Calcutta High Court
Md. Mofazzular Rahman & Ors vs Md. Sarfaraz Alam & Ors on 4 February, 2020
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Old GA No. 2082 of 2019
New GA No. 1 of 2019
With
Old GA No. 2627 of 2019
New GA No. 2 of 2019
With
CS No. 174 of 2019
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Original Side
Md. Mofazzular Rahman & Ors.
Vs.
Md. Sarfaraz Alam & Ors.
For the Plaintiff : Mr. S.K. Kapur, Sr. Advocate
Mr. Rudraman Bhattacharyya, Advocate
Ms. Pooja Chakraborty, Advocate
Mr. Somdutta Bhattacharya, Advocate
Ms. Radhika Misra, Advocate
Mr. Soorjya Ganguly, Advocate
Ms. Priyanka Prasad, Advocate
Mr. Debjyoti Saha, Advocate
For the Defendant No. 1 : Mr. Anindya Kr. Mitra, Sr. Advocate
Mr. Abhrajit Mitra, Advocate
Mr. Jishnu Chowdhury, Advocate
Mr. Amitabh Ray, Advocate
Mr. Aritra Basu, Advocate
Mr. Ratul Das, Advocate
Mr. Anurag Bagaria, Advocate
For the Respondent : Mr. Ranjan Bachawat, Sr. Advocate
Nos. 2 & 3 Mr. D.N. Sharma, Advocate
Mr. Ratnesh Rai, Advocate
Mr. Anunoy Basu, Advocate
Mr. Ankan Rai, Advocate
Hearing concluded on : January 22, 2020
Judgment on : February 4, 2020
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DEBANGSU BASAK, J. :-
1. Two applications have been taken up for analogous hearing as they are in the same suit. Old GA No. 2082 of 2019 new GA No. 1 of 2019 is an application at the behest of the plaintiffs seeking interim protection. Old GA No. 2627 of 2019 new GA No. 2 of 2019 is an application at the behest of the defendant No. 1 seeking interim protection.
2. Learned senior advocate appearing for the plaintiffs has submitted that, the parties to the suit were carrying on business in partnership with each other under the name and style of M/s. Serajuddin & Co. by virtue of a deed of partnership dated October 1, 2011. The partnership is into mining business. The partnership has iron ores mines situated in the district of Keonjhar in the state of Orissa. He has referred to the deed of partnership dated October 1, 2011 and submitted that, the deed of partnership permits expulsion of a partner from the partnership firm. The defendant No. 1 was acting inimical to the interest of the partnership firm. He was writing various letters to different authorities making wild, unfounded and baseless allegations against the partnership firm and the partners. Pursuant to such wild allegations, the partnership firm faced a number of proceedings from various authorities including the bankers of the partnership firm. The entire liquidity of the partnership firm got 3 embroiled in the litigations initiated at the behest of the defendant No.
1. There has also been a shift in policy of the Central Government with regard to the iron ores mines. Therefore, the partners decided that, the partners would not be making any drawings from their respective capital account with the partnership firm. This austerity measure was put into place by the partners in the best interest of the partnership firm.
3. Learned senior advocate appearing for the plaintiffs has submitted that, the defendant No. 1 on the pretext of been unwell and also otherwise, did not look after the affairs of the partnership firm on a day- to-day basis. The defendant No. 1 was always at Kolkata. He never visited the mines. However, the defendant No. 1 by diverse correspondence instigated various authorities to initiate proceedings against the partnership firm and the partners. By reason of such actions of the defendant No. 1, the partnership firm and its business suffered.
4. Learned senior advocate appearing for the plaintiffs has submitted that, the defendant No. 1 purported to invoke the arbitration clause in the deed of partnership dated October 1, 2011. In such arbitration proceeding, the defendant No. 1 changed its stand with regard to the partnership firm and its affairs from time to time. The defendant No. 1 failed to secure any interim protection in the arbitration proceedings 4 despite attempts. He has submitted that, the plaintiffs are contesting such arbitration proceeding on the ground that, the disputes referred to the arbitrator were not covered by the arbitration agreement.
