Partnership firm take over, dissolution, etc.

Partnership firm take over, dissolution, etc.

My father ( I am daughter) had Partnership at will with my two brothers. Name of firm M/s ( Name of my father). On death of my father, two brothers created new Partnership deed without giving any notice to me .New Deed says Old firm is taken over ( all assets and liabilities of old firm ) by new firm with name Exactly same that is M/s (Name of my father) and Profit ratio equal between 2 brothers. They have not created any separate legal heir account.In the Capital clause they have mentioned Partners are free to increase/decrease their capital and no initial capital is mentioned in will. Obviously No Goodwill has been accounted.They have produced forged Will in court in which this Partnership is not mentioned in my father's assets for which Probate case is contested by me in court. I have also put Partition case for all properties of my deceased father. We have submitted private Document Examiner report saying Signatures are forged.
Rs 1 lac was transferred through RTGS to my son in law through this Partnership account .Cheque for this RTGS transfer was issued by one of my brother. My son in law has shown this 1 lac as Gift from my father in his Income tax return.
In retaliation to my Partition suit, My brothers have instituted false claim against my son in law through new firm saying loan of Rs 1 lac was taken by him on 12 percent interest. No correspondence on this transfer was ever exchanged by firm. An amount of Rs 1 lac had been deposited as cash in partnership bank account by my brother ( obviously on verbal instruction of my father) .
My questions are:
1. In my view New firm is not formed complying with legal provisions .If so, Under which clause/section of Partnership or Other act (like Indian Contract Act etc) my son in law should contest this claim.
2. New firm was not existent when RTGS transfer was made. Is this sufficient to pray for dismissal of suit on this ground.
3 Can a newly made firm take over liabilities and assets of another firm which gets dissolved on Death of partner without consent of all legal heirs of deceased partner. If not under which section case should be fought . In Old Partnership deed there is no clause which says business can be carried over by other partners in such eventuality. However it says disputes among partners shall be solved under arbtration act as per india partnership act.

Asked 6 years ago in Corporate Tax

Hi,

This is more of a legal case than a financial matter. Though I will try to answer the questions listed above, I would suggest that you consult a lawyer as well who will be in a better positions to help and advise you.

1. What makes you think that the New firm is not formed complying with legal provisions? Though the intent of making the new firm may be dubious and the way assets were taken over can be illegal you may not be able to claim that the new firm was made in an illegal manner. You can use the argument of equal right over your father property to contest the assets taken over by the new firm. Since you were the partner in the original firm, the firm cannot be dissolved unilaterally by other partners. They need your consent to do the same.

2. Yes you can use the argument that since the new firm was not existent when the RTGS was done, there is no question of giving loan from the new firm. However, do you have any document which supports that the RTGS done was a gift? Be ready for that question if you contest in court.

3. Partnership contracts usually state where the shares go on the death of one partner, and it is usually to the other partners. However, you can contest this in the court of law as a legal heir and since you were also a partner of the old firm, you will have a right to claim your fathers share.

Hope I have been able to help you partly!

Nikhil Khanna

CA, Mumbai

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We might not be able to deal with this case properly. Please consult a lawyer for this case. You can post your query on kaanoon.com.

Lakshita Bhandari

CA, Mumbai

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Hi,

Answers to your queries are as below:

1) As per Section 42 of the Partnership Act, 1932, upon death of a partner, the partnership firm stands dissolved. Upon dissolution of partnership firm, all the assets (net of liabilities) of the firm stands transferred to all the partners' respective accounts. In case of deceased partner, such assets should be transferred to the legal heir of the deceased partner's account. Such legal heir shall be decided as per the will (if any) of the deceased partner, or in the absence of such will as per the provisions of Hindu Succession Act. Just executing a new partnership deed by same name an with new partners does not amount to creation of the same firm with new partners. Further, the acquisition of the old firm's business can be done only with the consent of all the partners of the old firm, which is not there in your case. Hence, you have sufficient enough grounds to claim that the new firm and its business, both were not created by legal means.

2) You are absolutely correct that even when new firm was not in existent at the time of RTGS transfer, hence any suit on behalf of the old firm, which stands dissolved upon death of a partner is null and void as per the provisions of CPC.

3) No. Firstly the assets and liabilities of a dissolved firm cannot be taken over even with the consent of legal heir of the deceased partner. Secondly, when the firm is dissolved then there are no assets or liabilities of the firm. All the assets and liabilities have to be adjusted to the respective partner's accounts upon dissolution. In case of deceased partner, to the account of legal heir of the deceased partner.

In the end, I would like to mention here that the only case which should be contested is that there is no new firm which is created by legal means. Taking strong grounds to this contention in the pleadings will itself make all other cases null and void.

Even if it is proved that new firm is created by illegal means and forged documents, suitable criminal actions should be initiated against the conspirators for fooling (Sec. 420 of IPC) and criminal conspiracy (Sec. 120A of IPC).

I hope the above stands clear to you.

Regards,

Sunny Thakral

CA, Delhi

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Hi,

It's a legal matter and not a tax matter. You should consult with lawyer rather than chartered accountants.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Abhishek Dugar

CA, Mumbai

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Dear Sir,

It is a legal matter,please consult good lawyer.

Vivek Kumar Arora

CA, Delhi

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Hello,

1. They will have to produce a loan agreement in order to prove that a loan was given to your SIL.

2. Doesn't matter, they can still claim that the assets and liabilities of the old firm has been taken over by the new firm.

3. Normally, you need a will for it in case the partnership deed is silent as to what will happen in case of death of partner, in cases where there is no will then a succession certificate or a probate is required.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, FCA, LLB, CERT. FAFP