DISSOLUTION OF FIRM BY DEATH

LAW OF CONTRACTS PROJECT

STUDENT NAME: YELISETTY VINAYA

ROLL NUMBER: 18LLB102

SEMESTER III

FACULTY NAME: P. Jogi Naidu

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM

OCTOBER 2018
 ACKNOWLEDGEMENT

I would sincerely like to put forward my heartfelt appreciation to our respected Law of Contracts
professor Mr. P. Jogi Naidu sir, for giving me this golden opportunity to take up this project regarding
dissolution of a firm by death. I have tried my best to collect information about the project in various
possible ways to depict clear picture about the given project topic. I would also like to express my
gratitude to Mr. P. Jogi Naidu sir for his great support, guidance, help and lectures which helped me in
doing the project.

I am also grateful to the office, librarian and library staff of DSNLU, Visakhapatnam for allowing me to
use their library whenever I needed to. Further I am grateful to my learned teachers for their academic
patronage and persistent encouragement extended to me.

SIGN OF THE RESEARCHER:

SIGN OF THE FACULTY:

 TABLE OF CONTENTS

INTRODUCTION………………………………………………………………………………………

RAMPRASAD CHHOTALAL V. BAI REVA………………………………………………………..

M. S. V. NARAYAN CHETTIAR V. M.S.M. UMAYAL ACHI……………………………………

KHAIRATI RAM V. FIRM BALAK RAM………………………………………………………….

NOLA CHANDROUTIE v. LUTCHMIE DEVI GAJADHAR………………………………………

COMMISSIONER OF INCOME TAX, MADHYA PRADESH V. SETH GOVINDRAM SUGAR

MILLS…………………………………………………………………………………………………
 INTRODUCTION

The Indian law of partnership in India is based on the provisions of the English law of partnership. Until
the English Partnership Act of 1890 was passed, the law of partnership even in England was largely
based on legal decisions and custom. There were very few acts of parliament relating directly to
partnership. The Indian Partnership Act of 1932 was the result of a report of a Special Committee.

Prior to the enactment of the Partnership Act, the law relating to partnership was contained in Chapter
XI (sections 239 to 266) of the Indian Contract Act, 1872. These provisions contained in the Contract
Act were not found adequate. As a result, Chapter XI of the Contract Act was repealed and replaced by
the Partnership Act of 1932. The Partnership Act is a comprehensive framework for contractual
relationships amongst partners, and the basis for a most popular form of organization for small
businesses. The Indian Partnership Act,1932 defining the law relating to partnership the relation
between the persons who have agreed to share the profits of a business carried on by all or any of them
acting for all -- makes it obligatory to have a partnership registered with the Registrar of Firms, failing
which the firm is prohibited from enforcing any right in a Court of Law.

This Act defines the relationship of partners to one another and to third parties and lays down
provisions as regards incoming and outgoing partners, dissolution of a firm, etc. Under the Act partners
are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful
to each other and to render true accounts and full information of all things effecting the firm to any
partner or its legal representative. A partner is liable to indemnify the firm for any loss caused to it by
his willful neglect in the conduct of the business of the firm. A partner is the agent of the firm for the
purpose of the business of the firm. The act also provides for the sale of goodwill of the firm after its
dissolution and the rights of the buyer and seller of the goodwill. All partners are agents of one another
in a partnership firm.

DISSOLUTION OF A PARTNERSHIP FIRM

Section 39 of Indian Partnership Act, 1932 says that the dissolution of partnership between all the
partners of a firm is called dissolution of firm. Section 4 of Indian Partnership Act,1932 defines
partnership as the relation between persons who have agreed to share profits of business carried on by
all or any of them acting for all. Thus, if some partner is changed/ added/ goes out, the ‘relation’
between them changes and hence ‘partnership’ is dissolved, but the ‘firm’ continues. Hence, the change
is termed as ‘reconstitution of firm’. However, complete breakage between relations of all partners is
termed as ‘dissolution of firm’. After such dissolution, the firm no more exists. Thus, ‘Dissolution of
partnership’ is different from ‘dissolution of firm’. ‘Dissolution of partnership’ is only reconstruction of
firm, while ‘dissolution of firm’ means the firm no more exists after dissolution.

MODES OF DISSOLUTION OF A PARTNERSHIP FIRM

A partnership firm can be dissolved by many modes like by agreement on the happening of certain
contingencies, or judicially. There are basically five modes of dissolution given under Sections 40 – 44
of the Indian Partnership Act.

