that the plaintiff filed the application for the ad interim injunction which was contested by the appellants. By the impugned order the plaintiffs' application has been allowed overruling the objection of the appellants. Shortly stated, the material plaint allegations are that the plaintiff and Pushpa Devi (respondent No. 3), the appellants (arrayed as defendants Nos. 2 to 4 in the suit) Satish Chandra, the defendant respondent No. 2 and Radheylal Gupta, defendant respondent No. 4, constituted a partnership firm on May 8, 1981 styled as Messrs Banda Khandsari Udyog, Shahjahanpur. The manufacture of Khandsari sugar was the business which the partners had agreed to engage in. The business continued without any trouble until 1983 where after a dispute arose between the plaintiff and the defendants with regard to the accounts for the years 1983-1984 and 1984-1985. The plaintiff alleged that the appellants were responsible for the manipulations in the accounts as a consequence of which the plaintiff expressed a desire to dissolve the partnership firm and since the defendants were in possession of the accounts, the suit was filed for dissolution of the partnership and rendition of accounts.

3. On the allegations similar to those on which the suit was founded the plaintiff filed the application for ad interim injunction after nearly two years of the institution of the suit. The appellants filed an objection against the injunction application supported by an affidavit refuting the allegations contained in the injunction application and the affidavit filed in support thereof. The appellants in the affidavit in reply asserted that the partnership in which Smt. Sarla Devi (the plaintiff) and the other defendants were partners had already stood dissolved in November 1984. Smt Sarla Devi and other partners had retired from the partnership and accepted a cheque for Rs. 1,20,001/- in full and final settlement of the accounts. Thereafter the firm was reconstituted with the appellants and one Ram Kishore Gupta and Ashok Kumar Gupta as partners under a deed dated November 27, 1984. The reconstituted firm had been carrying on the business peacefully and without any objection for the last three years 1984-1985, 1985-1986, 1986-1987. It was also registered as such with the Sales Tax Department. A new bank account was also opened in the name of the reconstituted firm. The taxes for the year 1985-1986 were deposited by the appellants and the other new partners of the reconstituted firm under the new sales tax registration granted to it. Huge investments had been made by the new partners two of whom are no parties to the suit. It was also asserted that the present suit has been instituted at the behest of Sri Mahesh Chand Gupta which is apparent from the fact that the plaintiff was only a minor partner in the erstwhile firm having only 5% of share whereas the dominant partners having much larger share who had retired along with the plaintiff had not had the courage of joining the plaintiff in this suit which was, according to the plaintiff, clearly a mala fide action. In addition to these assertions, the appellants also referred to and relied on the averments already made in the counter affidavit filed by them in the Court below (vide paper No. 50C). The appellants asserted that they would suffer irreparable loss if the running business is brought to a standstill as a result of the injunction sought by the plaintiffs.

4. By the impugned order the Court below has allowed the plaintiff's application and rejected the objection of the appellants. The order is founded almost solely on an interpretation of S. 53 of the Partnership Act.

5. For the appellants Sri Murlidhar submitted that the Court below has totally failed to appreciate the real controversy at issue and has, in any case, committed a grave error in disposing of the entire matter of injunction on the basis of S. 53 of the Partnership Act which, in his submission, did not apply to the facts of the present case Section 37 rather than S. 53, he argued, was the apposite provision applicable to the facts of the present case.

6. Having heard learned counsel for the parties and given the matter a careful consideration we are of the opinion that the impugned order is clearly unsustainable. As mentioned above, the Court below was swayed entirely by the provisions of S. 53 of the Partnership Act. In doing so, however, the Court below totally disregarded the plea set up by the appellants. The Court below has proceeded on the assumption that the constitution of the firm had continued unchanged till the filing of the suit and consequently inasmuch as the plaintiff was admittedly a partner of the firm she had become entitled ipso facto to the grant of ad interim injunction in view of S. 53 of the Partnership Act.

7. This is where the Court below has committed a clear error. It ignored the indisputable legal position that the grant of temporary injunction is governed by O. 39 of the Code of Civil Procedure. The principles governing the grant of temporary injunctions are far too well settled to require any elaboration. To capitulate, these are the existence of (i) a prima facie case and (ii) the balance of convenience in favour of the plaintiff before he can ask for interim injunction. The consideration of the balance of convenience necessarily brings in the concept of irreparable injury. Needless to add that the very first principle on which temporary injunction may be granted is that the Court will not grant the same to restrain an actionable wrong for which damages might be the proper remedy. The Court has to consider the comparative mischief or inconvenience of both the parties. In order to succeed the plaintiff must establish that the inconvenience he is likely to suffer by the refusal of the injunction would be greater than that which the defendant would suffer, if it is granted. And injury which the plaintiff is likely to suffer is unquantifiable, that is, the damages and other forms of security would not furnish an adequate remedy at the end of the trial of the suit.

