Fiber Pak Kids Planet & other-vs-Fiber Pak Kids Planet & others

JUDGMENT SHEET

PESHAWAR HIGH COURT

ABBOTTABAD BENCH

(Judicial Department)

RFA No. 127-A/2026.

Fiber Pak Kids Planet through Partner Umar Hayat.

......(Appellant)

V e r s u s.

Fiber Pak Kids Planet through Managing Director/Partner Azeemullah and others.

......(Respondent/s)

Present: Mr. Najaf Akram Khan, Advocate for appellant.

Mr. Muhammad Shoaib Razzaq, Advo: for private respondents, Mr. Shahid Kamal, Adv:

for respondent No.8 & Umar Khan, Industrial Development Officer for respondent No.5.

Date of hearing: 25.08.2026.

JUDGMENT

SYED MUDASSER AMEER, J. Through this Regular First Appeal No.127 of 2026, the appellant/plaintiff, Fiber Pak Kids Planet through partner Umar Hayat, has called in question the judgment and preliminary decree dated 25.02.2026 passed by the learned Additional District Judge-VII, Haripur, in Suit No.61/1 of 2019, whereby the suit for declaration, rendition of accounts, specific performance and dissolution of partnership was partially decreed. The appellant has also challenged the decree to the extent that the learned trial Court failed to specify, with requisite clarity, the accounts, assets, liabilities, businesses and transactions in

respect whereof his 40% share was to be determined. Regular First Appeal No.201 of 2026 has, conversely, been filed by the defendants, namely Azeemullah and others, assailing the same judgment and preliminary decree, principally contending that the partnership stood dissolved upon the notice dated 18.08.2017 and that the plaintiff was not entitled to any share in the subsequent business or assets of the defendants. Since both appeals arise out of the same judgment, involve common questions of fact and law and are directed against the same preliminary decree, they are being decided through this consolidated judgment.

2.Briefly stated, the plaintiff and defendants No.1 to 3 were partners in a registered firm namely Fiber Pak Kids Planet, constituted under partnership deed dated 20.08.2015. The plaintiff held 40% share, defendant No.1 Azeemullah also held 40% share, while defendants No.2 and 3 held 10% each. The partnership deed contemplated the business of the firm to be carried on at Naseem Town, Swat Chowk, Haripur, and contained, inter alia, provisions relating to the nature and duration of the partnership, retirement of a partner, distribution of assets and settlement of accounts. The deed also provided in clause 10 that a partner intending to retire was to give one month's notice in writing, whereupon the amount of his share was to be allocated according to the prevailing market value. The deed, however, expressly provided in clause 1 that the partnership was at will. The original Form-H produced from the office of the Registrar of Firms also records the four partners and their respective shares.

3.It is not disputed that on 18.08.2017, defendants No.1 to 3 addressed a written notice to the plaintiff. Though the document bears the heading indicating “Cancellation of Partnership”, it also refers to clause 10 of the partnership deed, dealing with retirement of a partner. The plaintiff's case is that the notice, properly construed, was not a valid dissolution notice and that the partnership continued thereafter. His further case is that, after the notice, attempts were made through Jirgas to settle the affairs of the firm and determine the mode and manner of its dissolution, but the process ultimately ended without a binding settlement.

According to him, instead of settling the accounts and distributing the assets, defendants No.1 to 4 took over the business, machinery, stock, records, bank accounts, goodwill, telephones, email address and other business infrastructure of Fiber Pak Kids Planet and thereafter commenced or continued their business through Azeem Industries, Azeem Play Land Industries LLP and other concerns, thereby excluding the plaintiff from his 40% interest. The record contains material relating to the subsequent concerns and also reflects that the original firm's official address, telephone, email and other business identifiers continued to feature in the later business activities.

4.The defendants, on the other hand, maintain that the partnership being one at will, the notice dated 18.08.2017 validly dissolved the firm in terms of section 43 of the Partnership Act, 1932. Their contention is that after such dissolution they were free to carry on their own business and that the subsequent concerns constituted independent entities. They also dispute the plaintiff's

claim regarding the ownership of the assets and, particularly, the status of Plot No.92-A, Zone-B, Phase-VII, Hattar Industrial Estate, asserting that the same was allotted in the individual name of Azeemullah and did not become partnership property merely because the firm's business was carried on there. The trial Court accepted the plaintiff's entitlement to a 40% share and directed settlement of accounts, but did not finally and distinctly determine the legal effect of the notice dated 18.08.2017 or specify with sufficient precision the corpus, period and methodology of the accounting exercise.

