1. This second Appeal arises out of a suit (O. S. No. 548 of 1951) on the file of the District Munsiff Court, Madanapalle, instituted by the present Appellant for settlement of accounts between himself and the defendants and for calling upon the latter to account for the plaintiffs share or the profits of the partnership business carried on under the name and style of Rama and Swamy in the Madanappalle town and for a direction to the defendants to pay to him his half share of the profits. A preliminary decree was passed on 28-11-1952. A Commissioner was appointed to go into the accounts and submit a report.
It was accordingly submitted. A final decree was passed directing the plaintiff to pay Rs. 630-6-0 to the second defendant and Rs. 2,119-5-9 to the 1st defendant retaining his own (plaintiff) share of the profits of Rs. 2,112-10-4 subject to the payment of the necessary court-fee thereon. Against that final decree the plaintiff filed an appeal (A. S. 161 of 1954 on the file of the District Court, Chittoor) and subject to certain modifications of the actual amounts payable, the final decree was confirmed with a direction that each party should bear its own costs. This Second Appeal is directed against the judgment and decree of the learned District Judge.
2. According to the plaintiff, he and the 1st defendant carried on the business under the name and style of Rama and Swamy in Madanapalle in asbestos cement sheets and iron cuttings and defectives from the year 1945. The 1st defendant was to invest the necessary capital. The plaintiff was to be the working partner. The profits accrued from the business were to be divided equally between them. The second defendant is stated to be a clerk entitled to a remuneration to, be fixed on the basis of the profits of the business.
According to the plaintiffs case, the partnership business went on smoothly till about the end of 1948, when differences arose between the plaintiff and the 1st defendant in respect of the business. It is alleged that the 1st defendant repudiated the partnership in or about the middle of October 1948, and thereafter some attempts were made at settlement of accounts, and that as a matter of fact, accounts were looked into by the plaintiff and the second defendant.
According to the plaintiff the stock in trade and the cash were with the 1st defendant. Nothing final emerged out of these attempts and so the plaintiff brought his action for directing a final settlement of accounts by calling upon the defendants to account to the plaintiff of his share of the profits of the partnership business and directing the defendants to pay to the plaintiff his half share of the profits in the same.
3. The 1st defendant while admitting that he and the plaintiff carried on business in asbestos cement sheets, denied that there was any partnership with respect to iron cuttings and defectives. It is also stated in the written statement that the 1st defendant requested the second defendant to keep the iron goods in the premises of the agent of the Caltex Company, and that he was not in possession of either the cash or the accounts, except two account books which were handed over to him by the 2nd defendant for the purposes of production before the Income Tax Officer.
He denied the allegation of the plaintiff as to looking into accounts- and stated that he was not bound by anything that the plaintiff or the second defendant might have decided. Further it was also alleged that on the allegation of the plaint, the suit in the form in which it was laid was incompetent. The 2nd defendant denied any connection with the partnership business and stated that he was only writing some accounts because he was friendly with the plaintiff and the 1st defendant.
No money was ever given to him by way of remuneration and, therefore, he was not a necessary party to the suit. He, however, admitted in his written statement that at the instance of the 1st defendant he was keeping the iron goods in the premises of one Ramachandra Reddy, the agent of the Caltex Company.
4. After the issues were framed, the suit was. set down for trial, to 19-8-1952. On that day the defendants were absent. They were set ex parte, and a preliminary decree was passed and the suit was adjourned to 20-8-1952 for further steps. On that day a Commissioner was appointed to go into the accounts. That Commissioner gave notice to the defendants, who however, did not participate in the proceedings before him. He appears to have looked into the accounts furnished by the plaintiff and submitted a report dated 6-10-1952, marked as Ex. A-12 in the case. According to that report the 1st defendant was shown to be liable to pay to the plaintiff Rs. 2,160-7-11 and to the second defendant Rs. 625-12-10.
