Dhanesh Bhadarmal Jain vs Registrar Of Firm
2022 Latest Caselaw 10116 Guj

     C/SCA/22223/2022                               JUDGMENT DATED: 15/12/2022




             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

               R/SPECIAL CIVIL APPLICATION NO. 22223 of 2022


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE BIREN VAISHNAV Sd/-

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1     Whether Reporters of Local Papers may be allowed                   Yes
      to see the judgment ?

2     To be referred to the Reporter or not ?                            Yes

3     Whether their Lordships wish to see the fair copy                   No
      of the judgment ?

4     Whether this case involves a substantial question                   No
      of law as to the interpretation of the Constitution
      of India or any order made thereunder ?

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                            DHANESH BHADARMAL JAIN
                                     Versus
                               REGISTRAR OF FIRM
==========================================================
Appearance:
Appearance:

MR PERCY KAVINA, SENIOR COUNSEL assisted by MR.VISHAL J
DAVE(6515) and MR NIPUN SINGHVI(9653) for the Petitioner(s) No. 1,2

MR SHALIN MEHTA, SENIOR COUNSEL assisted by MR PARITOSH
GUPTA, ADVOCATE for M/S GUPTA LAW ASSOCIATES(9818) for the
Respondent(s) No. 2

MS DHWANI TRIPATHI, AGP for the Respondent(s) No. 1
================================================================
     CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
                      Date : 15/12/2022
                      ORAL JUDGMENT

1. Rule returnable forthwith. Learned Assistant

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

Government Pleader as well as learned advocate

waives service of notice of Rule for and on behalf of the

respective respondents.

2. Heard Mr. Percy Kavina, learned Senior Counsel

assisted by Mr. Vishal J. Dave, learned advocate for the

petitioners and Mr. Shalin Mehta, learned Senior

Counsel assisted by Mr. Paritosh Gupta, learned

advocate for the respondents.

3. This petition is taken up for hearing in light of the request

made by the Division Bench vide order dated 01.12.2022

in Letters Patent Appeal No.1472 of 2022.

4. The petition challenges the order dated 05.09.2022

passed by the Registrar of Firms, Ahmedabad by which

the Registrar has passed an order declaring the

partnership firm that is M/s. Samkit Infracon of the

petitioners as dissolved and further the status of the firm

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as "dissolved" has been recorded in the Registrar of

Firms in Form "G."

5. The facts in brief are as under:

4.1. M/s. Samkit Infracon was duly registered

under the provisions of the Indian Partnership Act, 1932

on 25.03.2016. On 12.08.2016, the partnership firm was

amended with induction of new partners namely; Shri

Dhanesh Jain and Shri Bhadar Mal Jain. One of the

partners namely; Bhadar Mal Jain expired on

16.08.2021. The petitioner No.1, son of Mr. Dhanesh

Jain on 16.12.2021 made an application for

reconstitution of the firm whereby Smt. Babita Dhanesh

Jain that is the petitioner No.2 joined the firm as a new

partner pursuant to a deed of change in partnership

executed on 18.09.2021.

4.2. M/s. Madhav Associates, the respondent No.2

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had booked / purchased commercial offices Nos.601 to

604 in the project of which the petitioners were

promoters. A sale deed was executed and according to

the respondent No.2 since though substantial payments

were made it was the case of the respondent No.2 that

the petitioners' partnership firm M/s. Samkit Infracon was

not enforcing the deed.

4.3. A complaint was filed before the Real Estate

Regulatory Authority "for short `the RERA') with prayers

including seeking a declaration that the respondent No.2

be declared as an allottee. In the complaint so filed, the

petitioners had filed preliminary objections. Since the

authority did not decide the preliminary issue, petition

was filed before this Court which was disposed of on

08.09.2022. A litigation was also filed at the hands of

respondent No.2 in Special Civil Application No.17281 of

2021 with a relief to cancel the registration certificate.

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

4.4. In a petition filed namely; SCA No.13610 of

2022, the respondent No.2 obtained directions from the

Court by an order dated 27.07.2022 that the

representation made by it to the respondent No.1 be

decided. In accordance with the direction so issued by

the impugned order, the partnership firm M/s. Samkit

Infracon of which the petitioners are partners has been

treated as dissolved.

