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In Re: Joharmal Pannaji and anr. : Prithviraj Fulrai and ors. - Court Judgment

LegalCrystal Citation
Decided On
Case Number Nos. 232 and 296 of 1918
Reported inAIR1918Bom20; (1919)21BOMLR190; 50Ind.Cas.437
AppellantIn Re: Joharmal Pannaji and anr. : Prithviraj Fulrai and ors.
presidency towns insolvency act (iii of 1909), section 8--adjudication order--annulment--power to re-adjudicate--insolvency court can pass the order on review--procedure--indian contract act (ix of 1872), section 240--partner 'receiving share in profits hut not in loss--partnership. ;where a creditor seeks to have a person re-adjudicated insolvent against whom an adjudication order has been made but has subsequently been annulled, the proper procedure is, not to appeal from the order of annulment to the court of appeal by leave, but to apply to the insolvency court for review of the order of annulment under section 8 of the presidency towns insolvency act, 1909. the order for annulment can be made not only at the instance of the original petitioning creditor, but of any other creditor.....marten, j.1. this is an application in bankruptcy and it raises two entirely different questions. the first is technical: the second is as to the merits of the case.2. the first question (viz., the technical one) is, what is the proper procedure for a creditor to adopt who wishes to have two alleged members of a firm of five persons re-adjudicated bankrupt, there being already a bankruptcy petition by other creditors, on which an adjudication order has been made against all five persons but has been subsequently annulled as regards two of them ?3. the second question (via., on the merits) is whether the two persons in question were partners in the firm i have mentioned. if they were partners, they ought to be adjudicated bankrupt, subject to the technical point i have mentioned. if they.....

Marten, J.

1. This is an application in bankruptcy and it raises two entirely different questions. The first is technical: the second is as to the merits of the case.

2. The first question (viz., the technical one) is, what is the proper procedure for a creditor to adopt who wishes to have two alleged members of a firm of five persons re-adjudicated bankrupt, there being already a bankruptcy petition by other creditors, on which an adjudication order has been made against all five persons but has been subsequently annulled as regards two of them ?

3. The second question (via., on the merits) is whether the two persons in question were partners in the firm I have mentioned. If they were partners, they ought to be adjudicated bankrupt, subject to the technical point I have mentioned. If they were not partners, then there is no ground whatever for adjudicating them bankrupt.

4. The petition I have to deal with, as it originally came before me, is one asking simply for the readjudication of these two persona. Their names are Pratapchand Genuji and Joharmal Panaji, and I will call them respondents 3 and 4 because that was the number they bore in the original adjudication order. I should say that the original adjudication order was made on the 6th of June 1918 and that thereby a firm of Genuji Ukaji & Co. was adjudicated bankrupt. That firm according to the title of the proceedings consists of the five persons therein named, including respondents 3 and 4. The petition, on which that adjudication order was made, is No. 232 of 1918 and the petitioning creditors were Raichand Motichand & Co.

5. On the 2nd of July an order was made by Mr. Justice Kajijj annulling this adjudication order of the 6th of June, so far as respondents 3 and 4 were concerned. It appears from the order that the Official Assignee was present, but that there was no appearance by the petitioning creditors. Their solicitors wrote to the solicitors for respondents 3 and 4 on the 1st of July, saying 'with reference to your letter of the 29th ultimo we have no instructions to oppose your client's application.' I may say that it is now alleged in the present proceedings that the reason why the then petitioning creditors did not oppose the application for annulment was because they had been given some financial inducement to take the course which they actually did.

6. That order of annulment was filed on the 5th of July, and the very next day, namely, the 6th of July, the present petitioning creditors, Prithviraj Bhagwan and another firm (I will call them petitioning creditors No. 2) presented their petition No. 296 of 1918 asking for the re-adjudication of respondents 3 and 4. This was followed up by a rule nisi granted on the 12th of July by myself, which I have no recollection of granting, and still less of being told that there was any technical difficulty involved. But the rule called upon the respondents 3 and 4 to show cause why an order of readjudication should not be made and it also appointed the Official Assignee interim Receiver of certain specified property. That Rule was made in proceedings No. 296 of 1918.

