Partnership Deed Cannot Automatically Bind Legal Heirs Of Deceased Partner: SC [Read Judgment]

The Supreme Court has observed that a partnership deed cannot automatically bind the legal heirs of the deceased partner without acceptance and agreement by them.

Jai Narayan Misra and Hashmatunnisa Begum were partners in a partnership firm. Misra's suit against Begum was decreed by the Trial Court in 1993. After both of them died, the legal heirs of Misra filed Execution petition against Begum's heirs. This petition was dismissed on the ground that the decree obtained against Begum, is not executable against the legal representatives.

The contention raised in appeal [S.P. Misra vs. Mohd. Laiquddin Khan] before the Apex Court was that as per the terms of the partnership deed, in the event of death of either of the party, their legal representatives shall automatically become partners in the partnership firm and they shall continue to act as partners of the firm till the venture envisaged under partnership is completed and such legal representatives, who become partners, shall have same rights and shall be subject to same liabilities and responsibilities, as the deceased partner. On the other hand, the other side contended that they were not the partners in the partnership deed and if, any clause in the partnership deed which runs contrary to statutory provisions are void, such clauses are against the public policy. It was urged that, as there were only two partners and on death of one of the partners, partnership stands dissolved, in view of the provision under Section 42(c) of the Partnership Act, 1932.

The bench comprising Justice Indu Malhotra and Justice R. Subhash Reddy noted that, as per Section 42(c), subject to contract between the partners, a firm is dissolved when: (a) if constituted for a fixed term, by the expiry of that term; (b) if constituted to carry out one or more adventures or undertakings, by the completion thereof; (c) by the death of a partner; and (d) by the adjudication of a partner as an insolvent. It observed:

The legal representatives of late Smt. Hashmatunnisa Begum are not the partners of the original partnership deed dated 14.04.1982. When such legal representative are not parties to the contract, such contract cannot confer rights or impose obligations arising under it on any third party, except parties to it. No one but the parties to the contract can be entitled under it or born by it. Such principle is known as 'Privity of Contract'. When the partnership stands dissolved by operation of law under Section 42(c) of the Indian Partnership Act, 1932, the question of execution in pursuance of the decree does not arise. There cannot be any contract unilaterally without acceptance and agreement by the legal heirs of the deceased partner. If there are any clauses in the agreement, entered into between the original partners, against the third parties, such clauses will not bind them, such of the clauses in the partnership deed, which run contrary to provisions of Indian Partnership Act, 1932, are void and unenforceable. Such clauses are also opposed to public policy.

The bench then dismissed the appeal holding that the legal heirs of Begum were not parties to the partnership deed and that the partnership stands dissolved, in view of death of one of the partners, they have not derived the benefit of assets of the partnership firm, the decree obtained by the predecessor of Misra, is not executable against them. 

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