REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 6933-6934 OF 2002

Mohd. Laiquiddin & Anr.                                     ..Appellants

Versus

Kamala Devi Misra (Dead) By L.Rs & Ors.          ..Respondents

WITH

CIVIL APPEAL NOS. 4411-4412 of 2002

Smt. Kamala Devi Misra (Dead) By L.Rs & Ors      .Appellants

Versus

Mohd. Laiquiddin Khan & Anr.                           ..Respondents

J U D G M E N T

TARUN CHATTERJEE,J.

1. These four appeals are directed against the judgment and  

order dated 9th of April,  2002 passed in second appeal Nos.  

1048 & 1050 of 2001 of the High Court of Andhra Pradesh at  

Hyderabad, by which the High Court had partly allowed the  

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appeals and modified the order dated 17th of October, 2001 of  

the First Appellate Court, which affirmed the order of the Trial  

Court  decreeing  the  suit  for  dissolution of  partnership  firm  

and other relief filed by the appellants who are appellants in  

C.A.Nos.6933-34 of 2002.  

2. It  may be  mentioned  that  during  the  pendency  of  the  

suit,  the original  plaintiff  died and her legal  representatives  

were  substituted  as  plaintiffs  before  the  trial  court.  The  

original defendant also died before the filing of the first appeal,  

and  his  legal  representatives  were  brought  on  record  as  

Appellant Nos. 2 to 6 before the first Appellate Court. For the  

sake of convenience, the Plaintiffs would be referred to as the  

‘Appellants’ and the Defendants would be referred to as ‘the  

Respondents’.

3. The  case  made  out  by  the  original  plaintiff  (since  

deceased) in her plaint was as follows:

Shri  Jai  Narayan  Mishra,  original  defendant  (since  

deceased)  made  a  proposal  to  constitute  a  firm  for  

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construction of a cinema theatre on the land of the original  

plaintiff  (since  deceased)  and  on  acceptance  of  the  said  

proposal  by her,  they executed a deed of  partnership  dated  

26th of June, 1977. Clause 4 of the partnership deed envisaged  

that the plaintiff’s share in the profits would be 2 annas in a  

rupee. The original plaintiff (since deceased) was receiving Rs.  

2,000/-  per  month  from  the  original  defendant  (since  

deceased) in pursuance of Clause 13, which guaranteed that  

the minimum profit of Rs. 2,000/- per month would be paid to  

her. The defendant never disclosed to the plaintiff as to what  

amount was due to her on settling the annual accounts of the  

firm. The defendant never furnished the statement of accounts  

to  the  plaintiff.  He  never  disclosed  the  amount  of  profit  

payable to her towards her two anna share in the business.  

The  defendant  mismanaged  the  business  of  the  firm  and  

manipulated  the  account  books.  There  was  mutual  

irretrievable distrust between the plaintiff and the defendant  

and hence it was impossible to get along with the defendant in  

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the business of the firm. The defendant stopped payment of  

the minimum guarantee profit to the plaintiff with a motive to  

strain her financial resources. The gravity of distrust assumed  

such proportions  that  the  plaintiff  could  not  continue as  a  

partner  in  the  firm.  The  defendant  is  also  guilty  of  non-

furnishing of annual accounts to the plaintiff and hence the  

suit.  The  original  defendant  (since  deceased)  entered  

appearance  and  contested  the  suit  by  filing  a  written  

statement. In the written statement, it was, inter alia, alleged  

as follows:-  

“The  value  of  the  land  given  by  the  plaintiff  for  construction  of  the  cinema  theatre was only Rs. 70/- per sq.yard in the  year  1977.  The  defendant  invested  more  than Rs. 25 lakhs for the construction of  the  theatre.  He  has  been  maintaining  accounts  day-to-day  in  respect  of  the  business  of  cinema-theatre  and  no  transaction  relating to  the  said business  had been concealed from the plaintiff. An  extent of 1000 sq.yds. had been acquired  by the Government for widening the road  out of the total extent of 6808 sq. mts. of  the  site  given  by  the  plaintiff  for  construction  of  the  cinema  theatre  and  