7. I will deal now with the technical point. When the matter came before me on the 20th of August, Mr. Taleyarkhan for the two alleged insolvents objected that an order of readjudication simpliciter could not be made. I did not however understand him to oppose on technical grounds the application, if it was made under the powers of review conferred upon the Court, and if the necessary amendments were made in the petition and in the Rule nisi. Accordingly, I directed the petition and the Rule nisi to be amended. Subsequently, on reading those amendments, I noticed two further points. The one is that the present petition No. 296 presented by the petitioning creditors No. 2 is in a different matter from the original petition No. 232 ; and further that no notice had been given to the petitioning creditors No. 1 of the intention of the petitioning creditors No. 2 to set aside the order of annulment. I accordingly directed the matter to be set down again on the board and notice to be served on the petitioning creditors No.1. I did this because it seemed to me that if the application was based as one to review a previous order of the Court, it was only proper that all the parties who were before the Court on that occasion when that order was made should also be before the Court when the subsequent application for review was made. However the petitioning creditors No. 1 have not thought fit to appear before me to-day, and as regards the other matter I have mentioned, Mr. Setalvad who now appears for the petitioning creditors No. 2 is willing that the petition and the Rule nisi should be headed in both matters, I mean in No. 232 as well as No. 296. Mr. Taleyarkhan raises no objection to that further amendment and I think very properly so.

8. That still leaves me to consider what is the proper mode of procedure in such a case as this. When I raised the question whether the right course was not to appeal with leave direct to the Court of Appeal from the order of annulment, I had in mind the possibility that the bankruptcy practice might follow in this respect the Chancery practice for I was not given the benefit of a reference to any section of the Act or to any authority in this matter. The Chancery practice I referred to is that mentioned in In re Securities Insurance Company [1894] 2 Ch. 410, where Lord Justice Lindley says at page 413 :

Now, what was the practice of the Court of Chancery before 1862, and what has it been since? I understand the practice to be perfectly well settled that a person who is a party can appeal (of course within the proper time) without any leave, and that a person who without being a party is either bound by the order or is aggrieved by it, or is prejudicially affected by it, cannot appeal without leave. It does not require much to obtain leave. If a person alleging himself to be aggrieved by an order can make out even a prima facie case why he should have leave he will get it: but without leave he is not entitled to appeal.

9. It might have been therefore that the petitioning creditors No. 2 would be the class of persons referred to by Lord Lindley as being persons not parties who were prejudicially affected by the order of annulment. But as regards Bankruptcy Jurisdiction there is a special provision enabling the Court to review, rescind or vary any order made by it under its insolvency jurisdiction. That is given by Section 8 of the Presidency Towns Insolvency Act and it is practically a verbatim copy of Section 104 of the English Bankruptcy Act, 1883, which runs:

Every Court having jurisdiction in Bankruptcy under this Act may review, rescind, or vary any order made by it under its bankruptcy jurisdiction.

10. The Advocate General rather hinted that as the petitioning Creditors No. 2 were not present at the hearing of or served with the application when the annulment order was made, that therefore they would not be persons who can obtain a review. 1 have not had the bene6t of a detailed argument on the point or been referred to such authorities as there may be, but personally I think that this Section 8 ought to be given as wide an operation as it has in the English Bankruptcy Court, and that when one considers the nature of bankruptcy jurisdiction, 'affecting as it does a large number of persons all of whom are not necessarily before the Court, one may properly consider that bankruptcy cases are pre-eminently those where a review of previous decisions may be useful.

