Skip to content


Md. Lutfulla Saheb Vs. Gauhati Bank Ltd. and ors. - Court Judgment

LegalCrystal Citation
Subject;Commercial
CourtGuwahati High Court
Decided On
Case NumberFirst Appeal No. 18 of 1950
Judge
ActsPartnership Act, 1932 - Sections 19
AppellantMd. Lutfulla Saheb
RespondentGauhati Bank Ltd. and ors.
Appellant AdvocateS.K. Ghose and N.M. Dam, Advs.
Respondent AdvocateD.N. Medhi and S.C. Das, Advs.
DispositionAppeal dismissed
Excerpt:
.....is no reliable evidence on the record bearing on the value of the contract work done by the partnership. under the law i should have been approached after all steps to realise the over-draft, if any, from the sadananda singh's properties have failed. for reasons given above this appeal must fail and it is dismissed with costs......v. raghuvir dasji', air 1932 bom 539 (e). in this case, it was held that 'in a mercantile firm a partner has an implied authority to draw and accept money on behalf of the firm.' it was further held that a firm is a trading firm if its business consists in buying and selling. but where the business is not of a commercial nature e.g. where it is a professional business, or even the business of a fanner, or a quarry-worker; where there is no buying and selling of goods, or of an auctioneer, no partner can borrow or pledge the partnership property, so as to bind his co-partners. on the general question whether a partner can bind the firm by accepting bills in his name, it was held that no general answer could be given. the nature of the business and the practice of those who carry.....
Judgment:

Ram Labhaya, J.

1. This is an appeal from

the judgment and decree of the Second Additional District Judge, U. A. D. dated 24-7-1950 by which plaintiff's claim for a sum of Rs. 8418/9/3 was decreed, jointly and severally against defendants 1 to 3 and against the assets of the late Sadananda Singh in the hands of defendants 4 and 5 with, costs. Defendant 1 alone has appealed.

2. The plaintiff the Gauhati Bank Ltd., Golaghat Branch sued for the recovery of Rs. 8489-9-3 on the balance of accounts. The case presented by the plaintiff was that defendants 1 to 3 and Sada Singh, deceased of Golaghat town carried on partnership business in the name and style of M/s. V. Allies and Company in Golaghat. The firm engaged itself in contracts from the military and the Public Works Department. Sadananda Singh, deceased was the Managing partner. The firm needed money to finance its business and through Sadananda Singh applied to the Bank for accommodation. The application for accommodation was put in on 15-12-1943. It was signed by Sadananda Singh for Messrs. V. Allies and. Company'. In this application the sum required as a loan was stated as Rs. 4,000/-. The purpose of the loan was also disclosed. This was some earth work under the Public Works Department. The estimated value of the work was shown at about Rs. 40,000. The proposal was agreed to by the Bank and a cash credit account was opened in the name of the firm on 17-1-1944. Sadananda Singh also executed a pronote as managing partner for Rs. 10,000/- in favour of the Bank OB. 15-1-1944. The account was opened 2 days after. By 17th February the advances from the Bank had reached the figure of Rs. 9000/-. After that no more money was advanced. The plaintiff averred that a sum of Rs. 3000/- had been paid in the account of the firm and there was a balance of Rs. 8,418-9-3 in favour of the plaintiff. Sadananda, it was alleged, died in September 1946; Defendants 4 and 5 are his representatives. The bank made repeated demands for the amount due but these were not heeded.

3. Defendant-appellant admitted that Sadananda Singh and the first 3 defendants were carrying on contract business in the name of

M/s V. Allies and Company. He also admitted that Sadananda Singh was the Managing partner. But he pleaded that he had no authority to borrow money from Gauhati Bank or from any other

source. He further did not admit that the money borrowed was utilised for the purposes of the firm. He admitted in para No. 4 of his written statement that plaintiff had served a notice on him and this was duly acknowledged and replied to. As regards the financing of the business ail that he stated was that he contributed his share on 3 different dates. The sum alleged to have been thus contributed was Rs. 1500/- consisting of 3 items of Rs. 500/- each.

