Supreme Court of India
Gurunanak Industries Faridabad vs Amar Singh(D) Thru Lrs on 26 May, 2020Author: Sanjiv Khanna

Bench: A.M. Khanwilkar, Dinesh Maheshwari, Sanjiv Khanna



CIVIL APPEAL NOS. 6659-6660 OF 2010





Four persons, including two brothers, Swaran Singh and

Amar Singh, both of whom have since died and are represented by

their legal representatives, had constituted a partnership firm –

Guru Nanak Industries, on 2nd May 1978. On 6th May 1981, a fresh

partnership deed was executed between Swaran Singh and Amar

Singh as the other two partners had resigned. The partnership

firm was primarily in the business of manufacture and sale of print

Signature Not Verified
machinery for paper, polythene etc. Initially, profits and losses
Digitally signed by

were to be divided in the ratio of 69:31 between Swaran Singh and
Date: 2020.05.26
17:04:30 IST

Amar Singh. However, with effect from 1 st April 1983, profit and

Civil Appeal Nos. 6659-6660 of 2010 Page 1 of 11
loss sharing ratio was altered between Swaran Singh and Amar

Singh to 60:40 respectively.

2. On 29th March 1989, Guru Nanak Industries and Swaran Singh

filed a civil suit against Amar Singh claiming that the latter had

retired from partnership with effect from 24 th August 1988 and had

voluntarily accepted payment of his share capital of

Rs.89,277.11p. In addition, he had been advanced loan from the

funds of the partnership firm on the same date. Amar Singh had

agreed that he would not be entitled to profits and liabilities of the

firm. In support, reliance was placed upon intimation dated 5 th

October 1988 sent by Amar Singh to Bank of India, the bankers of

the partnership firm. It was stated that Amar Singh was paid

amounts of Rs.1,00,000/- and Rs.50,000/- by way of pay orders

and another amount of Rs.1,00,000/- in cash for which he had

executed receipt dated 17th October 1988 (Exhibit P-9). Further,

Amar Singh, after retirement, had floated a proprietorship concern,

namely, Guru Nanak Mechanical Industries with effect from 14 th

September 1988 and was manufacturing and selling the same


3. Amar Singh contested the suit and on 29 th April 1989, filed a suit

for dissolution of partnership and rendition of accounts. The plea

Civil Appeal Nos. 6659-6660 of 2010 Page 2 of 11
and contention of Amar Singh was that he had never resigned.

Some disputes had arisen between him and Swaran Singh on 19 th

August 1988 when he had written a letter to the bankers to stop

operation of the bank account. Subsequently, he had written

another letter dated 24th August 1988 (Exhibit P-5) as a partner,

which letter was also signed by Swaran Singh as a partner, stating

that the dispute between the partners had been settled and the

bank may allow operation of the account. Amar Singh had pleaded

that the receipt dated 17th October 1988 is forged and has been

manipulated as he had signed and given papers to Swaran Singh.

4. The trial court dismissed the suit filed by Amar Singh and partly

decreed the suit filed by Guru Nanak Industries and Swaran Singh

primarily by relying upon letter dated 24 th August 1988 (Exhibit P-5)

and also the receipt dated 17th October 1988 (Exhibit P-9)

observing that there is discrepancy in the two versions given by

Amar Singh, the first version being that his signature on the letter

dated 17th October 1988 (Exhibit P-9) was forged and the second

version being that the receipt had been manipulated by adding the

last sentence.

5. Two appeals preferred by Amar Singh were accepted by the first

appellate court observing that the receipt dated 17th October 1988

Civil Appeal Nos. 6659-6660 of 2010 Page 3 of 11
(Exhibit P-9) was certainly manipulated by adding the last

sentence. Letter dated 24th August 1988 (Exhibit P-5), in fact,

supported the case of Amar Singh that he had not resigned as the

letter was signed by both Amar Singh and Swaran Singh, wherein

Amar Singh has been described as a partner. Official records in

the Sales Tax Department and Income Tax Department also

support the case of Amar Singh that the partnership firm was not

dissolved on 24th August 1988. Accordingly, Amar Singh was held

to be entitled to the prayer for partition of movable and immovable

property wherein 40% belonged to Amar Singh and 60% belonged

to Swaran Singh. The accounts would be rendered and settled as

on the date of institution of the suit for dissolution of partnership,

that is, 29th April 1989. Amar Singh would also be entitled to

interest @ 9% per annum.

