Demerger under professional rules upheld where majority approval and earlier effective date in notice were permitted.

The governing professional merger and demerger rules required merger before demerger, did not require concurrence from continuing partners, and permitted demerger by 75% or more of the continuing partners after due notice. On that basis, a demerger of the merged firm was treated as valid even though the notice referred to the former firm name, because that did not breach the rules. The allegation of forgery also failed, as the notice could specify an earlier operative date and the materials did not show any legal or factual bar to doing so. The challenge was therefore rejected.

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Issues: (i) Whether the demerger approved by the Institute was contrary to the governing merger and demerger rules; (ii) Whether the allegation of forgery in notifying the demerger with effect from an earlier date was made out.

Issue (i): Whether the demerger approved by the Institute was contrary to the governing merger and demerger rules.

Analysis: The governing rules contemplated that merger must precede demerger, that no concurrence from the continuing partners was required, and that demerger could be effected by 75% or more of the continuing partners of one of the erstwhile merging firms after due notice. The merged firm had taken the name of one of the original firms, and when all the partners of that firm opted to demerge within the permitted period, the resulting uncoupling of the two merged firms was within the scheme of the rules. The grievance that the petitioner's earlier proprietary firm had been named in the demerger notice did not show any violation of the rules.

Conclusion: The approval of the demerger was valid and the challenge failed.

Issue (ii): Whether the allegation of forgery in notifying the demerger with effect from an earlier date was made out.

Analysis: The notice of demerger was dated 24 July 2015 and stated that the demerger would operate from 1 July 2015. The rules did not prohibit specifying an effective date earlier than the date of notice, and nothing in the material showed that the partners were not entitled to notify demerger from that date. The allegation therefore lacked any factual or legal foundation.

Conclusion: The allegation of forgery was not established.

Final Conclusion: The writ petition was rejected because the impugned demerger action conformed to the applicable rules and no actionable illegality was shown in the notice or its effective date.

Ratio Decidendi: Where the governing professional rules permit demerger by the requisite majority without concurrence of the other partners and allow the effective date of demerger to be specified in the notice, such demerger cannot be invalidated merely because the notice names the former merged firm or fixes an earlier operative date.

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