4. In view of the argument addressed to us on behalf of the plaintiff, we are at this stage

concerned with 2 issues i.e. issues 3 and 4.

These are reproduced below:

'(3) Whether the late Sada Singh had authority

to borrow money from the plaintiff Bank for

Messrs. V. Allies and Company and whether

the plaintiff Bank acted on proper authority to lend money to late Sada Suigh?

(4) Whether the defendants are liable for any sum lent by the plaintiff Bank to the late Sada Singh or whether the amounts alleged to have

-been borrowed were utilised for any contract work of Messrs. V. Allies and Company?'

5. The learned trial Judge dealt with issues 3, 4 and 5 together. He held that the defendants formed a partnership and engaged in military and P.W.D. contracts. Sadananda Singh was the Managing partner. Relying on the principle laid down in--'Lal Chand v. Gopi Chand', 54 Cal WN 167 (A) and on a review of the evidence and the circumstances on the record, he further found that one of the most important of the implied powers of a partner is that he can borrow money on the credit of the firm. He observed that the implied authority may not be by a contract or in writing. It could be inferred from surrounding Circumstances and held further that in this case the contract work was the principal aim of the firm and its exigencies required that the Managing partner should have implied authority to borrow money. In coming to his findings the learned Judge considered all the evidence that was made available and his conclusion stated at the end was that Sadananda had authority to borrow money from the plaintiff and plaintiff acted, on proper authority inasmuch as the transaction was with the Managing partner of the partnership firm. The learned Judge has made no distinction between implied authority and actual authority, when discussing the question of Sadananda Singh's authority though he found on the evidence that Sadananda Singh had authority to borrow and inferred this also from the nature of the business.

6. Mr. Ghose the learned counsel for defendant-appellant has argued that the learned trial Judge was misled by the rule laid down in '54 Cal WN 167 (A). That case had no application to the facts of this case as that decision deals with the

case of a trading firm. His contention is that the partnership in this case was obviously not a trading firm and therefore no question of implied authority arose. He further urged that it has not been proved that authority to borrow money had been conferred on Sadananda Singh in point of fact.

7. In '54 Cal WN 167 (A)' it was held that a trading partnership was one whose business consisted of buying and selling goods. It was, further held that the partner who actually borrowed the money had implied authority to borrow as the

firm of which he was a partner was a trading

partnership.

8. In support of the proposition that it is only in a trading film that a partner has implied authority to borrow Mr. Ghose has relied on some other decisions also which may now be considered. In--'Saremal Punamchand v. Punamchand', AIR 1924 Bom 260 (B), Mulla J. held 'that any partner in a trading firm has an implied authority to borrow money for the purposes of the business on the credit of the same. But the firm must be a trading firm; a firm would be a trading firm if its business consists in buying and selling. Where, however, the business is not of a commercial nature, e.g., where it is a professional business, or even the business of a farmer or a quarry worker, where there is no buying & selling of goods, or an auctioneer's no partner can borrow or pledge the partnership property so as to bind his co-partners.' The business of the partnership in this case consisted of buying brass and selling utensils. The partnership was found to be of a commercial nature.

9. Similarly in--'Pe Thaung, Mg. v. Toungoo Timber Co.', AIR 1932 Rang 118 (C), it was held that the

'managing partner of a common trading partnership (for timber trading generally) has implied authority to borrow money for partnership purposes, and in so borrowing, he may bind the other partners although he may wrongfully apply it to other than partnership purposes. Buying and selling are essential features of a trading partnership.'

