SYNDICATE BANK versus M/S. R.S.R. ENGINEERING WORKS AND ORS.

Citation: [2003] SUPP. 1 S.C.R. 213 · Decided: 09-05-2003 · Supreme Court of India · Bench: SHIVARAJ V. PATIL · Disposal: Appeal(s) allowed

Judgment (excerpt)

SYNDICATE BANK 
A 
v. 
M/S. R.S.R. ENGINEERING WORKS AND ORS. 
MAY 9, 2003 
[SHIVARAJ V. PATIL AND K.G. BALAKRJSHNAN, JJ.] 
B 
Indian Partnership Act, 1932; Section 32: Partnership firm-liabilities 
of retiring partners against third party-Held: Jn the absence of an agreement 
between third party, new firm and retiring partners discharging retiring partners C 
from liabilities or notice thereof by the retiring partners, their liabilities to 
third party continue. 
Creditor adopting reconstituted firm/new firm as debtor-Rights against 
the old firm-Held. Such an act of adoption of new firm as debtor does not 
deprive the creditor enforcing his rights against the old firm particularly when D 
there existed no fresh agreement between him and the new firm-In the facts 
and circumstances of the case priori-assumption that creditor entered into an 
agreemenr to discharge retiring partner from liability does not follow. 
Words and Phrases: 'Priori-assumption'-Meaning and applicability 
of 
Plaintiff-appellant, a Bank had filed two suits against the respondent-
firms for recovery of certain amount horrowed by the firm from the Bank 
E 
with interest The firm was dissolved and taken over by one of the partners. 
Trial Court decreed the suit against the firm and the owner of the 11ew 
firm. Appellant-Bank filed appeals praying for decree against all the F. 
partners of the old firm. The High Court affirmed the decree of the trial 
Court. 
Hence the present appeals. 
It was contended for the appellant-Bank that the loan was availed G 
of by all the partners after jointly executing the requisite documents for 
getting the loan amount; that dissolution of the firm would not affect the 
liabilities or partners as inter se agreement between them was not binding 
on the appellant-bank; and that in view of provisions in the Partnership 
213 
H 
214 
SUPREME COURT REPORTS (2003] SUPP. I S.C.R. 
A Act the retiring partners of the firm could not escape from their liabilities 
against the third party. 
On behalf of the respondents/partners it was submitted that since 
notice of dissolution of the firm was given to the appellant-Bank, retiring 
partners should not be held liable to discharge liabilities of the firm. 
B Allowing the appeals, the Court 
HELD: 1.1. Under sub-section (2) of Section 32 of the Indian 
Partnership Act the liability of the retiring partner as against third party 
would be discharged only if there is an agreement made by the retiring 
C partner, with the third party, and the partners of the reconstituted firm. 
Of course, an agreement could be implied by the course of dealing between 
such third party and the reconstituted firm, after retirement of a partner. 
In the instant case, there was no agreement between the appellant-Bank 
and respondent nos.2 and 3 as regards their liability in respect of the 
dissolved firm. There is also no evidence to show that there was an implied 
D contract between the appellant and respondent no.4, owner of the 
reconstituted firm, who allegedly agreed to discharge the liabilities of 
respondent nos.2 and 3. It is also pertinent to note that there was no public 
notice under sub-Section (3) of Section 32 of the Indian Partnership Act 
by respondent nos. 2 and 3. Even if there was a public notice, it may not 
alter the position as the alleged liabilities of respondent nos. 2 and 3 were 
E incurred by them prior to the dissolution of the firm. 
F 
(217-G, H; 218-A, BJ 
Thummala Rama Rao and Ors v. Chodagam Venkateswara Rao and 
Ors., AIR (1963) A.P. 154, distinguished. 
Lindley and Banks on Partnership (Sixth Edition) page 358, referred 
to. 
1.2. There is no priori presumption to the effect that the creditors 
of a firm do on the retirement of a partner, enter into an agreement to 
G discharge him from liability. An adoption by the creditor of the new firm 
as hi5 debtor does not by any means necessarily deprive him of his rights 
against the old firm especially when the creditor is not a party to the 
arrangement and then there is no fresh agreement between the creditor 
and the newly constituted firm. After the creditor has taken a new security 
for a debt from a continuing partner, it may be a strong evidence of an 
H intention to look only the continuing partner for the payment due from 
SYNDICATE BANK v. R.S.R. ENGINEERING WORKS [BALAKRISHNAN J.] 
2 J 5 
the firm, it has long been recognized that partnership is not a species of A 
joint tendency and that, in the absence of some

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