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2024 SCC OnLine SC 3216
In the Supreme Court of India
(BEFORE DR D.Y. CHANDRACHUD, C.J. AND J.B. PARDIWALA AND MANOJ
MISRA, JJ.)
Crystal Transport Private Limited and Another …
Appellant(s);
Versus
A Fathima Fareedunisa and Others … Respondent
(s).
Civil Appeal Nos. 7709-7710 of 2023
Decided on November 8, 2024
Advocates who appeared in this case :
For Appellant(s) Mr. C. Aryama Sundaram, Sr. Adv.
Mr. G. Balaji, AOR
For Respondent(s) Mr. Siddharth Naidu, Adv.
Mr. V Balachandran, Adv.
M/S. KSN & Co.
Mr. Shiv Kumar, Adv.
Ms. Vaishnavi, Adv.
Mr. Korada Pramod Kumar, Adv.
Mr. Rajeev Kumar Verma, Adv.
Mr. Ankolekar Gurudatta, AOR
The Judgment of the Court was delivered by
MANOJ MISRA, J.:— These two appeals are against common
1
judgment and order of the High Court of Judicature at Madras dated
19.11.2019 passed in First Appeal No. 328 of 2005 and Cross Objection
No. 10 of 2012 preferred against a final decree passed by the Court of
II Additional District Judge, Pondicherry in I.A. No. 33 of 1995 arising
out of Original Suit No. 286 of 1978 instituted by the first respondent,
inter alia, for dissolution of a partnership firm.
FACTUAL MATRIX
2. The first respondent (i.e., the original plaintiff) instituted Suit No.
286 of 1978 inter alia for: (a) dissolution, settlement of accounts and
distribution of shares of a partnership firm, namely, Crystal Transport
Service (for short the firm); (b) appointment of receiver to take charge
of the management and assets of the firm till it is wound up; and (c)
restraining the defendants from recovering, receiving or disposing of
the property and effects of the firm.
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3. The plaint case, inter alia, was that — the firm was constituted in
1972-1973 with four partners (i.e., the original plaintiff and defendants
1 to 3) each having one-fourth share; the partnership was at will; in
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); and when the plaintiff demanded accounts
from defendants 1 to 3, they refused. Hence, the suit.
4. The appellants contested the suit, inter alia, claiming that - the
firm was constituted on 07.07.1971, with effect from 01.05.1971; it
was not a partnership at will; a joint stock company was formed with
the approval of the partners including the plaintiff; and by agreement
dated 25.06.1978 all assets and liabilities of the firm were transferred
to the fourth defendant (appellant no. 1 herein).
5. The trial court passed a preliminary decree on 19.09.1988, inter
alia, in the following terms: (i) the firm stands dissolved with effect
from 07.10.1978 in terms of Section 42(b) read with Section 44 (g) of
2
the Indian Partnership Act, 1932 ; (ii) the plaintiff has one-fourth share
in the firm; (iii) accounts shall be taken up to the date of dissolution as
per Order XX Rule 15 of the Civil Procedure Code, 19083 ; (iv)
defendants 1 to 3 shall, inter alia, file statement of final accounts along
with a balance sheet and a profit and loss account duly audited for the
last 5 years since before the date of dissolution; (v) the prayer for
appointment of a Receiver shall be considered after the final accounts,
balance sheet, etc. are filed; (vi) suit against the fourth defendant (first
appellant herein) is dismissed; and (vii) both sides shall bear their own
costs.
6. Aggrieved with the trial court decree, the original plaintiff
preferred First Appeal No. 215 of 1988. The appeal was allowed vide
judgment and order dated 08.08.1989 pursuant to which a preliminary
decree was drawn inter alia in the following terms: (i) the firm shall
stand dissolved with effect from 15.11.1978 (i.e., date of institution of
the suit); (ii) Sri C.S. Narasimhan Advocate would be the
Commissioner to take accounts from 01.05.1971 till 15.11.1978; (iii)
while taking accounts the Commissioner shall have due regard to
Sections 37 and 48 of the 1932 Act; (iv) the Commissioner's fee shall
be 10% of gross collections; (v) defendants 1 and 2 shall neither
convert nor transfer or dispose of assets of the firm till the accounts are
finally settled; and (vi) the decree shall bind the fourth defendant (i.e.,
the first appellant herein).
7. A second appeal preferred against the appellate decree failed.
Hence, the aforesaid preliminary decree attained finality.
8. The Receiver/Commissioner appointed by the first appellate court
could not comply with the task, therefore another Receiver was
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appointed. The defendants challenged the order changing the Receiver,
which was disposed of by confirming his appointment with a direction
that he would take charge of the management of Crystal Transport Pvt.
Ltd. (i.e., the first appellant). Aggrieved by the aforesaid order, a civil
revision was preferred before the High Court which was dismissed vide
order dated 30.07.1991. The defendants thereafter challenged the
order of the High Court before this Court in Civil Appeal No. 4856 of
1992 which was disposed of vide order dated 12.11.1992 in the
following terms:
“Leave granted. Counsel heard.