5.Learned counsel for the parties were heard in detail and the entire record, including the pleadings, partnership deed, documentary evidence, statements of the witnesses and the material relating to the subsequent concerns, was examined.

6.The first and foundational question is whether the partnership stood dissolved upon the notice dated 18.08.2017. The answer cannot be determined merely by looking at the caption of the document or, conversely, by fastening upon its reference to clause 10. The notice has to be construed as a whole, keeping in view the express terms of the partnership deed and the statutory scheme. Clause 1 of the partnership deed admittedly declares the partnership to be at will, and section 43(1) of the Partnership Act, 1932 provides that, where a partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm; subsection (2) further provides that the dissolution takes effect from the date mentioned

in the notice or, where no date is mentioned, from the date of communication of the notice.

7.There is, at the same time, a clear legal distinction between retirement of a partner and dissolution of the firm.

Upon retirement, the partnership between the remaining partners may continue in a reconstituted form, whereas upon dissolution the affairs of the firm have to be wound up and the accounts settled. This distinction has been recognized in M. Yousuf Adil Saleem and Company (2007 PTD 1636) and has also been reaffirmed in the jurisprudence concerning sections 37 and 48 of the Partnership Act. Of particular relevance is Nadir Khan v.

Qadir Hussain and others (2024 SCMR 770), wherein the Hon'ble Supreme Court emphasized the statutory requirements governing retirement under section 32 and distinguished that mode from dissolution.

8.Applying these principles to the present case, the reference in the notice to clause 10 does create some ambiguity as to the precise mode initially contemplated by the signatories.

Nevertheless, the document, when read as a whole, expressly communicates an intention to bring the partnership itself to an end. The description of the document as one for cancellation of the partnership, the reference to cessation of the partnership business and the fact that the firm was admittedly a partnership at will collectively demonstrate an intention to dissolve the firm rather than merely to retire one partner and continue the same partnership with the remaining partners. A mistaken or superfluous reference to clause 10 cannot, by itself, defeat the

operative intention conveyed by the notice. We, therefore, hold that the notice dated 18.08.2017 constituted a notice of dissolution under section 43 of the Partnership Act and that the partnership stood dissolved with effect from 18.09.2017, i.e. on expiry of the period mentioned in the notice.

9.The existence of subsequent Jirga proceedings does not lead to a contrary conclusion. Those proceedings undoubtedly demonstrate that the parties were attempting to work out their differences and settle the affairs of the business, but they do not, in the absence of a concluded and mutually binding agreement, obliterate the statutory effect of the notice or revive a partnership already dissolved under section 43. The ultimate termination of the Jirga proceedings, as borne out from the record, therefore has no independent effect upon the date of dissolution. The Jirga material is, however, of considerable evidentiary significance for another reason: it sheds light upon the fact that, notwithstanding the notice, the affairs, assets and accounts of the dissolved firm were not finally settled between the parties.

10.Nor does the continued appearance of the firm in the records of the Registrar of Firms by itself establish that the partnership remained legally subsisting. The Form-H produced by the plaintiff records the original constitution and shares of the partners, while the subsequent status material from the Registrar reflects absence of a recorded proceeding regarding reconstitution or dissolution at the relevant time. Such material may have corroborative value regarding the conduct of the parties and the public record, but it cannot override a dissolution validly effected

inter se under section 43 of the Act. The statutory consequence of a valid notice cannot be defeated merely by an omission or delay in updating the record of the Registrar.

11.The conclusion that the firm stood dissolved on 18.09.2017, however, does not dispose of the plaintiff's claim.

This is the point on which the principal error in the defendants' case lies. Dissolution is not synonymous with extinction of the proprietary and financial rights of the partners. Section 46 of the Partnership Act expressly entitles every partner, upon dissolution, to have the property of the firm applied towards its debts and liabilities and the surplus distributed amongst the partners according to their respective rights. Section 48 prescribes the mode in which the accounts of a dissolved firm are to be settled.

12.More significantly, section 37 specifically protects an outgoing partner where the surviving or continuing partners carry on the business of the firm with the property of the firm without final settlement of accounts. In such circumstances, the outgoing partner is entitled, at his option, to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the firm's property, or to interest at six per cent per annum on the amount of his share in the property of the firm. The Supreme Court of Pakistan, in Shamsuddin v. Imamuddin (1992 SCMR 1239), considered the scope of section 37 in relation to business carried on after dissolution and recognized the relevance of the statutory right of an outgoing partner where the business continued to be carried on with the property of the firm without final settlement of accounts.

