M/S Crystal Transport Private Limited & Anr. vs A Fathima Fareedunisa & Ors.
Background
The first respondent had originally sued in 1978 for dissolution of a four-partner transport partnership firm, appointment of a receiver, and an injunction, alleging that the other three partners had diverted the firm's funds and assets into a private limited company (the appellant) without her consent. Decades of litigation over accounts followed, and the Madras High Court's final judgment (in a first appeal and cross-objection arising from the final decree proceedings) went partly against the appellant company, which then approached the Supreme Court.
Decision Breakdown
The Supreme Court examined Section 37 of the Partnership Act, which protects an outgoing partner's right to a share of profits attributable to the use of her share of the firm's property by continuing partners, absent a contrary contract. Since it was found on record that the appellant company had taken over the firm's assets, the Court held that the original plaintiff, treated as an outgoing partner, retained the right to seek accounts and a share of profits traceable to her share in those assets. Because the High Court had already remanded the matter to the trial court for preparation of a final decree, the Supreme Court declined to interfere, expressly clarifying it was not expressing any binding opinion on the merits, which would depend on evidence still to be led at the remand stage.
Lesson Learnt
When a partner's assets end up in the hands of a company controlled by the remaining partners, that partner does not lose her right to an accounting and a share of the profits traceable to her share: that right survives dissolution and must be worked out on evidence, not assumed away.