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Banshi Lal Vs. Jamuna Prasad - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtAllahabad High Court
Decided On
Case NumberSecond Appeal No. 2420 of 1970
Judge
Reported inAIR1981All324
ActsPartnership Act, 1932 - Sections 42, 48, 69, 69(1) and 69(3)
AppellantBanshi Lal
RespondentJamuna Prasad
Respondent AdvocateKameshwar Prasad, Adv.
DispositionAppeal allowed
Excerpt:
commercial - suit by partner -sections 42, 48 and 69 of partnership act, 1932 - firm not registered under partnership act - suit for recovery of share and investment in firm by partner - suit after dissolution of firm is not barred by section 69(1) - method of passing preliminary and final decree discussed - suit allowed. - - i may observe here that the deed was impounded on account of deficiency in stamp duty, but the deficiency having been made good, it was certified to be properly stamped by the collector and the deed was duly registered and is ex......and for rendition of accounts, on the ground that both the claims were barred by section 69 of the indian partnership act, on account of the fact that the finn was not registered.3. the first question which accordingly arose in this appeal was whether the plaintiff's claim was barred by section 69 of the indian partnership act. the relevant facts having a bearing on this point are these: the plaintiff claimed that the defendant carried on the business of a government contractor of buildings and roads etc. at kuraghat, gorakhpur; that in 1952 the defendant offered to take the plaintiff as a partner for financing the said business; that the plaintiff wanted to invest money in some business for profit and consequently an agreement of partnership was executed between the parties and.....
Judgment:

Deoki Nandan, J.

1. This is a plaintiff's second appeal in a suit for accounts of the business of an alleged partnership although in the first relief claimed in the plaint a decree for recovery of Rs. 4,500/-has also been sought. The trial court de-creed the suit in two parts, by passing a final decree for recovery of Rs. 2500/-and by passing a preliminary decree for rendition of accounts against the defendant in respect of the Theka Business of Quraghar, Gorakhpur in terms of the Deed of Partnership, dated 21-8-52 Ex. 1. In the decree so passed the trial Court declared that the parties shall be entitled to profit and loss equally and to recover interest at the rate of Rs. 6% per annum on the advances, over and above the capital investment, and that the accounts and documents filed by the plaintiff-relating to the said Kuraghat business shall be deemed to be the accounts of the plaintiff and that the defendant shall also be entitled to furnish his own account books and statements of accounts relating to that business subject to the right of the parties to challenge the genuineness or otherwise of the account furnished by the other party. A further direction for the appointment of a Vakil-Commissioner for taking of accounts was also given.

2. On appeal by the defendant, the lower appellate court dismissed the suit, both in respect of the amount of Rupees 2500/- for the recovery of which a final decree was passed by the trial Court, and for rendition of accounts, on the ground that both the claims were barred by Section 69 of the Indian Partnership Act, on account of the fact that the Finn was not registered.

3. The first question which accordingly arose in this appeal was whether the plaintiff's claim was barred by Section 69 of the Indian Partnership Act. The relevant facts having a bearing on this point are these: The plaintiff claimed that the defendant carried on the business of a government contractor of buildings and roads etc. at Kuraghat, Gorakhpur; that in 1952 the defendant offered to take the plaintiff as a partner for financing the said business; that the plaintiff wanted to invest money in some business for profit and consequently an agreement of partnership was executed between the parties and registered on 21-8-1952. The plaint proceeds on to quote the terms of the instrument and then to state that a contract for white-washing of military barracks at Varanasi, during the year 1952-53 was undertaken and complete in partnership and, on taking accounts of that work Rs. 3,300/- were found due to the plaintiff out of which Rs. 800/- were paid by the defendant in cash and a cheque for Rs. 2,500/- on Punjab National Bank, Gorakhpur, was given. That cheque was dishonoured an account of the paucity of funds in the defendant's account with the Bank on which the defendant assured the plaintiff that he would pay the amount as soon as he was able to arrange for the same. It was then alleged that since then a further contract for construction of latrines at Kuraghat Depot was undertaken in partnership during the year 1954-55. In that contract the plaintiff had to invest a total of about Rupees 12,000/- out of which Rs. 10,000/- was paid back by two cheques. However, the defendant did not pay anything out of the further payments received by him and when the work was finished the plaintiff asked the defendant to settle the accounts and pay the plaintiff's share of the profits together with Rs. 2,000/- of his investment and Rs. 2,500/- originally due as aforesaid. It is then alleged that the defendant did not render the accounts and did not pay the amounts due to the plaintiff in spite of registered notice dated 6-4-1966, hence the suit. However, the plaintiff also said that although he was entitled to interest at the rate of Rs. 6% per annum, he was giving up the claim of interest and claimed Rs. 4,500/- towards the investment, and his share of profits after accounting, the amount claimed on that account was tentatively fixed at Rs. 500/- although in the valuation clause of the plaint the value of the claim of accounting has been put at Rs. 2,500/-.

