Saligram Ruplal Khanna v. Kanwar Rajnath AIR 1974 SC 1094

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H.R. KHANNA, J. – This appeal by special leave is directed against the judgment of a
Division Bench of the Bombay High Court affirming on appeal the decision of the learned
Single Judge whereby a suit for dissolution of partnership and rendition of accounts filed by
the two plaintiff-appellants, Saligram Ruplal Khanna and Pessumal Atalrai Shahani, against
Kanwar Rajnath defendant-respondent was dismissed. The partnership which was sought to
be dissolved carried on business under the name and style of “Shri Ambernath Mills
Corporation” (hereinafter referred to as SAMCO). The property which according to the
appellants belonged to the partnership consisted of three mills at Ambernath. One of them
was a woollen mill, the other was a silk mill and the third was an oil and leather cloth factory
with land. bungalows and chawls attached thereto. In addition to that, there was a bobbin
factory at Taradeo with offices at Bombay, Ahmedabad and other places. For the sake of
convenience, the above property may be described, as it was done in the High Court, as
“Ambernath Mills”. Although the case involves a tangled skein of facts, the points which
survive for determination in appeal are rather simple.

2. The Ambernath Mills originally belonged to a company called Ahmed Abdul Karim
   Bros. Private Ltd. The mills were declared to be evacuee property in September, 1951 and the
   Custodian took over the management of the mills in pursuance of the provisions of the
   Administration of Evacuee Property Act, 1950. It was then decided that the mills should be
   managed by displaced persons who had been industrialists in Pakistan. A private limited
   company was formed of 31 persons for taking over the management of the mills. Rs 25,000
   were contributed by each one of those persons in that connection. The appellants and the
   respondent too were members of the company. Appellant No. 1 and the respondent had
   migrated at the time of partition from Gujarat in West Punjab. The respondent was a big
   industrialist and left behind extensive properties in Pakistan. He held verified claim of rupees
   23 lakhs in lieu of property left by him in West Pakistan. Appellant No. 1 had a verified claim
   of Rs 22,000 in respect of residential property left in Pakistan. In addition to that, he had a
   disputed claim in respect of industrial properties. Appellant No. 2 had a verified claim of
   about Rs 30,000. The two appellants and the respondent were associated by the Custodian
   with the management of the Ambemath Mills. By August, 1952 all the members of the private
   limited company dropped out. It was accordingly decided by the Custodian to grant a lease of
   the Ambernath Mills to the respondent and the two appellants. On August 30, 1952 two
   documents were executed. One of the documents was an agreement of partnership between
   the two appellants and the respondent for carrying on the business of Ambernath Mills under
   the lease in the name and style of Shri Ambemath Mills Corporation. The other document was
   the agreement of lease executed by the Custodian of Evacuee Property as lessor and the
   appellants and the respondent carrying on business in partnership under the name and style of
   SAMCO as lessees. The subject-matter of the lease was Ambernath Mills. It was stated in the

lease that the lessees had appointed the respondent as their chief representative with full
powers of control, management and administration of the entire demised premises. The lease
was to be for a period of five years to be computed from the date on which the possession of
the demised premises was handed over to the lessees, subject to sooner determination thereof
on any of the contingencies provided in Clause 21 or on the breach of any condition on the
part of the lessees or in the event of any dispute among the lessees resulting in the closure of
the mills. It was also provided that the lessees would purchase and the lessor would sell to the
lessees at an agreed price the stocks of raw materials, unsold finished goods, consumer’s
stores, spare parts, cars and trucks and other moveables which had already been vested in the
lessor, as well as three diesel generating sets purchased by the lessor. In the event of any
difference on the question of the price, the same was to be fixed through one or more experts.
The sale was to be completed within a period of three months from the date of the agreement.
The lessees were authorized to take as partner one or more displaced persons who had filed
claims under the Displaced Persons Claims Act, 1950 subject to the prior approval of the
Government. The agreement also contained a provision for reference of any dispute arising
out of the agreement of lease to arbitrators chosen by the parties by mutual consent. The
annual rent payable by the lessees was fixed at Rs 6,00,000 payable in four quarterly
instalments of Rs 1,50,000 each on or before 30th day of each quarter. The lessees also
undertook to deposit or furnish bank guarantee in the sum of Rs 7,00,000 as security for the
payment of the value of raw material, unsold finished goods, stores, spare parts and other
articles.
According to the partnership agreement executed by the two appellants and the
respondent on August 30, 1952, each partner has agreed to contribute a capital of Rs 1,00,000.
The amount of Rs 25,000 already paid by each partner to the Custodian was regarded as part
payment of the capital of rupees one lakh. Each partner had one-third share in the partnership,
but it was provided that the shares would be adjusted by the respondent if fresh partners were
taken in the partnership. The respondent was to be the managing partner and was entitled to
assign work in the partnership to the two appellants. It was agreed that the appellants were not
to interfere directly or indirectly in any manner with the management and control of the
business by the respondent. The respondent was also authorised to form a limited liability
company for running the business of the partnership with the consent of the Custodian and the
appellants agreed to join the company as shareholders on such terms and conditions as might
be agreed when such company was formed. The period of the partnership was five years
“being the period of said lease”.

