Kodendera K. Uthaiah (D) By Lr vs P.M. Medappa .

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 1/4 th 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 Signature Not Verified Digitally signed by

partial relief, was allowed on 08.02.2006 directing dissolution NEETU KHAJURIA Date: 2017.10.05 17:42:52 IST Reason:

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

1 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 1/4 th 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

3 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

4 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

5 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

6 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

7 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

8 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

9 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 1/4 th 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

10 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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