Viswanathan and Lathika Bai (through LRs) v. Subramanian

## **C.R.** ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE A.HARIPRASAD** **THURSDAY ,THE 30TH DAY OF AUGUST 2018 / 8TH BHADRA, 1940** **AS.No. 597 of 2001** **AGAINST THE DECREE AND JUDGMENT DATED 31-05-2001 IN OS NO.789/1995 of II ADDITIONAL SUB COURT,THRISSUR** **APPELLANTS(DEFENDANTS)** ***1 VISWANATHAN, S/O.MANJARAMBATH APPU, THOYAKKAVU VILLAGE AND DESOM,CHAVAKKAD TALUK.** **(DIED. LR'S IMPLEADED)** **2 LATHIKA BAI @ LATHIKA DEVI W/O MANJARAMBATH VISWANATHAN,DO.DO.** **ADDL.A3 IMPLEADED** ***IT IS RECOREDED THAT, '2ND APPELLANT IS THE LR OF THE DECEASED 1ST APPELLANT' AND** **ADDL A3 INDULEKHA** **D/O LATE VISWANATHAN, MANJARAMBATH THOYAKKAVU VILLAGE AND DESOM, CHAVAKKAD, THRISSUR.** **ADDL.A3 IS IMPLEADED AS PER ORDER DATED 3.12.14 IN IA 1115/13.** **A2 & A3 BY ADV.SRI. P.R. VENKETESH A2 BY ADV.SMT. MAITHRI SRIKANT** AS No.597/2001 2 ## **RESPONDENT(PLAINTIFF)** **SUBRAMANIAN S/O.MANJARAMBATH APPU, THOYAKKAVU VILLAGE AND DESOM, CHAVAKKAD TALUK, NOW RESIDING AT CHERAYI VILLAGE AND DESOM, PARAVUR TALUK.** **BY ADVS.SRI.T.P.VRGHESE SRI.PHILIP. T.VARGHESE.** **THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 30.07.2018, THE COURT ON 30.08.2018 DELIVERED THE FOLLOWING:** ## **JUDGMENT** Defendants in a suit for dissolution of a partnership and rendition of accounts are the appellants. Sole plaintiff is the respondent. 2. 1[st] appellant and the respondent are siblings, the respondent being the elder brother. Respondent was employed in Dubai from 1975 onwards. 1[st] appellant was jobless at that time. Respondent returned to India in December, 1980 and in order to have a steady income and also to accommodate the 1[st] appellant, both of them entered into an oral partnership agreement for conducting a business in dealing with cement, paint and other hardware items. Respondent invested the capital to a tune of `1,95,000/-. “Fancy Hard Wares” is the name given to the firm. Respondent, apart from investing money, had sent a bajaj scooter worth `16,000/- to the 1[st] AS No.597/2001 3 appellant for the use of the partnership business. 1[st] appellant was acting as managing partner of the firm. The firm was making a substantial profit. It is the allegation in the plaint that from out of the profits generated by the firm, the 1[st] appellant purchased a motor car worth `3,00,000/- and also landed property, admeasuring 29.5 cents in the joint names of the appellants. 1[st] appellant constructed a house in the property spending a huge sum. In 1990, the respondent returned to India for good. Respondent contended that he had participated in the business during 1991-92. Thereafter the 1[st] appellant did not allow the respondent to take part in the business. He failed to account for the income from the business. Hence the suit is filed. 3. 2[nd] appellant was impleaded in the suit based on the contention raised by the 1[st] appellant. Both of them contended that the suit is not maintainable. According to the 1[st] appellant, the firm by name “Fancy Hard Wares” had been dissolved and its accounts were settled. It is the definite case of the 1[st] appellant that the partnership is not in existence since 31.03.1995. “Nalanda Hard Wares” is a business exclusively belonging to the 2[nd] appellant. There is no connection between Nalanda Hard Wares and Fancy Hard Wares. Nalanda Hard Wares has sales tax registration and also the required licences for conducting business. Allegation in the plaint that the respondent had AS No.597/2001 4 invested `1,95,000/- in Fancy Hard Wares is denied. No scooter was acquired by the partnership firm. The car, scooter and immovable properties mentioned in the plaint were purchased by utilizing the funds belonging to the appellants. Money was raised by selling gold ornaments belonging to the 2[nd] appellant and also by availing a loan. 1[st] appellant is doing business in cement in a building in his own name. 1[st] appellant was employed in Bangalore during 1977-80 and he had invested `25,000/- in the firm. According to him, the respondent had invested an amount of `50,000/-. No deed of formation of the firm was executed and it was not registered under the provisions of the Indian Partnership Act, 1932 (in short, "the Act"). It is the definite case of the appellants that after the firm was dissolved on 31.03.1995 and accounts were taken, share due to the plaintiff was given on 01.04.1995. Hence the suit is a misconceived action. 4. 