5. Learned senior advocate appearing for the plaintiffs has referred to the various clauses of the Deed of Partnership dated October 1, 2011 and submitted that, clause 19 thereof permits expulsion of a partner from the partnership firm. In terms of such clause, a show cause notice dated June 26, 2019 was issued to the defendant No. 1. The defendant No. 1 did not reply thereto. Instead, the defendant No. 1 issued a notice of dissolution of the partnership firm dated July 13, 2019. Since, the defendant No. 1 did not reply to the show cause notice dated June 26, 2019, the defendant No. 1 was expelled from the partnership firm on July 15, 2019.
6. Learned senior advocate appearing for the plaintiffs has submitted that, in the arbitration proceeding, the defendant No. 1 never claimed that the partnership was at will. Prior to the issuance of the so-called notice for dissolution dated July 13, 2019, the defendant No. 1 initiated the arbitration proceeding and various meetings took place in such arbitration. At no point of time in such arbitration proceeding, did the defendant No. 1 take the point that the partnership firm was at will. 5
7. Learned senior advocate appearing for the plaintiffs has submitted that, since the defendant No. 1 was not looking after the business of the partnership firm for a period in excess of 11 years, and since, the defendant No. 1 is writing letters to diverse authorities, which are prejudicial to the interest of the partnership firm, the defendant No. 1 either by himself or by his authorised agents be restrained from making any representation to any authority that the partnership firm stood dissolved by the notice dated July 13, 2019. He has prayed for interim protection in terms of the prayers made in the application of the plaintiffs.
8. The defendant Nos. 2 and 3 have supported the stand taken by plaintiffs against the defendant No. 1. Learned senior advocate appearing for the defendant Nos. 2 and 3 has submitted that, the partnership was of seven partners when the defendant No. 1 was still a partner of the firm. According to him, the defendant No. 1 has 12.5% share in the profit and loss of the partnership firm. The defendant No. 1 was not willing to pay the liabilities of the partnership firm. The defendant No. 1 was keeping his entitlement in the current-account of the partnership firm so as to earn a higher rate of interest than what is available with the banks. He has submitted that, taking the entitlement of the defendant No. 1 in 6 the profits and capital of the partnership firm, at the highest, the defendant No. 1 would be entitled to a sum of about Rs. 230 crores. The defendant No. 1 is well protected with regard thereto as, it is at his instance that, the banks have filed an interpleader suit which involves substantial sums. Moreover, there are fixed deposits far in excess of the claim of the defendant No. 1 lying with the firm. There are orders of attachment by statutory authorities as against such fixed deposits. The firm is contesting such claims. He has submitted that, his clients are supporting the plaintiffs.
9. Learned senior advocate appearing for the defendant No. 1 has submitted that, the partnership is at will. That being so, the defendant No. 1 has validly dissolved the partnership firm by a notice of dissolution dated July 13, 2019. He has contended that, since the partnership firm is at will, and since the partnership firm stood dissolved by the notice of dissolution dated July 13, 2019, none of the partners of such partnership firm are entitled to carry on business of the partnership save for the dissolution of the firm. He has referred to and relied upon Sections 46, 47 and 53 of the Indian Partnership Act, 1932 in support of his contentions. He has submitted that, the assets of the partnership firm are in the wrongful control of the plaintiffs and the other defendants. The assets of the partnership firm therefore require protection.
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10. Learned senior advocate appearing for the defendant No. 1 has submitted that, since, the firm was dissolved by a notice of dissolution dated July 13, 2019, the question of the plaintiffs or the other partners of such partnership firm expelling the defendant No. 1 from the firm on July 15, 2019 does not arise. Therefore, according to him, the case that the defendant No. 1 stood expelled by the other partners of the partnership firm on July 15, 2019 is of no substance. The plaintiffs are not entitled to any relief on the basis of such contention.