11. This case is, I think, a good illustration of what I mean. Petitioning creditor's No. 1 got an order of adjudication. It is alleged--I do not say whether it is proved or not--but it is alleged they have (to use a colloquial expression) been squared by the alleged insolvents. At any rate they do not appear to oppose the annulment, and accordingly the adjudication order is annulled on a statement of facts which, to say the least of it, omits many material matters. In my opinion that is a class of case where people like petitioning creditors No. 2 who were not present or given any notice of the proposed annulment are undoubtedly aggrieved or prejudiced by the decision of the Court. That is exactly a class of case where in my opinion the Court may usefully review or rehear its decision in the case. It is quite different from an ordinary litigation between A and B where the case is heard out and where to ask the Judge to rehear the case is almost intolerable. The proper remedy in that case is to appeal if the party has reason to think that the decision is erroneous. But bankruptcy cases are different, for ordinarily the Court does not hear each creditor individually but looks to the Official Assignee to represent the general body of creditors. It may sometimes happen therefore that an individual creditor who does not inform the Official Assignee of the true position may be prejudiced by a decision of the Court passed on imperfect information.

12. I accordingly think that the proper procedure here is not to appeal to the Court of Appeal by leave, but is to apply to the Court under its powers of review under Section 8. I also think as at present advised that it is not proper to apply merely for re-adjudication where there is already an order annulling the adjudication. I think that that order of annulment must be got rid of in one way or another before you can apply for an adjudication founded, as far as the main point goes, on precisely the same point of dispute, namely, whether A and B were or were not partners. This latter fact is of great importance for it differentiates the case from one where (say) the adjudication is annulled because of the first petitioning creditors' debt being bad, and then a subsequent petition is presented founded on an admittedly good debt. There it might well be that an order of re-adjudication simpliciter could be made.

13. On the other hand I think I am entitled to direct the amendments I have mentioned, for Section 118 of the Presidency Towns Insolvency Act and Rule 197 of the Bombay Insolvency Rules enable the Court to deal leniently with technical defects. But there is a difference between what I may call trumpery technical objections and technical objections which are of substance and which it is no use trying to shirk. In this respect the case of London Association for Protection of Trade v. Greenlands, Limited [1916] 2 A.C. 15 illustrates how even so eminent a Judge as the present Lord Chief Justice of England may, by reason of technical points in the judgment of the Court not being sufficiently attended to, cause such difficulties that even the House of Lords is hardly able to put matters straight again. The words of Lord Parker which I particularly refer to are at page 38 where he says :

My Lords, the irregularities which characterized the pleadings in the present case and the unusual course taken (apparently without objection from anybody) by the trial Judge have, in my opinion, considerably obscured the real issue. In some cases no doubt a waiver of technical points may be conducive to substantial justice being done between the parties. In others, again, it may be dangerous if only because the dividing line between technicality and substance is not always clearly defined. A rule of practice, however technical it may appear, is almost always based on legal principle, and its neglect may easily lead to a disregard of the principle involved.

14. It was with some vague recollection of those words that I thought it proper to consider the matter further in its technical aspect before delivering my judgment and not because I had any doubt on the merits of the case. In the result I think this case must be treated as an application for review under Section 8, and that for that purpose the petition and order nisi should be further amended by heading it also in No. 232 of 1918.

15. I may perhaps mention one authority, viz., In re Ritso (1883) 22 Ch. D. 529: That is an illustration of a rehearing under the powers of review. That was a rehearing of a dismissed bankruptcy petition, but it illustrates that an order dismissing a petition is not necessarily final. In that case the bankruptcy Registrar thought that he had made a slip in dismissing the petition and he wished to have the matter reheard ; and the question then arose as to the jurisdiction and it was held that the matter could be reheard under the power to review.

16. Now coming to the order of annulment, it is unfortunate that Mr. Justice Kajiji is not sitting now as a judge. If he was I should of course have directed the matter to be heard by him. But as that is impracticable, I have to the best of my ability to put myself in his place and to deal with this matter exactly as if I had made the order of annulment. If the facts before me to-day were similar to those when the order of annulment was made, I should say that prima facie the previous order of the Court must stand, and that if the parties objected to it, they could appeal. But it is quite clear that material facts which ought to have been brought to the attention of Mr. Justice Kajiji were not brought before him and are now before me. It is sufficient to refer merely to two documents, one is the original document of 25th October 1904 which the petitioning creditors No. 2 say was a partnership agreement. That was never before the learned Judge. The other is a book which is called the Partners Account Book of the firm which shows that at any rate up to 1912 payments on account of profits have been made to 'Genaji Ookaji', the account being signed by respondent No. 4, and that in this same book there are accounts of both respondents Nos. 3 and 4 as of other partners of the firm of Genaji Ookaji & Co. That alone is, I think, sufficient to justify me in reopening this matter,

