 to assimilate the facts and dissimulate to. Assimilating and dissimulating facts is, I could say, a partnership within the knowledge sharing itself. And without taking much time, since a partnership is a topic which not only is an advocate, students of law, judicial, and judiciary, but also as, since, also a charge of the government. It's an important facet within the professionals of CA and company sector also. So I think this session of sir would also reach down the line amongst the other professionals also. And the businessmen, during these testing times, you never know. They say that when things are hard, things actually turn out to bad also. So when things turn bad, they also go for the litigation. And in that aspect, once you know the nitty-gritty how to go things forward, not only the participant will learn, but not only the person who is agreed would know, coupled with the fact those who are connected with us would also know how to advise anyone. And sir's popularity can be gauged from the fact we were talking before, sir, locked in. That a lot of speakers who have shared their knowledge on this platform have joined, like Mr. Pashant Chandra and Mr. Soma Sheikh Hassan. And since a lot of participants, I do not know as such, but the victim's glee and broad smile shows it all that a lot of participants are here. And without taking much time, I would request sir to take things forward. And thank you for connecting us. A minute before that, before we forget, maintain social distancing. Keep yourself safe. And if not, go for the vaccination. And above all, to have the knowledge sharing, keep on liking, subscribing, and sharing the Beyond Law CLC YouTube channel. You will have all the knowledges and become our knowledge partner and the knowledge by a person from the main stature of Mr. S. Naganand where he is sharing his knowledge. Over to you, sir. Thank you, Mr. Jaraj. It's been a nice experience talking to you. And I have, of course, known Mr. Rikram Well and few other speakers that you mentioned, like Prashant. The problem with getting an oldie is that they will often tell you, I know you, I know your father, I know your grandfather. Three generations are known to many of us of the young lawyers that I meet. And somehow it makes me realize that I'm now getting old. But that doesn't matter. Youth is all what is in your mind. It has nothing to do with your physique. You may be old, but you can still be absolutely active, especially in our profession. When we see people like Mr. Fali Nariman and near our home in our own high court, we had Mr. Venkat Rangayagar practicing way into the 90s. And Mr. K. Parasharan, Mr. K. Parashan's father also practiced till he was 90s. So I think age is no bar so far as lawyers are concerned. Yes, it's a little bit of a question. Correct. And lawyers and the knowledge is something, lawyers supposed to be a intelligent profession or a learned profession, as they call it. And that means that there has to be an actual learning process. In fact, I'll just start with a small clip, some small kind of exchange of words that I had. One former Supreme Court judge whom we all know, he's from Bangalore, very erudite person. He occupied many positions and retired as number two in Supreme Court. Some years after he retired, he was doing mainly arbitration. Somebody went and asked him to say that he wants some advice on some real estate agreement transaction. And so he said, see, I have now lost my competence to advise because I've stopped reading law reports and I have not kept myself abreast of the development of the law. What I thought was the law when I was judge in the Supreme Court is no longer the law that today is recognized. Since I am not competent to advise you because I have not kept myself abreast. Sorry, I'll suggest you go to some other competent lawyer who will advise you. See why I'm giving you this illustration is at any stage you may be, unless you keep your knowledge up to date, you are going to become obsolete. With this in mind, I think this lockdown has helped a lot of people to focus on different things. And today's topic that is given to me is partnership disputes and their remedies that are available. Now, before I go into that, of course it may sound too basic, but I think we need to be clear about some aspects of law, of partnership law. So the partnership act of 1932 is one of the earliest enactments which relates to commercial laws. And if you look at that, you will realize that it has a very short enactment by modern standards, which has only about 70 odd sections, but the definitions are all very crisp and very good. So the advantage of these old legislations on the British times is that their preciseness of language was there and they put whatever they wanted to put in a very precise language. Whereas if you see the current statues that are being enacted, most of them take the arbitration act for that matter, take the Negotiable Instruments Act, this check is on how many judgments have gone to Supreme Court, how many judges have differed from each other and how many times the judgments have been reversed, this shows that the lack of precision in drafting. Whereas if you go to the 1932 Indian Partnership Act, we have section four definitions and it's a very simple definition. It simply says partnership is a relationship between parties who come together to do a business or a profession or any other transaction which they want to do. So the definition is very simple and one other important thing which civil lawyers will notice that there are two types of relationships. One is a relationship of status, like a member of a HUF, a Hindu and divided family. Another is by virtue of a contract. So the partnership act starts by saying that a partnership is a relationship not created by status, but by contract. So in other words, there is emphasis given to the word contract. Contract means of course, we know the classic definition of contract in section 10 of the Indian Contract Act. And if you go by that, the partnership is a relationship and it starts with a contract. Now, section six talks of how do you determine whether there is a partnership or no? And the real relationship between the partners, you have to look at it in a particular fashion and when you look at it in that fashion, what are the various parameters which you will look at is something which is laid down in this section itself. Then section seven is a very, very important section which says that all agreements are, all partnerships are at will unless the parties otherwise agree. In other words, since the partnership starts with an agreement and a dispute, unless it is at will means everybody's in the same mode, it can't continue. Unless you agree, suppose the partners agree that this partnership will be for unstated duration or for a stated duration for a particular venture, et cetera. Then there are a number of provisions about which I'm not going to take you through, like how good faith has to be there, what should happen to properties of the partnership, what should happen to the personal profits if any made, and how is a partner looked at from the point of view of the firm and the outside world, there's an implied agency. And what are the manners in which a partner by his conduct can bind the firm? And is there a case where somebody is not a partner, but he holds out to be a partner and therefore he also gets into the obligations of a partner which any other partner actually had. These are partners by holding out. And then you have the concept of retirement in section 32. And it also talks of expulsion. So in other words, a person can retire if he does not want to continue and if a person wants to continue but there is a provision available, then the remaining partners can expel him. And of course that's an extraordinary remedy that is available. What we are now concerned with is really chapter six of the partnership act which has about from sections 39 to 54. Now this is the entire dispute area that is going to come in partnership law. Now the section 