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Guru Nanak Industries, Faridabad v. Amar Singh (Dead) Through LRs.

Civil Appeal · 2020 INSC 404Decided 26 May 2020
Civil Appeal Nos. 6659-6660 of 2010
Justice N.V. Ramana · Justice Sanjiv Khanna · Justice Krishna Murari

Background

Swaran Singh and Amar Singh were the two partners of Guru Nanak Industries, a Faridabad firm manufacturing printing machinery. Swaran Singh's side claimed Amar Singh had voluntarily retired in August 1988, accepted a cash settlement, and gone on to start a rival business, relying on a signed receipt. Amar Singh denied ever resigning, claimed the receipt had been tampered with (an extra sentence added later), and filed his own suit seeking dissolution of the partnership and a proper accounting. The trial court initially believed the receipt and ruled against Amar Singh, but the first appellate court and the Punjab and Haryana High Court both found the receipt had been manipulated and ruled in his favour.

Decision Breakdown

The Supreme Court agreed with the appellate courts that the disputed receipt was unreliable and contradictory, and that other evidence (including an earlier joint letter to the bank) showed Amar Singh had not resigned but that the partners had mutually agreed to wind up the business. The Court drew a sharp legal distinction between "retirement" of a partner (where the firm continues) and "dissolution" of a firm (where accounts must be fully settled), and held that since there were only two partners, one partner's exit necessarily dissolves the firm altogether, because a partnership cannot exist with just one person. The appeals were dismissed, the lower courts' split of 60:40 in accounts was upheld, with only the dissolution date corrected to 24 August 1988, and the parties were given one final opportunity to settle through mediation before the final accounting proceeds.

Lesson Learnt

In a two-person partnership, there is no such thing as one partner simply "retiring" while the firm carries on: legally, that exit dissolves the whole partnership, triggering a full and final settlement of accounts between both sides.

Official source (sci.gov.in)View Judgment (PDF)

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