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A.A. Khan and ors. Vs. Ameer Khan and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtKarnataka High Court
Decided On
Case NumberRegular Appeal No. 64 of 1949-50
Judge
Reported inAIR1952Kant131; AIR1952Mys131; ILR1951KAR486; (1953)31MysLJ103
ActsIndian Partnership Act, 1932 - Sections 4, 30, 30(1) and 37; Indian Contract Act, 1872 - Sections 65 and 247
AppellantA.A. Khan and ors.
RespondentAmeer Khan and ors.
Appellant AdvocateA.V. Shankara Rao, Adv.
Respondent AdvocateA.R. Somanatha Iyer, ;N.K. Gopala Iyengar and ;M.V. Srinivasa Iyengar, Advs.
Excerpt:
.....untenable. the arrangement between the defendant 1 and defendant 4 and the plaintiffs whom he represented as their guardian was clearly to the effect that rs. they clearly establish that rs. shankar rao next contends that the agreement embodied in exhibit a cannot bring about a relation of partnership between the plaintiffs and defendants 1 to 3. he argues that the plaintiffs 1 to 6 as well as defendants 2 and 3 were all minors when a partnership was sought to be formed as between them and defendant 1. partnership was a matter purely of contract in the present case and there could be no such contract of partnership between three parties two of whom were minors and defendant 1 who alone was an adult. the same will be recoverable from defendant 1 personally and the assets of the..........before the partnership commenced that defendant 1 should advance rs. 6000/- on behalf of the six minor plaintiffs and that plaintiffs through their father should advance rs. 6000/- making up rs. 12,000/- in all as their contribution towards the capital, and that defendant 4 should work as a cutter and manage the concern. contrary to this agreement, the plaintiffs and their father defendant 4 failed to pay the sum of rs. 6000/-. defendant 4 had misconducted himself and mismanaged the business and ultimately left it on 30-9-1944. and set up a similar rival business in the name of khan & co. though he had agreed to work for a period of 5 years. he had also not accounted for the stocks and outstanding collected by him and he had now set up his wife to bring the suit. there had been loss in.....
Judgment:

1. Plaintiffs 1 to 6 are the sons of Defendant 4. The age of the eldest i.e. plaintiff 1's age was 18 when the suit was filed in forma pauperis, on 9-10-46, by him and his five younger brothers who were all minors represented by their mother as next friend. Defendants 2 and 3 are also minors and sons of Defendant 1. The plaintiffs' case is that they, represented by their father and guardian defendant 4, entered into a partnership arrangement with defendants 1 to 3 for carrying on business under the name and style of the New Bombay Tailoring Co., under terms and conditions which were embodied in a registered deed of partnership dated 6-1-1944. Towards the capital of that partnership they invested Rs. 12,000/-, defendant 1, Rs. 1000/-and defendants 2 and 3 each Rs. 12,000/-making up in all Rs. 37,000/-. The partnership was to run for a period of 5 years with effect from 1-11-1943, from which date they had been carrying on the business, and they were entitled to a 5 annas share of the profits. Within a few months of the deed, defendant 1 picked up a quarrel with defendant 4 with selfish and ulterior motives and made it impossible for the partnership business to be carried on with any advantage to the other partners. The plaintiffs therefore had to issue a notice on 8-3-1945 terminating the partnership and bring their suit for a declaration that the partnership was dissolved with effect from 8-3-1945, for the taking of accounts, return of capital amount invested by them and for their share of profits.

2. Defendant 1 pleaded that neither the plaintiffs nor their father defendant 4 contributed anything towards the capital; that it had been agreed before the partnership commenced that defendant 1 should advance Rs. 6000/- on behalf of the six minor plaintiffs and that plaintiffs through their father should advance Rs. 6000/- making up Rs. 12,000/- in all as their contribution towards the capital, and that defendant 4 should work as a cutter and manage the concern. Contrary to this agreement, the plaintiffs and their father defendant 4 failed to pay the sum of Rs. 6000/-. Defendant 4 had misconducted himself and mismanaged the business and ultimately left it on 30-9-1944. and set up a similar rival business in the name of Khan & Co. though he had agreed to work for a period of 5 years. He had also not accounted for the stocks and outstanding collected by him and he had now set up his wife to bring the suit. There had been loss in the working of the business and not profits. He further pleaded that the plaintiffs were not entitled to the benefits of the partnership. The minor defendants 2 and 3 through their guardian ad litem also contested the plaintiff's claim.

3. The learned District Judge held that a partnership firm had come into being according to the terms of Exhibit A the partnership deed and had also been registered under the Partnership Act. He therefore passed a preliminary decree declaring that the partnership be dissolved with effect from 8-3-1945, and directing the taking of accounts with a view to ascertain the profits of the business and directing, the defendants 1 to 3 to pay the plaintiffs their share of capital of Rs. 12,000/-and costs of the suit. Defendants 1 to 3 have appealed.

