Prakash Chand Vs. Bhanwar Lal and anr. - Court Judgment

Prakash Tatia, J.

1. The petitioner has submitted the application under Section 11 of the Arbitration and Conciliation Act, 1966 (for short 'the Act of 1996') for appointment of Arbitrator with the allegation that the petitioner with respondent-Bhanwar Lal started business in partnership in the name of M/s. B.P. Textiles. A partnership deed was duly executed on 13.8.1975 and the partnership is a registered partnership firm under the provisions of Partnership Act. As per the petitioner, the firm took an industrial plot No. E.53 having area of 3,500 square meters on lease from RIICO in the town of Pali at Mandiya Road. A lease deed was executed and as per the petitioner, in favour of both the partners constituting partnership firm M/s. B.P. Textiles. According to the petitioner, this lease deed is subsisting till today. According to the petitioner himself, he separated from the business of the firm on 16.4.1978, however, the accounts books as well as properties remained in possession of respondent-Bhanwar Lal. It is also alleged that Rs. 60,225.71 paise of the petitioner remained deposited with the firm, obviously now with respondent-Bhanwar Lal, who became proprietor of the firm when the petitioner separated from the partnership in question. It is submitted by the petitioner that he gave notice under Section 63 of the Partnership Act to the Registrar of the Firms in prescribed form No. E and respondent Bhanwar Lal continued to run the firm M/s. B.P. Textiles. Inspite of the petitioner's separation, according to the petitioner, the dissolution of the firm did not take place in accordance with law, as neither he nor respondent-Bhanwar Lal gave notice regarding dissolution of the firm at will as per Section 43 of the Partnership Act. It is stated that, on the contrary, respondent-Bhanwar Lal continued the business in the name and style of M/s. B.P. Textiles by treating his son Om Prakash as partner. According to the petitioner, mere separation/stoppage of business does not amount to dissolution and further right to sue for dissolution of a continuing firm exists so long as the partnership continues, for this contention, the learned Counsel for the petitioner relied upon the judgment delivered in the case of Haramohan Poddar and Ors. v. Sudarson Poddar : A.I.R. 1921 Calcutta 538 and with the help of the judgment of this Court delivered in the case of Dinesh Jangid v. Laxmi Kant Jangid 2007 (2) WLC (Raj.) 703, it was submitted that, after dissolution of firm, partnership still subsists for purpose of completing pending transactions, winding up, settlement of accounts and other rights and obligations inter se parties.

2. With this assumption that the firm has not been dissolved, the petitioner requested respondent-Bhanwar Lal to execute a dissolution deed in accordance with law and to finalize the accounts but on one pretext or the other, the respondent deferred the same and looking to the old relation between the petitioner and the respondent, the petitioner did not take any serious step to avoid the dispute and to get the matter amicably settled.

3. According to the petitioner, in response to the letter from the Income-tax Department, the petitioner wrote a letter on 4.3.1982 that he separated from M/s. B.P. Textiles and the books of the firm etc. are lying with other partner respondent-Bhanwar Lal. It is also alleged that on the basis of forged letter Ex.7, respondent-Bhanwar Lal got a binding agreement for the leased industrial plot of the petitioner and the respondent with RIICO on 15.11.1984 without knowledge and consent of the petitioner and when the petitioner came to know of it, he approached RIICO and after looking into all the facts and circumstances of the case, RIICO vide its order dated 22.11.2005 cancelled the binding agreement dated 15.11.1984 and, ultimately, RIICO directed both the partners, the petitioner and the respondent, to get the matter settled through Arbitrator as required by the partnership deed. The petitioner thereafter gave notice on 28.6.2005 through his advocate to respondent-Bhanwar Lal seeking dissolution of the firm in accordance with law and also for rendition of accounts, distribution of movable and immovable properties of the firm and to pay the amount of Rs. 60,225.71 and hand-over possession of movable properties of his share along with mesne profit.

4. According to the petitioner, the respondent did not respond to the petitioner's notice, then the petitioner served another notice dated 22.8.2005 and in this notice, the petitioner requested for appointment of arbitrator under the provisions of the Act of 1996. It is stated that in response to that, the respondent gave evasive reply Annex.6 that there is no need to appoint any arbitrator. Hence the petitioner has submitted this application under Section 11 of the Act of 1996 for appointment of the arbitrator.

