1983 PLP 1658 (CLC)

(iv) an appointment of receiver of the firm, the defendant No. 1 of its stock, books of account, receivables, factory and other assets ; (v) costs of the suit ; and (vi) any other/further/additional relief or reliefs which the Honour able Court may deem fit and proper in the circumstances of the case.'' . Alongwith the suit the respondent had also filed an application for appointment of Receiver under Order XL, rule 1, read with section 151, C. P. C.

6. The appellants, instead of filing written statement, made an appli cation before the Court under section 34 of the Arbitration Act of 1940 for stay of the proceedings of the suit and for referring the matter to arbitration in pursuance of clause 14 of the Partnership deed, dated 2nd January, 1980. This application was rejected by the learned Single Judge vide his order dated 1st March, 1983 while the application' for appointment of Receiver was allowed by the impugned order, dated 21st November, 1982 which is subject‑matter of this appeal. A separate appeal is also said to have been filed against the order. rejecting the application of the appellants under section 34 of the Arbitration Act, with which we are not presently concerned.

7. The order of the learned Single Judge has been challenged by the appellants on several grounds in this appeal. It is stated that respondent No. 1 was only a sleeping partner having invested nothing towards the capital of the firm and that no accounts were concealed from her as held by the learned Single Judge and that the allegations of waste and malversation were also not proved. Hence under such circumstances no Receiver should have been appointed by the learned Single Judge. It is further alleged that supervision of the Nazir over the appellant /receiver would adversely affect the day‑to‑day business of the firm and shall also deprive the firm of the withdrawal facility to the extent of Rs. 2,55,00,000 provided to them by the Bank. It is alleged that the firm holds foreign contract with Russia worth Rs. 6,13,07,410 for supply of beds, linen, shirts and blouses which is to be completed by March, 1983 and that fresh contract for 1983 is also to be entered into. If the Receiver is appointed only for the purpose of winding up the business, the firm will lose the business which will be to the detriment of all the parties including respondent No. 1 and might also cause loss to the national exchequer, be cause the firm is 100% foreign exchange earning concern. Grievance has also been made that the Receiver (appellant No. 2) has been required to fur nish security in the amount of Rs. 5 lacs, although the balance which remains payable to respondent No. I upto the date of the filing of the suit was only Rs. 28,168.65. Her total share out of the profits was said to be Rs. 3,38,363.03 out of which Rs. 3,10,194.38 have already been paid to her, leaving only the balance as stated above. The appellants are also aggrieved by the direction given by the learned Single Judge to Nazir to take into his custody all account books, export documents etc., pertaining to the years 1980, 1981 and 1982. According to the appellants, this direction would bring the business of the firm to a standstill, as the books are required concurrently for back references and dealing with the customers, Banks and other authorities.

8. The appellants have alleged that no accounts were concealed, nor there was any malversation on their part in the conduct of the business. Hence it will not be just and convenient to appoint a Receiver. Respondent No. 1, according to the appellants, had invested nothing in the business of firm, but was taken as a partner on compassionate grounds as she was sister of appellants Nos. 2, 3 and

4. She was, therefore, not entitled to destroy the whole business and in any case the learned Single Judge should not have restricted the functions of appellant No. 2/Receiver, to conduct the business for the purpose of winding up of the firm only,' but should have allowed him to continue the business of the partnership firm with a reasonable security to cover the payment of share to respondent No. 1, as she not being an in vesting partner, was only entitled to her share in the profit and nothing more to the event of winding up of the partnership firm.

9. There are certain facts in this case which are either not disputed or which stand proved. It is a fact that the firm in question was in the nature of a partnership at will. It is also admitted that respondent Now 1 had only 6% share. From the order of the learned Single Judge it would appear that during the lengthy correspondence that ensued between respon dent No. 1 and the Managing Partners, there was no allegation of fraud or misappropriation or malversation against the Managing Partners. Again so far as proper maintenance of accounts is concerned, it is admitted that the statement of accounts which was submitted to the Income‑tax Officer during the year, 1980 was signed, among others, by the respondent No. 1 herself. This proves that this respondent had no doubt about the genuineness of the accounts, otherwise statement of accounts for the next year is concerned it was not signed by respondent No. 1 because of the present dispute which had arisen on account of the demand of respondent No.1 that her monthly drawings should be increased from Rs. 9,000 to Rs. 12,

000. She had no other grievance against the Managing Partners before the filing of the suit.

10. Mr, Ali Ahmed Fazeel, learned counsel for the appellants has argued that in view of the above circumstances this was not a fit case in which Receiver should have been appointed. He further argued that if at all the Receiver was appointed, the learned Single Judge should not have restricted the functions of the Receiver "to manage the firm for the purpose of winding up under the supervision of Nazir to whom statement of accounts shall be submitted on or before 15th of every month". It was further stated by Mr. Ali Ahmed Fazeel that the direction of the learned Single Judge to the Nazir to take custody of all accounts books would amount to bring a lucra tive business of the firm to a standstill.

