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Ulhasibai Jethmal Bagmar Vs. Bhagchand Alias Bhagwandas Nemichand Marwadi - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtMumbai High Court
Decided On
Case NumberFirst Appeal No. 5 of 1955
Judge
Reported in(1959)61BOMLR103
AppellantUlhasibai Jethmal Bagmar
RespondentBhagchand Alias Bhagwandas Nemichand Marwadi
Excerpt:
.....p-p subsequently purchasing property out of amount of profit belonging to partnership-whether such property partnership asset and b entitled to a share in it-benami transaction-burden of proof-whether onus of proof on party alleging that transaction is benami-burden of proof in such case how discharged.;a partnership consisting of two partners b and p was dissolved by a notice given by b to p on september 26, 1945, which stated that till the date of the notice a net profit of rs. 20,000 was made by the partnership business and that the amount of profit was with p, that out of this amount p should pay half of it to b within four days of the receipt of the notice and that henceforth b wished to break off all relations with p. on april 9, 1947, p purchased certain property for rs. 10,500...........of a deceased partner out of transactions of partnership undertaken after the dissolution of the firm on account of the death of a partner. in our opinion, the principle of this section cannot apply to the facts of the present case. the partnership in the present case was dissolved in 1945 and defendant had broken off all relations with punamchand and claimed an eight-anna share in the profits which he alleged were in the hands of his brother punamchand. the purchase of the houses can in no sense be regarded as a transaction of the partnership in these circumstances.4. mr. jahagirdar further relied on section 88 of the indian trusts act. that section deals with the subject of an advantage gained by a fiduciary and it provides :where a trustee, executor, partner, agent, director of a.....
Judgment:

Gokhale, J.

1. [His Lordship, after stating the facts of the case and dealing with points not material to this report, proceeded.] The question is whether on this oral and documentary evidence on the record the finding of the trial Court that the purchase of the two houses was benami in the name of the plaintiff can be said to be correct. Undoubtedly, the onus of proof that the transaction in suit was a benami transaction was on the defendant Bhagchand. It was his case that the mortgage deed was taken benami in the name of Sundrabai and the sale deed was also taken benami m the name of the plaintiff with a view to preventing any trouble from the Income-tax Department and that this was done in pursuance of an agreement between the two brothers. The ease of such an agreement has been held to be not established and the motive which has been put forth in support of the benami transaction also does not seem to be borne out. On the other hand, plaintiff's case that the mortgage was taken benami in the name of Sundrabai seems to be justified in view of the fact that her son was a lunatic and there was a suit brought against her by her husband's bhaubands for partition and possession of house property and lands in her possession at the time the mortgage transaction was entered into. The documentary evidence also shows that the two houses, came to be entered in her name and it is from her custody that the relevant documents of title have been produced in this suit. But the important question is whether defendant proves that the source of money for the mortgage as weir as the sale-deed proceeded from the two brothers or whether plaintiff paid the moneys in respect of both the mortgage as well as the sale transaction. It is an accepted rule of guidance in reference to benami transactions to see from what source the purchase money has proceeded ; and it must be shown that the person from whom the money has gone to effect the purchase furnished it as a purchaser. The lenami character 'of a transaction must however be legally established. See De Silva v. De Silva (1903) 5 Bom. L.R. 784. In Ramabai v. Ramchandra (1905) 7 Bom. L.R. 293 it was held by this Court that the burden of proof is on the party who seeks to give to a purchase a different meaning and complexion from that which it bears on its face and the burden must be strictly discharged; in other words, in order to succeed the party alleging that the transaction is benami, must put the Court in possession of legal and satisfactory evidence and it will not suffice to point to matters of suspicion or even to plausible conjecture. See also Sreemanchunder Dev v. Gopaul Chunder Chuckerbutty (1866) 11 M.I.A. 28. On the evidence we have come to the conclusion that the financial resources of the plaintiff have not been established to be poor as was alleged by the defendant. The story of the plaintiff as regards the suit mortgage and the sale transactions is supported by oral as well as documentary evidence. The relevant account books of the businesses carried on by the brothers have not been produced and we do not accept defendant's story, stated for the first time in his evidence, that the account books were taken away by Punamchand from house No. 90 in August 1945. It is true that it has been shown from the certified copies of the savings and current accounts in the Bank of Poona standing in the name of Punamchand that Rs. 5,000 were withdrawn by Punamchand about 4 days before the date of the mortgage and an amount of Rs. 3,400 was also withdrawn by Punamchand from his current account about a few days prior to the sale-deed. At the most, these two withdrawals might raise suspicion, but for the reasons which I have already stated, we are not prepared to hold that these withdrawals would support defendant's version that the mortgage and the sale transactions were effected benami to avoid trouble from the income-tax authorities. The result is that we must differ from-the view taken by the trial Court and hold that defendant has failed to prove that the suit property was purchased benami in the name of the plaintiff by defendant and his brother Punamchand with funds belonging to both.

