1. In a suit pertaining to partnership concern known as Messrs Kingsway, Vir Marg, Jammu a learned single Judge of this Court (Kotwal J.) has passed an order on 30-5-1983 in an application for appointment of a Receiver moved by the plaintiff. The learned single Judge has directed the defendants respondents herein to furnish security in the amount of Rs. l,50,000/- to the effect that in case the plaintiff succeeds in the suit the surety shall be liable to pay to him any amount up to the maximum amount of Rs. 1,50,000/- failing which the deputy registrar was directed to attach the goods lying in the shop and other godowns of the firm to the extent of Rs. 1,50,000/- and after putting the goods on sale, the sale proceeds were ordered to be deposited in some Bank in the name of the Dy. Registrar, High Court. The amount was to be distributed in accordance with the decree that would eventually be passed finally in the suit.
2. This aforesaid direction proceeded on the assumption that after dissolution of the firm in dispute, the assets of the firm have not been distributed in accordance with Sections 46 and 48 of the Partnership Act. The learned single Judge has taken the view that prima facie the firm appears to have been dissolved and dissolution is said to have taken place on 17-3-1980 by a deed in writing between the plaintiff and the first defendant. At the same time the trial Judge has held that steps have not been taken for winding up of the firm in accordance with law and the plaintiffs share in the firm is lying with the first defendant. Therefore, the first defendant has been asked to furnish the security. Prayer for appointment of a receiver has not been granted and instead direction for filing security has been made.
3. The first defendant has not filed any appeal or cross-objections as regards the findings of the learned single Judge about the assets of the firm not having been divided. The plaintiff-appellant alone has filed an appeal against the order of the learned single Judge refusing to appoint a receiver.
4. The plaintiff has claimed several reliefs in the plaint. He seeks a declaration about his status as being a continued partner in the firm. He challenges the alleged deed of dissolution dt. 17-3-1980 as being void and ineffective. He also seeks injunction to enforce the deed of partnership dt. 25-2-1977. Heseeks prohibitory injunction against the second defendant restraining her from interfering in the business of the firm on the basis of deed of partnership which is termed as void and illegal. In the alternative, the plaintiff has sought a decree for settlement of accounts and determination of the plaintiffs share in the business of the firm as on 17-3-1980, and prays that the firm be wound up and payment be made to the plaintiff in respect of his share in the firm's assets, profits, goodwill etc. etc. The first defendant is also sought to be restrained from using the firms name 'Kingsway' and from using the premises of the firm or its goodwill.
5. In reply the defendants have set up defence of the firm having been dissolved by a deed of dissolution dt. 17-3-1980 and its assets having been divided and taken over by the parties to the extent of their share in the firm. Thereafter the firm is said to have been reconstituted and second respondent herein, who is the wife of the first respondent, is said to have been inducted as a partner by the first respondent in the firm by a deed of partnership dt. 8-4-1980, which was made effective from 14-1980. Defendants' further defence has been that three brothers-in-law of the appellant and the first respondent have settled the matter out of Court and the appellant has been paid his due share from the assets of the firm and the firm is now run and owned by the respondents. There are many other defences but for the purpose of this appeal the defence of the respondent indicated above alone is relevant.
6. Simultaneously, two applications had been filed by the plaintiff for appointment of a Commissioner and for appointment of a Receiver. In the first instance a Commissioner was appointed by the learned single Judge to make an inventory of the stocks of the firm. However, the Commissioner was prevented from discharging his duties which forced the appellant to file a contempt application against the respondents which is still sub judice. In the meantime the Commissioner by a subsequent order was directed to proceed on the spot and make the inventory which order was complied with and the inventory made by the Commissioner is on the file.
7. As regards appointment of a Receiver, the learned Judge has prima facie relied on the deed of dissolution, copy whereof is on the file, and has held that unless the deed is declared to be void the deed of dissolution is to be acted upon and it is to be held that the partnership was dissolved and there was no subsisting partnership between the parties. As regards winding up of the firm and distribution of its assets, the learned single Judge has observed as under on p. 14 of its judgment :
"Even though the plaintiff may not have an excellent case of continuing partnership which warrants the appointment of a Receiver, yet he has made out a prima facie case that no follow up proceedings under Sections 46 and 48 were ever taken, which compels me to give him adequate protection of the Court that ensures payment of his dues to him and recovery of the partnership property that might fall to his share on settlement of the accounts of the firm. There are certain facts and circumstances which cast a serious doubt on the defendants' allegation that accounts were finally settled by the three arbitrators and what was actually found due to or had fallen to the share of the plaintiff, whether in the shape of money or stocks-in-trade, was paid and delivered to him before the deed of dissolution of the firm came to be executed. To this extent, it becomes difficult to even accept the admission contained in the aforesaid deed."
