Case BriefsHigh Courts

Bombay High Court: A Division Bench of Ujjal Bhuyan and Abhay Ahuja, JJ., while addressing an issue with regard to the Cooperative Societies, made an observation that,

We find it a bit perplexing that for a dispute having its genesis in charging or billing of an individual shareholder member, drastic steps, such as, dissolution of the managing committee and appointment of Administrator have been resorted to.

Petition challenges the Order passed by the Dy. Registrar i.e. respondent 2 directing the Shyamrao Vitthal Co-operative Bank — respondent 4 not to allow the petitioner to operate the Society bank account and challenging the order passed by respondent 2 also directing respondent 4 Bank to permit the administrator appointed by respondent 2 to operate the bank account of Viddhisha Shantiniketan CHS Ltd. i.e. Respondent 7 Society.

Bench on perusal of the facts and circumstances of the present case noted that the present matter is a very hotly contested dispute between the office bearers of the Society on the one hand and an individual of the Society on the other hand.

High Court declined to entertain the present petition as the appeal is still pending for the present matter.

Court directed respondent 3 to decide the pending appeal so that the day-to-day functioning of the Society is not hampered due to the dispute.

Till the disposal of the appeal is done Society shall be jointly managed under the Chairmanship of the petitioner and the Respondent 6 only for day to day affairs including payment of municipal taxes, light bills and other outgoings of Respondent 7 Society.

Bench added to its direction that respondent 4 shall unfreeze the account to allow the operation of the respondent 7 account.

Co-operative societies are now a part of the constitutional scheme as cooperative societies have been inserted in the Constitution of India as Part IX B by way of the Constitution (Ninety-seventh Amendment) Act, 2011 w.e.f 15-02-2012.

Therefore, in view of the above-stated position, co-operative societies should have the necessary space and autonomy to function and develop to its full potential. Also, interference in their matter should be avoided unless there is a serious statutory breach.

Court disposed of the present petition in view of the above terms. [Rambujarat Ramraj Chaurasia v. State of Maharashtra, 2020 SCC OnLine Bom 901, decided on 02-09-2020]

Op EdsOP. ED.

Partnership

1. Section 4 of the Partnership Act, 1932[1] (“the Act”) defines ‘partnership’ as a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. It further goes on to explain that the persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’, and the name under which their business is carried on is called the ‘firm name’.

2. The essence of the above definition is that a partnership is an agreement to share profits of a business, and the business should be carried on by all or any one of them acting for all.

3. The essential features of a partnership are:

  • partnership is the result of an agreement;
  • it is organised to carry on a business;
  • persons concerned agree to share the profits of the business; and
  • business is to be carried on by all or any one of them acting for all.

4. The Supreme Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. K. Kelukutty[2], has elucidated the essentials of a partnership as:

“11. The  Partnership Act, 1932 has, by Section 4, defined a “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 section declares further that the persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”. The components of the definition of “partnership”, and therefore of “a firm” consist of (a) persons, (b) a business carried on by all of them or any of them q acting for all and (c) an agreement between those persons to carry on such business and to share its profits. It is the relationship between those persons which constitutes the partnership. The relation is founded in the agreement between them. The foundation of a partnership and, therefore, of a firm is a partnership agreement. A partnership agreement is the source of a partnership; it also gives expression to the other ingredients defining the partnership, specifying the business agreed to be carried on, the persons who will actually carry on the business, the shares in which the profits will be divided, and the several other considerations which constitute such an organic relationship. It is permissible to say that a partnership agreement creates and defines the relation of partnership and therefore identifies the firm.”

5. Section 6 of the Act states that while determining whether a group of persons is a firm or not, or whether a person is a partner in the firm or not, regard shall be given to the real relation between the parties, as shown by all the relevant facts taken together. In Laxmibai Roshan Lal[3],  the Rajasthan High Court held that a contract merely to take a share of profits, or giving a loan to a person engaged in any trade, upon a contract with such person that the latter shall receive interest along with share of the profits does not necessarily lead to an inference of partnership.

Therefore, as a general principle in determining the existence of a partnership, one must not merely see that the conditions of Section 4 are satisfied, but also whether in substance or in essence a partnership was intended.

Retirement of a Partner

6. Section 32 of the Act deals with the retirement of a partner as under:

“(1) A partner may retire,

  • with the consent of all the other partners,
  • in accordance with an express agreement by the partners, or
  • where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

(2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

(3) Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement:

Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.

(4) Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm.”

The word ‘retire’ in the said section is confined to cases where a partner withdraws from the firm and the remaining partners continue to carry on the business without dissolution as between them. It does not cover a case where a partner withdraws from the firm by dissolution and not by retirement.

