w w w . L a w y e r S e r v i c e s . i n


    C.R.P. 2216 Of 1999

    Decided On, 25 July 2000

    At, High Court of Karnataka


    For the Appearing Parties: K.Sachindra Karanth, Ramadas Bhadri Raju, Sundara Swamy, Advocates.

Judgment Text


(1) THIS is plaintiff's revision directed against the judgment dated 2. 3. 1999 of the learned Prl. Civil Judge (Sr. Dn.), Mysore, passed dismissing plaintiff's appeal in M. A. No. 79/1998, confirming the Trial court's order dated 28. 8. 1998 made in O. S. No. 586/1998 rejecting plaintiff's. A. No. 1 under Order 39, Rules 1 and 2 of the C.P.C.

(2) THE said suit was instituted by petitioner (hereinafter referred to as 'the plaintiff') against respondents, who were defendants-1, 2 and 3, respectively in the suit, for the relief of preliminary decree directing dissolution of defendant-1 firm, for rendition of accounts and to declare the shares of partners of the firm, who are plaintiff and defendants-2 and 3.

(3) ALONG with the plaint,. A. No. 1 under Order 39, Rules-1 and 2 of the C. P. C was also filed by the plaintiff praying for an Order of temporary injunction against defendants-2 and 3 restraining them from carrying on the business of defendant No. 1 dissolved partnership firm, "except for the limited purpose of winding up the. firm for completing the transaction", and from alienating or otherwise dealing with the property described in the schedule to the application.

(4) A few relevant undisputed facts are that, defendant-1 partnership was constituted by plaintiff and defendants-2 and 3 by partnership deed dated 1. 4. 1992 to carry on the business in manufacturing and marketing of steel products after establishing a factory for this purpose. Defendant-3 was taken as a partner of the firm individual capacity and as kartha of his Hindu Undivided Family. The share of each partner in the capital of the firm was 25%. The partnership was at will as per Clause No. 3 of the partnership deed. Accordingly, the factory was established, and the manufacturing of steel rolls and their marketing was undertaken and was being carried on by defendant - 1 firm. Since plaintiff was found to have been neglected by defendants-2 and 3 in the matter of business of the firm, as he was not being furnished with the statements of account and the balance sheet of the business and was not being kept informed of the dealings of the firm, he was constrained to issue dissolution notice dated 13. 4. 1998 to defendants stating that by virtue of the said notice, the firm was dissolved by him with effect from 13. 4. 1998. Thereafter, on 28. 8. 1998, he filed the said suit against defendants.

(5) DEFENDANTS have filed their written statement contesting the plaint averments, while admitting the service of the Said dissolution notice of plaintiff. It was further pleaded in their written statement that the plaintiff, along with his wife and relative, formed a separate firm of their own. The statement of objections of. A. No. 1 was also filed by them reiterating their defence in the written statement and also further contending that the firm had been carrying on its business with a large turnover to the tune of crores of rupees and it had employed about 75 employees and, therefore, the balance of convenience and irreparable injury lay in defendants' favour, as also the plaintiff had no prima facie case entitling him to the equitable remedy of temporary injunction.

(6) BOTH the Courts below, by their considered order and judgment respectively, have held that plaintiff could not make out a case for grant of temporary injunction in his favour. The trial Court's order passed in detail rejecting plaintiff's application for temporary injunction had been thus affirmed by the lower appellate Court by its impugned judgment.

(7) MR. Ramadas, learned Counsel for plaintiff, took me through the relevant provisions of the Indian Partnership Act, 1932 ('the Act' in short) as also the above-stated material facts and vehemently contended that both the Courts below mis-conceived the plaintiff's case and failed to take just and proper decision, on the plaintiff's prayer for temporary injunction. It was his contention that by virtue of Section 43 of the Act, the defendant partnership at will, it came to be automatically dissolved with effect from 13. 4. 1998 with the issuance of said dissolution notice by the plaintiff to defendants.

