Patna High Court
Sheonarain Jaiswal And Ors. vs Shree Kripa Shankar Jaiswal And Anr. on 23 March, 1971
Equivalent citations: AIR1972PAT75, AIR 1972 PATNA 75
JUDGMENT
1. At one time the plaintiffs and their father Ram Narain Jaiswal and the defendants and their father Rai Saheb Lakshmi Narain Jaiswal constituted one joint Mitakshara family which possessed considerable properties. On account of some differences, the two branches separated sometime in 19.53. Later on the adult members of the two families formed a partnership firm by a registered partnership-deed dated April, 1. 1954, under" the name and style 'M/s. Lakshmi Narain Ram Narain'. The plaintiffs 'branch owned four shares and the remaining six shares belonged to the defendants' branch. There is no dispute that the properties mentioned in the schedule to the plaint belonged to the aforesaid partnership firm. The firm mainly engaged itself only in manufacture and sale of spirits, country liquor and liquors of foreign brand. According to the case of the plaintiffs, the partners dissolved the firm sometime before April 16, 1970 and agreed to partition the assets of the firm in proportion to their share. So long as Rai Saheb Lakshmi Narain Jaiswal, father of the defendants, was alive, he was in sole charge of the firm and after his death the parties reposed confidence in defendant No. 1, who was made in charge of the management of the firm. Later on the plaintiffs found that defendant No. 1 betrayed the trust reposed in him and made all sorts of bunglings in running the business.
He never rendered any accounts to the plaintiffs nor allowed them to inspect the business of the firm and although the business was in a very prosperous condition, they were never given any profits of the firm. On these grounds, there were differences which resulted in dissolution of the firm by mutual agreement of the parties, and, accordingly, a letter was written to the Commissioner of Excise, Bihar, Patna, dated April 16, 1970. to the effect that the firm was under the process of partition, but the defendants did not partition the assets of the firm and render accounts and allow the plaintiffs to look after the management of the business, rather all sorts of obstructions were put in their way. Though the partnership has been dissolved, yet the business is still running under the management of defendant No. 1. Hence, the plaintiffs filed Partition Suit No. 51 of 1970, in the Court of the Third Subordinate Judge, Gaya, on May 5, 1970. They also filed an application under Order 40, Rule 1 of the Code of Civil Procedure on May 7, 1970, for appointment of a receiver. The learned Subordinate Judge on this application appointed an ad interim receiver to take charge of the management of the suit properties and issued notice of show cause to the defendants.
2. The defendants against the order appointing an ad interim receiver came up to this Court. This Court by its order dated July 2, 1970 directed the court below to dispose of the receivership matter as soon as possible.
3. In response to the notice in the receivership matter, defendants Nos. 1, 3 and 6 appeared and showed cause wherein they denied the fact that defendant No. 1 was in sole charge of the business of the firm. According to them all the partners were looking after the business of the firm, and the plaintiffs had full opportunity to examine the accounts of the firm and they were duly paid their share in the profits of the firm. They also denied the allegation of the plaintiffs that the partnership was dissolved. If the plaintiffs did not like to remain as Partners of the firm, they were at liberty to take their due share and retire, but the partnership firm could not be dissolved in terms of Clause (15) of the deed of partnership. Therefore, the defendants contended that it was not a fit case for appointment of a receiver. In the alternative, they pleaded that the nature of the business of the firm was such that it was not possible for an outsider to act as a receiver to carry on the business of the firm and hence an outsider could not be appointed to act as a receiver of the firm.
4. The learned Subordinate Judge after hearing the contentions of the parties has finally disposed of the matter by his order dated December 9, 1970. He has come to the conclusion that the firm of the parties stands dissolved and as such it is just and proper that a receiver should be appointed in the case for the preservation of the assets of the firm and has made the order appointing ad interim receiver absolute till the decision of the suit. Hence, defendants Nos. 1, 3, 5 and 6 have come up in appeal to this Court.
5. The learned Advocate General appearing on behalf of the appellants contended that the plaintiffs have got no prima facie case. Though in substance the suit is for the dissolution of the partnership and rendition of accounts, but the suit has been brought in the form of a partition suit. He submitted that in terms of paragraph 15 of the partnership-deed, there could not be any dissolution of the firm. If a particular partner did not like to continue in the firm, he might retire and the remaining partners could carry on the business of the firm. The retiring partner was only entitled to the share of his capital which could be ascertained after accounting. Therefore, the plaintiffs were only entitled to their share of the capital, if they did not like to carry on the business of the firm as partners. The letter written by defendant No. 1 to the Commissioner of Excise on April 16, 1970. meant nothing more than this that the accounting was going on for the determination of the assets payable to the plaintiffs and this letter was subsequently withdrawn by another letter dated April 30, 1970, Mr. Basudev Prasad appearing for defendants-respondents Nos. 5 and 6 supplemented the arguments of the learned Advocate-General and submitted that the court below has not found any wastage or mismanagement on the part of defendant No. 1, and, therefore, no receiver should be appointed and secondly he submitted that it is not a case where dissolution of the firm is admitted.
