Saligram Ruplal Khanna v. Kanwar Rajnath ((AIR 1974 SC 1094)

Facts of the Case

The dispute centered on whether a partnership, formed for a fixed term linked to a property lease, continued to exist after the lease was terminated and the property was later acquired by only one of the original partners.

• Partnership Term: The partnership, "Shri Ambernath Mills Corporation" (SAMCO), was formed by the Appellants and the Respondent on August 30, 1952. The partnership's period was five years, being the period of the lease of the mills granted by the Custodian of Evacuee Property.

• Premature Termination: Due to financial issues, the Custodian served a notice in February 1954, and the lease was formally cancelled (and possession surrendered) in May/June 1954, well before the five-year term expired (August 30, 1957).

• New Acquisition: The Respondent later negotiated and acquired the mills and other properties personally.

• Appellants' Claim: The Appellants argued that, despite the lease cancellation, there was an oral agreement to continue the partnership for the purpose of acquiring and exploiting the mills, thus making the mills the asset of the continuing partnership.

• The Suit: The Appellants filed a suit on December 20, 1960, for the dissolution of the partnership and rendition of accounts.

Issue

1. Whether the partnership, which was constituted for a fixed term (the lease period), was dissolved by the premature termination of the lease or if there was an implied agreement to continue it.

2. Whether the suit for rendition of accounts, filed in 1960, was barred by the statutory limitation period (which runs from the date of dissolution).

Judgment

The Supreme Court upheld the lower court's decision, ruling that the partnership stood dissolved by the termination of the lease and, consequently, the suit for rendition of accounts was barred by limitation.

Legal Analysis

1. Dissolution by Fixed Term/Contingency (Section 42)

The Court applied the principle of Section 42 of the Indian Partnership Act, which deals with dissolution on the happening of certain contingencies:

• Section 42(a) - Fixed Term: Subject to contract, a firm constituted for a fixed term is dissolved by the expiry of that term. The partnership deed clearly linked the partnership duration to the five-year lease.

• Dissolution by Operation of Law: The Court held that when the raison d'être (the object and property) of the partnership—the leasehold right to the mills—was forcibly removed by the Custodian's cancellation, the partnership automatically dissolved, certainly no later than the expiry of the five-year term (August 30, 1957). The termination of the lease ended the possibility of carrying on the primary business of the firm.

• No Implied Continuation: The Court found no credible evidence of an oral or implied agreement to continue the partnership after the lease cancellation, especially since subsequent documents contradicted the Appellants' claim that they held a proprietary stake in the subsequently acquired property.

2. Limitation for Rendition of Accounts

• Starting Point: The law states that the limitation period for a suit for the rendition of accounts of a dissolved firm is three years from the date of the firm's dissolution (under the relevant Article of the Limitation Act).

• Dissolution Date: The Court concluded that the partnership was dissolved no later than the date the fixed term expired, i.e., August 30, 1957 (even if the lease was terminated earlier in 1954).

• Barred Suit: Since the Appellants filed the suit in December 1960, more than three years after the fixed term expired, the suit was held to be time-barred.

3. Authority for Winding Up (Section 47)

The Court briefly referenced Section 47, which provides that the authority of the partners continues after dissolution only for the purpose of winding up the affairs of the firm (e.g., settling debts, completing pending transactions).

• The Respondent's negotiation for compensation claims or his participation in an arbitration proceeding after 1957 was held to be merely a necessary step in the completion of pending transactions and the winding up of the pre-1957 firm's liabilities and claims, and did not suggest the continuation of the partnership itself.

Commentary: The Finality of Fixed-Term Dissolution

Saligram Ruplal Khanna v. Kanwar Rajnath is a classic case affirming the strict interpretation of Section 42(a) of the Indian Partnership Act.

The judgment emphasizes two critical points:

1. Automatic Dissolution: If a partnership is constituted for a fixed term, it automatically dissolves upon the expiry of that term, unless there is a clear, fresh contract to the contrary (express or heavily implied) to convert it into a partnership at will. Mere hopes or expectations of a partner are not sufficient to imply continuation.

2. Strict Limitation: The clock for the limitation period to claim accounts starts ticking from the date of dissolution. Partners who delay in seeking judicial remedies do so at their own peril, as even a seemingly meritorious claim can be defeated if filed outside the statutory three-year window.