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Partnerships

 

Desk Team LawDocs

Partnerships in India are govern by the Indian Partnership Act, 1932. The Act defines partnership as ‘The relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all’. The Act while laying down the provisions with respect to rights and duties of the partners also details the consequences of retirement of a partner and dissolution of a partnership firm.

Contents  hide 

1 Guru Nanak Industries, Faridabad and Another v/s Amar Singh (Dead) through Legal Representatives

1.1 Guru Nanak Industries

1.2 Supreme Court dismissed the appellants

1.2.1 The Supreme Court relied on the judgement

2 Reference

2.1 Related

Guru Nanak Industries, Faridabad and Another v/s Amar Singh (Dead) through Legal Representatives

Partnerships

While distinguishing between the retirement of a partner and the breakup of a partner company, the Supreme Court held that the retirement of one partner would amount to the dissolution of the company if there were only two partners in a partner company.

The dispute arose in the case of Guru Nanak Industries, Faridabad and Another v/s Amar Singh (Dead) through Legal Representatives[1]. A partnership firm found between four individuals in 1978, i.e. The second appellant herein, Amar Singh and two other partners, is Swaran Singh. Swaran Singh and Amar Singh executed a new partnership deed between themselves in 1981 upon the departure of the other two partners.

Guru Nanak Industries

Guru Nanak Industries and Swaran Singh filed a lawsuit against Amar Singh in 1989 alleging that Amar Singh had withdrawn from the partnership effective August 24, 1988 and accepted his capital payment on a voluntary basis. Furthermore, the appellants argued that Amar Singh had granted a loan from the partnership funds and had thus decided that he would not be entitle to the company’s income or liabilities.

The key point put forward by the appellants was that, because Amar Singh had resigned as a partner, he was only entitled to the capital kept in his loan in the book of accounts under the terms of the partnership deed clause. The argument was challenged by Amar Singh, claiming that he had never left the company.

Furthermore, with respect to the dissolution of the company, the receipt claim that this sum obtain by Amar Singh and the last line stating his total amount is resolve and nothing is owe to him from the appellants was forge. Amar Singh has lodged a complaint against the company’s partition and rendition of accounts.

Supreme Court dismissed the appellants

Partnerships

Noting the manipulations in the letter and receipt, the Supreme Court dismiss the appellants’ argument and that in this case there were only two partners, and the facts on record support the respondent’s assertion that it had not withdraw from the company. The Supreme Court further held that in order to dissolve the company. There was common understanding and consent between the parties.

When denying the appeal, the Supreme Court made a strong distinction between ‘a partner’s retirement’ and ‘a partnership firm’s breakup.’ The Supreme Court rule that the reconstituted firm must begin after the retirement of a partner and that his dues would paid to the retired partner in compliance with Section 37 of the Act. In the event of a partnership firm’s breakup, the accounts will have to be resolved and allocated in compliance with Section 48 of the Act.

The Supreme Court relied on the judgement

Partnerships

In the case of Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and others[2], the Supreme Court relied on the judgement made. It explained that it is a case of separation and not retirement when the partners agree to dissolve a relationship. Since the partnership had only two partners in the present case, the Supreme Court held that the partnership firm could not continue to carry on the company’s business after the retirement of a single partner.

The Court reiterated that there must be two partners in a partnership company. It emphasised on Erach F.D. Mehta v. Minoo F.D. Mehta[3], in which it was held that the withdrawal would amount to the breakup of the company if there were only two partners in a company and one had decided to retire.

The Supreme Court has therefore reiterated the position. That there must be more than one partner for a partnership to succeed. Even the concept of partnership notes that a ‘relationship between individuals’. Means that two or more individuals must be part of a partnership.

Therefore, as in the present case , the company would immediately dissolve in the case of a partnership firm. Consisting of two individuals on the retirement of one partner and the provisions. For the dissolution of the partnership under the Act will apply.

Reference

Partnerships

[1] Civil Appeal Nos. 6659-6660 of 2010.

[2] Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy and others, (2003) 3 SCC 445.

[3] Erach F.D. Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724.

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