5. Meanwhile on 6-9-1952, an application was filed in the trial court to set aside the ex parte decree dated 19-8-1952. By an order dated 13-10-1952 the trial Court set aside the ex parte decree and posted the suit for trial. The learned District Munsiff delivered the Judgment on 28-11-1952. He held that the partnership between the plaintiff and the 1st defendant was not confined merely to asbestos sheets, but also included, as alleged by the plaintiff, iron cuttings and defectives. The terms of the partnership were held to be those as pleaded in the plaint He further held that the suit was not bad for mis-joinder of parties or causes of action and also that the 2nd defendant was a necessary party. One of the most important issues that the learned District Munsiff had to try was issue No. 3, which is as follows:
'What are the assets of the partnership firm and with whom are they and who is liable to account and to whom?'
On that issue, the learned District Munsiff held that the assets of the partnership firm must be with the plaintiff and he is liable to render an account to the 1st defendant. A preliminary decree was passed directing accounts to be taken. The Commissioner who submitted Ex. A-12 was appointed to look into the accounts and eventually he submitted a report marked as Ex. A-13 in the case. Objections were called for. The plaintiff did not file any objections. It would appear that both parties accepted the figures in Ex. A-13, which was marked by consent.
6. At the time of the final decree proceedings the defendant objected to Ex. A-12 on the ground that the findings therein were of no avail, because they were given in his absence. Some attempt seemed to have been made to raise the question as to who is in possession of the assets of the partnership. The learned District Munsiff felt that that matter was already concluded_ by the finding on issue 3 recorded in the preliminary judgment dated 28-11-1952. The final decree, therefore, was passed directing the plaintiff to pay Rs. 630-6-0 to the second defendant and Rs. 2,119-5-9 to the 1st defendant and retaining in his own hands Rs. 2102-10-4 as his share of the profits.
7. An appeal was preferred by the plaintiff against that final decree. Two questions were agitated before the learned District Judge (i) as to the computation of the amounts decreed to be paid and (ii) the liability of the plaintiff to account for the stock on hand which was stated to be in the hands of the 1st defendant. On the first question, the learned District Judge modified the figures in the final decree passed by the trial Court and held that the plaintiff was accountable only for the half of the firm's property or its value that is, Rs. 1,943-5-2 and that the final decree should accordingly be modified.
In regard to the second point as to whether who is in possession of the stock on hand the learned District Judge held that the matter was concluded .by the finding recorded on issue 3. According to the learned Judge, by reason of the plaintiff not having filed an appeal against tile preliminary decree, he is precluded under S. 97 of the Code of Civil Procedure from disputing the correctness of that finding before him.
8. In this appeal, the main point argued is as to the correctness of the view of the learned Judge that the plaintiff is precluded from raising the question of the possession of the stock in trade. It is argued that the plaintiff could not have preferred an appeal against the preliminary decree because it was wholly in his favour and that, therefore, he could not have filed an appeal. That being so, it is argued the question as to who was in possession of the assets cannot be regarded as having been finally decided and that the plaintiff is not precluded from raising it in appeal against a final decree, which is passed on a finding which he had no opportunity to challenge in appeal.
9. On the other hand, it is very strenuously contended by the learned counsel for the respondent that though the preliminary decree contained only a direction for taking of accounts, the plaintiff could and should have filed an appeal against the adverse finding on issue 3 and not having done so the finding had become conclusive and it is not open for the plaintiff to reagitate the matter.
10. On a consideration of the rival contentions which have been fully and forcibly pressed upon me, I am of the opinion that the contention of the appellant should prevail.
11. Section 96 of the Civil Procedure Code provides that an appeal shall lie from every decree passed by any Court exercising original jurisdiction. A decree-is defined in Section 2(2) of the Code as:
'the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final..........
Explanation:- A decree is preliminary when further proceedings have to be taken before the suit can he completely disposed of. It is final when such adjudication completely disposes of the suit. It may be partly preliminary and partly final.'
Section 97 of the Code is in these terms:
'Where any party aggrieved by a preliminary decree passed after the commencement of this Code does not appeal from such decree, he shall be precluded from disputing its correctness in any appeal which may be preferred from the final decree.'