8. This finding of the learned single Judge has not been assailed by the respondents as already indicated above.
9. The appellant being a continuing partner of the firm is overruled by the learned single Judge. In our opinion the learned single Judge's observation as regards dissolution of partnership and as regards distribution of assets are based on facts and there is no reason for us to disturb this factual finding of the learned single Judge in this appeal. The learned counsel for the parties have also proceeded in this appeal on the assumption that the firm was dissolved but follow up action after dissolution as regards winding up and settlement of accounts and distribution of assets had not taken place. Therefore for the purpose of decision of this appeal we are proceeding on the assumption that the firm Messrs. Kingsway, a business concern situate at Jammu has been dissolved by a deed of dissolution dt. 17-3-1980 and its assets and the partnership property were not distributed amongst the partners in accordance with law unless contrary is proved at the trial in respect of these two findings.
10. Therefore, the question which falls for determination in this appeal is whether appointment of a Receiver in the facts and circumstances of this case was warranted or not and whether respondents are requirted to be restrained from using the business premises and assets of the firm and goodwill thereof. The respondents have accepted the findings of the learned single Judge as correct. Therefore, we proceed to re-examine the rival contentions of the parties for and against the appointment of Receiver.
11. The appellant's share in the firm as a partner is fifty per cent. Our attention was drawn to the partnership deed executed between the respondent inter se dt. 8-4-1980 in which it is admitted by the first respondent that assets and liabilities of the partnership business of Kingsway have been taken over by the party of the first part i.e. the first respondent. So the share of the appellant in the said firm was also taken over by the first respondent, however, he has made a provision in the deed that his wife and he who constitute the new partnership firm may contribute capital required for the partnership business in such proportion as may be mutually decided upon from time to time. As to whether the second respondent, who is the wife of the first respondent has contributed anything or not, is not revealed from the written statement filed by the defendants or from the statements of accounts which are on the file. These statements of accounts have been filed by the respondents and they indicates monthly sales for some months in 1982 and 1983. These were filed in pursuance of the orders of the Court.
12. Mr. Handoo appearing for the appellant has submitted that under Section 14 of the Partnership Act property of the firm includes all property and rights and interests in the 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. This is subject to the contract between the partners. Under Section 15 of the said act property of the firm is to be held and used by the partners exclusively for the purpose of the business. Section 16 of the Partnership Act provides that any profit derived by a partner from any transaction of the firm or from the use of the property or business connection of the firm or firm's name are to be accounted for and paid to the firm. It also provides that if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.
13. Section 17 of the Partnership Act relates to the position of a partner in a reconstituted firm when the original constitution of the firm is changed. It will also be profitable to note and reproduce Section 46 of the Partnership Act which reads as under : --
"46 Right of partners to have business wound un after dissolution : -- 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."
S. 48 provides the mode of settlement of accounts as between the partners. In settling the accounts of a firm after dissolution certain rules are to be observed. Losses including deficiencies in capital, shall be paid first out of profits, next out of capital and lastly, if necessary by the partners individually in the proportions in which they were entitled to share profits. The assets of the firm including any sums, contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order :
(i) paying the debts of the firm;
(ii) for paying to eachpartner rateably what is due to him from the firm for advances as distinguished from capital;
(iii) for paying to each partner rateably what is due to him on account of capital; and
(iv) the residue if any shall be divided among the partners in the proportions in which they were entitled to share profits.
(v) Section 50 provides that personal profits earned from the firm after dissolution by a partner shall be subject to contract between parties dealt with in accordance with the provisions of Section 16(a) of the Partnership Act.
Section 53 gives a partner right to restrain another partner after dissolution of firm from using, in the absence of contract between the parties to the contrary, any of the property of the firm or firm name until the affairs of the firm are completely wound up.
Section 55 provides that goodwill of the firm is to be sold either separately or along with the other property of the partnership and Sub-section (2) of this section provides rights of buyer and seller of goodwill.
14. The appellant was owner of half of the firm property and its assets which included business premises, stock-in-trade, goodwill and all other moveables and the remaining half was belonging to the first respondent.
15. Sections 46 and 48 are the two main sections which are applicable after the firm is dissolved for distributing the assets of the firm and settling of (sic) of Section 48 has been dealt out hereinabove. Section 46 is a substantive section whereas Section 48 lays down the procedure for carrying out the purpose of Section 46. Purpose of Section 46 is that on dissolution of a firm every partner or his representative is entitled to have the property of the firm applied in payment of debts and liabilities of the firm, and to have the surplus distributed amongst the partners according to their rights.
16. Submission of the appellant is that after the firm was treated to be dissolved by the learned single Judge, appointment of receiver was the only course which could safeguard the interests of the appellant and which would protect and preserve the property which was otherwise being dissipated and used to his own use by the respondent to the detriment of the appellant. He has relied on a number of authorities which are mentioned hereunder for proper appreciation of the contentions raised by him.