Sub-section (2) of the said section states that a partner may be discharged from any liability to any third party for acts of the firm, before his retirement, by an agreement made by him with such third party and partners of reconstituted firm, and such agreement may be implied by course of dealing between such third party and reconstituted firm after he had knowledge of retirement. Further, sub-section (3) lays down that notwithstanding retirement of a partner, he and the other partners continue to be liable to third parties for any acts done by any of them which would have been act of the firm if done before retirement until public notice of the retirement is given. However, the retired partner shall not be liable to third party who deals with the firm without knowledge that he was a partner.

Dissolution of a Firm

7. Section 39 of the Act defines dissolution as the dissolution of partnership between all the partners of a firm. As per the said definition, a firm is said to be dissolved only when all and every one of the members of the firm cease to carry on its business in partnership with each other.

8. The question whether there has been a dissolution of the firm and or upon such dissolution a new firm has succeeded to the business of the old firm, is a question which can be ascertained from the facts and circumstances and documents available. The Supreme Court in Commissioner of Income Tax, West Bengal-III v. Pigot Champan & Company[4], has held that the question whether there has been a dissolution of the firm and upon such dissolution a new firm has succeeded to the business of the old firm is a question which depends upon the intention of the parties to be gathered from the document or documents, if any, executed by and between the partners and other facts and surrounding circumstances of the case.

Retirement and Dissolution

9. Retirement of a partner from a firm is not equivalent to dissolution of the firm, though if one partner retires in a partnership consisting of two partners, it shall amount to dissolution of the firm. But when a partner retires from a partnership consisting of more than two partners, the partnership is not automatically dissolved. It shall depend upon terms of partnership governing the parties.

  • The Supreme Court in Commissioner of Income Tax, West Bengal v. A.W. Figgies & Co.[5] has explained the provisions of retirement of a partner as:

“9. It is true that under the law of partnership a firm has no legal existence apart from its partners and it is merely a compendious name to describe its partners but it is also equally true that under that law there is no dissolution of the firm by the mere incoming or outgoing of partners. A partner can retire with the consent of the other partners and a person can be introduced in the partnership by the consent of the other partners. The reconstituted firm can carry on its business in the same firm’s name till dissolution. The law with respect to retiring partners as enacted in the Partnership Act is to a certain extent a compromise between the strict doctrine of English common law which refuses to see anything in the firm but a collective name for individuals carrying on business in partnership and the mercantile usage which recognises the firm as a distinct person or quasi corporation.”

 So, the retirement of a partner from a firm does not dissolve the firm, but merely severs the partnership between retiring partners and continuing partners, leaving the partnership among continuing partners unaffected.

  • The distinction between retirement and dissolution has also been highlighted by the Calcutta High Court in Sohanlal Pachisia & Co. v. Bilasray Khemani[6] as:

“31. But it is clear from Section 32 of the Partnership Act read with the relevant sections in Chapter VI of the said Act that by mere retirement of a partner, a firm is not dissolved but the retiring partner must give notice of his intention to dissolve the firm in order to bring about a dissolution…”

  •  The above distinction has been further elucidated by the Supreme Court in Pamuru Vishnu Vinodh Reddy v. Chillakuru Chandrasekhara Reddy[7], as under:

“Use of the word ‘retire’ in Section 32 of the Act is confined to cases where a partner withdraws from a firm and the remaining partners continue to carry on the business of the firm without dissolution of partnership as between them. Where a partner withdraws from a firm by dissolving it, it shall be dissolution and not the retirement. Retirement of a partner from a firm does not dissolve it, in other words it does not determine partnership inter se between all the partners. It only severs the partnership between the retiring partner and continuing partners, leaving the partnership amongst latter unaffected and the firm continues with the changed constitution comprising of the continuing partners. Section 32 provides for retirement of a partner but there is no express provision in the Act for the separation of his share and the intention appears to be that it would be determined by agreement between the parties…”

  •  Most recently, the Supreme Court in Guru Nanak Industries, Faridabad Amar Singh[8], also explained the distinction between ‘retirement of partner’ and ‘dissolution of partnership firm’, observing as under:

“13. There is a clear distinction between ‘retirement of a partner’ and ‘dissolution of a partnership firm’. On retirement of the partner, the reconstituted firm continues and the retiring partner is to be paid his dues in terms of Section 37 of the Partnership Act. In case of dissolution, accounts have to be settled and distributed as per the mode prescribed in Section 48 of the Partnership Act. When the partners agree to dissolve a partnership, it is a case of dissolution and not retirement…. In the present case, there being only two partners, the partnership firm could not have continued to carry on business as the firm. A partnership firm must have at least two partners. When there are only two partners and one has agreed to retire, then the retirement amounts to dissolution of the firm.”