12. Under Order 20 of the Code, provision is made for the passing of a preliminary decree in certain classes of suits such as, administration actions, partition suits, partnership actions, and suits for accounts between principal and agent. Order 20 Order 15 is in these terms:
'Where a suit is for the dissolution of a partnership, or the taking of partnership accounts, the Court, before passing a final decree, may pass a preliminary decree declaring the proportionate shares of the parties, fixing the day on which the partnership shall stand dissolved or be deemed to nave been dissolved, and directing such accounts to be taken, and other acts to be done, as it thinks fit'.
The form in which a preliminary decree is to be passed in partnership suits is contained in Form XXI of Appendix D to the C. P. C. If the preliminary decree directs the taking of accounts, accounts have to be taken in accordance with the rules provided in the Civil Rules of practice. When the Commissioner submits his report, the Court has to consider the objections of the parties and either accept the report or direct any party to bring any fresh account or balance-sheet or refer the report to the Commissioner with fresh direction as to the manner in which the accounts should have been taken.
13. In this case, the preliminary decree was passed on 28-11-1952, and it is in these terms:
'1. That a Commissioner be appointed to take an account of the credits, property and effects of the partnership business carried on in the name of Rama and Swamy in Madanapalle, and account of all dealings and transactions between the plaintiff and the defendants.
2, That the question of costs be determined in the final decree'.
14. The question is could the plaintiff have filed an appeal against this preliminary decree? It is argued by Mr. Kondayya, that quite apart altogether from the form of the decree, inasmuch as there is an adverse finding against the plaintiff on issue 3, which would be res judicata as between the parties, he could have sustained an appeal. It is the correctness of this contention that has to be determined in this case. It is not necessary, for me to refer to the authorities cited by the learned Counsel for either side. The rule has been very clearly stated by Venkatramana Rao J., in Kotayya V. Subbayya, AIR 1937 Mad 114 in these terms:
'If the suit results in a decision in favour of a party, a finding against him on any issue will no e res judicata in a subsequent suit. This is laid down by the Privy Council in Midnapore Zamindari Co Ltd. v. Naresh Narayan Roy, ILR 48 Cal 460: (AIR 1922 PC 241) which has been followed by our High Court in a number of cases. Though a finding on an issue may not he necessary for the disposal of the suit, yet, if a party invites the decision of the Court on that issue and the Court also considers it necessary to go into it and gives a finding thereon, the decision on that issue will constitute res judicata, in a subsequent suit, provided that the party against whom there was finding on that issue would be in a position to carry the matter in appeal'.
In the case which the learned Judge had to consider a landlord instituted a suit against his tenant for ejectment and recovery of possession. The tenant denied the lease and title of the landlord, and claim, ed adverse possession. In the previous litigation between them the Court found in favour of the landlord as regards the lease and adverse possession; but dismissed the suit and appeal therefrom on the ground that the landlord failed to serve a notice on the tenant to quit and disallowed costs of the defendant.
The tenants appealed. Costs were also disallowed. It was held that the tenant invited the Court to give a finding on the question of title and of the lease and the disallowance of costs was referable to the finding against the defendant, so much so the tenant could have filed an appeal against the order relating to costs and since he did not do so the matter became res judicata. This decision emphasises the rule that there must be something in the decree that entitles a party to file an appeal. The principle of this decision has been adopted wholly by Subba Rao C. J. (as he then was) in Mahadeva Sastri v. Sreerama Murthy, : AIR1955AP282 .
It was held therein that though a suit is dismissed, the adverse finding against the defendant would be res judicata in a subsequent suit between the same parties, it on the basis of that finding, costs in whole or in part were disallowed to the plaintiff or awarded to the defendant, for in such a case there Ss a decree against the defendant, and it becomes final unless he prefers an appeal against the same. The learned Chief Justice referring to the leading authority on this subject Midnapur Zamindari's case, ILR 48 Cal 460: (AIR 1922 PC 241) has observed as follows:
'This decision, therefore, is authority for the position that a finding against a defendant is not res judicata in a subsequent suit if the suit is dismissed against him in toto, for, in that event, the defendant has no opportunity to the file an appeal questioning that finding. That finding, therefore, cannot be held to be a final decision. This proposition is accepted as sound by the learned counselor the respondent also.'