17. Now the line that the Advocate-General took for the petitioning creditors No. 2 was this. He said that respondent No. 3's own affidavits taken along with the exhibits were enough to prove a partnership. Adopting this course for a moment the history of the firm of Genaji Ookaji is this. Respondent No. 3 is the adopted son of Genaji and on 25th October 1904 there was this alleged partnership agreement entered into between Genaji Ookaji and some five other persons who are stated to be 'sub-partners of your new shop'. Genaji himself died in 1907 and under his will the respondent No. 3 became entitled to Genaji's interest, whatever it was, under this agreement. Respondent No. 3 is now about 21, so he came of age some three years ago. Now his position shortly stated is this. He says : 'Oh yes this was an agreement under which my adoptive father was to take the profits but he was not to share in the losses. Therefore he was not a partner and I am not a partner.' That is practically his defense,

18. Turning to this document of 25th October 1904 Exh. A to the affidavit of respondent No. 3 sworn on 5th August 1918 (of which I directed an official translation to be put in) one sees that the shop or business is to be carried on in the name of Genaji Ookaji & Co., and that in the shop 'the undersigned have become Sub-partners.' Genaji lends Rs. 30,000 to the shop and the Sub-partners are to share only in the profit and loss of this deposit. Then the shares in the shop are fixed at 17 and a quarter annas of which annas 7 are for profit and the balance of annas ten and quarter for loss. The particulars of the shares are given and it will be seen that Genaji takes six annas share in the profits, and that all the other partners except one take shares in the losses. The document proceeds: 'Having fixed the shares of the abovementioned partners, we have started the shop, otherwise the agreement is made as follows which we the Sub-partners have accepted.'

19. Then there are several other clauses all entirely consistent with a partnership. Clause 3, I notice, is that the parties should settle the account and draw up the balance sheet each year and should transfer the profit or loss according to the shares of their owner. Clause 4 provides that each sub' partner should draw in proportion to his share Rs. 50 each year for his household expenses and if more was required should write to 'seth' and should act according to his order, 'Seth' is Genaji. Then Clause 13 provides that the parties... 'should not increase or decrease for three years the fixed seventeen and quarter annas of the above-mentioned partners in the shop.' Clause 10 provides : 'The agreement of the partnership entered into herein is only of the new shop of Seth Genaji Ookaji & Co. The deposit belongs to Genaji Ookaji or his heirs and executors. We Sub-partners will only receive profit and give loss as the case may be.' Lastly, Clause 18 runs 'If all partners jointly want to dissolve the firm then they can dissolve it after having paid the balance due to Seth with interest.'

20. Now it is a question of construction and an inference of fact whether this document constituted a partnership between Genaji and the so-called Sub-partners. In my opinion it clearly did. I suppose every practitioner who has any experience of drafting knows that even when you get a man lending money to a firm and getting by way of return some share in the profits of the business, then at once you reach a danger point (I do not say you pass it) of whether or no there is a partnership. Further, so far as I am aware, it is impossible to provide that a man shall, as here, keep a shop and advance money, get a share of the profits, have control of the shop, and have it indeed carried on in his own name, and then say : 'Oh, I am only to get the profits, I am not to pay any losses.' He cannot do it as regards outside creditors but of course he can do so as between himself and his partners. If there are losses and the partnership deed provides for that, those losses may have to be borne by certain partners to the relief of others, but when it comes to the question as between the partners on the one hand and outside creditors on the other, then there is no question that once you get a partnership, all partners are liable whatever their mutual agreement as regards their profits and losses may be. According to the definition of partnership as laid down in Section 239 of the Indian Contract Act the test is whether the persons have agreed to combine their property, labour, or skill in some business, and to share the profits thereof between them. Similarly, under Section 1 of the English Partnership Act, 1890 the test is whether the persons carry on a business in common with a view to profit. Whichever test is adopted I think Genaji was a partner in the present case and that his was not the case of a mere loan and a share in the profits contemplated by Section 240. Even if the partnership agreement had stipulated that its terms were not to create a partnership, that would have been unavailing in law if in fact a partnership was created. Therefore if the matter stood as it did in the lifetime of this man Genaji I should have had no doubt that there was a partnership.

