Sardar Hardutt Singh v. Ch. Mukha Singh And Others

1. This civil second appeal is directed against the judgment and decree dated May 20, 1971 of the Sub Judge (Chief Judicial Magistrate), Jammu, whereby he affirmed the judgment and decree dated December 19, 1970, of the Munsiff, Jammu dismissing the appellant's suit for dissolution of partnership and rendition of accounts.

2. It appears that the appellant sought the dissolution of partnership known as ‘Naiya Kashmir Transport Page: 47Company, Jammu,’ which was brought into existence vide deed dated February 10, 1964, on the grounds that the partnership was at will, that the defendants Nos. 1 to 7 were not interested in promoting the partnership business and had started a new firm known as Ashoka Transport Service Jammu, that the said defendants had in collusion with each other been acting in a manner which had pre-judicially affected his interests and had caused huge loss to him, that in breach of the partnership agreement the defendants had withdrawn the entire amount from the Jammu and Kashmir Bank which stood to the credit of the partnership, that in spite of the fact that the partnership had earned profits of thousands of rupees since the dispute between the parties began the defendants had shown, that it was running at a loss, that mutual confidence amongst the partners having been lost the partnership business could not be carried on save at a loss and that it was just and equitable that the partnership be dissolved.

3. The suit was resisted on various grounds. The main defence taken by the contesting defendants was that the suit was not maintainable as the conditions laid down in clause 18 of the aforesaid partnership agreement had not been fulfilled in that one month's notice which was mandatory had not been given, the balance sheet had not been prepared and the amount due to or from each partner had not been paid. The defendants further contended that the suit was also not maintainable as under clause 10 of the agreement all the disputes between the parties had to be referred to arbitration. On the pleadings of the parties the following issues were framed:—

1/- Whether the suit is not maintainable by virtue of clause 18 of the Partnership Deed, admitted by the parties, without one month's prior notice, which admittedly the plaintiff has not given? O.P Ds.

2/- Whether Naya Kashmir Transport Coy. is registered under the Partnership Act? O.P.P

3/- In case Issue No. 2 is disproved whether the suit is not maintainable? O.P.Ds

4/- Whether the suit is not maintainable by virtue of clause 10 of the Partnership Deed, without referring the same to the arbitration? O.P.Ds

5/- Whether the partnership is at “Will”, if yes, what is its effect on the suit? O.P.P

6/- In case Issue N. 5 is disproved, whether the plaintiff is entitled to get the partnership dissolved, if yes under what circumstance? O.P.P

7/- In case of dissolution of the partnership, which of the parties, or which one from amongst the parties are the accounting parties and what are the shares of the partners in the partnership? O.P.P

8/- To what relief the parties are entitled to? O.P Parties.

4. The trial court decided Issues Nos. 1, 2, 4, 5, and 6 against the plaintiff and Issue No. 3 in his favour. In view of its findings it abstained from recording any finding regarding Issues Nos. 7 and 8.

5. On appeal the learned Sub Judge, Jammu, also came to the conclusion that as the provisions of Section 44 of the Partnarship Act were subject to contract between the parties, one month's notice in accordance with clause 18 of the partnership agreement had not been given by the plaintiff, debit and credit statement had not been prepared and accounts had not been settled and all disputes between the parties were referable to arbitration, the suit was not maintainable. He accordingly dismissed the appeal. It is against this decision that the present appeal has been preferred.

6. Appearing on behalf of the appellants Mr. Kotwal has urged that the findings of the courts below that the suit was not maintainable are erroneous, that contract between the Parties is subject to the provisions of the Partnership Act, that Section 44 of the Act is not controlled by S. 43 thereof, that the suit fell within the purview of Section 44 of the Act and that since the defendants had sought opportunities to file the written statement they could not invoke the provision of Section 34 of the Arbitration Act.

7. Mr. S.P Gupta learned counsel for the respondents has on the other hand urged that clause 18 of the agreement is wide enough to cover all suits for dissolution whether based on the grounds contained in Section 43 or Section 44 of the Partnership Act, that Section 43 was not controlled by Section 44 of the Act and that the suit was not maintainable in view of the clauses 18 and 10 of the Partnership agreement and Section 43 of the Act.