39 talks of dissolution. So in other words, if partners have started a firm and they don't want to continue the firm, then they have to dissolve the firm. Now once it is dissolved, how do you dissolve the firm? If supposing all the partners agree, then it is possible to dissolve the firm by a deed of dissolution. It's the most common way that it happens. But the topic today is disputes in partnership and there are medis that are available. Now if you look at one of the disputes that could arise is whether the firm should be dissolved or should not be dissolved. In fact, there was one case which went right up to the Supreme Court. My senior and I, we had occasion to deal with it in the high court. It was a partnership with 9-11 partners. And one of the partners wanted it to be dissolved. It was not a partnership at will. And so the other partners said, we don't want to dissolve this firm. It's a very big BD company. They were manufacturing BDs in Karnataka State, one of the biggest in the whole country. Their revenues were running into hundreds of crores of rupees. So one of the partners wanted it to be dissolved. They said, no, we don't want dissolution. So he took recourse to another very strange provision which was there in the 1956 Companies Act which relates to dissolution of certain organizations which are not registered as companies, but which has more than certain number of partners could also be dissolved under the Companies Act. So that was the recourse that was taken. And it's a well-known reported judgment also. So one dispute that might arise is should the firm continue or should the firm dissolve? Now, if this dispute arises and parties do not agree that the firm has to be dissolved, then a dispute has arisen and there should be a methodology for dissolution of the dispute. Now, this is one dispute. The second thing is there are some contingencies which might arise. And on the happening of those contingencies, the firm will get dissolved automatically. So this is narrated in section 41. Adjudication of somebody as a insolvent or if any unlawful business is being carried on, then these are grounds for compulsory dissolution of the firm. Now, section 42 also talks of dissolution on the happening of certain events. For example, if it is a fixed term or let us say it's a firm for the purpose of production of a movie. So the minute the movie is produced, the firm has to get dissolved or it is for the construction of a building or for a joint development or anything like that. And the one other aspect which is provided here is that on the death of a partner, the firm will get dissolved or if a partner gets a judge that an insolvent. There are a lot of litigation relating to clauses in the contract the partnership deal, which says that if a partner dies, the remaining partners will be entitled to continue with the partnership firm admitting into the firm the legal heirs of the deceased partner if they decide to join in this or they will get a share of the deceased partner. So such clauses have also come up for adjudication. So this is one more dispute which will arise that is a death occurs of another partners but whether the firm should then be dissolved or it should not be dissolved. If it is not to be dissolved, then what is to happen? And one more issue on which disputes could arise is section 43 says that where a partnership is at will, then it stands dissolved with effect from the date mentioned in the notice of dissolution. So if I'm a partner in a partnership firm which is at will, all that I have to do is write to the other partners to say, sir, I would like this firm to be dissolved. I hear by dissolved this firm with effect from such and such a date. Supposing I just by mistake write, I this firm, I want this firm to be dissolved and keep quiet. Then what is the effect of that? It's a matter which has come for adjudication which I will deal with in due course. Then finally, there is also a provision of dissolution by court. That means partners are not able to agree and the firm is unable to continue. In such a case, can you take recourse to civil court with the question? In section 44, it narrates A to G, six or seven and eight grounds which are talking about grounds on which a court may dissolve the firm. For example, unsoundness of mind or a partner becoming incapable, incapacitated. Like this, there are a number of them but the most important one which is often used in partnership law is that on the just and equitable ground, a firm can be dissolved. Now, the just and equitable ground is something which we have in company law also in the old 1956 act in section 433 sub clause F. It talks of the dissolution of a company by on the ground of it just and equitable to do so. There's a lot of discussion on that. So one other aspect is if nothing is available and let's say the firm is doing something illegal. When partners says, I don't want to be doing anything illegal. Other partners don't agree for dissolution. It's not a partnership at will. Then you can take recourse to this provision also and go to the court for this aspect. Now, once the dissolution starts, what happens? What happens to the liabilities of the partners? So you all know that partnership has unlimited liability for the partners except in the recently introduced provisions of the limited liability partnership which I'm not going to be dealing with for really want of time because the subject on disputes under the old law itself is very, very vast. And to cover it in one hour, I think it's quite a challenge for me. But anyway, I'll try to do that. So partners liabilities will continue after dissolution. So the mere fact that the firm is dissolved doesn't mean that the liability and the partners also gets dissolved. This is so far as liability. But what about rights of partners? Section 46 talks about it. Just like a partner is obliged to be liable, a partner is also certain rights as against third parties, as against assets of the firm and so many other things. And finally, you say the firm is dissolved then what should a partner do? Can a partner carry on business? Take the case of a partnership at will. If a partner issues a notice of dissolution, let's say the firm has got 1,000 employees. It has got 250 outlets of retail shops that has got everywhere in the whole country. It has got some 5,000 crores of sundry debtors and 6,000 crores of sundry creditors. How does this firm get dissolved? The minute a dissolution is noticed is given. Does it mean everybody must go home and close their eyes and hands and keep quiet? The law provides that the, even after a dissolution notice is given, the partners have continuing authority to represent the firm for as much as is necessary for the complete dissolution of the firm. See assets have to be dealt with, libraries have to be discharged, amounts have to be recovered, maybe a suit has to be filed for recovery of money. All these things can go on. Then section 48 talks of the settlement of accounts between partners. So this is the most important provision where most often disputes arise. Now you see in partnership law, in every books of a partnership firm, you will have a capital account and each of the partners who have contributed monies, those accounts are credited. And throughout the year, whenever the partner draws any money or he draws a salary, those amounts are continuously debited to his account. So at the end of the year, you will strike a balance and say that this partner has got so much infusion of capital or share of profit. So much is the money which has been drawn by him, which is debited to his account. The difference is the money which the firm owes to him. Now the converse is also possible. Supposing the credit balance in a partnership capital account is 1 lakh, but throughout the year has been drawing monies and several other debits in his account shows that his debit is 5 lakhs, his credit is 1 lakh, which means that 4 lakh rupees he owes to the firm. Now these are the matters which comes under the head of settlement of account