K.A. George v. K.J. Varghese

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE S.S.SATHEESACHANDRAN FRIDAY, THE 15TH DAY OF NOVEMBER 2013/24TH KARTHIKA, 1935 FAO (RO).No. 319 of 2013 () ---------------------------- AGAINST THE ORDER/JUDGMENT IN AS 62/2010 of DISTRICT COURT, ALAPPUZHA AGAINST THE ORDER/JUDGMENT IN OS 118/1990 of SUB COURT,ALAPPUZHA APPELLANT(S)/RESPONDENT/DEFENDANT: ------------------------------------------------------------------ K.A.GEORGE AGED 67 YEARS SON OF AUGUSTINE, KANNIYIL CHIRAYIL, ZILLA COURT WARD ALAPPUZHA - 688 013. BY ADVS.SRI.R.AZAD BABU SMT.SMITHA PILLAI RESPONDENT(S)/APPELLANT/PLAINTIFF: -------------------------------------------------------------------- K.J.VARGHESE, AGED 68 YEARS SON OF JOSEPH, CHETTUKUNNEL, ZILLA COURT WARD OPP: KSRTC BUS STAND, ALAPPUZHA - 688 013. R1 BY ADV. SMT.K.M.MARY SHEEJA THIS FIRST APPEAL FROM ORDER - REMAND ORDER HAVING BEEN FINALLY HEARD ON 11-11-2013, THE COURT ON 15-11-2013 DELIVERED THE FOLLOWING: ## **S.S.SATHEESACHANDRAN,J.** ## **==========================** ## **F.A.O.(R.O) No. 319** ## **of 2013** ## **===========================** ## **Dated, this the 15th day of November, 2013,** ## **JUDGMENT** Defendant is the appellant. Suit was for dissolution of a partnership and settlement of accounts. 2. Preliminary decree passed in the suit declared that the plaintiff and defendant are entitled to equal share in the firm which stood dissolved with effect from 19.1.1989. 3. Final decree was later passed in the suit accepting the Commissioner's report determining the assets of the firm including its landed property at the market value on the date of dissolution of the firm with direction to defendant to deposit one half of the value F.A.O.(R.O.)319/2013 2 so fixed. That decree was challenged by plaintiff in appeal. Learned District Judge set aside the final decree and remitted the case with observations that if landed property of the firm is found not divisible equally for allotment to the parties, then, it has to be sold by public auction. The Order of remand so passed is challenged by the defendant. 4. I heard the counsel on both sides. Solely on the basis of the oral submission made by counsel for plaintiff (appellant) that the landed property of firm would fetch Rs.35 lakhs questioning the value fixed by the Advocate Commissioner in the final decree proceedings, to which no objection was filed by both parties, learned District Judge set aside the final decree and remitted the case with some observations directing for sale of the landed property of firm through public auction, submits the learned counsel for appellant-defendant. Relying on **N.Muhammad Ussain Sahib and another v. S.N.Abdul Gaffoor Sahib and others (AIR 1950 Mad** F.A.O.(R.O.)319/2013 3 **758)** learned counsel for appellant submits that assets of the firm have to be valued at the market value on the date of dissolution and that was so done by the advocate commissioner deputed by the court in the final decree proceedings. The decision rendered by the Madras High Court in Muhammad Ussain Sahib's case referred to above has been approved by this court in **Popular Automobiles** **v. Commissioner of Income Tax (1989)179 ITR 632** **Ker)** is the further submission of counsel to contend that there was no illegality or impropriety in the final decree passed by the trial court accepting the valuation of the landed property on its market value on the date of dissolution of the firm by the advocate commissioner deputed in the proceedings. Learned District Judge was not justified in interfering with that final decree and directing the sale of landed property of the firm by public auction on the oral submission made by counsel for the plaintiff at the time of hearing of the appeal is the further submission of counsel. F.A.O.(R.O.)319/2013 4 At any rate there is no justification in the observation made for sale of the property by public auction as that can be resorted to only if the property is found not divisible among the parties, according to counsel. The landed property of the firm comprising two sheds can be conveniently divided into two parts for allotment a plot each to the parties, is the further submission of counsel to vacate the direction given by District Judge for sale of the property through public auction. 5. Before the lower appellate court counsel for the plaintiff offering to pay price of Rs.35 lakhs for the landed property of the firm situated in the heart of Alappuzha town assailed the value fixed by Commissioner at Rs.1,41,750/- and final decree passed by the court on that basis awarding one half of that amount Rs.70,875/- to plaintiff. Land value was fixed over the property of the firm by the commissioner at the market value on the date of dissolution of the firm F.A.O.