ZAFFAR HUSSAIN MTRZA, J.-This Letters Patent Appeal arises out of an order dated 16-2-72 passed by a learned Single Judge of the erstwhile High Court of Srnd & Baluchistan at Karachi in Suit No. 49 of 1958.
2. The relevant facts for the purposes of this appeal are that the parties entered into a Partnership Agreement on 21-8-57 which, inter alia, provided: "That on the dissolution of partnership in any. Event the assets, good--will etc. Shall vest absolutely in Mr. Imamuddin (respondent) and Mr. Shamshuddin (appellant) shall be deemed to relinquish all his claim, interest and right in the partnership except to the payments on account of capital, any advances made by way of loan and profit earned and due on and up to the date of termination of the partnership."
It seems disputes arose between the parties thereafter which culminated in the appellant filing Suit No. 49 of 1958 on the Original Side of the High Court, from which this appeal has arisen, in which he claimed a declaration, intcr alia, that the Partnership De-d was null and void and prayed that the earlier partnership created on 9-3-56 be dissolved and the respondent be ordered to render accounts. This suit was dismissed by the learned Single Judge on the Original Side vide his judgment dated 30-3-64. The appellant challenged the judgment in L. P. A. No. 103 of 1964 which was allowed and a preliminary decree for rendition of accounts of -partnership, which was created on 21-8-57, was granted and a Commissioner was appointed by judgment dated 27.11-68.
3. As the controversy in this case relate3 to the accounting period and more specifically as to the right of the appellant to rendition of accounts of the business carried on by the respondent after 31-12-57 the date of dissolution of the partnership, it seems necessary to mention the observations and directions given by the L. P. A. Bench in the concluding part of their judgment. Firstly it is to be noted 'that, as observed in para. 17 of the judgment, the counsel for the respondent had made a statement that he had no objection "if a decree for rendition of accounts with respect to this partnership is granted". Upon this the counsel for the appellant urged that accounts should be rendered under section 37 of the Partnership Act upto the date to which the respondent carried on the business of the firm with the property of the firm without final settlement of accounts. In this connection the Court made the following observation: "Further the respondent/defendant is liable to render accounts until he separated from the shop of the plaintiffs/appellants and ceased to take advantage of it. Mr. Lari (counsel for the respondent) said that we should presume that the defendant/respondent separated the shop of the plaintiffs/appellants when he prepared the statement of accounts and that his following statement contained in his affidavit of 30th of August, 1958, should be interpreted to mean that the share of the plaintiff's/appellants was given over to them: `List of the stocks and the furniture etc. Have ?Ready been prepared. The answering defendant has been managing the firm and doing the business solely and single-handedly.'
We are unable to see anything in the above statement that separation of the share of the plaintiffs/appellants from the assets of the firm much less is there anything to support the contention that the share of the plaintiffs/appellants was handed over to them. On the contrary the above statement is an admission that the business was being carried on by the defendant/respondent 'solely and singlehandedly'. He is liable to render accounts for all the benefits and advantages that he has derived or may derive from the business until he controlled or controls the assets of the firm to the exclusion of the plaintiffs/appellants."
In para. 18 of the judgment which contains the operative part of the decision, the L. P. A. Bench made the following directions to the Commissioner for accounts: "He is directed to examine the business which has been carried on by the defendant/respondent from the 1st of August, 1957, until the respon--dent/defendant hands over the share of the plaintiff's/appellants to them or to the Commissioner and also report on the assets with which the business has been carried on including any changes that may have in the meantime taken place in the capital or assets of the firm."