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only the remaining  land was available for  the  business  of  cinema-theatre.  The  duration of the partnership as per Clause  2 of the partnership deed was 42 years but  subsequently it was agreed to give option  to the defendant for another period of 20  years.  The  terms  and  conditions  of  the  partnership  deed  were  onerous  to  the  defendant.  Irrespective  of  whether  the  business  made profit  or  not  the  plaintiff  was guaranteed a minimum income of Rs.  2,000/-  per  month  whereas  the  plaintiff  suffered no loss on account of the business  running  losses.  The  defendant  had  been  maintaining regular accounts of the firm  and after the scrutiny and approval of the  plaintiff those accounts were submitted to  the  Income  Tax  Department.  At  the  instance of the second son and the General  Power  of  Attorney  (GPA)  holder  of  the  plaintiff,  the  defendant  stopped payment  of minimum profit of Rs. 2,000/-per month  to  the  plaintiff  till  the  clearance  of  the  amount  due  to  Income  Tax  Department.  The defendant had always been ready and  willing  to  pay  the  amount  due  to  the  plaintiff  as  and  when  the  plaintiff   obtained  clearance  from  the  Income  Tax  Department. The plaintiff never whispered  any  doubt  about  the  correctness  of  the  accounts.  The  Plaintiff  No.2  who  is  the  GPA holder of the original plaintiff (since  deceased)  had  been  acting  in  a  highly  irresponsible  manner  detrimental  to  the  interest of the parties. The alleged gravity  of distrust is a result of the willful actions  

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on part of the G.P.A holder of the plaintiff   who  sought  to  take  advantage  of  the  deteriorating  mental  and  physical  condition of the plaintiff. The plaintiff had  not  issued  any  notice  alleging  any  contravention of the terms and conditions  of the partnership deed and the business  was made for a specific period subject to  the  option of  the defendant.  The present  suit  was  frivolous  and  misconceived  and  therefore was liable to be dismissed with  costs.”

4. By the judgment and order dated 18th of January, 1999,  

the   VIIth  Senior  Civil  Judge,  City  Civil  Court,  Hyderabad,  

decreed  the  suit  and  passed  a  preliminary  decree  of  

dissolution and for rendition of accounts. The defendant was  

further directed to hand over the entire property with allied  

structure and other materials to the plaintiff.  

The trial court framed the following issues for trial:

a) Whether the plaintiffs are entitled for dissolution of the  

partnership firm as prayed for?

b) To what relief ?

5. After  examining  the  oral  and  documentary  evidence  

adduced by both the parties, and after verifying the relevant  

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provisions of the Partnership Act the Trial  Court, inter alia,  

arrived at the following findings:

“The  Partnership  firm  stood  dissolved  by  the  death  of  the  

original plaintiff (since deceased) on 17th of May, 1996. Since  

there was no mutual confidence between the parties and as  

there had been severe disputes since 1988, carrying on the  

business  of  the  firm  became  practically  impossible.  It  was  

further held that since the legal representatives of the original  

plaintiff  (since deceased),  the appellants before us, were not  

agreeable to enter into partnership with the defendant and in  

view of the dissolution of the partnership due to the death of  

the original plaintiff, the necessary consequence was rendering  

of  accounts  and  complying  with  the  other  terms  of  the  

partnership  deed.  It  was  ultimately  held  that  there  was  

deemed dissolution of  the  partnership  firm with effect  from  

17th of  May,  1996 due to  the  death  of  the  original  plaintiff  

(since  deceased)  and  consequently  the  appellants,  her  legal  

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representatives, were entitled for rendition of accounts and to  

be  handed  over  the  entire  cinema  theatre  with  allied  

structures as per Clause 24 of the deed of partnership within  

three  months from the  date  of  the  judgment.  But  the  Trial  

Court recorded a finding that there was no mismanagement by  

the defendant as alleged in the plaint.”  

6. As noted herein earlier, after the suit was decreed and  

before an appeal was preferred from the same, the defendant  

in the said suit died and his legal representatives were brought  

on record before the First Appellate Court.  