10. In--'Pho Mya Maung v. A. H. Dawood and Co.', AIR 1921 Low Bur 44 (D), the converse case is dealt with. It was held, that 'in the case of a partnership, which is not an ordinary trading partnership, there is, in the absence of evidence to the contrary no implied authority in one partner to bind the others by executing negotiable instruments.' The main business of the partnership in this case was to mill other people's paddy, convert it into rice and sell, taking its profit in its milling charges. There was no sufficient evidence to show that it was habitual for this mill to buy paddy, convert it into rice and sell that rice. In these circumstances, it was held that it was impossible to hold that it was in any sense a trading partnership, and that it was further not possible to infer that there was implied authority in any partner to bind the firm.

11. Mr. Medhi, the learned counsel for plaintiff-respondent has relied on--'Gordhandas Chhotalal v. Raghuvir Dasji', AIR 1932 Bom 539 (E). In this case, it was held that 'in a mercantile firm a partner has an implied authority to draw and accept money on behalf of the firm.' It was further held that a firm is a trading firm if its business consists in buying and selling. But where the business is not of a commercial nature e.g. where it is a professional business, or even the business of a fanner, or a quarry-worker; where there is no buying and selling of goods, or of an auctioneer, no partner can borrow or pledge the partnership property, so as to bind his co-partners. On the general question whether a partner can bind the firm by accepting bills in his name, it was held that no general answer could be given. The nature of the business and the practice of those who carry it (usage or custom of the trade) must be known before any answer can be given. In regard to the ginning factory it was observed that it might advance money on cotton, buy cotton in its natural condition and sell ginned cotton.

In that case, however, no evidence was led on the

question as to whether the ginning factory was a business of a commercial nature in which the managing partner would have implied power of borrowing.

12. Mr. Medhi has relied on this case mainly for the purpose of showing that if money is utilised for the partnership purposes, the partners become liable. In this case, the money borrowed had been utilised in payment of the liabilities of the company and in making purchase of coal, stones and other goods which were necessary for the purposes of carrying on the ginning factory. The debt was incurred in the business on behalf

of the partnership. It was held that the other partners could not repudiate their liability on account of the debt incurred by the managing partner.

13. From the authorities cited by the learned counsel on both sides, it is clear that in a trading partnership a partner has got an implied authority to borrow. A trading partnership is one of

which the business consists in buying and selling. Buying and selling constitute its essential characteristic. So far there is agreement between the learned counsel. The question that then arises is whether in this case the business of the defendants' partnership was such that the managing partner could be said to have implied authority to borrow. Under what circumstances a partner may have implied authority is dealt with by Section 19, Partnership Act. It provides that subject to the provisions of Section 22A, the act of a partner which is done to carry on in the usual way the business of the kind carried on by the firm binds the firm. The authority of a partner to bind the firm conferred by this section is called his implied authority. Acts which are not covered by implied authority which a partner may have under Section 19 the enumerated in Clause 2 of Section 19. Whenever there is a question as to whether a partner has an implied authority, the answer to the question is to be found by applying the test laid down in Section 19. The test is that the act of a partner should be done to carry on in the usual way business of the kind carried on by the firm. In other words the test would be whether borrowing is usually done to carry on the business of the kind which the firm is doing.

Where the firm is a trading partnership, no difficulty arises as so far as trading partnerships are concerned it is undisputed that borrowing is usual for the purpose of carrying on the business of a trading partnership. But in other cases such borrowing has to be shown to be a usual feature of the business if it is claimed that a partner has got an implied authority to borrow on behalf of the firm. As held in 'AIR 1932 Bom 539 (E)' there should be evidence as to the nature of the business and the practice of those who carry it on (e. g. usage or custom of the trade) before it can be said that a partner has got implied authority to borrow on behalf of the firm. The answer to the question whether implied authority to borrow exists in a particular case must depend on the nature of the business, its requirements and the custom or usage that is generally followed in carrying it on. Implied authority to borrow can be exercised only if it is usual for partners in a business of the kind to borrow money on behalf of the firm.

