# KHUSHAL KHEMGAR SHAH & ORS v. KHORSHED BANU DADIBA BOATWALLA AND ANR

- **Citation:** [1970] 3 S.C.R. 689
- **Court:** Supreme Court of India
- **Decided:** 1970-02-12
- **Bench:** J.C. Shah, K. S. Hegde, N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/khushal-khemgar-shah-ors-v-khorshed-banu-dadiba-boatwalla-and-anr-5071
- **Pages:** 5

## Headnote

Partnership Act .1932-Sections 14, 39, 42, 46 and 55-Goodwill--
Nature of. ·
Legal representatives of a partner-If entitled to share in good-will of
a firm continuing after death of a partner.
D who was one of eight par'tners in a firm, died on February 20, 1957.
By virtue of a provision in the partnership deed, the business of the firm.
was continued by the surviving partners. The respondents, being the
widow and son of D commenced an action for an account of the partnership between D and the surviving partners, praying for an order for the
payment of the amount determined to be due to D at the time of his death ..
A single judge of the High Court passed a preliminary decree directing
that an account be taken of the partnership as on. February 20, 1957.
A
Division Bench, in appeal, modified the decree holding that the respondents
were entitled only to interest at ·6o/o p.a. on the amount of D's share in
the assets of the partnership, including good-will.
In appear to this Court it was contended on behalf of the appellants.
that the respondents as legal representatives of D were not entitled to a
share in the value of the good-will of the firm because good-will may be
taken into account only when there is a dissolution and not otherwise; and.
furthermore, because D had agreed that his interest in. the good-will wduld
cease after his death and the business shall be continued by the surviving_
partners.
HELD : Dismissing the appeal,
It could not be held that in interpreting a deed of partnership, business
whereof, it is stipulated shall be continued by the surviving partners after·
the death of a partner, the Court will not award to the legal representatives
of the deceased partner a share. in the goodwill in the absence of an express
stipulation to the contrary. The good-will of a firm is an asset of the·
firm.
In interpreting the deed of partnership, t~~ Court wi1l insist upon
some indication that the right to a share in the assets is, by virtue of ·the·
agreement that the surviving partnerS are entitled to carry on the busine,ss.
on the death of the partner, to be
extinguished.
In the absence of a
provision expressly made or clearly implied,. the normal rule that the share·
of a partner in the asse.ts devolves upon his legal representatives will apply
to the good-will as well as to other assets. [693 F-H]
There is no indication in . ._ 55 of the Partnership Act that goodwill may
be taken into account only when there is a general dissolution of the firm,
and not when the reprensentatives of a partner claim his share in the firn1,
which by express stipulations is to continue not with •landing the death »f
a partner. Ncir do ss. 39, 42 and 46 of the Act support such a contention.
[691 Fl
Hunter v. Dowling, [1895] 2 Ch. D. 233; Smith v. Nelson 96 Law
Times Reports 313; ·Bachubai and L.A. Watkins v. Shamji Jadowji, I.L.R.
9 Born. 536; referred to.
L8Sup.Cl170-14.
690
SUPREME COURT REPORTS
[1970] 3 s.c.R.

