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Mansa Ram and Sons (Bankers) and ors. Vs. Janki Dass Om Prakash and ors. - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtAllahabad High Court
Decided On
Case NumberF.A.F.O. No. 545 of 1976
Judge
Reported inAIR1984All267
ActsLimitation Act, 1963 - Sections 18 and 20 - Schedule - Articles 21 and 22; ;Partnership Act, 1932 - Sections 18, 19 and 20; Provincial Insolvency Act, 1920 - Sections 9(1)
AppellantMansa Ram and Sons (Bankers) and ors.
RespondentJanki Dass Om Prakash and ors.
Appellant AdvocateRadha Krishna, Adv.
Respondent AdvocateH.S. Nigam, ;A.N. Bhargava, ;G.P. Bhargava and ;H.N. Sharma, Advs.
DispositionAppeal dismissed
Excerpt:
.....of borrowed money - sections 18 and 20 of limitation act, 1963 - suit filed against the partnership firm for recovery of borrowed money - partner made an earlier endorsement acknowledging debt for himself and on the behalf of other partner - no specification about same made in last endorsement - last endorsement not valid acknowledgement in terms of sections 18 and 20. - - the official receiver was appointed interim receiver by the insolvency judge under order dated october 1, 1971. 3. the appellants were adjudged insolvents under the impugned order finding that under the law a firm can also be adjudged insolvent upon the requisite conditions being satisfied. the requirement of two months' notice and the return of the receipts in original to the appellants suggests..........this sale in execution of the decree against the firm constitutes an act of insolvency against the firm its partners within the meaning of section 6(e) of the act (firm mukund lal veerkumar v. purshottam singh : [1968]2scr862 ).20. in pirthi v. budh singh : air1982all179 cited for the appellants the insolvency judge was of the view that the insolvency petition had to be allowed because the cash available with pirthi was not sufficient to discharge his debt. in appeal this court reversed that decision on ground that the mere fact that a person's assets are less than his liabilities is not per se an act of insolvency. in that case it was found that the transfer by sale inter vivos made by pirthi was not shown to be with intent to defeat or delay his creditors within the meaning of section.....
Judgment:

B.D. Agarwal, J.

1. This is an appeal under Section 75(2) of the Provincial Insolvency Act, 1920 (hereinafter referred to as the Act) directed against the order of the Insolvency Judge, Dehra Dun, dated April 22, 1976.

2. Respondent Nos. 1 and 2 presented the petition giving rise to this appeal as creditors under Section 9(1) of the Act on July 20, 1971. Appellant No. 1 is a registered partnership firm of which, appellant No. 2 is a partner. M/s. Mansa Ram & Sons was a registered partnership firm carrying on extensive business as bankers. Its partners were Mahabir Pershad and his four sons, namely, Chander Sen, Kailash Chand, Moti Lal and Sri Mander Dass. Chander Sen died on August 5, 1953, whereupon his widow Smt. Madan Kumari (Sundari) Jain, respondent No. 3, was taken in as partner. Mahabir Pd. died in the year 1960. Respondents Nos. 6 to 9 are also his heirs. The death of Sri Mander Dass has taken place on October 24. 1976. The respondent creditors had the following deposits with M/s. Mansa Ram & Sons:--

I. Fixed Deposit Account:--Deposit cf Rs. 10,300/- dated 7th July. 1954, for the period oi July 5, 1954 to July 5, 1955 carrying interest @ 3% p.a.

II. Fixed Deposit Account--Deposit of Rs. 13,390/- dated 7th July, 1954, for the period of August I, 1954 to August 1. 1955 carrying interest @ 3% p.a.

III. Current Account:-- Deposit of Rs. 10,000/- dated March 18, 1955 and of Rs. 15/- dated March 22. 1955 bearing interest @ 6% p. a.