6. Mr. Percy Kavina, learned Senior Counsel assisted by

Mr. Vishal J. Dave, learned advocate for the petitioners

would make the following submissions.

5.1. Originally the partnership firm consisting of

two partners namely the petitioner No.1 Mr. Dhanesh

Jain and the other partner Mr. Bhadar Mal Jain was

registered in the year 2016. On the death of Bhadar Mal

Jain the father of the petitioner No.1 on 16.08.2021, an

application was filed by the petitioner No.1 for

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reconstitution of the partnership on 16.12.2021. The

Registrar of Firms approved the application by which the

petitioner No.2 Babita Jain wife of the petitioner No.1

was inducted as a partner on the death of Bhadar Mal

Jain. Thus, as per the deed of partnership entered into

on 16.09.2021, on the death of the second partner,

Babita Jain was inducted as a new partner and the firm

was accordingly reconstituted.

5.2. The respondent No.2 had initiated multiple

litigations against the partnership firm firstly in the form of

complaint before RERA, then by filing of Special Civil

Application challenging the petitioners' firm registration

and also a petition challenging the grant of development

permission. While these petitions had nothing to do with

the relationship within the partnership firm, the

respondent No.2 as an outsider filed a representation

that on the death of Bhadar Mal Jain on 16.08.2021, the

partnership firm should be treated as dissolved in light of

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Section 42(c) of the Partnership Act. Initially, Special

Civil Application No.13610 of 2022 was filed with a

prayer that a direction be issued holding that the

partnership be dissolved, however, by a subsequent

amendment, a prayer was added for a direction to

decide the representation. This Court, on 27.07.2022

disposed of the petition with a direction to the

respondent No.1 to pass an appropriate order. He would

submit that the respondent No.2 at whose instance, the

order was passed has no locus to challenge the

registration before the Registrar.

5.4. Mr. Kavina would further submit that reading

the Partnership Act would indicate that the entire

scheme of the Act reveals that the status between the

parties is that of contract dealing with rights between

each other.

5.5. Mr. Kavina would submit that reading Section

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42 of the Act indicates that it provides for dissolution of

the firm. He would submit that on the death of Shri

Bhadar Mal Jain on 16.08.2021 a request for change

relating to reconstitution of the firm was made and it was

granted by the respondent No.1 on 16.12.2021. This was

in accordance with the provisions of Sec.63 of the Act

providing for recording of changes and dissolution of the

firm.

5.6. Mr. Kavina would submit that reading

Sections 58 and 59 of the Act would indicate that on an

application for registration, the Registrar on satisfaction

and compliance of the provisions needs to record an

entry of the Partnership firm in the statement of register.

This was so done. Section 63 of the Act provided for

reconstitution by signing a deed of partnership. A

contract was entered into by the partners that on the

death of Bhadar Mal, the petitioner No.2 Babita Jain

would be inducted as a partner which was done which

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

was governed by the provisions of Sec.63 of the Act and,

therefore, the order impugned is contrary to law.

5.7. Mr. Kavina would further submit that in the

judgment of the Kolkata High Court in the case of Durga

Prasad Sarawagi and others v. The Registrar of

Firms reported in AIR 1966, CAL, 573, it was held that

the respondent No.1 had no power and authority to

make an entry that the firm was dissolved. He would rely

on paragraphs 6 to 8 of the decision to submit that the

order being bad must be set aside.

5.8. Relying on the decision in the case of Sri

Lakha Granites v. Eklavya Singh and others reported

in AIR 2011 Raj., 49, Mr. Kavina would submit that as

per provision of Section 53, the constitution of the firm

changes in the event of dissolution and, therefore, as per

the provisions of Secs.63 and 64 reconstitution of a firm

on the death cannot dissolve a firm.

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

5.9. Mr. Kavina would further submit that a perusal

of Section 64 of the Act makes it clear that the Registrar

can exercise power only for rectification of mistake. He

would therefore assail the orders impugned in the

petition and pray that the same be quashed and set

aside.

