ORDER
1. This revision arises out of an order of the learned Additional District Judge in I.A. No-270 of 1987 in O.S. No. 126 of 1976.
2. The petitioner is the third defendant in the suit.
3. The facts in brief are as follows:--
One Sri Pamuru Rama Subba Redtly filed the suit O.S. No. 126 of 1976 for dissolution and accounting of the partnership assets of the firm Vijaya Mahal threatre constituted on 1-4-1962. The defence in the suit was that the plaintiff and the 4th defendant retired from the partnership in the, year 1971 and therefore the plaintiff is not' entitled to seek the dissolution of the partnership and for settlement of the accounts of the partnership. The suit was decreed by the trial Court dissolving the said firm and also directed to take accounts. On appeal in A.S. No. 481 of 1979, the High Court by judgment dated 24-11-1983 affirmed the findings of the trial Court that no consideration was paid to the plaintiff towards his share in the assets of the said firm and that the plaintiff agreed to retire from the partnership. The High Court, however, set aside the decree for dissolution of the firm and directed the defendants 1 to 5 to pay the amounts due to the plaintiff towards his share in the assets of the firm on valuation without resorting to the sale of the assets of the firm. The High Court directed the trial Court to make an enquiry into the valuation and further directed to decide the date on which the valuation of the plaintiffs share shall be arrived at, taking into account that the plaintiff's share was not paid to him. It was also directed to implead one Sri M. Sub-bareddy as a party to the suit. The High Court accordingly allowed the appeal and directed only payment of the value of the plaintiffs share. The suit against the 6th defendant was, however, dismissed. Against the said judgment, a Special Leave Petition was filed before the Supreme Court, which was, how-ever, dismissed as withdrawn in 1987.
4. During the pendency of the suit, the first defendant died and defendants 7 to 1-1 were added as the legal representatives of the 1st defendant. Sri M. Subbareddy, to whom the share of the plaintiff was said to have been transferred was impleaded as 12th defendant to the suit as per the directions of the High Court. It appears that during the pendency of the enquiry into the valuation of the plaintiff's share in the assets of the partnership firm, the plaintiff died and his minor son Pamuru Vishnu Vinodh Reddy, represented by natural guardian and next friend Sri Pamuru Sudhakara Reddy was added as the legal representative of the deceased, plaintiff, who is the 1st respondent in this revision.
5. Pursuant to the directions of the High Court in the appeal, the trial Court appointed a Commissioner for the purpose of ascertaining the value of the share of the plaintiff as on the date and also the profits to which he is entitled on 5-4-1971. Subsequently, the son of the deceased plaintiff viz., 1st respondent herein filed an applicatidn I.A. No. 270 of 1987 to decide the date on which the valuation of the plaintiffs share is to be made, on the ground that the valuation of the plaintiffs share should be arrived at before the Commissioner holds an enquiry, as per the directions of the High Court. The learned Additional District Judge after hearing both the parties, allowed the application holding that the date on which the Commissioner values the property is the relevant date to ascertain the valuation of the plaintiffs share in the partnership firm. Aggrieved by the said order, the 3rd defendant has filed the present revision.
6. It is necessary to refer to certain facts in brief: Plaintiff and the defendants are closely related to each other. Both the families were having two ventures one Vijaya Mahal and Vijaya Laxmi Talkies The firm carrying on the business in Vijaya Laxmi Talkies was reconstituted with effect from 1-4-1971. On the same day, the firm carrying on the business in Vijaya Mahal was reconstituted and defendants 1, 2, 4 and 5 gave up their rights in Vijaya Laxmi Talkies and the plaintiff and his son and daughter-in-law alone have becomethe sole partners of that firm and the plaintiff gave up his share in Vijaya Mahal and defendants 1,2,3,5, and M. S. Reddy became partners in Vijaya Mahal. The suit, out of which, the present proceedings arose, was filed by the plaintiff for dissolution of the partnership firm of Vijaya Mahal on various grounds. In the appeal filed by the defendants against the judgment of the trial Court decreeing the suit for dissolution of the firm and for accounting, the High Court held that the plaintiff agreed to sell his share in'favour of Sri M. Subba Reddy and that no consideration was paid to him pursuant to the agreement of sale. It is necessary to extract the relevant observations made by the High Court to consider the issue in dispute:
'Once we hold that the retirement was obtained by consent of all partners Section 32(a) of the Partnership Act is attracted and a retirement with the consent of all the other partner can be effected without dissolution. The failure on the -part of the remaining partners to settle the accounts of the retiring partner would make them liable for the decree for accounting ..... Hence we do not seeany infirmity in granting a decree for accounting including delivery of the share of the plaintiff without dissolution of the firm as such.
