K.P.A. VELLAYAPPA NADAR (DEAD) THROUGH LRS.versusBHAGIRATHI AMMAL AND OTHERS

         K.P.A. VELLAYAPPA NADAR (DEAD) THROUGH LRS.                       A
                                     v.
                   BHAGIRATHI AMMAL AND OTHERS

                            NOVEMBER 6, 1996

              [K. RAMASWAMY AND G.B. PATTANAIK, JJ.]                       B

         Partnership Act, 1932 :

       S.4-Partnershi~Suit for dissolution and rendition of accounts-
Partnership constituted in March 1954 replaced by another partnership
constituted in Feb. 1970 taking in two new partners and one of the earlier C
partner (appellant) stepping out of the partnership due to old age-One of
the members ofthe partnership died in May I 972-Suit laid by respondents
in I 973 for dissolution of the partnership and for rendition of account by
appellant-Plea of appellant that he having stepped out of partnership
and new partnership having been constituted in Feb. 1970, he was not
liable to render accounts, accepted by trial court but rejected by High D
Court-Held-Partnership mutually stood dissolved on Feb. I 4, I 970 and
the new partnership had come into existence under Ex. B-1 on I 4th Feb.
I 970 to which admittedly the appellant was not a partner; nor is it claimed
that he was being paid any profits out ofthe business carried on thereafler-
High Court was not right in holding the appellant liable to render accounts. E

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2566 of
I 980.

     From the Judgment and decree dated 3.4.8.0 of the Madras High
Court in Appeal No. I80 of 1976.                                           F
         S. Balakrishnan, S. Prasad and Raymond for the Appellant.

         A._T.M. Sampath for the Respondents.
                                                                           G
         The following Order of the Court was delivered :

         Substitution allowed.

     The decision impugned herein is a reversing judgment of the Madras
High Court in Appeal No. 180176, dated April 3, 1980. This appeal by       H
                                    531
    532                      SUPREMECOURTREPORTS [1996] SUPP.8 S.C.R.


A special leave relaties to an action which took place between the filing of
    the suit by the respondent for dissolution and rendition of accounts by the
    appellant.                                            ·

         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.
B 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
C the same registration 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
D the partnership business leaving all assets and liabilities with the two partners.
  His right to share in the goodwill was mutually agreed to the 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-l. Therefore, there is no liability on his part to render any
E 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
                   assets of the business of"Pappuraja and Sons" were discussed.
F                  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
G                  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
H                   in pursuance of the above conclusion. Thus, the firm was
        K.P.A. VELLA YAPPA NADAR v. BHAGIRA THI AMMAL                     533


             dissolved un 14.2.1970 itself with no need whatsoever for            A
             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         B
respondent-plaintiffs after Ex.B-1 dated February 15, 1970 was entered
into among the respondent-plaintiff and the deceased Raja Ramaling?. 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         C
              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-l and they are continuing the same business of the
              old firm."
                                                                                  D
       However, no documents were filed to show whether the defendent
along with the plaintiffs signed in the subsequent returns. On the analysis
of the entire evidence, it is clear thatthe old firm was dissolved on 14.2.1970
with mutual consent of all the partners and the plaintiffs had started a new
partnership firm as mentioned in Ex. B-1 and they continued the same              E
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   F
would have agreed for the dissolution. In support thereof, the High Court
placed reliance on the income-tax returns, Ex. A-4 to A-{) for the years
1966 to 1970-7 l. On that basis, it was held that the firm stood dissolved
with the demise of one of the partners, namely, Raja Ramalinga Raja on
May 31, 1972; there was no settlement of accounts; therefore, the appellant       G
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          H
                            SUPREMECOURTREPORTS (1996] SUPP. g S.C.R.
    534

A 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
B 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
C 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, has stepped out from the
  business, foregoing his 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
D 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 claime\I that he was being paid any profits out of the business
  carried on thereafter. Under those circumstances, the High Court was not
E 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,
F 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 those 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.
G
         The appeal is accordingly allowed. The judgment and decree of High
    Court stand set aside and that of the trial Court stand confirmed, but in the
    circumstances, without costs.

    R.P.                                                       Appeal allowed.