By consent, it is directed that the court receiver to appoint the
appellant as his agent to carry on the business of the company on
such terms and conditions regarding royalty, security and other
matters as he thinks fit. The receiver may also take such
undertakings from the appellant as he thinks proper. The terms and
conditions to be settled after giving both the parties an opportunity
of being heard. In case the appellant is not willing to accept the
agency to run the business on the terms and conditions determined
by the receiver, the receiver may make an application to the court
for further directions.
Appeal disposed of with no order as to costs.”
9. Subsequently I.A. No. 2176 of 1992 was filed by the original
plaintiff for a direction to the Receiver to take possession of the firm.
When the trial court found that proper steps were not taken by the
Receiver, a fresh Receiver was appointed after removing the earlier
Receiver. Appeal preferred against that order was dismissed. Still
aggrieved, a revision petition was filed. In the meantime, the original
plaintiff moved I.A. No. 2004 of 1993 to summon the Receiver with
reference to his report, which too was rejected. Another revision
petition was filed against this order. Finally, on 17.11.1998 both the
aforesaid revisions were dismissed.
10. In the meantime, original plaintiff had filed I.A. No. 33 of 1995
under Order XX Rule 15 CPC 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. On the said application, the
trial court passed a final decree on 23.04.2004 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) with 9% p.a. interest from 1978 till
the date of the order with subsequent interest upon the accrued
amount at the rate of 6% p.a. till the date of disbursement. While
passing the final decree the application of the original plaintiff to
change the Receiver was rejected.
11. Aggrieved with the final decree, the original plaintiff preferred
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First Appeal No. 328 of 2005 inter alia claiming that the final decree
was based on non-proven reports; objection to the report was not
considered; documents submitted were not taken into consideration;
and the prayer to change the Receiver was not properly dealt with.
After hearing the parties, the High Court while allowing the appeal by
the impugned order observed:
“Therefore, it is seen that the court has considered the issues
involved in the matter and proceeded to pass the final decree based
only upon the inadmissible and unreliable documents projected by
the respondents/defendants as well as unreliable and unacceptable
report of the Receiver and without providing an opportunity to the
petitioner/plaintiff to cross examine the authors of the aforesaid
documents, namely, the auditors of the respondents/defendants as
well as the Receiver. Thus the endeavor of the court below to
determine the amount payable to the petitioner/plaintiff based upon
the abovesaid unreliable and inadmissible documents, cannot at all
be countenanced as per law and when the court had come to the
conclusion that the Receiver has not placed any proof as to
(whether) he had filed his reports based on the actual scrutiny of the
statement of accounts projected by the respondent/defendants and
also when it is seen that the court has not cared to advert to the
evidence adduced by the petitioner/plaintiff in any manner as well as
the various objections put forth by her to the report preferred by the
Receiver as well as the statement of accounts submitted by her
through her auditor Natarajan in any manner, in such view of the
matter, in my considered opinion, the final decree passed by the
court below cannot be sustained in the eyes of law. ………………..
I'm of the considered view that the matter requires remittance
back to the trial court with the direction to the trial court to provide
opportunities to both the parties to adduce further evidence
particularly to sustain the statement of accounts rejected by them
respectively by examining the authors of the same. The trial court is
also further directed that considering the facts and circumstances of
the case and after assessing and analyzing the further materials to
be placed on record, if need be, if it still opines that the report of the
receiver cannot be relied upon for one reason or the other and when
the receiver had been appointed in this matter to only ascertain the
income that could be derived during the relevant period for
determining the share to be allowed to the petitioner/plaintiff, is
empowered to examine the report filed by him and thereby provide
opportunities to the parties concerned to cross examine him as to on
what basis he had submitted his report.
After the above said exercise, the court below is directed to
accordingly appreciate the materials placed on record in the right
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perspective in accordance with the law and proceed with the
contentions put forth by the respective parties in the matter and
accordingly pass appropriate orders in the petition preferred by the
petitioner/plaintiff for the appointment of a fresh Receiver for looking
into the accounts of the firm and ascertaining the amount that is
payable to her.”
12. In the cross objection preferred by the appellants to the final
decree their contention was that the preliminary decree of the first
appellate court is the basis for passing the final decree. When the
subject matter of the suit as well as the decree passed by the first
appellate court is only with reference to the two buses and the decree
also stipulates that the suit firm stood dissolved on and from
15.11.1978 and the decree further directs only to take accounts from
01.05.1971 to 15.11.1978, the trial court had erred in embarking upon
an inquiry as regards the income that would have been derived even
after 15.11.1978.
13. The above argument was countered by the plaintiff by
submitting that the assets of the firm had been taken over by the
fourth defendant even before the plaintiff could realize the fruits of the
decree, in such view of the matter, bearing in mind the provisions of
Section 14 and 37 of the 1932 Act, the profits generated even post
dissolution of the firm would have to be accounted for by the fourth
defendant till accounts are finally settled as per the final decree.