3. The partnership took possession of Ambernath Mills on August 31, 1952. The
   respondent directed Appellant No. 1 to be in charge of the administration of the mills at
   Ambemath, while Appellant No. 2 being an engineer,’ was placed in charge of the properties,
   machinery and stores of the mills. The respondent was in overall charge of the concern.
4. It appears that the partnership made some progress in the first few months. The stocks
   of raw material, finished goods, stores and other moveables which were deemed to have been
   purchased by SAMCO under the terms of the agreement of lease were in the meantime valued
   by an auditor appointed by the Custodian at rupees 30 lakhs. The Custodian called upon the
   partnership in April, 1953 to pay a sum of rupees 7 lakhs or to furnish a bank guarantee for

the said amount as provided in the agreement of lease. This payment could not be made by the
partnership. There was also difficulty in paying the sixth instalment of the rent. A cheque for
Rs 1,50,000 was issued but the same was dishonoured. Subsequently, arrangements were
made to pay Rs 1,00,000. An amount of Rs 50,000 out of the sixth instalment remained
unpaid.

5. On February 12, 1954 the Custodian served a notice on the respondent and the two
   appellants to show cause why the agreement of lease should not be cancelled on account of
   breach of conditions in the matter of the payment of the sixth quarterly instalment of rent and
   the failure to deposit or furnish bank guarantee for the amount of Rs 7,00,000. A writ petition
   was thereupon filed by the partnership on February 16, 1954 in the Bombay High Court for
   quashing the notice issued by the Custodian.
6. In the meantime. Appellant No. 2 sent letter dated February 8, 1954 to the respondent
   suggesting that his share in the partnership be reduced to 1 anna in a rupee or to such other
   fraction as the respondent thought fit. A similar letter was addressed by Appellant No. 1. On
   February 24, 1954 the parties entered into a second agreement of partnership. It was agreed in
   the new partnership agreement that the share of Appellant No. 1 would be 3 annas and that of
   Appellant No.2, 1 anna in a rupee. The respondent was to have the remaining 12 annas share.
   It was also agreed that the two appellants would not have the right, title and interest in the
   name, capital assets and goodwill of the partnership. It was provided that the new partnership
   would be deemed to have been formed as from October 1, 1953. Accounts for the period from
   August 30, 1952 to September 30, 1953 were to be made upon the basis of the partnership
   agreement dated August 30, 1952 and the profits and losses for that period were to be
   distributed accordingly. The capital of the partnership was agreed to be arranged by the
   respondent and he was to be the managing partner in control of the entire affairs of the
   partnership. He was also to get interest at six per cent on all finances arranged by him. The
   appellants agreed to carry on such duties in the concern as might be assigned to them by the
   respondent. The period of the partnership was to be “the outstanding period of the lease”.
7. The writ petition referred to above filed by the partnership to quash the notice of the
   Custodian was allowed by a Single Judge of the Bombay High Court on March 31, 1954. On
   appeal filed by the Custodian, a Division Bench of the High Court as per judgment dated
   April 13, 1954 set aside the order of the Single Judge and dismissed the writ petition.
   Certificate of fitness for appeal to this Court was granted by the High Court on May 5, 1954.
   Stay order was also issued on that day restraining the Custodian from dispossessing the
   respondent and the appellants from Ambernath Mills. Appeal against the decision of the
   Division Bench of Bombay High Court was then filed in this Court. The Custodian of
   Evacuee Property made an order on May 25, 1954 cancelling the agreement of lease of
   Ambernath Mills, dated August 30, 1952. The possession of the mills was voluntarily
   delivered by the partnership to the Custodian on June 30, 1954.
8. Representations were made on behalf of SAMCO to the Minister of Rehabilitation
   during the later half of 1954 for being allowed to retain Ambernath Mills. A communication
   was also addressed on December 14, 1954 to the Minister of Rehabilitation suggesting, inter
   alia, that the claim of the Custodian against the partnership in respect of arrears of rent and the
   value of raw material and other goods should be referred to arbitration.

