# SALIGRAM RUPLAL KHANNA & ANR v. KANWAR RAJNATH

- **Citation:** [1975] 1 S.C.R. 358
- **Court:** Supreme Court of India
- **Decided:** 1975
- **Case number:** Civil Appeal No. 143 of 1969
- **Bench:** H. R. Khanna, M. H. Beg, Y. V. Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/saligram-ruplal-khanna-anr-v-kanwar-rajnath-6337
- **Pages:** 18

## Headnote

A
Indian Partnership Act. ss. 42 and 47-Scope of-Dissolution of a finn
B
constituted for a fixed term-Mutual rights and obligations of partners after
dissolution suit for rendition of aCC'o1111f's-Lin1!tation.
A partnership consisting of the appellants and the respondent had entered
into a lease agreement· with the Custodian of Evacuee Property in respect of
a mill and took possession of the mill on 31st August, 1952. The period of
partnership was for 5 years being tne period of the said lease.
The partners
having failed to pay one instalment of rent the Custodian served on the
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partners a show cause notice on 12-2-54 why thi; lease should not be terminated.
On account of certain financial difficulties the parties entered into · a
second agreement on February 24, 1954.
Disputes having arisen between appellants and the respondent, the appellants
filed a suit on De~ember 20. 1960 alleging lhat after the termination of' the
lease by the Custodian on May 25, 1954 the two appellants and the respondent had orally agreed not to dissolve the partnership in spite of the termination of the lease and prayed for a declaration that the partnership between
D
them and the respondent , was still subsisting on the tern1s and conditions set
out in the partnership deed dated 24th February, 1954.
They also prayed
for rendition of the partnership accounts. The respondent on. the other hand
alleged that there was no oral agreement between the parties and that the
claim for rendition ·of accountS was barred by limitation.
The trial court held that the appellants had failed to prove that there
was an oral agreement between the parties and that the clai.m for rendition
of accounts was barred by limitation.
E
On appeal the High Court upheld the findings of the trial court.
Dismissing the appeal,
HELD :-( 1) No inference of' implied agreement can be drawn from the
rnaterial on record.
[371 E]
According to section 42 of the Indian Partnership Act. subject to a contract between the partners a firm is dissolved if constituted for a fixed term
by the expiry of that term. This provision makes it clear that unless some
contract between the partners to the contrary is proved, the firm, if constituted
for a fixed te.rm \VOu\J be dissolved by the expiry of that tern1.
[371G-Ji]
In the instant case it was indicated in the agreement of partnership· that
the period of partnership had been fixed at
5 years bei.:ause that was the
period of the lease of the mills and the lease was _terminated on bi1ay 25, J 954.
[372B-C]
According to s. 47 of the Tndian Partnership Act after the dissolution
of the firm the authority of each partner to. bind the firm and the other mutual
rights and obligations of the pa1tr.·~rs continue notwithstanding the dis·solution
so far as may be necessary to win.d up the affairs of the firm and to complete transactions begun but unfinished. at the time of dissolution but not
otherwise. The· word 'transaction' in section 47 refers not merely to a commercial transaction of purchase and sale but
would include also all other
matters relating to the affairs of the partnership. The completion of a transaction would cover also the taking of necessary steps in connection with the
adjudicati'on of a dispute t~ whic? the firm before. its dis~olution was a party.
In the instant case after dissolution. the partnership subsisted merely for the
purpose of completing pending
transactions, winding up the business
and
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s. R. KHANNA v. RAJNATH (Khanna, J.)
359
adjusting the rights of partners anQ for these purposes and. these only the
authority, rights <ind obligations of the partners continued. [374B·D, F-G]
(3) The suit i'or rendition of accounts brought by the appellants on December 20, 1960 was barred by limitation. In the absence of a contract to
the contrary there could be no survival. of the firm after August 30, 1957
when the period of partnership expired. [373D-F]

## Text

_Characters 0–39,886 of 57,395. This is a partial read: ask again with offset=39886 for what follows._

358
SALIGRAM RUPLAL KHANNA & ANR
v.
KANWAR RAJNATH
May, I, 1974
[H. R. KHANNA, M. H. BEG, AND Y. V. CHANDRACHUD, JJ.j
A
Indian Partnership Act. ss. 42 and 47-Scope of-Dissolution of a finn
B
constituted for a fixed term-Mutual rights and obligations of partners after
dissolution suit for rendition of aCC'o1111f's-Lin1!tation.
A partnership consisting of the appellants and the respondent had entered
into a lease agreement· with the Custodian of Evacuee Property in respect of
a mill and took possession of the mill on 31st August, 1952. The period of
partnership was for 5 years being tne period of the said lease.
The partners
having failed to pay one instalment of rent the Custodian served on the
C
partners a show cause notice on 12-2-54 why thi; lease should not be terminated.
