Shiv Mohan Mehra vs Veena Bathla And Ors.
1995 Latest Caselaw 814 Del

JUDGMENT

S.K. Mahajan, J.

(1) Defendant No. 1 is the owner of the property known as B-36, Lajpat Nagar-II, New Delhi. The said defendant was using a part of the said property for doing business of trading in tyres. The plaintiff represented to the said defendant that he had sufficient experience in the running of restaurant and on his representation, defendant No. 1 agreed to open a restaurant in the premises on the ground floor of the said property in partnership with the plaintiff. Subsequently, defendant No. 2 was also associated with the venture and it was agreed that defendant Nos. I and 2 would jointly hold 50% share in the partnership and the other 50% will be held by the plaintiff. A formal partnership deed was, accordingly, entered into between the parties on 11th March, 1993 effective from 29th June, 1992. As per terms of the partnership deed, the parties had agreed for establishing/setting up a restaurant under the name and style of "Ala Gila" at B- 36, Lajpat Nagar-II, New Delhi. The plaintiff was to provide an investment up to a maximum of Rs. 20,00,000.00 and any further investment required for the venture was to be contributed by the defendants. The plaintiff is alleged to have invested more than his share as warranted under the terms agreed upon between the parties for making the venture operational. However, the defendants avoided to provide the finances needed for running the restaurant. It is alleged that the restaurant became operational during September, 1993 but the sales did not pick up for lack of publicity. Accounts are alleged to have been maintained by defendant No. 2 and on account of non-contribution of the defendants, the venture was not running profitably. It is alleged that with the investment made by the plaintiff, the premises acquired great value and as a result thereof, the defendants started causing obstruction in the running of the restaurant resulting in demoralising of the staff. It is also stated that by a notice dated 12th July, 1995 delivered to the plaintiff on 21 /22nd July, 1995, the defendants have sought to dissolve the firm. According to the plaintiff, the defendants could not dissolve the firm by notice as in terms of Clause 18 of the partnership deed, the firm could be dissolved only by mutual consent. Certain disputes had thus arisen between the parties and the same were liable to be referred to arbitration in terms of the arbitration clause contained in the partnership deed. The disputes have been incorporated in paragraph 8 of the petition. Along with the suit, an application for injunction has been filed for restraining the defendants from interfering with the plaintiff's running/managing the business under the name and style of "Ala Gila" from premises No. B-36, Lajpat Nagar-II, New Delhi.

(2) Defendant Nos.1 and 2 have filed the written statement. Reply to the application has also been filed. The said defendants have also filed an application under Order 40 of the Code of Civil Procedure for appointment of a receiver. The defendants have denied that accounts were being maintained by any of them. It is also stated that as the business was not profitable and was running in losses and there were arrears of sales-tax as well, which had not been paid by the firm, the defendant Nos.l and 2 by a notice dated 12th July, 1995 expressed their desire not to continue as partners in the firm and dissolved the same w.e.f. 10 days after the receipt of the said notice by the plaintiff. It is submitted that the said defendants were within their rights to dissolve the firm by giving a notice and under Clause Ii of the partnership deed, the plaintiff did not have any right to occupy any portion of the premises or to continue with the business. There has, however, been no objection to the appointment of an Arbitrator to decide the disputes which had arisen between the parties. By application underOrder40Rule 1, defendant Nos.l and 2 seek appointment of a receiver. The submission in the application is that after the receipt of notice dated 12th July, 1995 by the plaintiff on 22nd July, 1995, the firm stood dissolved on 2nd August, 1995 i.e. 10 days after the receipt of notice by the plaintiff. It is submitted that after the dissolution of firm, the plaintiff has no right to use partnership assets for his own benefit and they apprehend that there is a danger of the plaintiff removing valuable assets of the partnership and that the accounts of the firm are also likely to be interpolated by the plaintiff. It is also stated that the plaintiff has no right to enter the premises of the restaurant because in terms of Clause 11 of the partnership deed, the same was to remain in possession of defendant No. 1 only. It is, therefore, submitted that it would be just and convenient that a receiver is appointed of the assets of the partnership-firm.