5. The respondent submitted detail reply to the application and stated that the petitioner and the respondent admitted that the partnership business in the name of M/s. B.P. Textiles was started by the petitioner and the respondent and the respondent admitted execution of the partnership deed dated 13.8.1975. According to the respondent, the partnership came to an end and the partnership stands dissolved with the retirement of the petitioner from the firm on 16.4.1978. The petitioner himself informed about the dissolution of partnership in writing on 4.3.1982 to the Registrar of the Firms stating that the firm has been dissolved w.e.f. 16.4.1978. In reply to the notice given by the Income Tax Department under Section 143(2) of the Income Tax Act, on 24.3.1983 again the petitioner informed Income Tax Department that he is no more partner m the firm and the petitioner communicated to the respondent that he has retired his retirement from the firm w.e.f. 16.4.1978 by communication dated 5.1.1982. The respondent has placed on record copies of above communications. It is stated that the land which was allotted by the RIICO to M/s. B.P. Textiles Vide allotment letter dated 13.4.1977, was in lieu of surrender of one agriculture land of respondent of Khasra No. 987 measuring 32 big has and this fact is mentioned in the lease deed itself executed between the RHCO and M/s. B.P. Textiles. It is submitted that the partnership business continued for quite some time and the partnership could not earn profit by doing the business. It is submitted that because of this reason, the petitioner retired from the partnership business and thereafter new partnership came into existence vide new partnership dated 24.3.1982. The new partnership firm entered into an agreement with RHCO on 15.10.1984 and the RHCO restored the plot in favour of the new partnership firm as the earlier allotment was cancelled by the RHCO during the currency of the bid firm, obviously in which the petitioner was partner with respondent No. 1. It is submitted that the firm was in loss at relevant time, therefore, the petitioner did not ask for rendition of accounts at any time since 1978. In view of the above reasons, the petitioner who admittedly retired from the partnership firm on 16.4.1978 and gave notice to all concerned including the respondent and the Income Tax Department, if there was any right of the petitioner for the relief of rendition of accounts from the respondent, then the cause of action accrued to the petitioner on 16.4.1978. Even for relief of possession of immovable property, if was of firm and the petitioner was entitled to claim, then for that purpose also the petitioner could have sought relief within three years from the time of his retirement because of the peculiar reason that in the partnership, the property also can be distributed/divided in the suit for dissolution of partnership and in the suit for rendition of accounts etc. Otherwise also, if any suit could have been filed by the petitioner for possession of the immovable property then that also could have been filed at the most within a period of 12 years from 16.4.1978, whereas the petitioner, with the help of the communications obtained by him from RHCO dated 22.11.2005, 31.12.2005 and on 1.2.2006 trying to make out a case that cause of action accrued to the petitioner on above dates. It is submitted that there cannot be partnership of one person and where there are two partners and when one retires, then with retirement of the partner, the firm stands dissolved. It is submitted that suit for rendition of accounts can be filed only within a period of three years from the date of dissolution of the firm or from the date when the partner retires from the firm. It is submitted that the petitioner's no claim is live claim and, therefore, there is no dispute in the eye of law which requires determination.

6. I considered the submissions of the learned Counsel for the parties and perused the documents placed on record.

7. In view of detail submissions made by the learned Counsel for the parties, it will be appropriate to recapitulate that the facts are not in dispute and those facts are that the petitioner and the respondent decided to carry on business in partnership in the name of M/s. B.P. Textiles and for that purpose, they executed partnership deed on 13.8.1975. Whether said firm gave profit or not, is not relevant, admittedly, the petitioners retired himself from the partnership firm from 16.4.1978 and the petitioner after 28 years is claiming that he is entitled to rendition of accounts from respondent as well as entitled to share in the immovable property of the firm. To appreciate the contention of the learned Counsel for the petitioner, it will be appropriate to look into the status of the petitioner and his rights in existence under the Indian Partnership Act, 1932 and also Indian Limitation Act, 1963.