On account of certain financial difficulties the parties entered into · a
second agreement on February 24, 1954.
Disputes having arisen between appellants and the respondent, the appellants
filed a suit on De~ember 20. 1960 alleging lhat after the termination of' the
lease by the Custodian on May 25, 1954 the two appellants and the respondent had orally agreed not to dissolve the partnership in spite of the termination of the lease and prayed for a declaration that the partnership between
D
them and the respondent , was still subsisting on the tern1s and conditions set
out in the partnership deed dated 24th February, 1954.
They also prayed
for rendition of the partnership accounts. The respondent on. the other hand
alleged that there was no oral agreement between the parties and that the
claim for rendition ·of accountS was barred by limitation.
The trial court held that the appellants had failed to prove that there
was an oral agreement between the parties and that the clai.m for rendition
of accounts was barred by limitation.
E
On appeal the High Court upheld the findings of the trial court.
Dismissing the appeal,
HELD :-( 1) No inference of' implied agreement can be drawn from the
rnaterial on record.
[371 E]
According to section 42 of the Indian Partnership Act. subject to a contract between the partners a firm is dissolved if constituted for a fixed term
by the expiry of that term. This provision makes it clear that unless some
contract between the partners to the contrary is proved, the firm, if constituted
for a fixed te.rm \VOu\J be dissolved by the expiry of that tern1.
[371G-Ji]
In the instant case it was indicated in the agreement of partnership· that
the period of partnership had been fixed at
5 years bei.:ause that was the
period of the lease of the mills and the lease was _terminated on bi1ay 25, J 954.
[372B-C]
According to s. 47 of the Tndian Partnership Act after the dissolution
of the firm the authority of each partner to. bind the firm and the other mutual
rights and obligations of the pa1tr.·~rs continue notwithstanding the dis·solution
so far as may be necessary to win.d up the affairs of the firm and to complete transactions begun but unfinished. at the time of dissolution but not
otherwise. The· word 'transaction' in section 47 refers not merely to a commercial transaction of purchase and sale but
would include also all other
matters relating to the affairs of the partnership. The completion of a transaction would cover also the taking of necessary steps in connection with the
adjudicati'on of a dispute t~ whic? the firm before. its dis~olution was a party.
In the instant case after dissolution. the partnership subsisted merely for the
purpose of completing pending
transactions, winding up the business
and
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s. R. KHANNA v. RAJNATH (Khanna, J.)
359
adjusting the rights of partners anQ for these purposes and. these only the
authority, rights <ind obligations of the partners continued. [374B·D, F-G]
(3) The suit i'or rendition of accounts brought by the appellants on December 20, 1960 was barred by limitation. In the absence of a contract to
the contrary there could be no survival. of the firm after August 30, 1957
when the period of partnership expired. [373D-F]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 143 of 1969 .
(Appeal by Special Leave from the Judgment & Decree
dated
the 22nd March, 1968 of the Bombay High Court in Civil Appeal
'.'Jo. 23 of 1963).
S. T. Desai, K. L. Hathi and P. C. Kapur for the appellants.
K. S. Cooper, A. B. Diwan, Vasant Kotwal and I. N. Shroff for
the respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This appeal by special leave is d[rected against the
judgment of a Division Bench of the Bombay High Court affirming
on appeal the decision of the learned single Judge whereby a suit for
dissolution of partnership and rendition of accounts filed by the two
piaintiff-appellants, Saligram Ruplal Khanna and Pessumal \Atalrai
Shahani, against Kanwar Rajnath defendant-respondent was dismissed.
The partnership which was sought to be dissolved carried on business
under the name and style of "Shri Ambernath Mills Corporation"
(hereinafter referred to as SAMCO). The property which according
to the appellants belonged to the partnership co1isistcd of three mills
at Ambernath.
One of them was a woollen mill, the other was a
silk mill and the third was an oil and leather cloth factory with land,
bungalows and chawls attached thereto.
In addition to that, there
was a bobbin factory at Taradeo with offices at Bombay, Ahmedabad
and other places.
For the sake of convenience the above property
may be described, as it was done in the High Court, as "Ambernath
Mills". Although the case involves a tangled skein of facts, the points
which survive for determination in appeal are rather simple.
The Ambernath Mills originally belonged to a company called
Ahmed Abdul Karim Bros.
Private Ltd.
The mills were declared
to be evacuee property in September 1951 and the Custodian took
over the management of the mills in pursuance of the provisions of
the Administration of Evacuee Property Act, 1950.
It was then
decided that the mills should be managed by displaced persons who
had been industrialists in Pakistan.
A private limited company was
formed of 31 persons for taking over the management of the mills.
Rs. 25,000 were contribnted by each one of those persons in that
connection. The appellants and the respondent too were members of
the company.