7. Mr. Shalin Mehta, learned Senior Counsel assisted by

Mr. Paritosh Gupta, learned advocate for the respondent

No.2 would make the following submissions.

6.1. Mr. Shalin Mehta, learned Senior Counsel

would submit that the following dates need be noted.

(A) The original partnership deed between Dhanesh

Jain and Bhadar Mal Jain was dated 23.08.2016.

(B) On 28.12.2018, sale deeds were registered for

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transfer of commercial space. A RERA complaint was

filed by respondent No.2 on 07.01.2021.

(C) On 16.08.2021, Bhadar Mal, one of the two

partners died.

(D) On 18.09.2021, the petitioner and Babita Jain,

petitioner No.2 entered into a deed of change of

partnership. That deed of change was between a dead

person and the petitioner No.2 and the partnership was

dissolved on that date.

6.3. Mr. Mehta would submit that on coming to

know of the Deed of Change which was done with a view

to mislead the Registrar, the respondent No.2

approached the Registrar of Firms.

6.4. Mr. Mehta would submit that even in the copy

of the written submissions filed by the petitioners before

the RERA it was the stand of the partnership firm that it

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

had automatically dissolved by operation of law as

envisaged under Section 42(c) of the Act, on account of

the death of one of the two partners. He would therefore

submit that the petitioners themselves have stated

before the RERA that by virtue of the provision of law,

the firm was dissolved. If that be so, there was no

question of reconstitution of partnership under Section

63(1) of the Act. Once one of the two partners had died,

the firm should dissolve in terms of Section 32(c) of the

Act and in such as case, reconstitution is not possible.

6.5. Mr. Mehta would submit that registration

under Section 58 cannot be an application for

reconstitution of a firm.

6.6. Mr. Mehta in support of his submissions

would rely on the following decisions:

(A) S.P. Misra and others v. Mohd Laiquddin Khan and another reported in

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2019(10) SCC, 329.

(B) Mohd. Laiquiddin and another v.

Kamala Devi Misra (DEAD by LRs) and others reported in 2010(2) SCC, 407.

(C) S. Parvathammal v.

Commissioner of Income Tax reported in 1984 SCC Online, Mad, 384 &

(D) Commissioner of Income Tax, M.P., Nagpur and Bhandara, Nagpur v. Seth Govind Ram Sugar Mills reported in AIR 1966, SC, 24.

8. On the question of locus, Mr. Mehta would submit that it

is clear on reading the provisions of Sections 63, 64, 65

and 66 of the Act that a third party had a right to know

the status of a firm from the Registrar and, therefore the

respondents did have locus to file a complaint /

representation before the Registrar of Firms.

9. Having considered the submissions made by the learned

advocates for the respective parties, what needs to be

noted is that initially M/s. Samkit Infracon was registered

under provisions of the Act on 25.03.2016. On

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

12.08.2016, new partners were inducted namely; Mr.

Dhanesh Jain, petitioner No.1 and Mr. Bhadar Mal Jain,

the father of the petitioner No.1. The amendment in the

partnership firm was intimated and approved by the

respondent No.1 on 09.05.2017.

10. On 16.08.2021, Bhadar Mal Jain died. After his death, on

18.09.2021, a deed of change in partnership was

executed. The deed of change is on record. Reading the

deed indicates that on the death of the second partner

on 16.08.2016, Smt. Babita Jain, wife of the petitioner

No.1 was admitted in the firm with the consent of all the

partners.

11. In the submission of the learned counsel for the

petitioners when Section 42(c) is read with Section 63 of

the Partnership Act, subject to the contract between the

parties i.e. in light of deed of change, by the induction of

Babita Jain, the firm was reconstituted u/s.63 of the Act

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recording a change in the constitution of the firm when a

registered firm is dissolved. This in the submission of the

learned counsel for the petitioner would be registration

as envisaged u/s.58 read with Sec.59 of the Act.

12. It would be worthwhile to reproduce Secs.42, 58, 59, 63

of the Act which read as under:

Section 42. Dissolution on the happening of certain contingencies.--

Subject to contract between the partners a firm is dissolved,--

(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) by the death of a partner; and

(d) by the adjudication of a partner as an insolvent.

