V.V.S. Rao, J.
1. The first defendant in O.S. No. 188 of 1980 on the file of the Court of the Additional Subordinate Judge, Tirupati, is the appellant. The co-defendants in the said suit are shown as respondents 8 and 9 in this appeal. The suit was initially filed by one E. Jayarami Reddi. During the pendency of the suit, he died and respondents 2 to 7 herein were added as his legal representatives by order dated 17-1-1986 in I.A.No. 1577 of 1985. The suit was filed for dissolution of firm and rendition of accounts of M/s. Karuna Oil Mills, Mallamgunta. The learned trial Judge, by judgment and decree dated 21-4-1987 decreed the suit with costs and passed a
preliminary decree dissolving the firm with effect from 1-1-1981 and further directed the first defendant/appellant to render accounts to other partners for the period from 19-4-1979 to 1-1-1981.
2. The plaintiff, EJayarami Reddi filed the suit alleging that so as to construct the factory of M/s.Karuna Oil Mills, Mallamgunta, to carry on the business of groundnut oil cake, he commenced construction with the loan sanctioned by the A.P. State Financial Corporation and borrowing money from N. Chenga Reddi, E. Ratnamma and E. Sudhakara Reddi with whom he entered into a partnership deed dated 15-1-1975. Three partners subsequently retired duly receiving their capital investment. At that stage, the plaintiff was in great financial troubles and could not complete the project. The defendants who are related to each other (defendants No. 1 and 3 are sons of defendant No. 2) came forward to invest the working capital and it was agreed to share the profits and losses in the ratio of 50:22:14:14. The unit was handed over to the first defendant on 19-4-1979 and a deed of partnership was drawn on 26-4-1979 which was registered in accordance with the Indian Partnership Act, 1932 (‘the Act’ for brevity). The following acts of commission and omission and acts of mistrust were done by the first defendant who was at the helm of affairs in the partnership. The first defendant tried to knock away the enterprise with all its assets; he did not agree for mutual examination of accounts up to 18-4-1979, but served a concocted and false balance sheet and profit and loss account based on fraudulent accounts; the defendants freely indulged in fabrication of accounts systematically reducing the liability for capital to the plaintiff and bloating up the liability for himself and his benamidars; he undervalued the fixed assets by showing abnormal expenses with a view to knock away the property under
Clause 18 of the partnership deed; he sold away 1 H.P. motor belonging to the factory without the knowledge of the plaintiff and also indulged in activities of selling the groundnut oil cake and it was not shown in the accounts submitted by him; the conduct of the defendants whether acts of commission and omission and their dishonest intention are likely to prejudice the plaintiff and, therefore, the plaintiff had lost confidence in the defendants. He, therefore, prayed for dissolution of the partnersnip.
3. The first defendant/appellant filed a written statement which was adopted by defendants 2 and 3. All the plaint allegations were denied. It was further stated that the defendants were always willing to show the accounts, that when the plaintiff was in a state of desperation for want of funds to carry on the business further, the defendants came to the rescue of the plaintiff and helped him. They also stated that due to various technical problems like inadequate supply of power and nonavailability of groundnut seed due to drought conditions, the factory could not be run to its full capacity. All the transactions were reflected as true accounts and they were entered in the account books and correctly reported to the Sales Tax authorities. They also opposed the suit on the ground that as per Clause 19 of the partnership deed, all the disputes have to be referred to arbitration and, therefore, the jurisdiction of the Civil Court is barred. An additional written statement and a rejoinder were also filed and it is not necessary to refer to them.
4. In the light of the pleadings, the Trial Court framed two main issues as to whether the suit partnership is liable to be dissolved and whether the Trial Court has no jurisdiction to entertain the suit. An additional issue as to whether the plaintiff is estopped from seeking rendition of
accounts in view of the orders of this Court in C.M.A. No. 804 of 1982, was also framed.