IV. Savings Bank Account:--Balance of Rs. 708/4/- dated April 2, 1955 in the account commencing on March 24, 1954.

The deposits mentioned at items I to III aforesaid were made by respondent No. 1, that is to say, the firm Janki Dass Om Prakash, and the deposit at Item No. IV was made by Om Prakash, respondent No. 2, who is a partner of this firm. The deposits were acknowledged from time to time. Respondent No. 2 made demand of the amount due under these deposits in the month of July. 1971 at Dehra Dun, but the appellants Nos. 2, 4 and Sri Mander Dass deceased, the Managing partners of the firm, Mnnsa Ram & Sons, expressed inability to pay. The payment of their debts was suspended. On June 2, 1971, certain immovable properties of the firm Mansa Ram & Sons were sold in execution of the decree passed in O. S. No. 82 of 1957 (Ex. Case No. 33 of 1970). The judgment-debtors did not raise any objection and the auction sale held in execution was confirmed by the execution Court on July 3, 1971. Despite notice and the opportunity repeatedly given the appellants or the pro forma respondents did not put in objections to the petition made by the respondent creditors. Time was obtained on various dales to put in objections; the Courts below granted time on several occasions, but no objections came to be filed nor were the costs paid. The appellants did not adduce any evidence either. The Official Receiver was appointed interim receiver by the Insolvency Judge under order dated October 1, 1971.

3. The appellants were adjudged insolvents under the impugned order finding that under the law a firm can also be adjudged insolvent upon the requisite conditions being satisfied. The respondents before the Insolvency Judge were found to be creditors and it was also found that the appellants had committed an act of insolvency inasmuch as the immovable properties had been sold in execution of a decree within three months immediately preceding the petition. Respondent No. 3 was also found to be a partner of the firm subsequent to the demise of her husband and it was held further that the respondent Nos. 6 to 9 were not the partners and hence there was no question to adjudge them as insolvents.

4. Shri Radha Krishna, learned counsel for the appellants, urged that the appellants have not committed any act of insolvency. The debts referred to by the respondent creditors are barred by limitation. In the alternative it is contended that the claim raised by them is premature. The appellants were possessed of assets worth several lacs. Respondent No. 3 relinquished her interest in favour of the remaining partners and hence she could not be adjudged insolvent.

5. Sri G.P. Bhargava, learned counsel for the respondent creditors, countered these contentions submitting that the limitation for return of the deposits commenced from the date when the demand was made by the creditors and is governed under Article 22 of the Limitation Act, 1963. Certain immovable properties of the appellants were sold in execution on June 2, 1971 arising out of Original Suit No. 82 of 1957 within three months preceding the petition made on July 20, 1971 and this was an act of insolvency on the part of the appellants within the meaning of Section 6(c) of the Act. Respondent No. 3 was also a partner and admitted as such. Sri. S.N. Misra, appearing for the Official Receiver, pointed out that the appellants are indebted to the tune of several lacs and the properties were dissipated by them to defeat or delay the creditors.

6. Taking up the first contention of the appellants that the return of the deposits made with them was barred by limitation, it is submitted that the acknowledgment could not avail the respondent creditors. From the material placed on record it would appear that Kailash Chand, one of the partners of the firm Mansa Ram & Sons, acknowledged and admitted the deposits referred to above as items Nos. 1 and 2 in writing under his signature on June 4, 1958, endorsing under his signature for self and general attorney of Lala Mahabir Pd, Sri Mandar Dass and Moti Lal. Thereafter on June 2, 1961 and June 1, 1964, he admitted and acknowledged the liability under these deposits under his signature with the endorsement 'for self and general attorney of Shri Mander Dass'. On May 30. 1967 he made the endorsement 'admitted subject to payment of the amount due on 6-6-1955 within 16 years from the termination of insolvency'. This was under his signature by Kailnsh Chand. Likewise in relation to the deposit under Item No. III Kailash Chand admitted and acknowledged liability on April 2, 1958 on the pass book issued by the appellant and made the endorsement for self and General attorney of Mahabir Prasad. Shri Mandar Dsss and Moti Lal. The liability was admitted and acknowledged in writing thereafter by him on April 1. 1961 and March 30. 1964 under his signature with the endorsement for self and as General Attorney of Shri Mander Dass. The last endorsement on this pass-book (Ex. 6) is to the effect 'admitted submit to payment of the amount as on 6-6-1955 within 16 years from termination of insolvency'. This is dated March 28, 1967. In relation to the deposit shown as item No. 4, Kailash Chand admitted the liability in writing under his signature for self and as General Attorney of Mahabir Pershad. Shri Mander Das and Moti Lal on April 2, 1958. On June 2, 1960 and June 1, 1963, he admitted and acknowledged for self and as General Attorney of Shri Mander Dass. The last endorsement on this pass-book (Ex. 7) dated May 30, 1966 provides' 'admitted submit to payment of the amount due on 6-6-1955 within sixteen years from the termination of insolvency'.