17. Sudhansu Kama v. Manindra Nath, AIR 1965 Pat 144 is an authority in which guiding principles for appointment of a Receiver in a suit for dissolution of partnership were considered. It was a mining lease which was subject matter of partnership business and after consideration of facts, it was held that before the plaintiff can have a receiver appointed he has to satisfy the Court that he has an interest in the property involved in the suit and he has a special equity in his favour. Appointment of a receiver being equitable relief such relief can be granted only on equitable grounds. In a dissolved partnership as a matter of course appointment of Receiver should be made to wind up the partnership business completely and to divide the surplus between the partners according to their rights.
18. Sheonarain Jaiswal v. Shree Kripa Shankar Jaiswal AIR 1972 Pat 75 is a case as regards partnership suit and it is laid down that if a suit is for distribution or partition of assets of a dissolved firm and it is found that the relations of the partners are strained, Court can appoint a receiver as a matter of course and in view of the bitter relations between the partners Court can appoint even a stranger as a Receiver.
19. Bhagawan Ram Kairi v. Radhika Ranjan Dass AIR 1953 Assam 25 says that before dissolution it is not proper to disturb the status quo but after dissolution of partnership a Receiver may be appointed in normal course for the purpose of winding up of the business of the firm.
20. Motilal Chairman v. Sarupchand Prithiraj AIR 1937 Bom 81 lays down that after dissolution of a firm partnership subsists merely for winding up of its business and adjusting rights of the partners inter se. A partnership after dissolution subists for a limited purpose of winding up and distribution of assets.
21. In G. Ramchandrayya v. Nathi Iswarayya, AIR 1952 Hyd 139 appointment of a Receiver is held to be justified when a prima facie case of subsisting partnership is made out and the Court is convinced that one partner has been excluded from the participation in the management of the partnership business and his status also is clouded. It is also stated that no hard and fast rules can be laid down so far as the question of appointment of a receiver is concerned; well accepted rule is that receiver should be appointed where it is just and convenient which question depends on a number of facts of each case.
22. Nihalchand L. Jai Narain v. Ram Niwas Munna Lal AIR 1968 Punj & Har 523 lays down that exclusion of a partner by others from management of partnership affairs if proved prima facie appointment of Receiver can be made and if status of a partner is denied by others, appointment of a Receiver can still be made. Therefore exclusion of a partner from management and denial of his status would be ground for appointment of a Receiver of the partnership business.
23. Vidya Devi v. Mani Ram 1974 Rajdhani LR 346 lays down that in a suit where partnership is said to be dissolved, a Receiver should be appointed as a matter of course. It also lays down that in a running partnership business some difficulty is presented for appointment of a receiver because running partnership cannot be put into the hands of a stranger but where the partnership is said to have been dissolved, there is no difficulty in making appointment of a Receiver.
24. Narendra Bahadur Singh v. Chief Inspector of Stamps, AIR 1972 All 1 (SB) has discussed scope and ambit of Section 40 and Sections 45 to 48 of the Partnership Act. Mere dissolution of a firm is in reality the inception or the starting point of the process by which the legal existence of the firm comes to an end The firm continues to exist until its affairs are finally and completely wound up.
25. In Prem Prakash Kapoor v. Gobind Ram Kapoor AIR 1976 J&K 37 a learned single Judge of this Cout after discussing the case law has held that if a partner is excluded from business of the firm and the firm's assets are exposed to manifest peril a case for appointment of Receiver is made out. However, the business of the firm was held to be running business therefore, defendants were appointed Receiver with the plaintiffs nominee to watch the accounts of the firm.
26. Bachhraj Bhandari Trust v. Ramprasad Rathi AIR 1955 Madh Bha 40 lays down that object of appointment of a Receiver ultimately is protection and preservation of the property for the benefit of those persons who have an interest in it. Appointment of Receiver was sought in a suit for mortgage where the dispute was in respect of arrears of mortgaged property.
27. S. B. Industries Freegunj v. United Bank of India AIR 1978 All 189 lays down that for appointment of a receiver there must be an excellent case for success. Appointment of a Receiver is discretionary with the Court and is to be made with great caution when it is necessary to prevent the property from imminent danger of loss or diminution in value. Relief for appointment of Receiver as also of injunction can be granted if the case is made out by the plaintiff.
28. Mr. Shah appearing for the respondents has relied on a note in the Commentary on Order 40 Rule 1 Civil P.C. by Mr. Chitaley, published by All India Reporter and has submitted that Receiver may not be appointed as that will cause hardship to the respondents and their rights will be affected. His contention is that the learned single Judge has granted adequate relief to the appellants and the appellant is only entitled to get the amount which he himself has claimed from the dissolved partnership and which was found exaggerated by the learned single Judge. His contention is that property is not in medio, that is, it is in nobody's possession, it is in possession of the respondents therefore, Receiver cannot be appointed. Besides this his main contentions are enumerated as under : --
(i) Right of ex-partner in a dissolved firm is only equitable and it is not possessory;
(ii) It will not be just and convenient to appoint a Receiver.