Appellant No. 1 and the resoondent had migrated at
the time of oartition from Gujarat in West Punjab.
The respondent
was a big industrialist and left behind extensive properties in Pakistan.
He ~eld verified claim of rupees 23 lakhs in lieu of property left bv
him in . West Pakistan.
The first appellant had a verified claim of
5-L177SupCl/75
360
~UPREME COURT REPORTS
[1975] l s.c.R.
Rs. 22,000 in respect of residential property left in Pakistan.
In
addition to that he had a disputed claim in respect of industrial properties.
The ;econd
appellant
had a
verified
claim of
about
Rs. 80,000. The two appellants and the respondent were associated
by the Custodian with the management of the Ambemath Mills. By
August 1952 all the members of the private limited company dropped
out. It was accordin,gly decided by the Custodian to grant a lease
of the Ambernath Mills to the respondent and the two appellants. On
August 30, 1952 two documents were executed.
One of the documents was an agreement of partnership between the two appellants
and the respondent for carrying on the business of A01bernath Mills
under the lease in the name and style of Shri Ambernath Mills Corporation.
The other document was the agreement of lease executed
by the Custodian of Evacuee Property as lessor and the appellants and
the respondent carrying on business in partnership under the name
and style of SAMCO as lessees. The subject-matter of the lease was
Ambernath Mills.
It was stated in the lease that the lessees
had
appointed the respondent as their chief representative with fnll powers
of control, management and administration of the entire demised premises. The lease was to be for a period of five years to be computed
from the date on which the possession of the demised premises was
handed over to the lessees, subject to sooner determination thereof
on any of the contingencies provided in clause 21 or on the breach
of any condition on the part of the lessees or in the event of any
dispnte among the lessees resnlting in the closure of the mills. It was
also provided that the lessees would purchase and the lessor wonld
sell to the lessees at an agreed pdce the stocks of raw materials, unsold finished goods, consumer's stores, spare parts, cars and trucks
and other movables which had alreadv been vested in the lessor, as
well as three diesel generating sets purchased by the lessor. In the
event of any difference on the question of the price, the same was to
be fixed through one or more experts. The sale was to be completed
within a period of three months from the date of the agreement. The
lessees were authorised to take as partner one or more clisplaced persons who had filed claims under the Displaced Persons Qaims Act,
1950 subject to the prior approval of the Government.
The agreement also contained a provision for reference of any dispute arising
out of the agreement of lease to arbitrators chosen by the parties by
m'utual consent.
The annual rent payable by the lessees was fixed
at Rs. 6,00,000 payable in four quarterly instalments of Rs. 1,50.000
each on or before 30th day of each quarter. The lessees also undertook to deposit or fnrnish bank guarantee in the sum of Rs. 7.00,000
as security for the payment of the value of raw material, unsold finished goods, stores. spare parts and other articles. Clauses 17 to 21 of
the agreement of lease read as under :
"17. It is agreed between the Lessor and the Lessees
that when the entire claims of the lessees filed by them under
the Displaced Persons Oaims Act, 1950, for all their properties are determined and the compensation payable to them
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s. R. KHANNA v. RAJNATH (Khanna, J.)
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by the Government of India is ascertained, the market value
of the entire demised premises shall be determined by an
expert appointed in that behalf by the Government of India,
Ministry of Rehabilitation, and such value as is determine<j
shall be taken as price for acquisition by th·3 lessees ot the
full proprietary interest in the demised premises in the manner shown in the next succeeding paragraph.
18. The Lessees, being all displaced persons from
Pakistan and having left large properties in Pakistan, have all
of them put in claims in resp3ct of their properties and other
assets left by them in Pakistan under the Displaced Persons
Claims Act, 1950. When the claims under the said Act of the
Lessees are verified and determined and compensation payable in respect thereof has been ascertained the compensation payable to the Lessees shall be taken into consideration,
and it has been agreed as a term of this Agreement between
the parties hereto with the concurrence of Govt. of India,
Ministry of Rehabilitation, that on such total compensation
being arrived at the Lessees shall be allotted proprietary
rights in the demised premises, in the manner shown viz., in
case the value of the aggregate compensation payable tq the
Lessees is equivalent to the value of the demised premises
as assessed, the Lessor shall convey the demised premises
absolutely to them as full proprietors thereof, their interest in
the demised premises being in proportion to the compensatim
payable to each of the Lessees and the respective shares in
the proprietary interest shall be adjusted according to the
amount of compensation payable to each as finally determined.
19. In case the aggregate amount cff compensation payable by the Government of India to the Lessees exceeds the
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value of the demised premises as determined, the demised
premises will be conveyed to the Lessees, their share inter
se being in the proportion of the amount of compensation
payable to each.
