NON-REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.2597 OF 2016

KODENDERA K. UTHAIAH (D) BY LR. ........APPELLANT(s)

VERSUS

P.M. MEDAPPA AND OTHERS ......RESPONDENT(s)

JUDGMENT

NAVIN SINHA, J.

The respondent was the plaintiff  in O.S.  No.  42/1991,

seeking dissolution of  the partnership firm and rendition of

accounts.  The suit was decreed in part, holding that the legal

heirs of the deceased partner, were entitled to 1/4th share to

be quantified in terms of Clause 14 of the partnership deed.

R.F.A. No. 231/1996 preferred by the plaintiff, against grant of

partial relief, was allowed on 08.02.2006 directing dissolution

of the firm and settlement of accounts “as of date”.   Aggrieved,

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the defendant has preferred the present appeal.  The parties,

for  convenience,  shall  be  referred  to  by  their  respective

positions in the suit.

2. The facts, in brevity are, that the father of the plaintiff i.e.

P.M. Medappa, along with three others constituted a registered

partnership  firm,  M/s.  Rums & Co.   The  partnership  deed

dated 27.01.1971, in Clause 14, stipulated that in the event of

death  of  a  partner,  the  remaining  partners  shall  have  the

option  to  give  a  written  notice  within  three  months  of  the

death, to the legal heirs of the deceased partner, for purchase

of the shares of the deceased.  The purchase price was to be

the amount of the share of the deceased as determined at the

last annual general accounts, inclusive of interest @ 10% per

annum,  upto  the  date  of  purchase.  P.M.  Medappa  was

deceased on 27.07.1990.  The surviving partners, defendants

1  to  3,  gave  notice  on  15.10.1990  in  terms  thereof  to  the

plaintiff  and defendants 4 to 9,  being the legal heirs of  the

deceased partner.

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3. The  plaintiff  preferred  O.S.  No.  42/1991  seeking

dissolution  of  the  firm  and  rendition  of  accounts,  alleging

refusal of the remaining partners to pay the legal heirs of the

deceased partner, the due share under Clause 14.  The suit

was decreed in part by the Civil Judge on 03.01.1996 holding

that the plaintiff and defendants 4 to 9 as legal heirs of the

deceased partner,  were entitled to 1/4th share to be worked

out on basis of the last annual general accounts, together with

interest @ 10% per annum from the date of death till the date

of decree.  Aggrieved by the grant of partial relief, the plaintiff

preferred  R.F.A.  No.  231/1996.   The  High  Court,  by  the

impugned order,  held that the notice dated 15.10.1990 had

not been served on all the legal heirs of the deceased partner.

Clause  14  therefore  never  became  operational,  directing

dissolution of the firm and settlement of accounts “as of date”

entitling the legal heirs to 1/4th share in the assets and profits

of  the  firm  with  interest  @  6%  per  annum  till  settlement.

Liberty was further granted to seek appointment of a receiver

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to take care and manage the assets of  the partnership firm

pending finalisation of settlement of accounts.

4. During  the  pendency  of  the  litigation,  the  partnership

underwent several changes, and today Subbaiah, the nephew

of  the  original  defendant  no.2  is  the  sole  proprietor  of  the

erstwhile partnership business, permitted to be substituted by

order dated 04.03.2016.   

5. Shri R. Basant, learned senior counsel for the appellant-

defendant  submitted  that  the  plaintiff  in  his  evidence  had

admitted due service of the notice dated 15.10.1990.  Clause

14 evinced an intention to the contrary for continuance of the

partnership on the demise of a partner and therefore Section

42(c)  of  the  Partnership  Act  (hereinafter  referred  to  as  “the

Act”) providing for dissolution by operation of law on the death

of a partner, has no application.   The manner for calculation

of  the  dues  of  the  deceased  partner  was  provided  for  in

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Clause  14.   Section  37  of  the  Act,  therefore,  had  no

application.  The remaining partners were always ready and

willing   to   pay   the   legitimate   dues  in  accordance  with

Clause 14.  The plaintiff insisted on induction of the wife of the

deceased partner, and refused settlement of accounts, raising

unreasonable demands.  The dues could not be paid as in the

meantime the plaintiff filed the suit and the partners bonafide

decided to await outcome of the suit.  There was no intentional

delay or desire to defeat the rights of  the legal  heirs of  the

deceased partner.

6. Conversely, Shri Nanju Ganpathi, learned senior counsel

for  the respondent-plaintiff,  submitted that  the finding with

regard to non-compliance with Clause 14 by failure to serve

notice on all the legal heirs calls for no interference.  After the

service  of  notice  dated  15.10.1990  upon  him,  the  plaintiff

made several endeavours to persuade the remaining partners

to  pay  1/4th share  of  the  deceased  partner  in  terms  of

Clause 14.  Ultimately, on 31.05.1991, the plaintiff asked for

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the audited balance sheet  but was denied the same on the

pretext that the auditing was still not complete and some more

time was required.  The auditing of the accounts was in fact

completed  and  filed  on  31.10.1990  despite  which  the

remaining partners did not pay the legitimate dues to the legal

heirs.  In absence of any justification by the defendants to act

in accordance with Clause 14, the High Court has committed

no error in directing dissolution and settlement of  accounts

“as of date” since it has been admitted that the share of the

profits to the account of the deceased were ploughed back for

the benefit of the partnership.   The appeal may be dismissed.