14. In view of the test supplied by Section 19 we have now to see whether the partnership business in this case was such that its managing partner could be said to have implied authority to borrow on behalf of the firm. There is no partnership agreement but from the evidence it appears that

the business of the partnership was to work for the Public Works Department and the Forest Department. The defendants were a firm of Government contractors. It cannot be said that the business of the firm consisted of buying and selling. The usual feature of a trading partnership does not exist. No evidence has been produced to show how normally or usually the business of a contractors' firm is carried on. No attempt has been made to prove that according to usual practice, custom or usage, a partner in a contractors firm can borrow on the strength of the implied authority. There is no evidence that such borrowing is an unavoidable contingency of the business and is normally resorted to. There is thus no basis for saying that the act of borrowing of the managing agent was done to carry on in the usual way the business of the kind that this firm was carrying on. In other words the conditions of the test laid down in Section 19 have not been fulfilled and it cannot be said that under Section 19 the managing partner had implied authority. Mr. Medhi has cited no authority in support of the proposition that the business of Government contractors is such that like a trading partnership it is within the ambit of Section 19, Partnership Act and its nature confers implied authority on the partner. We therefore cannot lay down any general rule that the business of Government contractors is such that partners in such a business have implied authority to borrow like partners of trading firms. Our conclusion in these circumstances is that Sada Singh as a Managing partner had no implied authority to borrow on behalf of the firm.

15. The managing proprietor however could bind the firm if he had actual authority and we think that evidence adduced in the case by the defendants themselves justifies the conclusion that such authority existed.

16. If Sadananda Singh had no authority to borrow at all, the partners must have supplied the capital which had to be invested in this business. The partnership agreement was oral. From the statement of defendant 3 it appears that he and Amzed Ali, another partner told Sadananda Singh that they had no money to contribute and he volunteered to arrange the money. He did not disclose how this money was to be arranged, nor did he state that Sadananda Singh and Lutfulla contributed any money towards the capital of the business. It appears from the statement of this witness that the offer made by Sadananda Singh to arrange money was acceptable to the partners. Lutfulla (defendant-appellant) himself deposed that he had to advance money to the company on 3 occasions. A sum of Rs. 500 was sent by defendant-appellant to Sadananda Singh on 7-3-1944. Sadananda Singh had written to him that the money was needed urgently and he requested him to send Rs. 500. He promised to return the money when payment on his bill was received. Another sum of Rs. 500 was sent to Sadananda Singh by the defendant-appellant on 14-3-1944. On this occasion also Sadananda Singh had asked for it by his letter dated 14-3-1944. In his letter he promised to clear the dues of Lutfulla as soon as he received the tender money. Lutfulla, appellant when sending the money endorsed on the letter that Rs. 500 were being sent' as a loan to the firm. In Court also the statement of Lutfulla is that he had occasion to advance the money to the company on 3 occasions. A third payment of Rs. 500 was also made by him to Sadananda Singh.

It is clear that even he was under no obligation according to the terms of their partnership agreement to contribute towards the capital of

the partnership. He also does not depose that Sadananda Singh had to finance the partnership from his own funds. All that he has stated is that Sadananda Singh was to look after the partnership business and he was to contribute as and when required. He further made the amazing statement that he did not know what amounts were contributed by the other partners. Again on his own showing his first advance or contribution was on 7-3-1944. The Bank by that time had reached the limit of its accommodation. By 17th February a sum of Rs. 9000 had been borrowed from the Bank. Sadananda Singh's difficulties were presumably due to the fact that no more money could be borrowed from the Bank. It was in these circumstances that defendant-appellant advanced 3 sums as loans to the partnership. It is clear from the evidence adduced by defendants that of the 3 partners who are now parties to the case, no one contributed towards the financing of the partnership business. They also do not say that Sadananda did so. It follows that business had to be commenced on borrowed money and Sadananda Singh was to arrange for it. The partners of Sadananda Singh could not be unaware of the fact that money for the business will be borrowed. They could not suggest how else the partnership work could be done.

17. The fact that Sadananda Singh applied to defendant-appellant for loans for the purposes of the firm and he on his own showing advanced money on 3 occasions also shows that Sadananda Singh could borrow money for the purposes of the partnership business.