Section 58: Application for registration.

(1) The registration of a firm may be effected

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at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating,--

(a) the firm name,

(b) the place or principal place of business of the firm,

(c) the names of any other places where the firm carries on business,

(d) the date when each partner joined the firm,

(e) the names in full and permanent addresses of the partners, and

(f) the duration of the firm. The statement shall be signed by all the partners, or by their agents specially authorized in this behalf.

(2) Each person signing the statement shall also verify it in the manner prescribed.

(3) A firm name shall not contain any of the following words, namely:-- "Crown", "Emperor", "Empress", "Empire", "Imperial", "King", "Queen", "Royal", or words expressing or implying the sanction, approval or patronage of 1[Government], except 2[when the State Government] signifies 3[its] consent to the use of such words as part of the firm name by order in writing 4[***]."

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

59. Registration.

When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement.

63. Recording of changes in and dissolution of a firm.

(1) When a change occurs in the constitution of a registered firm any incoming, continuing or outgoing partner, and when a registered firm is dissolved any person who was a partner immediately before the dissolution, or the agent of any such partner or person specially authorized in this behalf, may give notice to the Registrar of such change or dissolution, specifying the date thereof; and the Registrar shall make a record of the notice in the entry relating to the firm in the Register of Firms, and shall file the notice along with the statement relating to the firm filed under section 59.

Recording of withdrawal of a minor.--

(2) When a minor who has been admitted to the benefits of partnership in a firm attains majority and elects to become or not to become a partner, and the firm is then a registered firm, he, or his agent specially authorized in this behalf, may give notice to the Registrar that he has or has not become a partner, and the Registrar shall deal with the notice in the manner provided in sub-section (1).

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

13. Reading Section 42 of the Act indicates that on certain

contingency happening a firm is dissolved. One is on

account of death of a partner. Reconstitution of a firm

under Section 63 can be done in case of a dissolution of

a firm which brings into effect a new partnership firm.

14. In the case of Durga Prasad Sarawagi (Supra), what is

evident is that Section 63 came into play when there

were three partners of the firm which had to be

reconstituted. It was in case of such facts that the

Kolkata High Court held that where a change occurs in

an ongoing partnership, the firm cannot be treated as

dissolved.

15. In the case of S.P. Misra (Supra), the Supreme Court

was considering the issue of dissolution of a partnership

in case there were two partners. The contention on

behalf of the appellant before the Supreme Court was

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that as per the terms of the partnership deed, in the

event, death of either of the party where legal

representatives shall automatically become partners in

the partnership firm was negated. The Supreme Court

found that when there are two partners in the original

partnership even if the partners have agreed that the

partnership firm can continue, on the death of a partner,

the partnership firm stands dissolved by operation of

law. Paras 10 to 18 of the decision read as under:

"10. By referring to the contents of the partnership deed, it is contended by Sri. A. Subba Rao, learned counsel appearing for the appellants that the decree obtained by the predecessor of the appellants is executable and against the respondents, who are the legal representatives of the original partner. The Trial Court as well as the High Court have erroneously held that the decree which has become final, is not executable against the respondents.

11. Learned counsel has placed strong reliance on a judgment of this Court, in the case of Prabhakara Adiga v. Gowri and Others1.

1 (2017) 4 SCC 97

12. On the other hand, it is the contention of Sri. B. Adi Narayana Rao, learned senior

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counsel appearing for the respondents that as there were only two partners and on death of one of the partners, partnership stands dissolved, in view of the provision under Section 42(c) of the Partnership Act, 1932. It is submitted that when the right litigated upon is readable, only in such event, decree can be executed. It is submitted that respondents were not the partners in the partnership deed and if, any clause in the partnership deed which runs contrary to statutory provisions are void, such clauses are against the public policy. It is submitted that when the partnership itself stands dissolved on death of one of the partners, the appellants claiming right under a decree obtained by the original partner, cannot be executed against the respondents.

