AFA No.14 of 1997

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MRS. JUSTICE ANU SIVARAMAN** **MONDAY, THE 29TH DAY OF AUGUST 2016/7TH BHADRA, 1938** **AFA.No. 14 of 1997 ( ) -----------------------** **AGAINST THE ORDER/JUDGMENT IN AS 220/1989 of HIGH COURT OF KERALA DATED 08-10-1996** **AGAINST THE ORDER/JUDGMENT IN OS 75/1985 of I ADDL.SUB COURT, KOZHIKODE DATED 30-09-1988** **APPELLANT(S):/APPELLANTS 2 TO 9 IN A.S./DEFENDANTS 2 TO 4 & LRS. OF DEFENDANT NO.1 IN THE SUIT.** **----------------------** **1. S.S.KRISHNA RAO, S/O.SUBBA RAO, SWARGA MADAM, SAMOOHAM ROAD, KOZHIKODE.** **2. S.S.VASUDEVA RAO, S/O.S.V.SUBBA RAO, RESIDING IN ROOM NO.1, FIRST FLOOR, RAMA RAO SADAN, BAGATHGALLI MAHIM, BOMBAY - 16.** **3. R.JAYADEVA RAO, S/O.S.S.RAMA RAO, (DIED) SWARGA MADAM, SAMOOHAM ROAD, KOZHIKODE.** ***4. VIMALA RAMA RAO, W/O.LATE S.S.RAMA RAO, (RECORDED) IN -DO-DO-.** **5. JAYANTHI V.RAO, D/O.--DO-- IN --DO--, REPRESENTED BY HER POWER OF ATTORNEY HOLDER, NO.6, GIRIDHAR RAO, IN --DO--.** **6. GIRIDHAR RAO, SON OF --DO-- IN --DO-- --DO--. 7. RAJ KUMAR RAO, S/O. -DO- IN -DO- -DO-. 8. NARAYANA RAO, S/O.-DO- IN -DO- -DO-.** ***ADDL.APPELLANT NO.9 KUMUDA J.RAO, W/O.LATE R.JAYADEVA RAO, IN -DO-DO-.** ***ADDL.APPELLANT NO.10 MINOR ANIL KUMAR J.RAO, S/O.-DO-, AGED 15, IN -DO-.** **AFA 14/1997** ***ADDL.APPELLANT NO.11 MINOR ANITHA J.RAO, D/O.-DO-, AGED 9, IN -DO- -DO-.** **(MINORS - ADDL.APPELLANT NOS.10 & 11 - ARE REPRESENTED BY THEIR GUARDIAN MOTHER - ADDL.APPELLANT NO.9)** ***(ADDITIONAL APPELLANT NOS.9 TO 11 ARE IMPLEADED AS LEGAL REPRESENTATIVES OF THE DECEASED APPELLANT NO.3. APPELLANT NO.4 IS ALSO RECORDED AS THE LEGAL REPRESENTATIVE OF THE DECEASED APPELLANT NO.3)** **BY ADVS.SRI.S.V.BALAKRISHNA IYER (SR.) SRI.P.B.KRISHNAN SRI.K.JAYAKUMAR** ## **RESPONDENT(S):/RESPONDENTS/PLAINTIFFS** **--------------** **1. SUSHEELA KRISHNA PAI, W/O.LATE KRISHNA PAI, HOUSE NO.18/431, SAMOOHAM ROAD, KASABA AMSOM, KOZHIKODE.** **2. NANDAKESH PAI, S/O.KRISHNA PAI, IN --DO--.** **3. RITA PAI, D/O. -DO- IN -DO- -DO-.** ## **BY ADV. SRI.K.M.JAMALUDHEEN BY ADV. SRI.THOMAS ANTONY KALLAMPALLY** **THIS APPEAL FROM FIRST APPEAL HAVING COME UP FOR ADMISSION ON 29-08-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** jg-17/11 “CR” ## THOTTATHIL B.RADHAKRISHNAN & ANU SIVARAMAN, JJ. .................................................................... AFA No.14 of 1997 .................................................................... Dated this the 29[th] day of August, 2016. ## J U D G M E N T ## Thottathil B.Radhakrishnan, J. - 1.Heard the learned counsel for the appellants and the learned counsel for the respondents. - 2.The defendants in a suit for realization of money are the appellants. The suit was decreed. First appeal by the defendants was dismissed. Hence, this appeal is filed against the judgment in the first appeal. - 3.The substance of the plaint claim is based on a particular claim as to the goodwill of a partnership firm of which Ext.B1 is the deed of partnership. The partners thereunder are the appealing defendants and late Krishna Pai, the predecessor-in-interest of the plaintiffs. The business of the firm was being carried on under Ext.B1 deed dated 27.12.1974. Krishna Pai died on AFA14/97 -2- 03.05.1982. The surviving partners carried on the business under a reconstituted partnership deed dated 04.05.1982. The rights of late Krishna Pai devolved on the plaintiffs. Resultantly, on 02.06.1982, Ext.A1 was entered into between the defendants who are the partners of the reconstituted firm and the plaintiffs who are the legal representatives of late Krishna Pai. Thereafter, the Assistant Controller of Estate Duty issued order dated 04.01.1984 assessing the estate duty due on account of the estate of deceased Krishna Pai. In doing so, the assessing authority for estate duty included a component towards the share of goodwill of the firm, and the share of deceased Krishna Pai was fixed at `70,221/-. The suit was thereafter filed by the legal representatives of Krishna Pai claiming that they are entitled to the said amount of `70,221/- as share of goodwill, as a consequence of parting with the rights of Ext.B1 partnership firm. This is the plaint claim. 