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20. It is further agreed that in case the aggregate amount
of compensation payable to the Lessees falls short of the
value fixed for the demised premises, the Lessor shall be
entitled to associate with the Lessees in the ownership of the
proprietarv interest lei be allotted as aforesaid other displaced
persons who have left industrial concerns in Pakistan, so that
the total compensation payable to the Lessees and the others
thus associated is equivalent to the total value of the demised
premises and the said demised premises shall then become
the absolute prciperty of the Lessees and others thus associated in proportion to the total compensation payable to
each as finally determined.
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SUPREME COURT \(EPORTS
[1975] ! S.C.R.
21. The lease to be granted pursuance hereto shall be
liable to determination earlier on the settlement of the claims
of the Lessees and the allc~ment and transfer of the full proprietary interest in the demised premises as provided in
clauses 17 to 20 hereof; provided that if the value of the full
proprietary interest in the demised premises exceeds the
amount of compensation payable to the Lessees and part of
such proprietary interest is allotted to c~her persons as pro·
vided in clause 20 hereof, the Lessees shall be at liberty to
continue the lease for the unexpired residue of the term on
the terms and conditions and yearly rent prescribed hereunder, the yearly rent being adjusted proportionately to the
extent of the prc1prietary interest allotted and transferred to
the Lessees."
According to the partnership agreement executed by the two appellants
and the respondent on August 30, 1952, each partner had agreed to
contribute a capital of Rs. 1,00,000. The amount of Rs. 25,000 already paid by each partner to the Custodian was regarded as part
payment of the capital of rupees one lakh.
Each partner had onethird share in the partnership, but it was provided that the shares
would he adjusted by tile respondent if fresh partners were taken in
the partnership. The respondent was to be the managing partner and
was entitled to assign work in the partnership to the two appellants.
It was agreed that the appellants were not to interfere directly or indirectly in any manner with the management and contrd of the business by the respondent. The respondent was also authorized tu form
a limited liability company for running the business of the partnership
with the consent of the Custodian and the appellants agreed to join the
company as sharehclders on such terms and conditions as might be
agreed when such company was formed. The period of the partnership
was five years "being the period of said lease".
The partnership took possession of Ambernath Mills on August 31,
1952. The respondent directed the first appellant to be incharge of
the administraticirr of the mills at Ambernath, while the second appellant, being an engineer, was placed incharge of the properties, machinery and stores of the mills. The respondent was in overall charge of
the concerned.
It appears that the partnership made SClffie progress in the first few
months. The stocks of raw material, finished goods, stores and ctther
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movables which were deemed to have been purchased by SAMCO
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under the terms of the agreement of lease were in the meantime valued
by an auditor appointed by the Custodian at rupees 3() lakhs. The
Custodian called upon the partnership in April 1953 to pay a sum cf
rupees 7 lakhs or to furnish a bank guarantee for the said amount as
provided in the agreement of lease. This payment could not be made by
the partnership. There was also difficulty in paying the sixth instalment of the rent. A cheque for Rs. 1,50,000 was issued but the same
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was cjishonourcd. Subsequently, arrangements were made tci pay
Rs. 1,00,000. An amount of Rs. 50,000 out of the sixth instalment
remained unpaid.
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On February 12, 1954 the Custodian served a notice on the res·
pendent and the two appellants to show cause why the agreement of
lease should not be cancelled cin account of breach of conditions in
the matter of the payment of the sixth quarterly instalment of rent and
the failure to deposit or furnish bank guarantee for the amount of
Rs. 7,00,000. A writ petition was thereupon filed by the partnership
on February 16, 1954 in the Bombay High Court fc~ quashing the
notice issued by the Custodian ..
In the meantime, the second appellant sent letter dated February
8, 1954 to the respondent suggesting that his share in the partnership
be reduced to 1 '}nna in a rupee or to such other fraction as the res"
pendent thought fit. A similar letter was addressed by the first appellant. On February 24, 1954 the parties entered into a secqnd agreement of partnership. It was agreed in the new partnership agreement
that the share of the first appellant would be 3 annas and that of. the
second appellant 1 anna in a rupee. The respondent was to have the
remaining 12 annas share. It was also agreed that the two appellants
would not have the right, title and interest in the name, capital, assets
and goodwill of the partnership. It was provided that the new partnership wc!llld be deemed to have been· formed as from October . 1 ,
1953. Accounts for the period from August 30, 1952 to September
30, 1953 were to be made up on the basis of the partnership agceement
dated August 30, 1952 and the profits and losses for that period were
to be distributed accordingly. The capital of the partnership was
agreed to be arranged by the respcl!l.dent and he was to be the managing partner in control of the entire affairs of the partnership. He was
also to get interest at 6 per cent on all finances arranged by him. The
appellants agreed to carry on snch dntics in the concern as might be
assigned to them by the respondent. The period of the partnership
was to be "the c111tstanding period of the lease".