(iii) The sole object of appointment of a Receiver is preservation and protection of the property which is safe in the hands of respondents. Appointment of Receiver therefore is not necessary.
(iv) Partnership has been dissolved, by appointment of Receiver the Court cannot create partnership by judicial order.
(v) Whatever is the share of the appellant in the dissolved firm can be treated as a debt and its security can be demanded in any form.
(vi) Conduct of a partner is not relevant in making appointment of a receiver. It is relevant only to examine as to whether the property is in danger of being wasted or dissipated.
(vii) The third party interests have intervened therefore, appointment of a receiver is not just or convenient. It is submitted that the second respondent, who is the wife of the first respondent may have contributed capital in the business, the business therefore cannot be put in the hands of a Receiver which will affect her rights.
(viii) Commissioner has made the inventory and share of the appellant is assessed, which can be secured without appointment of a Receiver.
(ix) The appellate Court will be loath to interfere with the order of a single bench unless the findings of the single bench are perverse which in the present case cannot be said to be perverse.
(x) Question of goodwill and its value, its approtionment and taking over be left open to be decided by the trial Judge after appreciation of evidence in this regard.
29. He has referred to some case law for the proposition that the appointment of a Receiver would not be just and convenient in the facts and circumstances of the case. He has drawn our attention to Halsbury's Laws of England, third Edn. Vol. 28 p. 573. It is noted by the author that after dissolution the partnership subsists merely for the purpose of completing pending transactions, winding up the business and adjusting the rights of the partners. For this purpose the authority, rights and obligations of the partners continue. On p. 575 of the same book it is held that share of outgoing partner if retained by any other partner should be paid interest at the rate of 5% per annum and because share of the appellant is ascertained therefore at best he is entitled to get 5% interest on his share.
30. In Halsbury's Laws of England, Third Edn., Vol. 32 p. 393, it is laid down that object of appointment of receiver is to protect and preserve the property.
31. Venkataswami v. Kotayya AIR 1962 Andh Pra 14 interprets the expression just and convenient. It is held that satisfaction of Court for appointment of Receiver is all that is necessary in making an order under 0. 40, Rule 1 Civil P.C. A defendant claims exclusive title in the property without resisting the suit of the plaintiff and without claiming any relief, an order of appointment of Receiver was held to be justified. This authority supports the contention of the appellant rather than the contention of the respondents.
32. Issardas S. Lulla v. Smt. Hari AIR 1962 Mad 458 lays down that Receiver cannot be appointed on the ground that no party will be harmed by such appointment. But where managing partner forfeits trust of others, appointment of a Receiver is justified. In this case a partner was held to have misconducted himself so as to forfeit the confidence and trust of the other partners, therefore, on these allegations Court was justified in interfering with the business by appointing a receiver. This authority also lays down principles for appointment of a Receiver in a partnership business and does not in any manner help the respondents.
33. T. Krishnaswamy Chetty v. C. Thangavelu Chetty AIR 1955 Mad 430 also interprets the term just and convenient and lays down five principles for appointment of a Receiver. This was a suit in which a limited owner had alienated property to a third person and revcrsionaries had filed a suit for cancellation of the sale deeds as also for recovery of the property on the ground that the alleged owner had no right to sell the property and the vendee had not become owner on the basis of the inoperative and void sale. The suit was fourth in succession and previous suits were withdrawn and an application for appointment of a Receiver was made for the property was purchased by a vendee for consideration and on these facts it was held by Ramaswami J. that : --
(a) The appointment of a receiver pending a suit is a matter resting in the discretion of the Court.
(b) The Court should not appoint a Receiver except upon proof by the plaintiff that prima facie he has a very excellent chance of succeeding in the suit.
(c) Not only must the plaintiff show a case of adverse and conflicting claims to property but he must show some emergency or danger or loss demanding immediate actipn and of his own right he must be reasonably clear and free from doubt. The element of danger is an important consideration.
(d) An order appointing a Receiver will not be made where it has the effect of depriving a defendant of a 'de facto' possession since that might cause irreparable wrong. It would be different where the property is shown to be in medio that is to say in the enjoyment of no one and
(e) the Court on the application made for the appointment of a receiver looks to the conduct of the party who makes the application and will usually refuse to interfere unless his conduct has been free from blame.
34. These five principles are deduced by the learned Judge after considering the case-law and various authorities on the subject.
