E. Padmanabhan, J.
1. This appeal has been preferred by the plaintiff in O. S. No. 245 of 1983 on the file of the Sub-court, Tirupur, in so far as the trial court had exonerated the fourth defendant decreeing the suit against all the other defendants. Heard learned counsel appearing for the appellants. Mr. Viswanatha Rao appears for respondent No. 4. Though the other respondents have been served with the notice in the above appeal they have not appeared.
2. The point raised in this appeal lies in a narrow controversy and it may not be necessary to set out the details of the pleadings in the suit since it is not necessary to go into other issues, which have been answered in favour of the appellant. For convenience sake the parties to this appeal will be referred as arrayed before the trial court.
3. The plaintiff instituted the suit for recovery of a sum of Rs. 1,24,085.44 with interest at 14 per cent p. a. being the amount due advanced on a mortgage. Defendants Nos. 2 to 6 are the partners of the first defendant firm. On September 18, 1980, the title deeds of the five defendants as well as the stock-in-trade were mortgaged as agreed, to repay the sum of Rs. 1 lakh besides pledging machinery etc., with the plaintiff. Exhibits A1 and A2 are the documents of title, which the defendants have deposited with the plaintiff. Exhibits A3 to A6 would show that the defendants have executed the bond in favour of the plaintiff. The execution of the said exhibits as well as the subsequent letters, exhibits A7 and A8 are admitted by the defendants. The subsequent confirmation in exhibits A9 is also admitted by the defendants. The deed of hypothecation under exhibit A13 is also admitted. As already pointed out, the trial court decreed the suit as against all the defendants while rejecting the suit claim against the fourth defendant. Hence it is essential to refer to the pleas put forward by the fourth defendant. According to the fourth defendant, the fourth defendant had resigned from the first defendant partnership with effect from March 31, 1981 ; that the fourth defendant had already intimated the plaintiff-bank about her ceasing to be the partner of the first defendant firm and therefore the plaintiff cannot seek any relief against the fourth defendant. The fourth defendant asserted that on and after March 31, 1981, she has nothing to do with the first defendant partnership firm and she is not liable for the suit claim and that the suit claim is liable to be dismissed in so far as the fourth defendant is concerned.
4. The trial court framed the following issues for consideration :
"(1) Whether the fourth defendant ceased to be a partner of the first defendant firm on and after March 31, 1981 ?
(2) Whether the fourth defendant is liable for the suit claim ?
(3) Is not the fifth defendant liable to pay the suit claim ?
(4) Whether the sum of Rs. 13,900 in deposit should be deposited towards the suit claim ?
(5) Whether the plaintiff is entitled to claim interest ?
(6) To what relief the plaintiff is entitled ?"
5. The plaintiff-bank marked exhibits A1 to A31 while the defendants marked exhibits B1 to B10. The plaintiff-bank had examined its officer as P.W. 1 and the defendants have examined the third defendant as D.W. 1, the sixth defendant as D.W. 2. and the fourth defendant as D.W. 3. The trial court answered all the points in favour of the plaintiff-bank and against defendants Nos. 1, 2, 3, 5 and 6 while exonerating the fourth defendant on the view that the fourth defendant ceased to be a partner of the first defendant firm on and after March 31, 1981. The points that arise for consideration in this appeal are :
"(a) Whether the fourth respondent is liable for the suit claim ?
(b) Whether the exoneration of the fourth defendant by the trial court is liable to be set aside ?
(c) Whether the resignation of the fourth defendant from the first defendant partnership would relieve the fourth defendant from the suit liability or debt incurred before her resignation ?"
6. All the above points could be taken up together for discussion. Admittedly the fourth defendant was one of the partners of the first defendant firm till March 31, 1981. It is the case of the fourth defendant that she had resigned from the first defendant partnership firm and the first defendant firm had been reconstituted. It is the further case of the fourth defendant that immediately after her ceasing to be a partner, she had sent a notice to the plaintiff-bank. The fourth defendant who had examined herself as D. W. 3 deposed that from March 31, 1981, onwards she had resigned from the first defendant partnership and exhibit B10 is the reconstitution of the first defendant firm. The fourth defendant also intimated the plaintiff-bank about her ceasing to be a partner and the reconstitution of the firm. Only on that score, the fourth defendant pleaded that she is not liable for the suit mortgage debt incurred before March 31, 1981. Incidentally it is further being contended that when the fourth defendant issued a notice and when the plaintiff had failed to send a reply to the notice, exhibit B10, it is deemed that the plaintiff had relieved the fourth defendant from the liability. Only on that score, the fourth defendant contended that she is not liable for the suit claim.
7. The trial court also proceeded on the premise that the fourth defendant had resigned and as the fourth defendant's name does not find a place as one of the partners in later documents, and as the fourth defendant had intimated about her resignation and in the absence of any reply, the fourth defendant according to her plea is not liable. This plea had been sustained by the court below.
8. Admittedly, the loan had been raised and availed of while the fourth defendant was a partner of the first defendant-firm. No document had been produced by the fourth defendant or by any other defendant relieving or giving up against the fourth defendant from the existing liability or the loan advanced by the plaintiff-bank. Merely because the fourth defendant had resigned, it cannot be held that her liability for the past transaction or loan which has been incurred while she was a partner ceased. Mere reconstitution or resignation will not ipso facto relieve the fourth defendant as the loan had been availed of while the fourth defendant was a partner. The legal position in this respect is well settled.
