(2003) 6 SCC 265

Decided On

9th May 2003

Case Number

Civil Appeal No. 13337 of 1995


Bench: Shivraj V. Patil & K.G. Balakrishnan J.J.

Relevant Section

Section 32(2), 32(3) & 72 of Indian Partnership Act, 1932


The plaintiff filed two suits against the respondent. Respondent number 1 in both the suits is a partnership firm engaged in engineering works. Respondent numbers 2 to 4 are its partners. The first suit was filed to recover the amount of Rs. 59, 775.95/- with interest. The plaintiff alleged that a loan of Rs. 40,000/- was sanctioned in favor of the respondent on 5th December 1974, for expansion of industry of the respondent. The loan was to be repaid after 9 months in installments. The respondent had also executed the requisite documents in favor of the plaintiff bank. Respondent number 2 & 3 in their written statement admitted that the respondent had borrowed Rs. 40,000/- from the appellant. The two respondents subsequently retired without giving any notice of this development to the appellant bank. The respondent defaulted on the payment of the loan. Trial Court held that respondents number 2 & 3 would not be liable for the suit claim & High Court upheld the decision of the Trial Court.

Another suit filed by the appellant against the respondents in Karnataka High Court alleged that the respondents were given an overdraft facility by the appellant bank; the respondent availed the facility & committed default in paying the same. Respondents raised similar contention as in the previous suit that the partnership was dissolved & respondent number 4 took entire liability. The contention was accepted by the Trial Court against respondents number 1 & 3 was passed. The plea was rejected by the High Court in which the appellant prayed that Decree shall be passed against all the respondents as all have joint & several liabilities. Hence, the plaintiff moved an appeal to the Hon’ble Supreme Court for the same.

Issue before the Court

  1. Whether the retiring partner would be liable to pay for the liability incurred during partnership?
  1. Whether respondents giving notice to the appellant bank regarding dissolution of the firm would absolve the retiring partner from dues?


The appellant contended that all the respondents should be held jointly liable as they executed various documents to the said & had admitted its execution, the dissolution of the partnership firm will not affect their liability to discharge of the suit claim & inter se arrangements between the partners of the firm will not be binding on the appellant bank & as per clause 3 of Section 32 of the Act respondent number 2 & 3 cannot escape from the liability concerning the suit claim made by the appellant. In response, the respondent said as a prior notice was sent to the appellant bank about the dissolution of the firm & they did not raise any objection therefore, respondents numbers 2 & 3 are not liable for any under the suit as per clause 2 of Section 32 of the Act.

Hon’ble Supreme Court held that the appellant had every right to proceed against all the defendants present in the suit, Court also said that no public notice was given about the retirement of respondents number 2 & 3 from the partnership firm as envisaged under Section 32(3) of the Act. Court pointed out at one of the contentions made that the “dissolution of firm will not affect the respondents from liability retiring partners” by the appellant. Like the fact the appellant was aware of the dissolution of the partnership firm, as per section 32(2) of the Act, the liability of the retiring partner as against a third party would be discharged only if there was an agreement made by the retiring partners, the bank being the third party in this case & partners of the reconstituted firm, this was absent from the case expressly or impliedly.


Perhaps it is self-evident from the case that the creditor’s right normally will not be prejudiced by an agreement transferring an acquired liability from one partner to another in a partnership firm unless the creditor is made a party to the agreement. Otherwise, the agreement (regarding him) will be strictly res inter alias acta (transacted between other parties).

The case analysis has been done by Ajay Kataria, from Dr. B.R. Ambedkar National Law University, Sonepat, Haryana.

The case analysis has been edited by Shubham Yadav, from Banasthali Vidyapith, Jaipur.

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