6. Swaran Singh, who had died when the civil suits were pending

before the trial court and represented by his widow, filed two

appeals before the Punjab and Haryana High Court which have

been dismissed by the impugned judgment dated 18 th May 2009.

7. Having heard counsel for the parties and having perused the

relevant documents and oral evidence, we are not inclined to

interfere with the findings recorded by the first appellate court,

Civil Appeal Nos. 6659-6660 of 2010 Page 4 of 11
which have been affirmed by the High Court as they are born out

from the records. Exhibit P-5, a letter dated 24 th August 1988, was

individually signed by both Amar Singh and Swaran Singh clearly

stating that they were partners of Guru Nanak Industries. By this

letter, Amar Singh had requested the bank to start operation of the

account of the partnership firm stating that the disputes between

the partners had been settled. The subsequent letter dated 5 th

October 1988 relied by the appellants and written by Amar Singh

states that there has been mutual understanding and agreement

between him and Swaran Singh and as a result he had left the firm

with effect from 24th August 1988 and, therefore, he would not be

responsible in the event of any loan being granted after 24 th August

1988. This letter also records that Amar Singh ‘had to completely

withdraw his share and accounts’.

8. The receipt Exhibit P-9 dated 17 th October 1988, which is a

disputed document, reads as under:

“Received with thanks a sum of Rs.1,00,000/- (Rupees
One Lac only) by cash from S. Swaran Singh, Mg/
Partner of M/s. Guru Nanak Industries (Regd.), Plot
No. C.P.-6&7, N.H.5, Rly. Road, Faridabad (Haryana)
on account of part payment of the settlement made
between both the partners of firm. The above amount
is being received by the undersigned with regard to
dissolution of our partnership on 24.8.1988. With the
receipt of this amount my total amounts are settled.
Nothing is due to me from S. Swaran Singh & his firm.

Civil Appeal Nos. 6659-6660 of 2010 Page 5 of 11
There is a contradiction in the earlier portion and the last

sentence of the said receipt. The first portion refers to payment of

Rs.1,00,000/- from Swaran Singh, partner of Guru Nanak

Industries, on account of part payment of settlement between the

two partners. The last sentence does not gel and, in fact,

contradicts the first portion. The manipulation is apparent from the

photocopy of the receipt that has been placed on record as

Annexure-13/A with the documents. The words ‘retiring partner’

have been typed later on. They also cannot be reconciled with the

subsequent line, that is, “For Guru Nanak Industries (Regd.)”.

9. Amar Singh accepts that he had received payment of

Rs.1,00,000/- and Rs.50,000/- by way of demand drafts. We

would accept that Amar Singh had also received payment of

Rs.1,00,000/- in cash. Amar Singh, in his written statement, had

referred to three immovable properties, viz. CP No. 6&7,

Neighbourhood No.5, Railway Road, N.I.T, Faridabad; plot situated

in Timber Market, Parvesh Marg, Railway Road, Faridabad –

121002; and Plot No.8, measuring 4098 sq.yards allotted by HUDA

situated in Industrial Area, Sector-5, Faridabad . In addition, as per

Amar Singh, the partnership firm had constructed factory sheds on

two properties. Amar Singh, in his written statement, had given

Civil Appeal Nos. 6659-6660 of 2010 Page 6 of 11
details of the machinery, finished goods and material, stock in

trade, vehicles etc. In addition, he had furnished particulars of

different FDRs having maturity value of Rs.7,71,920/-. It is claimed

that the partnership firm has goodwill of more than Rs.10,00,000/-.

10. Sukhdev Singh (PW-2), s/o. Swaran Singh (who had died before

he would enter the witness box), in his cross-examination, has

accepted that the firm was the owner of plot Nos. CP 6&7, NH-5,

Faridabad and Plot No.8, Sector-5 measuring 4098 sq.yards. He

could not recollect the machinery as on date of dissolution, that is,

24th August 1988. He could not deny the suggestion that at the

time of dissolution the value of the factory plots was Rs.25,00,000/-

each or that the goodwill of the firm was at least Rs.10,00,000/-.

