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Gordhandas Chhotalal Sheth Vs. Mahant Shri Raghuvirdasji Gangaramji - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMumbai
Decided On
Case NumberFirst Appeal No. 114 of 1927
Judge
Reported inAIR1932Bom539; (1932)34BOMLR1137
AppellantGordhandas Chhotalal Sheth
RespondentMahant Shri Raghuvirdasji Gangaramji
Excerpt:
partnership-ginning factory-managing partner-debts contracted by-debts binding on all partners.;debts contracted by the managing partner of a ginning factory for the purposes of the factory are binding on all the partners in the factory.;reversion fund and insurance co. ltd. v. maison cosway ltd. (1913) 1 k.b. 364, followed. - - the principle is based not so much on the doctrine of subrogation but on the doctrine of equity by which a good equitable debt is created where the money advanced is applied in discharging corresponding debt or liability and there is no increase of debt of the borrowing company......advanced by the plaintiffs were taken by the deceased keshavlal for the purposes of the wadhwan ginning factory as its sole managing partner, the other partners of the same being the deceased defendants nos. 1 and 2, but did not pass a decree against the other partners on the ground that the partnership was not a trading partnership. he passed a decree against defendants nos. 3 and 4, the sons of keshavlal, but refused to pass a decree against defendants nos. 5 to 9, who were members of a joint family which was represented by keshavlal in the partnership consisting of defendants nos. 1 and 2 and keshavlal. there is no appeal as against defendants nos. 5 to 9. the present appeal is filed by the plaintiffs principally against defendants nos. 1 and 2, the partners of the ginning factory.....
Judgment:

Patkar, J.

1. This was a suit brought by the plaintiffs to recover Rs. 6,860 as principal and Rs. 821-5-3 as interest from the property of the partnership gin factory of defendants Nos. 1 and 2 and Keshavlal, who was the father of defendants Nos. 3 and 4 and the manager of the joint family of defendantsNos. 5 to 9.

2. The learned Judge held that the moneys advanced by the plaintiffs were taken by the deceased Keshavlal for the purposes of the Wadhwan Ginning Factory as its sole managing partner, the other partners of the same being the deceased defendants Nos. 1 and 2, but did not pass a decree against the other partners on the ground that the partnership was not a trading partnership. He passed a decree against defendants Nos. 3 and 4, the sons of Keshavlal, but refused to pass a decree against defendants Nos. 5 to 9, who were members of a joint family which was represented by Keshavlal in the partnership consisting of defendants Nos. 1 and 2 and Keshavlal. There is no appeal as against defendants Nos. 5 to 9. The present appeal is filed by the plaintiffs principally against defendants Nos. 1 and 2, the partners of the ginning factory of which Keshavlal was the managing partner.

3. The question as to whether the ginning factory was a commercial firm or a trading partnership was not specifically raised in the written statement. In a mercantile trading firm a partner has implied authority to draw and accept bills of exchange or hundis on behalf of the firms: see Moti Lal v. The Unao CommercialBank : (1930)32BOMLR1571 The Bank of Australasia v. Breillat (1847) 6 M.P.C. 152 and Bunarsee Das v. Gholam Hoosein (1870) 13 M.I.A. 358 According to the decision inSaremal v. Kapurchand : AIR1924Bom260 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, of a farmer, quarry-worker, or an auctioneer, no partner can borrow or pledge the partnership property so as to bind his co-partners. According to Lindley on Partnership, 9th Edition, page 181, the question as to whether one partner can bind the firm by accepting bills in its name admits of no general answer; the nature of the business and the practice of those who carry it on (usage or custom of the trade) must be known before any answer can be given. The ginning factory might advance money on cotton, buy cotton in its naturalcondition and sell ginned cotton, but 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 ample power of borrrowing.

4. Assuming, however, that the Wadhwan Ginning Factory is not a business of a commercial nature or a trading partnership, there is no doubt on the evidence that the money, which was advanced by the present plaintiffs to Keshavlal, the managing partner, was for the purposes of the ginning factory. It appears the accounts of the ginning factory for the Samvat years 1976 to 1979 were produced by the defendants, but the accounts previous to Samvat 1976 were not produced though they were in existence. It appears from the accounts that the entries of Rs. 300, 500, 1,000, 800 and 350 appear in the accounts of the ginning factory. It is contended on behalf of the defendants that there is no entry relating to Rs. 2,000 and 100 in the accounts of the ginning factory but those accounts were not produced by the defendants. It appears, however, from Exhibit 77, the last khata passed by Keshavlal, that the money was paid for the purpose of purchasing coal, stores and other goods for the ginning factory. It appears also from the letter, Exhibit 86, dated February 7, 1922, that the amount of Rs. 1,000 was required for payment of the freight of the waggons of coal, Plaintiff No. 2 in his evidence, Exhibit 74, stated with regard to the item of Rs. 2,000, that it was borrowed for spending the amount in the ginning factory. We think, therefore, that the finding of the lower Court that the moneys were taken by the deceased Koshavlal for the purposes of the Wadhwan Ginning Factory is correct on the evidence.

