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C.S. Ramanujachary Vs. Pohoomal Bros. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 114 of 1925 and Suit No. 319 of 1925
Judge
Reported in(1926)28BOMLR1275
AppellantC.S. Ramanujachary
RespondentPohoomal Bros.
DispositionAppeal dismissed
Excerpt:
.....court may order the liability of such person to be tried and determined in any manner in which any issue in a suit may be tried and determined. (2) he may challenge at) once the denial of the person served as a partner that he was a partner. if so, he should take out a summons to strike out the appearance entered on the ground that the party appearing is a partner in the firm sued or was a partner at the time the cause of action accused, or in the alternative to strike out of such appearance the denial of partnership. an order then may be made by the court directing an issuee to be tried to determine the question of partnership.;where a suit, is filed against s firm under the provisions of order xxxvii, the defendant cannot appear without leave under rule 2.;where a partnership has come..........of action.'9. rule 3 prescribes that ' where persons are sued as partners in the name of their firm, the summons shall be seved either-(a) upon any one or more of the partners, or(b) at the principal place at which the partnership business is carried on within british india upon any person having, at the time of service, the control or management of the partnership business there,as the court may direct: and such service shall be deemed good service upon the firm so sued, whether all or any of the partners are within or without british india.10. in this ease the summons was served upon the applicant as a partner.11. by rule 6 'where persons are sued as partners in the name of their firm, they shall appear individually in their own names, but all subsequent proceedings shall,.....
Judgment:

Norman Maclead, Kt., C.J.

1. The plaintiffs filed this suit against Messrs. Charry and Charry, a firm, to recover the sum of Rs. 2,500 with interest thereon said to be due on a promissory note, dated November 2, 1923, which had matured on January 10, 1924. Under the provisions of Order XXXVII, Rule 2, a summons was issued in accordance with form No. 4 of Appendix to the First Schedule of the Civil Procedure Code.

2. Thereupon one P.S. Ramanujachary applied for an order that leave should be granted to him to appear and defend the suit, or, in the alternative, to appear and defend the suit to the extent that he was not a partner at any time material to the suit and was not liable for the plaintiffs' claim. In his affidavit in supportof the summons the applicant alleged that the partnership between himself and T.S. Varadachary in the firm of Gharry and Gharry was dissolved by mutual consent so far back as April 18,1923.

3. The following order was made by the Chamber Judge on March 20, 1924, on the summons, after hearing the parties and reading numerous affidavits :-

I do order that the applicant be and is hereby given leave to appear and to contend that he was not a partner in the firm of defendants at any time material to that suit and I do further order that the said issue be tried in Court on June 24, 1924.

4. For some reason not known to us it was not until September 21, 1925, that the ease came on before Mr. Justice Mirza for trial of the issue. A question was first argued regarding the effect of the order of March 20, 1924, Mr. Coltman for the applicant contended that the only issue the Court was competent to try was whether the applicant was or was not a partner at the date of the hundi in suit. The learned Judge ruled that, although that might be regarded as the issue before him, it should be open to the plaintiff to contend that in case the applicant was not a partner at the date of the hundi he held himself out to be such and was hence liable to the plaintiffs. He further ruled that it should be open to the plaintiffs to contend that the applicant should be held liable for the amount of the hundi on the ground that the amount had gone towards payment of a liability incurred while the partnership was in subsistence and the plaintiffs were entitled on the principle of subrogation to stand in the shoes of the creditors of the partnership who were paid off by means of the amount so borrowed. The Judge further remarked that the procedure adopted by the order of March 20, 1924, wasdefective inasmuch as the issue was the only issue in the case and it should have been tried at the hearing of the suit and not as a preliminary issue. But he failed to observe that as yet no leave had been obtained to defend the suit. Thereupon, he allowed the trial of the issue to proceed upon three grounds: (1) that the applicant was a partner at the date of thehindi, (2) that, if not, he was liable as having held himself out to be such, and (3) the applicant was liable to the plaintiffs in respect of the debt on the principle of subrogation. The last point was abandoned early in the trial by plaintiffs' counsel.

5. On the evidence recorded the Judge held that the partnership was in existence at the date when its credit was pledged by means of Exh. O, the hundi in suit of November 2, 1923. It was, therefore, not necessary to consider whether the applicant had held himself out as a partner. Still the question was considered at some length and the Judge expressed the opinion that at the date of the hundi the applicant was not in the position of a dormant partner and that he had held himself out as a partner of the firm.

6. The applicant has appealed.

7. As, with all due respect to the learned Judge, there has been a failure to appreciate the provisions of Order XXX with regard to suits filed against partners in the name of the firm and the complications which result when such a suit is also filed under the provisions of Order XXXVII, it becomes necessary, in the first instance, to set out clearly what is the procedure prescribe ed by those Orders and explain how effect is to be given to it.

