1. These First Appeals are directed against the decree passed by the Bombay City Civil Court dismissing the plaintiff's suit relating to accounts in respect of the partnership business etc. First Appeal No, 174 of 1980 is filed by the original plaintiff; whereas First Appeal No. 176 of 1980 is filed by original defendant No. 11. The interest of both of them are, however, identical except, perhaps, for the fact that the other defendants in the suit claim to have an additional defence against defendant No. 11 which defence is not relevant for the purpose of this appeal. Both the appeals are, therefore, being disposed of by this common judgment. The parties hereafter shall be referred to as the plaintiff and the defendants. When special reference is to be made to the case of original defendant No. 11 he will be specially referred to as defendant No. 11. Before stating the respective case of the parties I may refer to certain admitted facts of the case.
2. The plaintiff, defendant No. 11 and one Lawrence were three brothers. A partnership-deed dated 29th of Dec. 1952, came to be executed by the three brothers for carrying on the business of Restaurant and other business under the name and style of Jai Hind Shamrock Restaurant at Colaba, Though it was only a restaurant in the premises in question there were also a tailoring shop and certain stalls such as of Panwala etc., It is the contention of the plaintiff and defendant No. 11 that as per the partnership-deed, the plaintiff and defendant No, 11 each were having 25% share in the partnership, whereas their brother Lawrence was having 50% share in the same. According to the plaintiff, the partnership business was carried on or actively managed mainly by Lawrence and plaintiff and defendant No. 11 were getting their share of profit.
Lawrence died on 1-12-1961. Defendant No. 1 is his widow and defendants Nos. 2 to 10 are the children of deceased Lawrence. The plaintiff admits that the partnership was a partnership at will. The plaintiff and defendant No. 11 contend that the partnership stood dissolved by virtue of and with effect from the death of Lawrence. But they have contended further as follows;
'Final account of the assets and liabilities of the partnership business as on the death of the said Lawrence Romaldas Rebellow was not taken. The same was permitted to be used for continuing the said business for the benefit of the surviving partners and the heist and legal representatives of the said Lawrence Romaldas Rebellow and the business continued with the funds of the old partnership.'
The above are only the averments in the plaint; they are not admitted facts; but it is common ground that on 17-8-1963 a notice came to be given on behalf of the plaintiff as well as defendant No. 11 to defendant Number 1 stating that the partnership stood dissolved on the death of Lawrence. It appears to have been mentioned therein that the death took place on 8th December, 1961. But it was common ground before me that it was a mistake. In any event, that date is not going to make any difference so far as the question involved in this litigation is concerned. By the said, notice it was further stated that plaintiff and defendant No. 11 had become entitled to haveaccounts in respect of the partnership business, that since the death of Lawrence defendant No. 1 has been looking after the affairs of the business but had not rendered accounts to the plaintiff and defendant No. 11. It was pointed out that both of them were having 1/4th share each in the said business as also in the profits of the same. Prima facie, therefore, they claimed 1/4th share not only in the profits, but also in the net assets of the firm. Defendant No. 1 was called upon to give to the plaintiff and defendant No. 11 accounts in respect of the business within eight days from the receipt of the notice.
To this notice a reply dated 24th August. 1963 was given on behalf of defendant No. 1 and by that reply defendant No. 1 flatly denied the very existence of the partnership either before the death or after the death of Lawrence. It follows that she denied the plaintiff's and defendant No. 11's claim for accounts.
Thereafter on 15-9-1965 the present suit was filed by the plaintiffs for various reliefs claimed in the suit. I will have occasion to refer to the various prayers somewhat in detail in the later portion of this judgment. At this stage I may state that declaration was asked for that the plaintiff had a share in the partnership business in the proportion set out therein. A declaration was also asked for that the firm be dissolved from 1-12-1961 and prayer was made that a Receiver be appointed for taking possession of the business and it was also prayed that accounts be taken of the business:
(a) as on 1st of December 1961 and
(b) for the period subsequent to 1-12-1961.