8. As per Section 4 of the Partnership Act, 1932, 'Partnership' is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all. The persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm' and the name under which their business is carried on is called the 'firm name'. The expression 'firm' is a compendious term which describes the association of several persons who are interested in business. The firm is not a legal entity as such but by virtue of Order 30 CPC, the firm can sue and can be sued in the name of firm and as per 'partnership' as defined under Section 4 of the Indian Partnership Act, 1932, is relation between the persons who have agreed to share the profit of the business. From Section 4 itself, it is very clear that there cannot be a partnership firm without there being at least two persons contracting to do business. There cannot be any partnership of one person. A single person may carry on business in another name in accordance with law but that single person's business in another's name or other name, is not the business of partnership firm. Such single person's name may be called as proprietorship firm but such firm is not a firm as defined in the Partnership Act. For creating a partnership firm to carry on partnership business, the agreement may be express or implied but the question which goes to the root of partnership is the existence of at least two persons in the firm. Since the partnership is founded upon contract for partnership to do the business, therefore, this contract can be terminated by mutual consent of the parties.

9. Hon'ble the Apex Court in the judgment of Erach F.D. Mehta v. Mintoo F.D. Mehta : AIR 1971 SC 1653 held that when the partnership consisted of only two partners and one partner agreed to retire, there can be no doubt that the agreement that one of the partners will retire, amounts to dissolution of the partnership.

10. Section 41(b) of the Partnership Act, 1932 specifically declared that a firm is dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership. As stated above, there can be a partnership firm constituted by two or more partners and any partner has a right in accordance with law and in case where there are two partners and one retires in accordance with law then it will be unlawful for the firm to carry on business as partnership firm.

11. The status of the partner, rather retirement of partner in such situation leaving behind one person only notwithstanding of the busing the firm, the rights of the out going partners have been safeguarded by making provisions in the Indian Partnership Act, 1932 and Section 46 of the Act of 1932 gives right to the partners to have business wound up after dissolution of the firm and Section 47 of the Act of 1932 recognizes continuing authority of partners for purposes of winding up after dissolution of the firm and it says that after the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise. The last words used in Section 47 'but not otherwise' makes it clear that the authority of the partners of a firm after dissolution is limited by Section 47.

12. Section 48 of the Act of 1932 gives mode of settlement of accounts between the parties and that is done after dissolution of the firm.

13. From above provisions of law, it is clear that a partnership stands dissolved under Section 41(b) of the Act of 1932 when the event makes it unlawful for the purpose of business to be carried on or it becomes unlawful for the partners to carry the business of the partnership and in view of Section 4 and the judgment of the Hon'ble Apex Court delivered in the case of F.D. Mehta v. Mintoo F.D. Mehta : AIR 1971 SC 1653 the partnership stands dissolved on 16.4.1978 with the retirement of the petitioner from the partnership firm. As stated above, the retirement of the petitioner from the partnership is admitted case and consent of the other remaining partner-respondent is expressed as well as by conduct, is a clear consent to the retiring of the petitioner from the partnership firm.

14. The question arises within which period one can seek relief of rendition of accounts when the firm is dissolved and get the even immovable property or share in the immovable property from the remaining partner of the firm. All suits are governed by the provisions of the Indian Limitation Act and as per Section 3 of the Indian Limitation Act, no suit can be filed in the court beyond the period of limitation and if suit is filed beyond the period of limitation prescribed by the Act of 1963, then that is liable to be dismissed even when objection of limitation has not been taken by the defendant as defence. As per Article 5 of the Indian Limitation Act, 1963, the suit for accounts and share of profit of a dissolved partnership firm can be filed within a period of three years from the date of dissolution of the firm. The firm stands dissolved on 16.4.1978 with the retirement of the petitioner from the partnership firm and, therefore, the limitation started from that date. Once the limitation starts to run, it is not stopped and it can be extended by acknowledgment in writing under Section 18 of the Act of 1963 and in case of accounts/recovery of debt or interest in legacy, if payment is made, on account of debt or of interest on a legacy, made by the person liable to pay the debt or legacy or by his authorised agent, then fresh period of limitation shall be computed from the time when such payment was made. Certain time can be excluded from the period of limitation for which also separate provisions are made in Part III of the Indian Limitation Act. Here in this case, the petitioner has no right for extension of limitation for claiming any relief from the remaining partner of the firm after dissolution of the firm on 16.4.1978. Even if it is assumed that for immovable property, the petitioner could have sought relief on the basis of the title to the property, then that too, could have been sought by him within a period of 12 years under Article 65 of the Act of 1963 and in this case, the petitioner admitted that the respondent excluded the petitioner from the property obtained from the RIICO, much before 12 years of submitting this petition. Even for seeking any relief for the new partnership entered into between the respondent and his son and execution of deed between RIICO and new partnership firm is concerned, those documents could have been got cancelled within a period of three years from the date of accrual of the cause of action as per Article 59 of the Act of 1963.