5. The plaintiff was examined himself as P.W.1 and the Clerk of the Factory was examined as P.W.2, The first defendant himself was examined as D.W.1. The plaintiff marked Exs.A1 to A43 and the defendants marked Exs.Bl to B35. The plaintiff sought appointment of Advocate -Commissioner for taking inventory and the report dated 6- 3-1981 of the Commissioner was marked as Ex.C1. On the question of jurisdiction, the Trial Court held in favour of the plaintiff that the Civil Court has jurisdiction notwithstanding Clause 19 of the partnership deed Ex.A1. On the additional issue, the Trial Court held that the plaintiff is not estopped from seeking rendition of accounts from the defendants. On issue No. 1, the Trial Court relied on Exs.A6 to A15 as well as the evidence of P.W.1 and came to the conclusion that the plaintiff’s claim for dissolution comes within the ingredients of Section 44 of the Act and decreed the suit directing that the firm is deemed to have been dissolved with effect from 1-1-1981 and further directed the first defendant to render accounts for the period from 19-4-1979 to 1-1-1981.
6. As noticed, issue No. 1 related to the question whether the suit partnership is liable to be dissolved. Though the Trial Court considered the evidence of P.W.1 and D.W.1 and Exs.A6 to A15, while observing that sufficient grounds have been made out to bring the case within Section 44 of the Act, the Court also noticed that during the course of arguments, the learned Counsel for the defendants mentioned that the defendants are anxious to have the Firm dissolved. Accordingly, the Firm was dissolved.
7. Sri C. V. Nagarjuna Reddy, learned Counsel for the appellant/first defendant
fairly submits that though there are strong reasons to impeach the finding of the Trial Court that the case falls within the parameters of Section 48 of the Act, the first defendant/appellant does not seriously contend about this. He, however, submits that the decree directing dissolution of the Firm with effect from 1-1-1981 is not in accordance with law and that it ought to have been ordered to be dissolved with effect from 31-3-1982.
8. Notices were served on the respondents and appearance was also entered. When the case is called, Sri R. Venugopal Reddy, learned Counsel representing Sri R. Vijayanandan Reddy submits that in spite of giving registered notice, they have not received any instructions. Therefore, arguments of the learned Counsel for the appellant were heard.
9. The only point that arises for consideration is whether the Trial Court was justified in decreeing the dissolution of M/s. Karuna Oil Mills with effect from 1-1-1981 ?
10. The instrument of partnership is dated 26-4-1979, which was marked as Ex.A1. As per Clause 5 of Ex.A1, the partnership is deemed to have been commenced with effect from 19-4-1979 and as per Clause 12, the partnership shall be initially for a period of three years up to 31-3-1982. Clause 13 is to the effect that no partner shall retire from the partnership within two years and any partner who desires to retire from the partnership after the specified period of two years shall give notice in advance of three months in writing to the remaining partners. Ex.A1 was admitted by P.W.1 and D.W.1. The learned Counsel for the appellant placed strong reliance on Clauses 12 and 13 of Ex.A1 and submits that the plaintiff filed the suit even before the expiry of two years without issuing any prior notice. Therefore,
it was not incumbent on the part of the defendants to agree for the dissolution of the Firm. In such an event, he would submit that discretion is available to the Court ordering dissolution from such date as it is deemed fit and proper having regard to the circumstances of the case and also the agreement between the parties. He would submit that the agreement between the ‘ parties regarding dissolution of the Firm which is not “partnership at will” may not be given precedence and must singularly weigh while exercising discretion by the Court. To appreciate this contention, it is necessary to refer to specific provisions of the Act as well as Order XX Rule 15 of the Code of Civil Procedure, 1908 (CPC). Rule 15 of Order XX reads as under.
15. Decree in suit for dissolution of partnership :–Where a suit is for the dissolution of a partnership, or the taking of partnership accounts, the Court, before passing a final decree, may pass a preliminary decree declaring the proportionate shares of the parties, fixing the day on which the partnership shall stand dissolved or be deemed to have been dissolved, and directing such accounts to be taken, and other acts to be done, as it thinks fit.