18. There is no reliable evidence on the record bearing on the value of the contract work done by the partnership. Defendant 3 guessed that the total value of the work would be Rs. 5000 to Rs. 6000. The partnership had accounts. These have not been produced. Defendant-appellant deposed that even though the business of the partnership had been finished in July 1944 he had not made any attempt to check partnership accounts till 15-6-1950 when he appeared as a witness. He did state that the accounts used to be maintained by Sadananda Singh but no attempt has been made to produce these accounts to show how much work was done and how money for it was arranged. The business of the firm continued till 13-7-1944. It is difficult to believe that no accounts were gone into between the parties till 1950 when evidence was taken in the case. It has been argued that if these accounts had been produced, they would have shown that the money borrowed was spent for the purposes of the firm and that all partners were aware of it. There is in these circumstances justification for the presumption that if defendants had produced the accounts, they would not have supported their contention. So far as defendant-appellant is concerned, his reply to the notice which he received from the Bank clinches the matter. Mr. K. Sarma, pleader sent to him the notice on behalf of the Bank and demanded payment of Rs. 8016/1/- with interest till the date of payment on 18-10-1946 intimating that this was the amount outstanding from him as partner of V. Allies and Company, the defendants' firm. On 24-10-1946 appellant sent the reply to the Bank's pleader Mr. K. Sarma.

Referring to his notice of 18th October defendant-appellant wrote as follows:

'I am a partner of Messrs. V. Allies and Co. I am in fact a passive member of the firm. The late Sadananda Singh was the Managing partner, he was responsible for all transactions with the Bank. Under the law I should have been approached after all steps to realise the over-draft, if any, from the Sadananda Singh's properties

have failed. In fact an account of the partnership business

will have to be taken and then find out who

is responsible for the money.'

Apart from the facts admitted it is clear that Lutfulla, appellant had knowledge of transactions with the Bank. He referred to these transactions, without stating that he was not aware of them. His knowledge of the arrangement with the Bank can be easily inferred. He even pleaded that Sadananda Singh as the Managing partner was responsible in the first instance and that the money should have been recovered from his property and he should be proceeded against only if it could have been realised from his properties. He further stated that the accounts of the partnership will have to be taken to find out who wag responsible for the money.

There was no denial of the fact that money had been borrowed for partnership purposes. The notice concedes by necessary implication that Sadananda Singh had the authority to borrow and he did borrow for the purposes of partnership. If he had no authority to borrow or if money was not utilised for the purposes of the partnership, there was no question of any settlement of accounts between the partners for finding out the liability for the money, nor could defendant appellant be held liable even if the amount due could not be recovered from the estate of deceased Sadananda Singh. So far as he is concerned therefore there is no escape from responsibility. Other defendants have not appealed and the question of his liability is concluded by his own writing.

19. The only other point raised by Mr. Ghose is that Sadananda Singh had no power to borrow more than Rs. 4000. In support of this contention he refers to the loan application made by Sadananda Singh on behalf of the firm. In this he stated that the amount of loan required was Rs. 4000. This fact however does not support the contention raised. The loan application made by Sadananda Singh has no bearing on the question of the limit of the authority of Sadananda Singh. If Sadananda Singh had actually authority to borrow money for the business of the firm, the necessity for the amount was to be determined by the exigencies of the business. The partners too could impose a limit on his powers. There is no evidence that any such limit was imposed. The extent of authority therefore was to depend on the needs of the business. When Sadananda Singh stated that he had needed about Rs. 4000, he was not imposing any restriction on his own power to borrow money on behalf of the firm. Besides, before any money was advanced Sadananda Singh executed a pronote for Rs. 10000 in favour of the Bank. He also intimated to the Bank in his loan application that the contract that he had to execute for the Public Works Department was of the value of about Rs. 40,000. There is no force in this contention. For reasons given above this appeal must fail and it is dismissed with costs.

Deka, J.

20. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //