Justice Pankaj Mithal, Justice Ahsanuddin Amanullah, Supreme Court
Partnership Does Not Dissolve On Partner’s Death If There Are More Than Two Partners & Deed Provides Otherwise: Supreme Court
|The Supreme Court dismissed the Special Leave Petition (SLP) filed by the Indian Oil Corporation Limited (IOCL) against the Judgment of the Calcutta High Court’s Division Bench.
The Supreme Court reiterated that the partnership will be dissolved on the death of the partner only when there are two partners constituting the partnership firm.
The Court reiterated thus in a Special Leave Petition (SLP) filed by the Indian Oil Corporation Limited (IOCL) against the Judgment of the Calcutta High Court’s Division Bench, which upheld the mandamus issued by the Single Judge directing the IOCL to maintain the supply of kerosene till it is reconstituted or its dealership agreement is terminated.
The two-Judge Bench of Justice Pankaj Mithal and Justice Ahsanuddin Amanullah elucidated, “It is settled in law by virtue of Section 42 of the Partnership Act, 1932 that the partnership will stand dissolved inter alia on the death of the partner but this is applicable in cases where there are only two partners constituting the partnership firm. The aforesaid principle would not apply where there are more than two partners in a partnership firm and the deed of partnership provides otherwise that the firm will not stand automatically dissolved on the death of one of the partners.”
Senior Advocate Madhavi Goradia Divan appeared for the Petitioners while Senior Advocate Yashraj Singh Deora and AOR Pallavi Pratap appeared for the Respondents.
Factual Background
The Respondent was a proprietorship firm of a person who reconstituted the firm in 1989 and included his two sons along with himself as partners. The firm was reconstituted as a partnership firm with having 55% share of that person and his sons having 35% and 10% share respectively. The said firm was to work as an agency/distributor of kerosene oil for the IOCL and hence, it entered into a kerosene dealership agreement with it in 1990 which specifically provided that in the event of death of any of the partners of the partnership firm, the dealer shall immediately inform the corporation and provide details of the heirs and legal representatives of the deceased partner.
One of the partners having 55% shares in the firm, died in 2009, leaving behind his wife, seven sons and four daughters as his heirs and legal representatives. On his death, disputes cropped amongst his heirs with regard to the stake of 55% shareholding of the deceased. Pending the confusion regarding the reconstitution of the firm, the IOCL approved the continuation of the same till June 14, 2010 and advised them to furnish documents. The representations of the partners to continue supplies were all in vain. Thus, the firm and its partners were compelled to invoke the writ jurisdiction of the High Court. The Writ Petition was allowed by the Single Judge and the IOCL appealed against the same. The Division Bench upheld the Single Judge’s Order and being aggrieved, the IOCL approached the Apex Court.
Reasoning
The Supreme Court after hearing the contentions of the counsel, observed, “In the case at hand, the partnership consisted of three partners and the deed of partnership, in unequivocal terms, provided that the death of a partner shall not cause discontinuance of partnership and the surviving partners may continue with the business. Therefore, the principle laid down under Section 42 of the Partnership Act would not be applicable and the partnership would continue despite the death of one of the partners.”
The Court said that the IOCL is supposed to act in a manner which is beneficial for the continuance of the business and not to adopt an arbitrary approach thereby creating hinderance in the running business.
“It is for this reason that the learned Single Judge and the Division Bench of the High Court issued Mandamus, directing IOCL to continue the supply of kerosene to the existing partnership firm till it is properly reconstituted, subject to any order that may be passed in the probate case or by the competent Civil Court, if any of the heirs of the deceased partners approaches such a court and that the situation be reviewed on yearly basis to allow reconstitution of the firm with the surviving partners”. it added.
The Court further noted that there is no error or illegality on the part of the High Court in issuing the directions and none of the heirs and legal representatives were dissatisfied by the directions issued by the High Court as they have not assailed the same in any forum.
“Therefore, when the heirs and legal representatives of the deceased partner were not aggrieved, it was not appropriate for the IOCL to have taken a hyper-technical approach on the interpretation of the guidelines, so as not to extend the period of supply of kerosene or to stop the supply which, in effect, is axiomatic to the continuance and the smooth flow of business which was continuing for past many years”, it concluded.
The Court also remarked that the IOCL ought to avoid such litigations by interfering with the continuance of any running business by taking a narrow approach.
Accordingly, the Apex Court dismissed the SLP and upheld the impugned Judgment.
Cause Title- Indian Oil Corporation Limited & Ors. v. M/s Shree Niwas Ramgopal & Ors. (Neutral Citation: 2025 INSC 832)
Appearance:
Petitioners: Senior Advocate Madhavi Goradia Divan, AOR Shashwat Goel, Advocates Mala Narayan, and Isha Ray.
Respondents: Senior Advocate Yashraj Singh Deora, AORs Pallavi Pratap, Rameshwar Prasad Goyal, Advocates Ramanand Agarwal, Anindo Mukherjee, Asha Gutgutia, Amjid Maqbool, Yashvi Aswani, and Anupriya Dixit.