## Text

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689
KHUSHAL KHEMGAR SHAH & ORS.
v.
KHORSHED BANU DADIBA BOATWALLA AND ANR.
February 12, 1970
(J.C. SHAH, K. S. HEGDE AND A, N. GROVER, JJ.)
Partnership Act .1932-Sections 14, 39, 42, 46 and 55-Goodwill--
Nature of. ·
Legal representatives of a partner-If entitled to share in good-will of
a firm continuing after death of a partner.
D who was one of eight par'tners in a firm, died on February 20, 1957.
By virtue of a provision in the partnership deed, the business of the firm.
was continued by the surviving partners. The respondents, being the
widow and son of D commenced an action for an account of the partnership between D and the surviving partners, praying for an order for the
payment of the amount determined to be due to D at the time of his death ..
A single judge of the High Court passed a preliminary decree directing
that an account be taken of the partnership as on. February 20, 1957.
A
Division Bench, in appeal, modified the decree holding that the respondents
were entitled only to interest at ·6o/o p.a. on the amount of D's share in
the assets of the partnership, including good-will.
In appear to this Court it was contended on behalf of the appellants.
that the respondents as legal representatives of D were not entitled to a
share in the value of the good-will of the firm because good-will may be
taken into account only when there is a dissolution and not otherwise; and.
furthermore, because D had agreed that his interest in. the good-will wduld
cease after his death and the business shall be continued by the surviving_
partners.
HELD : Dismissing the appeal,
It could not be held that in interpreting a deed of partnership, business
whereof, it is stipulated shall be continued by the surviving partners after·
the death of a partner, the Court will not award to the legal representatives
of the deceased partner a share. in the goodwill in the absence of an express
stipulation to the contrary. The good-will of a firm is an asset of the·
firm.
In interpreting the deed of partnership, t~~ Court wi1l insist upon
some indication that the right to a share in the assets is, by virtue of ·the·
agreement that the surviving partnerS are entitled to carry on the busine,ss.
on the death of the partner, to be
extinguished.
In the absence of a
provision expressly made or clearly implied,. the normal rule that the share·
of a partner in the asse.ts devolves upon his legal representatives will apply
to the good-will as well as to other assets. [693 F-H]
There is no indication in . ._ 55 of the Partnership Act that goodwill may
be taken into account only when there is a general dissolution of the firm,
and not when the reprensentatives of a partner claim his share in the firn1,
which by express stipulations is to continue not with •landing the death »f
a partner. Ncir do ss. 39, 42 and 46 of the Act support such a contention.
[691 Fl
Hunter v. Dowling, [1895] 2 Ch. D. 233; Smith v. Nelson 96 Law
Times Reports 313; ·Bachubai and L.A. Watkins v. Shamji Jadowji, I.L.R.
9 Born. 536; referred to.
L8Sup.Cl170-14.
690
SUPREME COURT REPORTS
[1970] 3 s.c.R.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1201 of
A
1966.
Appeal by special leave from the judgment and order dated
June 24, 1965 of the Bombily High Court in Appeal No. 79 of
1963.
F. S. Nariman, K. D. Mehta and I. N. Shroff, for the appellants.
B
M. C. Chag/a and A. K. Ve~ma, for the respondents.
The Judgment of the Court was delivered by
Shah, J. Dadiba Hormusji Boatwalla was one of the eight
partners of Messrs Meghji Thobhan & Company-a firm of
Muccadams and cotton brokers. Boatwalla died. on February
20, 1957. By virtue of cl. 8 of the deed of partnership the business of the firm was continued by the surviving partners. Khorshed
and Nariman-widow and son respectively of Boatwallaobtained letters of adininistration to the estate of Boatwalla and
commenced an action in the High Court" of Bombay for an account
of the partnership between Boatwalla and the surviving partners
and for an order paying to the plaintiffs the amount determined
to be due to Boatwalla at the time of his death.
The suit was
resisted by the surviving partners-who will hereinafter be called
'the defendants'. Tarkunde, J., passed a preliminary decree decI:iring that qua Boatwalla the partnership stood dissolved on
February 20, 1957, but not in respect of the surviving partn~fs,
and directed that an account be taken of the partnership upto
February 20, 1957.
~ainst that decree the defendants appealed
under cl. 15 of the Letters Patent.
In appeal the High Court
modified the decree. The learned Judges held that the plaintiffs
, were not entitled to an account in the profits and losses of the
firm after the death of Boatwalla, nor to exercise an option under
s. 37 of the Partnership Act, but that the plaintiffs were entitled
only to interest at six per cent. per annum on the amount found
due as Boatwalla's share in the assets of the partnership includ-
~g the goodwill.
They furthoc declared that the interest of
Boatwalla in the firni ceased on February 20, 1957, and deleted
the direction with regard to the dissolution of the firin as between
Boatwalla and the defendants.
With special leave, this appeal
has been filed by the defendants.
The defendants contend that the plaintiffs as legal representatives of Boatwalla were not entitled to a share in the value of
the goodwill of the firm because the goodwill of a firm may be
taken into account only when there is a dissolution of the firm
and in any event because Boatwalla had agreed that his interest
in the goodwill shall cease on his death and the business shall
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K. 1':. SHAH v. KHORSHED (Shah, J.)
691
be continued by the surviving partners. The defendants do not
challenge the decree of the High Court awarding to the plain~ffs
Boatwalla's share in the assets of the firm other than goodw11! :
they contend that in the goodwill of the firril. the plaintiffs had
no share.·
By section 14 of the Partnership Act, 1932, it is enacted
that:
"Subject to contract between the partners, the property of the firm includes all property and rights and
interest · in properly originally brought into the. stock
of the firm or acquired, by purchase or otherwJSe, by
or for the .firm or for the purposes and in the course of
the business of the finn; and includes also the goodwill
of the business."
Goodwill of the firm is expressly declared to be the property of
the firm.
Counsel for the <jefendants relied upon s. 55 of the Partnership Act which makes a provision with regard to sale of goodwill
after dissolution. It is provided by sub-s. ( 1) of s. 55 that :