13.The legal position is thus unmistakable: dissolution brings the partnership to an end; it does not authorize one group of partners to appropriate the firm's assets and continue its business for their exclusive benefit without first settling the outgoing partner's entitlement. The purpose of dissolution is to bring the joint business affairs to a close through winding up, adjustment of liabilities, realization and valuation of assets and distribution of the surplus. Sections 46 to 48 embody this statutory scheme.

14.The evidence available on the present record raises a substantial and, in my view, genuine question whether this statutory process was ever completed. The record contains material suggesting that, after the notice, defendants No.1 to 4 took possession or control of the machinery, tools, office record, cash, bank accounts and other assets of Fiber Pak Kids Planet and thereafter operated through Azeem Industries and other concerns.

The subsequent proceedings and reports also record the controversy regarding the continued use of the old firm's business infrastructure and assets by the subsequent concerns. The evidence reproduced in the appeal record further shows that the respondents were confronted in cross-examination with the use of the original firm's telephone number, email address, office particulars and other business identifiers by the later concerns, as well as with the continued operation of the original firm's bank accounts.

15.These circumstances cannot be brushed aside by merely saying that a new partnership deed or a new corporate name was subsequently adopted. A change in the name or legal form of a

business does not, by itself, determine the ownership of the assets used by it. The decisive question is whether the assets, stock, machinery, goodwill, business connection, receivables, cash, records, premises or other property employed in the subsequent business belonged to the original firm, and if so, whether the plaintiff's 40% interest therein was ever settled. The present record does not permit that question to be answered merely on the competing assertions of the parties.

16.The contention of the plaintiff that he is automatically entitled to 40% of the entire profits of Azeem Industries, Azeem Play Land Industries LLP and every subsequent concern is, equally, too broad. His entitlement under the Partnership Act is not a perpetual proprietary interest in every subsequent enterprise established by his former partners. What requires ascertainment is the extent to which the subsequent business was carried on by employing, utilizing, transferring or otherwise benefiting from the property or business of Fiber Pak Kids Planet without final settlement of his share. Where such use is established, the statutory consequences under section 37, read with sections 46 and 48, may follow. Where, on the other hand, an asset or capital investment is proved to have been independently acquired after dissolution from the respondents' own resources and without employment of the property or business connection of the original firm, the same cannot simply be brought into the plaintiff's 40% share.

17.The same principle applies to the claim concerning Plot No.92-A, Zone-B, Phase-VII, Hattar Industrial Estate. The mere

fact that the original firm's business was conducted there does not, without more, make the title to the plot partnership property. The documentary material shows that the allotment/lease stood in the individual name of Azeemullah, and the trial Court was therefore justified in not automatically treating the title to the land itself as an asset of the partnership. The question whether any partnership funds were utilized for acquisition, construction, development or improvement of the premises, and whether any legally recognizable interest of the firm arose therefrom, is nevertheless a matter capable of verification in the accounting exercise.

18.I am also not persuaded by the defendants' contention that the plaintiff's suit must fail merely because he did not, at the institution of the suit, furnish an exhaustive item-by-item inventory of every asset and transaction. A partner seeking rendition of accounts cannot reasonably be required to prove in advance the very accounts and transactions which are substantially within the control or knowledge of the managing partners. In a partnership accounting suit, what is essential is proof of the partnership, its constitution and shares, and the existence of an entitlement to accounts; the exact extent of the assets, liabilities, transactions and profits is thereafter to be ascertained through the accounting process. The jurisprudence concerning rendition of partnership accounts is consistent on this point. The courts have also sanctioned appointment of a competent person where the managing partners failed to produce the books, accounts and business records necessary for settlement.

The decision is Abdul Ghani and others v. Abdul Rashid and

others (PLJ 2009 Karachi 20) is illustrative, where failure of managing partners to produce the accounts of the partnership resulted in directions for taking over and examining the firm's assets and records for preparation of final accounts.

19.The preliminary decree passed by the learned trial Court, therefore, cannot be sustained in its present form. It correctly recognized the plaintiff's entitlement to his 40% share, but it did not define with sufficient precision the accounting period, the assets and liabilities to be taken into account, the subsequent concerns to be examined, the consequences of utilization of the original firm's assets, or the methodology by which the plaintiff's eventual entitlement is to be calculated. The resultant uncertainty is capable of generating further litigation at the stage of final decree and, therefore, requires correction at this stage.

20.The appropriate course is not, however, to dismiss the suit as urged by the defendants. Nor is it to accept the plaintiff's contention that every subsequent enterprise of the defendants forms part of the original partnership. The decree requires structured modification so that the parties' rights may be finally determined on the basis of a transparent accounting process.

