In the case titled as Guru Nanak Industries, Faridabad and Anr. v. Amar Singh (Dead) through ors., Supreme Court observed that there exists a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’.
On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement
The judgement was delivered on 26th May 2020 by Justice Sanjiv Khanna.
Facts of the Case
- On 6th May 1981, a fresh partnership deed was executed between Swaran Singh and Amar Singh. Profit and loss sharing ratio between Swaran Singh and Amar Singh was 60:40 respectively.
- On 29th March 1989, Guru Nanak Industries and Swaran Singh filed a civil suit against Amar Singh claiming that the latter had retired from partnership with effect from 24th August 1988 and had voluntarily accepted payment of his share capital. Also, that Amar Singh had agreed that he would not be entitled to profits and liabilities of the firm. Appellant argued and placed reliance on letter sent by Amar Singh to Bank of India stating that Amar Singh has accepted payment.
- Amar Singh contested the suit and on 29th April 1989, filed a suit for dissolution of partnership and rendition of accounts. The plea and contention of Amar Singh was that he had never resigned.
- First appellate court accepted the above plea of Respondent/Amar Singh and held that he had not resigned as the letter was signed by both Amar Singh and Swaran Singh, wherein Amar Singh has been described as a partner. Official records in the Sales Tax Department and Income Tax Department also support the case of Amar Singh that the partnership firm was not dissolved on 24th August 1988.
- Accordingly, Amar Singh was held to be entitled to the prayer for partition of movable and immovable property wherein 40% belonged to Amar Singh and 60% belonged to Swaran Singh. Court held that the accounts would be rendered and settled as on the date of institution of the suit for dissolution of partnership, that is, 29th April 1989 and Amar Singh would also be entitled to interest @ 9% per annum.
Decision of Supreme Court
Apex Court observed that primary claim and submission of the appellants is that Amar Singh had resigned as a partner and, therefore, in terms of clause (10) of the partnership deed dated 6th May 1981, he would be entitled to only the capital standing in his credit in the books of accounts.
However, the argument was rejected as in the present case there were only two partners and there is evidence on record that Amar Singh had not resigned as a partner. On the other hand, there was mutual understanding and agreement that the partnership firm would be dissolved.
Court observed that in the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. A partnership firm must have at least two partners. When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm
Court dismissed the appeal filed by Appellant and upheld the judgment and decree dated 24th September 2004 passed by the Additional District Judge, Faridabad and sustained by the High Court.
Court on examining of facts held that date of dissolution of the firm would be taken as 24th August 1988 and not 31st of March 1989.
The counsel for Appellant at the time of arguments expressed the desire to settle the matter with the respondent and was given time of four weeks but the settlement was not possible. Court gave another opportunity to the parties to appear before the Supreme Court Mediation and Conciliation Centre to explore possibility of a settlement.
Supreme Court recorded that in case of no settlement within a period of three months, the matter would proceed before the trial court for passing of the final decree, in accordance with law.
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