Dissolution by Agreement – Sec. 40

Compulsory Dissolution – Sec 41

Dissolution on the happening of certain contingencies – Sec.42·

Dissolution by notice of partnership at will – Sec.43

Dissolution by the Court – Sec.44

Section 42 of Indian Partnership Act, 1932 defines about dissolution on the happening of certain
contingencies: -

Subject to contract between the partners of a firm is dissolved -

(a) If constituted for a fixed term, by the expiry of the term;

(b) If constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) By the death of the partner; and

(d) By the adjudication of a partner as an insolvent.

The scope of this project is only limited to Section 42c of the Indian Partnership Act,1932 which
explains about the dissolution by death of the partner(s).
 RAMPRASAD CHHOTALAL v. BAI REVA1

CITATION - AIR 1970 Guj 269

PETITIONER - Ramprasad Chhotalal

RESPONDENT - Bai Reva

DATE OF JUDGMENT - 18 April 1969

BENCH - N. G. Shelat

ACTS INVOLVED - Art. 60 of the Limitation Act , Hindu Succession Act, Section 42(c) of the Indian
Partnership Act

HEADNOTE - The suit from which this appeal arises was instituted by the respondent-plaintiff in the
Court of the Civil Judge (S.D.) at Ahmedabad for recovering in all a sum of Rs. 17,131-86 p. Due as per
statement of accounts dated 27-10-1954 with future interest and costs of the suit, against the
defendants-appellants.

FACTS

The original partnership which ran in the name of Ramprasad Chhotalal was between four persons as
would appear from the partnership deed Ex. 114 dated 7th December 1931. The amount was deposited
with the firm even before that. One Atmaram Kalidas happened to have close connections with both
Ramprasad and Chhotalal. He had deposited in the name of his first wife by name Kamla a certain
amount with the firm running in the name of Ramprasad Chhotalal Patel, even prior to S. Y. 1938. After
her death, Atmaram's marriage took place with the present plaintiff. The amount that stood due in the
name of his first wife with the firm was then transferred to the name of his second wife - the plaintiff.
At any rate, that amount stood in the firm's accounts in the name of the plaintiff since 10-11-1931. A
statement of accounts as per ext. 85 sent by the firm shows that Rs. 8784-12-0 were due to her. Later on
it appears that some amounts were withdrawn by her and some were added to her account. It is common
ground that the firm used to prepare statement of accounts at the and of every Samvat year and it was
sent to her. That went on up to the death of Chhotalal which took place on 21-11-1950. Even after his
death the firm continued in the same name and as the evidence discloses, Natwarlal-defendant No. 2,
the eldest son of Chhotalal, joined in that partnership firm. He appears to have looked after the affairs of

1
AIR 1970 Guj 269.
the firm as well. The statement of accounts in respect of the plaintiff's dues came to be sent to the
plaintiff as usual every year as would appear from Exs. 87 to 106 and the last one was sent under the
signature of Natwarlal as per Ex. 107. The amount due thereunder was Rs. 13,773-1-0 on Kartik Sud 1
of S. Y. 2010. As already pointed out hereabove, a demand was made in the month of May 1955 and
since nothing came out from it, a notice under Ex. 108 dated 3-10-55 was sent to the defendants. The
reply as per Ex. 111 dated 31-10-1955 thereto was given by defendants Nos. 2 and 3 both for
themselves and on behalf of the firm-defendant No. 1 whereby while they admitted the amount due
from them, they denied the liability of the other heirs and legal representatives of Chhotalal, including
in respect of their shares in the ancestral or joint family properties of Chhotalal. In the suit, defendants
Nos. 1, 2 and 3 did not appear and contest the claim. However, defendants Nos. 1 and 3 and also the
heirs and legal representatives of defendant No. 2 have joined as appellants along with the defendants
Nos 4 to 10-the heirs and legal representatives of deceased Chhotalal in this appeal, against the decision
passed by the trial Court.

ISSUE -

Whether the amount due from the firm-defendant No. 1 was a deposit so as to be governed by Art. 60,
or that it was a loan contemplated in Art. 57 or 59 of the Indian Limitation Act.

CONTENTIONS OF APPELLANT -

Mr. Mody is the learned counsel on the behalf of the appellants.