9. A partner, who retires from the partnership firm may be discharged from his liability to any third party for the past transactions or acts of the firm done before his/her retirement only by an agreement of such third party. Sub-section (3) of Section 31 of the Indian Partnership Act, 1931, provides that notwithstanding retirement of a partner from a firm, he and the partners who continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement. By mere retirement of a partner a firm is not dissolved but the retiring partner must give notice of his intention to retire. If the old firm continues with continuing partners as its members even when partners agree among themselves that continuing partners shall be liable for the obligation of a retiring partner, such an agreement cannot per se affect the rights of creditors being res inter alios acta. Where a reconstituted firm assumes liability to pay the debt due by the old firm, and the creditor agrees to accept the new firm as his debtor to discharge the old partnership from its liability, the partners of the new firm would be liable to pay the creditor and only then the partner who had retired or a partner who had ceased to be a partner on reconstitution would be discharged of his liability.
10. The legal position in this aspect is well settled by an earlier judgment of this court in Meenakshi Achi v. P. S. M. Subramanian Chettiar, AIR 1957 Mad 8 [DB]. A Division Bench, after analysing the entire case law and while placing reliance on Section 31 of the Indian Partnership Act, held thus (page 11) :
"(23) Under Section 32 a partner may retire (i) with the consent of all the partners ; (ii) by virtue of an express agreement between the partners ; and (iii) in case of a partnership at will, by giving notice in writing to all other partners of his intention to retire. Such a partner, however, continues to be liable to third parties for acts of the firm, after his retirement, until public notice of his retirement as required by Section 72 has been given either by himself or by the other partners (Clauses (3) and (4) of Section 32).
As regards liability for acts of the firm done before retirement, the retiring partner remains liable for the same, unless, as Section 32(2) provides. On the words of Underhill (page 79) a tripartite agreement is made by him with the third parties concerned and the partners of the reconstituted firm, discharge him from such liability.
Even where partners agree amongst themselves that the continuing partners shall be liable for the obligation of a retiring partner, such an agreement cannot per se affect the rights of the creditors being res inter alios acta. Such agreement may be either express or may be implied by a course of dealing between the third parties and the new firm, after knowledge of his retirement. But it will not be presumed and if it exists will have to be strictly proved.
Benson v. Hadfield  4 Hare 32 (37). This refers to the subject of 'novation' for which Section 62 of the Contract Act provides Scarf v. Jardine  7 AC 345 at page 350. Retirement is not the same as dissolution. On retirement of a partner, the firm continues to exist as such, which is not the case when a partnership is dissolved."
11. The Division Bench also further held that a new partner who has been inducted later on a reconstitution or a reconstituted firm be made liable or be held liable, there must be evidence to establish privity between the new reconstituted firm and the creditor and if incoming partner is to be held liable for the old debts of the firm. In that context the Bench held thus (page 13) :
"The result of the Indian authorities on the subject also appears to be that there must be evidence which, though not much, must be sufficient to establish privity between the newly constituted firm and the creditor if an incoming partner is to be held liable for any old debt of the firm. Rolfe v. Flower Salting and Co.  LR 1 PC 27 ; B. D. Sharma v. Phanindra Nath 35 Cal WN 593 ; Jagan Nath and Co. v. Cresswell, ILR 40 Cal 814 ; Russa Engineering Works Ltd. v. Kanara Transport Co., AIR 1926 Mad 1138 ; ILR 49 Mad 930 ; Shewak Mahtom v. Saint Joseph 9 Cal LR 21 ; Ex. P. Whitmore  3 Deac. 365 ; British Homes Assurance Corporation Ltd. v. Paterson  2 Ch 404 ; Craufurd v. Cocks (1851) 6 Ex. 287 ; V. Pandurangs Bhatta v. M. Krishna Nayak and Sons, AIR 1927 Mad 889 ; Smith v. Patrick  AC 282."
12. A later Division Bench in Vinaitheethal Achi v. Chidambaram Chettiar, while following Meenakshi Achi v. P. S. M. Subramanian Chettiar, AIR 1957 Mad 8, held thus :
"In this connection, we may also refer to the decision in Meenakshi Achi v. Subramaniam Chettiar 69 Mad LW 704 ; AIR 1957 Mad 8, wherein a Division Bench of this court had held that if the new firm had assumed liability to pay the debt and the creditor had agreed to accept the new firm as his debtor to discharge his old partnership firm from its liability, the partners of the new firm would be liable to pay the creditor. It may be mentioned that the firm continued to exist even after the death of the original partners."
13. In the light of the two Division Bench judgments, it is the settled legal position that so long as the plaintiff-bank, a creditor, had not relieved the fourth defendant from her obligation to discharge the debts already incurred by the partnership firm while the fourth defendant was a partner of the firm, the fourth defendant cannot assume or contend that she had been discharged of her liability by the plaintiff-bank. Merely because no reply had been sent or merely because the name of the fourth defendant had not been set out in the statement of account, the fourth defendant is not exonerated. It is not the case of the fourth defendant that after reconstitution, the plaintiff-bank had agreed to substitute the reconstituted firm in the place of the old firm as its debtor. It is also not the case of the fourth defendant that the plaintiff had discharged the fourth defendant from her liability as one of the partners of the first defendant firm in respect of the debt incurred by the firm and advanced by the plaintiff while she was a partner. Mere resignation of the fourth defendant at a later date will not absolve the fourth defendant from the liability incurred by the firm as well as by the partners of the firm while she continued to be a partner.
14. In the light of the settled legal position, it follows that the dismissal of the suit against the fourth defendant has to be set aside and the decree of the court below has to be modified accordingly.
15. In these circumstances, the appeal is allowed and the suit is decreed as prayed for against the fourth defendant as well as all the other defendants. The decree of the court below is modified and the suit is decreed as prayed for with costs against all the defendants. The appeal is allowed with costs against the fourth defendant.