7. The infirmities urged in connection with the acknowledgment are :

(i) Kailash Chand could not be competent to acknowledge for or on behalf of the firm;

(ii) the last endorsement in each of these deposits is by Kailash Chand alone not specifying that he made this as representing the firm or other partners thereof;

(iii) in relation to items Nos. 1 and 2 the acknowledgment made on 2nd April, 1958 was itself beyond limitation--the period having expired on 1st April, 1958.

8. Under the general law of Partnership a partner is an agent of the firm. The act of a partner which is done to carry on, in usual way, business of the kind carried on by the firm binds the firm. Implied authority to bind the firm might include the power to acknowledge the liability in the usual course in respect of a deposit accepted in banking transactions (Sections 18/20, Partnership Act), Lindley : Law of Partnership (14th Ed) (1979) observes at page 381 that an acknowledgment by an agent being sufficient to affect his principal acknowledgment by one partner will, it is apprehended, be regarded as an acknowledgment by the firm. In the first endorsement dated 4-6-1958, relating to items 1 and 2 and the endorsement dated 2-4-1958 in items 3 and 4, Kailash Chand acknowledged and admitted the liability under his signature describing this as being 'for self and as General Attorney of Lala Mahabir Pershad, Shri Mander Dass and Moti Lal'. The endorsement dated 2-6-1961 and 1-6-1964 in items Nos. 1 and 2 and the endorsement dated 1-4-1961 and 30-3-1964 in item No. 3 as also the endorsement dated 2-6-1960 and 1-6-63 in item No. 4 were described by Kailash Chand as being 'for self and as General Attorney of Shri Mander Dass'. The last endorsement dated 30-5-1967 relating to items 1 and 2 and that dated 28-3-1967 and 30-5-1966 concerning items 3 and 4 were, however, made by Kailash Chand for self alone without any specification as to the same being for or on behalf of the firm or the remaining partners. Considered in the entire context it is arguable that in the last endorsement in any case Kailash Chand did not purport to acknowledge the liability of the firm as such or of the co-partners. Wherever he intended to represent other partners he specified the same but in the last endorsement there is no such mention nor is any power of attorney referred to. The contention for the appellants therefore that there was no acknowledgment as required by Sections 18/20 of the Limitation Act, 1963 is not devoid of force. Interpreting the corresponding Section 21 of the Limitation Act, 1877, a Division Bench of this Court held in Gadu Bibi v. Parsotam ((1888) ILR 10 All 418) that 'the mere writing or signing of an acknowledgment by one partner does not necessarily of itself bind his co-partners, unless also it can be shown that he had power to bind that partner for the purpose of making such an acknowledgment, and in effect purported as to bind him.' This is in the light of Sub-section (2) of Section 20 which lays down that partners are not chargeable by reason 'only' of a written acknowledgment signed by one of them.

9. Sri Bhargava, learned counsel for the respondents creditors, urged, however, that the absence of acknowledgment duly made under Sections 18/20, Limitation Act, 1963 is not of consequence because limitation is governed by Article 22 and not Article 21 of the Schedule to this Act. These Articles which correspond to Articles 59 and 60 respectively of the old Limitation Act, 1908, read as under:--

Description of suit.Period of limitation.Time from which period beginsto run.

21.For money lent under anagreement that it shall be payable on demand.Three years.When the loan is made.22.For money deposited under anagreement that it shall be payable on demand, including money of a customerin the hands of his banker so payable.Three years.When the demand is made.

10. The deposit under Item No. I mentioned above was in this case madeunder the following Fixed Deposit Receipt dated 7th July, 1954:

'Not transferable.

Mansa Ram & Sons (Bankers) Mussoorie.

7th July, 1954.

Received from M/s. Janki Dass Om Prakash 35 Panchkuin Road, New Delhi, the sum of rupees ten thousand three hundred only to be placed to their credit in 3% (three) Fixed Deposit Account for a period of one year from 5th July 1654 to 5th July, 1955 after which date interest will cease.