11. A plain reading of Rule 15 of Order XX CPC would show that a preliminary decree for dissolution of the partnership, or taking partnership accounts always contains declaration of rights of the parties and fix the date of dissolution. It vests discretion in the Court passing a preliminary decree to fix the date on which partnership shall stand dissolved or deemed to have been dissolved. The Court can declare that the partnership stands dissolved from a particular date or may also declare that it is already deemed to have been dissolved from a date anterior to the date of partnership. The Legislature is presumed to be aware of their statutory liability prior to making an enactment. Therefore, the language of Rule 15 of
Order XX CPC does not brook any doubt that Rule 15 of Order XX contemplates a situation where the suit is filed for dissolution of “partnership at will” and dissolution of partnership other than “at will”. Insofar as the date or dates on which a “partnership at will” stands dissolved, the same does not present any difficulty in view of the statutory provisions contained in Section 43 of the Act, which reads thus:
43. Dissolution by notice of partnership at will :–(1) Where the partnership is at will, the Firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the Firm,
(2) The Firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.
12. Section 43 of the Act has been subject matter of interpretation before a Constitution Bench of the Supreme Court in Banarsi Das v. Kanshi Ram, . The Apex Court considered the question whether Order XX Rule 15 CPC applies only to partnerships other than at will and also the question as to the date or dates when the partnership shall be deemed to have been dissolved when no prior notice as contemplated under Section 43 was issued by a partner prior to filing a suit for such dissolution. It was observed that in a partnership at will, if one of the partners seek its dissolution, what he wants is that the Firm should be wound up, that he should be given his individual share in the assets of the Firm or he should be discharged from any liability with respect to the Firm and that the Firm should no longer exist. He can call for dissolution of the Firm by giving a notice as provided under Sub-section (1) of Section 43 of the Act without intervention of the Court. He may also come to the Court for effecting dissolution of the Firm in which event
he would be bound by the provisions of Order XX Rule 15 CPC. The Supreme Court then laid down as under:
This rule makes the position clear. No doubt, this rule is of general application, that is, to partnerships at will as well as those other than at will; but there are no limitations in this provision confining its operation only to partnerships other than those at will. Sub-section (1) of Section 43 of the Partnership Act does not say what will be the date from which the Firm will be deemed to be dissolved…………..
Yet again it was held.
Now, it will be clear that this provision contemplates the mentioning of a date from which the Firm would stand dissolved. Mentioning of such a date would be entirely foreign to a plaint in a suit for dissolution of partnership and therefore such a plaint cannot fall within the expression “notice” used in the sub-section. It would follow therefore that the date of service of a summons accompanied by a copy of a plaint in the suit for dissolution of partnership cannot be regarded as the date of dissolution of partnership and Section 43 is of no assistance. …………….. It would follow, therefore, that
a partnership would be deemed to be dissolved when the summons accompanied by a copy of the plaint is served on the defendant, where there is only one defendant, and on all defendants, when there are several defendants. Since a partnership will be deemed to be dissolved only from one date, the date of dissolution would have to be regarded to be the one on which the last summons was served.
13. When a partnership of a registered Firm seeks dissolution whether or not it is a partnership at will or otherwise, what a partner wants is that a Firm should be dissolved, it should no longer exist and that he should be given his share in the assets and discharged from the liabilities. In a suit for dissolution of a partnership for fixed duration, Section 43 of the Act ex facie is not applicable. The heading of Section 43
makes it clear and it cannot be ignored. Further, Sub-section (2) of Section 43 of the Act is not independent of Sub-section (1). If Sub-section (2) is treated as independent provision, the same would lead to absurdity. As observed by the Supreme Court in Banarsi Das (supra), Sub-section (1) of Section 43 of the Act does not say what will be the date from which the Firm will be deemed to be dissolved and the date has to be determined with reference to the principle adumbrated in Sub-section (2) of Section 43 of the Act. It was stated that the Firm is dissolved on the date mentioned in the notice as the date of dissolution or from the date of communication of the notice dissolving the partnership at will. By reason of the law declared by the Supreme Court in Banarsi Das (supra), in case a notice is not issued as required under Sub-section (1) of Section 43 and directly a suit is filed, the partnership would be deemed to have been dissolved when the summons accompanying the copy of the plaint is served on the defendant and when there are more than one defendant, the dissolution will be from the date when the last summons on one of the defendants is served.