11. It may be stated that the impugned order was passed by the learned Single Judge on an interlocutory application under Order XL, rule 1, C. P. C. filed by respondent No. 1 for appointment of Receiver, pending disposal of her suit. But the tenor of the order purports to be in the nature of a preliminary decree, because the direction that the Receiver shall manage the business only for the purpose of winding up of the firm could appropriately be given only while passing a preliminary decree in terms of Rule 15 of Order XX C. P. C. The suit is still pending before the learned Single Judge. Written statement by the defendants i.e., the present appellants, has not yet been filed. Only their application under section 34 of the Arbitration Act has been decided against them. In view of this, we feel that the order in the nature of preliminary decree could not have been passed while disposing of the interlocutor application.

12. So far as the appointment of Receiver is concerned, no exceptions can be taken to the order of the learned Single Judge. The partnership being at will. it was open to respondent No. 1 to dissolve it either by giving a notice to that effect or by filing suit for dissolution. It has rightly been held by the learned Single Judge that the firm stood dissolved on the service of summons of the suit upon the appellants,/defendants, as held in the case of B.A. Shaikh v. Custodian of Evacuee Property (P L D 1960 S C 332).

13. Mr. Ali Ahmed Fazeel learned counsel for the appellant has, however, argued that in the peculiar circumstances of this case the Receiver should not have been appointed even if the firm was in the nature of part nership at will and that appointment of Receiver is not to follow as a matter of course on the dissolution of a firm. He has further argued that even if a Receiver is appointed in such case, he should not be restrained from carrying on the business of the firm in the best interest of the firm. In support of this plea, he has relied on the cases of Eastern Co. Ltd. v. Mst. Gul Begum and others (P L D 1980 Lah. 69) ; Sobell v. Bostan and others ((1975) 2 A E L R 282) ; Mohammad Siddiq v. Mohammad Yakoob and others (P L D 1965 Kar. 584) ;. T. Kirishnaswamy Chetty v. C. Thangavelu Chetty and others (A I R 1955 Mad. 430) and Harding v. Glover (34 E R 323).

14. In the case of Eastern Co. Ltd. v. Mst. Gul Begum it was held by a Division Bench of Lahore High Court that a Receiver appointed in re lation to firms may be vested with powers to run the business of firm till final adjudication of the suit inter se between the partners and that a Re ceiver may be empowered to run business of a company in a fit case. The above order was passed in a case which related to winding up of a Company under section 162 of the Companies. Act. It was interlocutory order hence ratio decidendi of the above case may appropriately be applied to the firm of the parties also. In the case of Sobell v. Bostan and others it was held by a learned Judge of Chancery Division that in the case of dissolution of a firm, Receiver is not to be appointed as a matter of course, although appointment of a Receiver may be appropriate remedy in such case. It was further held that a plaintiff has first to make out a case for appointment of Receiver in a suit for dissolution of partnership before a Receiver may be appointed. The ratio of this English case may not be applicable to the present case, because in view of the admitted factual position here, the firm has been dissolved being partnership at will, as stated above.

15. In the case of Muhammad Siddiq v. Muhammad Yakoob it has been held by a learned Single Judge of this Court that the plaintiff should make out a prima facie case before Receiver is appointed an application .in respect of partnership property. This case is also of no help to the appellants because the respondent No. 1 has made out a prima facie case for appointment of Receiver.

16. In the case of T. Krishnaswamy Chetty v. C. Thangavelu Chetty arid others it has been held by the Madras High Court that a Receiver may be appointed when it is just and convenient to do so. The case of Harding v. Glover also related to dissolution of partnership. A motion was made for Receiver after dissolution of the partnership. It was held by the Lord Chancellor that ; "I have frequently disavowed, as a principle of this Court, that a Receiver is to be appointed merely on the ground of a dissolution of partnership. There must be some breach of the duty of a partner or of the contract of partnership. In this in stance the defendants have been carrying on trade on their own account with the partnership effects ; and it cannot be suggested, that the persons, who were debtors to the house, have not' for these three years paid any money to the remaining partners, with whom they continue to deal", On the above view order for a Receiver. was made.

