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Magan Behari Lal Vs. Ram Partap Singh - Court Judgment

LegalCrystal Citation
Subject Civil
CourtAllahabad
Decided On
Reported inAIR1939All535
AppellantMagan Behari Lal
RespondentRam Partap Singh
Excerpt:
- - 21, could be granted in precisely the same terms as a decree would be granted if the firm had been registered. if the case were sufficiently clear, no doubt the partner in question could file a criminal complaint against the defaulting partner and the criminal case is not in any way barred by section 69. we are not however concerned with this aspect of the matter, but it is desirable to point out that in a proper case the law has not failed to provide an appropriate remedy. accordingly we direct that parties pay and receive costs of this appeal in proportion to 1/10 success and 9/10 failure of the appellant......sub-section (3)(a) refers to a suit for the dissolution of a firm or for accounts of a dissolved firm. dissolution of a firm is dealt with in the act in chapter 6, there is no section in that chapter which gives a right to obtain a decree that the defendant be asked to winder accounts. this provision comes apparently under section 9. the question therefore is whether in the exception the legislature intended to give the rights conferred on dissolution in chap. 6 or intended to give any wider rights than are given by that chapter. in chap. 6 there is section 48 which provides as follows:in settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed:(a) losses, including deficiencies of capital, shall be paid first out.....
Judgment:

Bennet, J.

1. This is a first appeal by the plaintiff and also cross-objections by the defendant. Learned Counsel for defendant states that the cross-objections are not pressed and we dismiss them with costs. The plaintiff brought a suit for the following reliefs:

(a) That the partnership known as 'Magan Behari Lal Ram Partap Singh' may be declared as dissolved from a date to be fixed by the Court. (b) That on its being declared dissolved, an account he taken of the said partnership and the defendant be asked to render its accounts from 1922 up to the date of the decree and whatever is found due to the plaintiff be awarded to him.

2. The partnership had a wide scope according to the plaintiff and the defendant admitted the partnership but did not admit the extent of the partnership. The plaintiff set out that the partnership with the defendant began in 1916 and comprised the following eight undertakings:

Year Venture1. 1916- Contract from the military authorities17 for the supply of green fodder. It endedin 1921. 2. 1919 Brick-kiln business at Bulandshahr. Itended in 1921. 3. 1922 Fresh briok-kiln business started atBulandshahr. This partnership is saidto have continued up to the date of suit. 4. 1923 Contract for the construction of theseptic ward in the female hospitalat Bulandshahr. 5. 1928 Contract for some constructions in thePolice Lines at Bulandshahr. 6. 1929 Contract from the Irrigation Departmentfor the supply of brioks at Dasna, District Meerut.7. 1930 Brick-kiln started at Shikarpur in thisdistrict. The plaintiff alleges that itwas a branch of the briok-kiln businessstarted at Bulandshahr. 8. 1930 Business in eleotrical accessories andinstallation work.

3. The plaintiff admitted that the accounts of the undertakings 1, 2, 4 and 5 had already been made up and therefore nothing remained in regard to the accounts of those undertakings. The Court below found that there was practically no evidence of the undertaking No. 8 and that no such undertaking was proved. There was no appeal against this finding. The three under, takings Nos. 3, 6 and 7 which remained for the consideration of the Court were all in regard to the manufacture and supply of bricks and the case for the plaintiff was that these three undertakings were of the joint partnership business. The Court below has held in favour of the plaintiff that this was so. It is admitted that the firm was not registered in accordance with the provisions of the Partnership Act, Act 9 of 1932. Accordingly, Issue 8 was framed : 'Is the suit barred by Section 69, Partnership. Act?' On this issue the Court below found that the suit was barred except so far as a decree could be granted for the dissolution of the partnership and the Court therefore granted a decree in the following terms:

It is declared that the partnership styled as 'Magan Behari Lai Ram Partap' shall standi dissolved from this date, 9th November 1936. Plaintiff's claim for the taking of accounts and for the recovery of amount that may be found due is hereby dismissed. Parties will bear their costs.

4. The main ground of the appeal of the plaintiff is that the Court below should have decreed the suit for accounts also Learned Counsel for the plaintiff has claim, ed that the Court below should have granted a decree that the defendant be asked to render accounts from 1922 up to the date of the decree, that is that the defendant should be held to be an accounting party. Section 69, Partnership Act, provides as follows:

69. (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm,

(2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

(3) The provisions of Sub-section (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect,

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm....

5. It is admitted by learned Counsel that the decree for defendant to render accounts is barred by Section 69(1) but he claims that such a decree can be granted because of the exception in Sub-section 3(a). He claims that as that sub-section allows a decree for the dissolution of a firm or for the accounts of a dissolved firm therefore the decree should be passed in the terms of relief (b). On the other hand it is contended that this sub-section does not authorize a decree which would make the defendant an accounting party. Learned Counsel referred to the provisions of the Civil Procedure Code in Order 20, Rule 15 which states:

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 have been dissolved, and directing such accounts to be taken and other acts to be done, as it thinks fit.