13. The respondent was unable to submit to the Central Government compensation claims
    to the extent of Rs30,00,000 within three months of the agreement dated August 14, 1957. By
    April, 1959 he submitted compensation claims to the extent of Rs 20,00,000. A supplemental
    agreement was executed by the respondent and the President on April 29, 1959. In this
    agreement the President acknowledged the receipt from the respondent of the sum of Rs
    20,00,000 by way of adjustment of compensation claiMs The respondent undertook to pay the
    remaining amount of Rs 30,11,000 and Rs 18,00,000 under the award of Mr Morarji Desai, in
    all, Rs 48,11,000. It was agreed that the aforesaid amount would be paid by the respondent in
    seven annual instalments. A second supplemental agreement was executed by the President
    and the respondent on April 6, 1960, but we are not concerned with that. On April 21, 1960
    the grant of the Ambernath Mills was made by the President to the respondent. The same day
    the respondent executed in favour of the President a mortgage of the Ambernath Mills for the
    payment of Rs 48,11,000. The sum was payable in seven equal annual instalments. On April
    22, 1960 the respondent took possession of Ambernath Mills which had been lying idle for
    nearly six years since June 30, 1954. On May 7, 1960 the respondent sent a circular letter to
    all displaced persons whose compensation claims had been transferred to him informing them
    that possession of the mills had been handed over to him by the Central Government. They
    were also informed that statement of their accounts was being prepared. One such letter was
    sent to Appellant No. 1. He also received a statement of account and in September 1960 a
    cheque for Rs 204 was sent to him by way of interest.
14. It was alleged in the plaint that after the termination of the agreement of lease by the
    Custodian on May 25, 1954 the two appellants and the respondent assembled and orally
    agreed not to dissolve the partnership in spite of the termination of the lease. The agreement
    between the parties was further stated to be that “the partnership should be continued for the
    purpose of acquiring on behalf and for the benefit of the said partnership the properties Ex.1
    (Ambernath Mills) hereto and to exploit the said industries”. The respondent was stated to
    have made a representation that he was acquiring the Ambernath Mills on behalf of the
    partnership and that the agreement had been executed in the respondent’s name because the
    Central Government desired to deal with only one individual. It was also stated that the
    respondent had admitted utilisation of a sum of Rs 2,00,000 out of the partnership fund for
    payment of earnest money. The respondent being a partner, according to the appellants, stood
    in a fiduciary character vis-a-vis the appellants and was bound to protect their interest. He
    could not gain for himself pecuniary advantage by entering into dealings under circumstances
    in which his interest were adverse to those of the appellants. The properties and profits
    acquired by the respondent were stated to be for the benefit of the partnership also. In the
    plaint, as it was initially filed, the appellants prayed for a declaration that the partnership
    between them and the respondent was still subsisting on the terms and conditions set out in
    partnership deed dated February 24, 1954 excepting the terms relating to the period of
    partnership. Prayer was made for a declaration that the Ambernath Mills belonged to the
    partnership and for rendition of the partnership accounts. By a subsequent amendment prayer
    was added that the partnership be dissolved from the date of the filing of the suit.
15. The respondent in his written statement denied the alleged oral agreement between the
    parties on or about May 25, 1954. According to the respondent, the partnership stood

dissolved on March 10, 1955 when the Central Government acquired the Ambernath Mills.
According further to the respondent, the funds of the partnership were utilized for the
payment of various creditors of the partnership and after those payments were made the
partnership did not have sufficient funds to pay to the remaining creditors. With regard to the
negotiations for the acquisition of the mills, the respondent stated that Appellant No. 1 was
aware that Ambemath Mills were being acquired by the respondent for himself alone. The
respondent denied that he ever told Appellant No. 1 that the amount of earnest money of Rs
2,00,000 for the purchase of the Ambemath Mills had been paid out of funds belonging to the
partnership. Allegation was also made by the respondent that Appellant No. 1 had requested
that he might be given some benefit in the nature of appointment of agency in the business of
Ambemath Mills. The claim of the appellant for rendition of the accounts was stated to be
barred by limitation. In an affidavit filed on January 11, 1961 the respondent stated that in
case it was held that there was an oral agreement of partnership between the parties, the same
should be taken to have been dissolved.

