1. By a decretal order of reference in this suit dated the 15th January 1903 it was inter alia referred to the Commissioner to take an account of the dealings and transaction. of the partnership in the pleadings from the time the factory started, namely 1893, to the 6th October, 1896. The accounts were taken by Mr. Modi, the Assistant Commissioner of this Court, whom I shall refer to hereafter for brevity's sake as the Com missioner. In 1907 he reported that the materials out of which the accounts had been prepared were incomplete and unreliable, Consequently it was impossible to take full and accurate accounts of the dealings and transaction of the partnership which the order of reference required him to do and that further directions were necessary. The defendants filed exceptions to this-report which were heard before me on the 13th June 1907. I directed the Commissioner that there were sufficient materials before him to frame an account and sent the case back to him. Against this order the plaintiff appealed, but his appeal was dismissed on the ground that I had done nothing more than given a direction in a matter of procedure not affecting the rights of the parties. The reference was reargued before the Commissioner and he has now made a report. He has again recorded his opinion that on the materials before him it was impossible for him to frame an account of the dealings and transactions of the partnership, and has reported that the plaintiff is entitled to recover the sum of Rs. 12,024, which it was decreed by the order of the 15th January 1903 should be taken as his contribution to the capital with interest at six per cent, from the 1st November 1893 to the 6th October 1896 and further interest on Rs. 14,137-15-l 1/2 from the 6th October 1896 till payment. The account books are now described as irregular as well as incomeplete and unreliable. The defendants have filed exceptions to this report, and these have been fully argued before me on the merits.
2. The partnership was originally founded in 1893 between 'Digamber Gopal, Vishnu Sakharam, and Vishnu Narayen to erect and work a ginning factory at Balam Takli in the Ahmednagar district. In 1895 Vishnu Sakharam transferred his interest to vasudev Sadashiv; in 1896 Digambar and Wasudev assigned their shares to the plaintiff and an indenture of the 21st February] 1896 was made between the plaintiff and Vishnu Narayen Ex. A in the case, under which the plaintiff purported to become a partner with Vishnu. The position of the plaintiff has been defined by the judgment of Tyabji J. who tried the case as follows: 'The plaintiff was not a partner from the beginning but he was entitled to accounts as if he had been a partner since 1893 but the plaintiff was not the absolute owner of the two thirds share, he was the mortgagee of those two shares subject to certain right of Wasudeo which was not material to be determined between the plaintiff and defendant in this suit. Further the plaintiff was not a benamidar pure and simple but had to a certain limited extent beneficial interest vested in himself as appearing in the judgment,'
3. The Commissioner has all along dealt with the case as if the plaintiff were a partner, but here there is a clear finding that he is not. It is true that at Book I p. 90, the learned Judge in his judgment says : 'By this agreement Mr. Khare became a partner and Vishnu has contracted with Mr. Khare ' but this appears hardly consistent with the findings above quoted and the following two passages, at p. 89 : ' Now in the plaint Mr. Khare sues as the absolute owner of these two thirds share from the year 1893. In the evidence before me however Mr. Khare admitted that his interest was merely that of a mortgagee to the extent of his actual claims,'' 'I will therefore assume that as between him and Wasudev he is and sues on the footing not as a pure benamidar but as Wasudev's nominee with interest in the factory as a mortgagee.' The Commissioner has, therefore, in the first place failed to recognize the true status of the plaintiff as defined in the judgment.
4. Vishnu Narayen having died the defendants were sued as the. members of a joint Hindu family of which Vishnu had been the eldest male member it being alleged that as such he had managed his share in the factory on behalf of the family.