between partners. So what is the balance of account? Now also section 48 contains detailed provisions. I'm not going to deal with it. The section is very clear. How they have to be dealt with? Losses first, then assets. To what extent will be discharged? Assets will be used to discharge the debts of the firm first. Thereafter, to pay rateably what is due to each partner in the debit balances, credit balances. Then what is in capital account that should be paid last. And finally, if all that is discharged whatever is the balance has to be paid. These are the rights. Now whenever there's a disagreement it is possible that they will never agree for this share. They will not agree for a debit. They will not agree for this credit. And therefore this dispute arises. Now the firm is also required to discharge its debts. There may be an honest disagreement about which debt should be repaid, how it should be repaid and to whom it should be repaid. These are the various provisions which on which disputes arises. Then one other issue is very important and that is if supposing I'm a partner in a firm and on the slide, I have been using the firm's contacts and assets and I've been making some money without disclosing this to my other partners. So if this comes to light it is possible for the remaining partners to say, hey, look here, though you are a partner here you've done something, some activity on account of which you have made a profit at the cost of the firm this money you are accountable to me. And you have to make good this profit which you have earned and the other partners have a right to share in that partnership. This is one aspect. The second aspect is and section 52 talks about it is supposing a partner, let's say this was a real estate company. It was doing buying and selling of real estate. It was also in construction activity. Supposing it built a building and they realized that they had given authority to one of the partners to sell the assets in the course of business of course when they build a flat they have to sell it. And in the course of that if one of the partners on the slide was going on selling flats at 25% discount to the real market price and pocketing the difference. He was not accounting it in the books of the firm nor did he give a share of it to the other partners. In such a case, this is a case of fraud or misrepresentation and therefore the partner and the partnership firm have a right to proceed against this and also to be indemnified against supposing this man has fraudulently executed some document and the firm is exposed to some liability at the instance of third persons. To that extent on account of fraud there could be a charge and an indemnification that has to be given. This is also the law recognizes this is also one of the potential areas of dispute. And another important area of dispute which arises often in partnership is that there's a firm and the firm has a certain name. If parties don't agree as to what should happen to the name of the firm after disillusion then there is a dispute because the firm name is an asset of the firm. Can one partner carry on a similar business putting some small different name or use the same name of the firm? And if it is to be used how the others have to be compensated is another aspect. Then there's one more important agreement. Many of the arbitration many of the partnership deeds contain a clause which say that a partner who is a partner in this firm he or she shall not carry on any competing business nor shall he do any business of the like nature of this firm. Now this is also an area for potential conflict because section 27 of the Indian contract act says that certain types of restrictions are not permissible but in the case of partnerships such a non-compete clause is valid and it's not to be treated as a agreement in restraint of trade because we all know that an agreement in restraint of trade is invalid. The last item on which the post potential dispute is of Goodwill. Now a firm has been in existence for say 50 years it has certain businesses it has a lot of Goodwill, a number of customers but the thing is that the firm after dissolution what should happen to this Goodwill? The Goodwill is something which belongs to the firm and the Goodwill itself can be sold by the firm in the dissolution process. Partners can agree to say well the firm name is of great importance let's encash the firm name and we'll auction it or there can be an interstate auction in the example I was giving finally after the Supreme Court order that is exactly what happened the Supreme Court made an order to say nine partners don't want it to dissolve one partner is wanting to dissolve so we'll give an option the nine partners can buy the share of the one partner or one partner can buy the share of the nine partners you do an interstate bidding whoever bids higher will take the assets so that is one solution that was found which was a very effective solution I need to stretch touch only one more section then go to some nitty gritty is section 69 and the effect of non-registration of a firm now all of us know that section 69 is a special provision in the law which relates to a compulsory registration of a partnership firm now if you don't register a partnership firm then contractual rates you cannot enforce in a civil court that is what the provision is but the non-registration of a firm will have no bearing so far as the disputes interstate between the partners and the recourse that is taken to whatever remedial measures that have to be taken now I go to I have given you now a brief overview of the partnership law now what is it that gives rise to these disputes there are broadly five or six headings you can think of a partner is not doing what he's supposed to do or he's making secret profits he's got conflicting interest he sets up another firm in the name of his wife or son or relative or somebody or there are some personal disputes between the partners and there may be an honest disagreement about admission and retirement of partners and of course whenever a removal of expulsion is there that is certainly going to give rise to a dispute now when such a dispute arises what are the real courses of action open there is of course a civil court I will refer to a little bit about that there is an arbitration there is an mediation and there could be something of a hybrid kind of mediation come arbitration about which I will talk a little later and lastly it is some negotiated settlement if none of these things are possible then you have to look at litigation what is the litigation that you look at and where will you go the commercial courts act of 2015 defines a partnership dispute as a dispute which is coming within its jurisdiction and therefore the value of the dispute is more than rupees three lakhs then it has to go to commercial court it cannot go to other civil courts and the commercial courts have their own norm and the manner in which the resolution process the resolution process before the commercial court goes is slightly fast-track and that's how that will progress so one thing to remember is that you cannot take a civil court arbitration procedure the dissolution proceedings are any relief under a partnership deed it has to go to the commercial court now what about arbitration now we are familiar with arbitration and conciliation act of 1996 arbitration is an agreement between parties just like a partnership is an agreement the only difference is that in the case of an arbitration you need not have an agreement in writing it can be evidenced by exchange of letters and it can also be by means of a contract but partnership need not be by means of an agreement in writing it can be oral also but if there is an arbitration clause in a written partnership deed then the arbitration clause has to be given effect to now there was the cleavage of judicial opinion supposing this relates to the dissolution of a firm and this dissolution is on the ground of just an equitable let us say is that a ground which is