3. As stated above, defendant No. 11 sails in the same boat with the plaintiff. He filed his written statement and supported each of the plaintiff's contentions, The real contesting defendants were defendants Nos. 1 to 10. They filed their written statement and contended as follows :--
It was stoutly denied that there existed any partnership between deceased Lawrence on the one hand and the plaintiff and defendant No. 11 on the other at any time. It was, therefore, further contended that no question arose about the plaintiff and defendant No. 11 being entitled to any accounts for the period previous to the death of Lawrence or subsequent thereto. Moreover, it wascontended that assuming that there existed any partnership amongst the three brothers and that the same stood dissolved on 1-12-1961. the suit for accounts filed on 15-9-1965 was barred by limitation.
4. On these pleadings, issues were framed. The issue relating to the bar of limitation was issue No. 1. It was framed as follows:
'1. Whether the suit is barred by law of limitation?'
5. Defendants Nos. 1 to 10 were successful in persuading the learned Judge to treat the said issue No. 1 as the preliminary issue. Since the issue was tried as preliminary issue no evidence as such was led by the parties on any pf the remaining issues. As a matter of fact, it was felt that no evidence even on issue No. 1 was necessary and hence no evidence was led in the suit and issue No. 1 came to be adjudicated upon by the learned Judge on demurrer, that is to say, by assuming that the statements made in the plaint were true and correct. The learned Judge held that on the plaintiff's own showing the firm stood dissolved on 1-12-1961. The suit was therefore a suit for accounts of a dissolved firm. The learned Judge, therefore, held that such a suit was governed by Article 5 of the Limitation Act, 1963, (corresponding to .Article 106 of the Limitation Act 1908). Since the period for such a suit as per the said Article is of three years from the date of the dissolution of the firm, the learned Judge held that the suit filed on 15-9-1965, long after the expiry of period of three years from 1-12-1961, was hopelessly barred by limitation. The learned Judge was evidently of the view that the entire suit was capable of being disposed of on this preliminary issue itself. He, therefore, passed a decree dismissing the plaintiff's suit with costs, by his judgment dated 4-2-1980.
6. As stated above, both the plaintiff as well as defendant No. 11 have filed the above two appeals separately against the said decree.
7. Mr. Mahendra Shah, the learned Counsel appearing for the plaintiff and Mr. Abhyankar, the learned Counsel appearing for defendant No. 11 seriously questioned the correctness of the decree and particularly the manner in which the same was passed. The thrust of the argument of both of them is that thelearned Judge was in error in trying the issue relating to bar of limitation as a preliminary issue. According to them, the suit could not be said to be governed by Article 5 of the Limitation Act 1963 at all. They contend that there are several averments made in the plaint which would show that the claim made by the plaintiff is of a composite type and that it is not a claim simpliciter for accounts of a dissolved firm. They contend that at the most a part of cause of action for suit could be said to have arisen on 1-12-1961, when the firm stood dissolved, but there were certain other equitable claims against defendants Nos. 1 to 10 for the subsequent period arising out of the agreement between the parties in respect of subsequent conduct of the business. The Counsel contend that those claims could not be said to be barred by law of limitation. They contend that for the purpose of preliminary issue the agreement as set up by the plaintiff must be presumed to be either admitted or proved and they argue that the learned Judge was in error in not applying his mind to the effect of the said agreement. The contention is that upon the death of Lawrence, there was an agreement between defendant No. 1 on the one hand and the surviving partners on the other that defendant No. 1 would carry on the business with the help of the partnership assets and she would give accounts to the surviving partners in that behalf. One contention in this behalf is that the right which arose in favour of the surviving partners by virtue of dissolution of the firm as on 1-12-1961 got merged into the agreement newly arrived at and hence the entire cause of action got renewed. Second line of attack was that assuming that the partners' rights had not merged in the agreement, still the plaintiff and defendant No. 11 jointly constituted defendant No. 1 as their agent for carrying on the business until accounts were taken. The contention was that defendant No. 1 who was acting as such agent was bound to render account at least for the subsequent period. It was contended that same result would follow upon the reasoning that there was an entrustment by the surviving partners to defendant No. 1 acting on behalf of herself and defendants Nos. 2 to 10.
The sum and substance of this reasoning was that there was a fresh cause ofaction accruing to the plaintiff and defendant No. 11 for accounts in respect of :
(a) the entire period of the partnership till the date of reply by defendant No. 1 viz., 17-8-1963, or
(b) from 1-12-1961 till 17-8-1963 and onwards.