It is merely a case of apprehended dissolution of the firm and in such a case receiver should not be appointed as a matter of course. In support of bis contention he relied on two decisions in Goodman v. Whitcomb, (1820) 37 ER 492 and Faiburn v. Pearson, (1850) 42 ER 56. He, however, frankly conceded that in a case of dissolved firm, a receiver should be appointed as a matter of course. On the other hand, Mr. Radhey Shyam Chatterjee, learned Counsel for the plaintiffs-respondents submitted that the partners in terms of the deed of partnership could dissolve the firm by mutual agreement, and as a matter of fact the parties did dissolve the firm. In such a case the plaintiffs had every right to bring a suit for accounts and distribution of the assets which amounted to partition of the assets of the firm in proportion to the respective shares of the parties. Therefore, in his submission the Court below was perfectly justified in ordering the appointment of a receiver in the circumstances of the case. -
6. In order to appreciate the contention of the parties, it is necessary to quote the relevant provisions of the partnership deed which is Annexure 'A' to the show cause of the respondents:--
"(14) No partner shall be entitled to sell his right', title or interest in the Partnership Firm to any stranger.
(15) If any partner desires to retire from the partnership business, he may do so by giving three months' notice in writing (unless by mutual agreement) to the other partners in which case the partnership business shall be carried on by the remaining partners by realloca-tion of their respective shares and the outgoing partner shall be entitled to his share of capital only, which shall be determined by the valuation of the as-sets and liabilities of the business including the valuation of the block assets. No valuation shall be placed for the good-will of the firm, which shall continue to be the asset of the remaining partners.
(17) Upon determination of the partnership by any event a full and general account shall be taken of the credits, debits and liabilities of the business and of the dealings thereof and with all convenient speed such credits shall be sold, realised and brought in and the proceeds applied in paying and discharging the debts and liabilities and winding up of the partnership affairs and subject thereto in paying to each partner . any unpaid profit which might be due to him and the balance, if any, of such proceeds shall be divided between the parties in equal proportions and the partners respectively shall execute or concur in all necessary and proper instrument, acts or matters and things for effecting or facilitating the said realisation and getting in of the partnership credits and the due application and division of the proceeds thereof and for actual realisation or indemnity or otherwise.
(19) For the matters not specifically provided for above, the provisions of the Indian Partnership Act, 1932, as amended from time to time shall apply".
7. Clause (14) of the agreement provides that a partner will not be entitled to sell his interest to a stranger. Clause (15) makes provision for the retirement of a partner from a business and in case of retirement the retiring partner is entitled to his share in his capital. Clause (17) contemplates a case of dissolution of partnership. In case of dissolution on account of some event, the general account shall be taken of the credits, debits and liabilities of the business and of the" dealings thereof and thereafter the proceeds shall be divided in equal proportion to the partners. Clause (19) makes a special reference to the Partnership Act, 1932 (hereinafter referred to as the 'Act') and provides that where special provision is not made in the partnership deed, the provisions of the Act shall apply. Therefore, the aforesaid provisions contemplates also a case of dissolution of partnership. Though the circumstances under which a dissolution could take place are not specifically mentioned in Clause (17), yet the phrase 'any event' embraces within its ambit all circumstances. Moreover, the partnership-deed clearly lays down that the provisions of the Act will apply where there is no specific provision in the partnership-deed. Section 40 of the Act provides for dissolution of the partnership with the consent of all the parties. Sections 41 and 42 provide automatic dissolution of a partnership on the happening of certain events. Section 43 makes a provision for dissolution of the partnership at will, and Section 44 provides for the dissolution of a partnership by the Court under certain circumstances. Therefore, from the aforesaid facts, it cannot be said that the plaintiffs have no prima facie case as the partnership firm cannot be dissolved and they are not entitled to distribution or partition of the assets of the firm because if they do not like to continue as partners of the firm, they may retire and get their share of their capital paid by the other non-retiring partners.
8. The next contention put forward on behalf of the appellants was that the court below has not found fraud, mismanagement or wastage on the part of the defendants In respect of the partnership business. Therefore, the firm could not be dissolved and as such if the firm could not be dissolved, no receiver could be appointed. Reliance was placed in this case on the two English decisions referred to above. In the case of (1820) 37 E R 492 the plaintiff had brought an action for the dissolution of the partnership firm and a prayer was made in that case for appointment of a receiver. In context of the case following observation was made by Lord Chancellor:--
"This is a bill filed for the purpose of having a dissolution of the partnership declared and if the Court can now see that that must be done, it follows very much of course that a receiver must be appointed; but if the case made stands on such a state that the Court cannot see whether it will be dissolved or not, it will not take into its own hands the conduct of a partnership, which only may be dissolved".