4. The matter was then taken up by the Commissioner, but in the course of the proceedings before him objection was raised on behalf of the respondent to the taking of accounts beyond 31-12-57 invoking the stipulation contained in the Article of Partnership Agreement which has been reproduced in para. 2 above providing for the vesting of the assets of the partnership in the respondent on its dissolution. Reliance was placed upon section 37 of the Partnership Act. The Commissioner dismissed the objection and, therefore, an application was made to the Letters Patent Bench for clarifica--tion of the judgment. The appellant opposed the application relying upon the substance of the observations and directions contained in paras. 17 and 18 of the ;judgment as stated above. After hearing the parties the L. P. A. Bench disposed of the application by its order dated 17-4-69. The L. P. A. Bench took the view that section 37 of the Partnership Act does not say anything about rendition of accounts, but only lays down the mode in which allocation of share in the assets of the partnership is to be made. In this view of the matter the Bench observed that the said section cannot be pressed into service for supporting the contention that rendition of accounts should not take place beyond the date of dissolution of partnership and maintained their direction contained in the original judgment that accounts be taken for the entire period, but the objection was left upon to be considered by the learned Single Judge and decided by him either way in view of all the relevant circumstances and law. Accordingly in order to save time the Commissioner was directed to submit his report "both from the point of view of the objection that has been raised by the respondent and without that objection". Upon the request of the counsel for the respondent, the L. P. A. Bench clarified in the concluding part of their order that the objection raised on behalf of the respondent on the effect of section 37, Partnership Act in view of the Article of the Partnership Agreement, was not already decided in the original judgment and made the following observation: "It may be concluded by adding that it is not so. We think that the observation made by us above that the effect of section 37 on the last paragraph of the Partnership Deed was not canvassed before us, makes it clear that there was no question of deciding, it directly or indirectly."
5. The Commissioner then took up further proceedings in the matter and finally submitted his report in two sets one for the period from 1-8-57 to 31-12-57 and the other for the period from 1-1-58 to 31-12-69. Before the learned Single Judge the respondent ultimately raised the objection that the accounts for the first period alone could be gone into and the appellant was not entitled to a decree on the accounts after 31-12-57. The learned Single Judge by his order dated 16-12-72 upheld the objection and held that the appellant was entitled to profit only up to the date of dissolution of partnership, i. e. 31-12-57 and that accounts for the subsequent period could not be gone into.
Being aggrieved by this order, the appellant has filed the present Letters Patent Appeal.
6. On behalf of the appellant the impugned order was first assailed on the ground that the accounting period fixed and determined by the preliminary decree passed by the L. P. A. Bench could not be varied subsequently. It is no doubt true that under the principle underlying sec--tion 97, C. P. C. Any defect in the proceedings prior to the passage of the preliminary decree cannot be agitated and while passing a final decree the Court cannot re-open matter which has already been decided by the' preliminary decree. No exception can, therefore, be taken to the proposition of law advanced. However, the subsequent order of the L. P. A. Bench dated 17-4-69 passed on contest between the parties cannot be ignored whereby clarification of the judgment was made and further direction issued to the Commissioner. Admittedly no appeal was filed against this order and, therefore, it has attained finality. In view of the aforesaid, we cannot sit in appeal over the order of L. P. A. Bench dated 07-4-69 and are, therefore, bound to give effect to it. We do agree with the learned counsel that the observations contained in the first judgment of the L. P. A. Bench quoted in para. 3 above seem to support his contention that at the time of the passing of preliminary decree the L. P. A. Bench directed the rendition of the accounts by the respondent from the date of the Partnership Agreement viz 1-8-57 "until the respondent/defendant hands over the share of the plaintiff/appellant to them or to the Commissioner". However, it seems to us that this direction in the subsequent order of clarification was substantially altered and this brings us to the alternate submission of the learned counsel.
7. It is contended on behalf of the appellant that the accounting period was note varied in the subsequent order and, therefore, the impugned order was in conflict-with the preliminary decree.
Reference in this behalf was made to a passage in para. 2 of the clarification order in which the following observation was made: "We are still of the view that rendition of account as directed in the judgment of this Bench should take place, but we are prepared to direct the Commissioner that he may submit his report both from the point of view that objection has been raised by the appellant and without that objection."
It may be pointed out that these observations were made in order to dispose of the question in issue raised between the parties for disposal at the hearing of the application for clarification. On behalf of the respondent it was contended that the effect of the provision of the Deed (reproduced in para. 2 above) in the light of section 37 of the Partnership Act, was not canvassed before the L. P.
A. Bench at the time of hearing of the appeal, with the result that no observation had been made by the Bench in that regard. It was, therefore, urged that this objection was available to the respondent before the Commissioner as well as the Court. On the other hand, it was con--tended on behalf of the appellant that the said objection had been indirectly decided in paragraphs 17 and 18 of the Judgment of the L. P. A. Bench. In paragraph 5 of the said order the Bench observed that the Court which appoints a Commissioner controls the proceedings before him and can issue directions from time to time. Keeping in view the aforesaid the final decision of the Bench was contained in the following words: "The objection that has been raised will be considered by the learned Single Judge and accepted or rejected in view of all the circumstances and law."