7. Feeling aggrieved by the order of the VIIth Senior Civil  

Judge, City Civil Court, Hyderabad, the respondents, the legal  

representatives of  the  defendant,  preferred an appeal  before  

the  XIIIth  Addl.  Chief  Judge,  (Fast  Track  Court),  City  Civil  

Court,  Hyderabad. The appellants also filed cross objections  

praying that it should be held there was dissolution of the firm  

on account of mismanagement. The First Appellate Court, by  

an order dated 17th of  October,  2001,  dismissed the appeal  

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confirming  the  judgment  and  decree  of  the  trial  court  and  

allowed the cross objections filed by the Appellants. The issue  

framed by the First Appellate Court was as follows:

a) Whether the plaintiffs are entitled for the dissolution of  

partnership firm?

8. The Appellate Court, on the question of dissolution of the  

partnership  firm,  concurred  with  the  findings  of  the  Trial  

Court, holding that since there were only two partners in the  

partnership firm and as one of the partner died there was no  

scope  and possibility  to  continue the  partnership  firm.  The  

appellate court further held that the Respondents could not  

rely upon clause 24 of the Partnership Deed which stipulated  

that  after  the  expiry  of  42  years  the  land  as  well  as  the  

building  with  the  fixtures  etc.,  would  be  vested  with  the  

original plaintiff (since deceased).

9. On the question of  mismanagement of  the accounts of  

the firm, the Appellate Court had allowed the cross objections  

preferred by the appellants. The respondents did not disclose  

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the accounts and they were ignorant of the amounts and the  

profits to which appellants were entitled to. The respondents  

also did not produce the corresponding ledger and cash books.  

In the light of these findings it was held that the management  

of the account was not proper.

10. Aggrieved by the order of the First Appellate Court dated  

17th of October, 2001, the Respondents took an appeal before  

the High Court  of  Andhra Pradesh at  Hyderabad.  The High  

Court,  by  its  judgment  and  order  dated  9th of  April,  2006,  

allowed  the  appeal  in  part  and  substantially  modified   the  

judgment and decree of the trial court.   

11. The issues that were raised for consideration of the High  

Court were as follows:

(1) Whether the partnership firm stood dissolved by virtue of  

Section 42 (c) of the Indian Partnership Act on account of the  

death of the plaintiff No.1 ?  

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(2) Whether there was mismanagement of the business of the  

partnership  firm  by  the  defendant  No.1  as  he  failed  to  

maintain proper accounts?  

(3)  Whether  the  partnership  can be  treated as a  license  as  

contended by the defendant-appellants ?  

(4) Whether the land given by the plaintiff No.1 and the theatre  

constructed by the defendant No.1 was the properties of the  

firm liable  to be shared as per the shares of  the respective  

partners?

(5)  Whether  the  Courts  below  were  justified  in  directing  

delivery of the land along with the structures, machineries and  

equipments to the plaintiff on account of the dissolution of the  

partnership firm?  

(6) Whether the plaintiff was entitled for rendition of accounts  

from the date  of  commencement of  the firm till  the date  of  

dissolution?  

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12. The findings of the High Court as to these issues raised  

were as follows.

1) As  to  the  point  of  the  dissolution  of  the  firm,  the  

respondents submitted that since the parties agreed that  

in spite  of  the  death of  any of  the partners,  the firms  

shall continue for 42 years irrespective of the death of the  

original  plaintiff  (since  deceased)  in  respect  of  the  

partnership deed after examining the relevant provision  

of  the  Partnership  Act,  the  Court  concurred  with  the  

findings of the Trial Court and the First Appellate Court.  

To  reach  this  conclusion,  the  High  Court  had  placed  

reliance on the following decisions of this Court, namely,  

CIT v. Suraj Bhan Omprakash, [1986 ITR 833] and  Smt.  

S. Parvathammal v. CIT, [1987 ITR 161].  

2)  On the question of mismanagement of the firm, the High  

Court  held that  the  First  Appellate  Court  was right  in  

holding that there was mismanagement on the grounds  

of  (i)  non  production  of  the  account  books  for  the  

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verification of  the original  plaintiff  (since deceased);  (ii)  

the non inclusion of the certain amounts received by way  

of  income in  the  accounts,  (iii)  the  non submission  of  

correct accounts to the income tax department and (iv)  

the  failure  of  the  original  defendant(since  deceased)  

apprising the original plaintiff(since deceased) about the  

profits and losses of the firm.