2. Mr. Kotwal, learned advocate appearing on behalf of the appellant Ulhasibai, has also raised an alternative contention. He says that assuming it is held that the moneys in respect of the suit mortgage and sale transactions did not belong to Ulhasibai but were supplied by Punamchand, he contends that even then the house in suit will not become a partnership asset as to give defendant a share therein. This is undoubtedly a new point raised by Mr. Kotwal in this appeal, but as it is a pure point of law we have allowed both Mr. Kotwal and Mr. Jahagirdar to argue that point. As I have already stated, defendant Bhagchand resisted the present suit by his written statement on the ground that the mortgage as well as the purchase of the house property was made with the aid of funds belonging to Punamchand and himself. There is no reference in the written statement to any partnership assets at all. In exh. 69, the notice which Bhagchand gave to Punamchand on September 26, 1945, it was stated that from the beginning of the business to the date of the notice a net profit of Rs. 20,000 was made from the businesses after deducting all expenses and that all the amount of profit was with Punamchand. The notice further informed Punamchand that out of the amount of Rs. 20,000, which was with Punamchand, he should pay half of it, i.e., Rs. 10,000, to Bhagchand within four days from the receipt of the notice and it was further stated that henceforth Bhagchand wished to break off all relations with Punamchand. This notice, therefore, in effect dissolved the partnership between the two brothers, and even on this version of defendant, Punamchand had a large amount of profits in his hands in which he had only an eight-anna share and. the argument of Mr. Kotwal is that in these circumstances even assuming that Punamchand had paid, out of the profits in his hands belonging to the partnership, the consideration for the mortgage and thereafter for the sale, it could not, be held that defendant had any share in the house. Mr. Jahagirdar, however, relied on Section 14 of the Partnership Act in support of his contention that in such a case the house would be the property of the partnership. Section 14 of the Partnership Act reads as follows:

Subject to contract between the partners, the property of the firm includes all property and rights and interest in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.

The first paragraph of this section shows what would be the property of a firm. All property and rights and interest in property which have been brought by the partners into the stock of the firm or which have been acquired or purchased by or for the firm subsequently, will be prima facie regarded as the property of the firm. The second limb of the section provides for a rule of presumption and under that rule, property and rights and interests in property acquired with money belonging to the firm will be deemed to have been acquired for the firm unless a contrary intention appears. In our opinion, this section would not be applicable to the facts of the present case. There is no dispute that the partnership between the two brothers was dissolved in 1945 and the suit transactions were effected after the dissolution. It is nobody's case that the two houses were purchased for the purpose of any business or even for the benefit of the firm. The case of the defendant is that the property was purchased for the benefit of the two brothers and they became joint owners. Even during the subsistence of a partnership, if property is purchased out of partnership assets, it does not necessarily become partnership property and where property ia purchased not for the purpose of business or for the benefit of the firm the question as to the ownership of the property must depend upon the facts and circumstances of the particular case. In this connection the following observations of Lord Justice Turner in what is known as the Bank of England Case (1861) 3 De G.F. & J. 645 are relevant :-.It cannot I think be laid down as an universal rule, that when lands are bought by partners in trade, and are paid for out of the partnership assets, they of necessity become part of the joint estate of the partners. There are different purposes for which the lands may have been bought. They may have been bought for the purpose of being used and employed in the trade, as the Saracen's Head estate appears in this case to have been, or they may have been bought, not for the purpose of being used or employed in the trade, but for the purpose of a mere speculation on account of the partnership, for I know nothing which can prevent partners from speculating in land, if they think proper to do so, as freely as they may speculate in mere articles of commerce, though foreign to their trade. Again, they may have been bought without reference to the purposes of the trade or the benefit of the partnership, with the intention of withdrawing from the trade the amount employed in the purchase, and converting that amount into separate property of the partners, or they may have been bought on account of one or more of the partners, he or they becoming debtors to the partnership for the amount laid out in the purchase. The form of the conveyance in these cases does not settle the question, for in whatever form the conveyance may be, there may be a trust of the land which may follow the money, liable however, as other trusts of the like nature are, to be rebutted by evidence. Where land purchased is not merely paid for out of the partnership assets, but is bought for the purpose of being used and employed in the partnership trade, it is scarcely possible to conceive a case in which there could be sufficient evidence to rebut the trust, and accordingly in those cases we find the decisions almost, if not entirely, uniform, that the purchased land forms part of the joint estate of the partnership; but where the land is not purchased for those- purposes, the question becomes more open, and we have to consider whether the circumstances attending the purchase show that it was made on account of the partnership individually, or of any one or more of them in whose name the land may have been bought.