The writ petition referred to above filed by the partnership to quash
the notice of the Custodian was allowed by a single Judge of the Bombay High Court on March 31, 1954. On appeal filed by the Custodian, a Division Bench of the High Cciurt as per judgment dated
April 13, 1954 set aside the order of the sing!e Judge and dismisser!
the writ petition. Certificate of fitness for appeal to this Court was
granted by the High Court on May 5, 1954.
Stay Nder was also
issued on that day restraining the Custodian frcim dispossessing the
respondent and the appellants from Ambernath Mills. Appeal against
the decision of the Division Bench of Bombay High Court was then
filed in this Court. The Custodian of Evacuee Property made an order
on May 25, 1954 cancelling the agreement c~ lease of Amberanth
Mills dated August 30, 1952. The possession of the mills was voluntarily delivered by the partnership to the Custodian on June 30
1954.
,
Representations were made on behalf of SAMCO to the Minister
of Rehabilitation during the later half of 1954 for being allciWed to
retam Ambernath Mills. A communication was also addressed on
D~cember 14, 1954 to the Minister of Rehabilitation suggesting, inter
aha, that the claim of the Custodian against the partnership in respect
364
SUPREME COURT REPORTS
[1975] 1 s.c.R.
of arrears of rent and the value of raw material and c~her goods should
be referred to arbitration.
The Displaced Persons (Compensation and Rehabilitation)
Act,
1954 came into force on October 9, 1954. On March 10, 1955 the
Central Government issued notification under sectiqn 12 of that Act
acquiring the Ambernath Mills. An advertisement was then issued by
the Central Government for the sale of Ambernath Mills. Tenders for
the purchase of the mills were required to be submitted by July 9,
1955. On June 7, 1955 a representation was made by SAMCO that
in view of the· pendency of its appeal in the Supreme Court in respect
of the Custodian's notice for cancellation of the lease, the Ambernath
Mills should not be sold. On July 7, 1955 the partnership submitted
a tender for the purchase of the mills in accordance with the Government advertisement. The offer was for an aggregate amount of
Rs. 55,55,555. On October 14, 1955 the partnership made another
ct1Ier to purchase the mills for an aggregate amount of Rs. 75,00,000
on terms and oonditions to be mutually agreed upon.· The offer of
October 14, 1955 was made after the last date for the receipt of
tenders. The appeal referred to above filed by the partnership in this
Court against the judgment of the Bqmbay High Court was dismissed
by this Court on November 10, 1955 vide reported case Rai Bahadur
Kanwar Raj Nath & Ors. v. Pramod C. Bhatt, Custodian of Evacuee
Property('). This Court held that the Custodian had the power of
cancelling the lease under section 12 of the Administraticlll of Evacuee
Property Act and that the notice issued by the Custodian was valid.
This Court, however, left open the question whether the partnership
had any right to purchase the mills under the agreement of lease.
Notice under section 80 of the Code of Civil Prcl:edure was issued
to the Custodian and the Central Gove~nment on No_vember 9, ~9.55
intimating the intention of the partnership to file a su~t for restrammg
the Custodian and the Central Government from sellmg Ambernath
Mills. The Central Government on Decemb.er 30, 1955 informed the
partnership that its offer to purchase the mills for Rs. 55,55,555 was
rejected. The partnership thereafter withdrew its subsequent offer ~f
purchase of the mills for Rs. 75,00,000. On January 31, 1956 a smt
was filed on behalf of the partnership against the Custodian and the
Central Government few permanent injunction restraining them from
selling Ambernath Mills to any perso~ .other than the partners. The
said suit was dismissed by the City Cm! Cc1Urt Bombay on Octo~r. 8,
1956. An appeal was thereupon filed by SAMCO ~gamst the d~c~s~on
of the City Civil Court. This appeal too was dismissed by a Div1S1on
Bench of the Bombay High Cciurt as per. judgment dat~ January 14,
1957. This judgment is reported as Shri Ambernath Mills
Co~pora
tion v. G. B. Godbole, Custodian of Evacuee Property & Anr.(-) It
was held by the Division Bench that the agreement ~f purchase co~
taining clauses 17 to 21 of the lease deed was indefimte and vague Ill
varicius particulars and that the agreement of sale was not capable of
--------
(1) [1955] 2 S.C.R. 977.
(2) A.I.R. [1957] Born. 119.
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specific performance. The Division Bench further held that the Central
Government by 'irtue of notification dated March 10, 1955 acquired
. the mills free from ·ail encumbrances and that such right as SAMCO
might have had of sp::cific performance of agreement of sale was in
the nature of an encumbrance. The Central Government, according
to the Division· Bench, must be deemed tq have acquired the mills
free from that encumbrance. . No appeal was filed· against the abov~
decision of the Bombay High. Court ..