It is unnecessary to refer in detail to the facts of the decision of the Privy Council case in Midnapur Zamindari's case, ILR 48 Cal 460: AIR 1922 P.C. 241. But since the decision is a leading authority on the subject, it is necessary to state a few facts about it. A Zamindar filed a suit against his tenant claiming possession of certain chur lands. That suit ended in a compromise and a fresh patta and kubuliyat fixing an yearly rent for 8 years were executed. One of the terms of the compromise was that after the expiry of the period of 8 years, a fresh patta and kabuliyat were to be given at a fair rate to be settled then.
It was also agreed that after the settlement of the fair rent if the tenant refused to pay the rent, the zamindar could evict him and obtain khas possession, To that suit the tenant raised two defences: (1) that he had jotedari or occupancy right, and (2) that the suit was premature. The trial court negatived the tenant's case as to his occupancy rights, but held that the suit was premature.
The High Court agreed with the decision. TheZamindar brought a subsequent suit for khas possession of the land after giving notice to terminate thetenancy. The tenant again pleaded occupancy rights.The question that had to be considered was whetherthe finding in the prior litigation that the tenant hadno occupancy rights was res judicata. Lord Dunedinobserved as follows:
'Their Lordships do not consider that this will be found an actual plea of res judicata, for the defendants, having succeeded on the other plea, had no occasion to go further as to the finding against them.........'
The question, therefore, is whether in view of the decree in the present case which has simply directed accounts of all dealings and transactions between the plaintiff and the defendants to be taken there was anything, which it was necessary for the defendant to appeal about. I must say that the preliminary decree did not contain any direction which could be made the foundation of an appeal by the plaintiff.
In cases where the preliminary decree in a partnership action contains certain declarations of rights adverse to a party or directions not sustainable in law, then it is the plain duty of that party to file an appeal and if he docs not do so, he cannot agitate the matter in an appeal against the final decree (vide the decision of the Privy Council in Ahmed Musaji Saleji v. Hashim Ebrahim Saleji, ILR 42 Cal. 914: (AIR 1915 P.C. 116)).
15. In this case there was nothing in the preliminary decree to which the plaintiff could have 'taken exception. I, therefore, hold that he was not under an obligation to file an appeal against that preliminary decree and that being so, I am of opinion, that the conclusion of the learned Dist. Judge that the question of the possession of the assets of the firm has been finally decided in the preliminary decree and that the plaintiff is precluded from reagitating the matter is not correct. The reasoning of the learned District Munsiff seems to be that because the plaintiff is the managing partner he would be liable to account. The concluding sentence of paragraph 9 in his judgment containing his finding on issue 3 is as follows:
'I find that the assets of the partnership firm must be with the plaintiff and he is liable to render an account to the 1st defendant'.
In that paragraph there is another observation of the learned District Munsiff which is significant. He states-:
'It is the managing and working partner that is expected to be in possession of the assets as well as the accounts and is liable to account to the absentee' partners until and unless he proves by way of accounts that the assets are not with him but with others'.
16. The question is, has the plaintiff had an opportunity to prove that the assets were with the 1st defendant. It appears that the question of possession of the assets was to be determined after looking into the accounts. Ex. A-13 which is the second report of the Commissioner does not deal with the question as to who is in possession of the assets. It merely determines the value of the assets. It is true that the plaintiff did not file any objections and had even accepted the correctness of the figures is Ex. A-13, But it seems to me that the assent of the plaintiff is to be confined only to the correctness at the figures and not as to determination of the question as to who was in possession of the assets which was not dealt with by the Commissioner, either expressly or by necessary implication.
17. In these circumstances, I have come to the conclusion that the plaintiff has not had an opportunity to canvass the correctness of the findings of the learned Dist. Munsiff on issue 3.
18. I, therefore, think that the justice of thecase requires that the plaintiff should be given suchopportunity. The decree of the trial Court is herebyset aside and the appeal is remanded for fresh disposalaccording to law by the learned District Judge. Theappeal is accordingly allowed. Costs will abide thefinal result of the case. The appellant will beentitled to the refund of the court-fee paid on theMemorandum of Second Appeal in this Court. Noleave.