17. It may be stated that the relevant provisions regarding dissolution of partnership in English Law are almost identical with the law in force in the sub‑continent. The relevant provisions of the Partnership Act regarding dissolution of partnership are contained in sections, 43, 44, 46 and 47 of the Partnership Act, 1952. According to section 43, a partnership at will may be dissolved by any party by giving notice in writing to all other parties of his intention to dissolve the firm. It further says that the firm stands dis solved as from the date mentioned in the notice as the date of dissolution or if no date is mentioned, as from the date of communication of the notice, Section 44 relates to dissolution of a firm by order of the Court on the happening of certain events. Section 46 gives the right to every partner to have the business wound up after dissolution as against all other partners and to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed among the partners or their representatives according to their rights. Section 47 lays down that : "After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun unfinished at the time of the dissolution, but not otherwise : Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent." The provisions of section 47 shall, however, apply when a preliminary decree is passed in terms of Rule 15 of Order XX, C. P. C. In the present case the suit is only at the stage of settlement of issues subject to final decision of appeal filed by the appellants against the order of the learned Judge on the application under section 34 of the Arbitration Act. Until this is done, the activities and functions of the Receiver cannot be restricted or limited to the purpose of winding up of the firm only.

18. However, in view of the statutory provisions referred to above, Mr. Khalid Anwar learned counsel for respondent No. 1 has argued that Receiver in all cases of dissolution of firm is to be appointed as a matter of course and that his functions should be to run the business only for the purpose of winding up of the firm and no more subject to provisions of section 47 quoted above. In support of this plea the learned counsel has relied on the cases of Muhammad Jamil v. Iqbal Ahmad (P L D 1977 Kar. 351) ; Asghar Ali v. Abdul Hussain and others (P L D 1977 Kar. 280) ; Seth Hussain Bhai v. Muhammad Iqbal and others (P L D 1976 Quetta 9) ; Ali Mohammad Bhai v. Sadruddin (P L D 1959 Kar. 452) ; Sh. Munir Ahmed v. Muhammad Ismail (1971 S C M R 666) ; Babu alias Govindoss Krishnadoss v. Official Assignee (1934 Pr. C. 138) ; Taylor v. Neale (39 Ch. D 538) and Ram Singh v. Ram Chand (51 I A 154).

19. In the case of Asghar Ali v. Abdul Hussain it was held by Tufail Ali A. Rehman, C. J. (as he then was) as under : "The purpose of appointing a receiver always is to safeguard the in terests of the parties pending the final decision of the Court and it seems that since all the parties share equally in the profit and losses it is to their joint interest that the assets and the profits earned be in the meantime maintained so as to leave more for the parties at the end." There is no dispute about the question of appointment of Receiver. However, so far as the functions of Receiver are concerned, the above deci sion does not support the arguments of Mr. Khalid Anwar that the Receiver should do no more than to conduct the business only for the purpose of winding up. In the above case it has been held, that the purpose of appoint ing Receiver is to work in the best interest of the partners so as to leave more for the parties at the end. At the interlocutory stage, the interest of the firm lies in conducting the business not only for the purpose of winding up but to conduct the business in such a way that after the winding up of the firm the partners get maximum benefit of profits. In the present case where Receiver has been appointed at the interlocutory stage, the interest o the parties will be best served if the Receiver is allowed to conduct the normal business not only for completing the unfinished transactions but also to run the business in such a way that at the end maximum benefit is drawn by each party. It has been argued by Mr. Khalid Anwar that the Receiver had after the date of the impugned order gone to Moscow and obtained orders for export of readymade garments worth about Rs. 6,00,00,

000. Mr. Khalid Anwar has made reference to this conduct of the Receiver to prove that he has misconducted himself and has made himself liable for re moval from Receivership. The fact whether the above conduct of the Receiver is sufficient for his removal from Receivership, will appropriately be decided by the learned Single Judge. We may, however, observe that in view of the fact that the Receiver has been appointed as an interlocutory measure, we would not like the Receiver to run the business only for the purpose of winding up as held by the learned Single Judge. It has been represented by Mr. Ali Ahmed Fazeel that the firm had been granted Import Licence for certain goods against their liability of export performance and that in order to fulfil that liability, fresh contracts had to be entered into for report of the goods, otherwise the partners of the firm shall render themselves liable to penalty under the Export and Import Control Act. We shall not like to discuss the merit of this contention as the same shall be decided by the learn ed Single Judge who is seized of the suit.