7. We  have  considered  the  respective  submissions  and

perused  the  materials  and  evidence  on  record.   The  order

sheet  dated  02.12.2016  records  that  the  appellant  was

required to file proof of deposit of Rs.50 lacs.  The office report

states that only Rs.25 lacs have been deposited.  The attention

of the Court was not invited to these facts during arguments,

by  learned  Counsel  for  the  parties  and  neither  has  any

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mention  been  made  regarding  the  same  in  the  written

submissions filed by the parties.

8. The primary facts with regard to the constitution of the

partnership firm comprising of  four  partners,  the demise of

one of the partners on 27.07.1990 and consequent exercise of

option under Clause 14 of the partnership deed on 15.10.1990

by the remaining partners are not in dispute.  The controversy

with regard to service of  notice on all  the legal heirs of  the

deceased partner need not be dwelt upon at length, in view of

the fact that it was in fact served on the plaintiff, and the rest

of the notices were sent to the address of their mother, and

acceptance refused by others.  The plaintiff has admitted that

he impleaded the other legal heirs as defendants 4 to 9, as

they refused to join him as plaintiffs.  

9. Section 37 of the Act provides that if any member of a

firm dies  and the  surviving  partners  carry  on the  business

without  any  final  settlement  of  accounts,  the  estate  of  the

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deceased partner is entitled to such share of the profits made

as  may  be  attributable  to  his  share  of  the  property  or  to

interest @ 6% per annum on the amount of his share in the

property of the firm.  In our considered opinion, it will have no

application in the facts of the case in view of Clause 14 of the

partnership  deed,  which  also  provides  for  the  manner  of

calculating  the  dues.   Similarly,  Section  42(c)  of  the  Act,

providing for dissolution of the firm on the death of a partner,

will  also have no application in view of the aforesaid clause

evincing a clear intention to continue the partnership on the

death of a partner.

10. The last audited accounts upto 31.03.1989 having been

signed by the deceased as a partner, the only controversy is

with  regard  to  the  period  thereafter  till  his  death  on

27.07.1990.  Clause 14 of the partnership deed provides for

determination  of  the  purchase  price  of  the  share  of  the

deceased  partner  on  the  basis  of  the  last  annual  general

account with interest @ 10% per annum upto the date of the

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purchase.  Admittedly, no final accounts till date of death has

been  furnished  much  less  purchase  of  the  share  of  the

deceased  been  made  till  date  by  actual  payment  of  the

legitimate  1/4th share  to  the  legal  heirs  of  the  deceased

partner.

11. The plea of the defendant, that delay in payment of the

legitimate dues was attributable to the conduct of the plaintiff

is not tenable from the facts and materials on record.  The

plaintiff  has  averred  that  after  receipt  of  the  notice  dated

15.10.1990 he had contacted the surviving partners several

times,  held  discussions  with  them,  and  requested  for  the

accounts.  Ultimately on 31.05.1991, he wrote to them asking

for the balance-sheet.  An incorrect reply was furnished that

the  accounts  had  not  been  audited  when  in  fact  they  had

already been filed on 31.10.1990.  The defendant K.K. Uthaiah

in his evidence has acknowledged discussions with the legal

heirs of the deceased partner and that the share of the assets

of the deceased partner had remained in the firm itself, even

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while  the  surviving  three  partners  continued  to  take  their

share of the profits after accounting.  Though he deposed that

a copy of the audited report was sent to the plaintiff through

his driver, neither was the date mentioned or any evidence led

in support of the same.

12. It is not the case of the appellant that the Income-Tax

Returns of the Partnership firm were not filed within statutory

time.  If the returns were so filed, naturally the share of the

deceased partner payable under Clause 14 till his demise on

27.07.1990 posed no difficulty for payment.  The plea that in

view  of  the  pending  litigation  the  dues  were  not  paid  is

unacceptable  and  not  bonafide.   The  legal  heirs  of  the

deceased partner are,  therefore,  held entitled to 1/4th share

with 10% interest per annum from 27.07.1990 till the date of

purchase.

13. The finding that Clause 14 of the partnership deed was

not complied with and, therefore, never became operational is

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held to be unsustainable and is set aside.  The consequential

direction  for  dissolution  and  settlement  of  accounts  “as  of

date” for that reason, is also set aside.  The legal heirs are held

not to be entitled to any share in the profits after 27.07.1990.

The liberty to move for appointment of receiver to take care

and  manage  the  assets  of  the  partnership  firm  pending

finalisation  of  accounts  and  settlement  calls  for  no

interference.  The plaintiff is permitted to withdraw the deposit

made before this court after due furnishing of proof of identity.

The  said  amount  shall  be  adjusted  against  the  final  dues

found payable to the legal heirs after settlement of accounts.

14. The appeal is allowed, but only to the extent indicated.

………………………………….J.  (Ranjan Gogoi)  

……….………………………..J.    (Navin Sinha)   

New Delhi, October 04, 2017

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