4. The case set up by the defendant was a denial of the relationship of partners between the parties. It was alleged that the defendant had taken the contracts solely on his own and that the deed dated 21-8-1952 was impounded at the time of its registration and not given effect to. I may observe here that the deed was impounded on account of deficiency in stamp duty, but the deficiency having been made good, it was certified to be properly stamped by the Collector and the deed was duly registered and is Ex. 1 on the record. According to the defendant, whatever amounts were taken by him were taken as loan and there was loss in the two contracts. The cheque for Rs. 2,500/- was admitted by the defendant to have been given by him to the plaintiff, but it was said that the cheque was post-dated 31-3-1954 and was given in December, 1953 towards the refund of the amount taken as loan by him from the plaintiff. The defendant further pleaded that this amount of Rs. 2,500/- was later on paid to the plaintiff and, not only that, further amounts were also taken on loan from the plaintiff and repaid to him and since there was full faith and confidence between the two, the cheque was not taken back by the defendant, of which the plaintiff was trying to take wrongful advantage. About the contract for latrines at Kuraghat Depot taken in the year 1954-55 it was pleaded that whatever amount was taken therefor was taken as loan and the defendant suffered loss in that contract also. The amounts of Rs. 4,000/- and Rs. 6,000/- paid by cheques dated 8-1-1955 and 7-4-1955 were also alleged to have been paid towards loans taken by the defendant from the plaintiff and not towards any partnership. Lastly, it was pleaded that the partnership alleged by the plaintiff was not registered and consequently the plaintiff had no right to sue in view of Section 69 of the Indian Partnership Act and the suit was accordingly liable to be dismissed as barred by that provision. It was also pleaded that according to the agreement dated 21-8-1953, the defendant was not the accounting party and for that reason also the defendant was not liable to render accounts. The suit was, it appears, filed on 18-5-1956 in the Munsifs Court, The plaint was ordered to be returned for presentation to the proper court by an order dated 6-11-1958 and was actually returned on that date. It was presented in the court of Civil Judge on 7-11-1958. There were certain preliminary proceedings to which it is not necessary %o refer and the suit was ultimately taken up for first hearing on 12-12-63. On that date 8 issues were framed. They do not include any issue raising the question of bar of Section 69 of the Indian Partnership Act to the maintainability of the suit. There is a note to the effect that no other issue was pressed, immediately below the issues framed, in the hand of the learned Civil Judge, who tried the suit, followed toy the following statement of the learned counsel for the plaintiff obviously, under Order 10. C. P. C. :--

'Counsel for the plaintiff states that the partnership business dissolved after the close of the work of the year 1954-55 and that no further business was done in partnership.'

5. The first point raised by the learned counsel for the plaintiff-appellant, in this Court, was that in view of the aforesaid circumstances, the lower appellate court acted illegally in the exercise of its jurisdiction by entertaining the plea of Section 69 of the Indian Partnership Act as a bar to the suit. Before I deal with the point, it is necessary to notice one further fact relating to the proceedings in the lower appellate court. After hearing the appeal on 5-7-1978 the lower appellate court permitted the parties to lead evidence on the question whether the alleged partnership was dissloved after the termination of the business said to have been done in the year 1954-55. The learned counsel for the plaintiff-appellant has attacked this order also as an illegal exercise of its jurisdiction by the lower appellate court, on the ground that after the said statement of the plaintiff's counsel, made before the trial court, on the date of the first hearing of the suit when issues were framed, in view of the fact that no issue raising the question whether the suit was barred by Section 69 of the Indian Partnership Act was pressed, it must be deemed that the parties were not at issue on the question whether the alleged partnership stood dissolved after the close of the work of the year 1954-55. This argument was further supported by urging that the main plea of the defendant was that there was, in fact, no partnership between the parties, and in this situation the plea of the bar of Section 69 was raised only in the alternative and that too without accepting the existence of any partnership. It was alleged that in this situation when the partnership, that was pleaded by the plaintiff, was also alleged by him to have been dissolved after the closure of the business in the year 1954-55 by the fact of the winding up of the business itself, there was no scope for questioning the plaintiff's plea of dissolution of the partnership. Further support was sought to be drawn in this context from the provisions of Section 42(b) of the Indian Partnership Act and it was urged that even en the merits the finding of the lower appellate court that the partnership could not be said to have been dissolved, in the absence of a notice of dissolution or an agreement dissolving the partnership, is erroneous in law,