20. In the case of Muhammad Jamil v. Iqbal Ahmed it has been held by a learned Single Judge of this Court that appointment of Receiver must follow automatically on dissolution of a partnership at will. There is no cavil with the above proposition. In the above case, however, there were allegations of misconduct on the part of some of the partners. In the present case there is no such allegation. The main grie vance of respondent No. 1 is that the accounts have been concealed from her and that the Managing Partners have wrongly refused to increase her monthly drawings from Rs. 9,000 to Rs. 12;

000. In the above cited case no restrictions were imposed upon the Receiver regarding conduct of business for the purpose of winding up only.

21. So far as the case of Seth Hussain Bhai v. Muhammad Iqbal and others is concerned, it was contended that a firm which is run for many years should not be dissolved because its dissolution shall be very harsh. The learned Judge, who decided the case, repelled the contention and held that dissolution of a firm cannot be refused on the above ground. We are unable to see how the above observations are attracted to the facts of the present case.

22. In the case of Ali Muhammad Bhat v. Sadruddin it was held by Qadeeruddin Ahmed, J. that if a valid notice has been served then the partnership stands dissolved and the consequences should be the appointment of a Receiver as a matter of course, but at the end the learned Judge observed as under in respect of the functions of the Receiver to conduct the business "

9. I appoint the Official Assignee to be the Receiver and empower him to take all steps that may be necessary for utilising licences, if any and for saving the business from such harms as need to be avoided. The receiver will take possession of the partnership assets and prepare an inventory of the goods, articles and property of the partnership as well as of its account books and documents." The above order was made on an interlocutory application under Order XL, rule 1, C. P. C. and it would appear that the learned Judge did not impose any such restrictions on the Receiver as have been imposed in the present case under the impugned order that the Receiver shall conduct the business only for the purpose of winding up. In the case of Sh. Munir Ahmed v. Muhammad Ismail and others a Receiver was appointed under Order XL, rule 1, C. P. C. in a suit for dissolution of partner ship firm. The Receiver was also empowered to take possession of the partnership business which was running a Cinema. The Receiver was also permitted to lease out the stalls to the stallholders of the cinema and recover lease money from them. It was held by the Supreme Court that Receiver was appointed in the case on sound judicial principles.

23. In the case of Taylor v. Neate it has been held as under : "Where articles of partnership expressly provide for a division of assets on dissolution the Court has, nevertheless, jurisdiction to direct a sale as a going concern, and will do so when that is the most beneficial mode of realization. After dissolution of a partnership by notice pursuant to the articles the Court will, until a sale of the business as a going concern, appoint a Receiver and Manager for the purpose, in the meantime, of preserv ing the assets by carrying into effect existing contracts and entering into such new contracts as are necessary for carrying on the business in the ordinary way, but so as not to impose, by speculative dealing or otherwise, onerous liabilities on the partners." The above observations, on the contrary, support the contention of Mr. Ali Ahmed Fazeel, who is aggrieved not so much by the order of appointment of Receiver as the restrictions that have been placed upon the Receiver under the impugned order. In the case of Ram Singh v. Ram Chand it has been held that where a partnership at will has been dissolved by a notice, a partner is entitled to an order for accounts, although he is found to have destroyed part of the account books, made false entries in the accounts, and to have been guilty of other misconduct in relation to the firm's business. It has further been held that the right of such partner to get the partnership dissolved and for randition of accounts is a legal right and not equitable right. We are unable to see how the above case is concerned with the question of appointment of Receiver and his functions vas‑a‑vas a dissolved firm which is under consideration in this appeal.

24. From the above discussion it would be clear that the impugned I order was passed on an application under Order XL, rule 1, C. P. C.J Although the firm has been dissolved, but formal preliminary decree is still to be passed because the suit is only at a preliminary stage. Written statement is yet to be filed by the appellants subject of course to the decision of their appeal against the order under section 34 of the Arbitration Act passed by the learned Single Judge. We, therefore, agree with the learned Single Judge that this was a fit case for appointment of Receiver. We also agree with the reasons which the learned Single Judge has" given for selecting appellant No. 2 as the most appropriate person to act as Receiver to run the business. However, in the peculiar circumstances of this case, we are not inclined to hold that the Receiver shall manage the business of the firm only for the purpose of wind ing up. He may, with the permission of the Court, carry on the business keeping in view the best interest of the firm until a formal order is passed by the Court. The Receiver has been directed to work under the supervision of Nazir which was a sound direction, but it will not be proper to restrain the Receiver to manage the firm only for the purpose of winding up. Consequently the appeal is dismissed with the modification in respect of the functions of the Receives to the extent indicated above. There shall be no order as to costs. M. Y. H. Appeal dismissed.