available only to a court or can that also be gone into by the arbitral tribunal is a matter which had gone up and in as early as 1971 Supreme Court 1653 the Supreme Court held that such disputes are also amenable to arbitration similar view has been taken by the Calcutta High Court and the Bombay High Court also that the arbitrator has the power if the arbitration is contemplated by means of an agreement in the deed then an arbitrator is appointed an arbitrator or could be a tribunal of more than three members or any larger number also as provided in the agreement that tribunal can decide this question whether the firm is to be dissolved on the just an equitable ground also one other aspect which often arises in court is relating to fraud now they say a fraud unravels everything so in arbitration proceedings can the arbitral tribunal go into the question of fraud is a question which has come up for consideration in several court proceedings before the Supreme Court and there has been a cleavage of judicial opinion in the judgment in N. Radhakrishnan versus Mastro Motors case 2010 1 ACC 72 this issue arose and the Supreme Court made a sweeping observation that if it is a originating in fraud then that is not something which can be gone into in an arbitration proceeding of course this Radhakrishnan's case is a checkered career because this judgment was routed by a single judge when he looked at an application for appointment under section 11 and ultimately the matter came before in Swiss timing case which is a recent judgment 2014 6 SCC 677 and in that case this question arose to what extent is Radhakrishnan's judgment still valid and this in Swiss judgment Swiss case the Swiss timing case the Supreme Court held that Radhakrishnan's views judgment in that view was per incurium and there was an earlier judgment in Ananda Gajapati Raju's case 2004 SCC which was not noticed and therefore they said that this is not correct and the arbitral tribunal can also go into the question of fraud one more judgment of the Supreme Court which gave rise to lot of confusion this judgment in Ayasami's case 2016 10 SCC 386 which tried to explain Radhakrishnan's case and put it away in a very short shift manner this was also examined by a three judge bench in 2019 in Rashid Raza's case 2019 8 SCC 710 and it laid down that Ayasami impliedly overruled Radhakrishnan and therefore it is possible that a simple fraud that we are talking about can not get ousted from the arbitral tribunal and the tribunal itself can actually adjudicate that issue also if it is a purely criminal liability of course the arbitral tribunal cannot decide and sentence anybody to jail it can only give you the relief available to it in partnership law and a decree made by an arbitral tribunal or an award made by the tribunal is equivalent to a decree under the provisions of the civil procedure court as provided in the arbitration act therefore there is really no problem to enforce any decree that is made now there are these I have already referred to you the provisions relating to dissolution when disputes arise as to the existence, continuance or otherwise of a firm dissolution is a process how does one get a dissolution? So you have to go to the commercial court make out a ground and file a case and request the court to grant a degree of dissolution and dissolve the firm now that firm that is not going to happen overnight and we know our legal system proceeding like this is likely to take anywhere from two years to 20 years I don't know what is going to happen to the commercial courts after they start functioning after this COVID but they have all every ambitious timelines but I'm not very sure what is going to happen so in this interregnum what should happen? Who should run the business? Every month salary has to be paid electricity bill has to be paid business has to go on money has to be received so there's usually an application for appointment of a receiver and normally courts appoint one of the partners or a managing partner or two of the partners who are actually involved in the running of the business as receivers now the job of a receiver is to ensure that the firm is continuing and that whatever activity it is doing it will do under the supervision of the court and the court appointed receiver will be answerable to the court for the purpose of examining every transaction and also the validity of most of these transactions now I've already referred to the various modes of dissolution in fact in one case the question arose if supposing there's a partnership firm with only two partners and one of them dies then what should happen? Can the surviving partner continue the business or if supposing one of the partners is just an insolvent and the Supreme Court has laid down that there is a deeming fiction and the firm has to be dissolved there's no option at all this is in 2010 2 SCC 407 like this there are number of jurisdictions under which this arises dissolution at the instance of a partner if one of the partner wants dissolution how does that work? So these judgments of the Supreme Court have examined the question as to what right is exercised and how that right has to be given to them now for example there are let's say the firm is a partnership firm which has five acres of land in the prime area in Bangalore and that firm disputes arise and it is resolved then what should happen to the asset of the firm? The minute the dissolution takes place does that asset automatically become the assets of the partners in proportion to their profit sharing ratio or capital sharing ratio or is something more to be done because this is immobile property and Supreme Court had occasion to hold that the partners of a firm are not co-owners of the property and therefore it doesn't get automatically transferred to their names there has to be a formal conveyance of these assets. One other decision which arose under the income tax laws of interest in Malabar Fisheries case in 1979 220 ITR 49 the question arose that on the dissolution of a firm if the firm transfers some assets in the example I was giving let us say there were five partners and there was a five acre property and these five acres are then agreed to be divided as one acre to each partner and one acre is conveyed to each of the partners under the dissolution deal. Then the question arose whether when the firm transfers it to the partner is there a transfer of an asset for the purpose of section 247 of the income tax act which attracts capital gains tax the Supreme Court laid down that the transfer of an asset by a partnership firm to the partner does not result in any transfer because the firm is not independent entity and the partners are constituting the firm itself therefore it is from left pocket to right pocket and therefore there is no transfer. Similar view was taken much later in Sunil Siddharth Bhai's case in 1985 4 SCC 519 and there is also two or three judgments of Karnataka High Court relating to income tax legislation itself on balancing charge and other requirements which provide that transfer of an asset from an individual to the firm does not involve any transfer of asset of a capital nature. Of course, there is another issue relating to fraud and manipulation which Siddharth Kartika's case warned and there were some amendments income tax law also based on that which I'm not touching because that doesn't relate to disputes intersave between the firm. It is a dispute between the firm and the tax authority. Now, when you go to court what is the relief that you will ask? Order 20 rule 15 in a suit for dissolution of the firm CPC you will ask for partnership accounts you will ask for a final degree you may ask for a preliminary degree if supposing the shares are not determined supposing there is a dispute one partner says you I'm not entitled to 50% shares but I'm entitled to only 30% share then what happens? In such cases it will have to be a suit for a preliminary degree and in the preliminary degree the suit the court is only going to determine and declare the