The aforesaid quotation was quoted with approval in the latter case (1850) 42 ER 56. It is true that in the present case the court below has not recorded any finding regarding fraud, mismanagement or wastage on the part of the defendants, and if the suit would have been for the, dissolution of the partnership, there might not have been a prima facie case in favour of the plaintiffs and in such a case no receiver could have been appointed in absence of such findings, and the principles laid down in the two English decisions would have been applicable. But the present suit is a suit for the distribution or partition of the assets of a dissolved firm. Therefore, the observation of the Lord Chancellor that even in a case of dissolution of partnership when the court finds that the firm must be dissolved, a receiver should be appointed as a matter of course, equally applies when the suit is for the distribution of the assets of a dissolved firm. A division Bench of this Court in Sudhansu Kanta v. Manindra Nath, AIR 1965 Pat 144 held that a receiver is to be appointed as a matter of course when a partnership is dissolved under the orders of the Court, if the partnership has already been dissolved and any of the parties has come to the Court for seeking his relief as an ex-partner. A receiver can be appointed to take charge of the partnership assets, collect the same and convert it into cash if necessary to discharge the debts of the firm and thereafter divide the surplus between the partners and in a suit for dissolution of a partnership, a receiver* can also be appointed before the final adjudication if the circumstances of the case justify such a measure. Therefore, the question arises as to whether the present suit is for the dissolution of a partnership firm and for accounts or it is a suit for distribution of the assets of a dissolved firm.
9. According to the case of the plaintiffs, on account of some difference between the partners, the partners agreed to dissolve the firm and divide the assets of the firm. The defendants, however, denied that the firm had been dissolved by an agreement of the parties. The court below has come to a clear conclusion that the parties dissolved the partnership by an agreement amongst themselves sometime before April 16, 1970. Mr. Basudev Prasad drew our attention to paragraph 8 of the order under appeal where the court below has observed that "probably it was a dissolution in the manner provided under the Indian Partnership Act, when the letter dated 16-4-1970 was written", and, therefore, he contended that there was no clear finding with regard to the dissolution of the firm by the Court below. He contended that when dissolution of partnership is itself doubtful, a receiver could not be appointed. But in our opinion, the contention has no force. In paragraph 9 of the order, the court below has come to a clear conclusion that the partnership was dissolved before the letter dated April 16, 1970, was sent to the Excise Commissioner. Learned Counsel for the appellants contended that the letter relied upon by the court below does not lead to an inference that the partnership has been dissolved. What the letter meant was that the parties were making accounts of the capital share payable to the plaintiffs in terms of Clause (15) of the partnership-agreement and there was no dissolution of the partnership itself. It is difficult for us to accept this contention of learned Counsel for the appellants. The two letters written by Sheo Narain Jais-wal (defendant No. 1) to the Commissioner of Excise of Bihar, Patna, 'on April 16, 1970, and April 30, 1970, are decisive for coming to a conclusion as to whether the partnership had been dissolved or not. The two letters are quoted below:--
"16th April, 1970.
23/D, Registered A/D. To The Commissioner of Excise. Bihar, Patna.
Subject:-- Arrangement for supply of spirit to Ranchi Group Areas.
Sir, Our Firm M/s. Lakshmi Narain Ram Narain is under the process of partition. For this purpose we have to close our business for some time, including our Distilleries. Supply of spirit involves revenue and cannot be stopped. As such, we request you to kindly arrange supplies of spirit with effect from the 1st June 1970, from other Distilleries, till we are in a position to resume supplies so that Government revenue does not suffer.
And for this act of kindness we shall ever pray.
Yours faithfully, Lakshminarain Ramnarain, Sd. Sheonarain Jaiswal.
16-4-1970".
"Lakshminarain Ramnarain, Distillers & Govt. Contractors.
Ranchi Distillery.
No. 53/D 30th April 1970 To The Commissioner of Excise, Bihar. Subject:-- Arrangement for supply of spirit to Ranchi Group Areas. Sir,
In supersession of our letter No. 23/D, dated the 16th April 1970, on the subject mentioned above we have to inform you that efforts for amicable partition referred to in the said letter has fallen through and now partition through Court is under contemplation. which is likely to take some time. In the circumstances stated above, we request you not to act on aforesaid letter, which may be treated as withdrawn.
Yours faithfully, For Lakshminarain Ramnarain, Sd. Sheonarain Jaiswal.
30-4-1970.