3) The  Respondents  pleaded  that  in  the  event  the  court  

comes to a conclusion that the firm stood dissolved, the  

partnership  deed  was  to  be  treated  in  the  nature  of  

license. The High Court held that the respondent could  

not  deny  their  liability  under  the  other  terms  of  

Partnership deed, at the same time, seeking benefit from  

the same. The respondents laid undue stress on Clause  

20 of the partnership deed, which showed that the deed  

was one of partnership and that both parties had acted  

upon  it.  Once  the  issue  of  dissolution  was  already  

decided against him on the basis of Section 42 of the Act  

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and  also  Clause  20,  he  could  not  urge  the  Court  to  

construe the same as a license, since both these pleas  

were irreconcilable with each other.   

4) In relation to the question of property of the partnership  

firm, the Court examined Section 14 of the Partnership  

Act,  1932,  the  legal  position  and  the  terms  of  the  

contract between the parties. Section 14 defines what a  

property  of  the  firm  is.  It  is  subject  to  the  contract  

between  the  parties.  According  to  this  section,  the  

property of the firm includes all properties and rights and  

interests in property originally brought into the stock of  

the firm or acquired by purchase or otherwise by or for  

the  firm or  for  the  purposes  and in  the  course  of  the  

business of the firm and includes also the goodwill of the  

business.  The  general  rule  laid  down  in  the  section  

"subject to contract between the parties" makes it clear  

that  the  partners  may  agree  between  themselves  to  

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change the general rule and such an agreement may be  

expressed or implied.

In the partnership deed, it was clearly mentioned that the  

“1st party” (original plaintiff) offered her land towards her  

two-anna  share  capital  for  the  construction  of  cinema  

theatre  and  other  allied  constructions  for  running  a  

cinema  business.  The  “2nd party”  (Original  defendant)  

agreed  to  construct  cinema  theatre  and  other  allied  

constructions by procuring the necessary funds. It was  

agreed  that  the  1st party  would  not  be  bound  to  

contribute any amount towards such constructions.  In  

the light of Section 14 of the Act and in the light of the  

decision of Boda Narayana Murthy & Sons v. Valluri  

Venkata Suguna, [AIR 1978 AP 257],  the  High Court  

held  that  the  land  and  the  cinema  were  not  the  

properties of the firm and they were the properties of the  

respective parties.     

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5) In relation to the question of directing delivery of the land  

along with the structures, machineries and equipments  

to  the  appellants  on  account  of  the  dissolution  of  the  

partnership firm, the High Court came to a conclusion  

that the direction for delivery of the entire property to the  

Appellants  would  cause  prejudice  to  the  rights  of  the  

Respondents  and  would  put  them  to  loss.  Since  the  

partnership got dissolved on account of the death of the  

original  plaintiff  (since deceased),  it  would be just  and  

reasonable  if  each  party  is  directed  to  take  their  

respective properties.  But,  in view of the embedding of  

the  walls,  the  flooring,  pillars  etc.,  to  the  land  of  the  

original plaintiff (since deceased), it may not be possible  

for  the  Respondents  to  realize  the  value  of  the  entire  

building.  Further,  the  High  Court  held  that  the  

appellants were entitled to have exclusive possession of  

the land and respondents were entitled to take away the  

projectors and the other machineries, the furnitures and  

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all other items, which can be safely removed from their  

place and the Appellants should pay the Respondents the  

value of the remaining portions of the structures which  

could not be removed without any damage, after proper  

valuation of the same.  

As the First Appellate court held that the management of  

the account of the firm was not proper, with which the  

High Court was also in agreement, the High Court noted  

that  the  amount,  if  any,  due  to  the  Appellants  after  

rendition of the account of the firm shall be determined.  

It  was  observed  that  the  trial  court  also  asked  for  

rendition of accounts on the dissolution of the firm.

6) As  for  the  rendition  of  accounts,  the  High  Court  

concurred with the findings of the Courts below.   

13. The High Court finally concluded that:

“The  defendants  are  permitted  to  take  away  the  machineries, the equipments,  the furnitures and all   other items including the material of the structure to   the  extent  possible  and  deliver  possession  of  the  land with  the remains of the structure which could  not  be  removed on account  of  impossibility  due  to  

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embedding  of  those  structures  to  the  land.  The  defendants  are  entitled  to  get  the  value  of  such  remaining  structures  assessed  through  a  qualified   technical  expert and are entitled to get the value of   such structures from the plaintiffs after adjustment  of the amount, if any, found due to the plaintiffs after  finalisation  of  the  accounts  which  are  going  to  be   rendered  by  them.  If  the  amount  due  to  the  1st  plaintiff towards profit of the business to the extent  of her share, is more than the value of the remaining  structures,  the  plaintiffs  are  entitled  to  recover  the  same from the defendants.”