11. Learned senior advocate appearing for the defendant No. 1 has referred to the averments made by the parties in the two petitions and the affidavits connected therewith. He has submitted that, when the defendant No. 1 claimed that the partnership was at will and relied upon the registration of the partnership firm with the registrar of firms which establishes the fact that the partnership is at will, the plaintiffs have claimed that, the firm was not registered. He has submitted that, such claim of the plaintiffs is contrary to the records. The firm was at will and the same was validly dissolved on July 13, 2019. As a consequence of such valid dissolution of the firm, the plaintiffs or the other defendants 8 are not entitled to carry on any business with the assets of such dissolved firm.
12. Referring to the list of assets and the statement of accounts furnished by the plaintiffs and the defendant Nos. 2 and 3 pursuant to the orders of the Court, learned senior advocate appearing for the defendant No. 1 has submitted that, the Court should take adverse inference on the basis of the documents produced by the plaintiffs and the defendant Nos. 2 and 3. He has submitted that, the tax audit report of 2018-2019 has not been produced by the plaintiffs and the defendant Nos. 2 and 3. He has submitted that, the plaintiffs have suppressed such accounts. The opening and closing stock of iron ores for the year ended on March 31, 2019, have not been produced. According to him, the accounts do not show the total sales effected and the quantity of the total sales. The auditor's report has not been supplied. The claim of the plaintiffs that, the firm has suffered a liability of Rupees 3,000 crores is absent in the statement of account. He has drawn the attention of the Court to the various notings of the auditors. According to him, the value of closing stock of iron ores is not available. In fact, the accounts do not give such value. He has submitted that, the sister concerns that the plaintiffs have spoken about, were started by the defendant No. 3. The 9 defendant No. 1 is merely a name lender in such sister concerns. He has referred to the shareholding pattern of the sister concerns and submitted that, as against the defendant No. 1 holding hundred shares in one of the sister concerns, the defendant No. 3 holds more than 29,000 shares. The net assets of the partnership firm, even on the statement of account as produced by the plaintiffs and the defendant Nos. 2 and 3 could not be less than Rs. 1,102 crores. The defendant No. 1 is entitled to 12.5% thereof at the very least. He has submitted that, all this time, income tax liabilities of the individual partners of the partnership firm were being paid out of the funds of the partnership firm. The defendant No. 1 has no other business. The defendant No. 1 has income tax liabilities with regard to the dealings of the partnership firm. Therefore, the income tax liability of the defendant No. 1 should be paid out of the funds of the partnership firm.
13. Learned Senior Advocate appearing for the defendant No. 1 has relied upon Sections 33, 46, 47 and 53 of the Indian Partnership Act, 1932. He has submitted that, since the partnership firm stands dissolved, a parallel partnership firm cannot be run. Therefore, according to him, the assets of the partnership firm requires protection. 10
14. Referring to the orders passed by the Court at the ad interim stage, learned Senior Advocate appearing for the defendant No. 1 has submitted that, the Order dated December 5, 2019, to the extent that it restrains the defendant No. 1 from writing to any authority claiming that the firm stands dissolved, is prejudicial to the interest of the defendant No. 1. The defendant No. 1 is entitled to claim to the authorities that, the firm stands dissolved. He has referred to the letters written by the defendant No. 1 to the authorities. He has submitted that, the contents of such letters cannot be said to be prejudicial to the partnership firm. His client has highlighted the factual position in respect of the partnership firm and the legal consequences of the letter of dissolution issued by the defendant No. 1. Therefore, according to him, the defendant No. 1 should not be restrained from canvassing its case before the authorities.