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The respondent, it would appear, started making efforts from the
middle of 1957 to get the Ambemath Mills for himself .. He was' . in
Delhi fotr several months from June 1957 onwards. On August 14, ·
1957 an agreement for sale of Ambemath Mills to the respondent was
executed by the respondent and the President. The price of the mills
was fixed at Rs. 50,11,000. Out of this amount, a sum of Rs. 2,00.000
was to be paid on the execution of the agreement as earnest money
·and in part payment of the purchase price. This amount cc;.ild be
paid either iii cash or by adjustment of net compensation payable to
tlie respondent or to other displaced persons who might assign their
verified c!aim in favour of the respcmdent A . further sum of
Rs. 28,00,000 was to be paid within three months from the date of
the agreement either in cash or by adjustment of the net compensation
payable to displaced persons who assigned their verified claims .in
favour of the respondent. The balance ci. Rs; 20,11,000 was to be
paid in seven equal instalments. It was provided that if the respondent failed to pay the amount of Rs. 28,00,000 within three months
from the date 'of agreement the earnest money of Rs. 2,00,000 paid by'
him was to be· forfeited.
In addition to the above, the respondent
undertook to mortgage the mills for a sum not exceeding Rs,:~0,00,000
to secure the payment of such amount as SAMCO might· be found
liable to pay to the CuStodian in respect of the claim referred to arbitration. On September 20, 1957 the first appellant executed an agreement for the transfer of his compensation claim amountin,g to Rs. 6,994.
The amount was to be repaid to the first appellant ··within three
years with interest at the rate of 6 per .cent per annum. It was stated
in the agreement that the respondent was contemplating to . foqn · a
joint stock company to own, run and manage the mills. The resporule!lt.
agreed that in the event of such a company being · fcaned the first
appellant would have the option to purchase shares of the said company
to the extent of 50 per cent of the amount of his claim compensation.
On August 12, 1957 the dispute between the Custodian on one
side and the two appellants and the respondent.on the other, which
had been referred earlier in accordance with the· arbitration clause in
the agreement of lease to the arbitration of other arbitrators, ·was
referred to the arbitration of :Mr. Morarji Desai. On November 13,
1957 the respondent and the Custodian agreed before ·the arbitrator
that the dues of the Custodian ·against the partnership be settled at
Rs. 18,00,000. A consent award .awarding Rs. 18,00,000 in favour cf
the Custodian against the partnership was made by Mr. Morarji Desai
on .the fdlowing day, viz., November 14, 1957. The award was made
a rule of the court ori May 1, 1958.
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366
SUPREME COURT REPORTS
[1975] 1.s.c.R.
The respondent was unable to submit to the Central Government
compensatiqn claims to the extent of Rs. 30,00,000 within three months
of the agreement dated August 14, 1957. By April 1959 he submitted
compensation claims to tuc extent of Rs. 20,0U,000. A supplememal
agreement was executed by the respondont and tile !'rec.ide:ir on April
29, 1959. In this agreement the President acknowledged the receipt
from the respondent of the sum df Rs. 20,00",000 by way of adjustment of compensation c1a1ms.
The respondent undertook to pay the
remaining amount of Rs. 30,11,000 and Rs.
18,00,000 under the
award of Mr. Morarji Desai, in all, Rs. 48,11,000. It was agreed that
the aforesaid amount would be paid by the respondent in seven annual
instalments.
A second supplemental agreement was executed by the
President and the respondent on April 6, 1960, but we are not concerned with that. On April 21, 1960 the grant of the Ambernatli
Mills was made by the President tel the respondent. The same day the
respondent executed in
favour of
the
President
a
mortgage of the Ambernath Mills for the payment of Rs. 48,11,000. The
sum was payable in seven equal annual instalments.
On April 22,
1960 the respondent took possessiqn of Ambernath Mills which had
been lying idle for nearly six years since June 30, 1954. On May 7,
1960 the respondent sent a circular letter to all
displaced
persons
whose compensation claim had been transferred to him informing them
that possession of the mills had been handed c1Ver to him by the Central Government.
They were also informed that statement of their
accounts was being prepared. One suc)l letter was sent to the first
appellant. He also received a statement of account and in September
1960 a cheque for Rs. 204 was sent to him by way of interest.
On October 7, 1960 the first appellant sent a letter tc1 the respondent complaining that his property had been attached in execution of
a decree for Rs. 271.44 which had been obtained by a creditor against
SAMCO. In this letter the first appellant hinted that he was a partner
of the respondent. The respondent in response sent to the first appellant a cheque for Rs. 271.44. It is also stated that the respondent informed the first appellant on telephone that he did not regard the
latter as his partner. On December 20, 1960 the two appellants filed
the present suit.