rights and after the declaration final degree proceedings will have to be held and the determination has to be made if this is a proceeding which doesn't go to arbitration. Of course, in arbitration you don't have this dual stages of determination and decision all of that will have to be done in the same proceeding in the same manner. Now there are cases which have arisen that what should be the scope of these final degree proceedings? Supposing a preliminary degree is granted and the partner who obtained the degree dies is legal heirs are not interested they say go to hell I don't want to do anything with it but the court has made a declaration of rights of parties can some other partner institute final degree proceedings just like what can be done in a partition suit we are all aware that in a partition suit the defendants are as much plaintiffs as the plaintiffs are. So if one of the plaintiffs doesn't want to file a final degree after a preliminary degree in a partition suit any defendant can file a final degree. So the same principle was applied by the Karnataka High Court and Andhra High Court also. So those remedies are still available somebody doesn't want to pursue them you can still pursue them. Then number of issues arises as to how can you actually enforce the recovery of assets and third parties? So can the firm or can a partner act on behalf of the firm for the purpose of realization of these assets? And courts have uniformly taken the view that a partner has every right to continue to agitate and do everything within his means to recover assets of the firm of which he's a partner. Now there are a number of other provisions. I have already referred to them and I briefly took you through the provisions about the do's and the don'ts what he can do what he cannot do. There is this provision about sale of Goodwill. Now section 55 talks of sale of Goodwill and in a Supreme Court said in a very old judgment in 1964 Supreme Court AIA page 11 that the Goodwill is something which belongs to the firm and it is possible for the Goodwill to be sold like any other asset. In the example I was giving the firm had a enormous Goodwill in the BD market and therefore the real assets of the firm value was far less than the Goodwill of that firm and therefore to get the value of the Goodwill and interest a auction was what was determined. And there are a number of judgments which says that Goodwill is to be taken into account for a general dissolution and often we make a provision in the partnership deed to say that if a partner dies his legal heirs will not be entitled to a share in the Goodwill of the firm. So if such a provision is made in the partnership deed see this happens because in many big firms the partners are all working partners. If one of the partner dies and the value of the firm in the example has given you that BD company the value of the Goodwill itself was some 600 crores. Now how do you expect the remaining partners to monetize it and pay it? Therefore it is quite common to have such a provision that the Goodwill is not something which will actually be shared and the legal heirs of a deceased partner will not be entitled to the share in the Goodwill. If it is so determined in the partnership deed if the partnership deed is silent I'm afraid they'll have to share the Goodwill also in the partnership assets which are going to go for determination. Now there are one or two other issues incidental to this which touch on arbitration law. Now you see there is often a provision which says that a arbitration agreement should be in writing. Now there is many times what happens a partnership deed is not put up on proper stamp duty and it is very uncommon to register a partnership deed under the Registration Act. Normally they don't register and they will register it under the Registration in the partnership act for the purpose of protection of section 69. Now if the document is not stamped properly or if one of the partners alleged that this is a fraudulent deed then what happens? In fact, there is a matter in which I'm appearing on the high court. The issue that arose there was that a person who was the owner of a property he entered, he's allegedly entered into a partnership with somebody and said that this asset I'm merging with the firm. Now that document is challenged and the signature is disputed and the contention is that there is no transfer of asset from him to the firm. And what should happen in a case like that? So this is one issue which will have to be adjudicated by courts but supposing the dispute relates to the execution of a deed and it has an arbitration clause in it. Then to what extent will the arbitration clause prevail over the rest of the document? There's a cleavage of judicial opinion in this case where earlier the Supreme Court had taken the view that if there is a dispute on the existence of the agreement itself or the scope of that agreement and whether this dispute is arbitrable that can be gone into at the stage of section 11 when parties go before the high court for appointment of an arbitral tribunal. The law is supposedly turned around all around. Now the law appears to be laid down by Supreme Court that the only thing that the court can see in section 11 is not whether the dispute is live or dispute is existing, dispute is within time, dispute is barred by time. None of these things can be seen by the court appointing arbitral tribunal. The only thing that they see is whether the document is duly stamped or no and whether the agreement is in existence, sorry not stamped, agreement is in existence. So if the arbitration clause is there in existence then there is no way in which the court can decline arbitration. Now the other way is supposing there is an arbitration clause but that agreement is not duly stamped. The Supreme Court in Boozalan had taken the view that if it is not duly stamped that agreement is of no consequence but the law appears to have now been revisited and the latest ruling says that even in cases where there is some dispute relating to stamping and other things that is not something on the basis of which arbitration can be declined. And therefore the courts have generally given rise to and encouraged arbitration proceedings. Now I'll tell you something about my experience with arbitration. You see, many years ago we were dealing with a company dispute. Two brothers were the owners of that company and they fell out. They also had a partnership. The litigation went on very early. It was an operation mismanagement petition before the company law board. And I knew the company I knew all the key players in that company. It went on for quite a long time. At the end of this, they said, Mr. Naganan, we are fed up of this court. Would you please agree to be an arbitrator? I said, I've appeared for one of the parties. How can I be an arbitrator? Then they made a submission to the company law board and said, no, sir. We want Mr. Naganan only to be the arbitrator. Both sides said that. And then I told the court, I said, if my opposite side lawyer and opposite side party both of them want me to try and mediate and find a solution for this. I don't mind doing it. And so I must say that the process went on because why they said that was, there was lot of accounting issues. See, one of the problems that was raised was that some money was being defecated from the company by means of incorrect and false entries in the books. And that money was not being accounted. That was one of the reasons of further dispute. Of course, other reasons were very common among family relatives is ego. Ego and family issues, they come into the way and they cause problems in businesses. Now, in that case, that was the issue. So both of them thought I will be the best person to understand the nuances of this allegation and try to resolve it. And then I said, okay, we'll do a mediation. So I did a mediation and parties agreed on about five or six issues. At the end of those five or six issues on one issue, they were not able to agree. So I reported