8. It is from these perspectives that the grant or refusal of ad interim injunction had to be considered by the Court below. The Court below has dismissed the issue of balance of convenience of irreparable injury by stating that in a case covered by S. 53 of the Partnership Act, the presumption of balance of convenience being in favour of the plaintiff stands automatically established.

9. We are unable to agree. A temporary injunction cannot be claimed as a matter of right upon the dissolution of partnership, where the rights of the parties can be fully protected without it. In each case, before granting temporary injunction, in our opinion, therefore, the Court will have to address itself to the issue of balance of convenience and irreparable injury judged in the totality of the facts obtaining in the case. The injunction which is incorporated in S. 53 of the Partnership Act is based on the principle that the partners intending to continue business should not do anything which might impede the winding up of the partnership business. The basic idea is to preserve the distributable assets of the firm pending the winding up of the affairs and to ensure that some irreparable injury to the partners applying for the aid of S. 53 may not be caused to them while the winding up of the partnership business is pending or in progress. These considerations, in our opinion, necessarily involve enquiry into the question whether the interest of the plaintiff is likely to be jeopardised beyond repair or compensation if temporary injunction is refused. These observations, we must hasten to add, must be read in the context of the grant of temporary injunction and not the grant of injunction under S. 53 as a final relief upon the plaintiffs establishing the ingredients thereof.

10. It will, therefore, be an error to suppose that as soon as a plaintiff brings a suit for dissolution of a partnership firm and accounting, temporary injunction should be granted as a matter of course without regard to the consideration of the question of prima facie case, balance of convenience and irreparable injury.

11. Turning to the facts of the case, the position is that according to the defendant appellants case as disclosed in their objection and counter affidavits, the partnership comprising the plaintiff, the defendant-appellants and the other defendants respondents already stood dissolved on November 7, 1984 with effect from October 31, 1984, with the retirement of the plaintiff who had only 5% share, Smt. Pushpa Devi, the holder of the dominant interest in the partnership having 33% share therein and Satish Chandra Gupta and Radheylal Gupta who, like the plaintiff, were holders of minor shares being respectively 3% and 9%, after acceptance of a cheque of Rs. 1,20,001/- in full and final settlement of their rights and claims in the said partnership. It was further pleaded that after the aforesaid partners had so retired, two other partners (not parties to the suit) had joined the appellants as partners under a fresh deed of partnership executed on November 27, 1984. The assertion in the counter affidavit is that the dissolution of the erstwhile partnership was effected through a deed signed by the parties. The further allegation is that Smt. Pushpa Devi informed the Khandsari Inspector-cum-Assessing Officer by means of a letter dated December 14, 1984 confirming that the erstwhile partnership had been dissolved and asserting that she would not be liable for any future tax liability.

12. We refrain from commenting on the truth or otherwise of these allegations at this stage as any observations made by this Court on the pleadings of the parties or the evidence adduced by them so far are likely to prejudice a fair trial of the issues which are yet to be determined in the suit. For the decision of the injunction application, however, what is important to note is that the appellants' categorical case is that the erstwhile firm stood dissolved with the retirement of the plaintiff and other defendants-respondents after settlement of accounts and thereafter new partners were inducted and that it is the reconstituted firm, which is running the khandsari unit.

13. If, therefore, this case is found to be correct at the end of the trial, it is apparent that S. 53 would have no application as S. 53 cannot be pressed in aid to restrain the activities of a newly constituted firm after the dissolution and final settlement of accounts of the previous firm. The injury which the appellants would suffer from the closing down of this running business during all the years that the suit would be pending trial would undeniably be much greater than that likely to be suffered by the plaintiff-respondents. The impact on the rights of those engaged in a running business from the closure thereof is unpredictable or, at any rate, difficult to assess in terms of money. It will, therefore, not be right and proper to direct the closure of the business which was being admittedly run by the appellants until the grant of injunction by the Court below for the last over two years. Further, the injunction was not issued at the instance of the major partners, namely, Srimati Pushpa Devi and others. In this background, it is obvious that as against the need of the plaintiff-respondent having but 5% share in the firm to have the assets of the firm preserved and to prevent any irreparable injury being caused to her during the winding up of the affairs of the firm the loss arising from the disruption of a running business claimed by the defendants-appellants under a reconstituted firm would obviously be much greater and indeed unquantifiable, or, at any rate, very difficult to assess. We are clearly of the view that the issue of temporary injunction should, in these circumstances, be avoided subject to the directions to be indicated hereunder, which, in our opinion, should fully protect the interest of the plaintiff-respondent and other defendants.