10. It is admitted in the show cause petitions of defendants Nos. 3 and 6 that 'the letter by defendant No. 1, dated April 16, 1970, to the Excise Commissioner was written with the consent of all the partners, when a dissolution and a consequent distribution of the assets by mutual consent were agreed to be effected out of Court. Defendant No. 1 in his show cause application stated that the letter was written with the the knowledge of the plaintiffs and in the letter it was mentioned that the firm was under the process of partition and it only meant that the plaintiffs wanted to retire from the business, the valuation of the plaintiffs' share was to be determined on the valuation of the assets and the liabilities of the firm, but the plaintiffs resiled from the agreement and as such a subsequent letter was written by defendant No. 1 to the Excise Commissioner on April 30, 1970. In our opinion, on reading the two letters together, it is clear that the firm had already been dissolved with the consent of all the partners, and they wanted to divide the properties amicably as is clear on a reading of the second letter, but the parties did not agree to amicable partition of the properties. Therefore, it is mentioned in the second letter that the partition of the assets has got to be done by the Court and this will take some time. In the circumstances of the case, the court below is right in coming to the conclusion that the firm has already been dissolved, and the present suit is for the distribution of the assets of the firm. In such a case, in our opinion, a receiver has got to be appointed as a matter of course for the preservation of the assets of the firm. The plaintiffs have also alleged that there is a danger of waste and dissipation of the assets of the firm. The Court below has come to the conclusion that in view of the strained relationship between the parties and also of the dissolution of the partnership as alleged in the plaint, it is necessary to protect the partnership assets and for this purpose it is just and proper to appoint a receiver. In our opinion, the decision of the court below is right, judging from all points of view. In the circumstances of the case, we feel that it is just and proper that a receiver should be appointed.
11. It was contended in the court below as well as in this Court that a stranger receiver should not be appointed in view of the nature of tht business. The court below has come to the conclusion that in view of bitter relationship between the parties a stranger receiver could be appointed and, therefore, it appointed an Advocate as a receiver, but the report of the Advocate receiver dated December, 21, 1970 (Annexure 'C') to the show cause petition of the plaintiffs-respondent show that the receiver was not allowed to take possession of the properties by the defendants. If this be the fact, the action of the defendants in not allowing the receiver to take possession of the properties is most reprehensible and cannot be justified and a serious view of the matter has got to be taken. It is true that it would have been desirable that the parties should have been appointed receiver, but in the circumstances of the case, the possibility of appointment of one receiver from amongst the parties is ruled out in view of the strained feelings between the parties. We, therefore, suggested one of the plaintiffs, in respect of one bigger distillery, should be appointed as receiver and in respect of the remaining two distilleries, one of the defendants should be appointed as receiver and one party may keep his own men to supervise the working of the management of the distillery under the receivership of the other. The plaintiffs respondents agreed to this proposal, but Mr. Lal Narain Sinha showed his inability to agree to this proposal in absence of defendant No. 1 who is reported to be at Cuttack. Since the Advocate receiver has already reported that he does not like to continue as a receiver, it is for the court below to consider this aspect of the case.
12. An application has been filed by the plaintiffs-respondents for restraining defendant-appellant No. 1 from receiving any amount from the Excise Department on behalf of the Firm M/s. Lakshmi Narain Ram Narain. Ranchi, and also from dealing with its finances in any manner whatsoever till the final disposal of the receivership matter. An application had also been filed by the plaintiffs in the court below and the letter has passed the following orders:--
"Inform the authorities in the excise Department by sending a copy of this order at the cost of the plaintiffs that an ad-interim receiver has already been appointed in this suit which relates, amongst others, to the distilleries of the firm of the parties, and that order "has been confirmed by the Hon'ble Court also. As all the relevant papers of the suit have already been sent to the Hon'ble Court, put up this matter for consideration after the records are received. That order making absolute the appointment of ad-interim receiver, till the decision of the suit is pending decision in the Hon'ble High Court and it is to be taken up there to-day. So put up on the next date fixed.
Sd. D. Prasad".
Though the Excise Department was informed about the order of the Court in that regard, the Excise Department has allowed defendant No. 1 to receive cost price. Since the decision of the court below appointing a receiver is being upheld, the receiver is only entitled to receive all payments payable to the firm and none of the parties in his individual capacity is entitled to receive any payment on behalf of the firm. In such circumstances, the authorities will not make any payment to any of the parties in his individual capacity. Therefore, no order need be passed on the injunction application filed by the plaintiffs-respondents the facts of which were not controverted before us.
13. For the reasons stated above, the appeal is dismissed and the decision of the court below appointing a receiver in the case is upheld. The stay order granted by this Court at the time of admission on December 21, 1970, stands vacated. The plaintiffs-respondents are entitled to costs of this appeal. Hearing fee Rs. 250/- only. Let the records of the case be sent down at once.