6. Having heard learned counsel for the parties, I find that, after taking the evidence, which it did, on the question whether the partnership was dissolved before the institution of the suit the lower appellate court noticed the fact that the partnership was a partnership at will and that, therefore, the plaintiff could dissolve it only by giving a notice in writing according to Sub-section (1) of Section 43 of the Indian Partnership Act, or alternatively it could have been dissolved only by mutual agreement in view of Section 40 of that Act. There was no evidence of any such notice having been given or of any mutual agreement to dissolve the partnership, obviously because it was not the plaintiffs case that the partnership was dissolved by either of these two methods. The statement of the plaintiffs counsel under Order 10. C. P. C. showed that the partnership business was 'dissolved after the close of the work of the year 1954-55 and that no further business was done in partnership.' The provisions of law under which a partnership could be said to have been dissolved in that way was Clause (b) of Section 42 of the Indian Partnership Act, but the lower appellate court took no notice of that provision and did not discuss the question whether the partnership could be said to have been dissolved under Section 42(b) of the Indian Partnership Act It is nobody's case that any business was done in partnership between the parties after the close of the contract business for construction of latrines at Kuraghat Depot undertaken in the year 1954-55. According to the defendant's case there was no partnership at any point of time. According to the plaintiffs case the partnership, alleged by him, came into existence under the instrument dated 21-8-1952, Ex. 1, and stood dissolved after the closure of the said work in the year 1954-55 and no business was done in partnership thereafter. The only possible inference in this state of pleadings and facts could be that if there was a partnership between the parties, it ceased to exist after the close of the business undertaken in the year 1954-55 that was obviously before the institution of the suit. I am, therefore, of the view that the finding of the lower appellate court that the partnership did not stand dissolved before the institution of the suit, is erroneous in law and that being so the further question which arises is whether there was a partnership between the parties, as alleged by the plaintiff, and whether the plaintiff is entitled to the reliefs claimed by him.

7. Apart from the fact that the find-ing of the trial court on issues NOS. 1, 2 & 4 that there was a partnership between the parties and the business carried on in the years 1953-54 and 1954-55 was carried on in partnership between them, was not challenged by the defendant before the lower appellate court, the fact remains in the face of the registered instrument of partnership dated 21-8-1952, Ex. I it could not be seriously contended that a partnership between the parties did not come into being, and that being so, the inference that the business carried on in the name of the defendant was carried en in partnership between the parties, is easily arrived. It cannot, therefore, be said that the finding of the trial court on this point is in any way erroneous and must, therefore, be confirmed.

8. The question which now arises is whether the claim for the two sets of reliefs, made by the plaintiff one for recovery of Rs. 2,500/- claimed to be due to him on account of the investment made by him, but not returned by the defendant and the other for recovery of his share of the profits which may be found due on the taking of the accounts could be said to be barred by Section 69 of the Indian Partnership Act. It is undisputed that the firm was not registered under the Indian Partnership Act. Only the instrument of the partnership was registered under the Indian Registration Act. Now Section 69 of the Indian Partnership Act lays down first under Sub-section (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 string 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.' and secondly under Sub-section (3):--

'The provisions of Sub-sections (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.

(3) 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 realise the property of a dissolved firm.'

The manner of taking accounts of a dissolved firm is prescribed as under by Section 48 of the Indian Partnership Act:--

'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 were 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 third parties:--

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

(iii) in paying to each partner rateably what is due 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.'