4.The defendants contended, among other things, that the suit as AFA14/97 -3- laid is not maintainable and after Ext.A1, nothing survives to enable the plaintiffs to make any claim and Ext.A1 as between the parties is a full and final settlement of all rights and liabilities and relinquishment of any future claims inter se the parties. It is also their contention that Ext.A1 also takes specific care of the liability to income tax, estate duty etc. referable to late Krishna Pai as payable by his heirs and that other parties, who are defendants, shall not be liable. - 5.It is worthwhile to note at this point of time that the assessment of the component referable to estate duty by the Assistant Controller of Estate Duty and the inclusion of `70,221/- as 25% share of the deceased Krishna Pai no more survives in view of the appellate decision by the Controller of Estate Duty (Appeals) issued on 28.03.1988, which is Ext.A33. - 6.Learned counsel for the appealing defendants argued, pointedly, that Ext.A1 is a concluded contract between the parties in the AFA14/97 -4- nature of final settlement of all claims as between the defendants and the legal representatives of late Krishna Pai and there is no provision in the agreement regarding any further issues being raised, including any amount towards the share of goodwill. It is also pointed that the claim for the share of goodwill is made solely on the basis of the assessment order relating to estate duty and that can never become the foundation of the cause of action to raise a claim on the basis of the contract between the parties in such transactions. He also argued that Ext.A1 not having been impeached even in the suit and not having been claimed to exclude Ext.A1 and adjudicate on rights of parties independently, the suit itself would not lie. He further argued that there is absolutely no material on record to indicate that the share of goodwill was intended to be treated as available for partition or accounting. - 7.Per contra, the learned counsel for the respondents/plaintiffs argued that the facts appear to be clear that it was only after the AFA14/97 -5- receipt of Ext.A3 proceedings, the plaintiffs, who are the legal representatives of late Krishna Pai, knew about their eligibility to claim the share of goodwill and it cannot be said that Ext.A1 has become final, having regard to the contents of Ext.A2 whereby the defendants had notified the plaintiffs of certain further adjustments of amounts drawn by late Krishna Pai during his life time for payment of insurance premium in his personal name. Ext.A2, according to the learned counsel for the plaintiffs, is an indicator that Ext.A1 cannot be treated as final in such a manner as to exclude any further adjudication. He further argued that the plaintiffs would have been under continued bereavement and it would be impermissible to hold that Ext.A1 should be treated as final between the parties. A reading of the plaint and the evidence in the case would clearly show that what is claimed is share of goodwill of the firm, which was governed by Ext.B1 deed. - 8.Goodwill is an asset of the business and it is generated as the business is carried on and may be augmented with the passage of AFA14/97 -6- time. Goodwill of a business depends upon a fallout of circumstances or a combination of them. The goodwill denotes the benefit arising from connection and reputation. It is a property of a highly peculiar kind. A variety of elements goes to its making, and its composition varies in different trades and in different business in the same trade, and while one element may preponderate in one business, another may dominate in another business. Yet, because of its intangible nature, it remains insubstantial in form and nebulous in character. See for support the decisions in C.I.T., Bangalore v. B.C.Srinivasa Setty [AIR 1981 SC 972] and in M/s.S.C.Cambatta and Co. Pvt. Ltd. v. Commissioner of Excess and Profits Tax, Bombay [AIR 1961 SC 1010]. 