Partnership Act | Outgoing Partner Entitled To Share In Profits Derived From His Share In Assets Of Firm: Supreme Court

In a recent ruling, the Supreme Court held that if a partner is carrying on business with the assets of the firm, till a final settlement is made, the outgoing partner, would have the right to seek accounts and a share in the profits which might be derived from his share in the assets of the firm. 

The bench led by Chief Justice DY Chandrachud and comprising Justices JB Pardiwala and Manoj Misra observed that when an entity takes over the assets of a partnership without an outgoing partner's consent, the profits earned by the entity using the partnership firm's assets would be proportionally distributed to the outgoing partner.

The case involves a dispute over the dissolution and settlement of accounts of a partnership firm, Crystal Transport Service, originally formed in the early 1970s. The firm's dissolution was prompted by accusations from one partner (the plaintiff) that funds were diverted from the firm without her consent. The main issue at hand concerns the division of assets and profits following dissolution and the responsibilities of partners regarding firm assets.

The appellants contested the demands of profits made by respondent no.1 (plaintiff) after the dissolution of the firm. They contended that liability cannot be fastened on the appellant company to share its profit for any period beyond 15.11.1978 i.e., the date of dissolution of the firm, particularly when the first appellant utilized no assets of the erstwhile firm.

Rejecting the appellant's contention, the judgment authored by Justice Misra observed as follows:

“In the instant case, the finding, which appears on the record, is to the effect that the fourth defendant (appellant company) had taken over the assets of the firm. Therefore, in light of the provisions of Section 37 of the 1932 Act, if the fourth defendant is carrying on business with the assets of the firm, till a final settlement is made, the plaintiff, who would fall in the category of an outgoing partner, would have the right to seek for accounts and a share in the profits which might be derived from his share in the assets of the firm.”

“As to what extent the business of the appellant company is derived from the assets of the firm is a matter of evidence which parties may have to adduce in the course of the proceedings relating to the preparation of the final decree pursuant to the order of remand.”, the court added.

Accordingly, the appeal was dismissed.

Mr. C. Aryama Sundaram, Sr. Adv. appeared for the appellants

Mr. Siddharth Naidu, Adv. appeared for the respondent no.1

Case Title: M/S CRYSTAL TRANSPORT PRIVATE LIMITED & ANR. VERSUS A FATHIMA FAREEDUNISA & ORS., CIVIL APPEAL NOS.7709–7710 OF 2023

Citation : 2024 LiveLaw (SC) 881

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