· It was alleged in the plaint that after the termination of the agreement of lease by the Custodian on May 25, 1954 the two appellants
and the respondent assembled and orally agreed not to dissolve the
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partnership in spite of the termination of the lease. The agreement
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between the parties was further stated to be that "the partnership should
be continued for the purpose of acquiring on behalf and for the benefit of the said partnership the properties Ex. 1 (Ambernath Mills)
hereto and to exploit the said industries". The respondent was stated
to have made a representation that he was acquiring the Ambernath
Mills on behalf c~ the partnership and that the agreement had been
executed in the respondent's name because the Central Government
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desired to deal with only one individual. It was also stated that the
respondent had admitted utilisation of a sum of Rs. 2,00,000 out of
the partnership fund for payment of earnest money.
The respcl!ldent
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367
being a partner, according to the appellants, stood in a fiduciary character vis-a-vis the appellants and was bound to protect their interest. He
could not gain for himself pecuniary advantage by entering into dealings under circumstances in which. his interests were adverse to those
c& the appellants. The properties and profits acquired by the respondent were stated to be for the benefit of the partnership also. In the
plaint, as it was initially filed, the appellants prayed for a declaration
that the partnership between them and the respondent was still subsisting on the terms and conditions set out in partnership deed dated
February 24, 1954 excepting the terms relating to the period of partnership. Prayer was made for a declaration that the Ambernath Mills
belonged to the partnership and for rendition of the partnership acoounts.
By a subsequent amendment prayer was added that the partnership be dissolved from the date of the filing of the suit.
The respondent in his written statement denied the alleged oral
agreement between the parties on or about May 25, 1954. According
to the respondent, the partnership stood dissolved cin March 10, 1955
when the Central Government acquired the Ambernath Mills.
According further to the respondent, the funds of the partnership were
utilized for the payment of various creditors of the partnership and
after those payments were made the partnership did not have sufficient
funds to pay to the remaining creditors. With regard to the negotia- ·
tions for the acquisition of the mills, the respondent stated that the
first appellant was aware that Ambernath Mills were being acquired by
the respondent for himself alon·o. The respondent denied that he ever
told the first appellant that the amount of earnest money of Rs. 2,00,000
for the purchase of the Ambernath Mills had been paid out of funds
belonging to the partnership.
Allegation was also made by the r~s
pondent that the first appellant had requested that he might be given
some benefit in the nature of appointment or agency in the business
of Ambernath Mills. The claim c~ the appellant for rendition of the
accounts was stated to be barred by limitation. In an affidavit filed on
January 11, 1961 the respondent stated that in case it was held that
there was an oral agreement of partnership between the parties, the
same should be taken to have been dissolved.
Learned trial judge held that the appellants had failed to prove that
there was an oral agreement between the parties on or abcfllt May 25,
1954. It was further held that' there was no agreement, express or
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implied, to form a partnership for acquiring the mills and for carrying
on the business thereon. The appellants were held not entitled tc1 have
the mills treated as partnership assets by invoking principles enunciated in section 88 of the Indian Trusts Act, to which reference had
been made on behalf of the appellants. The learned judge also held
the appellants claim for renditic1n of accounts to be barred by limitation because in his view the partnership had stood dissolved on May
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25, 1954 when the agreement of lease was cancelled. Jn any case,
2ccordiM to the learned judge, the partnership must be deemed to have
been dissolved either on January 14, 1957 when the suit filed by the
two appellants and the respondent against the Custodian and the Cent-
368
SUPREME COURT REPORTS
(1975] J S.C.R.
ral Government for permanent injunction was finally dismissed in appeal
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by a Division Bench of the Bombay High Court or on August 30 1957
when the period of the lease came to an end.
'
In appeal before the Division Bench the following four contenticns
were advanced on behalf of the appellants :
"(I) that on 25th May 1954 the parties expressly agreed
to continue their partnership for acquiring the Mills and exploiting them, that a partnership at will thus came into existence between them, and that therefore the Mills acquired
by the defendant cir his agreement with the President of
India dated 14th August 1957 and the subsequent grant by
the President of India on 21st April 1960 must be held to
be an asset of the said partnership;
(2) that if such an express agreement is held not to have
been proved, an implied agreement to the same effect should
be inferred from the conduct of the parties and the correspondence between them;
(3) that, even supposing that there was no express
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·implied agreement as stated above, the rights acquired by the
defendant as a result of his agreement with the President of
India dated 14th August 1957 and the subsequent Presidential grant are impressed with a trust in favour of the partnership under section 88 of the Indian Trusts Act; and
( 4) that, even if it is held that the Mills are no longer
an asset of the partnership, the plaintiffs are still entitled to
accounts of the partnership which admittcdlv existed between
them and the defendant for wc~king the Mills under Agreement of lease dated 30th August 1952."