6. Corresponding to this rule there is in Appendix D, a Form No. 21 as follows:

It is declared that the proportionate shares of the parties In the partnership are as follows:

It is declared that this partnership shall stand dissolved (or shall be deemed to have been dissolved) as from the...day of...and it is ordered that the dissolution thereof as from that day be advertised in the...Gazette, etc.

And it is ordered that...be the receiver of the partnership-estate and effects in this suit and do get in all the outstanding book-debts and claims of the partnership.

And it is ordered that the following accounts be taken:

1. An account of the credits, property and effects now belonging to the said partnership;

2. An account of the debts and liabilities of the said partnership;

3. An account of all dealings and transactions between the plaintiff and defendant from the foot of the settled account exhibited in this suit and marked (A), and not disturbing any subsequent settled accounts.

And it is ordered that the goodwill of the business heretofore carried on by the plaintiff and defendant as in the plaint mentioned, and the stock-in-trade, be sold on the premises, and that the...may, on the application of any of the parties, fix a reserved bidding for all or any of the lots at such sale, and that either of the parties is to be at liberty to bid at the sale.

And it is ordered that the above accounts be taken and all the other acts required to be done be completed, before the...day of...and that the...do certify the result of the accounts, and that all other acts are completed, and have his certificate in that behalf ready for the inspection of the parties on the...day of....

And, lastly, it is ordered that this suit stand adjourned for making a final decree to the...day of....

7. Learned Counsel referred to a ruling of their Lordships of the Privy Council in Sinney v. Mutrie (1887) 12 A.C. 160 where their Lordships of the Privy Council had laid down a form for a preliminary decree in a suit for a partnership account and to wind up certain partnership affairs. It is stated on p. 161 that the partnership was to last for five years and expired on 31st January 1884 and the suit was brought on 9th April 1885. The form in the Civil Procedure Code has apparently been adopted from what was laid down in this ruling in the year 1886. The English Partnership Act of 1890 has been referred to by learned Counsel and be states that there is no provision in it requiring registration of a partnership firm. Formerly in India the partnership law was contained in Chap. 11, Contract Act, Act 9 of 1872, and in that chapter there was no provision for the registration of a partnership. Therefore up to 1932 there was no distinction in the form of decree to be granted either in England or in India in a case of a dissolution of partnership. It will be noted however that Order 20, Rule 15 in its final words gives the Court power to pass a preliminary decree 'directing such accounts to be taken as it thinks fit.' The question now before us is what modifications in the form of the decree. Form No. 21 in Appendix D, are necessary in view of the bar introduced by Section 69, Partnership Act of 1932. Learned Counsel for the appellant argued that this Sub-section (1) had no effect in a suit for dissolution of a firm or for accounts of a dissolved firm and that in such a case the decree in Appendix D, Form No. 21, could be granted in precisely the same terms as a decree would be granted if the firm had been registered. We have a certain difficulty in accepting such an argument, because if that were so, the provisions of Section 69(1) would have no effect at all. It is apparent that the Act intended to impose some penalty for want of registration. The Act provided a period of one year after the passing of the Act during which the public could take measures for the registration of firms, and it was only after the expiry of that year that these penal provisions for unregistered firms came into force. This is provided in Section 1(3) which states:

It shall come into force on 1st October 1932, except Section 69, which shall come into force on 1st October 1933.

8. Now, Section 69 in Sub-section (1) refers to a right arising from contract or conferred by the Act and provides that no person can sue as a partner against the firm or any person alleged to be or to have been a partner if the firm is not registered. This appears to relate to Chap. 3 of the Act which deals with relations of partners to one another. In Section 9 of that chapter there is provision as follows:

Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things afflicting the firm to any partner or his legal representative.

9. This Section imposes the duty on a partner to render true accounts and full information of all things to any other partner or his legal representative. The relief therefore asked by the plaintiff in relief (b) is the enforcement of this right under Section 9 by obtaining a decree that the defendant is to render accounts to the plaintiff. Sub-section (2) of Section 69 deals with a suit to enforce the right arising from contract against any third party and such a suit cannot be brought if the firm is not registered. There have been rulings on this Section as follows : Thakur Prasad Ram Prasad v. Kamta Prasad Sita Ram : AIR1935All898 ; Danmal Parshotam Dass v. Babu Ram Chhote lal : AIR1936All3 . The latter ruling was by a Bench and it was held in both these rulings that a suit by an unregistered firm against a third party was barred by Section 69(2). The question now before us is in regard to Sub-section (1). The exception in Sub-section (3)(a) refers to a suit for the dissolution of a firm or for accounts of a dissolved firm. Dissolution of a firm is dealt with in the Act in Chapter 6, There is no Section in that chapter which gives a right to obtain a decree that the defendant be asked to winder accounts. This provision comes apparently under Section 9. The question therefore is whether in the exception the Legislature intended to give the rights conferred on dissolution in Chap. 6 or intended to give any wider rights than are given by that chapter. In Chap. 6 there is Section 48 which provides as follows:

In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed:

(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they wore entitled to share profits.

