Contributing towards share capital is not mandatory for each partner in a firm: Karnataka High Court
The Karnataka High court said under Justice Umesh M Adiga in Venkataraya S Nayak v. D Vijaygopal Mallya(Regular Second Appeal No. 1035 of 2007) a partnership firm need not have an investment (share capital) from each partner, and it cannot be assumed that a partner who does not contribute is merely a coworker and not a partner in the company.
FACTS
It was the case of the plaintiff that he has been running the business of “Glow Sign Boards and Labels”. The defendant joined the said business as working partner without any investment. Entire capital of Rs.2,50,000/- has been contributed by the plaintiff and 30% of the profit of the business was agreed to be shared with the defendant and 70% of the profit has to be paid to the plaintiff. The role of the defendant was like a servant or subordinate. In the place of salary, he has been paid 30% of the profit of the business. Therefore, in fact, it was not a partnership firm. Due to non-cooperation of the defendant and his misdeeds, plaintiff could not carry on the business therefore, he issued a notice and dissolved the firm. Defendant unnecessarily interfering in the business of plaintiff and causing loss to him. With these reasons, plaintiff filed the suit praying to declare that the
1) M/s Vinyl Prints and Designs exclusively belong to the plaintiff, and it is a proprietary concern of the plaintiff.
2) After terminating the association of the defendant with the plaintiff, the defendant has no right, title or interest in the business run by the plaintiff.
3) Defendant be restrained by permanent injunction from interfering and obstructing in running the business of the plaintiff in his own rights.
4) Claim for damages of Rs.5,000/- due to mental stress created by the defendant.
FINDINGS
The court noted that the facts of the present case indicate that Section 69 of the Indian Partnership Act is squarely applicable. Plaintiff has no right to file the suit to claim relief of the present suit since the partnership was unregistered. Admittedly, the firm of the unregistered, there cannot be any estoppel against the law. Defendant has not taken the said contention in written statement and no issues were framed by the trial court in this regard, cannot be a ground to hold that plaintiff has a right to claim the suit. It is a question of law basing on the admitted fact. Therefore, as submitted by learned advocate for appellant, the suit was not maintainable since plaintiff had no right to file the suit. On this count also the suit was liable to be dismissed. These facts were not considered by the First Appellate Court. Hence finding of the First Appellate Court is erroneous and arbitrary.
JUDGEMENT
The bench referred to section 4 of the India Partnership Act and said “there is no necessary that there must be an investment by each parties to constitute firm. In the evidence of PW1 i.e in his cross examination, he has specifically says that except for purchasing computer and cutting machine, there was no requirement of any fund to purchase raw materials etc. He has also stated that except deposit of Rs.30,000/-, remaining raw materials were obtained on credit basis and the amount has been paid from time to time. According to the admission of PW1, evidence of DW1, pleading of defendant and contents of Ex.P1, plaintiff has been getting 70% of the profit.” “Plaintiff has approached the Court and he should plead and prove his contention. Plaintiff has not placed any materials to show that prior to partnership firm he had been running his business. Plaintiff cannot get relief on the basis of weakness in the case of defendant. The said finding is erroneous.”
The appeal was allowed and the order of the first appellate court was set aside.
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JUDGEMENT REVIEWED BY VAISHNAVI SINGH