15. In view of the above reasons, all the rights of the petitioner for seeking any relief, by virtue of expiry of limitation to file any suit for any relief, stand extinguished in view of Section 27 of the Indian Limitation Act which clearly declares that at determination of the period, limited to any person in instituting a suit for possession of any property, his right to suit shall be extinguished.

16.` The petitioner, who has no subsisting right for any relief in view of the facts admitted by the petitioner himself in his petition, then the matter cannot be referred to the Arbitrator.

17. In view of the above discussion, the judgments relied upon by the learned Counsel for the petitioner which deal with entirely different facts and circumstances, have no application to the facts of the present case as where there is bona-fide dispute of expiry of limitation, then the matter can be referred to the Arbitrator who may decide whether the claim of the claimant is live or not but, where from the facts disclosed by the petitioner himself, the claim of the petitioner claimed is found to be barred by time then there is no reason to refer the matter to the Arbitrator as that will be contrary to the statutory provisions of Section 3 of the Indian Limitation Act.

18. At this juncture, it will be relevant to observe here that the circumstances shows that the petitioner by his own acts and conduct, has relinquished or disclaimed his right of relief in respect of accounts and property which remained in the hands of respondent No. 1 as individual who was running business in the name of M/s. B.P. Textiles after petitioner's retirement from the firm or the property which came in the hands of newly constituted partnership firm vide partnership deed dated 24.3.1982 and, therefore, the petitioner acquiesced to the statement of affairs as back as in the year 1978 and now cannot be allowed to challenge the affairs which happened after 16.4.1978.

19. So far as the act of RIICO by passing the order dated 22.11.2005 (Anhex.3) is concerned, it can be observed that so far as affairs of the partnership firm M/s. B.P. Textiles is concerned, the RIICO was third party and by giving land to the firm M/s. B.P. Textiles by RIICO, the RlICO's status is, so far as lease is concerned, has status of second party with first party firm but not more than a status of third party to the agreement of partnership between the petitioner and the respondent. The RIICO had only right to give immovable property to any person/firm/Company etc. which they gave in present case also. After the execution of the proper deed/lease deed in favour of M/s. B.P. Textiles, the RIICO could have exercised its power to cancel the lease only in accordance with law but had no right to determine the inter se rights of the partners of M/s B.P. Textiles. The RIICO also had no jurisdiction to extend the limitation for filing of any suit by any of the parties to the firm. The date on which the petitioner retired from the firm, the cause of action accrued to the petitioner for obtaining any relief in accordance with law and that limitation could have been extended only under the provisions of the Indian Limitation Act and not by intervention of third party like RIICO. The tendency of individual of getting certain orders from third party and that too in relation to the claim for immovable property is increasing and the orders are obtained from the local bodies and RIICO etc. to bring the action into period of limitation the dispute which otherwise is barred by time. The courts must be cautious in that situation and should not mislead itself by the act of third party to give life to the dead claims which became dead by operation of Section 3 of the Indian Limitation Act read with Section 27 of the Indian Limitation Act, 1963 which says that the every suit, appeal or application made by any party after the prescribed period shall be dismissed by the court even when limitation has not been set up as defence and with the expiry of period of limitation for the action, such previous rights in the property shall extinguish.

20. In view of the above, this Court has no hesitation in holding that there is no live dispute between the parties which can be referred to the Arbitrator.

21. In the result, the petition filed by the petitioner is dismissed.