Karnataka Excise Act | A Partner Cannot Apply For Renewal Of Licence While His Lawsuit For Dissolution Of Firm Is Pending: High Court

A single judge bench of Justice Suraj Govindaraj allowed the petition filed by one Nagalinga and quashed order dated 08.12.2021 passed by the Karnataka Appellate Tribunal, by which it confirmed the order of the Excise Commission renewing the licence on an application made by respondent No.3 (Y B Ramachandra).

The bench said “The plaintiff in a suit for dissolution of a firm, in my considered opinion, cannot seek for renewal of a licence and continuance of the business while the suit filed by him for dissolution of the partnership is pending.”

The petitioner and Ramachandra are partners in firm M/s.Marthanda Enterprises, the said M/s.Marthanda Enterprises runs the business of M/s.Marthanda Wines under Form CL-2.

There being certain disputes between the partners. The respondent no 3 filed a suit for dissolution of the partnership firm. Pending adjudication he applied for a license which was granted.

The petitioner contended that respondent No.3 has no right to continue the business without involving the petitioner. Both of them being partners in the firm, respondent No.3 is acting contrary to the interest of the petitioner and partnership firm. Moreover, when there is a dispute between the partners neither respondents could have renewed the licence nor could KAT confirm the said order.

However, the plea was opposed by Ramachandra submitting that he being the managing partner was well within his rights to seek renewal of licence and run the business. It was said “The partnership is not created by status of the parties but by contract and as such, Clause 7 of the Partnership Deed has to be given full effect to and therefore, the right of the managing partner being recognized, a working partner cannot impinge upon such right.”

On going through the records the bench noted that respondent No.3 (Ramachandra) who has sought for dissolution of the firm. Then it observed “Once respondent No.3 himself seeks for dissolution of the firm, the question of respondent No.3 continuing business of the firm in my considered opinion would not arise.”

It added “Once a suit for dissolution of the firm is filed, the continuance of the firm is only for the purpose of recovery of any of the amounts which is due to the firm and for drawing up of the accounts. There would be no purpose which could be served by continuance of the firm by one of the partners when the suit for dissolution is pending.”

It then clarified “The matter would have been different if the petitioner had filed a suit for dissolution of the firm and respondent No.3 has sought for renewal of the licence. That is to say a person other than the plaintiff in a suit for dissolution was to seek renewal of the licence.”

Following which it held “The plaintiff in a suit for dissolution of a firm, in my considered opinion, cannot seek for renewal of a licence and continuance of the business while the suit filed by him for dissolution of the partnership is pending.”

Noting that the State Exchequer would suffer, cannot be a ground for renewal of the licence of a private party. The bench said “The State cannot seek to try and protect its own interest of revenue when two of the partners are involved in litigation. The said observation made by the Excise Commissioner is completely untenable.”

Finally it said “In view of the fact that a suit for dissolution of the firm has been filed, at the most after the dissolution takes place, it would have to be adjudicated by the court as to in whose favour the licence has to be transferred or to whose share it would fall. Until then, there would be no purpose in continuing the said licence or renewal of the licence.”

The court allowed the petition and granted four weeks time to the respondent 3 to make sale of the stock which is in the premises. It said “ No fresh stock shall be ordered by respondent No.3 from any of the manufacturer, wholesalers, stockiest, distributors or otherwise and it is only the stock as on today which shall be sold.”

Case Title: Nagalinga And The Excise Commissioner in Karnataka & Others.

Case No: WRIT PETITION NO.23306 OF 2021

Citation: 2023 LiveLaw (Kar) 100

Date of Order: 08-02-2023

Appearance: Senior Advocate C.H. Jadhav for Advocate Shashidhar G for petitioner.

Advocate Pramod R for R3.

HCGP Jyothi Bhat for R1, R2.