17. Learned trial Judge held that the appellants had failed to prove that there was an oral
    agreement between the parties on or about May 25, 1954. It was further held that there was no
    agreement, express or implied, to form a partnership for acquiring the mills and for carrying
    on the business thereon. The appellants were held not entitled to have the mills treated as
    partnership assets by invoking principles enunciated in Section 88 of the Indian Trusts Act, to
    which reference had been made on behalf of the appellants. The learned Judge also held the
    appellants’ claim for rendition of accounts to be barred by limitation because in his view the
    partnership had stood dissolved on May 25, 1954 when the agreement of lease was cancelled.
    In any case, according to the learned Judge, the partnership must be deemed to have been
    dissolved either on January 14, 1957 when the suit filed by the two appellants and the
    respondent against the Custodian and the Central Government for permanent injunction was
    finally dismissed in appeal by a Division Bench of the Bombay High Court or on August 30,
    1957 when the period of the lease came to an end.
18. In appeal before the Division Bench the following four contentions were advanced on
    behalf of the appellants:
    (1) that on May 25, 1954 the parties expressly agreed to continue their partnership
    for acquiring the mills and exploiting them, that a partnership at will thus came into
    existence between them, and that therefore the mills acquired by the defendant or his
    agreement with the President of India, dated August 14, 1957 and the subsequent grant by
    the President of India on April 21, I960 must be held to be an asset of the said
    partnership;
    (2) that if such an express agreement is held not to have been proved, an implied
    agreement to the same effect should be inferred from the conduct of the parties and the
    correspondence between them;
    (3) that, even supposing that there was no express or implied agreement as stated
    above, the rights acquired by the defendant as a result of his agreement with the President
    of India, dated August 14, 1957 and the subsequent Presidential grant are impressed with
    a trust in favour of the partnership under Section 88 of the Indian Trusts Act; and
    (4) that, even if it is held that the mills are no longer an asset of the partnership, the
    plaintiffs are still entitled to accounts of the partnership which admittedly existed

between them and the defendant for working the mills under agreement of lease dated
August 30, 1952.
The learned Judges constituting the Division Bench repelled all the contentions advanced on
behalf of the appellants and substantially agreed with the findings of the trial Judge. On the
question of limitation, the learned Judges held that the partnership had been dissolved at the
latest on November 10, 1955 when all the attempts of the partners to get the Custodian’s order
dated May 25, 1954 set aside came to an end with the decision of the Supreme Court. The
present suit for rendition of accounts brought on December 20, 1960 more than three years
after the date of the dissolution of the partnership was held to be barred by limitation. In the
result the appeal was dismissed.

19. In appeal before us Mr S.T. Desai on behalf of the appellants has frankly conceded
    that he is not in a position to challenge the concurrent findings of the trial Judge and the
    appellate Bench that the appellants had failed to prove that on May 25, 1954 the parties had
    expressly agreed to continue the partnership for acquiring the mills and exploiting them.
    Although Mr Desai indicated at the commencement of the arguments that he would challenge
    the finding of the Appellate Bench that the rights acquired by the respondent as per agreement
    dated August 14, 1957 with the President and the subsequent Presidential grant are impressd
    with trust in favour of the partnership under Section 88 of the Indian Trusts Act, no arguments
    were ultimately advanced by him on that score. Mr Desai, has. however, challenged the
    finding of the trial Judge and the Appellate Bench that no implied agreement as alleged by the
    appellants could be inferred from the material on record. The main burden of the arguments of
    Mr Desai, however, has been that the appellants were entitled to the accounts of the
    partnership which admittedly existed between the parties as per partnership agreements dated
    August 30, 1952 and February 24. 1954. According to Mr Desai, there had been no
    dissolution of the firm of the parties prior to the institution of the suit and the appellants’ suit
    for rendition of accounts was not barred by limitation. The High Court, it is urged, was in
    error in holding to the contrary. The above contentions have been controverted by Mr Cooper
    on behalf of the respondent and. in our opinion, are not well-founded.
20. We may first deal with the question as to whether the implied agreement as alleged by
    the appellants can be inferred from the material on record. In this respect Mr Desai has
    submitted that the appellants no longer claim any interest in the ownership of Ambernath
    Mills which now vests in the respondent. It is, however, urged that an agreement can be
    inferred from the conduct of the parties that Ambernath Mills were to be run by the
    respondent in partnership with the appellants, even though the ownership of the same might
    vest in the respondent. In this connection we find that no case of such an implied agreement
    was set up in the trial Court, either in the plaint or otherwise, nor was such a case set up in
    appeal before the Division Bench. What was actually contended was that the agreement was
    for acquiring the mills as an asset of the partnership. The above stand of the appellants could
    plainly be not accepted when one keeps in view the agreement of lease dated August 30, 1952
    as well as other documents on record. The said agreement of lease shows that Ambemath
    Mills would become the absolute property not only of the appellants and the respondent but of
    all persons who were to be associated with the lessees in the ownership of the proprietary
    interest in proportion to the total compensation payable to each of them. The agreement of