(8) SECTION 43 provision deals with dissolution by notice of partnership at will and it states that the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. Sub-section (2) thereof declares that the firm is dissolved as from the date mentioned :n the notice as the date of dissolution or, if no date is mentioned, as from the date of communication of the notice. Section 43 prima facie amply supports the contention of Mr. Ramadas that by reason of plaintiffs dissolution notice dated 13. 4. 1998, the firm came to be dissolved with effect from the date mentioned in the notice. e. 13. 4. 1998. Then, the further submission of Mr. Ramadas was that the legal consequence of such a dissolution of defendant-1 firm was that, as envisaged in Section 46 of the Act, every partner became entitled, as against all other partners, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights. Another consequence flowing from dissolution of the firm as stipulated in Section 47 is that the authority of each partner to bind the firm, and other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind- up the affairs of the firm and to complete transaction begun but unfinished at the time of the dissolution, but not otherwise. Heavy reliance was placed by Mr. Ramadas on Section 53 of the Act in support of plaintiff's application. e.. A. No. 1 under Order 39 Rules- 1 and 2 of the C. P. C filed in the trial Court. This provision contemplates:"53. After a firm is dissolved, every partner or his representative may, in the absence of a contract between the partners to the contrary, restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up:"pressing this material provision of the Act into service, he also relied on a decision of the Supreme Court in COMMISIONER OF income-TAX, MADHYA PRADESH vs DEWAS CINE corporation where it is stated:"a partner may, it is true, in an action for dissolution insist that the assets of the partnership be realised by sale of its assets,. . . . . . "as regards the mode of settlement of accounts between the partners, the Supreme Court has observed:" (4 ). . . . . Section 48 of the partnership Act provides for the mode of settlement of accounts between the partners. It prescribes the sequence in which the various outgoing are to be applied and the residue remaining is to be divided between the partners. . . . . "learned Counsel for petitioner, therefore, vehemently contended that both on facts and law, the plaintiff had made out a very strong case for grant of temporary injunction as prayed and the Courts below have grossly erred in declining to grant this remedy to him.

(9) TO buttress his contention, Mr, Ramadas also invited the Court's attention to certain principles relating to dissolution of partnership and the rights accruing the liabilities incurred by the partners on dissolution thereof, contained in the treatise titled "lindely and Banks on Partnership Seventeenth Edition by R. C. I'anson Banks, LL. B. , at page 757 under the caption "summary of Winding-up principles". Certain principles are set out therein. Ot them, the relevant principles for out purpose are:" (1) XXX XXX XXX (2) xxx xxx xxx (3) Notwithstanding the dissolution, the partners will be obliged to attend to any unfinished business and, in the course of so doing, must exercise a proper degree of care and skill. (4) Save in a few exceptional cases, a partner will remain liable for the future acts of his former co-partners until such time as the dissolution- is duly notified. (5) xxx xxx xxx (6) Even after the dissolution has been notified, a partner may be liable for the acts of his former co-partners in winding up the partnership affairs. (7) xxx xxx xxx"the relevant principles set out are:" (1) Each partner is entitled to have the partnership property applied in liquidation of the partnership debts, and to have any surplus assets divided. (2) Each partner is, in general, entitled to force a sale of all partnership assets which are capable of being sold and to have the value of any unsaleable asset brought into account by the partner who retains it. (3) As a corollary of (2), save in special circumstances, no partner can insist on taking the share of any other partner at a valuation or to insist on a division of the partnership assets in specie. (4) No Partner can retain the exclusive right to any increase in the value of the partnership assets between dissolution and sale. (5) xxx xxx xxx (6) Each partner can insist that no further business is transacted or acts done, otherwise than with a view to the winding-up. xxx xxx xxx"

(10) PER contra, learned Counsel for defendant-respondent Mr. K. Sachindra Karanth argued supporting the impugned orders of the courts below. Reliance was placed by him on a decision of the supreme Court in HAZRAT SURAT SHAH URDU EDUCTION society vs ABUL SAHEB2 and on a decision of the Division Bench of the Calcutta High Court in WALFORD TRASPORT LTD. , vs STATE of WEST BENGAL to substantiate his contention that no case for temporary injunction was made out by the plaintiff and, therefore, the Courts below were justified in recording the concurrent negative findings in this behalf against him. In other words, it was maintained by him that balance of convenience and irreparable injury were definitely in defendants' favour inasmuch as indisputably, the defendant-firm's factory had been carrying on its business on quite a large scale by employing about 75 employees and the same cannot be abruptly stopped by an order of temporary injunction in view of the imperative requirements of the relevant provisions of the Industrial disputes Act, 1947 ('the. D. Act' for short ). In the case of Hazrath surat Shah Urdu Education Society, supra, the Supreme Court reiterating the guiding principles in the matter of temporary injunction has said:"4. . . . . . . . NO temporary injunction should be issued unless the three essential ingredients are made out, namely, (i) prima facie case, (ii) balance of convenience, (Hi) irreparable injury which could not be compensated in terms of money. If a party fails to make out any of the three ingredients he would not be entitled to the injunction and the Court will be justified in declining to issue injunction. . . . . "the legal consequences of the closure of defendant-firm's factory or workshop which are likely to flow in view of the relevant provisions of the. D. Act were well considered by the Division Bench of Calcutta high Court in the case of Walford Transport Ltd. , supra. Their lordships have observed with reference to Section 25-FFA read with section 10 (1} of the. D. Act, thus:"4. . . . . . . THUS, this provision restricts the right of the employers to effect closure of their undertakings without notice. A closure must be preceded by giving 60 days notice in the prescribed manner stating the reasons for intended closure. But Section. 25-FFA does not confer any power upon appropriate government to adjudicate or determine whether an employer should be allowed to close down any undertaking. The object of Section 25-FFA is to prevent sudden closure. A notice is required to be given presumably to give an opportunity to the appropriate Government to consider whether it should take any measure in respect of such intended closure in accordance with the provisions of the relevant law. Thus, after a notice under Section 25-FFA is given, the appropriate Government is quite competent to act according to the other provisions of the Industrial Disputes Act. Conciliation proceedings may be initiated. Further, the appropriate Government after applying its mind to relevant materials may decide to take a reference in terms of Section 10{1) of the Industrial Disputes act. In the absence of any limitation of time provided anywhere in the Industrial Disputes Act, we cannot accept the submission that after expiry of the period of notice of intended closure in terms of Section 25-FFA, the appropriate Government cannot make any reference. . . . "