8. By Rule 1 of Order XXX ' Any two or more persons claiming or being liable as partners and carrying on business in British India may sue or be sued in the name of the firm (if any) of which such persons were partners at the time of the accruing of the cause of action.'

9. Rule 3 prescribes that ' Where persons are sued as partners in the name of their firm, the summons shall be seved either-

(a) upon any one or more of the partners, or

(b) at the principal place at which the partnership business is carried on within British India upon any person having, at the time of service, the control or management of the partnership business there,

as the Court may direct: and such service shall be deemed good service upon the firm so sued, whether all or any of the partners are within or without British India.

10. In this ease the summons was served upon the applicant as a partner.

11. By Rule 6 'Where persons are sued as partners in the name of their firm, they shall appear individually in their own names, but all subsequent proceedings shall, nevertheless, continue in the name of the firm.'

12. By Rule 8 ' Any person served with summons as a partner under Rule 3 may appear under protest, denying that he is a partner, but such appearance shall not preclude the plaintiff from otherwise serving a summons on the firm and obtaining a decree against the firm In default of appearance where no partner has appeared.'

13. What is the true legal position when a person, who has been served with a summons as a partner, enters an appearance under protest denying he is a partner, has not clearly been understood in this case. Such an appearance has nothing to do with the merits of the case, but only with the question whether the summons has been properly served according to the rules. Its effect is merely to nullify the service altogether as regards the defendant firm, The plaintiff may then disregard the appearance under protest and proceed again in his endeavours to serve the summons in accordance with the provisions of Rule 3. If he succeeds in doing this and obtains judgment against the firm he may apply under Order XXI, Rule 50, for leave to issue execution against the person who had appeared under protest, when, if the liability is still disputed, the Court may order the liability of such person to be tried and determined in any manner in which any issue in a suit may be tried and determined. Or, the plaintiff may wish to challenge at once the denial of the person served as a partner that he was a partner. If so, he should take out a summons to strike out the appearance entered on the ground that the party apppearing is a partner in the firm sued or was a partner at the time the cause of action accrued, or, in the alternative, to strike out of such appearance the denial of partnership. An order may then be made directing an issue to be tried to determine the question of partnership.

14. It is to be noted that in such a case the only question depending on the determination of the issue is whether the summons has been duly served or not under Rule 3. If it has, then the trial of the suit can proceed. If it has not, the plaintiff must proceed to serve the summons afresh. It should be obvious then that when the only issue for the determination of the Court is whether a person has been properly served as a partner of the defendant firm, the question whether he has held himself out as a partner can never arise, as that question relates to the liability of a person who in fact is not a partner, so that service on such a person cannot be good service on a firm under Rule 3. A difficulty, however, arises where a suit is filed against a firm under the provisions of Order XXXVII which differ from the provisions in the rules of the Supreme Court relating to summary suits. Such suits in England are instituted by means of a specially endorsed writ under Order III, Rule 6. and after the writ, has been issued the plaintiff' can take out a summons for judgment under Order XIV. The defendant can then ask for leave to defend. Under Order XXXVII, Rule 2, Civil Procedure Code, the defendant cannot even appear without leave, and it would seem that the words ' appear or ' in Order XXXVII, Rule 2 (2) are unnecessary and might well be omitted.

15. In England, an appearance under protest entered by a person served as a partner is not sufficient to ground proceedings under Order XIV, and this further emphasises the fact that such an appearance merely opens up the question whether the summons has been properly served and has nothing to do with the questions which will arise at the trial of the action.

16. When the applicant took out the summous in this case, it was probably necessary for him to apply for leave under Order XXXVII, Rule 2, before his appearance under protest could be filed, and that could be the only question for the Judge to decide. The plaintiff might have allowed the appearance to be filed and then disregarded it as I have already pointed out, or he might have asked the Judge to direct the trial of an issue as to whether the applicant was or was not a partner at the time the cause of action accrued. If that issue were decided against him, there would be no good service against the firm, If he succeeded, then the summons would have been properly served, and it would be only after that question had been settled, that it would be possible to consider the question whether leave to defend should be granted. In any event the defendant entering an appearance under protest could not be entitled to ask for the trial of an issue whether be was a partner. It does not appear from the record in what circumstances the order of March 20, 1924, came to be made, whether the plaintiffs were told that they had an option to disregard the denial of partnership by the applicant, or whether they asked the Court to direct the trial of the issue, but the order as it stands could only relate to the question of the service of the summons on the defendant firm, and it is on that footing that I am dealing with this appeal. It would appear from the judgment before us that another. summary suit No, 483 of 1924 was filed against the firm of Charry and Charry in which, on a similar application by the present applicant, a similar order was made in Chambers directing the trial of an issue whether or not the applicant was a partner in the firm of Charry & Charry at the time the cause of action in that suit accrued, and Mulla J, trying the issue held that the partnership was dissolved on May 21, 1923. The learned Judge also considered another issue, wrongly as I have already pointed out, whether there was a holding out by the applicant after that date, It is now possible to deal with the question whether the applicant was a partner in Charry & Charry on November 2, 1923, the date of the hundi in suit.