2[nd] appellant filed a written statement contending that she had no connection with Fancy Hard Wares. Nalanda Hard Wares belonged to her exclusively. 5. Before the court below, two witnesses testified on the side of the plaintiff and one on the side of the defendants. Exts.A1 to A4 and B1 to B4 are the documents produced by the parties. Ext.C1 is the commissioner's report. Ext.X1 series are the documents produced by AS No.597/2001 5 a witness on summons. 6. Heard the learned counsel for the appellants and respondent. 7. It is strenuously contended by the learned counsel for the appellants that the court below traversed beyond the reliefs sought for in the plaint. Trial court went wrong in granting dissolution of a partnership by name, Nalanda Hard Wares, which has no connection with the firm, Fancy Hard Wares. It is further contended that the court below should have found that the entire burden is on the respondent to show that the car, scooter and immovable property belonged to the firm. It is the case that the 2[nd] defendant is an unnecessary party to the litigation and properties jointly belonging to the appellants could not have been subjected to an adjudication in a suit of this nature. In the absence of any evidence to show that the immovable property belonging to the appellants was purchased by utilisting funds of the firm and also that the building was constructed by using firm's money, the decree granted is legally unsustainable. 8. Per contra, learned counsel for the respondent contended that the appellants have no other means of income and therefore it can only be presumed that the immovable property and building thereon were acquired by them by siphoning off the funds belonging to the firm. AS No.597/2001 6 9. After hearing the learned counsel on both sides and considering the pleadings and evidence, I am of the view that the suit itself is not in a proper form. I shall state the legal reasons therefor hereunder. 10. Before delving into the evidence, I shall mention the legal provisions relevant for adjudicating the case. Fact that there was a partnership between the 1[st] appellant and respondent is not disputed. Further fact that its name was Fancy Hard Wares is also not disputed. Regarding contribution of capital of the firm, there is a dispute. Respondent would contend that he had invested `1,95,000/- in cash and the 1[st] appellant had no means to invest any amount, still he was asked to manage the business as managing partner. Whereas the 1[st] appellant would contend that the respondent had invested `50,000/and he had invested `25,000/-. It is the definite case of the 1[st] appellant that the firm by name Fancy Hard Wares had been dissolved on 31.03.1995. Further more, the accounts had been settled as on 01.04.1995 and therefore the reliefs claimed in the suit have become infructuous. Definite case of the appellants is that Nalanda Hard Wares is a proprietary concern belonging to the 2[nd] appellant and it can never be treated as continuation of the dissolved firm, Fancy Hard Wares. AS No.597/2001 7 11. In the above context, it has become necessary to understand the expression “property of the firm”. Section 14 of the Act defines the term in the following words: _“_ _**The Property of the Firm** .-Subject to contract between the parties, the property of the firm includes all properties and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise by or for the firm, or for the purposes, and in the course of the business of the firm, and includes all the goodwill of the business.”_ On a reading of the Section, it will be clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of business, it becomes the property of the firm. What a partner is entitled to is his share of profits, if any, accruing to the partnership from realisation of this property. Upon dissolution of the partnership, each partner is entitled to a share in the money representing value of the property. 12. This principle has been lucidly mentioned in **Narayanappa v. Bhaskara Krishnappa (AIR 1966 SC 1300)** . I shall quote the AS No.597/2001 8 ## relevant portion: _“From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm_ AS No.597/2001 9 _to a share in the assets of the firm which remain after_ _satisfying the liabilities set out in Cl.(a) and sub-Cls._ _(i), (ii) and (iii) of Cl.(b) of S.48. ..”