In fact we have adjourned the case to enable the parties to come to an agreement regarding the value of the share of the plaintiff and also the amount due to him towards profits. But since there is no agreement between the parties, we have to proceed to our judgment....
Hence we have no hesitation to pass adecree for directing delivery of the share of the plaintiff.
xxx xxx xxx xxx Accordingly, we set aside the decree for dissolution and direct a preliminary decree directing accounting against defendants 1 to 5 from 5-4-1971 and also for the payment of the value of the plaintiff's share of 25% in the suit firm. The Court below should determine the value of the share of the plaintiff. The learnedcounsel for the plaintiff requested to give a direction regarding the date on which the valuation of the plaintiff's share shall be arrived at. However, as we are directing.the trial Court to make enquiry into valuation we shall direct the trial court itself to decide that case taking into account that his share was not paid till now. ....'
7. From the judgment of the High Court, it is clear that the plaintiff sold his share to one M. Subbareddy on 5-4-1971 and the said Subbreddy along with the other partners were carrying on business as a partnership concern. The plaintiff was not paid the consideration for the sale of his share in favour of M. Subbareddy and the High Court directed the trial Court to determine the relevant dale for the purpose of arriving at the value of the share of the plaintiff.
8. The question, therefore, is what is the relevant date for the purpose of ascertaining the value of the share of the plaintiff in the partnership firm.
9. In this context, Sections 37 and 48 of the Indian Partnership Act may be relevant to some extent. Section 37 deals with the rights of an outgoing partner in certain cases to share subsequent profits, whereas Section 48 deals with the mode of settlement of accounts between partners. Section 37 says that where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representative to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm. Under the proviso to Section 37, if an option is given to surviving or Continuing partners to purchase the interest of the deceased or outgoing partners, and that option is duly exercised, the outgoing partner or his estate is notentitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not, in all material respects, comply with the terms thereof, he is liable to account under the foregoing provisions of the section. Section 48 provides that in settling the accounts of a firm after dissolution, losses including the deficiencies of capital shall be paid first out of profits, next out of capital and lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. It also provides that the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the order; (1) in paying the debts to .the third parties; (2) in paying to each partner rateably what is due to him from the firm advances as distinguished from capital; (3) in paying to each partner rateably what is due to him on account of capital; and (4) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. A reading of Section . 37 and the proviso thereunder and Section 48 makes it clear that an outgoing partner is entitled to seek settlement of accounts and in case the partner who purchased the share of the outgoing partner has not complied with the terms thereof, then, he can ask for accounting; that from out of the profits and the capital, the liabilities have to be discharged first and thereafter whatever assets are left, from out of which, the share of the partner should be paid.
10. From the facts which are established, it is clear that the plaintiff was an outgoing partner and he sold his share to Sri M. Sub-bareddy and the other partners are carrying on the business with his share without paying the sale consideration and therefore he is entitled to ask for accounting. While accounting, it is necessary to decide the relevant date with reference to which the value of the share is to be ascertained.
11. The trial court held that the value of the share, of the plaintiff is to be ascertained on the date when the Commissioner values the assets of the partnership firm.
12. The argument of the counsel for thepetitioner viz., 3rd defendant is that the plaintiff is entitled to the valuation of his share on the date when he ceased to be, a partner of the firm and from that date onwards he would be entitled to interest only and nothing more. The order of the trial Court that the value of the share of the plaintiff is to be ascertained on the date when the Commissioner values the share of the plaintiff is arbitrary, as it has no nexus to the date of retirement of the partner. Counsel submits that under the Indian Partnership Act, in case of retirement of a partner, the relevant date for the purpose of ascertaining the value of the share of the partner is the date on which he retires. He relied on a passage from 'Lindley and Banks on Partnership by R. C. I'Anson Banks, page 207, 16th Edition, which reads as follows:
'Although a partner's retirement or expulsion technically dissolves the firm, it would seem that, if the agreement contains no provision specifically governing his entitlement in respect of goodwill and the other assets of the partneships, the Court would normally be reluctant to order anything but a payment out of the value of his share as at the date he ceased to be a partner. To order a sale or a valuation as at some later date would be inconsistent with the concept of retirement or expulsion and would prima facie confer an unjustified 'windfall' benefit on the outgoing partner.....'