13. In this case, it is not in dispute that as per the original partnership deed there were only two partners, namely, late Smt. Hashmatunnisa Begum, who is the owner of the land/predecessor of the respondents and late Sri Jai Narayan Misra, who is the predecessor of the appellants herein.

14. From the Suit filed in O.S. No. 580 of 1988, the original plaintiff has obtained a decree on 14.07.1993 from the Trial Court, which granted the reliefs as under:

"1. the defendant and all the persons claiming through the defendant be and that are hereby permanently restrained from carrying the work

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of developing the property and sale thereof in respect of the suit schedule property;

2. the defendant is hereby directed to sign the layout plan and other documents for submitting to the Cantonment Board, Secunderabad for sanction in respect of the suit schedule property;

3. Each party shall bear their own costs."

15. From a perusal of the relief sought for in the Execution Petition, by the legal heirs of the original plaintiff, itself makes it clear that reliefs sought in Execution Petition are going beyond the scope of the decree. It is fairly well- settled that, the Executing Court cannot travel beyond the decree. The only question which fell for consideration before the Trial Court in E.A. No. 6 of 2005, was whether the decree obtained by the predecessor of the appellants, can be executed against the appellants or not. Section 42 of the Partnership Act, 1932, deals with the situations of dissolution of partnership, on happening of certain contingencies. As per the said provision, subject to contract between the partners, a firm is dissolved when:

(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) by the death of a partner; and

(d) by the adjudication of a partner as an insolvent.

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16. In the case on hand, as much as there were only two partners, the partnership itself stand dissolved, in view of death of a partner.

17. It is true that as per the deed of partnership, the partners have agreed, in the event of death of either party, their respective legal representatives shall automatically become partners in the partnership firm and they shall continue to act as partners of the firm, till the venture envisaged under said partnership is completed and such legal representatives who become partners shall have the same rights and shall be subject to same liabilities and responsibilities, as the deceased partner.

18. At this stage, it is to be noticed that once the partnership comes to an end, by virtue of death of one of the partners, there will not be any partnership existing in which legal representatives of late Smt. Hashmatunnisa Begum could be taken in. The judgment and decree obtained by late Sri Jai Narayan Misra against late Smt. Hashmatunnisa Begum, in pursuance of partnership deed dated 14.04.1982, cannot bind the legal representatives of late Smt. Hashmatunnisa Begum, as such, decree is not executable against them. The legal representatives of late Smt. Hashmatunnisa Begum are not the partners of the original partnership deed dated 14.04.1982. When such legal representative are not parties to the contract, such contract cannot confer rights or impose obligations

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arising under it on any third party, except parties to it. No one but the parties to the contract can be entitled under it or born by it. Such principle is known as 'Privity of Contract'. When the partnership stands dissolved by operation of law under Section 42(c) of the Indian Partnership Act, 1932, the question of execution in pursuance of the decree does not arise. There cannot be any contract unilaterally without acceptance and agreement by the legal heirs of the deceased partner. If there are any clauses in the agreement, entered into between the original partners, against the third parties, such clauses will not bind them, such of the clauses in the partnership deed, which run contrary to provisions of Indian Partnership Act, 1932, are void and unenforceable. Such clauses are also opposed to public policy."

16. Even in the case of Mohd Laiquddin Khan (Supra) on

examination of the provisions of the Partnership Act, the

Supreme Court held that a partnership normally

dissolves on the death of a partner. Even when there

was an agreement to the contrary in a partnership

consisting of two partners the partnership automatically

comes to an end as no partnership survives. A new

partnership can come into force subsequently. Relevant

portion of the decision is reproduced hereunder:

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"23. Before we proceed to examine the correctness of this concurrent findings arrived at by the Courts below, it is necessary to examine the relevant provisions of the Partnership Act, 1923 and the relevant clauses of the partnership deed entered between the original plaintiff and the original defendant. "Partnership" is defined under Section 4 of the Act which reads as under:

"Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all"."

21. Section 42 of the Act reads as under:

"Dissolution on the happening of certain contingencies:--Subject to contract between the partners a firm is dissolved-

(a) if constituted for a fixed term, by the expiry of the term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) by the death of a partner; and

(d) by the adjudication of a partner as an insolvent."

