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PETITIONER: K.P.A. VELLAYAPPA NADAR (DEAD) THROUGH LRS.

       Vs.

RESPONDENT: BHAGIRATHI AMMAL AND OTHERS.

DATE OF JUDGMENT:       06/11/1996

BENCH: K. RAMASWAMY, G. B. PATTANAIK

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      Substitution allowed.      The decision impugned herein is a reversing judgment of the Madras  High Court  in Appeal  No.180/76, dated April 3, 1980. This  appeal by  special leave  relates to  an  action which took  place between  the filing  of the  suit  by  the respondent for  dissolution and rendition of accounts by the appellants.      The admitted  position is that one N.A.P. Alagiri Raja, son of Pappu Raja, and Raja Ramalinga Raja, two brothers and the appellant,  K.P.A. Vellayappa  Nadar a  stranger,  since dead, admittedly,  were partners  of "N.A.  Pappuraja  Sons" started way  back in  1943. The  partnership  agreement  was reduced to  writing for  the first  time under Ex.A-2, dated March 31,  1954. Another  admitted fact  is that on February 15, 1970,  another partnership  was constituted under Ex.B-1 consisting  of  the  first  two  partners  and  their  sons, together four,  with the  same partnership  business in  the same place  and with  the same  registrations number  of the partnership firm  with the  Registrar  of  the  Firms.  Raja Ramalinga Raja died on May 31, 1972. Thereon, the respondent laid the  suit for  dissolution of  the partnership firm and for rendition  of accounts  by the  appellant on  April  26, 1973. The  case of the appellant is that due to his old age, viz., 70  years as  on February  14, 1970,  there was mutual agreement by  which the  appellant had  stepped out from the partnership business leaving all assets and liabilities with the two  partners. His  right to  share in  the goodwill was mutually agreed  to be  set-off against  liabilities falling within his  share. The  partnership  under  Ex.A-2  mutually stood dissolved  on February  14, 1970 settling the accounts between  the   partners.  The   new  partnership  came  into existence on  February 15,  1970  under  Ex.B-1.  Therefore, there is  no liability on his part to render any accounts or to bear  any losses  incurred by  the new  partnership  firm under Ex.B-1  to which  he was  not a  member  on  and  from February 15,  1970. The trial Court recorded the findings as under:      "The  question   relating  to   the      goodwill  and   Vilasam  and  fixed

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    assets   of    the   business    of      "Pappuraja    and     Sons"    were      discussed. In  the end,  in view of      all these  facts, it was agreed (1)      that the  first plaintiff  and  his      brother  should   take   over   the      business as  a running concern; and      (2)  that   the  amounts  shown  as      debits against the defendant should      be considered  to have  been  wiped      out as  having been set out against      this  defendant’s   share  in   the      goodwill  and   in  the   share  of      profits really made for the above 2      years. It was on this understanding      that  the  firm  was  dissolved  on      14.2.1970 by consent of all parties      concerned. The  first plaintiff and      his brother  and others  from their      family started  their  business  in      the same vilasam with the same R.C.      No. and  in the  same premises from      15.2.1970 in pursuance of the above      conclusion.  Thus,   the  firm  was      dissolved on  14.2.1970 itself with      no need  whatsoever for  taking any      account in respect of the dissolved      firm in the above circumstances."      On the  basis of  this finding  the trial Court came to the conclusion  that the partnership firm under Ex.A-2 stood dissolved with the settlement of accounts. The appellant has nothing to  do with  the business  run  by  the  respondent- plaintiffs after  Ex.B-1 dated February 15, 1970 was entered into among  the respondent-plaintiff  and the  deceased Raja Ramalinga Raja and other. The trial Court also found thus:      "No  document  was  filed  to  show      whether the  defendant  along  with      the  plaintiffs   signed   in   the      subsequent returns.  On an analysis      of the entire evidence, it is clear      that the  old firm was dissolved on      14.2.1970 with  the consent  of all      the  partners  and  the  plaintiffs      have started  a new  partnership as      mentioned in  Ex.B-1 and  they  are      continuing the same business of the      old firm."      However, no  documents were  filed to  show whether the defendant along with the plaintiffs signed in the subsequent returns. On the analysis of the entire evidence, it is clear that the  old firm  was dissolved  on 14.2.1970  with mutual consent of  all he partners and the plaintiffs had started a new  partnership  firm  as  mentioned  in  Ex.B-1  and  they continued the  same business of the old firm. The High Court has proceeded  on the  premise that  though the old firm was dissolved, thereby,  the trading activity came to a stop and the new  firm started  doing business,  may be  of the  same nature,  it  could  not  be  concluded  that  the  old  firm automatically stood dissolved unless there was a dissolution and settlement  of accounts.  In this  case, since  it was a profit making  business, it  was unlikely that the appellant would have  agreed for  the dissolution. In support thereof, the High  Court placed  reliance on  the income-tax returns, Ex.A-4 to  A-8 for the years 1966 to 1970-71. On that basis, it was held that the firm stood dissolved with the demise of