4. It is contended by Sri A.V. Shankar Rao, learned Counsel for the appellants that the plaintiffs have not proved that they contributed any funds towards the capital of the business; that it is defendant 1 who had transferred stock of the value of Rs. 37,000/- belonging to himself for the purpose of starting and running the business; that the business was started and it had been proposed to run it only with the help and management of defendant 4 who was an experienced cutter who had had previous experience of such tailoring business in the Bombay Tailoring Co., where he was formerly employed; that it was a condition precedent to the coming into effect of this proposed joint venture that the plaintiffs or defendant 4 for them should also contribute Rs. 6000/- in order to make up Rs. 12,000/-. the plaintiffs' share of capital and that defendant 1 himself promised to advance Rs. 6000/-for and on behalf of the minor plaintiffs. As defendant 1 subsequently failed and refused to perform these two vital conditions which were really the foundation for the arrangement as well as the motive which prompted defendants 1 to 3 to enter into it at all, the partnership arrangement must be deemed either not to have come into effect at all or afforded full and sufficient reasons for the defendant 1 to put an end to it. The effect of it was as if the partnership had never really existed.

5. For the respondents, Mr. A.R. Somanatha Iyer their learned Counsel has relied strongly on the contents of Exhibit A wherein it is expressly recited that the plaintiffs have contributed Rs. 12,000/- in cash as their share of capital in the joint business which was to run with effect from 23-11-1943, from which earlier date the business was, it is stated, being carried on practically on the same conditions. That agreement he urges does not mention either as a condition precedent or as a proper reason for putting an end to the arrangement that defendant 4 should work in and manage the business for 5 years. It provides only for his salary at Rs. 250/- per mensem and if he merely left the concern earlier that did not mean the end of the partnership would follow.

6. As against this, Mr. A.V. Shankar Rao urges that the mere recital in Exhibit A that Rs. 12,000/- was paid in cash by or on behalf of the plaintiffs is not entitled to any great weight as against the entries in the shop's account books which have been signed by the defendant 4 that defendant 1 brought in the stock of the value of Rs. 37,000/- into the business, and that it has not been proved by any reliable evidence other than the interested testimony of the plaintiffs' mother that the plaintiffs had Rs. 12,000/- of their own to contribute. He has also relied strongly in this connection on two Exhibits IV and XII.

7. (After discussing the documentary evidence, the Judgment proceeds as follows:) From Exhibit XII, Exhibit IV, Exhibit X and Exhibit XI it is clear that the case put forward by defendant 1 is true viz., that he himself advanced Rs. 6000/- for the benefit of the minor plaintiffs and lent Rs. 6000/- or goods of that value to defendant 4 for being invested in his sons' name making in all Rs. 12,0007-as their investment. He similarly invested Rs. 24,000/- in the name of his own minor sons defendants 2 and 3 and depended entirely on defendant 4 to manage and carry on the tailoring business.

8. Defendant 4 refused to go on with the arrangement and was entirely responsible for the deadlock that was created and which prevented the business being carried on in accordance with the terms of Exhibit A. Defendant 1 appears to have been generous towards his brother and his nephews and the present claim on behalf of the minor plaintiffs put forward by their mother for the entire sum of Rs. 12,000/- is clearly untenable. But, defendant 4 credited in the capital account Rs. 6000/-to the plaintiffs and he must be taken to have thereby made a gift of it to the plaintiffs even according to his own showing. As regards this sum of Rs. 6000/- we do not see how he can, by merely reversing the entries in the capital account, take back the amount he has given them absolutely and has created them as beneficiaries or owners of the same. The considerations regarding the sum of Rs. 6000/- advanced as a loan by defendant 1 are however different and he was entitled to recoup himself from the capital pertaining to the plaintiff to the extent of Rs. 6000/- as the same did not really belong to the plaintiffs absolutely.

9. Mr. Somanatha Iyer contends that by the same reasoning he cannot take back from the plaintiffs the other Rs. 6000/- worth of stock which he might have loaned to defendant 4 and which the latter had invested in his sons' names. The arrangement between the defendant 1 and defendant 4 and the plaintiffs whom he represented as their guardian was clearly to the effect that Rs. 6000/- should be treated as merely an advance or loan to plaintiffs which defendant 4 had to discharge out of his income and was not meant to be a gift to the plaintiffs unconditionally.

10. Defendant 4 has not been examined and has not given any explanation about Exhibit IV and Exhibit XII though he has admitted Exhibit IV. They clearly establish that Rs. 6000/- was treated as a loan by the plaintiffs and it cannot be claimed to belong to the plaintiffs.

11. In this view the finding of the learned District Judge that the plaintiffs should recover Rs. 12,000/- as their share of the capital cannot be supported in its entirety. It can only be Rs. 6000/- which can be so recovered by the plaintiffs.