*Advocate and a qualified Chartered Accountant.  Author  is currently a Senior Associate in the Dispute Resolution Practice at L&L Partners Law Offices, New Delhi. Author’s views are personal.

[1] Partnership Act, 1932

[2] (1985) 4 SCC 35

[3] 1971 SCC OnLine Raj 38

[4] (1982) 2 SCC 330

[5] 1954 SCR 171 

[6]  1953 SCC OnLine Cal 98

[7] (2003) 3 SCC 445

[8] 2020 SCC OnLine SC 469

Case BriefsForeign Courts

“Rule of Law dictates that every act that is not sanctioned by the law and every act that violates the law be struck down as illegal.”

Supreme Court of the Democratic Socialist Republic of Sri Lanka: A Seven-Judge Bench comprising of H.N.J. Perera, CJ and Buwaneka Aluwihare, Sisira J. De Abrew, Priyantha Jayawardena, Prasanna Jayawardena, Vijith K. Malalgoda and Murdu N. B. Fernando, JJ. hearing a batch of fundamental right applications, unanimously held President Maithripala Sirisena’s November 2018 decision to the Parliament and hold snap elections as unconstitutional, thus ending a seven-week long constitutional crisis.

The island nation had been reeling under political crisis which began on October 26, 2018, when President Sirisena fired Prime Minister Ranil Wickremesinghe and replaced him with Mahinda Rajapaksa, a controversial former President accused of committing serious war crimes. However, when Rajapaksa could not muster a majority in Parliament, Sirisena sacked the legislature two years ahead of schedule.

In the instant petition, Petitioner, a member of the Parliament, prayed for a declaration that President Sirisena’s proclamation dated 09-11-2018 suspending the Parliament infringed his fundamental rights under Article 12(1) of the Constitution of Sri Lanka. It was contended that the said action was ex facie unlawful and in violation of Article 70 (1) of the Constitution as per which the President expressly prohibited from dissolving Parliament until the expiration of a period not less than four years and six months from the date appointed for its first meeting.

The respondent raised an objection as to the jurisdiction of Court to hear the petitions on the ground that the petitioners had not followed the specific procedure to challenge the abuse of powers by the President, viz., impeachment. The said objection was dismissed for being logically flawed as in view of dissolution, no Parliament existed in which a motion for impeachment could have been brought.

The argument regarding immunity to President’s action was dismissed stating that “the submission that…..President, in his capacity as the Head of State, has a species of inherent unrestricted omnipotent power which is akin to royal prerogative power held by a monarch, has to be emphatically rejected.”

The Court held that President’s power of summoning, proroguing and dissolving Parliament referred to in Article 33(2)(c) of the Constitution could be exercised only in conformity with Article 70 of the Constitution. Article 70 clearly stipulated that the President shall not dissolve Parliament during the first four and a half years from the date of its first meeting unless he is requested to do so by a resolution passed by not less than two-thirds of the members of Parliament.

In view of the above, it was held that the impugned proclamation had been issued outside legal limits and violated petitioner’s rights, both in his capacity as a parliamentarian and in the capacity of a citizen. As such, the proclamation was quashed and declared void ab initio.[Rajavarothiam Sampanthan v. Attorney General, 2018 SCC OnLine SL SC 74, decided on 13-12-2018]

Case BriefsHigh Courts

Kerala High Court: A Division bench comprising of C.K. Abdul Rehim and R. Narayana Pisharadi, JJ. allowed an appeal against the judgment of Family Court for the said court’s failure in conducting a proper enquiry and for failure in recording satisfaction based on such an enquiry conducted.

The appellant and respondent had jointly filed a petition for dissolution of their marriage by mutual consent Section 10A of the Divorce Act, 1869. The petition was allowed and respondent was granted permanent custody of their minor children. The appellant-wife challenged the said decree on the ground of court’s non-compliance to the mandatory procedural formality of interregnum waiting period.

The primary question for the determination of the court was as to whether a decree granting divorce by mutual consent can be challenged in an appeal filed under Section 19 of the Family Courts Act, 1984.

The Court observed that a decree under Section 13 B of the Hindu Marriage Act, 1955 is passed on the Court being satisfied that certain circumstances exist and certain conditions are fulfilled. Such a decree is not a decree passed merely on consent, but on the court being satisfied with the existence of those conditions. Relying on the decision of Gujarat High Court in Jyoti v. Darshan Nirmal Jain, 2012 SCC OnLine Guj 6283 it was held that in the present case since the lower court had failed to record its satisfaction under Section 10A(2) of the Divorce Act and not even followed the mandatory procedure of six months waiting period, therefore bar under Section 19 (2) of the Family Courts Act would not apply and the instant appeal would be maintainable.[Tiji Daniel v. Roy Panamkoodan,2018 SCC OnLine Ker 4145, decided on 17-09-2018]