13. Counsel submits that the proviso to Section 37 of the Partnership Act is relevant. According to him, the retiring partner is entilled to the value of his share as on the date of his retirement and interest till the date of payment.
14. Counsel appearing for the 1st respondent submitted that if the relevant date for the purpose of ascertaining the value of the share of the plaintiff is the date on which the plaintiff had retired from the firm i.e. 5-4-1971, there was no need for the High Court to direct the-trial Court to ascertain the date for arriving at the value of the share of the plaintiff, and it is not so simple as that. The defendants were utilising the share of the plaintiff and have earned profits and theyhave not paid the sale consideration to the plaintiff. Therefore, plaintiff should be put in the same position in which would have been had the defendants discharged their obligation on the date when he retired from the concern. Therefore, the relevant date for the purpose of valuing the share of the plaintiff is the date of payment. Counsel relied on a passage from 'Halsbury's Laws of England' Fourth Edition, Volume 35, page 108 (para 189) which reads as follows:
'The valuation of the share of a deceased partner should take place as at the date of realisation, and not at the date of death; but where a surviving partner exercises an option to buy the share of a deceased partner at a valuation, and the valuation is not completed until some months after the death, the dissolution takes effect as at the date of the death, and the executers of the deceased partner are entitled to a share of profits up to the date of the valuation and to interest on the amount of the valuation after that date.....'
15. Counsel also relied on the judgments of the Supreme Court in Forasol y. Oil and Natural Gas Commission, : [1984]1SCR526 and Dhian Singh v. Union of India, : [1958]1SCR781 and the judgment of the Madras High Court in 1944 (1) MLJ 191 (sic).
16. There is no judgment under the Indian Partnership Act directly on the issue, Section 37 of the Partnership Act deals with the rights of an outgoing partner in certain cases. If a partner sells his share to the other partner-and the other partners carry on the business utilising his share without paying the consideration for which it was sold, then he is liable to account. Section 37 of the Indian Partnership Act corresponds to Section 42 of the English Partnership Act, 1890.
17. Lord Lindley defined the share of a partner in the following manner:
'What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money; and all the debts and liabilities have been paid and discharged. ....'
(p. 455)
18. Dealing with the rights of ah outgoing partner, Lord Lindley observed :
'If, as will usually be the case, the agreement establishes the manner in which, the deceased or outgoing partner's financial entitlement in respect of his share is to be ascertained and paid and provides for the devolution of the legal title to any partnership assets which may be vested in him, his share may properly to regarded as a pure debt with effect from the date on which he ceased to be a partner.....'
'In any case in which a share falls to. be valued in the above way, it will be important to determine the date on which such value is to be taken. Where there is an implied agreement for the acquisition of the deceased or outgoing partner's share, the relevant date will be the date on which he ceased to be a partner; where, however, a valuation is directed by the court in the exercise of its discretion, the relevant date will be the date on which the share is actually valued. In the' former case, the outgoing partner will be 'compensated' for any delay in the payment of his financial entitlement by a right to interest or, at his (or his estate's) option, a share of profits attributable to the use of his share, but he cannot also claim a share of any capital profits attributable to increases in the value of the partnership assets since the date on which he ceased to be a partner.' (See p. 458)
19. From the above, it is clear that the share of a partner on his retirement is in the nature of a pure debt with effect from the date on which he ceased to be a partner and the relevant date for the purpose of ascertaining the value of the share is the date on which he ceased to be a partner. In this context, I may refer to a decision of the Chancery Division of England in Sobell v. Boston, Weekly Law Reports, Vol. 1, 1975, p. 1587. The facts of the case are that there was an oral agreement between the plaintiff and the defendants who were in practice as solicitors, following which, the plaintiff left the partnership and the defendants continued to practise at the same address and under the same name. The plaintiff issued a writ asking for a declaration that the partnership as between him and thedefendants had been dissolved, for an account of sums due in respect of his share in the capital and profits, and for an order for the sale of the assets and good will of the business. He also claimed that he was entitled to the' appointment of a receiver and manager on the -ground that the defendants had been carrying on the business on their own account and using his share therein. While dismissing the motion, it was held that -
'Prima facie the conduct of the parties showed an agreement for the retirement of the plaintiff from the partnership and that it should continue to subsist between the defendants; that the financial effect of the plaintiffs retirement was to entitle him to the value of his share in the partnership at the date of his retirement with the result that, under Sections 42 and 43 of the Partnership Act, 1890, there was a debt due to him as unsecured creditor from the continuing partners and, therefore, since he had no right to interfere in the continuing partners' business, the appointment of a receiver and manager was an inappropriate remedy.'