_ It is settled law that a property can be thrown into the partnership stock without any formal document. In that case, the said property would become the property of the firm. 13. Another important aspect discernible from the above Section is that the property belonging to a person, in the absence of an agreement to the contrary, does not become the property of the partnership merely because it is used for business of the partnership. In otherwords, it would become a property of the partnership only if there is an agreement, express or implied, that the property under the agreement of the partnership is to be treated as property of the partnership. For a property to become the property of the firm, it must have been brought into by the partners to the stock of the firm originally when the partnership was formed or by subsequently acquired by purchase or otherwise by or for the firm, in the course of business of the firm. 14. Although a partnership is an association of persons, every partner can have his own separate existence apart from the firm. Any right which a partner has over any property other than the partnership AS No.597/2001 10 property, would remain as his individual asset. In otherwords, a mere fact that a particular person has chosen to include himself as a partner in a firm will not result in incorporation of all his individual properties as assets of the partnership (see **Shashi Kapila v.R.P.Ashwin (AIR 2002 SC 101** ). 15. It has been held in many decisions that for a property to become the property of the firm, it must have been brought into the stock of the firm. Property belonging to a partner as his personal property, in the absence of any agreement, does not _ipso facto_ become the property of the partnership, even if it is used for business of the partnership. 16. With these understanding of law, I will move on to the procedural aspects for filing a suit for dissolution of a firm and rendition of accounts. Order XXX of the Code of Civil Procedure, 1908 (in short, “Code”) deals with the suits by or against firms. None of the provisions in this Order would show that a suit for dissolution of a firm simpliciter, envisaged in Chapter VI of the Act, can be filed between partners and strangers. This is specifically stated for the reason that nowhere in the plaint, instituted by the respondent, it can be seen that the 2[nd] appellant was ever a partner of the firm, Fancy Hard Wares. Stated differently, the respondent has not made any assertion that the 2[nd] appellant was AS No.597/2001 11 having any interest in the firm at any point of time. 17. It is therefore clear that a suit for dissolution of a firm and for rendition of accounts can be fought between partners only and not with partners and strangers. In Appendix A to the Code, various forms of pleadings have been set out and form No.49 is relevant in a suit for dissolution of firm and rendition of accounts. This also does not show any reason to implead a stranger and seek a relief against him in a suit of this nature. For the above reasons, I find that the suit is not in a proper form. 18. Yet another reason to find that the suit is not in proper form is invocation of the concept called mis-joinder of parties, enshrined in Order I Rule 9 of the Code, and mis-joinder of causes of action, dealt with in Order II Rules 3 and 7 of the Code. It is pertinent to note, in the written statement filed by the appellants, they have specifically contended that the suit in the form in which it was brought is not maintainable. It is also contended that the relief of dissolution of firm, in which the 2[nd] appellant is not a partner, and rendition of accounts cannot be instituted without seeking any relief in respect of the properties jointly owned by the appellants. Appellants have a definite case that the schedule of properties, showing the immovable property having an extent of 29.5 cents in the joint names of the appellants, AS No.597/2001 12 scooter bearing No.KRH 5097 and car bearing No.KL8-D-1695, have not been shown in the plaint. Additional paragraph 4(a) had been incorporated by amending the plaint, stating that the 2[nd] appellant should be impleaded as the 1[st] appellant had transferred the assets of the firm Fancy Hard Wares to Nalanda Hard Wares. In the light of these pleadings, it became imperative that there should have been a prayer in the plaint sufficient enough to bring the properties, allegedly belonging to the firm, to the common hotchpot of the partners. In otherwords, without a prayer for recovery of property from the possession of 2[nd] appellant by raising appropriate challenge against the document in