Outgoing Partner Can Seek For Accounts & Share In Profits Derived From His Share In Assets Of Firm Till Final Settlement Is Made: SC
The Supreme Court noted that as per section 37 of the Indian Partnership Act, 1932, if a partner is carrying on business with the assets of the firm, till a final settlement is made, the outgoing partner can seek for accounts and a share in the profits which might be derived from his share in the assets of the firm.
The Apex Court was considering two appeals assailing the judgment of the Madras High Court passed in First Appeal and Cross Objection preferred against a final decree arising out of an Original Suit instituted by the first respondent for dissolution of a partnershipFirm.
The Bench comprising Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala and Justice Manoj Misra asserted, “Therefore, in light of the provisions of Section 37 of the 1932 Act, if the fourth defendant is carrying on business with the assets of the firm, till a final settlement is made, the plaintiff, who would fall in the category of an outgoing partner, would have the right to seek for accounts and a share in the profits which might be derived from his share in the assets of the firm.”
Senior Advocate C. Aryama Sundaram represented the appellant while the respondent was represented by Advocate Siddharth Naidu.
In this matter, the first respondent (original plaintiff) instituted a Suit for dissolution, settlement of accounts and distribution of shares of a partnership firm, namely, Crystal Transport Service and appointment of receiver to take charge of the management and assets of the firm till it is wound up. It was the plaintiff’s case that the firm was constituted in 1972-73 with four partners (i.e., the original plaintiff and defendants 1 to 3) each having one- fourth share. In the year 1978, without the consent of the plaintiff, defendants 1 to 3 diverted funds of the firm to a private limited company (defendant no.4 - appellant no.1 herein). It was submitted that when the plaintiff demanded accounts from defendants 1 to 3, they refused. Hence, the suit was filed.
Dismissing the suit against the fourth respondent, the Trial Court passed a preliminary decree and held that the firm would stand dissolved and the plaintiff would have one-fourth share in the firm. In the meantime, the original plaintiff filed an application for appointment of a Receiver to ascertain the exact amount payable to the original plaintiff and to pass a final decree in terms of the preliminary decree.
The trial court passed a final decree thereby holding that the plaintiff would be entitled to get a sum of Rs.1,10,815 as full and final settlement of her one-fourth share to be paid by the fourth defendant (i.e., the first appellant).The defendant raised a cross objection stating that the trial court had erred in embarking upon an inquiry as regards the income that would have been derived even after 15.11.1978 when the suit firm stood dissolved on and from 15.11.1978 and the decree further directed only to take accounts from 01.05.1971 to 15.11.1978. The original plaintiff’s first appeal was accepted by the High Court and the cross-objection of the defendant was rejected.
At the outset, the Bench noticed that in the preliminary decree there was a clear direction to the effect that in taking accounts the Commissioner shall have due regard to Section 37 and 48 of the Indian Partnership Act.
Noting that in the present case,the fourth defendant (appellant company) had taken over the assets of the firm, the Bench opined that in light of the provisions of Section 37 of the 1932 Act, if the fourth defendant is carrying on business with the assets of the firm, till a final settlement is made, the plaintiff, who would fall in the category of an outgoing partner, would have the right to seek for accounts and a share in the profits which might be derived from his share in the assets of the firm.
In light of the fact that by the impugned order the matter had been remanded to the trial court, the Bench did not find a good reason to interfere with the order impugned. Disposing of the appeals, the Bench held, “We also observe that we have not expressed any binding opinion on the merits of the claim of either party as the same shall be subject to the evidence led by the parties during the course of the proceedings relating to the preparation of the final decree.”
Cause Title: M/S Crystal Transport Service vs A Fathima Fareedunisa [Case No. C.A. No. 007709 - 007710 / 2023]
Appearance:
Appellant: Senior Advocate C. Aryama Sundaram, AOR G. Balaji
Respondent: Advocates Siddharth Naidu, V Balachandran, M/S. KSN & Co., Advocates Shiv Kumar,Vaishnavi,Korada Pramod Kumar, Rajeev Kumar Verma, AOR Ankolekar Gurudatta