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The learned judges constituting the Division Bench repelled all the
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contentions advanced on behalf of the appellants and substantially
agreed with the findings of the trial judge. On the question of the
limitation, the learned judges held that the partnershlp had been dissolved at the latest on November 10, 1955 when all the attempts of
the partr.ers tc1 get the Custodian's order dated May 25, 1954 set aside
came to an end with the decision of the Supreme Court. The present
suit for rendition of accounts brought on December 20, 1960 more
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than three years after the date of the dissolution of the partnership
was held to be barred by limitaticin.
Tu the result the appeal was
dismissed.
Tu appeal before us Mr. S.T. Desai on behalf of the appellants has
frankly conceded that he is not in a position to challenge the concurrent findings of the trial judge and the appellate bench that the appelH
lants had failed to prove that on May 25, 1954 the parties had expressly agreed to continue the partnership for acquiring the mills and
exploiting them.
Although Mr. Desai indicated at the commencement
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of the arguments that he would challenge the finding of the appellate
bench that the rights acquired by the respcndent as per agreement
dated August 14, 1957 with the President and the subsequent Presidential grant are impressed with trust in favour of the partnership ·
under section 88 of the Indian Trusts Act, no arguments were ultimately advanced by him on that score. Mr. Desai has, hcrwever,
challenged the finding of the trial judge and the appellate bench that
no implied agreement as alleged by the appellants could be inferred
from the material on record. The main burden of the arguments elf
Mr. Desai, however, has been that the appellants were entitled to the
accuunts of the partnership which admittedly existed between the
parties as per partnership agreements dated August 30,
1952 and
February 24, 1954. According to Mr. Desai, there had been nq dissolution of the firm prior to the institution of the suit and the appelants' suit for the rendition of accounts was not barred by limitation.
The High Court, it is urged, was in errcir in holding to the contrary.
The above contentions have been controverted by Mr. Cooper on behalf of the respondent and, in our opinion, are not well-founded.
We may first deal with the questicin as to whether the implied agreement as alleged by the appellants can be inferred from the material on
record. In this respect Mr. Desai has submitted that the appellants no
longer claim any interest in the ownership of Ambernath Miils which
now vest in the respondent. 1t is, however, urged that an agreement
can be inferred from the conduct of the parties that Ambernath Mills.
were to be run by the respondent in partnership with the appellants,
even though the crwnership of the same might vest in the respondent.
In this connection we find that no case of such an implied agreement
was set up in the trial court, either in the plaint or otherwise, nor was.
such a case set up iu appeal before the Division Bench. What was
actually contended was that the agreement was for acquiring the mills
as an asset of the partnership. The above stand of the appellants
cciuld plainly be not accepted when one keeps in view the· agreement of
lease dated August 30, 1952 as well as other documents on record.
The said agreement of lease shows that Ambernath Mills wou Id become the absolute property not only of the appellants and the respondent but of all persons whet were to be associated with the lessees in
the crNnership of the proprietary interest in proportion to the total
compensation payable to each of them. The agreement of lease further
contemplated that the lessee rights c~ the two appellants and the respond~nt were to be distinct from the proprietary interest in the demised.
premises and that the lessees were at liberty, in spite of the transfer
of proprietary interest, to continue the lease for the unexpired residue
of the te~ on the terms and conditions of the lease and payment cd' .
rent prescnbed thereunder. The respondent submitted representation
on August 9, 1954 on behalf of SAMCO to the Custodian for the
restart of the mills and along with it the respondent sent ccipies of
letter of auth.on.ty ~~ ~articulars of veri~ed claims of 30 displaced
per~ons. It is 1mphc1t m the representat10n that in case Ambernath
Milis was transferred, the same would vest in all the 30 displaced
per,ons whose claims were submitted.
370
SUPREME COURT REPORTS
[1975] l s.c.R.
There are two documents which run counter to the stand taken on
behalf of the appellants in this Court that there was an implied argecment that in case the respondent acquired the ownership of the mills,
the mills would be. worked by the respondent in partnership with the
appellants. One of those documents is agreement dated September 20,
1957 which was signed by the first appellant and the respondent a day
before the respondent executed bond in favour of th_at appellant in
view of the fact that the first appellant agreed to have his claim compensation amounting to Rs. 6,994 adjusted towards
the price of
Ambernath Mills. It was stated in the agreement dated September 20,
1957 that the respondent was contemplating the formation of a joint
stock company to own, ruh and manage the mills and it was agreed
bttween the parties that in the event of such company being formed,
the first appellant would have the option to purchase shares of the
said company to the extent of 50 per cent of the amount of the adjusted
daim compensation.