5. The question is whether the other partners are liable for the debts evidenced by the promissory notes and the khata signed by Keshavlal alone. Reliance has been placed on behalf of the appellants strongly on the decision in the case of Reversion Fund and Insurance Co. Ltd. v. Maison CoswayLtd. (1913) 1 K.B. 364 In that case Scrutton J. held that the advance was intended to be a loan to Morhange in his individual capacity and that even if that were not so and the advance was intended to be made to the defendant company, inasmuch as the plaintiff company knew when the advance was made that Morhange was not authorised to borrow on behalf of the defendant company, the defendant company was not liable.On appeal the finding of Scrutton J., was not upheld by the majority of the Judges and it was held that the money was not borrowed by Morhange in his individual capacity but he borrowed it on behalf of the company. But even on the alternative ground, viz., the knowledge of the creditor of want of authority of managing director to pledge the credit of the defendant company, on which the case was decided by Scrutton J., the equitable doctrine was applied, and it was held that where money has been applied for paying the debts of the company, the transaction is not one of borrowing at all, and the whole question for the purposes of that doctrine is whether the money found by the lender has been applied so as to relieve the so-called borrower of liability, and that if and to the extent that it has been soapplied he cannot retain the money. The principle is based not so much on the doctrine of subrogation but on the doctrine of equity by which a good equitable debt is created where the money advanced is applied in discharging corresponding debt or liability and there is no increase of debt of the borrowing company. In this case it is neither alleged not proved that the plaintiff had any knowledge of Keshavlal's want of authority to borrow and it appears on the evidence that the money was borrowed from the plaintiff for paying off the just liability of the Gin Factory in respect of coals, stores and other goods necessary for its working.

6. It is urged on behalf of the respondents that this equitable principle can only be applied where the borrowing is expressly made on behalf of the firm, and it can be applied only where the money is borrowed by one partner in the name of the firm and not where it hasbeen borrowed by a partner in his own name, and reliance has been placed on the remarks at page 258 of Lindley on Partnership, 9th edn. We think that the question falls under Sections 249 and 251, read with Section 188 of the Indian Contract Act, and the question is whether the debt was incurred in the course of business by or on behalf of the partnership, and whether the act of borrowing was necessary for and was done in carrying out, as a matter of fact, the business of the partnership.

7. In Venkatasubbiah Chetty v. Govindarajulu Naidu I.L.R. (1907) Mad. 45 it was held that under English law, in an action on a written contract, oral evidence is admissible to show that the party liable on the contract contracted for himself and as the agent of his partners, and that such partners are liable to be sued on the contract, though no allusion is made to them in it and that this is also the law in India as there is nothing in Section 91 of the Indian Evidence Act to show that the legislature intended to depart from this settled rule of English law.

8. To the same effect is the decision in the case of Shanmuganatha Chettiar v. SrinivasaAyyar I.L.R. (1910) Mad. 727. The suit in the present case is not based on the promissory note passed by Keshavlal but on the various transactions of loans from the beginning acknowledged by Keshavlal in the last khata, Exhibit 77.

9. In Nicholson v. Ricketts (1860). 2 E. & E. 497 it was held that even in partnership not strictly commercial, if it is obvious from the nature of the partnership or from the particular purpose to which the bills are to be applied, that the drawing of the bills is essential, the law implies an authority to each partner to draw them. The case of Bam Chandra Sahu v. KasemKkan (1923) 28 C.W.N. 824 cited on behalf of the respondents, has been distinguished in the subsequent case of Mathura Nath Choudhry v. Sreejukta BageshwariRani (1927) 46 C.L.J. 362

10. On the evidence on the record I think that Keshavlal the managing partner entered into the transactions not in his individual capacity but on behalf of the ginning factory at Wadhwan, and I agree with the finding of the lower Court that the money borrowed from the plaintiff's went in payment of the liabilities of the company, and in making purchases of coal, stores and other goods which were necessary for the purpose of carrying on the ginning factory. The debt was incurred in the course of business on behalf of the partnership. We think, therefore, that the other partners cannot repudiate their liability on account of the debt so incurred by Keshavlal.