back to company law board to say I've done all these things. On this issue, they're not able to agree. So this mediation is not going to work. What should I do now? Then the party said, no, he has spent so much time on this. Now, let him become an arbitrator from a mediator. Again, the same Rikmalal, the company law board made an order requesting me and noted all these things that he appeared in the case for so and so and everything. And both parties are agreeing. They filed affidavits. And finally, then I started like an audit of the accounts. It took quite a long time. At the end of that audit, I came to a conclusion that certain amounts were to be paid to one of the partners. So I gave that report to the company law board. And the company law board finally asked them, well, this process is gone. Now he has given such a report. Will you accept it and file a joint memo for us to say you're accepting this and we can make an order recording you. So the company law board then accepted that report because parties didn't challenge it and made an order. So I'm saying, this is an extraordinary case which will never happen. It has not happened ever since then. This must have happened about 15, 20 years ago or more. I have not seen another case happening like that. In another company dispute, there was a company which was in litigation in section 397 operation. The same parties had two other partnership firms. They were same partners, both were 50-50. So what should happen to that was the question. So the dissolution of that firm notice was given. And finally they didn't agree. And there was a two-member arbitral tribunal because that was before the 96 act came in. You could have an even number of arbitrators. So late Mr. R S Chakrabhavi and Mr. N S Prasad were the two arbitrators. They heard the matter and I appeared as counsel in that case. It went on for quite a long time. And finally they resolved the issue by taking into account all the assets that were there, all the liabilities that were there and very painstakingly they did that process and came to the conclusion that this is how the firm will get dissolved. This is how these assets will give. Now one issue which is often, what shall I say, mystified is a suit for accounts. What are the meaning of suit for accounts? A suit for accounts simply means that I am a partner in this firm. I don't know its state of affairs. I'm not sure. See what happens is many of the entities, many of the firms, they don't maintain books of account on a day-to-day basis. You know, they're busy in their own world. Of course, this computerization level which is there now tally accounting package, this that which are all so simplified, it's not there. Today, starting point of the transaction itself is generated in the computer system which will generate the general ledger, which will generate the sales ledger, which will generate parties ledger and final accounts. Everything happens parallelly. In the good old days, the bookkeeping, you know, you had to have a day book, you had to have a cash book, you had to have a sales ledger, you had to have a purchase ledger and physical entries are made from cash book, posting is made into a ledger. It was a painful process. And I now remember the audit days of my chartered account and series. We used to go and check every entry in many of the clients that we were doing internal audit. Has he correctly encountered? That was the level. Today, it's not so. So what happens is many companies don't maintain, many firms don't maintain accounts on a day-to-day basis. So suppose a dispute arises today and for the last three years or two years, accounts are not updated and not signed. Then what happens? One partner will say, so much money was generated, you took away so much money. Other partner will say, I didn't take away so much money, I put in so much money into the firm because the firm was running in loss. Nobody knows the state of affairs. So in a suit for accounts, that is exactly what is done. The tribunal or the authority who is dealing with it, will try to ascertain what is the correct state of affairs of this firm. How much money is actually received by it? How much is spent by it? What is the profit? This is the first aspect. Second aspect is, as I said in the example I was giving, throughout when business is going on, I'm a partner in a firm and I am working for the firm. I need to take some money because that's my profit and I need money for my day-to-day things. So how do I do it? So you go on debiting. So these accounting entries are not properly made. So in a case in suit for accounts, that is also taken into consideration. The third thing that is taken into consideration is, see some issues, liabilities are created. A partner will put in on fictitious entry, saying I got a one lakh rupee worth of goods from XYZ. And he debits purchases and credits XYZ account. When accounts are taken, which I see XYZ so much money is due, please pay that. Now, when in suit for accounts, that's had to be gone into, whether that money is payable to XYZ or not. If it is not payable, then the adjudicating authority will have to examine and say, well, in taking accounts, we are not going to approve this. Therefore, this is not a liability of the firm. So these are the various aspects relating to suit for accounts, which are to be examined in detail in an account suit. Now, major other disputes that arise between the partners are relating to assets of the firm. Now, many times the assets of the firm are not properly accounted in the books of the firm. Now, even in the case of, let's say, vehicles, the Motor Vehicles Act, you cannot register a vehicle in the name of a firm. It will be registered in the name of so-and-so partner of the firm. So in other words, there could be assets which are in the names of individuals, whether they are accounted in the firm or not is itself a dispute sometimes. He will say, look here, I bought an asset. This asset didn't belong to the firm. It belongs to me. And therefore, in the dissolution, especially this happens, if asset happens to be immobile property, the values go up. A plot of land is bought for 10 lakhs. It becomes two crores. Then he will say this two crore asset is not firm asset, it is my asset. Then how do you establish it? Look at the accounts. If accounts are not prepared, how do you establish it? This is the difficulty ensued for accounts. But nevertheless, it's a painful process. In an arbitration, I think it is more feasible. But in civil courts, I find it to be extremely, extremely tardy and impossible to make the honorable court understand these issues because they are not commercial people. I think this gives us an overall idea about different types of disputes that arise in partnership law, what the remedies are. And of course, in the short time that I've had less than one hour, I tried to cover as much as I can, but there are bound to be a lot of questions and we can maybe take a few questions now and so that there'll be some clarity. Thank you. Clarity was already there. The way you have taken things forward, that can only further clarify. Mr. Pashank has a few questions. Yes, Mr. Pashank. Good evening, sir. Thank you very much for your wonderful insight into the act. I've already put my question on the chat box there, but I repeat for the benefit since he has given me an opportunity to explain it. When we deal with the new deeds of partnership, is it worthwhile introducing or incorporating arbitration clause knowing very well the limitation of the arbitration law? Yeah, I think in a way I have covered it to say that in my view, it is advisable to include an arbitration clause in partnership deeds. The reasons are twofold. If you don't include an arbitration clause, then you are going to go before a commercial court for adjudication of your dispute. Now, in arbitration proceedings, it is certainly a more expeditious and quicker proceeding, though whatever the law may envisage in commercial court, it is never going to happen like that. And also, taking of evidence, in an arbitration proceeding, the court, it is not bound by strict rules of evidence. It is not bound by rules of procedure in the civil procedure court. Only natural justice has to be done. If some document is to be produced, you don't have the original, you can always produce a copy. And if parties don't dispute it on copies, the document can be decided. 