lease further contemplated that the lessee rights of the two appellants and the respondent were
to be distinct from the proprietary interest in the demised premises and that the lessees were at
liberty, in spite of the transfer of proprietary interest, to continue the lease for the unexpired
residue of the term on the terms and conditions of the lease and payment of rent prescribed
thereunder. The respondent submitted representation on August 9, 1954 on behalf of the
SAMCO to the Custodian for the restart of the mills and along with it the respondent sent
copies of letter of authority and particulars of verified claims of 30 displaced persons. It is
implicit in the representation that in case Ambernath Mills was transferred, the same would
vest in all the 30 displaced persons whose claims were submitted,

21. There are two documents which run counter to the stand taken on behalf of the
    appellants in this Court that there was an implied agreement that in case the respondent
    acquired the ownership of the mills, the mills would be worked by the respondent in
    partnership with the appellants. One of those documents is agreement dated September 20,
    1957 which was signed by the Appellant No. 1 and the respondent a day before the
    respondent executed bond in favour of that appellant in view of the fact that Appellant No. 1
    agreed to have his claim compensation amounting to Rs 6,994 adjusted towards the price of
    Ambemath Mills. It was stated in the agreement dated September 20, 1957 that the respondent
    was contemplating the formation of joint stock company to own, run and manage the mills
    and it was agreed between the parties that in the event of such company being formed,
    Appellant No. 1 would have the option to purchase shares of the said company to the extent of
    50 per cent of the amount of the adjusted claim compensation. In case the option was
    exercised in favour of the purchase of the shares of the company, the respondent was to
    ensure that the said shares would be allotted to Appellant No. 1 at par. It was further agreed
    that if the shares applied for or any proportion thereof were not allotted to Appellant No. 1 by
    the said company, the respondent would not in any way be liable to Appellant No. 1 on that
    account. In the bond the respondent agreed to pay to Appellant No. 1 interest at the rate of six
    per cent on the amount of compensation from the date of the adjustment of the Appellant No.
    1’s claim compensation. Had Appellant No. 1 any interest in the Ambemath Mills which were
    being acquired by the respondent there could arise no occasion for the execution of the
    agreement dated September 20, 1957 and the bond dated September 21, 1957. All that was
    agreed by the respondent in those two documents was that in case he promoted a company for
    owning, running and managing of the Ambernath Mills, Appellant No. 1 would get a share of
    the value of half of his claim compensation of Rs 6,994. The said amount when compared to
    the price of Ambernath Mills was wholly insignificant. No question could arise of the
    respondent borrowing money from Appellant No. 1 for payment of price of the mills, in case
    the acquisition of the mills was for the benefit of the respondent as well as the appellant. It
    may also be stated that the interest on account of the above compensation was duly paid by
    the respondent to Appellant No. 1.
22. Another document which has a bearing in the above context is letter dated December
    18, 1959 which was addressed by Appellant No. 1 to the Collector of Bombay in connection
    with the recovery of arrears of sales tax. Appellant No. 1 in that letter stated that the
    responsibility for the payment of such arrears of sales tax was that of the respondent and
    Appellant No. 1 was no more in picture. The above letter shows that Appellant No. 1

repudiated his liability for the payment of the sales tax by disclaiming his connection with the
business in question.

