2015 (12) TMI 847 - HC - Companies Law

Demerger - date with effect from which demerger is sought to be effected - Held that - The Format of Notice of Demerger, given in the Rules supra also requires the date with effect from which demerger is sought to be effected to be specified, meaning that the demerger need not be necessarily from the date of the notice and can be from a date prior to or after the date of notice of demerger. A perusal of the complete Rules, which the counsel for the petitioner himself perhaps did not peruse, clarifies the position beyond doubt and negates the contentions urged before this Court. The same, I may highlight, expressly provides that no concurrence / acceptance from the partners is required and can be effected at the option of 75% or more partners of one of the erstwhile firms. Here, all the partners of one of the two merging firms, opted to demerge. Upon such demerger, the other merging firm viz. Arun Khanna & Associates stood revived. Thus in this regard notice that though Section 25 of the Chartered Accountants Act, 1949 prohibits company from practising as a Chartered Accountant but does not contain any such bar against a partnership firm. Rather, the First and the Second Schedule to the Act while stipulating what is professional misconduct describe expressly what conduct as partner of a firm amounts to misconduct. It appears, that in the said spirit, the Rules of Merger and Demerger aforesaid were framed.

Issues:
1. Impugning a letter regarding demerger and restoration of partnership rights.
2. Validity of de-merger notice and disciplinary action.
3. Interpretation of Rules of Merger & De-merger.
4. Allegations of forgery in de-merger process.
5. Acceptance of de-merger by the respondent Institute.
6. Remedies for partnership disputes.

Analysis:
1. The petition challenged a letter regarding demerger and restoration of partnership rights. The petitioner, a Chartered Accountant, merged his firm with another firm, but a dispute arose leading to a de-merger notice. The petitioner sought restoration of partnership rights and disciplinary action against the other partners.

2. The petitioner contended that the de-merger notice was invalid as it was for the wrong firm. However, the court found that within five years of the merger, de-merger was permitted as per the Rules. The court questioned the distinction between the de-merger of the two firms involved and found no merit in the petitioner's argument.

3. The court examined the Rules of Merger & De-merger, emphasizing the process and requirements for mergers and de-mergers among Chartered Accountant firms. The Rules clarified that no concurrence was needed for de-merger if 75% or more partners agreed. The court found that the de-merger was in line with the Rules.

4. The petitioner alleged forgery in the de-merger process. However, the court noted that the notice was valid and within the rules, dismissing the forgery claims. The court emphasized that the partners were entitled to notify the de-merger.

5. The court upheld the acceptance of the de-merger by the respondent Institute, stating that the challenge had no merit. The court highlighted that the petitioner's partnership disputes should be resolved through other legal means.

6. Finally, the court dismissed the petition, emphasizing that the petitioner's grievances should be addressed elsewhere. The court also highlighted the rules governing the conduct of Chartered Accountant firms and the absence of a bar against partnership firms practicing as Chartered Accountants.

In conclusion, the court's detailed analysis of the Rules of Merger & De-merger clarified the validity of the de-merger process and upheld the acceptance of the de-merger by the respondent Institute. The judgment emphasized the need for partners to adhere to the rules governing partnership disputes and highlighted the legal framework for Chartered Accountant firms.

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