According to the plaintiff's case the sum of Rs. 4,500/- claimed by him, was due on two counts--first, Rs. 2,500/- on account of balance out of the amount of Rs. 3,300/-found to him to be due on settlement of the accounts of the first contract of the year 1953-54 and for which a cheque for Rs. 2,500/- was passed on to him by the defendant, but was dishonoured, and secondly, Rs. 2,000/-on account of the balance of the total investment of Rs. 12,000/- made by him in the contract of the year 1954-55 out at which only Rs. 10,000/- was refunded.

The amount of the profits was not specified finally, and for recovery of his share of the profits the plaintiff prayed for the taking of accounts by the second relief claimed by him in the plaint. The defendant's case was that the amounts advanced by the plaintiff were loans and all of them had been repaid by the defendant. About the amount of Rs. 2,500/- for which a cheque was given by the defendant to the plaintiff and was dishonoured, the defendant had specifically claimed in his evidence that it was repaid as a part of the amount of Rs. 4,000/- paid to the plaintiff by cheque on 8-1-1955. The receipt of that amount of Rs. 4,000/- is admitted by the plaintiff, but, according to him, that was towards the amount invested by him in the Kuraghat contract undertaken in the year 1954-55. The trial court found in favour of the plaintiff on this aspect of the case under issue No. 3. The learned counsel for the respondent has challenged the correctness of that finding and has further urged that in case the amount was due to the plaintiff as a liquidated sum found due on accounting between the parties, the claim would be barred under Sub-section (1) of Section 69, inasmuch as it would be a claim for recovery of an amount found due to the plaintiff on accounting between the partners in accordance with their contract of partnership and accordingly the claim could not be enforced as that would amount to enforcing a right arising from the contract of partnership by one partner against the other. Having considered over the matter, I am of the view that although the claim for recovery of Rs. 2,500/- or for that matter for the recovery of the other amount of Rs. 2,000/-on account of the balance of investment in the Kuraghat contract work cannot be said to be barred by Section 69(1) of the Indian Partnership Act inasmuch as it amounts to enforcement of a right for accounts of a dissolved Firm and of the right to realise the asset out of the property of the dissolved Firm which is saved by Clause (a) of Sub-section (3) of Section 69 of the Indian Partnership Act. Yet the question arises whether the amount of Rs. 2,500/- was paid back or not as a part of the amount of Rs. 4,000/- paid by the cheque dated 8-1-1955. The plaintiff cannot claim anything out of the assets or property of the Firm in the hands of the defendants, unless a full account is taken and settled in accordance with the provisions of Section 48 of the Indian Partnership Act. That postulates that the pro-fits or losses, accruing from the business of the partnership, must first be determined and then losses, including deficiencies of capital, if any, must first be paid out of the profits and next out of capital, and lastly, if necessary by the partners individually in the proportion in which they were entitled to share profits; and secondly the assets of the Firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied first in paying the debts and liabilities of the firm to persons who are not partners and secondly in paying to each partners rateably what is due from the Firm to him in respect of advances as distinguished from capital, thirdly in paying to each partner rate-ably what is due from the Firm to him in respect of capital, and lastly the residue, if any, shall be divided among the partners in the proportion in which profits are divisible.

9. It is the plaintiff's own case that the partnership continued after the close of the Varanasi contract in the year 1953-54. If the amount of Rs. 2,500/- was due to him after settlement of the accounts of that contract, the amount could be paid out of the assets of the Firm after taking a full account of the business of the Kuraghat contract undertaken in the year 1954-55. If the amount of Rs. 2,500/- was not refunded as part of the amount of Rs. 4,000/- paid by the defendant by cheque dated 8-1-1955, that would not decrease the amount of Rs. 4,000/- admittedly paid by the defendant to the plaintiff on that date and will make no difference to the amount ultimately found due to the plaintiff, if any, on the taking of the accounts of the Kuraghat business of the year 1954-55.

10. In this view of the matter, it appears clear to me that the trial court was not justified in passing a final decree for the recovery of Rs. 2,500/- in-favour of the plaintiff on account of the alleged balance of investment in the contract business for the year 1953-54. The whole account of the entire business of partnership must be finally settled and taken in accordance with the provisions of Section 48 of the Indian Partnership Act before it can be said what amount if any, is due to either of the parties out of the assets of the partnership; and a decree for recovery of the same could be passed only against that partner who is found to hold the partnership assets in this hands.