Two points have been urged by Mr. Mody, the learned advocate for the appellants, before us. The first
is that the trial court has erred in holding that the amount due from defendant No. 1 the firm running in
the name of Ramprasad Chhotalal was in the nature of a deposit so as to be governed for the purpose of
limitation by Art. 60 of the Indian Limitation Act. According to him, it was merely a loan and not a
deposit and would, therefore, be governed by Art. 57 or 59 of the Indian Limitation Act. As the period
of Limitation in that event commences from the date when the loan is made, this suit filed after a period
of three years provided for the same, would be barred by limitation. On the other hand, it is said that the
cause of action for a claim for money deposited with the firm u/art. 60 of the Indian Limitation
Act would commence from the date when the demand is made. On that basis the suit is within time - it
having been filed within a period of three years from the demand made in the month of May, 1956. The
other point raised by him is that the right and share in the ancestral Joint family properties of Chhotalal
Lallubhai, with defendants Nos. 4 to 10 cannot be held in any way liable for the suit claim since the
family had nothing to do with that firm, and its partners were only Ramprasad and Natwarlal. Natwarlal,
according to him was taken as a partner in the firm in his individual capacity and not as manager or the
eldest member in the family. Mr. Mody's contention is that the onus of proving that the amount was
deposited so as to entitle the plaintiff to claim it on demand with the firm would be on the plaintiff and
 she has failed to discharge the same. According to him, when a person hands over money to any person
not being in the nature of a gift, even though payable when demanded, would ordinarily mean a loan so
as to say that money was lent to the other person. In order to show that it was in the nature of a deposit
so as to have the claim brought under Art. 60 of the Limitation Act, it would be essential for the
plaintiff to show that it was not merely a loan but was a deposit. In support thereof, he invited a
reference to the observations made in a decision in the case of Govind Chintaman Bhat v. Kachubhai
Gulabchand2.

CONTENTIONS OF RESPONDENT -

It is observed that it appears clear from the very decision relied upon by Mr. Mody that it cannot be said
that there must exist fiduciary relationship between them, though if that existed, it may help in
determining the nature of the transaction. In the case of Bhimanna Kumaji v. Venichand Fattechand3, it
was pointed out that under Art. 60 of the Indian Limitation Act, it is not necessary to prove that the
borrower is carrying on business only as a banker. It has been further observed that a man might
become a banker, or place himself in the position of a banker, with regard to a particular customer, and
if the dealings with the lender and the borrower are such that the Court is satisfied that it can be said
that the borrower is in the position of a banker to the lender, then the money so lent can be considered
as a deposit. The mere fact, therefore, that the firm was carrying on some business in cloth etc., would
not necessarily mean that it cannot be treated as a banker qua the plaintiff in the circumstances of the
case. As observed in the case of V. E. A. Annamalai Chettiar v. S. V. V. S. Veerappa Chettiar4,
whether a transaction is a transaction of loan or deposit does not depend merely on the terms of the
document but has got to be judged from the intention of the parties and all the circumstances of the case.
Even though the transaction is a transaction of deposit the deposit can be coupled with an agreement
that it will be payable on demand. Such an agreement can be express or implied and if an express
agreement in that behalf is recorded in the document the transaction of deposit cannot be thereby
converted into a transaction of loan and the words "we shall pay the said sum" cannot convert the
document into a promissory note. The promise to pay will be involved in a promissory note as well as in
a deposit within the meaning of Art. 60, Limitation Act and the Court will have regard to the intention
of the parties and the circumstances of the case. In other words, even if there existed any document
wherein there had been a promise to pay the said sum, it would not necessarily be taken as a document
of loan and that the Court would be required to find out the intention of the parties as to whether the
amount sought to be secured was a deposit or a loan secured by the document itself. the respondents,
urged that even on the basis that in the firm-defendant No. 1, Chhotalal was a partner in his individual

2
AIR 1924 Bom 28.
3
AIR 1926 Bom 168
4
AIR 1956 SC 12
capacity and not as a Karta or manager of the family, the liability in respect of such a debt of the firm
would certainly be even against the joint family properties in which defendants Nos. 3 to 10 had the
coparcenary interest by reason of the doctrine of pious obligation to pay the debt of the father unless it
is shown that the debt was illegal or immoral.

JUDGMENT -

It was held that the transaction was not a loan falling within Arts, 57 and 59 of the Act because of the
absence of any security for the alleged loans such as of any receipt in writing, or any promissory note,
or any agreement as to what rate of interest the loan was to carry. It further held that the course of
dealing between the parties was that the defendant was acting very much as a banker for the plaintiff, he
received for safe custody whatever moneys the plaintiff wished to hand over to him. and he paid those
moneys to the plaintiff only when the plaintiff asked for them, and that there was nothing to show that
the defendant was under any duty to seek out the plaintiff to repay him. In these circumstances, the
transaction was that of a deposit and the suit was governed by Art. 60 of the Indian Limitation Act.
Applying these tests to the present claim by the plaintiff, it appears that at no stage any writing was
obtained so as to serve as a security for the amount given to the defendants viz. by way of a receipt or a
promissory note or the agreement. All that was done was that the amount was handed over to the
defendant-firm and a Khata in her name was maintained in the account books of the firm. The interest
was added to the same every year and after making accounts at the end of the year, a statement thereof
was sent to the plaintiff showing the amount due from the firm to her. This course of conduct continued
for long. It shows that it was not the defendant No. 1 who had borrowed the amount out of same
necessity on its part or about the plaintiff having advanced or lent any such sum.