15. Referring to the statement of accounts of the list of assets filed by the other defendants in the proceedings, learned Senior Advocate appearing for the defendant No. 1 has submitted that, the plaintiffs and the other defendants did not disclose true and proper accounts. They did not disclose the sale price of the iron-ores sold by them. He has submitted that, a fit and proper person be appointed as a receiver over 11 and in respect of the assets of the dissolved partnership firm. At the very least an observer be appointed so as to keep a watch on the functioning of the plaintiffs and the other defendants in relation to the assets of the dissolved partnership firm. He has submitted that, the accounts that the dissolved partnership firm filed with the authorities should be made available to the defendant No. 1.
16. The plaintiffs have filed the instant suit in the commercial division in respect of a partnership firm. The plaintiffs have claimed that, the plaintiffs and the defendants were carrying on business under the name and style of M/s. Serajuddin & Co. The defendant No. 1 was a partner of such partnership firm having 12.5 per cent share in the profits and losses of such partnership firm. According to the plaintiffs, the defendant No. 1 never looked after the business of the partnership firm. The defendant No. 1 stay in Kolkata. The mines of the partnership firm are in Orissa. The defendant No. 1 never looked after the business of the partnership firm for at least 10 years. He never visited the mines at Orissa. The partnership firm faced adverse situation due to the change of policy of the Central Government with regard to iron-ore mines. Added to that, the defendant No. 1 commenced issuing letters to the various authorities complaining of purported misdeeds in the affairs of the 12 partnership firm. One of the bankers of the partnership firm filed an interpleader suit in respect of the funds of the partnership firm. According to the plaintiffs, the defendant No. 1 initiated arbitration proceeding. The plaintiffs questioned the maintainability of such arbitration proceeding. Since, the defendant No. 1 was acting prejudicial to the interest of the partners and the partnership firm, a show cause notice dated September 26, 2019 was issued to the defendant No. 1 requiring the defendant No. 1 to show cause as to why the defendant No. 1 will not be expelled from the partnership firm. By a letter dated July 13, 2019, the defendant No. 1 issued a notice for dissolution of the partnership firm. The plaintiffs and the other defendants resolved to expel the defendant No. 1 on July 15, 2019.
17. The instant suit was filed on August 26, 2019 and the present application was made on August 30, 2019. On November 26, 2019, an order was passed in the interim application of the plaintiffs being GA No. 2082 of 2019 recording the stand of the defendant No. 1 that the defendant No. 1 will not approach any bank of the firm or issue any letter or notice to the bank of the firm in relation to the firm till December 3, 2019. The defendant No. 1 filed written statement containing counter claim in the suit. In the counter claim, the defendant 13 No. 1 claimed that the firm stood dissolved with effect from July 13, 2019 and reliefs consequential thereto. The defendant No. 1 filed an application being GA No. 2627 of 2019 seeking interim protection in the suit in view of the counter claim filed. Both the applications of the plaintiffs and the defendant No. 1 were considered on December 5, 2019 when the following ad interim order was passed :-
"Given the nature of the suit and the counter claim, at the ad interim stage in my view, it would be appropriate to restrain the defendant no.1 from writing to any authority claiming that, the firm stands dissolved. It would be appropriate to direct the plaintiffs and the defendant nos.2 and 3 to submit a list of assets of the partnership firm with the Registrar, Original Side in a sealed cover. Such list must be submitted within seven days from date. The parties to the suit are restrained from withdrawing any amount from the bank accounts of the partnership firm for their personal use. It is clarified that, the parties to the suit are at liberty to withdraw from the bank accounts of the partnership firm to pay a statutory liabilities including income tax liabilities, if any.