11. At this stage it was urged before me by the learned counsel for the defendant-respondent that under the instrument of partnership, the plaintiff was the accounting party. That is so, taut, as found by the trial court and as would appear from the record, the plaintiff has filed all the account papers relating to the business of the partnership which he had with him, and according to his case he has no further papers with him. The question now is not of requiring the plaintiff to render an account in accordance with Clause (4) of the instrument of partnership, but of settling the accounts of the business of partnership in accordance with the provisions of Section 48 of the Indian Partnership Act on the basis of the papers already filed by the parties and such other evidence or material as they may further have with them and may wish to produce before the Commissioner appointed by the court for taking accounts under the decree passed by the trial court for that purpose.

12. However, even so the preliminary decree for accounts, passed by the trial court, does not fully conform with the provisions of Order 20, Rule 15 and Form 21 of Appendix-D to the Code of Civil Procedure. Indeed the decree dated 20-2-1964 passed by the trial court has been prepared on the form of a simple money decree and only reproduced the directions given by the trial court in the operative portion of its judgment translated into Hindi.

13. It is necessary to amend the decree of the trial court so as to bring it in conformity with the said provisions and for that purpose it is further necessary to record the findings that under the terms of the partnership the share of the parties in the profits and losses of the Firm was equal and although the plaintiff was the accounting party, he appears to have filed all the paper relating to the accounts of the business of partnership that were in his possession, and that the partnership stands dissolved with effect from the close of the business of the Kurraghat contract of the year 1954-55. In accordance with the provisions of Form No. 21 of Appendix-D, it is necessary to appoint a receiver of the partnership estate and effects with the direction that he has to get in all the outstanding debts and claims of the partnership and to take and settle accounts in accordance with the aforesaid findings. It is necessary, in this context, to make it clear that in view of the case of the parties and the findings recorded by the trial court, it would not be necessary to take or to settle the accounts of the Varanasi contract business of the year 1953-54 for it appears to be agreed between the parties that Rs. 2,500/- were due to the plaintiff from the defendant in respect of that business on 31-3-1954. The accounts are, therefore, required to be taken only of the business carried on after 31-3-1954 namely, the business of the Kuraghat contract. The amount of Rs. 2,500/- was, however, not paid by the defendant on 31-3-1954 as the cheque was dishonoured and must be deemed to have been invested by him in the business of the Kuraghat contract during the year 1954-55 and shall be deemed to be the plaintiff's further investment in that business, in addition to that which may be proved by the account.

14. In the result, the appeal succeeds and is allowed. The judgment and decree of the lower appellate court are set aside. Instead a preliminary decree is passed in the following terms:

1. That the contract business carried on in the name of the defendant at Varanasi and Kuraghat during the years 1953-54 and 1954-55 was a business carried on in partnership between the parties under the instrument of partnership dated 21-8-1952, Ex. 1 and the share of the parties in the profits and losses of the business carried on by the partnership was equal.

(2) That the accounts of the business carried on up to 31-3-1954 shall be deemed to be settled between the parties and the sum of Rs. 2,500/- is declared to have been due to the plaintiff by the defendant as on 31-3-1954.

15. The trial court shall appoint a suitable Advocate as receiver, on such remuneration as may be fixed by it, for taking the following accounts:--

(i) An account of the receipts, credits, property and effects belonging to the said partnership.

(ii) An account of the expenditure, debts and liabilities of the said partnership;

(iii) An account of all dealings and transactions between the plaintiff and defendant.

16. No account shall be taken of any goodwill of the business as there does not appear to have been any.

17. The remaining partnership assets, whatever they were, shall be ascertained by the receiver so appointed who shall for that purpose take into consideration the material on the record and further to take such evidence as may be produced by the parties; and after taking accounts as aforesaid, the receiver shall certify the result of the accounts to the trial court within the time to be fixed by it and the trial court shall thereafter proceed to pass a Final Decree after settling the accounts in accordance with Section 48 of the Indian Partnership Act, 1932.

18. Costs incurred so far as hereinafter shall be in the discretion of the trial court at the time of passing the final Decree.


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