(11) I have given my anxious consideration to the rival contentions put forward by both sides. There does not seem to be any doubt about the contention of Mr. Ramadas canvassed for the plaintiff that by virtue of Section 43 of the Act, partnership at will gets dissolved on and with effect from 13. 4. 1998 on which date the dissolution notice to defendants was issued by plaintiff indicating that the firm was dissolved by him with effect from that date. Thus, there cannot be any dispute in the legal position that in view ot Section 53 of the act, after a firm is dissolved, any partner may insist other partner or partners to stop carrying on the firms business in the firm's name or from using any of the firm's properly tor his own benefit, until the affairs of the firm are completely wound up Further, Section 47 read with Section 48 of the Act provides for the obligations of the partners of a dissolved firm and the mode of settlement of accounts of the firm between them. Having regard to these material provisions of the Act, as also the legal consequences flowing from dissolution of a firm which are envisaged by these provisions, and are set out as principles which are quoted above, in the treatise "lindley and Banks on partnership", it could be safely held that plaintiff has, of course, a prima facie case for grant of interim injuction. But then as laid down by the Supreme Court in the cast of Hazrat Surat Shah Urdu education Society, supra, making out a mere prima facie case would not be sufficient for the plaintiff to obtain the equitable remedy of temporary injunction and that he has to establish the other two material factors as well viz. , balance of convenience and irreparable injury, as lying in his favour. Indisputably, in view of the aforestated relevant provisions of the. D. Act, if the defendant firm is directed to stop its business for with, such an order would be fraught with grave consequences for the defendants and ail its employees as well which may land them all in untold hardship and expose them to irreparable injury. This factor further makes out a strong case of balance of convenience in favour of defendants rather than plaintiff. All said and done, the partnership between the parties was basically an outcome of a contract between them. The rights and liabilities flowing therefrom will have to be adjudicated by the trial Court in the plaintiff's suit, if the defendant firm carries on business in contravention of any of the provisions of the partnership Act, them also plaintiff would not be put to any irreparable injury in the strict sense of the term, in that, he could be adequately compensated in terms of money either by way of damages or compensation- In that view of the matter, no fault could be found with the discretionary concurrent orders of both the Courts below passed declining to grant, remedy of temporary injunction against defendants to close their factory and stop the firm's business.

(12) BUT, then the question remains whether the further prayer of the plaintiff in his application made to restrain the defendants from alienating the firm's property could also be rejected, as has been done by both the Courts below. A bare perusal of the relevant provisions in Sections 43,47,48 and 53 of the Act makes it crystal clear that by reason of dissolution of defendant-firm on issuance of said dissoluti

Please Login To View The Full Judgment!

on notice by plaintiff to defendants, the firm by fiction of law stands dissolved and Section 53 prohibits the co-partners from carrying on similar business in firm's name or by using any of the property of the firm for their own benefit until the affairs of the firm have been completely wound up. Therefore, in order to ensure effective adjudication of the rights and liabilities of the parties in terms of the said partnership deed and to protect plaintiff's interest in the suit claim adequately, it is essential in the interest of justice that defendants shall be restrained from alienating or otherwise encumbering the immovable property and the machinery of the defendant-firm's factory to whomsoever and in any manner whatsoever. To this extent, the plaintiff's said application deserves to be allowed and, therefore, the revision has to be partly allowed. (13) FOR the reasons aforesaid, the revision is allowed in part. The impugned orders of both the courts below declining to issue temporary injunction directing defendants to stop the business of defendant No. 1 -firm is affirmed; but, their further order rejecting the plaintiff's prayer for an interim injunction against defendants restraining them from alienating the firm's property is set aside. The defendants are hereby restrained and are prohibited from alienating or encumbering the immovable property and or the machineries of the defendant- firm's factory, or any part thereof, to whomsoever and in any manner whatsoever, pending final disposal of the suit. Petitioner's-plaintiff's. A. No. 1 filed under order 39 Rules 1 and 2 of the C. P. C. in the trial Court stands accordingly allowed in part and the trial Court's order thereon remains so modified. Parties to bear their own costs in the circumstances.