25. Dissolution of a partnership firm on account of death of one of the partners is subject to the contract entered into by the

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parties. In this context, it is pertinent to refer to the terms of the deed of partnership. Clause 22 of the Partnership deed reads as follows:

"The partnership shall be in force for a period of 42 years certain from this date and the death of any partner shall not have the effect of dissolving the firm."

This clause clearly states that death of any partner shall not have the effect of dissolving the firm. However, in the facts and circumstances of the case, we are not in a position to give absolute effect to this clause of the deed of partnership.

26. The learned counsel for the Respondents contended that since the parties agreed that in spite of the death of any of the partners, the firm shall continue for 42 years irrespective of the death of the original plaintiff (since deceased). They further, argued that it clearly contemplates that the legal representative of the partner, who dies, would be under a duty to enter into a fresh deed of partnership. The legal representatives were precluded from claiming benefits if they deny entering into a fresh partnership agreement.

27. In order to arrive at the conclusion that the partnership firm stood dissolved on account of death of one of the partners, the High Court had rightly placed reliance on Smt. S. Parvathammal v. CIT (1987 Income Tax Reports 161), wherein this Court held that in a firm consisting of two partners on account of death of one of the partners, the firm automatically dissolved and observed as

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follows:

"A partnership normally dissolves on the death of the partner unless there was an agreement in the original partnership deed. Even assuming that there was such an agreement in a partnership consisting of two partners on the death of one of them the partnership automatically comes to an end and there is no partnership which survives and into which a third party can be introduced. Hence on the death of S, the original partnership was dissolved. The subsequent taking in of the assessee as a partner was only as a result of entering into of a new partnership between R and the assessee. Partnership was not a matter of heritable status but purely one of contract."

28. In the light of aforementioned case, it is clear that when there are only two partners constituting the partnership firm, on the death of one of them, the firm is deemed to be dissolved despite the existence of a clause which says otherwise. A partnership is a contract between the partners. There cannot be any contract unilaterally without the acceptance by the other partner. The Appellants, the legal representatives of original plaintiff (since deceased) was not at all interested in continuing the firm or constitute a fresh firm and they cannot be asked to continue the partnership, as there is no legal obligation upon them to do so as partnership is not a matter of heritable status but purely one of contract, which is also clear from the

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definition of partnership under Section 4. Therefore, the trial court was justified in holding that the firm dissolved by virtue of death of one of the partners and the first appellate court as well as the High Court have taken the correct view in upholding the same."

17. In the case of S. Parvathammal (Supra), the Madras

High Court while considering the decision of the

Supreme Court in the case of Seth Govind Ram Sugar

Mills (Supra) held as under:

"The Supreme Court in CIT v. Seth Govindram Sugar Mills Ltd. [1965] 57 ITR 510 had occasion to consider this very question. A sugar mill was owned by a Hindu undivided family consisting of two branches and after a partition, the two kartas entered into a partnership in 1943 with a view to carry on the business of the sugar mill. The deed of partnership provided that the death of any of the parties shall not dissolve the partnership and that the heir or the nominee of the deceased partner should take his place. One of the two partners died leaving behind him three widows and two minor sons. The other partner continued the business in the firm name and the firm applied for registration on the basis of the partnership agreement of 1943. All the authorities declined registration in the view they took that after the death of one of the partners, there was no partnership

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between the members of the two families, but the High Court was of the opinion that the Tribunal and the other authorities had misdirected themselves in reaching the conclusion that the parties could not be regarded as partners and that the status of the assessee for assessment year 1949-50 was that of a firm within the meaning of section 16(1)(b) of the Indian Income-tax Act, 1922. It was contended before the Supreme Court that on the death of one of the two partners, the firm of Seth Govindram Sugar Mills was dissolved and, therefore, the income of the said business could be assessed only as that of an association of persons. Dealing with this question, after referring to the specific provisions in the deed of partnership, to the effect that the death of any of the parties shall not dissolve the partnership and that the heir or nominee of the deceased partner shall take the place of a deceased partner in the partnership, the Supreme Court referred to the views expressed by the Allahabad High Court in M. T. Sughra v. Babu and in M. S. V.