It has been held in India that the manager cannot impose even upon them the risk and liability of a new
business started by him, unless the business is started or carried on with their consent, express or
implied or though started by the manager only, joint funds were afterwards utilized for the business to
the advantage of the joint family or its continuance was found beneficial to the family or it was adopted
as a family business by the other members who continued to enjoy the benefits of the same. Before
applying any such principle, it has to be established that the debt was contracted for the purpose of
entering into a new business by any individual member in the firm so as to bind other members in the
family. In the present case, as already pointed out here above, we have no material on record to exactly
know how and for what purpose the amount was accepted by the firm. The only thing that we are able
to gather from the material on record is the statement of accounts sent to the plaintiff every year from
time to time by the firm acknowledging the firm's liability to pay the same. What happened to the first
partnership and in what manner it came to be dissolved we do not know. All that could well be known
by the defendants themselves. Their accounts would have shown the same. None of those accounts has
been produced to show as to whether this amount was taken by way of a loan for starting a new
 business so as to create any such effect in respect thereof subsequently. Since the first partnership had
two partners Ramprasad and Chhotalal, this amount was carried forward as the amount deposited with
them. In other words, there is not an iota of evidence or material on record to suggest much less show
that this amount was borrowed for the purpose of starting a new business. No attempt is made to explain
the same and the material in that regard could only be with the defendants who have remained ex parte
and have not chosen to produce the same. The written statement Ex. 24 filed by the defendants Nos. 4 to
10 does not even suggest any such thing and all that it says is that Natwarlal had become a partner of
the firm in his individual capacity and that they were not bound by it. No such plea is raised and even
there has been no material in that regard to substantiate any such argument advanced before us. In those
circumstances, it is abundantly clear that the interests or shares in the joint family property so far as
defendants Nos. 4 to 10 are concerned, would be liable for the claim of the plaintiff against the
firm-defendant No. 1 of which Ramprasad and Chhotalal were partners’ and later on on Chhotalal's
death Natwarlal joined the same as the head of the family. The learned Civil Judge was, therefore, right
in holding accordingly. In the result, the appeal fails and it is dismissed with costs.

M.S.V. NARAYAN CHETTIAR v. M.S.M. UMAYAL ACHI5

COURT: Madras High Court

CITATION: AIR 1959 Mad 283.

PETITIONER - M. S. V. Narayan Chettiar

RESPONDENT - M. S. M. Umayal Achi

DATE OF JUDGMENT - 24 December 1958

BENCH - Ramachandra Iyer, J.

HEADNOTE - This is an appeal against the preliminary decree for dissolution and taking up of
accounts of the partnership passed by the Subordinate Judge of Devakottai in O.S.No. 104 of 1949. The
defendant is the appellant.

FACTS

Viswanathan Chettiar and Muthuraman Chettiar, who were two divided brothers, carried on money
lending business in partnership at Minhbyu, Rangoon and Dedaye. The former two businesses were
ultimately dissolved and the assets integrated with the Dedaye firm. Muthuraman Chettiar died first, i.e.,
on 13-4-1926 leaving his widow, the respondent as his sole heir. The business, however, continued. The

5
AIR 1959 Mad 283.
respondent carried on business with Viswanathan Chettiar. A partnership deed dated 10-12-1941 was
entered into between the respondent and Viswanathan Chettiar, the defendant's adoptive father.

There is no doubt that the partnership between them was from the date of death of Muthuraman Chettiar
in continuation of the old business and this document was only a record of the terms thereof for
reducing the rate of income-tax. On 19-11-1943 Viswanathan Chettiar died. About one year prior to his
death the appellant was adopted to him. Even after the death of Viswanathan Chettiar the business
continued as before. The appellant took on the business of Viswanathan.

On 28-8-1946 the appellant and the respondent reduced the terms of their partnership to writing,
defining their rights. This document again was mainly for the purpose of income-tax as the deed itself
acknowledged that the partnership business was in existence sometime previously. On 23-2-1949 the
respondent gave a notice for dissolution of the firm calling upon the appellant to render accounts.

The appellant had no objection to the dissolution of the Dedaya firm but was willing to the taking of
accounts only for the period in which he had been in the business. The suit out of which this appeal
arises was filed on 27-7-1949.

ISSUES

Whether it is necessary to look into the accounts of the previous partnership?

CONTENTIONS OF APPELLANT

The main contention was that on the death of Muthuraman, the partnership between him and
Viswanatha came to an end and there was a fresh partnership between the respondent and Viswanatha
from 1926 to 1943, when the latter died, and that on the death of Viswanatha that firm was dissolved
and the partnership business carried on by the appellant with the respondent subsequently could only be
treated as a separate partnership.

