The Supreme Court in this case has made a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’.
The dispute arose in the case of Guru Nanak Industries, Faridabad and Another v/s Amar Singh (Dead) through Legal Representatives. A partnership firm was constituted in 1978 amongst four people, i.e .Swaran Singh, Amar Singh and two other partners. The two partners retired and Swaran Singh and Amar Singh executed a fresh partnership deed between themselves in 1981.
In 1989, Guru Nanak Industries(The firm) and Swaran Singh filed a suit against Amar Singh claiming that Amar Singh had retired from the partnership effective August 24, 1988 and had voluntarily accepted payment of his share capital. Swarn Singh further claimed that Amar Singh had been given a loan from the funds of the partnership firm and that he agreed that he would not be entitled to any profits or liabilities of the firm. In support of this reliance was placed on the intimation dated 5th October 1988 sent by Amar Singh to Bank of India, the bankers of the partnership firm. It was stated that Amar Singh was paid amounts of Rs.1,00,000/- and Rs.50,000/- by way of pay orders and another amount of Rs.1,00,000/- in cash for which he had executed receipt dated 17th October 1988.
On the other hand, Amar Singh contended he had never resigned from the firm. Amar Singh contested the suit and on 29th April 1989, filed a suit for dissolution of the partnership firm. He stated that on 19th August 1988 some disputes had arisen between him and Swaran Singh when he had written a letter to the bankers to stop operation of the bank account, and subsequent to that he had also written another letter on 24th August 1988 as a partner and that letter was also signed by Swaran Singh as a partner, stating that the dispute between the Amar Singh and Swaran Singh had been settled and the bank may allow operation of the account. Amar Singh contended that the receipt filed by Swaran Singh clearly showed that he was only paid a part payment in terms of the settlement between him and Swaran Singh. Further the receipt stated this amount was being received by Amar Singh about dissolution of the firm and the last line was that his total amount is settled, and nothing is due to him from Swaran Singh is manipulated. He claimed that the receipt filed by Swaran Singh as evidence was forged as certain statements added to it later.
The Supreme Court stated that there were manipulations in the letter and receipt, therefore rejecting the arguments given by Swaran Singh. The findings of the firs appellate court were upheld by the Supreme Court that Amar Singh had not resigned as a partner and there was a mutual understanding and agreement that the firm would be dissolved.
It is stated that when the partners agree to dissolve a partnership, it is a case of dissolution and not retirement.
The Supreme Court held that the partnership firm could not continue to carry on the business of the firm on retirement of one partner out of the two partners and since this firm had only two partners, this firm could not continue to carry out the business . In this case of the firm having two partners only, retirement of one partner would amount to dissolution of the firm. The Apex Court stated that on retirement of a partner from the firm, the retiring partner would be paid his dues in terms of Section 37 of the Indian Partnership Act,1932 and the reconstituted firm would continue. In the case when a partnership firm gets dissolved then according to section 48 of the Indian Partnership Act,1932 the accounts would have to be settled and distributed.
Monnishaa Mahajan, Principal Attorney at Legal Help NRI. Monnishaa has an experience of more than 15 years in assisting and advising NRI's in resolving their disputes in India.