Narayanan Chettiar v. M. S. M. Umayal Achi, and also the view expressed by the Calcutta High Court in Hansraj Monant v. Gorak Nath Pandey [1962] 66 CWN 262 at p. 264 and repelled the argument that the contract was an overriding one and would be binding on the surviving member, so that on the death of one of the partners, his heir would be automatically inducted into the partnership. In doing so, after referring to section 31 and section 42(c) of the Partnership Act, the Supreme Court observed as follows (at p. 515) :

 C/SCA/22223/2022                               JUDGMENT DATED: 15/12/2022




                   "The       fundamental      principle      of

partnership, therefore, is that the relation of partnership arises out of contract and not out of status. To accept the argument of the learned counsel is to negative the basic principle of the law of partnership. Section 42 can be interpreted without doing violence either to the language used or to the said basic principle. Section 42(c) of the Partnership Act can appropriately be applied to a partnership where there are more than two partners. If one of them dies, the firm is dissolved; but if there is a contract to the contrary, the surviving partners will continue the firm. On the other hand, if one of the two partners of the firm dies, the firm automatically comes to an end and, thereafter, there is no partnership for a third party to be introduced therein and, therefore, there is no scope for applying clause (c) of section 42 to such a situation. It may be that pursuant to the wishes of the directions of the deceased partner, the surviving partner may enter into a new partnership with the heirs of the deceased partner, but that would constitute a new partnership. In this light, section 31 of the partnership Act falls in line with section 42 thereof. That section only recognizes the validity of a contract between the partners to introduce a third party without the consent of all the existing partners : it presupposes the subsistence of a partnership; it does not apply to a partnership of two partners which is dissolved by the death of one of

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

them, for, in that event, there is no partnership at all for any new partner to be inducted into it without the consent of others."

18. What is therefore evident from the law as laid out in the

decisions hereinabove is partnership u/s.4 of the Act is

the relation between persons who have agreed to share

the profits of a business. The fundamental principle of

the partnership, therefore, is that the relation of

partnership arises out of a contract. Reconstitution of a

firm under Section 63 of the Act comes in when there is

a change in the partnership as a result of induction of a

new partner. Registration u/s.58 is that of a partnership

firm at the first instance. Section 42(c) of the Act can be

applied to a partnership and in case when there are two

partners on the death of a partner, the firm automatically

comes to an end as there is no partnership for a third

party introduced and it is only when there are more than

two partners and there is a contract to continue the firm

pursuant to the wishes of the surviving partner that a

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

new partnership can be entered into. The concept of

Section 63 will not apply to a partnership of two partners

which is dissolved by the death of one of them. In that

event there is no partnership at all for any new partner to

be inducted. This is also set out in paragraph 7 of the

decision in the case of Seth Govind Ram Sugar Mills

(Supra).

19. Applying the same to the facts of this case it is evident

that once Shri Bhadar Mal Jain died on 16.08.2021 and

when there were only two partners namely the petitioner

No.1 and the deceased, by operation of law, the

partnership firm stood dissolved. No application could be

made under the deed of change of partnership on

18.09.2021 by a partnership firm which did not exist and

a contract for bringing in Babita Jain as a successive

partner was no contract between the partnership firm

which did not exist on the death of one of the two

partners.

C/SCA/22223/2022 JUDGMENT DATED: 15/12/2022

20. The respondent No.2 has litigations against the

partnership firm as it then existed. A Civil Suit has also

been filed by the erstwhile partnership firm against the

respondent No.2 for cancellation of the sale deed. The

respondent No.2 would therefore even have locus to

have approached the Registrar of Firms.

21. For all the aforesaid reasons, the order dated

05.09.2022 passed by respondent No.1 stands

confirmed. The petition is dismissed. Interim Relief

granted on 10.11.2022 by this Court stands vacated

forthwith. Rule is discharged. No order as to costs.

FURTHER ORDER

22. While passing the above order, learned counsel for the

petitioners requested to stay this order for two weeks.

However, such request is acceded for one week only.

Sd/-

(BIREN VAISHNAV, J) VATSAL