CONTENTIONS OF RESPONDENT

It was contended that the claim of the appellant in regard to the partnership between her and
Viswanatha was barred by Art. 106 of the Limitation Act. Incidentally he also contended that the
partnership between the respondent and the appellant should be deemed to be only for the, period after
the date of Ex. B. 71, that is, 28-8-1946.

TRAIL COURT JUDGEMENT

The lower court found that the firms at Minhbyu and Rangoon were dissolved and their assets taken
over to the Dedaye firm. It also found that the partnership business ever since the time of Muthuraman
and Viswanatha which was done with the help of agents was done without a break and that Exs. B. 70
 and B. 71 could not be understood as creating new partnerships.The lower court further held that the
respondent would not be entitled to an account prior to the death of her husband, Muthuraman, that is
prior to 13-4-1926, but that she would have a right to the taking of the accounts from 13-4-1926. The
lower court made it also clear that while taking accounts it may be open to the parties to look into the
old accounts i. e., accounts prior to 13-4-1926 for the purpose of ascertaining the capital contribution.

HIGH COURT JUDGEMENT

The learned Subordinate Judge has also held that in taking accounts of the partnership from 1926, it
would be open to look into the earlier accounts for the purposes of ascertaining the capital contribution
in view of the fact that the partnership beween the respondent and Viswanatha was in continuation of
the old partnership which Muthuraman had with the latter. Although there has been a dissolution of the
partnership between Muthuraman and Viswanatha on 13-4-1926 by reason of the death of the former
the entire assets of that firm were taken over by the business which was subsequently carried on by the
respondent with Viswanatha.

For ascertaining the exact assets which were brought or could be deemed to be so brought into that firm
it would be necessary to look into the accounts of the previous partnership. The conclusion of the
learned Subordinate Judge is, therefore, correct. This appeal fails and is dismissed with costs.

KHAIRATI RAM AND OTHERS v. BALAK RAM MEHR CHAND AND

ANOTHER6

COURT: Punjab And Haryana High Court

CITATION: AIR 1960 Punj 192

PETITIONER - Khairati ram

RESPONDENT - Balak ram mehr chand and another

DATE OF JUDGMENT - 21 August 1959

BENCH - JUSTICE D. Khosla

FACTS

A joint Hindu family consisted of Babu Ram, his son Kuldip Chand and his nephew Kharaiti Ram.
Babu Ram on behalf of this family joined Bindra Ban, a stranger, in a partnership. The business of the
partnership was carried on in the name and style of firm Babu Ram Bindra Ban. They are the

6
AIR 1960 Punj 192.
defendants in the case which has given rise to this reference. Babu Ram died on 12-5-1946 and
thereafter certain liabilities were incurred by this firm. In the present suit brought by the creditors the
plea taken by the defendants was that Babu Ram's death on 12-5-1946 dissolved the partnership and
therefore the other members of the joint Hindu family were not liable for any debts incurred on behalf
of the partnership.

The plaintiff's plea was that Babu Ram had entered the partnership as the karta and representative of the
joint Hindu family and so his death could not put an end to the partnership, the joint Hindu family was
to be considered as a unit and a juristic person represented by its karta Babu Ram; Babu Ram, apart
from being the karta was a coparcener in the family and his death did not put an end to the existence of
the joint Hindu family but merely altered its complexion to some extent; the joint Hindu family must be
deemed to have entered the partnership as a unit or person and therefore Babu Ram's death made no
difference to the constitution of the partnership and the partnership continued as before; in this view of
the matter, the surviving members of the joint Hindu family must be held to be liable for the amount
claimed by the plaintiff. It was these pleas which gave rise to the two questions which were referred to
the Full Bench.

ISSUES

1. Whether the family as a unit be deemed to have become a partner?

2. Whether on the death of the karta of the family the partnership stands dissolved or must be deemed
to continue because of the fact that the joint Hindu family continues and it has a karta, though a
different person?

REASONING GIVEN BY THE COURT

The contention made on behalf of the plaintiff is that a joint Hindu family is a "body of individuals" and
therefore it is to be deemed as a person; Section 4 of the Partnership Act permits partnership between
'persons', a joint Hindu family acts through its karta just as a firm or corporation act s through its manager,
and so when the karta joined the partnership, he did so on behalf of the joint Hindu family and the joint
Hindu family being a person became a partner in the new firm.

It is only, however, in a limited sense that a joint Hindu family can be said to be a juristic person. A
joint Hindu family is more of a condition or state than an entity. The property of a joint Hindu family
may be joint. It may own a joint business or the family may possess no property at all and there is no
presumption in law that it does possess joint property. The manager of the family acts on behalf of the
joint Hindu family, but he does not act as an agent in the legal sense. This is clear from the fact that a
manager is liable not only to the extent of his share in the joint Hindu family property when he entered
into contract but is liable personally also.
The position of a karta or manager is sui generis; the relation between him and the other members of the
family is not that of principal and agent, or of partners. It is more like that of a trustee and cestui que
trust. But the fiduciary relationship does not involve all the duties which are imposed upon trustees. In
the absence of proof of direct misappropriation, or fraudulent and improper conversion of the moneys to
the personal use of the manager, he is liable to account only for what he has received and not for what
he ought to or might have received if the moneys had been profitably dealt with.