99% of the documents in any arbitration proceedings, especially in commercial arbitrations, are all decided on the basis of uncertified Zerox copies of documents, unless some particular document is disputed. So I think overall, it seems to be a better proposition to have arbitration clause in a partnership deed. Okay. I have some questions in the chat boxes I'm reading. Mr. Chandrasekhar, can we execute a GPA in favor of a firm? Can we execute a GPA in favor of a firm? No, a GPA in favor of a firm. You see, the firm, as I said, is not a legal entity. So if you say it is executed in favor of a firm, who is that firm? The firm means the partners only. So if advice is sought as to what should be done, I would suggest that you execute it in favor of Mr. A, B and C and designate them as partners of such and such a firm. So don't execute it in favor of XYZ and company. If that's the name of the firm, it's not advisable to execute it in the name of the firm. This is by Gokul Das, the partnership wall of three partners. One partner fell foul amongst themselves. I was dealing with the partnership firm in one business. The partner who fell foul issued notice to me saying that I should not deal with the firm and all money due should be paid. How do I deal in such a situation? Now, this is a typical type of problem that arises. This is one is to third party such letters are written and the other one is to banks. The first letter that will go from a disgruntled partner is to the banks to say there is a dispute in this firm. I'm a partner. They're trying to sideline me. Therefore, don't pass any checks and negotiable instruments executed by any other partner. So then everything goes into a freeze. Now, take the case of this third person who such a letter is received. Now, what can he do? What should he do? He should then take some precaution. Ask the remaining partners who are running the business. Look here, I've got a letter like this from one of your partners. What do you want me to do? And in a case like that, if the amounts are sizable, see the problem is going to be about getting a discharge. If he pays the money and later on it is held that this money was not payable or should not have been paid, then the person who paid the money is in trouble. So in a situation like that, it is best for him to issue a legal notice to the firm and the remaining partners to say, I have received a communication like this. Please clarify and get some order from the court. Mithali, can a suit be instituted against an unregistered partnership firm? Yes, no problem. Section 69 is talking of only suits by partnership firms in matters arising under contract. So an unregistered firm can be sued. It should be advisable to sue the unregistered firm and its partners. Don't only file a suit against the firm, you should include the partners in the suit as defendants. John Akara, is there any difference in mode of dissolution of a partnership if it is registered or unregistered? No, no change at all. The registration provisions in section 69 apply only for legal action taken by the firm to exercise to enforce contracts. For dissolution, there is no difference at all. This is by Mr. Prashant, again, in the case where you were mediator, arbitrator, don't you think resorting to a conciliation could also have been one of the options? We tried the conciliation before it went to a company law board because we were appearing for one brother, there was another brother and there was a third party also who was the director in the company. So, I tried to tell them beforehand that, why do you want to do this? I even suggested that you call your brother, let us sit down and have a meeting. But what happened was that while two of the directors who are in the saddle, who are managing the company, they were keen to resolve. The third person who was not in the company and he was out to destroy the company and did all sorts of things, that man was not willing for mediation. He said, what is there to mediate? I'll go to court. That's how he went to company law board. This is by Chandrasekhar, GPA which has already executed a firm, is it valid in the eyes of law? The only doubt that is going to arise in a case like that is, who is the agent? Now, if the agent is a person who is not recognized in law because a firm is not recognized as an entity, that is where the problem is going to arise. I think if this is challenged, they will have great difficulty to establish that the GPA is valid. Ashok Kumar, in an apartment sale of flat, by one partner without resolution and also specific authorization and partnership deal, please clarify, can it be challenged by other partners? The partnership pact itself says that there is implied agency. So a partner, if it is some business of the firm, suppose the firm is in real estate business, it is building apartments, it is selling apartments and one of the partners is the one who's dealing with it, there may be others also. If this person signs as a partner and it is a fact that he's a partner, one partner doesn't need a power of attorney from the other partners to do, unless the partnership deed contains a restriction. You see many partnership deeds contain a restriction. It says that any document or activity relating to immobile property, including mortgages, shall only be done by the approval of all the partners. Such a provision, even for borrowing, borrowings by the firm shall be done under the signature of all partners. These are all standard clauses that are there. So if the deed is silent and does not place a restriction on the right of this person who is a partner and who is managing the fairs to sign a document, I think the document is valid. The other partners will not succeed in their challenge, unless they show it is fraudulent. Hathiray Joshi from Bombay asks, would you enlighten us on an unregistered partnership firm and its effect? An unregistered partnership firm will not be able to file any suit. No person whose name is not shown in the register of firms in the registration process. If his name is not shown, he cannot represent the firm and file any suit for enforcement of a contract. Now, this provision has come up for interpretation in many situations. For example, under the rent control legislation in Karnataka, this issue has come up. I am sure the same thing is in other states also. This is not a contractual right that they are trying to enforce in a rent control action. It is a statutory legal right. Same thing so far as winding up jurisdiction under the Companies Act is concerned. These are statutory rights. These statutes and for example, an unregistered firm wants to challenge some order passed by some electricity bold for some electricity matter. All these do not come in the way of the firm filing an action because they do not arise out of contract. If it arises out of contract, then it is not possible for an unregistered firm to file it. Are the rights of the partners better than LLP vis-a-vis to partners in a partnership firm? I think the whole object of LLP is only to ensure that the liability of the partners is not unlimited. But all of the rights and obligations of the partnership law will apply there also. There is no distinction. Once he is talking of LLP, I have read one of the questions. Would you just give a snippet form? What is LLP and what are the facets of LLP? LLP is a limited liability partnership. Now just like how you can have a limited liability company, the registration of a company under the Companies Act guarantees the investor who is a shareholder that his personal liability will not arise out of any losses of the company. Now in the similar concept in a partnership firm, since its