This is a case which arose under Section 42 of the English Partnership Act which corresponds to S. 37 of our Act.
20. It follows from the above, that in cases where there is an agreement to purchase the share of a partner, the value of the share of the outgoing partner or retiring partner shall be ascertained on the basis of the value on the date of the retirement, unless it is a case where the valuation is directed by the Court in the exercise of its discretion, in which event, the relevant date will be the date on which the share is actually valued. Admittedly, it is a case where the plaintiff had retired from the concern on 5-4-1971 and agreed to sell his share to Sri M. Subbareddy. Therefore, there was an express agreement to sell the share, pursuant to which, he sold his share to defendant No. 12 and thereafter he retired and ceased to be a partner on 5-4-1971. If there was delay in payment of his flnanacial entitlement, he is entitled to interest at the rate of six per cent per annum in the property of the firm. Section 37 of the Indian Partnership Act, also says that in the case of an outgoingpartner, he is entitled to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm. The language used in Section 37 is that 'since he ceased to be a partner'. In other words, since he ceased to be a partner, he is entitled to interest at the rate of six per cent per annum on the amount of his share in the property of the firm. Section 37 itself makes it clear that the relevant date is the date on which he ceases to be a partner. The proviso to Section 37 also says that if option is given to surviving partners to purchase the share of an outgoing partner and if any partners assuming to act in exercise of the option does not in all material respects comply with the terms thereof he is liable to account under Section 37.
21. Therefore, in any view of the matter, the relevant date for the purpose of ascertaining the value of the share of the plaintiff is the date on which he ceased to be a partner as it is a case where there was an express agreement between the parties to sell the share of the plaintiff in favour of Sri Subbareddy and with effect from that date he became a secured creditor and there was a debt due to him from the other partners who are continuing in the partnership business. It is in the nature of a debt due to him or the amount due to him is unpaid purchase money. Therefore, the relevant date is the date on which he ceases to be a partner.
22. In Dhian Singh v. Union of India (supra), the Supreme Court held that -
'The position in law in regard to the measure of damages in an action for wrongful conversion is far from clear and the law in regard to the same cannot be said to be perfectly well settled. Whatever be the position in regard to the same in actions for wrongful conversion, one thing is quite clear that in actions for wrongful detention the measure of damages can only be the value of the goods as at the date of the verdict or judgment.'
23. The above decision is not relevant as it is a case of wrongful conversion, whereas in the present case, the issue involved in with regard to the retirement of a partner from a concern who agreed to sell his share, but the partner who purchased the share had failed to pay the sale consideration.
24. It is true that in FORASOL's case, the Supreme Court held that the plaintiff should be put in the same position in which he would have been had the defendant discharged his obligation when he ought to have done. There cannot be any dispute about this proposition. The very fact that he should be put in the same position in which he would have been had the defendant discharged the obligation means the date on which the obligation arose for the defendant to discharge. The obligation to pay arose on the date when the 12th defendant purchased the share of the plaintiff. Failure to pay the sale consideration makes him liable to pay interest from that day. Further, it is a specific case of sale of a share to the partner who failed to pay the value thereof on the date when the share was sold, to the outgoing partner, and where there is a specific provision under Section 37 of the Partnership Act, regulating or governing the situation. Further, the cause of action to pay arose only on that date i.e. the date of retirement and the liability of the defendant arose on that date. Secondly, there should be nexus between the date of retirement and the date of valuation. There is no nexus between the date of Commissioner's report and the retirement of a partner.
25. If a later date than the date on which the plaintiff had ceased to be a partner is taken for the purpose of ascertaining the value of his share, it would confer unjustified windfall benefit on the outgoing partner and it would be inconsistent with the concept of retirement or expulsion. Therefore, the relevant date for the purpose of ascertaining the value of the share of the plaintiff is the date on which he ceased to be a partner. Section 37 of the Partnership Act provides for payment of interest at 6%. The said provision was made in the year 1932. There was no amendment tothe said provision though Section 34 of the Civil Procedure Code was amended, providing for payment of interest in cases of com-mercial transactions at the rates at which Nationalised Banks advance loans. Since it was a commercial transaction, the plaintiff would be entitled to interest at the rate at which monies are lent or advanced by Nationalised banks in relation to commercial transactions.
26. In the view I have taken, the revision petition is allowed and the order of the learned Additional District Judge, Nallore is set aside. There will be no order as to costs.
27. Revision allowed.