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one of  the partners, namely, Raja Ramalinga Raja on May 31, 1972; there  was no  settlement of  accounts; therefore, the appellant was  liable to  render account for the profits and losses after  the settlement  of accounts  and to  bear  the necessary  losses   proportionate  to   his  share   in  the partnership firm.      The question  is: whether  the view  taken by  the High Court is  correct in  law. We have gone through the evidence to find  whether the  view taken  by the High Court could be supported. It  is seen  that admittedly  Ex.A-2, partnership firm  consists   of  the   aforesaid  two  persons  and  the appellant. On  February 15,  1970, another  partnership firm under Ex.B-1  was constituted consisting of the two partners and their sons. The new firm started doing the same business in the  same premises  under the same registration number of the partnership with the Registrar of the Firms. It is true, as rightly  pointed out by the High Court, that in law, mere cessation of  the trading  activity does  not  automatically result in  dissolution of  a partnership firm leaving behind no rights  and the  liabilities unless  it was dissolved and accounts settled.  It needs  no reiteration. In this case it is seen  that the  respondents have under Ex.B-1 constituted new partnership  firm and  continued the same business which the first  two partners and the appellant had carried on. It is the specific case, as accepted by the trial Court, and in the circumstances  we think it quite reasonable to reach the conclusion that  the appellant  due  to  his  old  age,  had stepped out  from the  business, foregoing hi right to share in the  goodwill of  the firm and the partners had agreed to take over  the old  partnership in  consideration of setting off of  losses, if any, from the business the amount payable towards the  share of  the appellant  in the goodwill of the firm etc.  Consequently, the partnership firm mutually stood dissolved  on  February  14,  1970.  Consequently,  the  new partnership had come into existence under Ex.B-1 on February 14, 1970  to  which  admittedly  the  appellant  was  not  a partner; nor they claimed that he was being paid any profits out of  the business  carried  on  thereafter.  Under  those circumstances, the  High Court  was not right in taking into consideration of  Ex.A-4 to  A-10,  the  returns  and  other documents in  concluding  that  he  was  a  partner  in  the partnership subsequent  to the  accounting year 1970-71. The only relevant  evidence that  could be taken into account is that if  any returns  were signed  or  acknowledged  by  the appellant subsequent  to February  1970, namely,  accounting years 1971-72,  1972-73 that  would be relevant evidence. It is not  the case that any acknowledgement of his liabilities as  a   partner  of   the  firm   is  shown.   Under   these circumstances, the  High court  was not  right in concluding that the old firm constituted under Ex.A-2 was subsisting as on the  date of the death of Raja Ramalinga Raja on February 29, 1972 and consequently, the appellant is liable to render account for the same.      The appeal  is accordingly  allowed.  The  judgment  ad decree of  the High  Court stand  set aside  and that of the trial Court  stand  confirmed,  but  in  the  circumstances, without costs.