Retirement of one partner from a partnership firm will lead to its dissolution if the firm contains only two partners

Abhinav Mishra|Kirit P. Mehta School of Law|4th June 2020

Case Name:

Guru Nanak Industries, Faridabad and another (Appellant) v. Amar Singh (Dead) Through LRS (Respondent)

Introduction:

The civil appeal, due to the dispute between Swaran Singh and Amar Singh who were in a partnership primarily, deals with the issue of ‘Retirement of a partner’ from a partnership with only two members. The bench headed by J. NV Ramana and Krishna Murari heard the appeal. The case note highlights the facts, laws, decisions, and rationale behind the case.

Facts of the case:

• On 6th may, 1981 Swaran Singh and Amar Singh executed a partnership deed, the partnership firm was called Guru Nanak Industries.
• On 29th March 1989, Guru Nanak Industries and Swaran Singh filed a civil suit against Amar Singh claiming that he had retired from the partnership on 24th August 1988 with his share of capital.
• Amar Singh contested the suit and on 29th April 1989 filed a suit for the Dissolution of Partnership. He contended that he had never resigned.
• The Trial court had dismissed the suit filed by Amar Singh observing that there was a discrepancy in the two versions given by Amar Singh regarding a letter dated 17th October 1988. 1st that it was forged and 2nd that it had been manipulated by adding the last sentence.
• An appeal by Amar Singh was accepted by an appellate court observing that the Receipt dated 17th October 1988 was manipulated by adding the last sentence. Secondly, the court observed that a letter dated 24th August 1988 supported the case that Amar Singh had not resigned as the letter was signed by both partners and described Amar Singh as a partner. The court held that Amar Singh was entitled to his prayer.
• Swaran Singh who had died and was being represented by his widow filed two appeals before the Punjab and Haryana High Court. The decision of the First appellate court was affirmed by the High court.

Rules and Laws applied:

Section 37 and Section 48 of the Indian Partnership Act, 1932. (IPA)

Holding:

The Supreme Court dismissed the appeal and upheld the decision of the First appellate court which was sustained by the High Court. However, the court shifted the date of the dissolution of the firm from 31st of March, 1989 to 24th August, 1988. The Court has further issued some direction regarding a Settlement to read this Direction refer to the case link.

Brief Analysis:

The court while passing the judge rejected the argument by the appellants that Amar Singh had resigned as a partner and therefore was only entitled to capital standing in his credit in the book of accounts as per the partnership deed, as there was overwhelming evidence that Amar Singh had not resigned.
The court highlighting the distinction between the retirement of a partner and the Dissolution of a partnership firm. In the 1st case, the retiring partner is to be paid his dues in terms of Section 37 of the IPA whereas in the latter case accounts have to be settled and distributed as per the mode described under Section 48 of the IPA. In the present case, the court held as there are only two partners retirement of anyone partner would amount to the dissolution of the firm as a partnership at a minimum requires two partners.

Conclusion:

The case is primarily concerned with the ‘Retirement of Partner’ in a partnership with only two partners. Section 4 of the IPA defines a partnership as “a relation between persons” and hence a single person cannot constitute a partnership firm. Therefore, as the Supreme Court held the retirement of one partner from a partnership firm will lead to its dissolution if the firm contains only two partners.’

Case Link:

https://indiankanoon.org/doc/27642909/?type=print