21.Accordingly, the following specific findings and directions shall form part of the preliminary decree:

(i)Fiber Pak Kids Planet was a partnership at will under clause 1 of the partnership deed dated 20.08.2015.

(ii)The notice dated 18.08.2017, read as a whole, constituted a notice of dissolution under section 43 of

the Partnership Act, 1932, notwithstanding its reference to clause 10 relating to retirement.

(iii)The original partnership stood dissolved with effect from 18.09.2017.

(iv)The Jirga proceedings conducted thereafter did not, in the absence of a concluded and binding agreement, revive the dissolved partnership or alter the statutory date of dissolution; however, the said proceedings and the subsequent conduct of the parties are relevant to the determination of whether the affairs and assets of the dissolved firm were ever finally settled.

(v)The plaintiff Umar Hayat is entitled to settlement of his 40% share in the property, assets, liabilities, profits and other financial interests of Fiber Pak Kids Planet, subject to the partnership deed and the Partnership Act, 1932.

(vi)The accounting shall extend from the date relevant under the partnership deed and the evidence to the date of dissolution, and thereafter, insofar as required by sections 37, 46 and 48 of the Act, until the date of actual final settlement of the plaintiff's share.

(vii)The accounting shall determine, inter alia, all cash in hand, bank balances, receivables, liabilities, stock-in- trade, machinery, tools, equipment, office assets, vehicles, business records, goodwill, business connections and all other property belonging to Fiber Pak Kids Planet as on the date of dissolution.

(viii)It shall further determine whether any of the aforesaid assets were thereafter transferred, appropriated, utilized or employed in Azeem Industries, Azeem Play Land Industries LLP, or any other concern, business or enterprise established, operated or controlled by defendants No.1 to 4 or any of them.

(ix)Where any property or business connection of Fiber Pak Kids Planet is found to have been used in

carrying on a subsequent business without final settlement of the plaintiff's share, the profits attributable to such use shall be determined in accordance with section 37 of the Partnership Act, or, where applicable, the statutory alternative available to the outgoing partner, after taking into account the terms of the partnership deed and all relevant liabilities.

(x)Any asset proved to have been independently acquired by the defendants after dissolution from their own funds, and not out of or through the property, assets, goodwill or business connection of Fiber Pak Kids Planet, shall not be treated as an asset of the original partnership merely because it was used in a business of the same or similar nature.

(xi)The ownership/title of Plot No.92-A, Zone-B, Phase- VII, Hattar Industrial Estate shall not be treated as belonging to the partnership merely on account of the firm's business having been conducted there. The audit/accounting exercise shall, however, determine whether any partnership funds were utilized in acquisition, construction, development or improvement of the premises and the legal and financial consequences thereof.

(xii)All bank accounts operated for the original firm, all books of account, ledgers, journals, vouchers, stock registers, invoices, receipts, tax records, correspondence, business records, electronic records and other material relevant to the affairs of Fiber Pak Kids Planet, as well as records of the subsequent concerns insofar as they relate to the alleged utilization of the original firm's assets or business, shall be brought within the accounting exercise.

22.For an effective and impartial determination of these matters, the learned trial Court shall, forthwith after receipt of a

certified copy of this judgment, appoint a reputed Chartered Accountant or a well-established Audit Firm of recognized professional standing, preferably one having experience in forensic accounting and partnership/business disputes, to conduct a forensic audit and complete financial examination of the affairs of Fiber Pak Kids Planet and, to the extent relevant for tracing the assets and business of the original firm, of Azeem Industries, Azeem Play Land Industries LLP and any other subsequent concern found prima facie connected with the assets, business, transactions or goodwill of Fiber Pak Kids Planet.

23.The appointed Chartered Accountant/Audit Firm shall be empowered, subject to the supervision of the learned trial Court, to call for and examine all relevant books of account, bank statements, tax returns, stock registers, invoices, purchase and sale records, machinery registers, fixed-asset registers, receipts, vouchers, electronic records, official registrations, partnership deeds, balance sheets, income tax and sales tax material and any other record necessary to trace the origin, movement and utilization of the assets and funds of the original partnership. The parties shall extend full cooperation and shall produce all records within their custody, possession or control. Where any record is withheld without lawful justification, the learned trial Court shall be at liberty to draw such inference as may be permissible in law.