It is, no doubt, a body of person, but it is not the sort of body which has a single entity as a juristic
person. It derives its nature and characteristics from the ancient Hindu law. Its character alters with
every death and birth in the family. It has not been defined in any statute and as far as we are at present
advised, it is treated as a person only for the purpose of Income-tax Act and Excess Profits Tax Act.
The weight of authority seems to favour the view that for the purposes of the Partnership Act a joint
Hindu family cannot be deemed to be a person.

When the karta of the family enters into a partnership, he alone becomes a partner, although he
represents the joint Hindu family. The transactions into which he enters make the other members of the
family liable to the extent of their share in the joint family property. They can also claim the share of
the profits to which they are entitled as coparceners, but beyond this they have no rights and incur no
liabilities with regard to the partnership business. There are, no doubt, one or two cases in which a
contrary view appears to have been taken, but these are clearly distinguishable.

It was argued for the respondent that a joint Hindu family being, by its nature a frequently changing
entity no partnership could be formed with it. This objection, if valid, would be equally operative
against a partnership of the family with a stranger, which the authorities prove, and it is practically
conceded in this case, can be validly formed. But, apart from this answer, it may be pointed out that
though in its nature a joint Hindu family may be fleeting and transitory, it has been regarded as capable
of entering, through the agency of its karta, into dealings with others. Without accepting the view of
some eminent Hindu Judges that a Hindu joint family is, in its true nature, a 'corporation' capable of a
continuous existence in spite of fleeting changes in its constitution, it is enough to state that for the
purpose of such a transaction effected through the medium of its karta, it has been for a long time past,
regarded as an entity capable of being represented by its manager.

It is well settled that when the karta of a joint Hindu family enters into a partnership with strangers, the
members of the family do not ipso facto become partners in that firm. They have no right to take part in
its management or to sue for its dissolution.

JUDGMENT

Although in a sense a joint Hindu family has been looked upon as a juristic person, it is only in a very
restricted sense that this notion can be applied to a joint family. Under the Income-tax law a joint Hindu
 family is to be treated as a person, but under Hindu law the joint Hindu family cannot be treated as a
corporation for all purposes. In particular, where the question of entering into partnership with strangers
is concerned, it has been held in a larger number of cases that it is only the karta who becomes the
member of the partnership and not the entire joint family. The karta counts as one person. He himself is
liable to the extent of his coparcenary property as well as his personal property, but the other members
of the family are liable only to the extent of their coparcenary share.

On the death of the karta the partnership is automatically dissolved, because it was he who was member
and not the joint family. He was not entering the partnership as the agent of the joint family and his
peculiar position is defined by the rules of Hindu law. The latest pronouncement of the Supreme Court
on the subject shows that only the karta and not the entire family becomes a partner when there is
association between him and strangers under sec. 4 of the Partnership Act. The death of a partner
automatically dissolves partnership and. therefore, the death of the karta puts an end to the partnership.
The surviving members of the family cannot, therefore, be held liable for any debts incurred after the
death of the karta.

In this view of the matter, the first question in the negative holding that the family cannot be deemed to
have become a partner when the karta of the family enters into partnership in his representative capacity.
My answer to the second question would be that on the death of the karta the partnership stands
dissolved. The case will now be remitted to the Division Bench for disposal.

NOLA CHANDROUTIE v. LUTCHMIE DEVI GAJADHAR7

CITATION - (1987) 2 WLR 1 (PC)

DATE OF JUDGMENT - 3rd November 1986

FACTS OF THE CASE

The plaintiff in this case is Basdabie Maharaj, whom it will be convenient to call the widow. She lived
with her husband Bissondial Maharaj in a shop house in Riverside road, Fonrose village, Poole in the
island of Trinidad. The shop house was the family home and also a shop for the sale of dry goods, rum
and medicinal substances to the people of the village. The shop belonged to her husband, but as he had
other business interests the widow largely ran it on his behalf . They had four children, one of whom
was a son of Ramnanan, usually known as Tan. The business prospered. In 1962, the family, then
consisting of the widow , Tan and his wife Nola who is the appellant in these proceedings, and
Lutchmie moved to another shop house in St. Croix road, Prince town. The business continues to do
well. Ten years later the business was moved to its present premises af Tramline Street, Prince town and