24. We are, therefore, of the view that no inference of the implied agreement referred to
    by Mr Desai can be drawn from the material on record.
25. So far as the question is concerned as to whether the claim for rendition of accounts
    was within time, we find that according to Clause 16 of the partnership deed dated August 30,
    1952 the period of partnership was fixed at five years, being the period of lease. Clause 17 of
    the deed of partnership dated February 24, 1954 provided that the “period of partnership shall
    be the outstanding period of such lease”. The possession of Ambernath Mills under the
    agreement of lease was delivered on August 31, 1952. The period of five years of the lease
    was thus to expire on August 30, 1957. As the partnership was for a fixed period, the firm
    would in normal course dissolve on the expiry of the period of five years on August 30, 1957.
    No agreement between the partners to keep the firm in existence after the expiry of the fixed
    term of five years has been proved.
    The above provision (of section 42) makes it clear that unless some contract between the
    partners to the contrary is proved, the firm if constituted for a fixed term would be dissolved
    by the expiry of that term. If the firm is constituted to carry out one or more adventures or
    undertakings, the firm, subject to a contract between the partners, would be dissolved by the
    completion of the adventures or undertakings. Clauses (c) and (d) deal with dissolution of
    firm on death of a partner or his being adjudicated insolvent.
26. It was indicated in the agreement of partnership that the period of partnership had
    been fixed at five years because that was the period of the lease of Ambernath Mills. The
    lease, however, ran into rough weather. On February 12, 1954 the Custodian served notice on
    the respondent and the two appellants to show cause why the agreement of lease should not be
    cancelled in accordance with the terms of that agreement on account of the breach of
    conditions in the matter of payment of instalment of rent and the failure of the respondent and
    the appellants to deposit or furnish bank guarantee for the amount of Rs 7,00,000. The
    respondent and the appellants challenged the validity of the above notice by means of a writ
    petition and, though they succeeded before a Single Judge, the Appellate Bench of the
    Bombay High Court upheld the validity of the notice. On May 25, 1954 the Custodian
    cancelled the lease of Ambernath Mills and on June 30, 1954 got possession of the mills. The
    respondent and the appellants assailed the decision of the Appellate Bench of the Bombay
    High Court in this Court, but this Court also took the view as per judgment dated November
    10, 1955 that there was no legal infirmity in the notice for the termination of the lease issued
    by the Custodian. After the above judgment of this Court, whatever hope or expectation the
    partners of SAMCO had of running Ambernath Mills on lease under the agreement of lease
    dated August 30, 1952 came to an end and were extinguished.
27. In the meantime, as already stated earlier, the possession of Ambernath Mills was
    handed over by the partners of SAMCO to the Custodian on June 30, 1954. On March 10,
    1955 the Central Government issued notification under Section 12 of the Displaced Persons
    (Compensation and Rehabilitation) Act, 1954 for acquiring the mills. The mills were then
    advertised for sale. The partners of SAMCO having been thwarted for good in their efforts to

get back the mills on lease now made an effort to acquire the ownership of the mills in
accordance with Clauses 17 to 21 of the agreement of lease. Suit was accordingly brought by
the respondent and the appellants for permanent injunction restraining the Central
Government and the Custodian from selling the Ambemath Mills to any person other than the
partners of SAMCO. The suit was dismissed by the City Civil Court and the appeal filed by
the partners of SAMCO too was dismissed by a Division Bench of the Bombay High Court
on January 14, 1957. The Division Bench held that the agreement of purchase contained in
Clauses 17 to 21 of the agreement of lease was indefinite and vague and such agreement of
sale was not capable of specific performance. It was further held that in view of notification
dated March 10, 1955, the Central Government acquired the mills free from all
encumbrances. The rights of the partners of SAMCO which were in the nature of an
encumbrance were held to be no longer enforceable. No appeal was filed against the above
decision of the Bombay High Court. As such, the aforesaid judgment became final. Any
expectation which the partners of SAMCO could have of acquiring the ownership of
Ambernath Mills under Clauses 17 to 21 of the agreement of lease was also thus dashed to the
ground.