14. Feeling  aggrieved  by  the  order  of  the  High  Court,  the  

Appellants  and  Respondents  filed  the  present  special  leave  

petitions, which on grant of leave, were heard in the presence  

of the learned counsel for the parties.

15. Before  us  the  pivotal  issues  which were  raised  by  the  

parties are as follows:

a) Whether the High Court was justified in permitting the  

Respondents in raising a question for the first time in  

second appeal, which was not in the pleading before the  

Trial Court or the First Appellate Court?

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b) Whether  the  High  Court  was  justified  in  holding  that  

there  had been dissolution of  the  partnership  firm on  

account of death of a partner?

c) Whether the High Court was justified in permitting the  

Respondents to remove the movables from the disputed  

property,  contrary  to  the  deed  of  partnership  entered  

into  between  the  original  plaintiff  and  the  original  

defendant?

16. We have heard the learned senior counsel for the parties  

and examined the impugned judgment and the materials on  

record.  

17. As to the issue raised by the Appellants that the High  

Court was not justified in permitting the Respondents to raise  

a new plea for the first time in the second appeal, we may at  

the  outset  note  that  we  do  not  find  any  substance  in  this  

contention raised by the learned counsel  for the appellants.  

They contended that the High Court committed an error of law  

in considering a new ground of challenge without any plea or  

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factual background neither before the Trial Court nor the first  

appellate  court.   The  new  plea  which  was  allegedly  raised  

before the High Court for the first time was that all assets of  

the firm including the land and building shall be dealt with  

under  Section  48  of  the  Act  and  the  proceeds  shall  be  

disbursed  to  the  two  partners  in  accordance  with  the  

respective shares as per the partnership deed. The High Court  

as can be seen from the record had dismissed this plea. The  

Respondents have not appealed against the said finding of the  

High Court. That apart, when a question of law is raised on  

the basis of the pleadings and evidence on record which might  

not have been raised before the courts below, it is difficult to  

hold that such question of law cannot be permitted for the first  

time before the High Court. Therefore, we do not see how the  

Appellants are aggrieved by this finding of the High Court even  

assuming the High Court had formulated a new question of  

law, which was not raised before the Courts below.

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18. In the case of  Hardayal Gir v. Sohna Ram,  [1970 (3)  

SCC 635], this Court had set aside the judgment of the High  

Court  which  allowed  the  plaintiff  to  raise  a  plea  of  

misrepresentation,  raised  for  the  first  time  in  the  second  

appeal. In that case, however, the High Court held that the  

contract had become unenforceable on account of the plea of  

misrepresentation.  Hence,  the  defendant  in  that  case  was  

indeed aggrieved as the High Court had allowed a plea which  

he could not have defended properly. In the case at hand, the  

plea  in  question,  assuming  it  had  been raised  for  the  first  

time, had been rejected by the High Court, and there had been  

no appeal from the said finding.  

19. The  Respondents  relied  on  the  following  decisions:  

Chandra Singh v. State of Rajasthan [(2003) 6 SCC 545], in  

which case this Court enunciated the principles governing the  

exercise  of  its  jurisdiction  under  Article  136  of  the  

Constitution of India; and Santakumari & Ors. v. Lakshmi  

Amma Janaki Amma (D) By Lrs. & Ors., [(2000) 7 SCC 60]  

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in which decision this Court, after examining the orders of the  

Courts below arrived at a conclusion that the Second Appellate  

Court had not made out a new plea by merely interpreting the  

documents and by putting a form to the nature of transactions  

in question. In the light of our views expressed hereinabove on  

this issue, we do not find it necessary to further delve into this  

matter.  Suffice  it  to  say  that  as  held  in  the  case  of  

Santakumari  (supra),  this  Court  would  not  exercise  its  

powers  under  Article  136  of  the  Constitution,  until  grave  

injustice  is  shown to be caused to the party by way of  the  

impugned order.