partnership is a relationship of parties, the liability of the partners is unlimited. So in other words, if a third person makes any claim against the firm and if the firm has no assets, let's say the bank sues the firm and obtains a degree for 1 crore. The assets of the firm are only 50 lakhs. The remaining 50 lakhs will have to be paid by the partners of the firm from their personal resources, that is personal liability. Now in the case of a limited liability partnership, the personal liability of the partners is not there. But there are some restrictions relating to registration, disclosure, financial position to be disclosed. And there is a certain element of public knowledge that is going to get into an LLP, which can be avoided in the case of a registered of a regular partnership firm. Because a regular partnership firm does not have to file its accounts with any authority, except its income tax returns and other tax returns it will have to file. There is no other obligation to file and disclose your financial status anywhere. Those are the essential distinctions between the two. If a partner in the company is a private representative, is a representation. If a partner in the company is a representation from another private limited, MDR of EU, then does the liability extend to that company also? You see in a partnership firm, just like how an individual can become a partner of a firm, a limited company can also become a partner of a firm. So there can be a partnership firm called ABC and Company, in which A and B and C, all three are limited companies registered under the Companies Act. It is possible. So just like what liabilities attached to an individual who is a partner in a firm, if a company is a partner in a firm, the same extent the liability attaches to the company but not to its managing director or any director of that company. Company will be liable, not its directors, unless fraud. Of course, fraud initiates everything and fraud will unravel everything. Lifting the corporate veil is a well-known principle in that famous judgment of the Supreme Court Justice Kurpa, speaking in Skipper Trading Company, clearly laid down that fraud will unravel and you can lift the corporate veil. This is the Deep Singh judgment also on 94 Supreme Court Justice, but we will say that fraud initiates everything. Who are the necessary and proper parties in the suit proceedings for a dissolution of a partnership firm? In a dissolution proceeding normally, it is only the partners of the firm who are made parties. But in many cases, if there are sizable assets and there are third parties who are involved, suppose you take the case, let's say the firm has a big asset and there are 10 tenants in that building and you are seeking for dissolution and distribution of assets. So in a situation like that, the tenants who are occupying that portion of the buildings, they can also be implanted. So the same rules will apply, proper party, necessary party. Now necessary party are the partners, proper parties are others who may be holding assets of the firm. Kumar in a Negotiable Instrument Act, the lawyer of the cheque dies after the institution of the case. Can other parties be sued? Well, in a somewhat similar situation, the lawyer of the cheque here was a company and in that case what happened, the company got dissolved by an order of winding up passed by the High Court. So we contended that in that case what had happened was the company had not been made a party initially. No notice was given to the company and we contended that under section 138 to 142, unless a notice is given within time and a complaint is filed, the complaint against the company by means of an amendment cannot stand. Of course, that case has occurred, history, it had gone to Supreme Court three times. Finally, we lost at the High Court. It's now in trial stage and I'm fairly confident that we will succeed. So the answer to your question is that if the lawyer is a company and the company is dissolved, there's one situation, but if the lawyer is an individual and if the individual dies and no steps have been taken against others who may be responsible, supposing it is a joint signature, then others could have been sued. They're not sued it. I'm afraid they cannot now substitute. This is in, John says, in a state like Kerala, the limit for holding the land is 15 acres for a private person. Vizales and Karnataka, I presume it is 49 acres and in the case of a private limited company, there is no limit for holding the land. Is it the same applicable in partnership firms as well? I don't know. We'll have to look at the legislation concerned because in a Karnataka Act, it talks of an individual holding land. So if you have a partnership firm, and if you have three partners, each individual will be able to get that much. State HUF, same thing will apply, but limited company is only one entity. So if the limited companies can hold land, the ceiling legislation will have to be seen. The actual wording of that provision has to be examined. Last question we are taking. Is any limitation, is any limitation, you would have to reframe the question, but whatever he's written, is any limitation legal here to file the dissolution of the partnership? Or is there any limitation for the legal acts? Okay. Is there any limitation for the, the normal rules of limitation law will apply, sued for dissolution? I presume he's using the word limitation and not of the limitation act. Is there, are there any limitations for legal acts to file a dissolution of partnership? No, no, no, no. Okay. The legal acts, you see, if there is a partner and if he or she dies, his or her legal acts will step into the shoes of that deceased person. Whatever rights the deceased person had, the same will devolve on the legal acts. And as I covered it briefly, what happens to clauses where the deed says that notwithstanding the death of a person, the firm will continue. Then the legal acts, if their share is not given, they can then file a suit to say that our so and so, of whom we are the legal acts, was entitled to the following and the firm must give us that money. So there is no limitation, there's no restriction in that sense. Whatever was the entitlement of the deceased partner, the legal acts can certainly sue for recovery. So we have taken all the questions. Before we will part for the day, I will ask the program to share his insights. Meanwhile, we can ask our friends that they can like share and subscribe to the Beyond Law CNC channel for the sessions and tomorrow we will be having a session on contract agreements and public policy by Dr. Sairam Bhatt from the National Law University, Bangalore. So do stay connected with us tomorrow at 5 p.m. to have the insights of contracts agreement policy or do you program kindly unmute yourself. Thank you Mr. Vikas. Indeed it was a last evening. India has always mastered the art of simplifying things, maybe before the court or his presentation. It's always precise, simple and filled with clarity. And today's presentation was also equally precise and very informative. And thank you sir. Thank you so much for such a scholarly presentation. It is always a joy to be a participant in your presentations coupled with a great learning opportunity. Thank you so much sir. Thank you. Wish you all the very best. I would also like to thank all other participants. I see a host of our Learned Colleagues who used to participate in our webinars. I'm sorry I'm not able to thank you individually but I thank all the participants especially from Bangalore Park who have joined today and all other participants indeed. Thank you so much and once again Mr. Vikas Chitra, thank you so much. And I would also like to thank Mr. Raghavendra Shrivatsa and Mr. Prashant Murti who are colleagues of Naga Nansar. Thank you so much for participating. Thank you one and all. Thank you Mr. Vikas. Okay. Bye. Kindly weigh your mask, maintain the social distancing and do your vaccination if not done. Be safe and stay blessed everyone. Thank you. Thank you.