14. The first appellate court accepted the aforesaid submissions
made on behalf of the original plaintiff and rejected the cross-objection.
The operative portion of the impugned order is extracted below:
“In the light of the above said factors, the final (sic) decree order
dated 23/4/2004 passed in I.A. No. 33 of 1995 in OS No. 286 of
1978 on the file of the IInd Additional District Judge, Pondicherry is
set aside in toto and the matter is remitted back to the trial court
with the direction to provide opportunities to both the parties to
adduce further evidence particularly to sustain the statement of
accounts projected by them respectively by examining the authors of
the same. The trial court is also further directed that considering the
facts and circumstances of the case or the materials to be placed on
record, if need be, if it still opines and concludes that the report of
the Receiver cannot be relied upon for one reason or the other and
when the receiver had been appointed in this matter to only
ascertain the income that could be derived during the relevant
period for determining the share to be allowed to the
petitioner/plaintiff, is empowered to examine him vis-a-vis the
report filed by him and thereby provide opportunities to the parties
concerned to cross examine him as to on what basis he had
submitted his report. After the above said exercise, the court below
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is directed to accordingly appreciate the materials placed on record
in the right perspective in accordance with law and proceed with the
contentions put forth by the respective parties in the matter and
accordingly pass appropriate orders as per law in the petition
preferred by the petitioner/plaintiff for the appointment of a fresh
commissioner/receiver for looking into the accounts of the firm and
ascertaining the amount that is payable to her. Accordingly, the first
appeal and cross objection are disposed of.”
SUBMISSIONS
15. We have heard Mr. C. Aryama Sundaram for the appellants and
Mr. Siddharth Naidu for the first respondent.
16. At the outset, we may observe that there is no serious challenge
to the findings returned in the impugned order that the parties were
not given proper opportunity to prove as well as question the reports
which formed the basis of the final decree. For this reason, as well as
detailed reasons recorded in the impugned order as to why the matter
was being remanded, we do not find a good ground to interfere with
the remand order.
17. However, the learned counsel for the appellants contended that
once the partnership firm stood dissolved on 15.11.1978, when there
was hardly any property with the firm, there is no basis to seek for
accounts and profits for the period beyond 15.11.1978. It is argued
that liability cannot be fastened on the appellant company to share its
profit for any period beyond 15.11.1978 i.e., the date of dissolution of
the firm, particularly when the first appellant utilized no assets of the
erstwhile firm.
18. Per contra, the learned counsel for the plaintiff (the first
respondent) submitted that final decree would have to be prepared in
terms of the preliminary decree. The preliminary decree which is
binding on the fourth defendant (i.e. the appellant-company) in clear
terms states that assets of the firm were taken over by the fourth
defendant (i.e., the first appellant herein). In these circumstances as
also that the impugned order is a remand order, no case for
interference is made out.
ANALYSIS
19. Having considered the rival submissions and having perused the
records, we notice that in the preliminary decree, inter alia, there is a
clear direction to the following effect:
“that in taking accounts the Commissioner shall have due regard
to Section 37 and 48 of the Indian Partnership Act”.
20. Section 37 of the 1932 Act reads thus:
“Where any member of a firm has died or otherwise cease to be a
partner, and the surviving or continuing partners carry on the
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business of the firm with the property of the firm without any final
settlement of accounts as between them and the outgoing partner or
his estate, then, in the absence of a contract to the contrary, the
outgoing partner or his estate is entitled at the option of himself or
his representatives to such share of the profits made since he ceased
to be a partner as may be attributable to the use of his share of the
property of the firm or to interest at the rate of 6% per annum on
the amount of his share in the property of the firm:
Provided that where by contract between the partners an option is
given to surviving or continuing partners to purchase the interest of
a deceased or outgoing partner, and that option is duly exercised,
the estate of the deceased partner, or the outgoing partner or his
estate, as the case may be, is not entitled to any further or other
share of profits; but if any partner assuming to act in exercise of the
option does not in all material aspects comply with the terms
thereof, he is liable to account under the foregoing provisions of this
section.”
21. In the instant case, the finding, which appears on the record, is
to the effect that the fourth defendant (appellant company) had taken
over the assets of the firm. 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.
22. As to what extent the business of the appellant company is
derived from the assets of the firm is a matter of evidence which
parties may have to adduce in the course of the proceedings relating to
the preparation of the final decree pursuant to the order of remand.
CONCLUSION
23. Considering that by the impugned order the matter has been
remanded to the trial court, we do not find a good reason to interfere
with the order impugned. 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.
24. Subject to above, the appeals are disposed of.
25. Parties to bear their own costs. Pending application(s), if any
shall stand disposed of.
———
1
High Court
2
1932 Act
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3
CPC
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