We have, therefore, no doubt whatsoever that in the clarification order the L. P. A. Bench very much allowed the question to remain open for decision by the learned Single Judge., It cannot, therefore, be argued that the right of the appellant to rendition of accounts by virtue of section 37 in respect of business carried on after the date of dissolution of the firm was adjudicated. This is further fortified by the concluding observations in the clarification order already reproduced in paragraph 4 above. In unambiguous terms the L. P. A. Bench has clarified that the effect of section 37 on the last paragraph of the Partnership Deed was not canvassed before them and no decision was given on that directly or indirectly. This in our opinion concludes the matter and there is no room for doubt as urged on behalf of the appellant.
8. It was next contended that section 37 of the Partnership Act only deals with the question of option to be exercised by the outgoing partner and, therefore, the fixation of the period of accounting has nothing to do with it. The submission was that the clarification order only left open the question of option and did not interfere with the question of right of the appellant to rendition of accounts and to profits after the dissolution of the firm. In our discussion in the previous paragraph we have reached the conclusion that the question of the right of the appellant itself was left open.
In other words, the question whether the appellant was entitled to a share to the profits in the partnership business carried on after the date of dissolu--tion by virtue of section 37, Partnership Act, was left open for the decision of the learned Single Judge.
9. The impugned order was next assailed on the ground that the learned Single Judge wrongly interpreted section 37, Partnership Act and the provisions of the Article of the Partnership Deed in question. The submission was that the learned Single Judge was wrong in holding that in terms of the Partnership Deed the assets and goodwill etc. Vested 'in the respondent while the appellant was entitled to the payment of a sum of money and, therefore, all the rights of the appellant in the assets of the partnership stood extingui--shed. The only relationship between the parties thereafter was that of a creditor and debtor in respect of the amounts mentioned in the agreement. In order to dispose of this argument it is necessary to refer to the language of sections 37 and 46 of the Partnership Act which are reproduced hereunder: "37. Right of outgoing partner in certain cases to share subsequent profits. Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner, or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm: Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is only exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to. Any further or other share of profits; but if any partner, assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section."
"46. Right of partners to have business wound up after dissolution. On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, 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."
The argument of the learned counsel was that the right of the partner to have the business of the firm wound up upon dissolution of the firm is not subject to contract and, therefore, unless the business is wound up in the manner provided therein, the assets continue to vest in the common pool of the partnership. On the other band, Mr. Muhammad Ali Sayeed, learned counsel for the respondents supported the view taken by the learned Single Judge and submitted that reading the Agreement as a whole the intention of the parties clearly was that upon dissolution the appellant would be divested of all interests in the assets which will "vest absolutely" in the respondents except to the extent of some payments to the appellant on account of capital, any advances and profits up to the date of termination of partnership. Reference was also made by the learned counsel to section 48, Partnership Act which lays down the mode of settlement of accounts between the partners which is expressly subject to agreement by the -partners. It was further argued on behalf of the appellant that the proviso to section 37, Partnership Act, indicates the intention of the Legislature that if the outgoing partner is not paid his share of the assets he will be entitled to profits or interest in relation to the business done with the assets of the partnership after the dissolution.
10.Tow it may at once be stated that there is no dispute before us that the firm stood dissolved on 31-12-57. The crucial question is, what is the effect of dissolution on the rights of the parties as provided by the terms of the Partnership Agreement? There can be no doubt that the Partnership Agree--ment clearly stipulates that even dissolution of the partnership the assets, goodwill etc. Shall vest absolutely in the respondent and that the appellant shall only be entitled to the payments on account of the items mentioned already. On behalf of the appellant it is claimed that notwithstanding the clear language of the stipulations contained in the Agreement the vesting of the assets in the respondents will take place subject to the settlement of accounts and the winding up of the business which is the inherent right of the partners in the very contract of Partnership.