"In settling the accounts of a firm after dissolution,
the goodwill sh~ll, subject to contract between the partners, be inclu<Jed in the assets, and it may be sold
either separately or along with other property of the
firm."
But it is not enacted thereby that goodwill may be taken into
account only when there is a general dissolution of the firm, and
not when the representatives of a partner claim his share in the
firm, which by express stipulation is to continue notwithstanding
the death of a partner. Nor do ss. 39, 42 and 46 which were
relied upon by counsel for the defendants support that contention. Under s. 39 the .dissolution of partnership betwean, all the
partners of a firm is called the "dissolution of the firm'"; and by
s. 42 a firm is said to be dissolved subject to the contract between
the partners on the happening of certain contingencies.
Section 46 provides that on the dissolution of a firm every partner
or his representative is entitled, as against all the other partners
or their representatives, to have the property of the firm applied
in payment of. the debts and liabilities of the firm, and to have
the surplus distributed among the partners or their representatives according to their rights.
These provisions deal with the
concept and consequences of dissolution of the firm : they do
not either abrogate the terms of the contract between the partners relating to the consequences to ensue in the event of the
death of . a partner when the firm is not to stand dissolved by
692
SUPREME COURT REPORTS
[197013 S.C.R.
such death nor to the right which the partner has in the assets and
property o'f the firm.
The Partnership Act does not operate. to
extinguish the right in the assets of the firm of a partner who dies,
when the partnership agreement _provides that on. death the
partnership is to continue. In the absence of a term m the deed
of partnership to that effect, it cannot be inferred that a term
that the partnership shall continue notwithstanding the death of.
a partner, will operate to extinguish his proprietary right in the
B
assets of the firm.
Clause 8 of the deed of partnership reads as follows :
"This partnership shall not be dissolved or determined by the death of any of _the parties hereto but the
same shall be continued as between the surviving part·
ners on the same terms and conditions but with such
shares as shall then be determined.~
Mr. Nariman says that goodwill is nothing but the right to the
name, the place of business and the reputation of the firm, and
when all these components of the right by express agreement
between the partners devolve upon the surviving partners, it
follows that the share of the deceased partner in the goodwill of
the firm devolves _upon the surviving partners and not upon his
legal representatives.
The goodwill of a business is ho~ver an
intangible asset being the whole advantage of the reputation ana
connections formed with the customers together with the circumstances which make the connection durable.
It is that componant of the total value. of the undertaking which is attributable
to the ability of the concern to earn profits over a course of years
because of its reputation, location and; other features. An agreement between the partners that the name, the place of business
and the reputation of the firm are to be utilised by the surviving
partners will not necessarily warrant an inference that it was
intended that the heirs of the deceased partner will ·not be entitled
to a Share in the goodwill.
.
Our attention was invited to Hunter v. Dowling('); Smith v.
Nelson.\ 2 ); and Bachubai and L. A. Watkins v. Shamji
ladow11('.).
The firs~ two cases ~roceed upon the interpretation
of certain clauses m partnership agreements
It was inferred in those cases from the terms ol the agreement
that
the
right
in
the
goodwill
of
a
partner
in
a fi~ dying or retiring shall not survive to his legal representatives. Bachubai and L. A. Watkin's case(•) arose out of
a case in which in the partnership agreement it was provided that
(I) [1895) 2'Ch. D. 223.
(2) 96 Law Times Reports 313.
(3) I. L. R. 9 Dom. 536.
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X. X. SHAH :v. KHORSHBD (Shah, !.)
the fiJ111 shall be the agents ·of a company carrying on business as
a manufacturer of cotton textiles so long as the firm carries on
business in Bombay, or until the firm s)!ould resign.
The firm
were appointed the agents pf tl!e Company and continued to act
as agents. One of the· p_artners died, and a representative of the
partner filed a suit, claiming a certain share in the assets of the.
firm including the goodwill. It was observed by Sargent, C.J .,
in rejecting the claim of the plaintiff to a share in the goodwill
vf the business as an asset of the firm, that-
"Assuming (which may well be doubted) that the
term "good-will" is applicable to a business ·of this
nature, it is plain that it is attached to the name ot the
firm which, by the p~rtnership agreement itself, is ~o
be used by the surv1vmg partners or partner for their
own benefit.
Such an arrangement between the partners must take away all value from the goodwill; even
if it be not,-as Mr. Justice Lindley in his Treatise on
Partnership, p. 887, (3rd ed.), considers it to beinconsistent with its being an asset at all"
The learned Chief Justice expressed a doubt-presumably relying upon old English decisions-that the goodwill of a firm may
not be an asset at all.
These observations do not set out any
!11le of interpretatiop. of a deed of partnership. But the question
is now settled by statutory enactment.· Under the Partnership
Act, 1932,• it is expressly declared that the goodwill of a business
ii an asset. Whether the goodwill has any substantial value may
be determined on the facts of each case.
We are unable to agree with Mr. Nariman that in interpreting a deed of partnership, business whereof it is stipulated shall
be continued by the surviving partners after the death of a
partner, the Court will not award to the legal representatives of
the deceased .partner a share in the goodwill in the absence of
an express stipulation t9 the contrary.
The goodwill of a firm
is an asset.
In interpreting the deed of partnership, the Court
will insist upon some indication that the right to a share in the
assets is, by virtue of the agreement that the surviving partners
are entitled to carry on the business on the death of the partner,
to be extinguished.
In the absence of a provision expressly
made or clearly implied, the nonnal rule that the share of a
partner in the assets devolves upon his legal representatives will
apply to the goodwill as well as to other assets.
The appeal therefore fails and is dismissed with costs.
Appeal dismissed.
R.K.'P.S.