20. The sole issue raised by the Respondents in this appeal,  

who are  the  appellants  in  Appeal  No.  4411-4412 /2002,  is  

whether the finding of the Courts below that the Partnership  

firm stood dissolved on account of death of one of the partners  

was  correct  in  the  light  of  the  express  provisions  of  the  

Partnership Act, namely, Section 42 (c) of the same.  Before we  

proceed to examine the correctness of this concurrent findings  

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arrived at by the Courts below, it is necessary to examine the  

relevant  provisions  of  the  Partnership  Act,  1923  and  the  

relevant clauses of the partnership deed entered between the  

original plaintiff and the original defendant.   

“Partnership”  is  defined  under  Section  4  of  the  Act  which  

reads as under:  

“Partnership is 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”.”  

21. Section 42 of the Act reads as under:

“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 the 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.”  

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22. Dissolution of a partnership firm on account of death of  

one of the partners is subject to the contract entered into by  

the parties. In this context, it is pertinent to refer to the terms  

of the deed of partnership.

23. Clause 22 of the Partnership deed reads as follows:

“The  partnership  shall  be  in  force  for  a  period of 42 years certain from this date and  the death of any partner shall not have the  effect of dissolving the firm.”  

This clause clearly states that death of any partner shall  

not have the effect of dissolving the firm. However, in the facts  

and circumstances of the case, we are not in a position to give  

absolute effect to this clause of the deed of partnership.  

24. The learned counsel for the Respondents contended that  

since the parties agreed that in spite of the death of any of the  

partners, the firm shall continue for 42 years irrespective of  

the  death  of  the  original  plaintiff  (since  deceased).  They  

further,  argued  that  it  clearly  contemplates  that  the  legal  

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representative of the partner, who dies, would be under a duty  

to  enter  into  a  fresh  deed  of  partnership.  The  legal  

representatives were precluded from claiming benefits if they  

deny entering into a fresh partnership agreement.  

25. In order to arrive at the conclusion that the partnership  

firm  stood  dissolved  on  account  of  death  of  one  of  the  

partners, the High Court had rightly placed reliance on Smt.  

S.  Parvathammal  v.  CIT  (1987  Income  Tax  Reports  161),  

wherein  this  Court  held  that  in  a  firm  consisting  of  two  

partners on account of death of one of the partners, the firm  

automatically dissolved and observed as follows:

“A partnership normally dissolves on the death  of the partner unless there was an agreement  in  the  original  partnership  deed.  Even  assuming that there was such an agreement in  a partnership consisting of two partners on the  death  of  one  of  them  the  partnership  automatically comes to an end and there is no  partnership  which  survives  and into  which  a  third  party  can  be  introduced.  Hence  on  the  death  of  S,  the  original  partnership  was  dissolved.  The  subsequent  taking  in  of  the  assessee as a partner was only as a result of  entering into of a new partnership between R  

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and the assessee. Partnership was not a matter  of heritable status but purely one of contract.”

26. In the light of aforementioned case, it is clear that when  

there are only two partners constituting the partnership firm,  

on the death of one of them, the firm is deemed to be dissolved  

despite  the  existence  of  a  clause  which  says  otherwise.  A  

partnership is a contract between the partners. There cannot  

be  any  contract  unilaterally  without  the  acceptance  by  the  

other  partner.   The  Appellants,  the  legal  representatives  of  

original plaintiff (since deceased) was not at all interested in  

continuing the firm or constitute a fresh firm and they  cannot  

be  asked  to  continue  the  partnership,  as  there  is  no  legal  

obligation upon them to do so as partnership is not a matter of  

heritable status but purely one of contract, which is also clear  

from the definition of partnership under Section 4. Therefore,  

the trial court was justified in holding that the firm dissolved  

by virtue of death of one of the partners and the first appellate  

court as well as the High Court have taken the correct view in  

upholding the same.   

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27. As to the issue related to removing the movables from  

Anand Cinema and allowing the Respondents to recover the  

value of  the building and structures embedded to the land,  

from the appellants, we should examine the relevant provision  

of the Act and the relevant clause of the partnership deed.  