The contention was that defendant No. 1 continued to be accountable to the plaintiff and defendant No. 11 by virtue of the agreement mentioned above. Enforcement of such agreement, it was contended, was one of the aims of the suit and hence, it was contended, such a suit would not be governed by Article 5 of the Limitation Act 1963.
8. Mr. Suresh, the learned Counsel for the contesting defendants, on the other hand very vehemently contended that attraction of Article 5 of the Limitation Act 1963 was inescapable. He read out the averments in the plaint along with the prayers therein and contended that on the plaintiff's own showing the firm was no longer in existence. On the plaintiff's own showing it was a dissolved firm on 1-12-1961 and the plaintiff and defendant No. 11 wanted accounts in respect of the past transactions of the firm and of the future business of the dissolved firm. He contended that even though accounts in respect of the subsequent transaction was asked for, still the suit would be one for accounts in respect of dissolved firm; whether the business continued or not and this being the position, the suit had got to be filed within three years from the date of the dissolution of the firm. In this connection he invited my attention to a judgment of the Madras High Court in M. Valliammai v. Ramanathan, : AIR1969Mad257 . I will discuss this authority a little later. At this stage I may state that the real question is as to whether the Court was justified in disposing of the entire suit on the preliminary issue itself. The various points raised by the Counsel for the plaintiff and defendant No. 11 have not been considered by the learned Judge at all. The answer of Mr. Suresh to all these points is that the consideration of the same was not necessary because even assuming that there existed any agreement between the parties as pleaded by the plaintiff, still the suit would be one which would be governed by Article 5 of the Limitation Act 1963.
9. I am of the view that the contention of Mr. Shah and Mr. Abhyankarlimited to the extent of the decision of the suit on the preliminary issue has got to be accepted. In this connection it is to be noted that the suit was no longer governed by the unamended Civil Procedure Code. The unamended Order 14 Rule 2 provided as follows:
'2. Where issues both of law and of fact arise, in the same 'suit, and the Court is of opinion that the case or any part thereof may be disposed of on the issues of law only, it shall try those issues first, and for that purpose may, if it thinks fit, postpone the settlement of the issue of fact until after the issues of law have been determined.' Order 14 Rule 2 which is amended by virtue of the 1976 amendment on the other hand runs as follows:--
'2. Court to pronounce judgment on all issues -- (1) Notwithstanding that a case may be disposed of on a preliminary issue, the Court shall, subject to the provisions of Sub-rule (2) pronounce judgment on all issues.
(2) Where issues both of law and of fact arise in the same suit, and the Court is of opinion that the case or any part thereof may be disposed of on an issue of law only, it may try that issue first if that issue relates to:
(a) the jurisdiction of the Court, or
(b) a bar of the suit created by any law for the time being in force,
and for that purpose may, if it thinks fit, postpone the settlement of the other issues until after that issue has been determined, and may deal with the suit in accordance with the decision on that issue,'
Prima facie, therefore, it appears that whereas formerly once the Court came to the conclusion that the suit could be disposed of by decision of the preliminary issue the Court had no option but to try the issue as preliminary issue and to dispose of the suit accordingly. The amended Rule 2 of Order 14 on the other hand gives a discretion to the Court, even if the issue relates to a bar to the suit created by any law, meaning thereby law such as the Limitation Act. But apart from this distinction it can be said that the Court does have jurisdiction to decide the suit on a preliminary issue but it can do so only if the question is purely one of law or is one which would decide the entire suit by itself.