35. Muniammal v. P. M. Ranganatha Nayagar AIR 1955 Mad 571 is also an authority in which principles regarding appointment of a Receiver are given by the same learned Judge who has decided the above cited authority. In this authority he has only given three principles. First of all the plaintiff must show prima facie strong case; secondly where the property is in medio i.e. to say in possession of no one, a receiver can be appointed and thirdly the application for appointment of a Receiver should be made promptly. This was a case in which maintenance of a Hindu widow was being claimed and liability of coparceners to pay the same was discussed.
36. From the above two authorities of the Madras High Court it becomes clear that no hard and fast rules can be laid down for appointment of a Receiver, Order in each case will depend on the facts of that case,
37. Mr. Shah's reliance on Halsbury's Laws of England also would not help him. Vol. 28 of the Halsbury's Laws of England page 573 (supra) relied on by him for purposes of payment of inlerest to the outgoing partner is a proposition which cannot be universally accepted. This proposition has arisen in the peculiar circumstances of the case. The commentary in this regard is based on a decision Gordon v. Gcnda (1955) 2 All ER 762 C.A. In this case partnership had been dissolved in wartime by the trading with the enemy legislation. An active partner in England who exchanged partnership assets for other assets in his name was accountable as a constructive trustee and as such chargeable with interest on money representing the assets, such interest being at the rate of five per cent per annum. The partnership in this case was entered with a person, who subsequently turned out to be an alien ememy and it was dissolved as a result of outbreak of war, the alien ememy was entitled to the profits and interests attributable to the case of his share during the war and in these circumstances he could not conduct business in England, his share was protected and interest was paid to him on his share which was retained by the other partner. Therefore, this authority will not be applicable to the case where the share of one partner is retained by the other after dissolution in normal course.
38. Vol. 32 of the Halsbury's Laws of England p. 395 (supra) is a reference made to a case viz : Young v. Buckett (1882) 46 L.T. 266 and it is noted by the learned author that in a partnership action the fact that the surviving partner is endeavouring to divert the goodwill of the business to himself is sufficient ground for the appointment of a receiver and manager at the instance of the representative of a deceased partner. On the same page it is noted by the learned author that where the plaintiff who has a right to be paid out of a particular fund is entitled to an injunction or a Receiver to prevent that fund being dissipated so as to defeat his rights. This comment is based on a judgment in Cummins v. Perkins (1899) 1 Ch 16 C.A. at page 19.
39. Lindley on Partnership (fourteenth bdition) on page 425 has said 'indeed speaking generally, it may be said that nothing is considered as so loudly calling for the interference of the Court between partners as the imporper exclusion of one of them by the others from taking part in the management of the partnership business. Again on page 438, the learned author under the heading 'Post-partnership profits' says that a partner who continues in business after the dissolution of a partnership and makes use of either the former partnership's assets or business connection derived out of the former partnership assets or connection is accountable to his former partner or partners for the profits attributable thereto. This is based on a decision of the Privy Council given in a case from Ceylon (Robert Watte Pathirana v. Ariya Pathirana (1967)1 A.C. 233).
40. As regards foundation of partner's lien on the partnership business, Lindley has to say as under :
"In other words, each partner may be said to have an equitabie lien on the partnership properly for the purpose of having it applied in discharge of the debts of the firm; and to have a similar lien on the surplus assets for the purpose of having them applied in payment of what may be due to the partners respectively, after deducting what may be due from them, as partners, to the firm."
41. Let the submissions made by Mr. Shah be answered first. Admittedly, the property in the present case is not in medio but that is not the only consideration for appointment of a Receiver. The present suit is between the partners who are entitled to distribute the surplus after applying the property in discharging the liabilities. Apart from the property not being in medio, if it is in the hands of a partner, who uses it to the exclusion of the other partners, to his own advantage and to the detriment of the other partner and in breach of trust, a case for appointment of a Receiver is made out.
42. Ex-partner has only equitable lien and not possessory lien on the partnership assets, may be true to some extent. But that would not make any difference in according determination to the rights and liabilities of the partners inter se. They are trustees of each other and are acting as agents of each other. If one is in possession of the business assets and property, he will be deemed in possession on behalf of the firm of which the otherpartners are also members till the firm is completely wound up.
43. As to whether it is just and convenient in the present case to appoint a Receiver is a matter which has engaged our attention. Mr. Shah submits that it may be just but it is not convenient to appoint a Receiver for the business concern in which respondent No. 2 is also a partner. As stated in the earlier part of this judgment when the new partnership was constituted the first respondent had declared in the deed, copy whereof is on the file that he has taken assets and liabilities of the dissolved firm exclusively in his hands. By dissolved firm he meant the firm in question in this case. The new business was started with the assets of the dissolved firm and the first respondent, for reasons known only to him, has inducted his wife as a partner. We are not taken into confidence as to whether the second respondent has made any capital investment in the business or not. There are grounds to presume that partnership between the first respondent and the second respondent is being run on the assets and with the capital of the dissolved firm; in fact the premises and goodwill of the dissolved firm are being used by the respondents. Therefore, the first respondent, having inducted his wife in the partnership business, which is being run with the assets of the dissolved firm, cannot be allowed to gain premium for forfeiture of his trust and faith reposed in him by the appellant.