28. Section  14  of  the  Partnership  Act  talks  about  the  

property of the firm. It reads as follows:

“Subject to contract between the partners, the  property  of  the  firm includes all  property  and  rights  and  interest  in  property  originally  brought into the stock of the firm, or acquired,  by purchase or otherwise, by or for the firm for  the purposes and in the course of the business of  the firm, and includes also the goodwill of the  business.

Unless  the  contrary  intention  appears,  property  and  rights  and  interest  in  property  acquired with money belonging to the firm are  deemed to have been acquired for the firm.”

29. In addition to this, it is necessary to examine the certain  

clauses of the Partnership deed, which were entered between  

the original plaintiff and the original defendants.  

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Clause 24 -

"The Party of the Second Part hereby declares,  covenants and agrees that at the end of the  period of forty two (42) years, this partnership  shall  automatically  come  to  an  end  and  thereafter  the  entire  property,  that  is  land,  buildings,  constructions,  machineries,  equipment,  furniture,  fixture,  fittings  etc.,   shall  automatically  vest  in  the  party  of  the  first part in "As is where is" condition. Neither  party shall be entitled to remove any item or  property  except  for  replacement  by  the  firm  during  the  subsistence  of  this  Partnership  Firm"

30. The learned counsel  for  the  Appellants  contended that  

the High Court was in error in allowing the Respondents to  

remove the movables from Anand Cinema and in holding that  

they are entitled to the value of the building and structures  

embedded to the land, from the Appellants. Further, he argued  

that  the  High  Court  had  concurrently  found  that  the  

partnership  is  dissolved  by  operation  of  law  and  

mismanagement by the Respondents and therefore by virtue of  

Clause 24 of the deed, the Appellant was entitled to get the  

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entire  Anand  cinema  hall,  which  was  admitted  by  the  

Respondent during his examination.  

31. The learned counsel for the appellants on the question of  

the partnership property relied on various cases of this Court.  

In  the  case of  Arjun Kanoji  Tankar v.  Santaram Kanoji  

Tankar [(1969) 3 SCC 555], this Court held that “the property  

belonging to a person, in the absence of an agreement to the  

contrary does not, on the person entering into a partnership  

with others,  become the property  of  the  partnership  merely  

because  it  is  used  for  the  business  for  partnership.  It  will  

become  property  of  the  partnership  only  if  there  is  an  

agreement express or implied at the property was, under the  

agreement of partnership, to be treated as the property of the  

partnership.” [Emphasis supplied]

32. The same view has been reiterated in the case of  Arm  

Group Enterprises Ltd.  v.  Waldorf Restaurant,  [(2003)  6  

SCC 432].  

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33. The learned counsel for the Appellant placed reliance on  

Halsbury’s Law of England, to determine how to construe a  

partnership agreement. Paragraph 39 of the Halsbury’s Law of  

England (4th Edition) states as follows:  

“Partnership  agreements,  like  any  other  agreements,  will  be  construed  according  to  normal canon of construction, so that a court  will  construe  a  partnership  agreement  in  the  light of partners objectives, and terms may be  implied  by  the  Court  to  give  the  agreement  business efficacy.”  

34. In the case of  Mills v. Clarke, [1953 (1) AER 779] the  

defendant started the  business  of  a  photographer  and then  

admitted the plaintiff- a successful freelance photographer as  

a  partner.  The  leasehold  premises,  furniture  and  studio  

belonged to the defendant. It was intended to record the terms  

of partnership into a formal agreement, but no terms were ever  

settled,  except  that  the  partners  were  to  share  the  profits  

equally. On dissolution of the partnership it was held that no  

terms ought to be implied except such as were essential  to  

business efficacy and that only consumable items of stock-in-

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trade were to be regarded as assets of the partnership, and the  

lease of the property, equipment and personal goodwill were to  

be treated as being the property of the partners who brought  

them into business.  

35. The learned counsel for the Respondents contended that  

as per clauses 11 and 13 of the deed, the land, the building  

and the machinery became the property of the firm and the  

said property  has to be treated as the  property  of  the  firm  

under  Clause  21  and  learned  counsel  for  the  respondents  

further submitted that as the plaintiff’s share was only 2 anna  

as per clause 4, the value of the above properties of the firm  

shall be distributed in the ratio of 2:14 between them.