11. It also appears that the re-payments of Rs. 500 and 600 subsequently made also appear in the accounts of the ginning factory, and the principle laid down in Halabury's Laws of England. Vol. XXII, para 61, is applicable:-

A partner who merely complains of unauthorised transactions by his partner, but takes no further step and allows a record of such transactions to remain in the partnership books, may be bound by acquiescence

12. We think on the whole that the learned Judge erred in disallowing the claim of the plaintiffs as against the other partners.

13. We would, therefore, vary the decree of the lower Court by allowing the claim and order that the plaintiffs do recover the amount of Rs. 6,541 with six per cent, interest per annum from the estate of defendants Nos. 1 and 2. The appellants should get the costs of this appeal With regard to the costs in the lower Court the plaintiffs should get four-fifths of the costs from defendants Nos. 1 and 2 if they are unable to recover the costs from the estate of Keshavlal.

Murphy, J.

1. The point in this appeal is whether, in the circumstances, the two partners of the original debtor, Keshavlal, are liable for the sums of money he borrowed to conduct the business of the partnership they had formed. This business was the carrying on of a cotton ginning factory at Wadhwan, and the partnership is admitted. It has also been held that the money supplied to Keshavlal was raised for the purposes of the ginning factory. The learned Subordinate Judge, however, has refused to make defendants Nos. 1 and 2, the other partners, liable, on the ground that the partnership in question was not a trading one, as not having been formed to buy and sell, but presumably to gin cotton for a price.

2. The relevant sections of the Indian Contract Act are Sections 188, 249 and 251, the former section defining the extent of agent's authority, and the two last, a partner's liability and a partner's power to bind his other partners, respectively. In the definition in Section 5 of the English Partnership Act, 1890, the limitation which saves the liability of all, is that the partner concerned should in fact have no authority, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner.

3. The money here was borrowed for the purposes of the gin and is shown in the accounts, and a repayment of Rs. 1,100 was made by the firm. There is no real doubt as to the purpose of the borrowing. The learned Subordinate Judge's distinction is that the essential mark of a trading firm is that it should buy and sell to make a profit by the difference, and that idea does not include a firm carrying on such business as ginning cotton which may be defined generally as carrying out part of a process of manufacture for a price. In the case of Saremal v.Kapurchand : AIR1924Bom260 the learned Judge defines a trading firm as one whose business consists in buying and selling and was there concerned with a business to buy and sell copper and brass utensils. It is observed in the judgment that where the business is not of a commercial nature, e.g., where it is a professionalbusiness, or even the business of a farmer, 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 copartners There was, however, no real question in that case as to the character of the business and the discussion is only by way of illustration. The money here was borrowed for the business, for buying stores, such as coal and the payment of freight for the coal which was required for running the gin, and so on, There is no doubt here that the debt was incurred in the usual course of business on behalf of the partnership. In such a case it seems to me that the question raised by the learned Subordinate Judge did not really arise. In the case of Reversion Fund and InsuranceCo. Ltd. v. Maison Cosway Ltd. (1913) 1 K.B. 364 it was held that even where the lending company knew that the managing director of the borrowing company had no authority to borrow, and yet lent the money, which was duly applied to the purposes of the borrowing company, the last was liable. See also the case of Bannatyne v.Maciver (1906) 1 K.B. 103

4. Defendants Nos. 1 and 2 have not helped the Court. They were partners admittedly, and on the death of Keshavlal presumably did what surviving partners usually do and wound up the gin, and in fact we are told that there was an administration suit of Keshavial's estate in the Rajkot Court, and the books must have been there. But no attempt has been made to produce them by the surviving partners or their representatives, such as are produced having come from the custody of the guardian of Keshavlal's children. I do not think that in the circumstances defendants Nos. 1 and 2 can thus slough off all responsibility.

5. It has been found by the Court below that Keshavlal was the managing partner, and the money claimed was in fact borrowed and used for the purchase of stores for the partnership, and it has not been shown that Keshavlal had no authority to pledge his co-partners' credit for such a purpose. I think that the point on which the learned Subordinate Judge decided the case,i.e., that defendants Nos. 1 and 2 were not responsible, because of the character of the firm, did not really arise; that Keshavlal's actions were completely covered by the relevant sections in the Indian Contract Act which I have cited above, and that defendants Nos. 1 and 2 are liable for his acts.

6. I agree that the decree must be varied accordingly.


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