44. If the sole object of appointment of a Receiver is, according to Mr. Shah also, to preserve and protect the property in dispute, then the facts of the present case warrant that fifty per cent share of the appellant which is denied to him and which is likely to be dissipated by the respondents, should be afforded immediate protection. If it is denied to the appellant, the respondents may present a fiat accompli to the appellant by dissipating his share. Regard is to be had to the strained relations of the parties and implication of pending litigation. Naturally, the attempt of the respondents would be to defeat the rights of the appellant which must be protected.
45. It is also not correct to say that by appointing a Receiver, the Court would be Creating a partnership by a judicial process. Partnership had existed between the appellant and the first respondent. It was prima facie found to have been dissolved by the learned Single Judge though that dissolution is under challenge. Unless the appellant proves his grounds of challenge, it was rightly observed by the learned single Judge that dissolution of the partnership is held as proved. But as regards distribution of assets and partnership property, the defendants have given conflicting versions before the learned single Judge. Therefore, the learned single Judge has held that partnership exists for a limited purpose of winding up and winding up would be complete only when the assets and property of the firm are distributed and liability discharged. Therefore, nothing is created or extinguished by this Court by appointing a Receiver.
46. It is also not correct that the appellant's share in the partnership business, in its assets, in its premises and in other properties and in the goodwill can be treated as debt on the respondents. After dissolution both the appellant and the respondents are ex-partners and if the first respondent retains the entire property and conducts business to the exclusion of the appellant without division of the property, and without division of the assets, it cannot be said to be a debt but it is a case in which the property, assets and other things connected with the partnership are retained by the first respondent without any lawful authority and the appellant has a right to receive his share which share is yet to be determined. That share can be converted into cash or stocks, premises including business premises may be divided, goodwill of the firm is also to be divided. So the appellant's right to get surplus from the assets and partnership property after following the procedure laid down in Sections 46 and 48 of the Partnership Act cannot be considered to be a debt in the hands of the first respondent. The first respondent along with his wife is conducting business in the name of the firm without distribution of the assets and without paying share to the appellant which he is entitled to get.
47. Mr. Shah's contention is that conduct of a partner is not relevant for the appointment of a Receiver. His submission is that it is relevant for judging the waste and dissipation of the property. There is no controversy about this submission of Mr. Shah. If by his conduct a partner dissipates or uses the property of the other partner in breach of trust, it becomes a ground for appointment of a Receiver in a suit pertaining to partnership. If a partner is honest, he would at once after preparation of accounts place the share of the other partner before the Court in case the other partner has approached the Court. But in the present case not only is the right of the appellant denied to him but his share is also retained in the partnership and to defeat winding up of the partnership business and circumvent the process of law, the first respondent has introduced his own wife as a partner without any capital investment. Therefore, conduct in this context of the case becomes relevant for the appointment of a Receiver.
48. Next, it is argued that third party's interests have intervened, therefore, appointment of a Receiver will be unjust. By now we have seen that the third party is nobody other than the wife of the first respondent. She as per the clauses of the partnership deed is said to have been invited by the first respondent to join the partnership business and she has obliged him by according to him her consent as regards her joining the first respondent in the business venture of the firm which admittedly was started with the assets, goodwill and in the premises of the dissolved firm. If it was shown by the defendants that the second respondent out of her own fund had contributed any amount at the time of her joining the businessor thereafter, this argument could have some weight and while appointing Receiver her interests would have to be protected. Her interest in fact is not independent, but it is the interest of her husband which is sought to be protected by this argument. What will happen to a partnership business which is conducted in the name of the firm by members of one family and one of the member is thrown out by a husband and his wife and the business of the firm is usurped to his detriment by them? Questions like this are to be answered and in view of the facts and circumstances of this case, we do not agree with Mr. Shah that interests of the second respondent are in any manner likely to be affected by appointing a Receiver.
49. Appointment of a Commissioner at the initial stage and preparation of inventory cannot afford any protection to the plaintiff. Even after the inventory was made, the said property has remained in the hands of the first respondent and this property is used by him in the business and accretions made are not inventorised nor are now the daily accounts submitted to the Court by the respondents. Ouestion is of dissipating of the appellant's share in the property which needs to be protpcted.
50. It is also incorrect to say that the-appellate Court will be loath to interfere with the judgment of the learned Single Judge unless the judgment is perverse. This proposition is not correct. If the learned Judge has not afforded adequate protection to the appellant and has not preserved his share even after concluding that his share was not paid to him, and no division had taken place, then the appellate Court has to step in and in respect of dissolved firm appoint a Receiver. The learned single Judge has erred in not drawing a distinction between a running firm and a dissolved firm. Principles on which a Receiver is appointed in a running firm and for a dissolved firm are different. In a running firm the business run by the partners is not to be interfered with and a stranger is not to be inducted as a Receiver to take over the business. That may pose some problems. Therefore, if at all a case is made out for appointment of a Receiver in respect of a running business Courts generally appoint a defendant who is in charge of the business as a Receiver. But as regards a dissolved firm principle of appointment of a Receiver is different and one is to be appointed as a matter of course. The learned single Judge has omitted to consider this aspect of the matter, therefore the appellate Court can consider it in the light of the well known considerations laid down in this regard from time to time.
51. The question of goodwill as regards its value and purchase is ultimately to be decided by the trial Judge. We are only concerned about the rights of the appellant in the goodwill. Goodwill is an assets of the partnership business, therefore, its use by one cannot be permitted to the exclusion of the other unless it is purchased by him.
52. The authority reported in AIR 1955 Mad 430 (supra) obviously will have no application to the facts of the present case because that was an authority where competence of the vendor to sell the property was challenged and the property was purchased by a vendee in lieu of consideration. In view of the peculiar facts of that case five considerations were laid down by Ramaswami J. for appointment of Receiver.
53. On the duties of the partners after dissolution, Lord Reid in IRC v. Grahams Trustees, reported in 1971 SLT 46 has said "the partners' right and duty is to wind up its affairs. In my view this must mean that the surviving partners have right and duty to complete all unfinished operations necessary to fulfil contracts of the firm which were still in force when the firm was dissolved...."
54. Lindley on Partnership (fourteenth Edition) on p. 430 has in his commentary laid stress that utmost good faith is due from every member of a partnership towards every other member. Obligation to perfect fairness and good faith is, not confined only to persons who actually are partners, it extends topersons who have dissolved partnership but have not completely wound up and settled the partnership affairs, and most especially is good faith required to be observed when one partner is endeavouring to get rid of another or to buy him out. Good faith requires that a partners shall not obtain a profit at the expense of the firm. The invariable practice being not to have regard to the private interest of one of the partners but to the advantage of the firm,
55. In the absence of a special agreement to the effect, all the members of an ordinary partnership are interested in the whole of the partnership property on the basis of equality between them. During existence of a partnership or after its dissolution no partner has a right to take any portion of the partnership property and to say that it is his exclusively. The beneficial share of outgoing partner is 'an equitable interest' and not a mere "equity".
56. Laches or inordinate delay may disentitle a plaintiff from seeking relief : apart from laches express abandonment of his share by a partner in the dissolved firm may disentitle him to seek relief. Laches if explained, will not stand in the way of the plaintiff for seeking the relief. The only consideration which has weighed with the learned single Judge in disallowing the prayer for appointment of receiver has been the delay in filing the suit. The appellant has explained the delay and has not committed inordinate lapse in coming to the Court. Partnership is said to have been dissolved on 17th Mar. 1980. On 8th April 1980, new partnership was created. So if the appellant would have come to the Court within a month or so, the position would have been the same. Probably the learned single Judge has been influenced that respondent No. 1's wife was introduced in the partnership business, therefore, delay can be a reason for refusing the prayer for appointment of receiver. If this was the consideration the plaintiff's relief had become futile even after twentyone days of the dissolution of partnership. This type of approach will defeat the object underlying Order 40, Rule 1 Civil P.C.
57. After dissolution of the partnership up to the date of winding up, which is to take place in accordance with Sections 46 and 48 of the Partnership Act, partnership exists for a limited purpose. The misconduct in respect of a partner will be presumed if one partner carries on trade on his own account with the partnership property and assets of a dissolved partnership. If the assets of outgoing partner are employed by one partner for his own use, that also can be termed as a misconduct. If as regards the assets of outgoing partner there is mis-management to his detriment, it can be said to be a misconduct or if partner who has control over the assets, property, premises or goodwill of the dissolved firm has made away with these or with some of them, a misconduct will be readily inferred in all these cases and Court will interfere by appointing a Receiver.
58. Even if dissolution of partnership is held to have taken place that by itself could not be the proof that assets of the dissolved partnership have been distributed and applied towards the discharge of liabilities, debts and residue has been shared by the partners. It must be evident by some cogent evidence such as details of accounts and other documents which are prepared by the partners when the assets are distributed.
59. One of the important assets being goodwill, has got to be valued and converted into cash. If there is no evidence of its having been valued and converted it into cash, it is to be presumed that goodwill has not been sold or purchased and is being used by a partner against whom relief is sought to the exclusion of the outgoing partner.
