TMI Blog1983 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... iff 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. The balancesheet itself does not mention anything about the goodwill. The defendants have paid the plaintiffs sums of Rs. 25,000 each and this itself was an excess payment. Thus, the suit claim based on an alleged auditor's certificate, dated August 16, 1979, is not maintainable in law, since the accounts between the parties have already been settled. The claim of a large sum, of money as goodwill is imaginary and untenable. In any event, no interest is payable on goodwill. The suit is also bad for misjoinder of causes of action. The following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be, goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates. Goodwill is composed of a variety of elements. It differs in its composition in different trades and in different businesses in the same trade. One element may preponderate here and another element there. To analyse goodwill and split it up into its component parts, to pare it down as the Commissioners desire to do until nothing is left, but a dry residuum, ingrained in the actual place where the business is carried on while everything else is in the air, seems to me to be as useful for practical purposes as it would be to resolve the human body into the various substances of which it is said to be composed. The goodwill of a business is one whole, and in a case like this, it must be dealt with as such." Hence, it is necessary to consider the type of business and the type of customer which such a business is inherently likely to attract as well as all the surrounding circumstances. Thus, goodwill is composed of variety of elements. It is a composite thing referable in part to its locality, in part to the way in which it is conducted and the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ationalisation case) [1970] 40 Comp Cas 325 ; AIR 1970 SC 564, 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 16th August, 1979, at a sum of Rs.185,678.88. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the plaintiffs ably argued that the agreement, Ex. P-2, itself provides for a certain method of valuation, and, therefore, it should be accepted. In other words, the contention of the plaintiffs is that the goodwill shall be assessed as three years' profits of the average of the last five years. I have carefully considered this argument, but I am unable to accept this method if we take into consideration the totality of the surrounding circumstances the nature of business, the possible advantages of the good name of the firm, etc. As pointed out by the Supreme Court, goodwill is a composite thing composed of a variety of elements including the conduct and personality of the partners, likelihood of competition, a good reputation, established connections, etc. Therefore, it depends upon a computation of the various circumstances like the location, service, standing of the business and many other factors. As already pointed out, this concern was started only in the year 1970 by some persons who hail from North India. They are not local persons and the business is also one of sale and packing of honey. It is not a thing to be manufactured as such. It does not require ..... X X X X Extracts X X X X X X X X Extracts X X X X
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