In Trimble v. Goldberg [1906] A.C. 494 two partners of a partnership of three which was formed to purchase and resale certain properties of a gentleman called Hallard consisting of 5,500 shares in a company called Sigma Syndicate and of 'stands or plots of land, purchased other stands belonging to the Syndicate and made profits, and the question arose whether these other stands purchased by the two partners were partnership property in which their third partner was entitled to benefit, and the Privy Council held that as the purchase was not within the scope of the partnership and as the subject of the purchase was not a part of the business of the partnership, or an undertaking in rivalry with the partnership, or indeed connected with it in any proper sense, the property could not be regarded as partnership property. Mr. Jahagirdar, on the other hand, in support of his argument that the suit property must be considered to be partnership property, relied on a decision of the Madras High Court in Sudarsanam Maistri v. Narasimhulu Maistri (1902) I.L.R. 25 Mad. 149. There the Court was concerned with property acquired from the funds of a business which had been carried on jointly by the partners and continued by one of the partners until the institution of the suit, and it was held that as the lands and houses were bought in the name of the partner and paid for by the firm or from the profits of the partnership business, they were prima facie partnership property in the absence of an allegation and proof that from time to time, portions of the assets of the partnership were, by agreement of the partners, withdrawn from the partnership and converted into land or house to be owned by the partners as co-owners. This case, in our opinion, can be distinguished on its own facts. There, the property had been acquired out of funds of the business which had continued till the institution of the suit for account and partition of the property and in the absence of any contrary intention was held to have been bought on account of the firm. In the present case, admittedly a dissolution had taken place between the two brothers since 1945. Mr. Jahagirdar also relied on Adarji Mancherji Dalai, In re ILR(1930) 55 Bom. 795, 33 Bom. L.R. 576 in which it was held that no partner has any beneficial interest on his own account in any particular estate or property of the partnership within the meaning of Section 250 of the Indian Succession Act, 1925, until the partnership is wound up and its accounts taken; and Mr. Jahagirdar's contention is that in respect of the dissolution of the present partnership the moneys in the hands of Punamchand continued to be partnership assets in which he had no beneficial interest of his own. Now, this case again can be distinguished because the partnership properties in the case consisted of certain insurance policies, the premia in respect of which were admittedly paid for from the assets of the partnership and not from the individual account of the partners and were described and treated by the partners as partnership property. As I have already stated, in the present case, in the defendant's notice dated September 26, 1945, given to Punamchand, the defendant had claimed a definite share of 8 annas in the profits which he claimed were in the hands of Punamchand and stated further that he had broken off all relations with Punamchand. It cannot, therefore, be said that Punamchand had no beneficial interest in the properties of the partnership. As no accounts have been produced, it is difficult to say that Punamchand paid more than the amount of the profits which would have fallen to his share at the time of dissolution even if it was he who paid the consideration amount in respect of the mortgage and the sale transactions.

3. Then Mr. Jahagirdar relied on a passage from Lindley on Partnership at page 391 wherein it is stated:

Good faith requires that a partner shall not obtain a private advantage at the expense of the firm. He is bound, in all transactions affecting the partnership, to do his best for the common body, and to share with his co-partners any benefit which he may have, been able to obtain from other people and in which the firm is in honour and conscience entitled to participate.