14. As observed by me, Section 43 of the Act cannot be applied in a suit for dissolution of partnership for duration or a fixed period or for fixed periods. The Court which passes a preliminary decree for dissolution must exercise discretion having regard to the partnership deed and provisions of Sections 40, 41, 42 and 44 of the Act, which read as under.
40. Dissolution by agreement :–A Firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.
41. Compulsory dissolution :–A Firm is dissolved-
(a) by the adjudication of all the partners or of all the partners but one as insolvent, or
(b) by the happening of any event which makes it unlawful for the business of the Firm to be carried on or for the partners to carry it on in partnership:
Provided that, where more than one separate adventure or undertaking is carried on by the Firm, the illegality of one or more shall not of itself cause the dissolution of the Firm in respect of its lawful adventures and undertakings.
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.
44. Dissolution by the Court :–At the suit of a partner, the Court may dissolve a Firm on any of the following grounds, namely :–
(a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by any other partner;
(b) that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner;
(c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business regard being had to the nature of the business;
(d) that a partner, other than the partner suing, wilfully or persistently commits breach of agreements relating to the management of the affairs of the Firm or the conduct of its business; or otherwise so conducts himself in matters
relating to the business that it is not reasonably practicable for the other persons to carry on the business in partnership with him;
(e) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the Firm to a third party, or has allowed his share to be charged under the provisions of Rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908 (5 of 1908), or has allowed it to be sold in the recovery of arrears of land revenue or of any dues recoverable as arrears of land revenue due by the partner;
(f) that the business of the Firm cannot be carried on save at loss; or
(g) on any other ground which renders it just and equitable that the Firm should be dissolved.
15. Section 42 of the Act, inter alia, provides that if a Firm is constituted for a fixed term, the same may be dissolved by the expiry of the term. The said Section starts with the phrase “……subject to contract
between the partners……”. To my mind, a
Firm, constituted for a fixed term, is agreed to be continued by the partners, cannot be dissolved even if it is for a fixed term. That is the meaning to be given to the phrase ‘subject to contract between the partners’. If a partner desires not to continue the Firm beyond the fixed term or beyond the purpose for which the firm was constituted, it can be no defence to contend that by reason of the ongoing business or better future prospects of the Firm’s business, it should not be dissolved. The Court has to weigh the evidence brought before it before ordering dissolution of such Firm for a fixed term and mere fact that a Firm was constituted under a particular duration is no ground to assume that it should be dissolved automatically. Nonetheless, there is no evidence that the partners intended to continue the partnership beyond the period
for which it was constituted. Therefore, it is not possible to interpret the phrase ‘subject to contract between the partners’ as obliging the Court not to allow the Partnership firm to exist beyond fixed term for which the Firm was constituted.
16. In this connection, a reference may be made to a decision of a Constitution Bench of the Supreme Court in South India Corporation (P) Ltd. v. Secretary, Board of Revenue, , wherein the expression “subject to the other provisions of the Constitution” appearing in Article 372 of the Constitution was interpreted. The Apex Court held:
…The words “subject to the other provisions of the Constitution” should, therefore, be given a reasonable interpretation, an interpretation which would carry out the intention of the makers of the Constitution and also which is in accordance with the constitutional practice in such matters. The Article posits the continuation of the preexisting laws made by a competent authority notwithstanding the repeal of Article 395; and the expression “other” in the Article can only apply to provisions other than those dealing with legislative competence. A pre-Constitution law made by a competent authority, though it has lost its legislative competency under the Constitution, shall continue in force, provided the law does not contravene the “other provisions” of the Constitution. The words “subject to the other provisions of the Constitution” mean that if there is an irreconcilable conflict between the pre-existing law and a provision or provisions of the Constitution, the latter shall prevail to the extent of that inconsistency,
17. In Kerala State Electricity Board v. Indian Aluminium Company, , a Constitution Bench of the Supreme Court again considered the meaning of the words “notwithstanding” and “subject to” in Clauses (1) and (3) of Article 246 of the Constitution. It was held that the words “notwithstanding” in Clause (1) and
“subject to” in Clause (3) mean that where an entry is in general terms in List II and part of that entry is in specific terms in List I, the entry in List I takes effect notwithstanding the entry in List II. This is also on the principle that the ‘special’ excludes the ‘general’.