(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:

(i) in paying the debts of the firm to the third parties;

(ii) in paying to each partner rateably what is duo to him from the firm for advances as distinguished from capital;

(iii) in paying to each partner rateably what is duo to him on account of capital; and

(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

10. This Section deals with the question of settling accounts between partners after dissolution. Our view of the Section is that the Section does not deal with the question of making one of the partners an accounting party, but the Section only deals with the question in Sub-section (a) of the partners being liable for losses to third parties. There is no bar in Section 69 of the Act against a suit being brought by third parties against an unregistered partnership and therefore in a dissolution the partnership firm would have to pay whatever debts were due to third parties and the provision in Section 48 (a) is for the partners to contribute rateably to those debts. In Sub-section (b) there is a question of the application of the assets of the firm. Learned Counsel argued that this means that assets could be realized and that if a debt were due to the firm from a partner then the partner could be made to pay. We do not think that this is within the scope of Section 48. That Section in Sub-section (b) merely states that the assets are to be applied in a particular manner and it does not deal with the bringing of suits for payment of assets. Learned Counsel also argued that the provision in Sub-section 3(a) of Section 69 'any right or power to realize the property of a dissolved firm' would include the right to sue for debts due to the firm from a partner or for sums of money realized by a partner which he held on behalf of the firm. Now, the words used are 'realize the property.' It appears to us that the words 'realize the property' mean turning the property into money by sale and do not cover the question of taking accounts from a partner to be followed by a final decree directing the partner to pay the sum so ascertained. Learned Counsel then argued that on that view of the law there would be no remedy for a partner in an unregistered firm as against another partner in regard to sums which the other party had received on behalf of the firm. The bar in Section 69, Partnership Act, is in regard to a civil suit. If the case were sufficiently clear, no doubt the partner in question could file a criminal complaint against the defaulting partner and the criminal case is not in any way barred by Section 69. We are not however concerned with this aspect of the matter, but it is desirable to point out that in a proper case the law has not failed to provide an appropriate remedy. As regards the interpretation of Section 69, we feel that this is no doubt a difficult matter, but on a consideration of the circumstances the view which has been put forward for the appellant does not commend itself to us as correct.

11. It was claimed that this view for the appellant is supported by the ruling of a learned Single Judge of this Court in Gulab Rai v. Shibba Mal : AIR1937All674 . In regard to this ruling we need not make any detailed observation because we are informed that there is a Letters Patent appeal pending against this decision. We may observe that the learned Judge set out that the suit was for dis. solution of partnership and settlement of accounts. He did not state that the suit was one for a preliminary decree that the defendant was an accounting party, and on page 826 he referred to the provisions of Section 48 for settlement of accounts between the partners. It is difficult therefore to see from the words used in this ruling that the learned Judge intended to hold that the relief of a preliminary decree for rendition of accounts could have been granted against a defendant as an accounting party in a case where the firm was unregistered. On p. 827, it is apparent that the argument before the learned Judge was whether two suits would be necessary in accordance with a certain interpretation of Section 69(3)(a) and the learned Judge repelled that argument. This argument has been adopted by the Court below in the present case, but we do not think that this argument is correct. On the other hand we think that the appellant cannot obtain a decree for rendition of accounts against the defendant because in our view the decree to be granted under Order 20, Rule 15 must be modified in accordance : with the provision of law in Section 69, Partnership Act. It now remains to consider to what extent a decree can be granted under the claim in relief (b). The claim is firstly that an account be taken of the said partnership, and secondly that the defendant be asked to render its accounts from 1922 pp to the date of the decree. In our view the defendant cannot be asked to render the account, but the first prayer for an account to be taken may be granted in the limited terms of Section 48; that is to say, the 'decree in question will be under Order 20, Rule 15 and Form No. 21 of Appendix D, and is receiver may, if the plaintiff desires, be appointed to take accounts of that firm. But the decree will state that the relief of making the defendant an accounting party is not granted. Let the case be remanded to the Court below for preparation of a decree in Form No. 21, Appendix D as indicated above.

12. The appeal has succeeded only to a very small extent which we might estimate as 1/10 of the appeal. Accordingly we direct that parties pay and receive costs of this appeal in proportion to 1/10 success and 9/10 failure of the appellant.


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