This will also not prevent the persons in control of the assets of the firm to carry on the business of the firm in its usual course."14
18. Both the applications were subsequently heard at length and the hearing thereof were concluded on January 6, 2020.
19. The plaintiffs and the defendants were carrying on business in partnership with each other by virtue of a reconstituted partnership deed dated October 1, 2011. The deed of partnership, inter alia, appoints the plaintiff Nos. 1 and 3 as Joint Managing Partners with power to negotiate and execute contracts on behalf of the partnership firm. The deed of partnership contemplates eventualities such as death, retirement and expulsion of a partner and provides for the consequence of such eventuality happening. Clause 19 of the deed of partnership deals with expulsion of a partner from the firm which is as follows:-
"19. That the partners hereto may decide to expel a partner on being satisfied that the said partner is unjust and unfaithful to the other partners and/or acting in a manner which is detrimental to the interest of firm and/or its partners and commits any fraud against the firm and/or its partners and/or commits any criminal offence against firm/partners and/or do or suffer any act which would be ground for dissolution of partnership, in such case it will be lawful for the rest of the partners to issue notice to such offending partners to 15 show cause why the offending partner should not be expelled from the partnership and if the reasons shown are not sufficient to justify the act of the offending partner, rest of the partners may decide to expel the offending partner and on such expulsion, the partnership of the said offending partner shall be determined. The remaining partners shall have the option to purchase the shares of the offending partner in the partnership business and its property and goodwill thereof equally and pay the value of purchase price to the offending partner or his/her trustee or official assignee in accordance with Clause 11 hereof."
20. The reconstituted deed of partnership also contemplates and contains an arbitration clause which is as follows:-
"That all the disputes and differences between the partners arising out of and touching in respect of this partnership agreement shall be settled in Arbitration. The Arbitrator/Arbitral Tribunal as appointed and/or constituted shall not have the power to award dissolution of firm even if demanded by the partners hereto constituting the partnership agreement and save as above such arbitration will be governed and conducted under the provisions of the Arbitration and Conciliation Act, 1996. The place of such arbitration shall be at Kolkata and the Courts of Kolkata shall have exclusive jurisdiction over the matter."16
21. None of the defendants have applied under Section 8 of the Arbitration and Conciliation Act, 1996. The defendant No. 1 has filed the written statement containing a counter claim in the suit.
22. As noted above, there is a notice of expulsion of the defendant No. 1 dated June 26, 2019 and a resolution of expulsion of the defendant No. 1 dated July 15, 2019. The defendant No. 1 claims that the partnership is at will and that the partnership was dissolved on July 13, 2019.
23. The rival contentions as to whether, the plaintiffs and the defendants other than the defendant No. 1 were correct in issuing the notice of expulsion and expelling the defendant No. 1 from the firm or not and whether, the partnership firm was at will and whether the partnership firm stood dissolved upon the notice of dissolution dated July 13, 2019 being issued by the defendant No. 1, in my view, should await the trial. At this stage, the Court need not interpret the clauses of the reconstituted deed of partnership and the provisions of the Indian Partnership Act, 1932 to arrive at a finding as to whether, the partnership was at will or not and whether, the partnership firm was validly dissolved by the notice dated July 13, 2019 or not and whether, 17 the defendant No. 1 was validly expelled on July 15, 2019 or not and the consequences of such issues should be best decided after permitting the parties to adduce evidence.
24. Section 33 of the Indian Partnership Act, 1932 deals with expulsion of a partner. Clause 19 of the deed of partnership dated October 1, 2011 provides for a situation where one of the partners of the partnership firm is expelled from the firm. The issue as to whether, the defendant No. 1 stood expelled from the partnership firm validly or not, need not be decided at this stage. Such issue is best left to be decided after the parties have an opportunity to adduce their respective evidence. Similarly, the issue as to whether, the firms stood dissolved validly by the notice of dissolution dated July 13, 2019 issued by the defendant No. 1 need not be decided at this stage. The same is left to be decided after the parties have an opportunity to adduce their respective evidence. However, in both the scenarios, accounts of the firm has to be taken as on the date of the expulsion of the defendant No. 1 or as on the date of the dissolution of the partnership as it may be finally decided in the suit. Pending such accounts and pending such a decision, it would be appropriate to pass interim orders to protect the interests of the parties to the extent possible.