60. That would bring us to the considerations, which are relevant for appointment of a receiver in a suit for dissolved firm. On consideration of various authorities discussed hereinabove, the principles on which Court would generally appoint a Receiver in respect of dissolved partnership business with a view to winding up of the business are laid down as under :
(i) A partner seeking appointment of a Receiver must have a strong case in his favour and claim asserted by him must be free from doubt.
(ii) That a partner seeking relief of appointment of a Receiver must further show that he has been excluded from partnership property in which he has an equitable interest and the partnership property as it stood on the day of dissolution had not been distributed in accordance with the provisions of Sections 46 and 48 of the Partnership Act.
(iii) A partner seeking relief must further show that partnership property including assets, goodwill, in which he has a share are retained by the partner against whom the relief is sought, in violation of the provisions of the Partnership Act.
(iv) There must be prima facie proof of misconduct against a partner who is said to be in control of the partnership property to the detriment of a partner who seeks the relief. Misconduct will be inferred if one partner carries on trade on his own account with the partnership property and assets of the dissolved firm. Inference of misconduct will be readily drawn if the partner who has control over the assets and partnership property of dissolved partnership has employed the share of the outgoing partner to his own use without his permission.
(v) Property, assets and goodwill being in possession of one partner to the exclusion of others is not ground for refusing to appoint a Receiver. It will be a different matter if it is shown that a partner seeking relief has expressly abandoned his share in the dissloved firm or has rendered himself disentitled by being guilty of laches or inordinate delay not explained by him.
(vi) Principles which govern the appointment of a Receiver as regards dissolved partnership are not the same which are taken into consideration in this regard in relation to a running partnership business, though element of mis-management of partnership property and its income is present in both cases.
(vii) The appointment of a Receiver in respect of a dissolved partnership is in the discretion of the Court and by exercising that discretion, the Court will be guided by the consideration of preserving and protecting the property and assets of the dissolved firm and will not permit them to be dissipated or used by one partner exclusively to the detriment and manifest disadvantage of the other partners who are excluded from such property and assests.
The aforesaid guidelines for appointment of a Receiver for a dissolved firm are applicable to the facts of the present case. We accordingly, with respect, disagree with the learned single Judge in so far as he has refused to appoint a Receiver for the dissolved firm. The factual findings arrived at by the learned Single Judge as regards dissolution of partnership, as regards non-distribution of assets etc. have been accepted by us as true and we have proceeded on the assumption that after dissolution of the firm, assets and properties of the firm were not distributed in accordance with the provisions of the Partnership Act. A case for appointment of a Receiver is made out and we accordingly allow this appeal to the extent indicated above. We make the following directions.
(i) Mr. O. P. Sharma, Addl. District & Sessions Judge, Jammu, is appointed as a Receiver for the firm Messers, Kingsway, Vir Marg, Residency Road, Jammu. He shall take over the control of the business being conducted in the name of the said firm as also its properties and assets, movable and immoveable, in his control and manage the same for the benefit of the party who may ultimately succeed in the suit.
(ii) The employees working at present in the shop shall not be removed from service by the Receiver. The appellant and the first respondent shall keep one representative each at the shop for the pupose of conduct of sale and maintenance of accounts who shall discharge their functions at the shop under the direct supervision and control of the Receiver. They shall be responsible to the Receiver in the matter of discharging of their duties.
(iii) That the sale proceeds after meeting the necessary expenses shall be deposited in the Bank in the name of the Receiver who shall operate on the bank accounts subject to the orders of the learned single Judge who is seized of the civil original suit. The first respondent accordingly shall not operate the Bank accounts of the firm and those accounts shall remain stayed. If any amount for the running of the business is needed, a direction from the learned single Judge shall be obtained from time to time by the Receiver.
(iv) That the goodwill of the firm and the firm name shall not be used by the second respdt. who has been inducted after the dissolution of the firm as a parlener by the first respdt.
(v) That the appellant and the first respondent shall not interfere in the smooth management and running of the business by the Receiver and shall render all help and assistance to him in the conduct of day to day business.
(iv) The daily accounts shall be prepared under the supervision of the Receiver by the representatives of the appellant and the first respondent, which shall be certified by the Receiver and submitted before the learned single Judge after every month.
61. The Receiver's fee for the time being is fixed at Rs. 500/- per month tentatively subject to the addition and alteration by the learned single Judge having regard to the nature of the job which the receiver has to discharge. The said amount shall be paid to him from the sale proceeds of the firm.
62. No order as to costs.
63. I agree.
64. The operative portion of this judgment shall at once be conveyed to the Receiver by the Dy. Registrar who shall be directed to proceed to discharge the functions of the Receiver in the manner indicated in theorder.