21. But as I have pointed out, Genaji died in 1907. During the hearing I was under the impression from what was told me by counsel and no doubt I misunderstood something counsel said, but I was under the impression that the present people who have been adjudicated bankrupt were in fact the same people who wore parties to this partnership document of the 25th October 1904 apart of course from Genaji himself. In fact that is not so. One man appears to be the same, viz., Chimnaji Dokji but I am not quite sure even about him, as to whether he is the same person as Chamna Danaji named in the agreement. Some others, it appears from the evidence, are merely the nominees or agents of the executrix of Genaji.

22. I should perhaps mention, as it is relied on by respondent 3, that this will of Genaji, according to respondent 3, merely gave him a share in the profits and not in the losses, Of course that won't do. It may be that the testator thought he was not liable for the losses but that cannot affect the legal position as between him or his successors in the business. I should add that I have not got the probate of the will of Genaji before me. All I have got is an alleged extract, but no objection on that ground has been taken before me.

23. Now turning to this change in the members of the partnership, I can understand that there is a difference between a case where there have been many changes in a partnership and a case where there are, say, five partners and only one of them dies, and at the date of adjudication you find that substantially, apart from the share of the deceased man, the partnership is the same, and that during all the intervening years the share of the deceased man has been left in the business. But in the present case I am satisfied that the partnership agreement of 25th October 1904 is still the controlling document. In the respondent 3's own affidavit affirmed on the 5th August 1918, it is clear that he relies upon it as regulating the firm. He says in para 5 :--

About six months ago 1 learnt that the partners of the him of Genaji Ukaji ' were, in spite of the directions contained in the writing hereto annexed and marked A, dealing in speculations and had actually to pay losses to the extent of Rs. 100000.

24. He then goes on:

I immediately asked Bai Hastu the proving executrix of my father's will to withdraw from the said firm the said sum of RS. 30,000 deposited by my deceased father with the said firm and allowed to remain therein by the said Hastubai with all the accumulations of interest as it was not safe and to request the partners strictly to abide by the writing aforesaid.

25. The 'writing marked A' is this very partnership agreement of 1904. I do not think therefore it lies in his mouth to say that that agreement is no longer in operation.

26. Further it is clear I think from the affidavits put in on behalf of the petitioning creditors No. 2--I refer to the affidavit of Jenarayen Lalchand affirmed on the 10th of July 1918--that there is what is described as a partners account book, and that in that book, at any rate up to 1912, we find profits paid to the representatives of Genaji at the rate of six annas in the Rupee which would be his share under the partnership document. This is signed by Joharmal Panaji the respondent No. 4; and similarly there are accounts in that book of those two respondents Nos. 3 and 4 as of the other partners of the firm. It is not denied that these accounts exist and all that the respondents can say in reply is to suggest that they are-concocted accounts for the purpose of making it appear that Joharmal, respondent No. 4, has some interest in the business and that this is an act of Joharmal's designing mother Bai Hastu the executrix of Genaji's will and that this is done in fraud of respondent No. 3's rights. I do not attach very much importance to this latter suggestion. I attach great importance to the books of the business firm and I Should have thought that if it was desired to benefit Joharmal at respondent No. 3's expense, respondent No. 3's name might have been eliminated entirely from the partnership account book.