the joint names of the appellants, no relief of dissolution of partnership and rendition of accounts could have been claimed. It is interesting to note that none of the properties said to be belonging to the firm was specifically shown in the schedule to the plaint. In this view of the matter also, the suit is not maintainable in the present form. 19. Coming to the oral and documentary evidence, it can be seen that for sometime Fancy Hard Wares was functioning as a partnership business. PW1 asserted in chief examination that the immovable property in the joint names of the appellants, car and scooter were purchased from out of the partnership funds. It is his AS No.597/2001 13 definite case that on 01.04.1995 no account was settled between the partners. 20. During cross-examination PW1 was forced to admit that the scooter, said to have been purchased for the purpose of the firm, was given as a gift to the 1[st] appellant. Ext.A2 document would show that PW1 purchased the scooter from abroad and transshipped the same in the name of the 1[st] appellant. Ext.A2 does not show that the scooter was intended to be used as a property of the firm. Evaluation of PW1’s evidence show that he could not produce any material to establish that the immovable property was purchased in the joint names of the appellants by using firm’s funds. DW1 has a case that the properties were purchased by availing a loan from a bank and selling 2[nd] appellant’s gold ornaments. The statement by DW1 that scooter mentioned in Ext.A2 was purchased by him appears to be an untrue version. However, for that reason alone, case of the appellants cannot be thrown out. Ext.X1 series documents would show that there was sales tax registration for the firm, Fancy Hard Wares from 1983-84 to 1994-95. No document could be produced by the respondent to show that after 01.04.1995 the firm continued its business. Similarly, there is no material produced to show that Nalanda Hard Wares is a continuation of Fancy Hard Wares. It may be true that the contentions AS No.597/2001 14 raised by the 1[st] appellant that he had invested amount in the business and that he had purchased the scooter out of his own funds had gone unestablished. However, that will not help the respondent to claim dissolution of a firm, which is said to have been dissolved on 01.04.1995, and rendition of accounts without proving continuation of the partnership. Besides, he cannot reach up to the immovable property jointly owned by the appellants in the light of the legal principles mentioned above. 21. Respondent/plaintiff’s case that a motor car was purchased in the name of the 1[st] appellant for smooth functioning of the firm’s business has also not been established by producing any document. Court below was carried away by the utterances of DW1 which were found to be false. True, there may be some embellishments and falsifications in the evidence of DW1. But the maxim “ _falsus in uno, falsus in omnibus_ ” cannot be applied in the Indian context. 22. Another contention raised by the learned counsel for the appellants is regarding application of the Benami Transactions (Prohibition) Act, 1988 (in short, “Act of 1988”) as it stood before amendment in 2016, to the facts in this case. If the contention raised by the respondent is to be accepted, then the immovable property AS No.597/2001 15 should be treated as an asset of the firm. Admittedly, title to the property stands in the joint names of the 1[st] appellant and his wife, 2[nd] appellant. As mentioned above, there is no legal impediment in a partner owning a separate property. Moreover, 2[nd] appellant is not a partner in the firm, Fancy Hard Wares. Therefore, without seeking any relief of cancellation of the document or atleast an appropriate declaration or any other suitable relief, a suit for dissolution of a firm and rendition of account on the assumption that the property standing in the name of 2[nd] appellant belonged to the firm will certainly fall within the contours of Section 3 of the Act of 1988. On this score also the suit is not maintainable. In the result, the appeal is allowed. Judgment and decree passed by the court below is set aside. Suit is dismissed. Considering the relationship between the parties, they are directed to suffer their costs. All pending interlocutory applications will stand closed. **A.HARIPRASAD, JUDGE.** **cks** AS No.597/2001 16 ## **A.HARIPRASAD, J.** ## **A.S.No.597 of 2001** ## **JUDGMENT** **30th August, 2018**