17. The applicant and Varadachary entered into purtnership on February 27, 1922. The partnership deed is Exh. E. The partnership was to continue for a period of five years unless it was determined by six calendar months, notice to be given by one partner to the other. Disputes arose between the partners regarding the conduct of the business, and, on April 10, 1923, the applicant wrote to Varadachary a letter which concluded :- ' Under thesecircumstances please take formal notice not to do any more fresh bussinese under the signature of Charry and Gharry until the present misunderstandings are all cleared and until I again give my consent to proceed with the normal business,'

18. Varadachary replied on April 18 by a letter in which he said :-

I have taken notice of your wishes and no business will be done in the name of Gharry and Charry from today, I shall attend to the winding up of everything and then if approved we shall think of continuing the business.

19. Then, after referring to the accounts which were not yet made up, he stated that he was willing to pay the applicant in full the amount he had paid and release him from the deed of partnership, indemnifying him from all claims in respect of contracts still pending. The applicant replied on April 25, 1923, noting that Varadachary agreed not to do any fresh business and reserving to himself the option of going out of the partnership on being paid all amounts due to him as revealed by the accounts up to April 18, 1923, When the applicant received the amounts, he wrote on May 14 that he had decided to accept the offer of April 18, and withdraw from the partnership on being paid Rs. 13,626-6-3 standing to his credit in the books and on being given an indemnity against all contracts then pending.

20. Varadachary replied on May 21 that he was willing to pay whatever shown by the accounts and not the sum of Rs. 13,626-6-3.

21. The applicant replied on May 27, asserting that he had accepted the terms of settlement suggested by Varadachary in his letter of April 18, practically in his own words by the letter of May 14, up to which time the terms of settlement had neither been withdrawn nor in any detail amended.

22. Thereafter there was no business correspondence between the parties except a letter by the applicant of June 12, 1923, stating that Varadachary had sent no reply to his letter of May 27, regarding a settlement out of the partnership and adding without prejudice to the writer's claims and contentions that he had asked Fergusson & Co. to scrutinise the accounts and vouchers on his behalf. On December 22, 1923, a deed of dissolution was drawn up reciting that the partnership had been dissolved from April 18, 1928.

23. It was strenuously contended that the two bundles drawn by Varadachary on April 20, 1923, which he signed as follows 2--

T.J. Varadachary,

Proprietor, Gharry & Charry

proved that there had been a dissolution of the partnership on April 18, but it is quite clear, on the applicant's own showing, that at the highest there was In existence, on April 20, only an offer by Varadachary which was not accepted by him before May 14. The question whether the firm could be liable on the hundieis so drawn by Varadachary would be entirely irrelevant to the present issue.

24. The partnership having come into existence for a fixed period with a clause enabling one partner to dissolve by giving six months' notice to the other, it is clear that any other method of dissolution by agreement between the partners must be striotly proved. If the applicant had said in his letter of April 25, ' I shall wait until I see the accounts before deciding whether to accept your offer of April 18,' viz., to pay the 12,000 odd which had been advanced by the applicant to the partnership, it might be said that the applicant was entitled to decide finally to accept the offer if it had not been previously withdrawn, bud it is contended that the applicant, instead of keeping Varaduchery's offer open, made a counter-offer stating that when the accounts arrived he would decide whether he would go out on being paid, not the 12,000 odd, but what would be due to him as revealed by the accounts, which meant due to him on account of his share in the partnership. The learned Judge says that the applicant, when he received the accounts from Varadachary, after he wrote on April 25 discovered that he was indebted to the extent ofRs. 2,500 before he wrote his letter of May 14, but I cannot discover anything in the record which would show that the applicant knew what was the loss incurred until he received Meesrs, Fergusson & Co.'s report of July 12. In cross-examination he said (p. 57):--

In June Fergusaon and Co. were appointed to examine the accounts. Therewas Rs. 68,900 outstanding bills. I knew this from the report for the first time.

25. It is extremely difficult, therefore, to say what is the proper construction to put on the applicant's letter of April 25, It has been construed already by two Judges in two different ways and there is much to be said in favour of both views.

26. The conclusion 1 have come to is that, since the onus lies on the applicant to prove that he ceased to be a partner long before the hundi in suit was passed, he must prove unequivocally that the partnership which, according to the terms of the deed was still in existence had determined by agreement between the parties, and if the documents on which he relies to prove that agreement can with equal justification be read as having two different meanings then the applicant has failed to satisfy the onus which lay upon him. The result is that the service on the applicant was good service on the firm and the appeal must be dismissed with costs,

Goyajee, J.

27. I agree.


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