8. I have given the matter my anxious consideration and am of opinion that this appeal must succeed. Though in his petition of plaint the appellant averred that he was entitled to dissolution of partnership as it was determinable at will he had also put forth several other grounds for its dissolution which were clearly covered by Section 44 of the Partnership Act. A reference to Section 11 of the Partnership Act would show that contract between the parties is subject to the provisions of the Act. A further scrutiny of Ss. 41,42,43 and 44 of the Act would show Page: 48that they deal with different kinds of dissolutions of a firm and neither Section 43 which deals with dissolution of Partnership at will by notice in writing nor contract between the parties can control the provisions of Section 44 of the Act. Whenever the Legislature intended to leave it open to the partners to avoid the operation of a particular provision of the Act by entering into a contract to the contrary effect it has stated so in express terms just as in Ss. 12 to 17 and Section 42. It can, therefore, be safely said that Section 44 of the Act confers an absolute and independent right on a partner to have the partnership dissolved on any of the grounds specified therein and it is not open to the parties to take away that right by means of a contract between them.

9. I am fortified in this view by the following observations made by the Privy Council in Rahmatunissa Begum v. Price, AIR 1917 PC 116:

“A Partner's claim to a decree for dissolution rests in its origin, not on contract, but on his inherent right to invoke the court's protection on equitable grounds, in spite of the terms in which the rights and obligations of the partners may have been regulated and defined by the partnership contract.

It is not therefore, any contravention of Section 252 of the Contract Act for one of the partners to seek a dissolution or for the court to decree it under Section 254 of the Act when the partnership is working only at a loss, though the partnership agreement contemplated the continuance of the partnership beyond the date at which the suit was instituted.”.

10. The following observations made in Smt. Lilabati Rana v. Lalit Mohan Dey, AIR 1952 Cal 499 would also be found helpful in this connection:

“Mr. Banerjee contends that unless a notice in writing is served on all the other partners, a suit brought by a partner, for dissolution of the partnership even on any of the grounds mentioned in Section 44 of the Indian Partnership Act would not be competent. Chapter VI of the Indian Partnership Act deals with the dissolution of a firm. Dissolution may be in one of different ways. Section 40 refers to dissolution by agreement, and Section 41 to compulsory dissolution. Section 42 deals with the dissolution on the happening of certain specified contingencies. Section 43 refers to dissolution of partnership at will by notice in writing and Section 44 is about dissolution by the court. Sections 45 to 55 deal with various contingencies after dissolution, method of taking accounts etc.

The interpretation sought to be put by Mr. Banerjee on Section 43, if accepted, would have the effect of making Section 43 the controlling Section of all the different kinds of dissolution. It is patent that no reference to any service of notice is made in Section 41 or 42 or 44 of the Act. It will also appear that a service of notice is not possible in some of these cases. If a dissolution is to be effected after service of notice, then that notice must be in writing as required by Section 43 of the Act. But on the other hand, if dissolution is sought for not on serving of notice but on fulfilling certain conditions specifically mentioned in one of the Sections referred to above, then service of notice is not the “sine qua non” in each of those other cases.

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In the present case also, the plaint in one part is founded upon dissolution by service of notice of a partnership at will. The prayer founded on that part of the case is for a declaration that the partnership stood dissolved with effect from the date of service of such notice. But there is the alternative prayer made in the plaint that the partnership be dissolved by a decree of the court and there are sufficient materials in the plaint in support of that alternative prayer. Even if the first prayer which is based upon the service of a notice dissolving the partnership is hit by the provisions contained in Section 43 of the Act and cannot be granted the court is still bound to consider the other alternative prayer. That prayer is not founded on any service of notice, but on other materials referred to and relied upon in the plaint.

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On a reading of the Sections themselves, there is no doubt that the provisions contained in Section 43 of the Act do not control the other provisions of this Chapter and that it is possible to have the partnership of a firm dissolved even when no notice in writing had been given as required under Sec. 43. This objection, therefore must be overruled.”.

11. Again the following passage occurring in the decision of the Madras High Court in V. Venkataswami v. G. Venkataswami, AIR 1954 Mad 9 also lends support to my view.

“The only contention which requires consideration is the existence of clause 28 of the partnership agreement which provides that:

“If any partner is not willing to continue as partner in the said cinema, he should transfer and sell his share of the amount credited in his account towards capital of the cinema to all other partners or to some of them or to one of them but he has no right to sell the same to outsiders.”

This clause, he is contended, is a bar to the maintainability of the suit as the Page: 49right to institute a suit for dissolution under Section 44 of the partnership is excluded by the clause. Reliance was placed in support of this position on a decision of the Allahabad High Court in Smt. Dropadi v. Bankev Lal, AIR 1939 All 548. Under Section 11 of the Partnership Act the mutual rights and duties of the partners of a firm are to be determined by the contract between the parties and such contract between the parties may be express or implied. But this is however, made subject to the provisions of the Act.