7
(1987) 2 WLR 1 (PC).
another of whom was a daughter Lutchmie Devi. The husband died in June 1953. By his will he gave
“the lot of land with the shop house and all stock in trade and things thereto belonging situate at
Riverside road”, together with all cash in the bank, to the widow and Tan, clearly expecting them to
continue the running of the business as their joint venture, as indeed they did. On the assumption that a
partnership at will existed between the widow and Tan, the strict legal position at the death of Tan was
that the partnership was then dissolved ( if it had not previously been dissolved by conduct) and the
widow as surviving partner had executive authority to deal with the assets of the partnership. In April
1975 Tan died and Nola thereafter ran the business in her own account. Tan is said to have left a will
appointing the Bank of Nova Scotia to be his executor, and leaving all his property to Nola and their
four surviving children in equal shares. However no will has been proved and no representation has
ever been taken out to Tan’s estate. Unfortunately in 1973 family relations deteriorated, Nola told Tan
that he would have to choose between his mother and herself. In the outcome, in July 1973, the widow
and Lutchmie were turned out of the home and Tan and Nola appropriated the business to themselves.
According to Nola’s evidence, it was carried on as a partnership business by the two of them. At this
time Tan was about forty years of age, and the widow about seventy one.

ISSUES OF THE CASE

1. Whether a surviving partner is entitled to bring proceedings to enforce her claim to a share of the
partnership assets, against a third party who had assumed possession of those assets, without joining in
the proceedings some person to represent the estate of the deceased partner.

2. Whether such supervising partner is entitled to receive her share of the net realized partnership assets
as at the present day, with intermediate profits, or whether she can be required to accept a valuation
figure as at the date of the death of the deceased partner plus interest to date.

CONTENTIONS OF NOLA

In her defence Nola contended that the business had belonged to herself and Tan in partnership, and that
the widow has no interest whatever therein. She claimed in effect to be entitled to the business as the
surviving partner, subject no doubt to a duty to account to Tan’s estate for his half-share.

Counsel for Nola then contended that there was no case to answer because the action sought to establish
the existence of partnership between the widow and Tan; Nola was not such a representative.

TRIAL COURT JUDGMENT

The learned judge ruled against the submission an the trial continued. He found that a partnership
existed in the shop business from the death of Bissoondial until the death of Tan in April 1975, when it
was dissolved. In 24th January 1978, the widow issued proceedings against Nola. This was four and
half years after she had been ousted from the partnership, and almost three years since the death of Tan.
Be her statement of claim, which did not follow until almost two years later, the widow claimed that a
partnership existed between herself and Tan, which had been dissolved by his death, and that the
business had been appropriated by Nola. The widow claimed a declaration that she was entitled to the
whole of the business, or in the alternative to a half share, and also claimed accounts and enquiries
appropriate to a winding up of the affairs of the partnership. Any claim on the part of the widow that
she had a beneficial interest in the whole of the partnership assets (is such was intended to be made)
was unsustainable and was abandoned at the beginning of the hearing.

JUDGMENT BY COURT OF APPEAL

Te learned judge said that there was evidence of an overwhelming nature both oral and documentary to
support the findings of the trial judge and he was in agreement that there was a partnership between the
widow and Tan. On the procedural issue he considered that Nola’s status was that of an executor de son
tort in relation to Tan’s share in the partnership business, and that she was liable as such to account for
the assets of which she had taken possession; she was therefore properly sued in her personal capacity
and was liable to widow to account for the latter’s half share of the partnership assets.

FINAL JUDGMENT

Their lordships respectfully differ from the Court of appeal in their conclusion that the delay of two and
three-quarter years between the death of Tan and the issue of writ deprived the widow of her right to a
half-share of the present realizable value of the partnership assets or to an account of profits. Where a
partnership is dissolved by the death of one partner and the surviving partner continues the business for
some years without realization, the estate of the deceased partner prima facie remains entitled to an
appropriate share of the proceeds of sale of assets and is not confined to the share of the value of assets
as at the date of death.

A sale of partnership business in accordance with their rights of an outgoing or deceased partner is
usually contrary to the best interests of the person currently running the partnership business. It is to be
hoped that’s wise counsels will prevail and that Nola will make a fair and realistic offer to the widow’s
estate which will avoid a he necessity for accounts to be taken and the business to be realized.

Their Lordships will dismiss the appeal, but will restore the form of order made by the learned trial
Judge. The appellant is ordered to pay the costs of the appeal.
 COMMISSIONER OF INCOME TAX, M. P., NAGPUR AND BHANDARA V
SETH GOVINDRAM SUGAR MILLS8

COURT - Supreme Court of India

CITATION - AIR 1966 SC 24

APPELLANT - Commissioner of income tax, m. p., Nagpur and bhandar

RESPONDENT - Seth govindram

DATE OF JUDGMENT - 26 March 1965

BENCH - K. Subbarao, J.

