MEHRU BELGAM VALA Vs. G BELL AND COMPANY

JUDGEMENT

(1.) SUIT is to recover a sum of Rs. 1, 16, 540.30 with future interest and for another sum of Rs. 1, 914.17. The plaintiffs case is this : The first defendant, namely, Messrs. G. Bell and Company, was carrying on business with the two plaintiffs as partners. Defendants Nos. 2 and 3 are the other partners of the firm and each of them had contributed Rs. 10, 000 towards capital and the total capital was Rs. 40, 000. On June 30, 1977, the partners agreed that the plaintiffs may retire from the partnership and that the defendants Nos. 2 and 3 will take the partnership firm of Messrs. Bell and Company with all rights and goodwill as a going concern. The goodwill was to be ascertained as per the agreement and half share of the goodwill evaluated shall be paid to the account of the first plaintiff. The accounts were audited and a certificate was issued on August 16, 1979.

(2.) THUS, the balance due to the first plaintiff is Rs. 1, 10, 617.88 and to the second plaintiff is Rs. 26, 407.48. The mode of payment was also agreed to by the partners. The defendants made a part payment and the balance is due as per the plaint. Future interest is claimed at 18 per cent. Per annum from the date due.The defendants resisted the suit and contended as follows : The partnership and the retirement of the plaintiffs in 1977 are admitted. It is true that it was agreed that the goodwill shall be evaluated as per the terms of the partnership deed and half share shall be credited to, the account of the first plaintiff. But, there was no goodwill of the firm, and therefore, no amount was credited in the books of account.

(3.) THUS, goodwill is acquired during the course of a number of years of business. It rarely springs from the very institution of the firm. In R C Cooper v. Union of India (popularly known as Bank Nationalisation case), the Supreme Court observed that the goodwill of business is an intangible asset and that goodwill is composed of a variety of elements and all the surrounding circumstances must be taken into account as a whole.Bearing these principles in mind, let us consider the claim of the plaintiffs who had evaluated the goodwill on August 16, 1979, at a sum of Rs. 85, 678.88. Exhibit P-3 is the certificate issued by the Chartered Accountants of the plaintiffs. One of the auditors has also given evidence as P.W. 1 in support of the certificate.According to him, he took into account the profit and loss account for five years and divided it by five and multiplied it by three. But, it was elicited from him in cross-examination that this calculation was not made out of the books of account and that this goodwill was kept out of the accounts and out of the balance-sheet. In particular, P.W. 1, fairly conceded that the goodwill was outside the balance-sheet and that the balance-sheet will not reflect the valuation of the goodwill. THUS, his evidence is that the working computation (of goodwill) was kept outside the books and the balance-sheet.As against this, the defendants examined their own auditor as D.W. 2, who is a Chartered Accountant for Messrs. Bell and Company from July, 1979. D.W. 2 has stated that he was asked to compute the goodwill of the business and that for that purpose he looked into the balance-sheet of the company prior to 1978. According to him, generally, super-profits method is adopted for evaluation of the goodwill of a firm. Exhibit D-7 is his calculation of the goodwill. He further stated that there is no goodwill in respect of the firm, Messrs. Bell and Company, in the balance-sheet and that no particular method of evaluating goodwill is mentioned under cl. 14 of Ex. P-2. He finally added thus :"The goodwill of a concern is something extra which the concern has apart from the provision for capital and exertion of partners.