5. The defendants were directed by the Commissioner to bring in the accounts directed by the order of reference, and accordingly did so. Those accounts were made up by one Raghunath from the cash books and day books of the factory which with sundry other books had been deposited by Vishnu with the plaintiff between April and July 1896 after the agreement of the 21st February 1896 and had remained with him ever since. After the account had been brought in the Commissioner directed that the items which were very numerous should be summarized under heads. This summary appears at pp. 3 to 8 of Book II. The plaintiff filed objections which appear at pp. 10, 11. The books from which Raghunath made up the account were admitted in evidence before the Commissioner under Section 32 of the Indian Evidence Act as having been kept in the ordinary course of business by persons deceased, and Mr. Binning argues that it is in the discretion of the Court to hold that they are suffcient evidence of the transaction to which the entries in the books relate without further proof. That I think must be conceded : Rampyarabai v. Balaji (1904) 6 Bom. L.R. 50. Mr. Binning further argues that these books having been proved to be partnership books are prima facie evidence against each of the partners that is to say, that it is not necessary to prove the transaction referred to in the books only theplainttiff can surcharge and falsify. Lindley on Partnership (at p. 566) says as follows, with respect to evidence upon which the accounts are to be taken : 'As regards the partnership books. These being accessible to all the partners, and being kept more or less under the surveillance of them all are prima facie evidence against each of them and therefore also for any of them against the others'. Mr. Raikes wishes to read this passage as if it ran: 'If it is proved that all the partners have had access to the books and if it is proved that they have been kept more or less under the surveillance of them all, then they are prima facie evidence.' This is a construction which' the words above quoted cannot possibly bear. The clear meaning is that owing to the nature of the relationship between partners, the books must be taken as being accessible to all and as being kept more or less under the surveillance of them all. If Mr. Raikes argument were correct it would follow that one partner who took no part in the active business of the firm and never went near the office might call upon his co-partner in a partnership account to prove every item appearing in the books. An examination of the cases cited on this point will show what the general principle is. In Lodge v. Prichard (1853) 3 De G. M. & G. 906 the defendant asked that in taking the partnership account, his books should be taken as prima facie Evidence of the truth of this matter there contained, The Lords Justices held that the case was not one for special direction. Turner L.J. said in the course of his judgment : '' I am aware that borne doubt has been felt in the Master's offices whether entries in partnership books are evidence against all the parties but I am not aware that any such doubt has been expressed by the Court.' And Knight Bruce L.J. said : 'Prima fade the books of the partnership are evidence among all the partners for them all and against them all, owing to the agency, whichpervaded all the partnership transaction. If one partner succeeded in establishing a case of fraud that would form a ground for an exception from the general rule nor is there anything in the rule to exclude an allegation of a mistake or erroneous omission or insertion. The only question is whether the books are prima facie evidence between the partners and this estate. In my opinion they are, and therefore the only order which, could reasonably be made would not give the appellants more than the law had already given them.' Nothing could be clearer than that. In Gething v. Keiahley (1878) 9 Ch. D. 549 there was a settled amount between two parties who had been partners. The plaintiff on the ground that the books of the partnership showed one clear error of a large amount in the balance sheet claimed to be entitled to have the whole account opened. Defendant contended that the plaintiff should have liberty to surcharge and falsify but that this. should be limited to errors appearing on the partnership books. Jessel M. R. said (at p. 537): ' The defendant asks us to limit the right to surcharge and falsify to errors appearing in the, books. I am very unwilling to make a new precedent as to the ; form of taking accounts and besides that it is not necessary under either the general law or the terms of the Act 15 & 16 Vic. c. 86, Section 54 by which the Court has power to make the books prima facie evidence. In many cases as in partnership eases they are evidence by virtue of the general law, independently of the rules and powers of the Court. Therefore, the books are admissible in evidence, but why should I make them conclusive evidence if the person complaining of them can by clear evidence at this distance of time show that there is an error in the books 1 When there is a question of surcharging and falsifying accounts, the case alleged must be clearly proved by the person impeaching them, and if there is any doubt, it will be determined against him.' I do not think the passage relied upon by Mr. Raikes in the judgment of Turner L.J. in Stewart's case (1866) 1 Ch. App. 587 can be considered as a repudiation of the above principle or a recantation by the learned Lord Justice of what he said in Lodrds v. Prichard. Turner L.J. says: 'I remember that in the great bankruptcy case of Fauntleroy, Lord Eldon intimated an opinion that every partner in a banking concern must be taken to have known the contents of his own books. The question was after, wards sent to law and the Court repudiated that doctrine and held that partners were not necessarily bound by the contents of their own books'. As there is no report of the case it is not possible to know under what circumstances the decision was given. But I do not think the decision appears to have gone further than laying down that partnership books are not conclusive evidence against the partner and that a partner can prove errors in books kept by his co-partners. In Hutcheson v. Smith (1842) 5 Ir. Eq 117 defendant in a partnership account claimed an allowance of 200 as resident partner for managing the business. The questions raised were : (1) whether this was a just and fair allowance, (2) whether there had been an agreement that defendant should receive this allowance. On the latter question it was argued that entries of the allowance made by the defendant in the partnership books were evidence of the agreement. But as the plaintiff had never seen the account it was held that the entries were no evidence of the agreement. Obviously the partnership books can only be evidence of matters relating to the partnership business and an entry of an allowance to one partner made by that partner could not relate to the business unless it was a just and fair allowance or there had been an agreement that the partner should receive the allowance. This case then is no authority against the general principle laid down in the cases already cited. Reeve v. Whitmore (1865) 2 Dr. & Sm. 446 was not a case of partnership but of principal and agent. It was held that entries of receipts in the agent's books were good evidence against him but payments made by the agents had to be proved in the usual way.