Rs. 10,300/-

Sd. Illegible.

Accountant.'

For Mansa Ram and Sons

(Bankers)

Sri. Mahabir Pd.

Manager.

On the reverse of the receipt there is thefollowing note:

'No part of this deposit can be withdrawn before due date and is payable on or after the due date subject to two months' previous notice on the receipt being returned bearing the endorsement of the depositor.'

11. The other receipt for Fixed Deposit (Item No. 2) is in the same form the only difference being that this is for the sum of Rs. 13,390/- and the period specified is August 1, 1954 to August 1, 1955. The note appears in identical terms on the reverse of this receipt also.

12. Article 21 is applicable to loans and the period of limitation runs from the date when the loan is made. In case the money is a deposit under an agreement that it shall be payable on demand then Article 22 applies and the limitation starts from the date when a demand is made for payment. The terms 'loans' and 'deposit' are not mutually exclusive. The test formulated is 'whether on the admitted facts in the case there was an obligation on the appellant to 'seek out' the respondent and repay him, or whether he was to keep the moneys till the respondent asked for them.'' Vide Mohd. Akbar Khan v. Attar Singh (AIR 1936 PC 171) Suleman Haji v. Haji Abdulla ; Jagannath Pd v. Mst. Ram Dularey : AIR1956All63 . The Supreme Court approved this test in Ram Janki Devi v. M/s. Juggilal Karnlapat : [1971]3SCR573 . It was observed that the case of a deposit is something more than a mere loan of money. It will depend on the facts of each case, whether the transaction is clothed with !he character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transaction. The characteristic feature of deposit as distinct from loan is that it becomes repayable upon demand being made and the limitation does not commence to run unless the demand has been made. In Halsbury's Laws of England, 3rd Ed. Vol. 24, at page 217, the position stated is: --

'If money is paid into a bank on deposit account, the statute does not run against an action to recover it until demand is made for its return. Similarly in the case of money on current account, the statute does not run in the absence of special contract or waiver, until after demand or payment as a demand, either by the issue of a writ or otherwise, is an essential ingredient in the cause of action against the banker for money lent.'

13. In Sheldan's Practice And Law of Banking (10th Ed.) at page 145 it is observed:

'The statute begins to operate immediately the money is due to be repaid i.e.after the expiration of the specifiednotice of withdrawal. If the deposit isfor a fixed period, the statute begins torun immediately upon expiration of theagreed period. If the repayment of themoney is conditional upon the returnof the receipt, then the date of its returnis the date upon which the statute begins to run.'

14. In Abdul Hamid v. Rahmat Bi : AIR1965Mad427 the distinguishing feature of 'deposit' was thus explained by Veeraswami, J. speaking for the Division Bench (At p. 429):

'The terms 'loans' and 'deposits' are not mutually exclusive terms. There are a number of common features between the two. In a sense a deposit is also a loan with this difference that it is a loan with something more. Both' are debts repayable. But, when the repayment is to be, in our opinion, furnishes the real point of distinction between the two concepts. A loan is repayable the minute it is incurred. But this is not so with a deposit. Either the repayment will depend upon the maturity date fixed therefore or the terms of the agreement relating to the demand, on making of which the deposit will become repayable. In other words, unlike a loan there is no immediate obligation to repay in the case of a deposit. That we think is the essence of the distinction between a loan and a deposit. This view of ours is supported by the observations of the (Privy Council in 63 Ind 279 : (AIR 1836 PC 171)-'

15. A similar matter came up before Patna High Court in Firm Nokhilal Sarju Prasaci v. Bibi Mojihan (AIR 1939 Pat 261) wherein Fazl Ali J. (as he then was) observed that after the expiry of the fixed period, the amount deposited was to be deemed payable as demanded by the depositor and the claim for recovery of the money was governed by Article 60 of the Old Limitation Act 1908 (Corresponding to Article 22 of the new Act). In Jammu and Kashmir Bank v. Nirmala Devi (AIR 1959 J & K 85) also it was held that the essential character of the deposit as a deposit does not change even if it be for a fixed term. To the same effect is the, view taken in the Hindustan Commercial Bank Ltd. v. Jagtar Singh . We arc in respectful agreement with this view.