FACTS

After the death of Kalooram Todi, his two sons by name Govindram and Gangaprasad constituted a
joint Hindu family which owned extensive property in Jaora State and a sugar mill called "Seth
Govindram Sugar Mills" at Mahidpur Road in Holkar State. In the year 1942 Bachhulal filed a suit for
partition against Govindram and obtained a decree therein.After the partition Govindram and Bachhulal
jointly worked the Sugar Mills at Mahidpur Road. After the death of Govindram in 1943, Nandlal, the
son of Govindram, and Bachhulal, as kartas of their respective joint families, entered into a partnership
on September 28, 1943 to carry on the business of the said Sugar Mills. Nandlal died on December 9,
1945, leaving behind him the members of his branch of the joint family, namely, the three widows and
the two minor sons shown in the genealogy. After the death of Nandlal, Bachhulal carried on the
business of the Sugar Mills in the name of "Seth Govindram Sugar Mills".For the assessment year
1950-51, the said firm applied for registration on the basis of the agreement of partnership dated
September 28, 1943. The Income-tax Officer refused to register the partnership on the ground that after
the death of Nandlal the partnership was dissolved and thereafter Bachhulal and the minors could be
treated only as an association of persons. On that footing he made another order assessing the income of
the business of the firm as that of an association of persons. The deed of partnership dated September
28, 1943, was executed between Nandlal and Bachhulal. It is not disputed that each of the said two
partners entered into that partnership as representing their respect; joint families. Under cl. (3) of the
partnership deed, "The death of any of the parties shall not dissolve the partnership and either the legal
heir or the nominee of the deceased partner shall take his place in the provisions of the partnership" The
question is whether on the death of Nandlal his heirs, i.e., the members of his branch of the family,
automatically became to partners of the said firm.

8
AIR 1966 SC 24
ISSUES

whether there was any partnership between the members of the two families after the death of Nandlal

Whether on the facts and in the circumstances of the case, the status of the assessee, "Seth Govindram
Sugar Mills,Mahidpur Road, Proprietor Nandlal Bachhulal, Jaora", is an Association of Persons or a
firm within the meaning of S. 16(1)(b) of the Income-tax Act.

Whether the order of the Appellate Tribunal is illegal on account of the Tribunal having committed an
error of record and having omitted to consider the relevant material in the case.

CONTENTIONS OF APPELLANTS

The first question raised by the learned Attorney General is that on the death of Nandlal the firm of Seth
Govindram Sugar Mills was dissolved and thereafter the income of the said business could only be
assessed as that of an association of persons. For the appellant the leaned Attorney General contended
that s. 42 applied only to a partnership consisting of more than two partners

CONTENTIONS OF RESPONDENTS

For the respondent Mr. Karkhanis argued that the section did not impose any such limitation and that on
its terms it equally applied to a partnership comprising only two partners. Section 42 says about
the "Subject to contract between the partners a firm is dissolved by the death of a partner. It was argued
that the contract mentioned in the over-riding clause was a contract between the partners and that, if the
parties to the contract agreed that in the event of death of either of them his successor would be
inducted in his place, the said contract would be binding on the surviving member. On the death of one
of the partners, it was said, his heir would be automatically inducted into the partnership, though after
such entry he might opt to get out of it.

TRAIL COURT JUDGMENT

Against the two appeals, the Appellate Assistant Commissioner dismissed both the appeals. In the
appeal against the order of assessment, the Appellate Assistant Commissioner exhaustively considered
the question whether there was any partnership between the members of the two families after the death
of Nandlal and came to the conclusion that in fact as well as in law such partnership did not exist. Two
separate appeals, preferred to the Income-tax Appellate Tribunal against the orders of the Appellate
Assistant Commissioner were dismissed.

HIGH COURT JUDGMENT

The assessee made two applications to the Tribunal for referring certain questions of law to the High
Court, but they were dismissed. The High Court, for reasons given in its judgment, held on the first
question that in the assessment year 1949-50 the status of the assessee was that of a firm within the
meaning of s. 16(1),(b) of the Income-tax Act and on the second question it held that the Tribunal
misdirected itself in law in reaching the conclusion that the parties could not be regarded as partners.

SUPREME COURT JUDGEMENT

As a result this court aside that part of the finding of the High Court holding that the partnership
business was carried on by the representatives of the two families after the death of Nandlal, but
confirm the finding to the extent that such a partnership came into existence only after December 13,
1949. In reaching the conclusion that the parties could not be regarded as partners. In the result the
appeals are dismissed. But as the respondent failed in its main contentions,it held that the parties will
bear their own costs in this Court.

Moreover the Appeals were dismissed.