36. The learned counsel for the respondents relied on various  

cases of this court. In the case of  Commissioner of Income  

Tax, Madhya Pradesh v. Dewas Cine Corporation, [(1968) 2  

SCR 173], this Court held that “a partner may, it is true, in an  

action for dissolution insist that the assets of the partnership  

be realised by sale of its assets, but where in satisfaction of  

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the claim of the partner to his share in the value of the residue  

determined  on  the  footing  of  an  actual  or  notional  sale  

property is allotted, the property so allotted to him cannot be  

deemed in law to be sold to him.  

37. Under  the  Partnership  Act,  1932,  property  which  is  

brought into the partnership by the partners when it is formed  

or  which  may  be  acquired  in  the  course  of  the  business  

becomes  the  property  of  the  partnership  and  a  partner  is,  

subject  to  any  special  agreement  between  the  partners,  

entitled upon dissolution to a share in the money representing  

the value of the property.”     

38. In the case of  Narayanappa v. Krishtappa, [(1966) 3  

SCR 400], the issue was whether on relinquishment of rights  

by partners of an erstwhile partnership, there was a transfer of  

immovable  property,  which  required  to  be  registered  to  

constitute a valid transfer. This Court observed:

“No doubt, since a firm has no legal existence,  the  partnership  property  will  vest  in  all  the  partners and in that sense every partner has an  interest  in  the  property  of  the  partnership.  

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During  the  subsistence  of  the  partnership,  however, no partner can deal with any portion of  the property as his own…His right is to obtain  such profits,  if  any,  as  fall  to  his  share  from  time to time and upon dissolution of the firm to  share  in  the  assets  of  the  firm  which  remain  after  satisfying  the  liabilities  set  out  in  S.48.  The whole concept of partnership is to embark  upon  a  joint  venture  and  for  that  purpose  to  bring  in  as  capital  money  or  even  property  including immovable property…The person who  brought  it  in  would,  therefore,  not  be  able  to  claim  any  exclusive  right  over  any  property  which  he  has  brought  in,  much  less  over  any  other partnership property.”  

39. This  principle  was  reiterated  in  the  case  of  Malabar  

Fisheries Co. Calicut v. CIT, [(1979) 4 SCC 766].    

40. In the case of S.V. Chandra Pandian v. S.V. Sivalinga  

Nadar [(1993) 1 SCC 589], this Court held that:  

“In the entire asset of the firm all the partners  have  an interest  albeit  in  proportion to  their  share  and  the  residue,  if  any,  after  the  settlement  of  accounts  on  dissolution  would  have to be divided among the partners in the  same proportion in which they were entitled to  a share in the profit… The mode of settlement  of  accounts  set  out  in  Section  48  clearly  indicates  that  the  partnership  asset  in  its  entirety must be converted into money from the  pool disbursement has to be made…”  

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41. In  the  light  of  the  argument  advanced  by  the  learned  

counsel for the parties, the relevant provisions of the Act and  

the clauses of the deed, we do not find any infirmity in the  

reasoning given by the learned Judge of the High Court. It is  

true that there was no intention from either of the parties to  

treat these properties as the properties of the firm. A careful  

perusal of Clause 24 clearly indicates that the land as well as  

the  building  with  the  fixtures  etc.,  to  be  vested  with  the  

original plaintiff (since deceased), after the expiry of term of 42  

years. It is also true that directing the delivery of the entire  

property to the appellant would cause prejudice to the rights  

of  the  Respondents  and  would  put  him  to  loss.  As  noted  

hereinabove, the partnership got dissolved on the death of the  

original  plaintiff  (since deceased),  it  would be reasonable  to  

allow both the parties to take their respective properties. The  

Appellants are entitled to the exclusive possession of the land  

and the Respondents are entitled to take away the movables  

from the property and recover the value of the buildings and  

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structure embedded to the land. It has to be assessed by the  

technically qualified person. The Appellants are liable to pay  

the  value  of  the  remaining  structures  after  adjusting  the  

amount if any due to the Appellants.

42. Accordingly, we do not find any merit in these appeals  

and the appeals are thus dismissed. There will be no order as  

to costs.

      ……………………J.       [Tarun Chatterjee]

New Delhi;      ………………………J. January 05, 2010.               [V.S.Sirpurkar]      

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