Winding Up vs Dissolution of partnership firm

Cause Title : R.Subbulakshmi (deceased) vs R.Venkitapathy (deceased), O.P.Nos.40 of 2019, Madras High Court

Date of Judgment/Order : 10.08.2023

Corum : Justice Krishnan Ramasamy

Citied: 

1. Vimal Kishor Shah and others vs. Jayesh Dinesh Shah and others reported in (2016) 8 SCC 788;
2. A.Ayyasamy vs. A.Paramasivam and others reported in (2016) 10 SCC 386;
3. Booz Allen and Hamilton Inc., vs. SBI Home Finance Limited and others reported in (2011) 5 SCC 532;
4. T.A.Kadeeja vs. R.K.Manjusha in CRP.No.439 of 2016 (B);
5. Express Newspapers Pvt. Ltd., and others vs. Union of India and others reported in (1986) 1 SCC 133;
6. Indian Express Newspapers (Bombay) Private Limited and others vs. Union of India and others reported in (1985) 1 SCC 641;
7. Basheshar Nath vs. Commissioner of Income Tax, Delhi and another reported in AIR 1959 Supreme Court 149;
8. Justice K.S.Puttaswamy (Retd.) and another vs. Union of India and others reported in (2017) 10 SCC 1;
9. Bawana Infra Development Pvt. Ltd., vs. Delhi State Industrial & Infrastructure Development Corporation Limited (“DSIIDC”) reported in 2023 SCC OnLine Del 1569;
10. J.G.Engineers Private Limited vs. Union of India and another reported in (2011) 5 Supreme Court Cases 758;
11. M.O.H.Uduman and others vs. M.O.H.Aslum reported in (1991) 1 SCC 412;
12. Booz-Allen & Hamilton Inc vs. SBI Home Finance Limited and others reported in (2011) 5 SCC 532;
13. Ashok Kumar Malhotra and others vs. Kasturi Lal Malhotra reported in MANU/PH/0136/2012;
14. J.B.Dadachanji and others vs. Ravinder Narain and others reported in MANU/DE/0867/2002;
15. V.H.Patel & Company and others vs. Hirubhai Himabhai Patel and others reported in (2000) 4 SCC 268
16. Valliammai Achi and others vs. KN PL.V.Ramanathan Chettiar and others reported in AIR 1969 Madras 257
17. Khandervali Sahib and others Vs. Gudu Sahib and others reported in (2003) 3 SCC 229;
18. S.V.Chandra Pandian vs. S.V.Sivalinga Nadar reported in (1993) 1 SCC 589;
19. Pannalal Paul vs. Padmabati Paul reported in AIR 1960 Cal P 693

Background

The issue is related to a newspaper started in 1951. The ownership was with a partnership firm and various people were inducted as partners over time. The said newspaper grew and several editions from various cities were added. When original editor passed away and disputes after between the partners of the firm after his demise and with regard to the same, several suits were filed between the partners before various Courts. Subsequently, as per the direction of the Madras High Court, batch conciliations were held between the partners and a memo of compromise was filed by the parties, in which they had agreed to refer all the disputes, which arises out of partnership deed dated 23.03.1997, to the Arbitral Tribunal constituted by three Arbitrators. All the 5 claimants had filed their claims and counter claims before the Arbitral Tribunal and completed their pleadings. Based on the said pleadings, the Tribunal had framed 45 issues on 18.07.2007. At this juncture, the fifth claimant had filed a petition, stating that he had issued a notice of dissolution under Section 43 of the Partnership Act, 1932  to which the fourth claimant objected. However, vide common order dated 23.07.2012, the Tribunal had decided that the Tribunal has jurisdiction to deal with the issue of dissolution, since the said notice falls within the scope of the aforesaid memo dated 18.01.2007, which was signed by all the claimants and based on which the disputes were referred to Arbitration. The Tribunal passed several interim orders including the third which was regarding the winding up of the partnership firm.

This appeal was filed by the second, third and fourth claimants challenging the interim award.

Judgment

For the purpose of deciding this case, the Court framed the 11 issues, which were all based on the submissions made by the respective learned Senior counsel for the respective parties. Among the issues addressed was the question, "Is winding up of the partnership firm, the same as dissolution of the partnership firm?"

ANSWERS TO THE ISSUES:

The court held that to wind up the partnership firm, a liquidator has to be appointed to liquidate the assets and liabilities of the partnership firm and the said liquidator will also have to adjudicate on the claims of third parties like  employees, workers, P.F. claims, statutory and non statutory claims along with the debtors of the firm as well.

As per Section 48 of the Partnership Act, the payment of the debt to the third parties will get priority. The work of the liquidator etc., will start with the calling for the claim from third parties, who are all connected with the business of the partnership firm. Thus, in the process of winding up of the firm, the right in rem of the public at large has to be decided. The liquidator has to call for the claims and also adjudicate the claims of the debtors and creditors of the Company.

The dissolution of the partnership firm is an issue among its partners. In the course of dissolution, the rights of the parties that are going to be decided is the right in personam and subordinate right of personam that would arise from the right in rem whereas in the course of winding up, the rights of the parties that are going to be decided is right in personam, the subordinate right of personam that would arise from the right in rem and also the right in rem at large that would arise from the third parties. Hence, the right of the parties that are going to be decided in the course of dissolution and in the course of winding up of the partnership firm is entirely different.

That apart, Section 583 of the Companies Act, 1956 and as well as Section 375 of the Companies Act, 2013 deal with the dissolution of unregistered company. Section 583 (4) (a) of the Companies Act, 1956 deals with 'if the company (Partnership firm) is dissolved or has ceased to carry on business or is carrying on business only for the purpose of winding up of affairs', only those companies for the purpose of winding up of affairs, after the dissolution, can invoke the provision of the Companies Act for the purpose of winding up of the partnership firm. A similar provision also available in Section 375 (3) (a) of the Companies Act 2013. A reading of the above provision makes it very clear that the Companies Act deals with only the winding up of the unregistered companies after the completion of the dissolution process in terms of the Partnership deed and the provisions of the Indian Partnership Act. Hence, the dissolution has to be made in accordance with the Partnership deed r/w. Partnership Act. After the dissolution of the partnership firm, one can approach for winding up in terms of the provisions of the Companies Act or otherwise in terms of the Indian Partnership Act. Therefore,  the winding up of the partnership firm is not the same as dissolution of the partnership firm.