This principle, as has been pointed out by the learned author, was established by numerous decisions before the English Partnership Act, 1890, and the result of these decisions was incorporated in Sections 29 and 30 of the said Act. Sections 16 and 50 of the Indian Partnership Act would correspond to Sections 29 and 30 of the English Partnership Act. Section 16 provides:

Subject to contract between the partners-

(a) if a partner derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm;

(b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.

It is difficult to appreciate how Section 16 would assist Mr. Jahagirdar. Mr. Jahagirdar himself does not rely on Section 16, but on Section 50 of the Partnership Act, which would corespond to Section 29(2) of the English Partnership Act. Section 50 reads thus;-

Subject to contract between the partners, the provisions of clause Co) of Section 16 shall apply to transactions by any surviving partner or by the representatives of a deceased partner, undertaken after the firm is dissolved on account of the death of a partner and before its affairs have been completely wound up:

We are not concerned with the proviso to this section. This section applies to personal profits made by a surviving partner or by the representative of a deceased partner out of transactions of partnership undertaken after the dissolution of the firm on account of the death of a partner. In our opinion, the principle of this section cannot apply to the facts of the present case. The partnership in the present case was dissolved in 1945 and defendant had broken off all relations with Punamchand and claimed an eight-anna share in the profits which he alleged were in the hands of his brother Punamchand. The purchase of the houses can in no sense be regarded as a transaction of the partnership in these circumstances.

4. Mr. Jahagirdar further relied on Section 88 of the Indian Trusts Act. That section deals with the subject of an advantage gained by a fiduciary and it provides :

Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.

Mr. Jahagirdar's client has not made any allegations whatever to bring the present case within the ambit of this section. It is not the allegation of the defendant that Punamchand purchased the property by availing himself of his status as a partner. On the other hand, his case was that it was agreed between the brothers that the properties were to be purchased from out of joint funds for the benefit of both the brothers. Mr. Jahagirdar also relied on ill. (d) to Section 88 which states:

A, a partner, buys land in his own name with funds belonging to the partnership. A holds such land for the benefit of the partnership.

In our opinion, this Illustration cannot go beyond the scope of the section itself and before a partner can lay claim to any purchase made by another partner the conditions laid down in the section will have to be alleged and proved.

5. Mr. Jahagirdar has then relied on a decision of the East Punjab High Court in Debi Parshad v. Jai Bam Dass where it was held that if one partner obtains in his name, either during the partnership or before its assets have been sold, a renewal of a lease of the partnership property, he will not be allowed to treat the renewed lease as his own and as one in which his co-partners have no interest. In that case, the lease itself was the subject-matter of the suit and its renewal was obtained by one partner in his own name. Under these circumstances, the Court naturally held that that partner could not be allowed to treat the renewed lease as his own to the exclusion of the other partner On the other hand, Mr. Kotwal has relied on a decision of the Madras High Court in Ramalinga Reddy v. Bamalingam Setty AIR1938 Mad. 929 in which it was held that

In the case of partners, the Indian Legislature has nowhere indicated an intention to enact an absolute rule of law or an irrebuttable presumption that renewal of lease obtained by one of them enures for benefit of the other. Except in cases otherwise specially provided for by statute, a constructive trust can be held to arise only if the conditions of Section 88 or Section 90, Trusts Act, are satisfied. In other words it must be shown that one of the partners has 'availed himself of his character' to gain an advantage or that the partner has gained an advantage by entering into a transaction in which 'his own interests are or may be adverse' to those of the other partners.

In our opinion, this case supports the contention of Mr. Kotwal. As I have already stated, it is not alleged by the defendant that this purchase was made by Punamchand by availing himself of his character as a partner and gaining any pecuniary advantage to himself. The accounts of the partnership have not been produced and, in our judgment, the documentary evidence would indicate that the account books were not taken by Punamchand, as alleged by defendant, but must have been with the defendant himself. It is significant that defendant has produced exh. 195, a post-card which Punamchand wrote to Nemichand, his father, and exh. 196 which one Subhagchand Ranka addressed to Punamchand. The grievance of Punamchand that defendant himself was in possession of some of the relevant documents seems, therefore, to be not without force.

6. Even assuming, therefore, that Punamchand utilised a part of the profits of the partnership in his hands for the purchase of the properties, it cannot be held that defendant thereby gets any interest in the two houses on the ground that he was a partner.

7. [The rest of the judgment is not material to this report.]


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