He did not know whether his father had encashed FDRs of

Rs.77,000/- (sic – Rs.7,77,000/-) in the name of the partnership

firm. However, he accepted as correct that the value of the

machinery owned by the firm on the date of dissolution could be

Rs.17,00,000/-, though he was not sure. Similarly, he could not

answer whether the value of the finished goods or furniture and

fixtures, on the date of dissolution, was Rs.17,00,000/- and

Rs.17,50,000/- respectively and that stock in hand was


Civil Appeal Nos. 6659-6660 of 2010 Page 7 of 11
11. The primary claim and submission of the appellants is that Amar

Singh had resigned as a partner and, therefore, in terms of clause

(10) of the partnership deed (Exhibit P-3) dated 6 th May 1981, he

would be entitled to only the capital standing in his credit in the

books of accounts. However, the argument has to be rejected as

in the present case there were only two partners and there is

overwhelming evidence on record that Amar Singh had not

resigned as a partner. On the other hand, there was mutual

understanding and agreement that the partnership firm would be

dissolved. This is apparent from even the version put forward by

Swaran Singh and deposed to by his son, Sukhdev Singh (PW-2).

Even the letter dated 5th October 1988 refers to the fact that Amar

Singh is to completely withdraw the share and accounts which

means that the things were yet to be settled. The receipt Exhibit

P-9 dated 17th October 1988 refers to part payment of

Rs.1,00,000/- towards settlement between the two partners. It also

refers to the date of dissolution as 24 th August 1988, which clearly

indicates that payments were still to be made whereupon the two

sides would have completely severed their relationship although

there was a mutual agreement that the date of dissolution was 24 th

August 1988.

Civil Appeal Nos. 6659-6660 of 2010 Page 8 of 11
12. There is a clear distinction between ‘retirement of a partner’ and

‘dissolution of a partnership firm’. On retirement of the partner, the

reconstituted firm continues and the retiring partner is to be paid

his dues in terms of Section 37 of the Partnership Act. In case of

dissolution, accounts have to be settled and distributed as per the

mode prescribed in Section 48 of the Partnership Act. When the

partners agree to dissolve a partnership, it is a case of dissolution

and not retirement [See – Pamuru Vishnu Vinodh Reddy v.

Chillakuru Chandrasekhara Reddy and Others, (2003) 3 SCC

445]. In the present case, there being only two partners, the

partnership firm could not have continued to carry on business as

the firm. A partnership firm must have at least two partners. When

there are only two partners and one has agreed to retire, then the

retirement amounts to dissolution of the firm [See – Erach F.D.

Mehta v. Minoo F.D. Mehta, (1970) 2 SCC 724].

13. Therefore, in view of the aforesaid discussion, we dismiss the

appeals and uphold the judgment and decree dated 24 th

September 2004 passed by the Additional District Judge,

Faridabad and sustained by the High Court, except that the date of

dissolution of the firm would be taken as 24 th August 1988 and not

31st of March 1989.

Civil Appeal Nos. 6659-6660 of 2010 Page 9 of 11
14. Counsel for the appellants, at the time of arguments, had

expressed desire of the appellants to settle the matter with the

respondents – legal heirs of the Amar Singh. He had prayed for

four weeks’ time. It appears that settlement has not been possible.

The case is rather old and Swaran Singh and Amar Singh have

expired. Primarily it is a money matter where the accounts have to

be settled and payment etc. has to be made by the legal

representatives of Swaran Singh. The case record also reveals

that Amar Singh had set up his own business in September-

October 1988 in the name of Guru Nanak Mechanical Industries,

similar to the name of the partnership firm. Swaran Singh had not

objected. We would, therefore, give one more opportunity to the

parties to appear before the Supreme Court Mediation and

Conciliation Centre to explore possibility of a settlement. However,

in case of no settlement within a period of three months, the matter

would proceed before the trial court for passing of the final decree,

in accordance with law.



Civil Appeal Nos. 6659-6660 of 2010 Page 10 of 11


MAY 26, 2020.

Civil Appeal Nos. 6659-6660 of 2010 Page 11 of 11


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