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Dhanaji Jhelaji Vs. Gulabchand Pana - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMumbai
Decided On
Case NumberFirst Appeal No. 163 of 1922
Judge
Reported inAIR1925Bom347; (1925)27BOMLR409; 87Ind.Cas.812
AppellantDhanaji Jhelaji
RespondentGulabchand Pana
DispositionAppeal dismissed
Excerpt:
.....contract act (ix of 1872), sections 253 (6), 254 (5) - partnership-assignment by a partner of his share --assignee cannot sue for accounts - -release by a partner-assignee from the partner subsequent to release cannot sue to set aside release-transfer of property act (iv of 1882), section 6-assignee can only receive such share as partners give him-dissolution of partnership-partner alone can sue for dissolution-plaint,-alternative claim-inconsistent pleadings.;defendant no. 6, who had released his share-in a [partnership to other partners but who contended that the release was induced by fraud, assigned his right to the plaintiff (a stranger). the plaintiff having sued for accounts of the partnership :-; (1) that whatever rights defendant no. 6i might have had to ask the court to set..........legally transferred to a third person.' consequently the assignment by one partner merely gives a right of action to the other partners to ask the court to dissolve the partnership. the plaintiff then in this case was placed in this dilemma. if the farkhat was a valid release by defendant no. 6 of his interest in the partnership, he ceased to have any right of action against his late partners, and there was nothing left in him to assign to a third party. defendant no. 6 could have brought an action to set aside the farkhat on the ground that it was induced by misrepresentation or fraud. he could not assign his right to sue to a third party. then supposing on either of those grounds defendant no. 6 succeeded, and the farkhat was set aside, the partnership would still be existing between.....
Judgment:

Norman Macleod, Kt., C.J.

1. The plaintiff filed this suit, alleging that defendant No. 1 and his sons defendants Nos. 2 to 5 together with defendant No. 6 were trading in partnership in the name and style of Pana Nathaji, that plaintiff purchased the right, title and interest of defendant No. 6 in the partnership on March 20, 1918, that notice to render accounts was given to defendant No. 1 on March 21, when defendant No. 1 replied that the defendant No. 6 had passed a release on settlement of his right on April 3, 1918. Accordingly he prayed for a declaration that he was the owner of the 2,J anna share of defendant No. 6 in the shop and that the moveable and immoveable property of the shop should be divided and accounts taken of the shop.

2. Defendants Nos. 1, 2 and 4 pleaded inter alia that defendant No. 6 had passed a release in their favour on February 17, 1918.

3. Defendant No. 6 alleged that the release was obtained by fraud and misrepresentation, but that plaintiff purchased his right, title and interest with knowledge of the real facts relating to the release, and that the assignment was passed on the express understanding that defendant No. 6 was not to be liable to the plaintiff.

4. The plaintiff had also sued in the alternative for the recovery of Rs. 5,999 and interest as the consideration paid to defendant No. 6 for the assignment in case it was held that defendant No. 6 had no right,

5. The trial Judge held inter alia (1) that the release was not obtained from defendant No. 6 by fraud by the other defendants

(2) That the sale deed of the plaintiff was not fraudulent or without consideration,

(3) That the plaintiff had no right to claim the share of defendant No. 6 in the partnership.

(4) Nor could he claim the amount of the consideration from defendant No. 6.

6. Consequently the plaintiff's suit was dismissed. The plaintiff has appealed to this Court. The release having been executed before the assignment, even assuming that the plaintiff was entitled to sue to set it aside on the ground of fraud, his suit was bound to be dismissed as there was nothing left in defendant No. 6 after the release which he could assign.

7. But assuming that the release could not be avoided an important question arises with regard to the right of an assignee in a share in a partnership.

8. If one partner assigns his share to an outsider without the consent of his partners during the existence of the partnership, no immediate rights accrue to the assignee as against the other partners, the assignee only having a right against his assignor. If, at the time of the assignment, the partnership has already been dissolved, then the further question would arise whether the assignee would have any right at all against the other partners, and whether he would be entitled to file a suit for an account.

9. The sixth defendant might be entitled to file a suit against the other partners for a declaration that the faarkhat was not binding on him on the ground that he had been induced to sign it by misrepresentation or by fraud or on any ground on which a party is entitled to ask the Court to set aside a document he has signed. But whatever rights the sixth defendant may have had to ask the Court to set aside the document, he could not assign such a right to a third party. That would be a transfer merely of a right to sue which cannot be allowed under the provisions of Section 6 of the Transfer of Property Act.