16. Applying this test it will be noticed that the firm M/s. Mansa Ram and Sons was admittedly engaged in banking on large scale in Mussoorie. Dehradun. Hardwar, Saharanpur. The firm accepted Fixed Deposits and also maintained current Accounts and Savings Bank Account. Receipts were issued for Fixed Deposits; Pass Books were given for the Current and Savings Bank Accounts on the pattern observed by Banking companies. It is observed in Sheldon's Practice And Law of Banking at p. 143 that the receipt issued for deposit is 'merely a written acknowledgment by the banker that he holds a certain sum to the use of the customer. The document is usually marked 'Not transferable (as in the instant case) and it is also not negotiable' (page 143). If the signing of the receipt is made a condition precedent to the withdrawal of the money, then the deposit receipt must be returned when the money is handed over. Frequently, it is further observed, instead of issuing a deposit receipt, bankers issued deposit pass books (such as Exts. 6 and 7 in the present case). These contain a note of deposits and withdrawals . , and they usually contain the main conditions tp which the account is subject (p. 145). It is true that the deposits under Items Nos. 1 and 2 were for specified term but regard being had to the kind of relationship between the parties, the nature of the transactions entered into and the business carried on by the appellants, it cannot be said that on the expiry of the specified period they were to 'seek out' the respondent depositors and require them to withdraw the amount. The period specified in our opinion, laid the upper time limit; the withdrawal could not be made before the expiry of the stipulated period but subsequent thereto the amount was to continue in deposit till the depositors demanded back the same. The requirement of two months' notice and the return of the receipts in original to the appellants suggests clearly that the repayment was conditional upon demand being made. The limitation is governed, therefore, under Article 22 of the Limitation Act, 1963. The demand in this case having been made in July, 71 the petition was thus within limitation.

17. In relation to Items Nos. 3 and 4 aforementioned the applicability of Article 22 is equally clear. Those were deposits pure and simple in the form of current and Savings Bank Account respectively. There is no specified term for withdrawal. Limitation commenced when the depositor made the demand. Each of these Items Nos. 3 and 4 is of more than Rs. 500/-and so even if on ground of limitation or otherwise the deposits under Items 1 and 2 are ignored the maintainability of the petition under Section 9 of the Act is not adversely affected.

18. Sri Radha Krishna contends in the alternative that the claim of the respondent-creditors for return of the depositors is premature. He has based this argument upon the last endorsement dt. May 30, 1967 appearing on the Fixed Deposit receipts (Ex. 4/5) and the endorsement dated March 28, 1967 and May 30, 1966 on the Current Deposit and the Savings Bank Account Pass Books respectively (Ex. 6/7) wherein it is said 'admitted subject to payment of the amount due on 6-6-55 in 16 years from termination of insolvency'. It appears that certain creditors namely, Anoop Singh and others had earlier petitioned for these appellants being adjudged insolvents. That was registered as Insolvency case No. 1 of 1955. An interim receiver was also appointed therein. That proceeding terminated by order of this Court dated April 22, 1960 in First Appeal From Order 415 of 1958. The submission of the appellants' counsel is that computed from April 22, 1968 the period of 16 years is still to expire and hence the deposits did not become mature for return. The argument though attractive at its face is devoid of merit. The stipulation that the payment shall be in 16 years from the termination of insolvency may amount to the endorser executing a bond to that effect and this required that requisite stamp be affixed. In the absence however, of any objection raised for the appellants despite opportunity to these instruments being admitted in evidence the admission may not be called in question now on the ground that these were not duly stamped (Section 36 Stamp Act). It may also be accepted that the respondent creditors denote their concurrence to this last endorsement by their conduct and hence this was not a mere unilateral act of Kailash Chand appellant. The provision contained in Section 9(1)(b) of the Act however furnishes a complete answer to the submission for the appellants in this behalf. This entitles a creditor to present an insolvency petition against a debtor where 'the debt is a liquidated sum payable either immediately or at some certain future time.' It is not disputed that subsequent to demand for return of these deposits being made they acquired the character of debts; the amount is liquidated and ascertained; the fact that this was not payable immediately but on the expiry of 16 years from April 22, 1968 (When the earlier insolvency terminated) is inconsequential. Clause (b) of Section 9(1) is attracted equally where such a sum is payable at some certain future time. The petition cannot, therefore, be objected to as premature.