(3) The short question involved in this case at this stage, for purposes of deciding the application of the plaintiff for an injunction and the application of the defendant for appointment of a receiver, is whether, prima fade, the partnership was "AT WILL" or the firm could be dissolved only with the consent of the parties. To understand the contention of the parties, it will be useful to note down in details the terms and conditions of the partnership deed. The relevant terms of the partnership deed which have bearing on the case, are as under:-

"2.That nature of the business would be of that of a restaurant and catering and shall be carried on the ground floor at B-36, Lajpat Nagar- ll, New Delhi. 3. That party of the first part shall make necessary structural modification for carrying on the business in the said premises in an efficient manner. 4. That the parties shall distribute the profit and bear the losses of the said business in the following proportion :-

1.Smt.Veena Bathla - 25% 2. Shri Shiv Mohan Mehra - 50% 3. Shri Nikhil Bathla - 25%

5. That the partners shall be entitled to get remuneration for the services rendered by them towards the business of the partnership-firm and in conducting its day to day business which shall be credited to their respective capital accounts at the close of the financial year in the following proportion:-

1.Shri Shiv Mohan Mehra - 50% of admissible book profit 2. Shri Nikhil Bathla - 50% of admissible book profit

7. That the day-to-day management of the business including purchase, sale and other incidental functions necessary to carrying on the business shall be the responsibility of Party No. 2. 8. That however Party No- 3 shall associate and assist Party No. 2 in maintenance of the accounts of the business of income and expenditure which shall be duly reflected in the books of accounts duly main- tained by the firm. 9. That it is mutually agreed amongst the partners that Party No. 2 shall invest in the said business up to a maximum amount of Rs. 20.00 lakhs and thereafter if any further investment is required the same shall be contributed by Party No. I and or No. 3. 11. That it is mutually agreed that in the event of dissolution of the partnership business Party No. 2 shall not obstruct in any manner the enjoyment of the said property by Party No. I and it is further agreed by the parties to this deed that the Party No. 2 shall not under any circumstances acquire any lien or right of any kind in the premises bearing No. B-36, Lajpat Nagar-ll, New Delhi. That in short the retiring partners shall always be Party No. 2 and the said premises shall always remain in the possession of Party No. 1. 14. That the firm shall maintain regular books of account in the normal course of business and the same shall be kept at the aforesaid business premises or any other place(s) and shall be open to inspection by the partners at all reasonable hours. 16. In the event of death any partner his/her legal heirs, assigns shall have the right to become full fledged partners and the firm ipsofacto will not be dissolved. 18. That the partnership shall be "AT WILL" and may be dissolved by mutual consent. 19. If any controversy or dispute should arise between the parties in performance, interpretation or application of the agreement involving any matter, the same shall be submitted to arbitration under the provisions of the Indian Arbitration Act and the applicable law will be Indian Law. 20. The Agreement shall remain Subsisting and operative during arbitration proceedings and no payment due to either party shall be with-held except the payment in dispute."

(4) Argument of Mr. Singla, appearing for the plaintiff, is that the parties had with a purpose mentioned in Clause 18 that "the partnership shall be "AT WILL" and may be dissolved by mutual consent". Reference has also been made to Clause 20 of the partnership deed to show that when the parties had agreed that the agreement would remain subsisting and operative through arbitration proceedings, the intention was that till such time the Arbitrator had given his award in the matter of disputes referred to him. the partnership would continue to subsist. It is, therefore, argued that no part of this partnership deed can be ignored and there cannot be any other interpretation but that the partnership was not "AT WILL" and the inclusion of words "AT WILL" in the partnership deed were superfluous and of no consequence.

(5) According to him, as per Clause 11 of the partnership deed, it was only the plaintiff who could be a retiring party and as such none of the two defendants had a right to dissolve the firm nor they had any right to retire from the firm. The contention is that the presence of Clauses 15,16,17 and 18 prohibiting the partners from indulging in any other business and non-dissolution of the firm, ipso facto, in the event of death of any of the partners and varying of the deed of partnership only by mutual consent can lead only to one conclusion that the partnership was not at will and could be dissolved only by mutual consent.