There is no doubt that section 46 creates a right in every partner to have the property of the firm applied in the payments of debts and liabilities of the firm, but the last clause of section 46, namely, to have the surplus distributed among the partners or their represen--tatives according to their rights" cannot be lost sight of. It apparently means the rights of the partners with reference to the Partnership Agreement. Section 48 clarifies this position in laying down the mode of settlement of accounts and provides for the order of priorities in which the liabilities of the firm will be discharged which may be stated as follows:- "(1) in paying the debts of the firm to third parties;
(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;
(iii) in paying to each partner rateably what is due to him on account of capital; and
(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits."
It is important to note that these provisions have been made subject to a agreement of the partners. In the light of these provisions if the terms of the cause in the Agreement between the parties in question are examined, there appears to be a striking resemblance in the said terms with the provisions cited above except the last clause, namely, the distribution of the residue of assets after the payment of the liabilities. The appellant has been made entitled to the payments on account of capital and to the payment of advances made by way of loan not rateably, but to their entirety and to the profits earned by the partnership until the date of dissolution. In absence of Agreement to the contrary, under the terms of section 48, Partnership Act the appellant would not have been entitled to the payment of capital contributed by him and to the payment of 'debts except rateably. The appellant is, therefore, clearly relying upon the Agreement of Partnership to change the order of priorities provided for in section 48. It appears to us, therefore, that the respondents agreed to these terms in consideration of the relinquish--ment of rights by the appellant in the assets of the firm on dissolution. The rights of the partner under section 46, Partnership Act are called partners lien. Pollock as quoted by Aggarawala in his Commentaries on the Indian Partnership Act, 1932 (IInd Edition), observes;- "The right of each partner to control within certain limits the disposition of the partnership property is a rather- peculiar one. It exists during the partnership, and when accounts are taken and the partners' shares ascertained from time to time, its existence is assumed, but it comes into full play only in 'the event of the dissolution. It belongs to a class of rights known as equitable liens, which have nothing to do with possession and must, therefore, be carefully distinguished from the possessory liens which are familiar in several heads of the common law . . . . . . . . . Equitable lien is nothing else than the right to have a specific portion of the property dealt with in a particular way for the satisfaction of specific claims."
The author further observes on page 448 as under: "It is to be observed that a partner's lien is not a lien in any specific property existing at the date of death such as would fetter its realiza--tion or conversion into money, but the right is really a claim against the surplus assets after realization, whether those surplus assets consist entirely of the proceeds of realization or whether they include some specific property which existed at the date of death."
In the light of the abovesaid exposition of law, it appears to us that sec--tion 46 merely creates an equitable lien in favour of the appellant. But having regard to section 48, Partnership Act, the appellant having relinquished all rights in the assets of the partnership, he was not entitled to any share in the residue of the assets which would seem to vest by agreement of parties in the respondent absolutely. There is no question before us of the refusal on the part of the respondent to pay the debts of the firm to the third parties or to pay the debts owed by the firm to the appellant. We do not see how, therefore, the appellant can contend that the vesting of the assets of the firm would be relegated to a date after the settlement of accounts in order to determine what was due to him in terms of the agreement of the partners. 1n Usman v. Haji Omer Haji Ayub PLD1966SC328, on which strong reliance was placed by Mr. Fazeel, the principle underlying section 37 of the Partnership Act, was expounded as under: "The reason for this rule, which corresponds to section 42 of the English Partnership Act of 1890, was given by Romer, J. In the case of Manley v. Sartori in the following terms: `Where, in such a case, the surviving partners, instead of realizing the assets and distributing the proceeds amongst the parties in accordance with their rights and interests, choose to carry on the business and make profits by virtue of the employment of any of the partnership assets, then, subject no doubt to making a proper allowance to the surviving partners for their trouble in so carrying on the business, such profits belong to all the persons interested in the partnership assets by means of which the profits have been earned in accordance with their rights and interests in those assets, that is to say, proportion ately to their interests in those assets.'
It will be observed that the principle accepted is that the deceased or the outgoing partner has rights over all the assets of the partnership and that this right is in the nature of an unascertained interest in every single item of asset thereof. He cannot be regarded merely as a person entitled to a particular sum of cash ascertained upon the striking of a balance. If the continuing partners choose to carry on the business they obviously realized the assets of the partnership and are thus placed in a fiduciary position with regard to the share of the outgoing partner in those assets. This makes them liable to account for whatever profits are attributable to such user."