24.The audit report shall specifically identify and distinguish:

(a)assets of Fiber Pak Kids Planet existing on

(b)liabilities of the firm on that date;

(c)the assets thereafter transferred, removed, sold, disposed of, appropriated or utilized by the defendants;

(d)the present assets of Azeem Industries, Azeem Play Land Industries LLP or any other subsequent concern which are traceable to, represent, replace or have been acquired out of the assets, funds, stock, receivables or other property of Fiber Pak Kids Planet;

(e)the proceeds realized from any sale or disposal of the assets of the erstwhile partnership and the manner in which such proceeds were utilized;

(f)the profits attributable to the use of the property, assets or business connection of Fiber Pak Kids Planet after its dissolution; and

(g)the amount ultimately payable to the plaintiff representing his 40% entitlement after adjustment of all lawful liabilities, credits and other permissible adjustments.

The report shall be accompanied by supporting schedules and source documents so that each material conclusion is capable of verification by the parties and the Court.

25.The learned trial Court shall thereafter afford both sides full opportunity to file objections to the forensic audit report and, where necessary, summon the Chartered Accountant/Audit Firm for clarification. Upon consideration of the report, the objections and the evidence already available on the record, the learned trial Court shall proceed to pass the appropriate final decree in accordance with sections 37, 46 and 48 of the Partnership Act and the findings recorded herein.

26.Since the final determination of the plaintiff's entitlement depends upon identification, preservation and tracing of the assets, records and business interests of the erstwhile partnership, it is

necessary to preserve the subject matter of the lis during the pendency of the accounting proceedings. Accordingly, until passing of the final decree or further orders of the learned trial Court, the defendants shall not sell, transfer, alienate, mortgage, pledge, encumber or otherwise dispose of any asset of Fiber Pak Kids Planet existing as on 18.09.2017, or any asset specifically identified during the forensic audit as having been transferred from, acquired through or representing the property or funds of the said partnership, without prior permission of the learned trial Court. They shall also not destroy, conceal, remove, alter or otherwise tamper with any books of account, bank record, register, voucher, invoice, electronic record or other document relevant to the affairs of Fiber Pak Kids Planet or the tracing of its assets into any subsequent concern.

27.The aforesaid direction shall not be construed as restraining the defendants from carrying on their lawful business in the ordinary course or from dealing with assets independently acquired by them after dissolution, subject to their producing the relevant record before the learned trial Court/appointed auditor and subject to any further order passed upon identification of the assets belonging to, or derived from, the erstwhile partnership.

28.Within fifteen days of receipt of this judgment, defendants No.1 to 4 shall place before the learned trial Court a complete inventory of the movable and immovable assets, machinery, stock, bank accounts, receivables and other property of Fiber Pak Kids Planet which came into their possession or control upon or after its dissolution, along with particulars of their

present location and disposition, and shall separately disclose the assets claimed by them to have been independently acquired thereafter. The appointed Chartered Accountant/Audit Firm shall verify these disclosures against the available documentary and financial record.

29.In this view of the matter, the grievance of the defendants that the preliminary decree was insufficiently specific is partly well-founded, but the consequence sought by them, namely dismissal of the plaintiff's suit, does not follow. Likewise, the plaintiff's grievance that the decree did not sufficiently identify the assets and accounts requiring determination is also justified.

The solution lies in modification and elaboration of the preliminary decree, rather than reversal of the plaintiff's substantive entitlement.

30.So far as the defendants' counterclaim of Rs.3,000,000/- is concerned, the same shall be examined by the learned trial Court in accordance with law, independently of the determination of the partnership accounts, after evaluating the alleged settlement, cheque and the Jirga proceedings on the basis of admissible evidence. No observation contained herein shall be construed as a final determination of that claim.

31.For the foregoing reasons, RFA No.127 of 2026 and RFA No.201 of 2026 are both disposed of with modification of the judgment and preliminary decree dated 25.02.2026 passed by the learned Additional District Judge-VII, Haripur, in Suit No.61/1 of 2019, in the manner and to the extent indicated

hereinabove. The plaintiff's entitlement to settlement of his 40% share in the affairs of Fiber Pak Kids Planet is maintained;

however, his entitlement in respect of subsequent businesses shall be confined to such property, assets, business connection and profits as are found, upon proper accounting, to be attributable to the original partnership in accordance with law. The learned trial Court shall proceed with the matter expeditiously and pass final decree after completion of the aforesaid forensic audit and accounting exercise.

32.The observations made herein are confined to the determination of the appeals and shall not preclude the learned trial Court from considering any matter falling within the scope of the accounting and final decree strictly in accordance with the evidence, the Partnership Act, 1932 and the findings recorded above.

Announced.

(Tahir CS)

JUDGE