(6) Section 7 of the Act defines partnership at will. According to this, where no provision is made in contract between the partners about the duration of their partnership or for the determination of their partnership, the partnership is partnership at will. Under Section 11, the mutual rights and duties of the partners of the firm are to be determined by contract between the parties and such contract may be expressed or may be implied by course of dealings. In terms of Section 32 of the Act, a partner may retire with the consent of (1) all the other partners, (2) in accordance with express agreement by the partners; or (3) where the partnership is at will by giving a notice to all the other partners of his intention to retire. Under Section 40, affirm can be dissolved with consent of all the partners and in accordance with a contract between the partners. Section 43. lays down the contingencies under which a firm will be dissolved subject to contract between the partners. In terms of 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. According to Mr. Singla, present was not a case where the partnership could be dissolved by notice as a specific provision had been made in the partnership deed that the firm could be dissolved only by mutual consent of the partners. Reliance for this purpose has been placed upon a judgment reported as M.O.H. Uduman and Ors. v. M.O.H. Aslam, . This was a case where the Court was to decide as to whether in view of Clauses 4 and 5 which had existed in the partnership deed, the partnership could be said to be the partnership at will. While in Clause 4 of the deed, in that case, it was mentioned that the business of the firm which had started on 1st July, 1962 will be brought to an end at will. Clause 5 of the same deed was in the following terms:- "THE partnership will continue till there are two partners, even in the case of one or several partners withdraw themselves or die, the partnership will continue between the two partners, will remain owners of all the capital, on condition that they should pay back to the withdrawing partners and to the heirs of the deceased partners, only the amount of their rights according to last inventory."

(7) It was in the presence of this clause in the partnership deed that Hon'ble the Supreme Court held :- "GIVING our anxious consideration to the controversy, we have no hesitation to reach the finding and hold that the duration of the partnership has been expressly provided in the deed, namely, that the partnership will continue "till there are two partners" and that, therefore, it is not a partnership at will. Thereby, the respondent has no right to dissolve the partnership except to seek accounting for the period in dispute or his right to withdraw or retire from partnership and to take the value of his share in the partnership either by mutual agreement or at law in terms of the partnership deeds Exs. B-1 and B-2."

(8) The Supreme Court in that case while interpreting the partnership deed has held that as Clause 5 of the partnership deed specifically mentions that partnership will continue till there are two partners, the same could not be dissolved by notice given by a third partner of the firm. The same is not the case before me. In the present case, out of three partners, two have given notice to dissolve the firm w.e.f. 10days of service of notice upon the plaintiff.To constitute a partnership there necessarily have to be two partners. As two partners have expressed their intention to dissolve the firm, to my mind, there cannot remain any partnership. The contention of Mr. Singla that defendants cannot be allowed to dissolve the firm also does not appear to be correct. It is beyond comprehension as to how a person who does not want to remain a partner can be compelled to continue as a partner. In case defendant Nos. 1 and 2 have chosen not to remain partners, to my mind, they cannot be compelled to remain partners in the firm. Even assuming that the partnership could be dissolved only by mutual consent, then its continuance has also to be by mutual consent and in case two of the three partners have decided not to remain partners in the firm, the firm, in my opinion, cannot continue. The firm is running into losses, there are liabilities of sales tax which are payable by the firm. Amount of employers' contribution, I have been informed, have also not been deposited with the provident fund authorities and even the salary of the staff is also not paid. Can the defendants be allowed to be a party of all these liabilities, in case, they are not willing to continue in the firm? To my mind, the answer is in the negative. While in the first 7 months, after the starting of the restaurant the firm had recorded sale of Rs. 17,74,806.00 as is evident from the profit and loss account, for the period ending 31st March, 1994, in the whole year ending 31st March, 1995 the firm has made a total sale of about Rs. 18,00,000.00 which includes the sales tax liabilities as well. The contention of Mr. Sahai, therefore, was that as the firm was not able to pick up and was incurring liabilities to which the defendant did not want to be parties, they rightly by notice dated 12th May, 1995 dissolved the firm.