18. Therefore, when there is a conflict between Section 42-A and the contract among partners, the contract would prevail and the Court has to give effect to such contract.
19. A reading of Clauses (c) and (d) of Section 44 of the Act would show that the Court may dissolve a Firm, inter alia, on the ground that a partner acted in such a manner which prejudices the carrying on the business and/or a partner committed breach of agreement and mismanaged the affairs of the Firm or its business, that it is not reasonably practicable for the other partners to carry on the business. The language in Clauses (c) and (d) would indicate that the Court has to record a finding that the conduct of a partner prejudicially affects the business of a Firm and it gives rise to a situation where other partners feel that it is not practicable to carry on the business. The finding can only be arrived at after the entire evidence is let in and not on the date of filing of the suit and a Firm can be ordered to be dissolved on arriving at a finding with a condition precedent by attracting any other clauses of Section 44 including Clauses (c) and (d). Therefore, it is reasonable to interpret that when the ingredients of Section 44 of the Act attract in a suit for dissolution of partnership other than at will, it can only be from the date when the trial Court records its finding that it is not reasonably practicable to other partners to carry on the business any further. That is to say a Firm has to be dissolved only from the date of the judgment or decree. This is, however, subject to again the contract between the
partners. As per instance, as in this case, the partners may agree by mutual negotiation to continue the partnership business beyond the fixed term. Indeed, Clause 12 of Ex. A1 is to the effect that initially the partnership shall be for a period of three years up to 31-3-1982, which means that the partners by consensus ad idem may continue beyond 31-3-1982.
20. In S.D. Singh’s Commentary on Law of Partnership in India (5th revised edition 1996, Orient Law House, New Delhi), the learned revising author after referring to British Law stated.
Date of Dissolution :–It is submitted that, as under the old laws, if the judge orders a dissolution, he will declare the partnership dissolved as from the date judgment is delivered and not from some earlier date. If, however, the order merely authorised the patient’s Receiver to take some formal step to terminate the partnership, the dissolution will occur on a subsequent date.
21. In Lindley on Partnership (14th Edition by Ernest H. Scamell; Sweet & Maxwell; London 1979) the learned author states as under:
A partnership which has been entered into for a fixed term or for a single adventure or undertaking is determined by the expiration of that term or the termination of the adventure or undertaking.
If, however, the partnership is continued after the expiration of the term, and there is no evidence as to the additional time for which it is to last, it is considered as having become a partnership at will and is determinable on notice. A continuance of the business by the partners, or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is presumed to be a continuance of the partnership.
22. The Court while exercising discretion under Order XX Rule 15 CPC
shall keep in mind the principles as discussed by me and the mere fact that an Advocate Commissioner was appointed for taking inventory and he submitted report is no ground. The report as to the inventory does not in any manner support or tend to support the case of the plaintiff with reference to Section 44 of the Act. The Trial Court committed a serious error in assuming that the case falls under Section 43 of the Act and that the notice published by the plaintiff is sufficient for the purpose of Sub-section (2) of Section 43 of the Act. As already held by me, the case is one which falls under Section 44(c) and (d) and not under Section 43 of the Act. The judgment of the Trial Court is clearly wrong to that extent.
23. In the result, the appeal is partly allowed modifying the preliminary decree passed by the trial Court to the effect that the Firm M/s. Karuna Oil Mills, Mallamgunta be dissolved with effect from 31-3-1982 as per Clause 12 of the instrument of partnership dated 26-4-1979 (Ex.A1) and the appellant herein shall render accounts to the other partners for the period from 19-4-1979 to 31-3-1982. There shall be on order as to costs.