27. One difficulty that occurred to me was whether, if a deceased partner's share is left in a business, it can be said that the executrix and all the beneficiaries under the will who enjoy the profits from the share of the deceased partner necessarily become partners. I do not, however, think that I am confronted with this problem here, because in the first place the beneficiary is a sole one, namely, respondent 3. So I am not concerned with a tenant for life or unborn issue. In the second place, this young gentleman attained his majority three years ago. He was then absolutely entitled to Genaji's share and there was nothing whatever to prevent him from claiming it and taking whatever steps he thought proper to put himself in possession of his property. He does not appear to have done anything whatever; and the fact that he appears to have left his mother to do the business, is not, I think, any real answer. She at that time was practically a bare trustee for respondent No. 3 and I do not think he can escape liability as a sleeping partner merely because there was the intervention of a person who was something like a bare trustee for him.

28. The conclusion, therefore, which I have arrived at is this that respondent No. 3 was a partner in this business at the date when the original adjudication order was made. I also am of opinion that if the facts now before me had been before the Court when the annulment order was made, that order would never have been made. Therefore I think that as regards respondent No. 3 that order must be rescinded.

29. As regards respondent No. 4, Joharmal, he has not filed any affidavit on the present application nor does he appear by counsel. We have against him his signature in the books, and his account in the partnership book. We also have against him (and I should have mentioned this as being also evidence against respondent No. 3) the fact that there were numerous decrees in 1911, 1912, 1913 and I think 1915 in which Joharmal's name is mentioned as being a member of this firm of Genaji Ukaji & Co. I should say that respondent No. 3's name does not appear in the suit which had been filed in 1915 but it does appear in some of the earlier suits. That is another piece of evidence against Joharmal. There is also positive evidence that both he and No. 3 have attended at the pedhi and settled accounts and taken part in the business of the firm. Respondent No. 3 denies that but there is nothing on oath from No. 4 on the point. I am satisfied that he like No. 3 is a partner in the business.

30. The order of the Court will accordingly be that the order of annulment be rescinded and that respondents Nos. 3 and 4 be adjudicated insolvents, such adjudication to rank and be dated as of the date when the original adjudication order was made. There is one matter that I should have noticed. As they have not appeared, I have of course not heard the petitioning creditors No. 1, but as at present advised I am by no means satisfied with the course which they took on the previous application for annulment. I will accordingly give liberty to petitioning creditors No. 2 to apply, if so advised, for the conduct of these proceedings in the place of creditors No. 1.

31. Costs of the petitioning creditors No. 2 will come out of the estate, including costs reserved.

32. [The order that his Lordship passed in the case was as follows:--

It is ordered that the title and heading in proceedings No. 232 of 1918 be amended by heading them as in proceedings No. 296 of 1918 and that the petition in proceedings No. 296 of 1918 and the saiu rule nisi be both amended by heading them as in proceedings No. 232 of 1918. And it is further ordered that the order made on the second day of July 1918 in proceedings No. 232 of 1918, annulling the order of adjudication made on the 6th day of June 1918 so far as the said Javarmal Pannaji and Pratapchand Genaji were concerned, be and it is hereby rescinded; and that the said Javarmal Pannaji and Pratapchand Genaji be and they are hereby adjudged insolvents; and that such order of adjudication do rank and be dated as of the said original order of adjudication, namely, the 6th day of June 1918. And it is further ordered that all the estate and effects of the said insolvents Javarmal Pannaji and Pratapchand Genaji do vest in the Official Assignee. And it is further ordered that liberty be and it is hereby granted to the said petitioning creditors the firms of Prathuraj Bhagwan and Chimaniram Motilal to apply, if so advised, to be put in the same position as the said petitioning creditors Raichand Motichand & Co., that is to say, to apply for conduct of proceedings. And it is lastly ordered that costs of the said petitioning creditors the firms of Prathuraj Bhagwan and Chimaniram Motilal of and incidental to this application and order including all reserved costs do come out of the assets of the said insolvents Javarmal Pannaji and Pratapchand Genaji in the hands of the said Official Assignee.]

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