14. For the plaintiff respondent it was contended that if the appellants are allowed to continue to do business utilizing the assets of the firm, it might expose the plaintiff to various statutory liabilities arising under the Income-tax Act, Sales Tax Act and other legislation regulating khandsari units. These liabilities are unalterable and cannot be the subject-matter of any agreement between the parties. It is true that the statutory liabilities cannot be avoided by a simple agreement between the partners. But where, as in the present case, the Court intervenes and makes provision for the discharge of those liabilities the fears expressed by the learned counsel for the plaintiff can be effectively allayed. Sri Murlidhar appearing for the appellants made a categorical statement before us that apart from furnishing the bank guarantee in the sum of Rs. 1,00,000/- which is more than 5% of the net value of the assets of the partnership concern put by the plaintiff herself, the appellants bind themselves to be wholly and exclusively responsible for any liability, statutory or otherwise, accruing against the partnership concern on and after October 31, 1984 up to the date of the winding up of the affairs of the concern. This statement of Sri Murlidhar shall form part of the order in this appeal and the appellants shall be bound by the same. If, therefore, any liability, statutory or otherwise, is sought to be enforced against the plaintiff and other defendants, the same shall be borne exclusively by the defendants-appellants and the said liabilities shall be enforceable only against the defendants appellants and not the plaintiff and other defendants in terms of the statement made by Sri Murlidhar for the appellants. This together with the Bank guarantee which the appellants shall furnish for the sum of Rs. 1,00,000/- with the trial Court as directed hereunder as well as the further directions given below should fully safeguard the interest of the plaintiff-respondent.

15. In the totality of facts and circumstances, we are clearly of the opinion that this is not a case in which temporary injunction in the terms mentioned in the order under challenge should have been granted by the trial Court. The trial Court did not make any serious effort to determine the issue of balance of convenience and irreparable injury likely to be caused to the affected parties by the grant or refusal of temporary injunction. We think that for bringing a running business to a standstill a very strong case must be made out as an injunction which has the effect of disrupting a continuing business has serious implications and unless it is found that interest of the party asking for temporary injunction cannot be otherwise adequately secured or that the injury would be irreparable such a temporary injunction should not be granted.

16. Learned counsel for the plaintiff respondent placed reliance on a single Judge decision of this Court of M.C Sharma v. B.C Sharma reported in AIR 1986 All 69. Particular reliance was placed on Para 12 of the report in which the learned single Judge observed that there is a total blanket on the carrying on of a similar business in the firm's name or using its property for one's own benefit by a partner. This case is clearly distinguishable. It appears that in that case there was no controversy as to the application of S. 53. In the present case there is a serious dispute between the parties as to whether on the facts of the present case S. 53 of the Partnership Act is at all attracted. The second point of distinction is that in that case it was found that S. 37 was not attracted because it was neither a case where a partner may have died nor of his having ceased to be a partner. In the present case, according to the appellants, the plaintiff and other defendants had already ceased to be partners of the firm. If, therefore, this case is found to be true S. 37 might be attracted to the present case in which case the interest of the retiring partners would be amply safeguarded in the manner provided thereunder. Further we do not agree that temporary injunction in terms mentioned in S. 53 should be granted in every case as a matter of course without investigating the issues of balance of convenience and irreparable injury.

17. Learned counsel for Radhey Lal Gupta, the defendant respondent No. 4, sought to support the case of the plaintiff in this Court by adopting these submissions made on behalf of the plaintiff respondent.

18. It is significant that Radheylal Gupta did not choose to join the plaintiff in the institution of the suit. Nor did he file any application for the grant of temporary injunction. It appears that finding that Smt. Sarla Devi had only a small share in the partnership, Radhey Lal sought to lend a helping hand to her in this court. However, as in the case of Srimati Sarla Devi so with Radhey Lal Gupta, the balance of convenience is clearly in favour of the defendants-appellants.

19. In the result, the appeal succeeds and is allowed. The order passed by the Court below is set aside subject to the following directions:—

1. The appellants shall furnish a bank guarantee of Rs. 1,00,000/- with the trial Court within a month from today;

2. The statement made by Sri Murlidhar before this Court as mentioned above shall form part of this order.

3. The appellants shall furnish every month true and accurate accounts of the aforesaid firm in respect of the business which is being carried on by them with the trial Court by the 15th of every successive month;

4. The defendants appellants shall not transfer or otherwise alienate any fixed assets comprising machinery or immovable property of Messrs. Banda Khandsari Udyog, Shahjahanpur or otherwise create any fresh charge thereon during the pendency of the suit;

5. The trial Court shall dispose of the suit finally if possible, within 3 months, or latest within 4 months from the date on which a certified copy of this order is filed before it;

6. If the appellants fail to furnish the bank guarantee or accounts as directed hereinabove, the injunction issued by the trial Court shall revive automatically.

20. However, the parties are left to bear their own costs of this appeal.

21. Appeal allowed.