6. Mr. Raikes argued that as plaintiff and his mortgagors took no parts in thebusiness the relationship between them and Vishnu the managing partner was that of principal and agent, but this contention is obviously unsound. No doubt the law of partnership is a branch of the law of agency but the position of partners inter se cannot be altered because one partner chooses to take no part in the business, nor can he acquire greater rights on that account against his partners. Managing partners are principals as well as agents and cannot be compelled to prove payments made by them in the same way as an agent. The Commissioner in his judgment calls the plaintiff a sleeping partner, a curious error, as the expression was evidently used in a legal sense as affecting his right and liabilities for which I think the plaintiff's counsel was responsible.
7. In law a sleeping or dormant partner, is a partner who is not known as such to third parties dealing with the firm.
8. A partner who takes no part in the business may be called in popular phraseology a sleeping partner but this term should never be used in defining the relationship of partners inter se. It has nothing to do with the amount of work done by an individual, as a managing partner may conduct the whole business of a firm and will yet be a sleeping partner if he is known only as a manager to the persons dealing with the firm. The partner who takes no active part in the business of the firm does not occupy a more favourable position as regards his partnerson that account, nor is he entitled to any projection as against them as the Commissioner evidently thinks he is. I have dealt with this question at some length as I think the initial mistake of calling the plaintiff a partner coupled with the misuse of the phrase sleeping partner may account in some degree for the erroneous view the Commissioner has taken of the case.
9. In Moreham v. Newton (1640) 3 De Gex & Sm 307 the accounts of the partner ship had been carelessly kept and there were no means of making them out from the books. The plaintiff had furnish ed to the defendants, the executors of his deceased partner, before the suit an account current. The Master charged the plaintiff with the amounts on the debit side without allowing in his favour the items on the credit side and the Vice Chancellor held this was correct. This case however is not in point as the plaintiff was not relying on the partnership books. In my opinion there is nothing in any of these cases which militates against the general principle laid down in Lodge v. Prichard and Gething v. Keighley. It follows therefore that in my opinion the cash-books and day-books relied on by the defendants are prima facie evidence of the transactions of the partnership business referred to therein, in the absence of any imputation of fraud which should have been proved at the hearing. Lalbhai v. Kayasji (1871) 8 B. H. C. O. C.J., 209 Mr. Raikes contended that this argument hadtaken him by surprise and that he should be allowed to call evidence that Wassudev and Digambar never had seen the books. In my opinion it is aquestion of law and not of fact. It might be different if Vishnu had excluded Wassudeo and Digambar from having access to the books, but this has never been suggested and it is too late to do so now. In any event such exclusion would amount to fraud to be proved at the hearing.
10. Apart from the general principle which makes partnership books prima facie evidence between partners, the question arises whether in this case the Court will consider the books admitted under Section 32 as sufficient evidence of the transactions to which the entries in the books relate, leaving the plaintiff to surcharge and falsify. The books are daybooks and cashbooks containing original entries, and not copies of entries from other books. These entries are evidence of payment made by Vishnu for which defendants seek credit in this account and of monies received by Vishnu for which defendants must admit themselves liable during the period in question. Is there any reason why they should not, under the circumstances of the case, be considered as sufficient evidence of the partnership dealings and transactions from which an account can be framed.
11. In the opinion of the Commissioner it is quite impossible to frame an account from these books and I shall now deal with the reason for the opinion given in his original judgment. It is necessary in the first place to consider the relative position of the parties to the account. The plaintiff in 1895-96 was anxious to secure the debt due to him by Wassudev. He walked into the business with his eyes open and he has only himself to blame if he did not take the trouble to ascertain the real position of affairs. The defendants with the exception of the two who managed the factory for periods of one and three months respectively in the absence of Vishnu, knew no more about its working than the plaintiff. Plaintiff allowed three years to elapse before filing the suit which has made it still more difficult for defendants to establish their accounts, while all the time it must be remembered the books were in possession of the plaintiff. The plaintiff's position, therefore, is entirely different to what it would have been if he and Vishnu had originated the partnership, and plaintiff was demanding an account from Vishnu who had been allowed to remain in sole management of the partnership business. Plaintiff under the judgment in the suit is nothing more than mortgagee of the interests of Wassudev and Degambar and he cannot be placed in a better position than they are. But the real partners have kept in the back ground while the plain tiff has been allowed to pose as a person in whose favour everything should be presumed.