(9) On reading the partnership deed as a whole, prima facie, I am of the opinion that the partnership was at will. Clause 11 of the partnership deed clearly mentions that in the event of dissolution of partnership business, the plaintiff shall not in any manner obstruct the enjoyment of the property by defendant No. 1 and that the plaintiff shall not acquire any legal right of any kind in the said premises. Though in the last three lines of the said clause it is mentioned that the retiring partner shall always be the plaintiff and the premises shall always remain in possession of defendant No. 1, however, it does not mean that defendant Nos. 1 and 2 cannot at any time retire from the partnership. The last three lines of Clause 11 only explains what has been mentioned in the earlier part of Clause 11 i.e. it is the plaintiff alone who will go out of the premises which will always remain in possession of defendant No. 1. To my mind, there cannot be any other interpretation of the said Clause. Clause 18 specifically mentions that the partnership shall be at will. While the word 'shall' appears before "AT WILL", it is reword 'may' when it is mentioned that the partnership may be dissolved by mutual consent. All that the said Clause will mean is that while there cannot be any embargo on the right of any of the partners to dissolve the firm by giving a notice as the same is at will, the partners may themselves also by mutual consent agree to dissolve the same. Both parts of the said clause can be read harmoniously and there is no contradiction about the same. I, therefore, do not find any force in the arguments of Mr.Singla that the words at will appearing in Clause 18 of the partnership deed are superfluous.

(10) Parties are agreeable that the disputes arising under the partnership deed and as have been mentioned by them in the respective pleadings can be referred to the Arbitrator. I, accordingly, appoint Mr. Justice Charanjit Talwar (Retired) as the Sole Arbitrator to decide disputes between the parties arising under the partnership.

(11) The question, however, still remains is as to whether the defendants can be restrained from interfering with the running of the business of restaurant "Ala Gila" till such time the Arbitrator gives his dedsion. Mr. Singla has drawn my attention to Clause 20 of the partnership deed which specifies that the agreement shall remain subsisting and operative during arbitration and the plaintiff cannot be stopped from carrying on the work till such time the award is given by the Arbitrator. Mr. Sahai on the other hand has made an application under Order 40 Rule I for appointment of a Receiver. According to the defendants w.e.f. 2nd August, 1995 the firm stood dissolved as the notice of dissolution was served upon theplaintiffon22nd July, 1995. It is stated that after the dissolution of the firm, the plaintiff has no right to use the partnership assets for his own benefit. Moreover, according to Mr. Sahai, in view of Clause 11 of the partnership deed, the plaintiff has no right to enter into the premises and consequently he has no right to carry on the business from the said premises. It has also been stated that there is a danger that the plaintiff may remove valuable assets of the partnership like crockery, cutlery, utensils and other costly equipment for running of the restaurant from the said premises and, therefore, it would be just and convenient that a Receiver be appointed of the assets of the partnership and the plaintiff may be restrained from using any of the partnership assets or entering into the said premises.

(12) Under Section 53 of the Partnership Act, after a firm is dissolved, every partner or his representative may, in the absence of the contract between the partners to the contrary, restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up. In a Division Bench judgment of Patna High Court Suuhansu Kanta v. Manindra Nath reported as , it has been held that if there is any apprehension of any danger or waste to the suit property or where the appellant makes out a case that the property is exposed to manifest peril, the Court will feel inclined to prevent that by putting a Receiver in-charge of the same. It has been further held that:- "IT is well known that a Receiver is to be appointed as a matter of course when a partnership is dissolved under the orders of a Court, or if the partnership has already been dissolved and any of the parties has come to the Court for seeking his reliefs due to him as an ex-partner. A Receiver can be appointed to take charge of the partnership assets, collect the same and convert it into cash, if necessary, and to discharge the debts of the firm and thereafter divide the surplus between the partners. In a suit for dissolution of a partnership a Receiver can also be appointed before the final adjudication if the circumstances of the case justify such a measure. When in a suit for dissolution of partnership, the plaintiff has asked for a declaration that his interest as a lessee in a mining lease still subsisted and had not been affected by the impugned deed of release and the defendant claims exclusive right in the leasehold as a surviving partner of the partnership or as a transferee and the plaintiff has made out a strong prima fade case that he has a subsisting title in the mining lease-hold calling for protection of his interest in that lease-hold property."