10. In the instant case, I find that a number of points have been raised by the Counsel for the plaintiff. As for example the plaintiff has pleaded an agreement between the surviving partners and heirs of the deceased partner by virtue of which agreement defendant No. 1 was constituted almost an agent or a trustee for carrying on the business of a dissolved firm until the accounts are taken. It is a question of substantive law, which would require examination in the context of the principles of equity, as to whether the plaintiff and defendant No. 11 would not be entitled to enforce certain equities against the contesting defendants. It may be that upon examination of the entire question the Court may come to the conclusion that the rights that had accrued to the surviving partners got merged in the agreement between the surviving partners on the one hand and the heirs of deceased partner on the other. Secondly it may be possible for the Court to come to the conclusion, after examination of the entire legal position, that certain equities accrued to the plaintiff and defendant No. 11 by virtue of the agreement arrived at between the parties, or representation made by the defendant No. 1 to them, while arriving at the agreement. It may be a case of agency by defendant No. 1 for the body of the parties who were now co-owners in respect of the partnership assets. It is not inconceivable that a body of co-owners could exist without there being a partnership as such amongst them as contemplated by the Partnership Act. Just as there could be co-owners of property there could be co-owners in respect of business including assets and liabilities of business, because business after all is property. In the case of partnership, each is an agent of partner and of the other business. In case of such kind of co-ownership it is inconceivable that defendant No. 1 alone was constituted agent by the remaining co-owners. I hasten to add that I wish to express no final opinion on this point at all. The point that was sought to be made before me and which appears to me to be quite reasonable is that the entire legal position in this behalf needs to be carefully examined. For that purpose it shall have to be first established that there did exist an agreement between the plaintiff and defendant No. 11 on the one hand and defendant No. 1 on the other as pleaded bythe plaintiff. After that agreement was in fact established, the Court's shall have to examine the legal position and to ascertain the legal consequence flowing therefrom. I can understand if the learned Judge had proceeded upon the assumption that there existed an agreement as pleaded by the plaintiff and had examined the entire legal position and had thereafter come to the conclusion that no right either in law or in equity accrued in favour of the plaintiff even though the agreement was held proved. The learned Judge has not considered this aspect at all. To my mind the decision of the suit on the preliminary issue without examination of the legal position referred to above is something which cannot be said to be proper exercise of the Court's jurisdiction under Order 14, Rule 2 of the Code of Civil Procedure.
11. A few argument's were sought to be advanced by Mr. Suresh with relation to the position emerging from the provisions of the Partnership Act with special reference to Sections 37, 45 and 53 of the same. Since I am not deciding this question finally, I do not think it proper on my part to express any opinion on the same except that to my mind the position arising out of the said provisions does not at all conclude the legal position one way or the other. While considering the legal position mentioned above, the effect of the above mentioned provisions of the Partnership Act acid in fact the effect of the entire scheme of the Partnership Act shall have to be taken into account by the Court. All that I am driving at is that the Court has non-suited the plaintiff without examining this legal position and to that extent the decree passed by the Court cannot be said to be quite justified.
12. I will now deal with the decision of the Madras High Court in M. Valliammai v. Ramanathan, : AIR1969Mad257 , which was heavily relied upon by Mr. Suresh. In that case there existed a partnership from the year 1921. One of the partners, partner 'A', died in 1933 but contention was that the same partnership continued after reconstitution. Another partner, partner 'B', died in 1947 but the partnership allegedly continued once again after reconstitution. The third partner, partner 'C', died in December, 1956 and some of the surviving partners filed suit for accounts of the dissolved firm in June, 1959, well within three years from the date of the death of thelast deceased partner 'C'. It was the case of the plaintiff that on reconstitution of the firm after the death of partner 'A', the immovable properties which were the subject-matter of the suit ceased to be partnership properties and they were enjoyed by the plaintiff and other surviving partners only as co-owners. It was on the basis of this contention that a share in the suit properties was claimed and there was a separate claim for rendition of accounts of dissolved partnership firm. The defendants denied the plaintiff's claim regarding reconstitution of the firm after the death of partner 'A', Defence was that upon the death of the said partner 'A', the partnership was wound up by the surviving partners and the assets were sold and the sale proceeds were used for the discharged of the debts. In substance their contention was that they were in possession of the properties in their own right, they having purchased those properties in the winding up proceedings. They also contended that they had acquired title to these properties by adverse possession. The contentions of the defendants were accepted by the trial Court and he held that the firm was never reconstituted but was already wound up. It was held that the property was sold in the winding up proceedings. The defence plea regarding adverse possession was also accepted and hence it was held that the suit for accounts was barred under Article 106 of the Limitation Act. The suit was, therefore, dismissed. In appeal, the learned District Judge agreed with the findings that the firm was already dissolved in the year 1933 and that there was no reconstitution of the same. The appellate Court, however, held that there was no settlement of accounts. The defence plea regarding adverse possession was, however, negatived by the Appellate Court. As regards the question of limitation the learned District Judge took the view that when the suit for accounts was barred, the suit for share of the assets of the firm was also barred, However, he felt that different consideration would arise as regards the claim of partition of immovable properties that belonged to the dissolved firm. He took the view that the surviving partners became co-owners and none of them could hold adversely -against the other. The appeal, was, therefore, allowed to this extent, that is to say, it was allowed with reference to the claim for share in the immovable properties.