These observations were made in connection with the facts of the case of a partnership in which there was no similar clause providing for the vesting of the assets upon the dissolution of the partnership in one of the partners.
A careful examination of the cited passage will show that the principle upon which the right of an outgoing partner to a share in the profits earned after dissolution of the firm is based upon the fact that he has a surviving' share in the assets of the partnership or in other words, in the residue of the assets after the payment of the liabilities. The underlined* portion in the quotation from the judgment of Romer, J. Also clearly postulates that such profits belong to all the partners including the outgoing partner because of their interest in the partnership assets by means of which profits have been earned and in accordance with their rights in those assets. Therefore, the prerequisite for the right to claim such profits after the dissolution is the extent of existing right in the assets of the firm. It, therefore, follows that if by agreement the right of the outgoing partner is extinguished upon the happening of an event, like the dissolution of the firm in the present case, then no right of the partners survives in the assets upon the happening of that contingency and, therefore, there can be no basis for applying the provisions of section 37. In the present case the clause of the Agreement in question in unambiguous terms stipulated that on the dissolution of the partnership the assets shall "vest absolutely" in the respondent, which leaves no manner of doubt as to the intention of the parties that appellant's right as a partner in the assets of the partnership simultaneously stood terminated upon the happening of the event of dissolution. As already pointed out there is no dispute that the partnership stood dissolved on 31-12-57. This conclusion is further fortified by reading the Agreement of the parties as a whole. The consequence is that the partners' lien upon these assets also stood terminated on the happening of the said event. We are, therefore, in agreement with the conclusion arrived at by the learned Single Judge that the appellant was thereafter entitled only to the payment of certain sums of money and did not have a surviving interest in the assets of the partnership. No question of earning profits on the share of the appellant's interest in the assets, therefore arises.
11. It was also argued that the agreement between the parties not being registered and stamped, was not enforceable so far as the appellant's interest in the partnership is concerned as under section 130 of the Transfer of Property Act, a partner's share is not transferable without such a transfer deed. Reliance in this behalf was placed on Abdul Hakim v. Abdul Majeed PLD 1957 Kar.
379The facts of this case are clearly distinguishable. After a partnership was created between the parties, it was alleged that subsequently the plaintiff sold his share in the partnership by means of an agreement. Therefore, the case related to assignment of a share by one of the partners in the subsisting partnership to a third party. In the present case, there is no such transfer. The clause in question was inserted in the initial agreement between the parties whereby the partnership came into existence. Section 32 of the Partnership Act clearly implies that such a term can be included in a partner--ship agreement. The argument has, therefore, no merit.
12. We also find no force in the argument that the words "contract to the contrary" as they occur in section 37 of the Partnership Act relate only to the option of the alternatives prescribed in the section and not to the entitlement of the outgoing partner to profits. The plain reading of the section clearly makes out that the aforesaid right of sharing subsequent profits after the dissolution of the firm earned with the assets of the firm can be claimed provided there is no contract to the contrary. In other words, the statutory right created by the provisions of the section can be waived by agreement between the parties which may provide in ~ effect that upon dissolution of the firm the outgoing partner will not be entitled to share of profits from the business carried on by the surviving partner with th property of the firm after dissolution.
13. Finally reliance was placed on section 88 of the Trusts Act, 1882, in support of the claim to rendition of accounts in respect of business done by the respondent after the date of dissolution of the firm. This section proceeds on the basis of fiduciary relationship existing between two persons and if one of them gains for himself any pecuniary advantage, then he bound to hold such advantage for the benefit of such other person. In the view that we have taken, upon the ceasing of all interests of the; plaintiff in the partnership as a result of the dissolution in terms of the contract of partnership, there hardly remains any question of fiduciary relationship between the parties. The result of the clause in question may be to create liability and obligation upon the respondent to render accounts and make payment in terms thereof to the appellant, but such liability per se does not create any relationship of fiduciary character. The contention has, therefore, no force.
14. For the foregoing reasons, there is no force in this appeal and accordingly we dismiss it with no order as to costs.
Appeal dismissed.