9.The varied facts and particulars that may be relevant to assess as to what is goodwill as enunciated by different authors through various precedents of the courts in India as well as English courts, would clearly show that the availability of something that can be AFA14/97 -7- assessed as goodwill and the quantification of goodwill for the purpose of partition being made between the partners at the time of separation of their rights or dissolution of partnership or reconstitution of the partnership are primarily questions of fact and when such commercial determination is made, there would be no room for merely depending upon assessment orders passed by authorities dealing with estate duty assessment, since they operate primarily on presumptive premise for the purpose of determination of estate duty. We say this here and now because the question whether a component was due as goodwill or part of goodwill is something which has to be taken as available for consideration while Ext.A1 settlement was entered into on 02.06.1982. Going by the manner in which the document is made and executed with support of legal assistance, it can be seen that all issues relevant as between the legal representatives of the deceased partner and the surviving partners have been considered and dealt with. We say this because Ext.A1 shows that all accounts between the parties have been settled and allocations AFA14/97 -8- have been made. The heirs of the deceased partner Krishna Pai had declared that they do not have any further claim against the other partners individually or against the firm in the matter of settlement of amounts of late Krishna Pai. That, in our view, is credible enough to conclude all issues. That position notwithstanding, clause 9 deals with income tax and estate duty liability of late Krishna Pai, and the heirs of late Krishna Pai had taken the responsibility by saying that other partners of the firm will not be liable. Merely because a provision of payment of pension and certain other provisions have been made in favour of the heirs of late Krishna Pai by the other surviving partners who have re-constituted the partnership firm, they do not in any manner impair the clear and concluded terms of Ext.A1. Ext.A2 only shows that there were certain personal withdrawals by Krishna Pai towards payment of his insurance premium. That amount was also reconciled. As already noted, the appellate authority had issued Ext.A33 taking care of the liability of the heirs of Krishna Pai for the amount covered by Ext.A3 assessment AFA14/97 -9- order of estate duty, insofar as it relates to the so-called share in the goodwill. This way also, it can be seen that there is no reason for the plaintiffs to be aggrieved merely on the strength of the claim raised by the authorities dealing with estate duty assessment. 10.Learned counsel for the respondents/plaintiffs argued that Ext.A1 was made during the bereavement of the family of Krishna Pai. As noted, Krishna Pai died on 03.05.1982. The firm was being carried on by the defendants by deed dated 04.05.1982. It is thereafter on 02.06.1982 that Ext.A1 was entered into between the parties. That obviously was done after negotiations with the assistance of a legal person or a chartered accountant. Therefore, we are not persuaded to take the view that Ext.A1 should not be relied on. That position notwithstanding, Ext.A1 has not been impeached by the plaintiffs before the trial court and no relief was sought to be granted by excluding or ignoring the terms of Ext.A1. Hence, we are of the view that the plaint claim does not AFA14/97 -10- stand. 11.For the aforesaid reasons, the appeal succeeds. In the result, the impugned judgment of the learned single Judge and the decree and judgment granted by the trial court are set aside and the suit O.S.No.75 of 1985 on the file of Sub Court, Kozhikode is dismissed. No costs. (THOTTATHIL B.RADHAKRISHNAN, JUDGE) (ANU SIVARAMAN, JUDGE) jg-29/8