(R.O.)319/2013 5 i.e.19.1.1989. When accounts of the firm are directed to be settled the defendant need pay the plaintiff only the amount so fixed towards his share is the case of appellant defendant. I do not find any merit in the submission made by the counsel for the appellant relying on the decision referred to above. In **Popular Automobiles case** which arose on a reference made by the Income tax Appellate Tribunal this court held that on the dissolution of the firm the stock should be valued with reference to the market value and not on the book value. View expressed by this court as aforesaid in a previous case **Popular Workshops v.** **Commissioner of Income tax (1987) 166 ITR 348(Ker)** was sought to be impeached as not correct placing reliance on **Muhammad Ussain Sahib's case (supra)** rendered by the Madras High Court. After quoting the headnote of that decision this court has held thus:- **==> picture [268 x 43] intentionally omitted <==** F.A.O.(R.O.)319/2013 6 of calculating the profits to be divided among the partners, so long as the firm is unchanged. But it will not be so for the purpose of calculating the total amount to be paid to a partner on his expulsion from the firm or on dissolution of the firm, unless there is an agreement to the contrary. An agreement, express or implied, with reference to the taking of accounts, has been held to be applicable only to the case of a continuing partnership and not when the firm is finally dissolved or one of the partners retired.” There is no merit in the submission of the counsel for appellant that in Popular Automobiles' case F.A.O.(R.O.)319/2013 7 this court has accepted and followed the proposition laid down in Muhammad Ussain Sahib's case, but, on the contrary it was held that proposition is incorrect. 6. Partnership firm is not a distinct legal entity, and the partnership property in law belongs to all the partners constituting the firm. The firm has no separate rights of its own in the partnership assets, and all the partners have joint and common interest in the assets. Upon dissolution, the rights of the firm in the partnership assets are not extinguished. The distribution, division or allotment of assets to the partners, which flows upon dissolution after discharge of liabilities, is nothing but a mutual adjustment of rights between the partners. It is not correct to say that the distribution of assets effected by a deed takes place eo instanti with the dissolution or that it is effected by the dissolved firm. Upon dissolution, the firm ceases to exist. The distribution, division or allotment F.A.O.(R.O.)319/2013 8 of assets to the erstwhile partners is not done by the dissolved firm. Dissolution of the firm is anterior to the actual distribution, division or allotment of assets which takes place only after taking accounts and discharging the debts and liabilities. So only when accounts are taken what is the share due to the partners in the assets of the erstwhile firm can be determined and that cannot depend upon the market value as on the date of dissolution of firm. 7. In the suit defendant had questioned even the existence of the firm and the status of plaintiff as a partner of firm to seek its dissolution and settlement of accounts. Preliminary decree passed in favour of the plaintiff was challenged in appeal and second appeal by the defendant, but of no avail. Even on the principles of equity there can be no justification or merit in the case canvassed by the defendant that he is liable to settle the accounts to the plaintiff over the assets of the F.A.O.(R.O.)319/2013 9 firm at the market value on the date of dissolution of the firm. Fixation made by the Commissioner over the land value of the firm having an extent of 4.05 cents, fixing centage value at Rs.35,000/-, was grossly inadequate and unacceptable, is evidently established when plaintiff has offered to take the property for a value of Rs.35 lakhs. Whatever be the basis for valuation followed by the Commissioner the offer made would show that the assessment of the Commissioner is totally unjustified. When that be so, whether or not parties raised objection to the report and assessment the court can interfere and pass appropriate orders for equal division of the assets of the dissolved firm to the parties. 8. District Judge while setting aside the final decree passed by the Sub Judge and remitting the case in appeal has only directed for fresh disposal taking note of the observations made in his judgment. He has not directed that the property of the firm has to be sold by public F.A.O.(R.O.)319/2013 10 auction but only that such a course has to be followed if the property is found to be indivisible for allotment to the parties. So much so, on remission of the case it is open to the defendant to ask for division and allotment of one half of the property if it is so feasible and thus avoid sale through public auction. However if such division of the property in two halves and allotment to parties is not possible, there can be no objection for sale of the property through public auction in which parties can also participate, to get maximum price for the land. Appeal is devoid of any merit, and it is dismissed. ## **S.S.SATHEESACHANDRAN JUDGE** tpl/- F.A.O.(R.O.)319/2013 11 ----------------------A.S.No.893 of 1996 & CROSS OBJECTION ----------------------- ## JUDGMENT 3[rd] October,2013