30. Reference has also been made on behalf of the appellants to the consent given by the
    respondent on behalf of SAMCO on November 13, 1957 to the award of Rs 18,00,000 by Mr
    Morarji Desai in favour of the Custodian against SAMCO. It is urged that this document
    would go to show that the firm of SAMCO had not been dissolved before that date. We are
    unable to agree. The arbitration proceedings had been started as a result of application under
    Section 20 of the Arbitration Act filed on April 21, 1955 when SAMCO was in existence and
    was a running concern. The arbitration proceedings related to a claim of the Custodian of Rs 3
    0,00,000 on account of the price of stocks of raw material, stores and other moveables as well
    as about the arrears of rent. Counter-claim had also been made by SAMCO against the
    Custodian for a sum of Rs 17,67,080 as per written statement dated December 18, 1956 filed
    in arbitration proceedings. The consent which was given by the respondent on November 13,
    1957 was with a view to get the dispute between SAMCO with the Custodian finally settled.
    This was a necessary step for the purpose of winding up the affairs of SAMCO and to
    complete transaction of arbitration proceedings which had been begun but remained
    unfinished at the time of dissolution. According to Section 47 of the Indian Partnership Act,
    after the dissolution of a firm the authority of each partner to bind the firm, and the other
    mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far
    as may be necessary to wind up the affairs of the firm and to complete transactions begun but
    unfinished at the time of the dissolution, but not otherwise. The word “transaction” in Section
    47 refers not merely to commercial transaction of purchase and sale but would include also all
    other matters relating to the affairs of the partnership. The completion of a transaction would
    cover also the taking of necessary steps in connection with the adjudication of a dispute to
    which a firm before its dissolution is a party. The legal position in this respect has been stated
    on page 251 of Lindley on Partnership, 13th Edn. as under:
    Notwithstanding a dissolution each partner can pay, or receive payment of, a
    partnership debt; for it is clearly settled that payment by one of several joint debtors, or to
    one of several joint creditors, extinguishes the debt irrespective of any question of

partnership. So, again, it has been held that a continuing or surviving partner may issue a
bankruptcy notice in the firm name in respect of a judgment obtained before the
dissolution, and that notice to him of the dishonour of a bill of exchange is sufficient, and
that he can withdraw a deposit or sell the partnership assets, or pledge them for the
purpose of completing a transaction already commenced, or of securing a debt already
incurred, or the overdraft on the partnership current account at the bank.

31. The proposition, in our opinion, cannot be disputed that after dissolution, the
    partnership subsists merely for the purpose of completing pending transactions, winding up
    the business, and adjusting the rights of the partners; and for these purposes, and these only,
    the authority, rights, and obligations of the partners continue (see page 573 of Halsbury’s
    Laws of England, 3rd Edn., Vol. 28). We would, therefore, hold that the consent given by the
    respondent on November 13, 1957 to the award of Mr Desai would not detract from the
    conclusion that the firm of the parties stood dissolved on the expiry of the fixed period of
    partnership, viz., August 30, 1957.
32. The proposition of law referred to by Mr Desai that a dissolution does not necessarily
    follow because a partnership has ceased to do business would not be of any material help to
    the appellants because we are not basing our conclusion of the dissolution of the firm of the
    parties upon the fact that the partnership had ceased to do business. On the contrary, we have
    arrived at the above conclusion in accordance with the principle of law that a firm constituted
    for a fixed term shall stand dissolved, in the absence of a contract to the contrary, on the
    expiry of that term.
33. Our attention has also been invited to the correspondence between Appellant No. 1
    and the respondent during the period from June to September, 1957. These letters reveal that
    Appellant No. 1 entertained hopes and expectations of deriving some benefit in case the
    respondent succeeded in acquiring the Ambemath Mills. The exact nature of the benefit was
    not, however, specified in the letters. The respondent in his replies while not belying those
    hopes and expectations took care not to make any commitment. After, however, the
    respondent succeeded in acquiring the mills, there developed a coolness in his attitude
    towards Appellant No. 1. This circumstance must necessarily have caused disappointment and
    disillusionment to Appellant No. 1. The respondent, it seems, kept some kind of carrot
    dangling before Appellant No. 1 during the delicate stage of his negotiations with the
    Government for the acquisition of the mills lest Appellant No. 1 did something to sabotage
    those efforts. After acquisition of the mills by the respondent his attitude changed and he gave
    a cold rebuff to Appellant No. 1. The above conduct of the respondent may have a bearing on
    the question of the award of costs, but it cannot affect our decision on the point as to whether
    the suit is within limitation or not.