Assuming for a moment that Cl. 22 of the partnership deed amounts to a contract to the contrary, the question is whether it is open to the partners to contract out of the right conferred by S. 44, Section 44, it may be observed is not made subject to the contract between the parties and gives a right to the partners to seek the assistance of the court to have partnership dissolved on grounds specified in the Section. Section 11 makes the contract between the parties-subject to the provisions of the Act, and Section 44 being one of the provisions of the Act the contract is undoubtedly subject, to the right under Section. Section 11, therefore, does not override the provisions of Section 44. In the Act itself whenever the Legislature intended that the right-conferred under a particular Section is to be subject to the contract between the parties. It has expressly stated so for example Sections 12 to 17 and Section 42. On a plain reading therefore of the provisions of the Act it seems to me clear that the clause in the partnership deed would not affect in any manner the right of the partner to institute a suit for dissolution provided the grounds enumerated in Section 44 exist.”.

12. The decision of the Allahabad High Court in AIR 1939 All 548, to which my attention has been drawn by the learned counsel for the respondents cannot be relied upon as the court in the latter decision namely Raghunath Prasad v. Gurdayal Prasad, AIR 1956 All 194, observed as follows in respect thereof.

“It is also argued by the learned counsel for the appellants that the right to sue for dissolution of partaership has been conferred on them by Section 44 of the Partnership Act and that, therefore, it could not be controlled by any stipulation in the deed of partnership. We consider that this contention has force, but in view of the case reported in AIR 1939 All 548 and of the consideration that the appeal can be disposed of on another point, we do not express any final opinion on the contention.

There are certain provisions of the Act which confer rights on partners but make them subject to contract between them. They are to be found in Sections 12 to 17. Similarly there are certain provisions e.g those contained in Section 19(2) which are subject to usage or custom of trade. But Section 44 is not subject to any such limitation. The right conferred by this Section on parties is absolute. Section 11 lays down:

“Subject to the provisions of this Act, the mutual rights and duties of the partner of a firm may be determined by contract between the partners, and such contract may be express or may be implied by a course of dealing. Such contrast may be varied by consent of all the partners and such consent may be express or may be implied by a course of dealing.”

It will follow from the language of this Section that, while partners can regulate their rights by mutual agreements, such agreements must remain subject to the provisions of the Act including Section 44. If, therefore, there it is anything in an agreement which takes away the right to sue for dissolution of partnership which right is conferred on a partner by Section 44 the agreement should give way to the clear provisions of Section 44. Such a view was expressed in the case reported in AIR 1954 Mad 9, which dissented from the aforesaid Allahabad case.

It may be mentioned that the learned Judges who decided the Allahabad case had this very partnership deed before them for consideration and the then suit was also for dissolution of partnership. That decision was given in 1939 i.e before the enactment of the Arbitration Act.

But paragraph 18 of the second Schedule of the Code of Civil Procedure was then in force and the attention of the learned Judges was not invited to that provision of law. We have gone through the judgment and we find no reference to paragraph 18 of the Second Schedule of the Code of Civil Procedure in it.”.

13. Thus neither Cl. 18 of the said partnership agreement nor Section 43 of the Partnership Act could operate as a bar to the suit and the findings of the courts below in this regard are clearly erroneous.

14. The finding of the courts below that the suit is not maintainable in view of clause 10 of the partnership agreement is also erroneous.

15. According to Section 34 of the Arbitration Act if a person who has been a party in an arbitration agreement brings a suit ignoring that agreement the defendant's remedy if he wants to rely on that agreement is to make an application for the stay of the suit before filing the Page: 50written statement or taking any other steps in the proceedings. As in the instant case, the defendants instead of filing an application asking for the stay of the suit under Section 34 of the Arbitration Act sought opportunities for filing the written statement, they could not avail of clause 10 of the agreement I am fortified in this view by a decision of this Court in Radha Krishen v. State of Jammu and Kashmir, AIR 1964 J & K 75, where it was held as follows:

“If a party after knowing the case against him prays for an adjournment to file the written, statement, that will be deemed to be a step in the proceedings.”

16. The observations made in Union of India v. Girish Chandra, AIR 1953 All 149, are also to the same effect.

17. For the foregoing reasons, I allow this appeal with costs, set aside the judgments and decrees of the courts below, and remand the case to the trial Court for decision in accordance with law after determination of Issues Nos. 7 and 8 which were left undetermined by it.

18. The parties are directed to appear before the trial Court for further directions on May 6, 1972.

19. Appeal allowed.