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25. In such circumstances, in supersession of all earlier interim orders, the following orders are passed :-
a) The parties to the suit and the partnership firm will not encash any of the fixed deposits lying to the credit of the partnership firm with the banks and financial institutions without the leave of the Court. The Court has been informed that, there a substantial portion of the fixed deposits lying to the credit of the partnership firm has been attached by various authorities. It is clarified that, such authorities are at liberty to proceed with the attachment proceedings and bring the same to its logical conclusion. If need be, the authorities are at liberty to encash the fixed deposits towards satisfaction of their claim.
However, in the event, the orders of attachment or any part or portion thereof are quashed or lifted or vacated, as the case may be, then, the parties will obtain leave of the Hon'ble Court to deal with such fixed deposits.
b) The plaintiffs and the defendant Nos. 2 and 3 will disclose the sale price of iron-ores and any other assets of the partnership firm to the defendant No. 1 on quarterly basis.
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c) None of the parties to the suit nor the partnership firm will create third party rights over and in respect of any unencumbered asset of the partnership firm. It is clarified that, this order will not prevent the plaintiffs and the defendant Nos. 2 and 3 to continue with the business of the partnership firm in its usual course.
d) The plaintiffs and the defendant Nos. 2 and 3 will furnish half-yearly statement of accounts of the partnership firm as at September 30, 2019 and on 30th September of each subsequent year until further orders of the Court to the defendant No. 1. The statement of accounts as at September 30, 2019 be provided within six weeks from date. The statement of accounts as at 30th September for the subsequent years be provided within six weeks of 30th September of that year to the defendant No. 1.
e) The balance sheet of the partnership firm along with auditor's report and all statements accompanying the Income Tax Return to be filed with the Income Tax Authorities in relation to the partnership firm be made over by the plaintiffs and the defendant Nos. 2 and 3 within six weeks from March 31, 2020 to the defendant No. 1. They will continue to do so for every year 20 thereafter until further orders of the Court, within six weeks from 31st March of that year.
f) The plaintiffs and the defendant Nos. 2 and 3 will allow inspection of statutory returns filed with the statutory authorities in respect of the business of the partnership firm to the defendant No. 1 or his authorised representative upon a requisition for the same being made. Such inspection be provided at the Office of the Advocate-on-Record for the plaintiffs.
g) The parties to the suit are restrained from withdrawing any amount from the bank accounts of the partnership firm for their personal use. It is clarified that, the parties to the suit are at liberty to withdraw from the bank accounts of the partnership firm to pay statutory liabilities including income tax liabilities if any.
26. The prayer for appointment of a Receiver and failing that an observer over the affairs of the business of the partnership firm is not granted at this stage keeping in view the rival contentions of the parties and the nature of business that the parties are engaged in. In my view, appointment of a Receiver will be inimical to the business. 21
27. Instead of appointment of a Receiver or an observer as prayed for on behalf of the defendant No. 1, in my view, interest of justice would be subserved by requiring the auditors of the partnership firm for the present financial year to submit a report as to the entitlement of the defendant No. 1 as on July 13, 2019 notionally treating the firm to be dissolved as on July 13, 2019 and the entitlement of the defendant No. 1 as on July 15, 2019 notionally treating the defendant No. 1 to be validly expelled from the partnership firm on that date. In undertaking the exercise of preparing the accounts as on those two dates, the auditors will invite the views of the parties to the suit. The auditors will take into account such views while assessing the accounts and the entitlement of the defendant No. 1 on those two dates. Let such exercise by the auditors of the firm be completed within six weeks from the date of communication of this order to them.
28. Old GA No. 2082 of 2019, new GA No. 1 of 2019, old GA No. 2627 of 2019, new GA No. 2 of 2019 in CS No. 174 of 2019 are disposed of accordingly without any order as to costs.
[DEBANGSU BASAK, J.]