10. So it was suggested by the plaintiff that the assignment operated as a dissolution of the partnership and entitled the assignee to sue. There is authority for that proposition in Juggut Chunder Dutt v. Rada Nath Dhur I.L.R. (1884) Cal. 669. The head-note runs :-

The effect of Clause (6) of Section 253 of the Contract Act is not to render an assignment of a share in a partnership concern illegal or void as between the parties to the assignment, but only so fur void as between those parties and the other partners as to cause an immediate dissolution of the partnership.

11. With due respect it is difficult to see how that construction can be placed on Section 253, sub-cl. (6) of the Indian Contract Act, which merely state that no person can introduce a new partner into a firm without the consent of all the partners.

12. The common law with regard to the position of an assignee of a partner has now been codified by Section 31 of the English Partnership Act, 1890, as follows :-

(1) An assignment by any partner of his share in the partnership, either absolute or by way of mortgage or redeemable charge, does not, as against the other partners, entitle the assignee during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any accounts of the partnership transactions, or to inspect the partnership books, but entitles the assignee only to receive the share of profits to which the assigning partner would otherwise be entitled, and the assignee must accept the account of profits agreed to by the partners.

(2) In ease of a dissolution of the partnership, whether as respects all the partners or as respects the assigning partner, the assignee is entitled to receive the share of the partnership assets to which the assigning partner is entitled as between himself and the other partners, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.

13. Therefore lit common law the assignment by one of the partners of his share in the partnership without the consent of the other partners did not cause an immediate dissolution of the partnership. It did not give the assignee a right to an account of the profits. He had to accept the account of the profits as agreed to by the partners. And that must obviously be according to the principles of common sense, because when there is a contract of partnership, one partner cannot by his action introduce a third party without the consent of the other partners, so as to give the third party a right to interfere in the management of the business or to ask for an account. It is only when dissolution occurs that the right of the assignee arises to take action in the same way as his. assignor could have done to claim an account of from the date of the dissolution.

14. That this also is the law in India appears from the following provisions of Section 254 (3) which apparently was not noticed by the Court in the case of Juggut Chunder Dutt v. Rada Nath Dhur I.L.R. (1884) Cal. 669. 'At the suit of a partner the Court may dissolve the partnership in the following cases: (3) when a partner, other than the partner suing, has done any act by which the whole interest of such partner is legally transferred to a third person.' Consequently the assignment by one partner merely gives a right of action to the other partners to ask the Court to dissolve the partnership. The plaintiff then in this case was placed in this dilemma. If the farkhat was a valid release by defendant No. 6 of his interest in the partnership, he ceased to have any right of action against his late partners, and there was nothing left in him to assign to a third party. Defendant No. 6 could have brought an action to set aside the farkhat on the ground that it was induced by misrepresentation or fraud. He could not assign his right to sue to a third party. Then supposing on either of those grounds defendant No. 6 succeeded, and the farkhat was set aside, the partnership would still be existing between the partners, and the assignee from one of them would have no right of action. It is only a partner who can File a suit against the other partners for dissolution. Even assuming, as we are asked to believe, that the sixth defendant was excluded from the partnership after he had signed the farkhat, that by itself would not effect a dissolution. It would only give a right of action to sue for a dissolution under Section 254 (5) of the Indian Contract Act 'when a partner, other than the partner suing, is guilty of gross misconduct in the affairs of the partnership or towards his partners.' Therefore, if the office doors are closed against a partner, so that he is excluded from taking part in the partnership business, he can either treat the partnership as still, existing, or he can file a suit for a declaration that the partnership is to be taken as dissolved from the date on which he proves misconduct towards him on the part of his partners. So that whichever way you look at the case, it is obvious that the plaintiff has no cause of action against defendants Nos. 1-5. He has joined with the cause of action against defendants Nos. 1-5, a cause of action against defendant No. 6, for the recovery of the money he had paid as consideration for the assignment passed in his favour by defendant No. 6. That was disallowed by the trial Court in paragraph 29 of the judgment. It is no doubt open to a plaintiff to make an alternative claim even on inconsistent pleadings. But the Judge says 'in the present case, however, the plaintiff purchased an actionable claim with full knowledge of the risk involved, and I do not think that he is entitled to any refund as on a failure of existing consideration, and I find on issue No. 4 accordingly.' We agree, and as against defendants Nos. 1 to 5, the plaintiff purchased nothing but a right to sue which is not transferable.

15. The appeal, therefore, must be dismissed with costs. Costs to be given to respondents Nos. 1-4.


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