12. Mr. Shankar Rao next contends that the agreement embodied in Exhibit A cannot bring about a relation of partnership between the plaintiffs and defendants 1 to 3. He argues that the plaintiffs 1 to 6 as well as defendants 2 and 3 were all minors when a partnership was sought to be formed as between them and defendant 1. Partnership was a matter purely of contract in the present case and there could be no such contract of partnership between three parties two of whom were minors and defendant 1 who alone was an adult. Minors can no doubt be admitted to the benefits of partnership but that presupposes the existence already of a partnership between at least two adult persons before any minor could be included therein as a partner. A partnership such as the present was therefore void and could not form the basis of a suit for dissolution and accounts. He has referred to some provisions of the Indian Partnership Act and to some decided cases.

The definition of partnership according to Section 4 is that it 'is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.' Section 30 states that a person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners, for the time being, he may be admitted to the benefits of partnership. Such a minor has a right to such share of the property and all the profits of the firm as may be agreed upon. His share is liable for the acts of the firm but he is not personally liable for any such act. It is open to a minor within six months of his attaining majority or on his obtaining knowledge that he has been admitted to the benefits of a partnership whichever date is later to give public notice that he has elected to become or that he has elected not to become a partner in the firm and such notice shall determine his position as regards the firm. If he fails to give such notice he becomes a partner in the firm on the expiry of the said six months.

13. It is clear from these sections that there must be a firm in existence before a minor could be included in it. Under Section 4, it is necessary that there must be an agreement between two or more adults before a partnership comes into being and it is only thereafter that a minor can be admitted to the benefits of partnership under Section 30(1).

14. In 'Rafiq Muhammad v. Khawaja Qamar Din', AIR 1922 Lah. 441 the words of Section 247 of the Indian Contract Act 'that a minor may be admitted to the benefits of a partnership' were considered and it was held that if he is admitted to the benefits of partnership, his share will be liable for the firm's debts. If, however, the partnership is based on the contract, the privilege conferred on the minor by Section 247 will not give him power to create a firm. In other words, a partnership of this nature must be in existence before he can be admitted to its benefits, for, he cannot be admitted to what does not exist.

In 'Lachhmi Narain v. Beni Ram' : AIR1931All327 , B and H were partners having equal shares in a confectionery business. H died in 1920 leaving a minor son. After H's death B carried on the business under the old name and style with the partnership funds which lie retained in his hands. The plaintiff alleged that after his father's death he was admitted to the benefits of the partnership. It was held that the plaintiff could not be admitted to the benefits of the partnership as no partnership existed after the death of H; nor could he, being a minor, enter into a contract with B to form a partnership. II was observed in that case that there being no partnership in existence, the provisions of Section 247 of the Indian Contract Act (which corresponds to Section 30 of the Indian Partnership Act) could not be applied in his favour. In 'V. Manic Kavelu Mudahar v. Commr. of Income Tax, Mysore', 10 Mys. L.J. 316 it has been observed that a minor cannot himself create a partnership and admit himself to the benefits of the same. In support of that observation reference has been made to AIR 1922 Lah. 441 and 'Venkatasuryanarayana v. A. Ramayya', 62 Ind. Cas. 602 (Mad.).

15. It is clear from these rulings that plaintiffs 1 to 6 cannot be said to have been admitted to the benefits of a valid partnership and they cannot claim that the partnership should be dissolved and account should be taken as if they were partners, But it is contended by Mr. A.R. Somanatha Iyer, learned counsel for the respondents, that the minor plaintiffs are entitled to recover the contribution which they have made towards the capital, or that portion of the capital which has been held to belong to them together with interest thereon or a share of the profits, whichever they choose, in accordance with the principle of Section 37 of the Indian Partnership Act. That Section provides: 'Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent per annum on the amount of his share in the property of the firm.'

He argues that the plaintiffs may invoke the provisions of Section 65 of the Contract Act to recover the benefits or any advantage which the defendants may have realised under a void agreement. That section provides that under an agreement discovered to be void, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it to the persons from whom he received it. This position is not seriously disputed for the appellants and Mr. Somanatha Iyer has stated before us that his clients are agreeable to receive interest at 6 per cent per annum rather than put themselves to the trouble and uncertainty of ascertaining by an elaborate enquiry whether the business has really ended in profits as alleged by them or in a loss as stated by the defendants.

16. In the light of the above discussion, we modify the judgment and decree of the learned District Judge and pass a decree in favour of the plaintiffs for Rs. 6000/- only with interest at 6 per cent from 1-11-1943 from which date the venture was started. The same will be recoverable from defendant 1 personally and the assets of the business of the New Bombay Tailoring Company in the hands of defendants 1 to 3.

17. The parties will pay and receive costs according to their success and failure in this Court and in the Court below. The court-fee due to Government on the plaint will be a first charge on the amount decreed in favour of the plaintiffs.

18. Order accordingly.


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