In the second appeal the High Court was required to consider this aspect of the judgment of the learned District Judge and it was in this context that the High Court observed as follows:
'(At p. 261) It is now settled law that a partner's or his representative's lien with reference to partnership assets is on the surplus of the assets of the firm and not On any particular item of property belonging to the partnership. On the dissolution of a firm, all the properties belonging to the partnership have to be sold and the sale proceeds after discharging all the partnership debts and liabilities, have to be divided among the partners according to their respective shares, and this is the general rule. The lien of a partner is not one on any specific assets of the partnership existing on the death of a partner such as would fetter its conversion into money. The right of a representative of a partner is really a claim against the surplus assets on realisation whether the surplus assets consist entirely of the proceeds of realisation or whether they include some specific items of property which existed on the death of the partner. The proper remedy of a partner in the circumstances is to have accounts taken to ascertain his share and if the right to sue for accounts is barred by limitation, the partner cannot sue any partner in possession of the assets for a share therein. If after taking accounts and discharging the mutual rights and obligations of the partners or their representatives an asset which has been forgotten or treated as valueless afterwards falls in, that asset no doubt will be divided between the partners or their representatives in proportion to their shares in the partnership.
The head note in ILR 45 Mad 3781 AIR 1922 PC 115, the leading case on the subject which succinctly states the principle, runs thus: 'If a partnership has been dissolved and accounts have been wound up, the mutual rights and obligations of the partners therein being discharged, and as asset which has been forgotten or treated as valueless afterwards falls in, it ought to be divided between the partners in proportion to their shares in the partnership. But if no account has been taken, the proper remedy of a partner in respect of an asset so received is to have an account taken; if his right to sue for an account is barred by limitation.he cannot sue the partner who has received the asset for a share of it.'
I have stated the facts and ratio of the case somewhat in extenso just with a view to point out the distinction between the question that arose for consideration before the Madras High Court and the question that might be required to be dealt with by the Court in this case. In the Madras case there was a pleading that there was a reconstitution of the firm but that contention was negatived. In that case there was no plea that there was subsequently an agreement betweenparties by virtue of which the business was to be carried on by any of the partners as trustee or an agent of the other party. The absence of such a plea marks the basic difference between the two situations. To my mind if the agreement in the instant case is held to be proved, it is quite possible that the resultant legal position might not be the same as the one which was negatived by their Lordships of the Madras High Court, I hasten to add that I wish to express no final opinion on this point because to my mind the entire question should be examined by the learned Judge himself. If he arrives at the conclusion that the agreement itself was not proved by the plaintiff, perhaps nothing further will remain; but if it is held that the agreement is proved, the learned Judge shall have to examine the entire legal position as indicated above.
13. I-n these circumstances, the appeal is allowed. The decree passed by the trial Court is set aside and the matter is remanded to the trial Court for decision of all the issues, including issue relating to limitation which shall be examined and decided by the trial Court afresh in the light of the evidence on record and the evidence that would be further led by the parties.
14. It is needless to state that the trial Court will allow the parties to lead such evidence as they may desire on all the issues. However, in view of the fact that the suit is a very old suit of the year 1965 and in view of the fact that the same was dismissed by the trial Court on preliminary issue only, the trial Court is directed to dispose of the entire suit before 31st July, 1981. The Court is also directed to inform the Registrar of this Court the progress of the suit and particularly this Court should be informed if any attempt is made on the part of any parties to delay the proceedings.
15. The Bank guarantee furnished by respondent No. 1 pursuant to the order dated 14-3-1980 passed in Civil Application No. 766 of 1980 to continue till the disposal of the suit by the trial Court.
16. Office to send writ of this order to the trial Court immediately.
F. A. No. 176/80
This is companion appeal with the earlier First Appeal No. 174/80. For the reasons stated in the said judgment the decree passed by the trial Court is set aside. The rest of the decretal order in F. A. No. 174/80 shall apply to this appeal also.
17. Appeals allowed