19. It was next argued by the appellants' learned counsel' that the appellants were possessed of immovable properties worth several lacs and hence they could not be adjudged insolvents for nonpayment of paltry sums. Our attention is drawn in this connection to auction sales made by the interim Receiver in these proceedings of vast properties for huge amounts during March 31, 1978 to June 28, 1978. In reply Sri S.N. Misra learned counsel appearing for the Official Receiver pointed to the heavy outstandings against the appellants in the tune of several lacs including Rs. 23.50 lacks towards income tax and various other dues. In face of these liabilities the appellants could not satisfy the court that they are able to pay their debts. As provided in Section 6(e) of the Act a debtor commits an act of insolvency 'if any of his property has been sold in execution of the decree of any court for the payment of money' provided further that as required by Section 9(1)(c) the act of insolvency on which the petition is grounded has occurred within three months before the presentation of petition. Evidence on the record shows that in Original Suit No. 82 of 1957 Bhagwan Das and others obtained decree for money against M/s. Mansa Ram and Sons and the partners. This decree was put to execution in Execution Case No. 33 of 1970 vide Ex. 3. In execution certain immovable properties of the partnership firm were sold in auction on June 2, 1971 as is revealed from the report of the Court Amin (Ex. 1). No objection was filed by the judgment debtors and on July 3, 1971 the sale in execution was confirmed by the I Additional Civil Judge, Dehradun vide certified copy of the order (Ex. 2). The petition under Section 9 being presented on July 20, 1970 this was within three months preceding. It is rightly contended for the respondents that this sale in execution of the decree against the firm constitutes an act of insolvency against the firm its partners within the meaning of Section 6(e) of the Act (Firm Mukund Lal Veerkumar v. Purshottam Singh : [1968]2SCR862 ).

20. In Pirthi v. Budh Singh : AIR1982All179 cited for the appellants the Insolvency Judge was of the view that the insolvency petition had to be allowed because the cash available with Pirthi was not sufficient to discharge his debt. In appeal this Court reversed that decision on ground that the mere fact that a person's assets are less than his liabilities is not per se an act of insolvency. In that case it was found that the transfer by sale inter vivos made by Pirthi was not shown to be with intent to defeat or delay his creditors within the meaning of Section 6(b) of the Act as after the transfer the debtor had assets sufficient to pay his creditors. This may not be said to be of assistance to the appellants in the present case because herein there is clear evidence of act of insolvency as contemplated under Section 6(e) and the appellants did not establish that they were able to pay their debts.

21. The last submission of Sri Radha Krishna was that Smt. Madan Sundari (the widow of Chander Sen) could not be adjudged insolvent. Chander Sen died on August 5, 1953. It is argued that his widow relinquished her interest in favour of the surviving partners. For this reliance was placed on the statement of Kailash Chand one of the partners in Original Suit No. 105 of 1960 dated 2-9-1964. From the side of the respondent creditors on the other hand it is pointed that upon the death of her husband Smt. Madan Sundari was also taken in as a partner. The statement of particulars filed under Section 69 Partnership Act dated 2-4-1952 reveals that initially Mahabir Pershad and his four sons (including Chander Sen) were partners (Ex. 10). Soon after the death of Chander Sen the firm was reconstituted and his widow replaced the deceased in the array of partners as is shown by the statement of Particulars dated 21-8-1958 (Ex. 12). The alleged relinquishment of the interest as partner on her part is thus not substantiated by reliable evidence and the Insolvency Judge has not erred in finding accordingly.

22. To sum up it is established that--(i) the appellants committed an act of insolvency within the meaning of Section 6(e) of the Act;

(ii) the act of insolvency took place within three months preceding the petition as required under Section 9(1)(c) of the Act;

(iii) the aggregate amount of the debt exceeds Rs. 500/-;

(iv) the debt which is liquidated is payable in any case at ascertainable future date if not immediately as contemplated under Section 9(1)(b) of the Act;

(v) the appellants did not satisfy the Court that they are able to pay their debts.

23. In the result, therefore, the appeal fails and is dismissed with costs.


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