Ramrao S/O. Vishram Tanpure Vs. Bholaram Mohanlal Firm - Court Judgment

A.D. Mane, J.

1. This appeal is directed on behalf of the defendant against the judgment and decree directing the defendant to pay to the respondent plaintiff-firm a sum of Rs. 20,270.50 ps. with proportionate costs together with interest from the date of the suit till realisation at the rate of 15% per annum.

2. The plaintiff is a registered firm carrying on the business of commission agent in the name and style of 'Bholaram Mohanlal', at Kadrabad, Bombay. The defendant was its customer who used to sell the agriculture produce through the plaintiff firm. There is an account in the name of the defendant with the plaintiff firm. For the year Samvat 2030-31, a sum of Rs. 10,907.75 ps. was outstanding in the name of the defendant. Coupled with the said amount, an amount of Rs. 19,000/- was paid in cash in the name of the Appellant on 27-6-1974 and on settlement of the account, a balance of Rs. 20,271.60 ps. was found due and payable by the defendant to the plaintiff firm. The plaintiff firm therefore filed the suit for recovery of the said amount together with interest at the rate of Rs. 1.25 per cent per annum.

3. That claim of the plaintiff was denied by the defendant. It was denied that Rs. 10,000 were advanced in cash on 27-6-1974. It was denied at the foot of the account Rs. 21,007.75 ps. was outstanding to his credit. It was stated that the defendant used to deposit the amount earned out of the sale of agriculture produce to the plaintiff firm. On 25-11-1974 the defendant deposited Rs. 21,000/- through his son but that amount has not been credited against his name. That amount stands unaccounted for with the plaintiff firm. No statement of accounts was supplied to the defendant. The defendant was handicapped to find out the receipts as they were destroyed. According to the defendant, on taking proper accounts of the firm nothing was outstanding against him.

4. It may be stated that during the pendency of the suit, some change has taken place in the partnership firm. One of the partners Radhakishan ceased to be the partner of the firm. The plaintiff firm was registered with the Registrar of Firms at serial No. 1348 in 1971 and on account of Radhakishan ceasing to be the partner of the said firm, the firm came to be re-registered at serial No. 173 on 28-4-1981. Earlier there were 5 partners, whereas, presently there are four partners.

5. Mr. Shelke, learned Counsel appearing for the appellant, invites my attention to the written statement wherein it has been stated that the suit was not maintainable in view of the change in the partnership firm. Mr. Shelke, learned Counsel, therefore, argued that the right to sue to recover the amount from the defendant does not survive in case of the present plaintiff firm. It has been opined out that the plaintiff firm has also not amended the plaint to show that as a matter of fact, there was no dissolution of the firm but re-constitution of the firm. It is, therefore, further argued that one has to take it for granted that there was dissolution of the firm and therefore, whatever amount that was due to the original firm, unless there is contract to the contrary proved in the case, the plaintiff firm has no right to recover the said dues.

6. The arguments advanced by Mr. Shelke, learned Counsel for the appellant are attractive but are difficult to accept unless there is evidence on record to that effect. The dissolution and re-constitution are two different legal concepts. Dissolution puts an end to the partnership but re-constitution keeps it subsisting though in another firm. In other words, a dissolution is followed by some of the erstwhile partners taking over the assets and liabilities of the partnership firm. This is not a re-constitution of the original partnership firm. The partnership firm after dissolution is a new partnership and not re-constitution of the old partnership but re-constitution of the firm effects re-structuring of the firm by addition or retirement of the partners and incidentally re-distribution of the shares of the partners. In the case of Commissioner of Income Tax, West Bengal v. Messrs A.W.G. Figgis & Co. and others, : [1953]24ITR405(SC) , it has been observed :

'....under the law of partnership firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners but it is also equally true that under that law there is no dissolution of the firm by the mere incoming or outgoing of partners. A partner can retire with the consent of the other partners and a person can be introduced in the partnership by the consent of the other partners. The reconstituted firm can carry on its business in the same firm's name till dissolution. The law with respect to retiring partners as enacted in the Partnership Act is to a certain extent a compromise between the strict doctrine of English common Law which refuses to see anything in the firm but a collective name for individuals carrying on business in the partnership and the mercantile usage which recognizes the firm as a distinct person or quasi corporation.'

Similarly in other case of Commissioner of Income-Tax, West Bengal v. M/s. Pigot Champan & Co., : [1982]135ITR620(SC) , it has been held :

'The question whether there has been a dissolution of the firm and upon such dissolution a new firm has succeeded to the business of the old firm is a question which depends upon the intention of the parties to be gathered from the document or documents, if any, executed by and between the partners and other facts and surrounding circumstances of the case. Under section 40 of the Partnership Act, a firm can be dissolved with the consent of all the partners or in accordance with the contract between the partners, under section 43 a partnership at will can be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm and upon such notice being given the firm gets dissolved as from the date mentioned in the notice as the date of dissolution and if no date is so mentioned as from the date of the communication of the notice, while section 44 contemplates dissolution of a firm by and under orders of the Court in certain contingencies mentioned therein. It is quite conceivable that in cases of dissolution of the firm brought about by a notice under section 43 or by an order of the Court under section 44 some of the erstwhile partners may take over the assets and liabilities and carry on the same business by constituting a new firm and even such cases would be the cases of succession to the old business within the meaning of section 25(4) of the Income-Tax Act.'

7. Therefore, to determine the question whether there has been a dissolution of the plaintiff's partnership firm as the plaintiff firm as on the date of the suit or there has been re-constitution of the partnership firm as the plaintiff firm, it is necessary to have the aforesaid material evidence on record and unless the parties are given opportunity to adduce such evidence it will not be possible to decide the question which has been argued by the learned Counsel for the appellant in this first appeal. Indeed the defendant tried to raise the objection of such a nature in his pleadings but the Court below seems to have overlooked the aspect in framing the relevant issue in the suit. As a matter of fact, the learned trial Judge has also mis-read the pleadings as he has taken it for granted that there was dissolution of the plaintiff firm which filed the suit against the defendant. It seems to me that no attention of the parties was invited to this question of law and therefore, this is also one of the grounds for me to remand the suit for re-trial in accordance with law by giving opportunity to the parties to amend their pleadings if they so desire.

8. In the result, the appeal is allowed. The judgment and decree of the Court below is set-aside. The suit is however remanded to the trial Court for re-trial and disposal in accordance with law. The trial Court is directed to allow the parties to amend their pleadings and also adduce further evidence on the issues to be settled on the basis of additional pleadings in the suit. The cross-objection is rejected. There shall be no order as to costs. The trial Court is directed to dispose of the suit as expeditiously as possible.