(13) In vidya Devi v. Mani Ram, etc. reported as 1974 Rajdhani Law Reporter 346 it has been held that - "23.If the partnership is a continuing one, the Court is placed in a position of very great difficulty: If it grants the motion,the effect is to put an end to partnership, which one of the partners claims a right to have continued; while it refuses the motion, it-leaves the defendant at liberty to go on with the partnership business at the risk and probably to the great loss and prejudice, of the dissenting party. The case in hand is different. Here dissolution has taken place. The partnership is at will, I have already held. By notice it was dissolved. 24. In Taylor v. Heate, (1888) 39 Ch.P. 538 it was held that where there is a clause in the articles of partnership providing for the division of assets on a dissolution, such a clause cannot override the general power of a Court to order a sale of the business as a going concern and appoint a Receiver and manager. 25. In Lindley on Partnership at page 553 it is observed : If the partnership is already dissolved, the Court usually appoints a Receiver, almost as a matter of course.... the common property has to be applied in paying the partnership debts, and has to be divided amongst the partners and each partner has as much right as the others to wind up the partnership affairs."

(15) As I have held, prima facie, that it was a partnership "AT WILL" and the firm stood dissolved on the defendant Nos.1 and 2 giving notice of their intention to dissolve the same, plaintiffs are not entitled for an order of injunction and IA.7756/95 is, accordingly, dismissed.

(16) In my opinion, though there is no other course open for the Court but to appoint a Receiver of the assets of the firm but as the plaintiff is running the restaurant even after the notice to dissolve the firm had been given by defendant Nos. 1 and 2, will it be proper for the Court at this stage when the entire controversy has been referred to the Arbitrator, to direct the closure of the business by appointing a Receiver to take charge of the same. In my opinion, it may not be proper to appoint an outsider as a Receiver of assets and business of the firm and the ends of justice will be met in case one of the partners is appointed as a Receiver.

(17) As the plaintiff is already running a restaurant, it will be in the fitness of things that he is appointed as a Receiver of the assets of the firm. He will continue to' have charge of the assets of the partnership-firm and will keep true and correct accounts of the same. It is, however, made clear that after expiry of ten days from the date of giving of the notice dated 12th July, 1995, the defendants will not be liable for any liability which may be incurred by the firm on account of the plaintiff having been appointed a Receiver of the assets of the firm and such liability will be only that of the plaintiff. In terms of the partnership deed, the plaintiff on dissolution of the firm, shall have no interest in the premises. To safeguard the interest of the defendants, the question as to whether the plaintiff is entitled to any compensation for use and occupation of the premises, if so at what rate and for what period, in case it is ultimately held in arbitration proceedings that firm stood dissolved on the giving of the notice by the defendant, is also referred to the Arbitrator. With a view to ensure as to what are the assets and liabilities of the firm as on the date of passing of the order, it will be necessary to appoint a Local Commissioner. I, accordingly, appoint Ms. Sadhna Sharma, Advocate, Chamber No. 336, Lawyers Chambers, Delhi High Court, as Local Commissioner to sign the books of accounts of the firm lying in the restaurant and also to make an inventory of all the assets of the firm including furniture, fixtures, utensils, stock in trade, etc. The Local Commissioner shall visit the premises B-36, Lajpat Nagar-II, New Delhi-110 024, where the restaurant "Ala Gila" is being presently run for purposes of signing the books of accounts and for preparing the inventory in terms of this order. The report will be filed by him within two weeks. The fee of the Local Commissioner is fixed at Rs. 4,000.00 , to be paid by the plaintiff and to be ultimately recoverable from the assets of the firm. Local Commissioner will be assisted in performing her duties by Mr. Ravindra Kumar Sharma, Sr. Stenographer of this Court, who shall be paid a fee of Rs. 2,500.00 for that purpose. With these observations, the suit as well as the applications are disposed of. In the circumstances of the case, I leave the parties to bear their own costs.