If the third person was aware of the retirement of such partner who has retired then the principle of holding out will not apply

Ashutosh Rajput | Hidayatullah National Law University | 18th May 2020

Central United Bank Ltd. & Anr. v. B.A. Venkataramma Naidu [AIR 1963 Mad 302]

Facts: 

Ramakrishna Chattiar, Ramaswami Nadar, and Venkatarama Naidu are carried on a business in partnership as a grocer in Rajapalaym, Tamil Nadu. On 8^th February 1946, Venkatarama Naidu retired from the Partnership and after his retirement the remaining two partners continued with business under the same firm name. No public notice was given in the manner required under section 72 of Partnership Act, 1932 though the intimation was given to the Registrar of Firms of the place. The remaining two partners subsequently obtained a loan of rupees 6000/- by executing a promissory note. The bank that gave loan subsequently went into liquidation and in order to recover the loan from the firm, having two partners they sued Venkatarama also and made him liable as a partner of the partnership firm. The Subordinate Court rejected the claim against Venkatarama. The retired partner is made liable on the ground of section 32 of the Partnership act, 1932 as no due public notice was given. Hence, the appeal was filed before the Hon’ble Madras High Court.

Issue: 

Whether Venakatarama Naidu is liable along with the other two partners? 

Judgment: 

Section 32(3) has to be interpreted in a literal sense. In Jwaladut R. Pillai v. Bansilal Motilal (AIR 1929 PC 132) the Privy Council held that the public notice is not sufficient rather than actual notice of dissolution of the partnership firm. The liability is not created by section 32(3) but because of holding out principle. The court considered that by the proviso of section 32(3), only the person who was not aware of the retirement can take advantage.

Therefore, the appellant bank that was aware of the retirement of the respondent would not become liable and hence, the appeal by the bank fails.