[His Lordship here went into the Commissioner's objections to the books seriatim ; and then proceeded as follows:-]
12. Now the Commissioner for some reason or other has considered that he is bound to take a full and accurate account of the partnership dealings and transactions, and that if he cannot take a full and accurate account, he cannot take any account at all. In the first place the order only directs an account. That order must be construed according to the circumstances under which it was made in 1903. Plaintiffs had all the books, Vishnu was dead and the only account that could possibly be made was from the books in plaintiff's possession. It is clear them that the account direct was an account as full and accurate as the circumstances of the case would permit. For the plaint plaintiff to urge that the books do not contain any materials at all for an account would be to give up the sole ground on which he could have obtained the order for an account and would render him liable for all the expenses of these abortive proceedings. The plaintiff was questioned about these books at the hearing. They had then been with him six years and all he could say was that he entertained suspicions of them when he received them. Even then he made no suggestion that they were worthless. For the plaintiff to keep the partnership books for three years, to go to Court to obtain an account which could only be framed on those books and then after eight more years to argue no account can be framed on these books appears to me trifling with the Court. Under the events which have happened if would be most unfair on the defendants to place them at a disadvantage in relation to the plaintiff as regards these books.
13. It is quite true that the books might prove to be in such a condition that no accounts could be made, in such a case I should consider the position of the partners equally balanced so that neither could claim any profit or be debited with loss. But without deciding that it could be possible to frame full and accurate accounts, I have shown above that the Commissioner's reasons for declining to frame any account at all are all insufficient, and most of them are absolutely erroneous.
[His Lordship after dealing seriatim with the defendant's objections to the Commissioner's report, continued:-]
14. Mr. Raikes has urged before me that I should not lightly set aside the report of the Commissioner who has had the books before him and heard the evidence. I certainly should not do so without very strong reason but I have shown above that the Commissioner has failed entirely to appreciate the law and the facts of the case, and This reason for discarding the books will not bear scrutiny. I have carefully gone through the evidence recorded before the Commissioner, and the detailed accounts filed by the defendants which show that the factory accounts were kept with great minuteness, and it is to be regretted that after. five years a perfectly simple account of a small trading partner ship has not emerged from the preliminary stage. I can hardly believe that the Commissioner has seriously considered the defendant account, rather he seems to have grasped at every pretext however flimsy put in his way by the plaintiff's solicitor for discarding the books. On the rehearing the Commissioner has failed to seize the opportunity given to him of taking the account he should have taken at first, and overwhelmed by the arguments of the plaintiff's Counsil has made a report based on Walmsley v. Walmsley, a case the circumstances of which he had rightly admitted in his previous judgment were entirely different.
15. In remanding the case to the Commissioner it is necessary to give the fullest directions.
16. The cashbooks and daybooks from which the accounts have been made up are prima facie evidence as partnership books.
17. They are also in my opinion sufficient evidence of the trans- action recorded therein under Section 32(2) of the Evidence Act without further corroboration.
18. The defendants must be given credit for the amounts of any payment not appearing in the above books if they can prove the vouchers relating to such payments.
19. Five per cent per annum on capital expenditure must be debited to the profit and loss account for depreciation. On the evidence before him the Commissioner would not be justified in disallowing the amounts shown in the account as due to the constituents of the factory.
20. Exhibit 2 may be relied on by the plaintiff as showing the factory had worked at a profit. The document is by no means conclusive and the fact that the alleged profit brings up the, amount due to plaintiff and Vishnu to Rs. 14,000 and 7,000 respectively makes me think that these are purely book entries which are referred to in Ex. E as an alleged increase of capital, I therefore direct that Ex. 2 should not be considered as of any value in taking the account.
21. The case is remanded to the Commissioner to take the accounts according to these directions, and deal with the plaintiff's objections and surcharges already filed. Exceptions allowed. Plaintiff to pay the defendant's costs on the hearing of the exceptions.