1. This appeal has arisen out of a suit brought by the plaintiff-appellant for a declaration that the parties to the suit are the four partners in a firm styled, Luxmi Flour Mill, each having an equal share in the assets thereof, and that the defendant 1 is not entitled to have the Mill attached and sold in execution of a decree obtained by him against defendant 3.
2. The plaintiff's case as set out in the plaint is as follows: The plaintiff, Ananda Prasad, the defendant 1 Babu Bhagwant Prasad, an Advocate practising at Ghazpur, defendant 2 Tirjugi Narain, who is a cousin of the first defendant and Haranandan Singh, defendant 3, a brother-in-law (sister's husband) of the plaintiff, entered into an agreement of partnership for the purpose of setting up a flour mill at Ballia with a capital of nearly Rs. 4,000. Each partner agreed to contribute Rs. 1,000. The plaintiff advanced Rs. 2,000 for himself and his brother-in-law, Harnandan Singh. The defendant 1 advanced the remaining Rs. 2,000 as his share and that of his cousin, the second defendant. The third defendant had some experience of similar concerns and was, therefore, chosen to be the managing partner having extensive powers of management including the power to contract debts. The machinery was purchased with the funds supplied by the partners. Some more money was needed and it was raised by loan from one or the other of the partners, who as creditors were entitled to receive interest. Sometime after the mill was put in working order under the supervision of the third defendant, it was discovered that the concern was a losing one. The defendant 1 persuaded the third defendant to execute a deed of hypothecation in respect of the sum of Rs. 2,000 minus Rs. 400 which he had since taken out of the partnership funds. The deed recited that the concern belonged exclusively to the third defendant, and that he was indebted to the first defendant to the extent of Rs. 1,600 the amount left unpaid out of the initial advance of Rs. 2,000. According to the recitals of the deed the sum of Rs. 2,000 which the first defendant had advanced was a loan to the third defendant. The deed purported to hypothecate a half share of the mill for repayment to defendant 1 of what was due to him, namely, Rs. 1,600 by a number of instalments detailed in the deed. Subsequently the first defendant instituted a suit for recovery of what was due to him under the hypothecation bond above referred to and obtained a decree for Rupees 1,990 principal and interest. It should be noted that the decree was a simple money decree and not in enforcement of the hypothecation bond to which reference has already been made. The machinery was attached by the first defendant in execution of his decree against the third defendant. The plaintiff instituted the suit which has given rise to this appeal for the relief already mentioned.
3. The defence of the first defendant was that Luxmi Flour Mill belonged exclusively to the third defendant who had raised the necessary funds by borrowing Rs. 2,000 from the first defendant and another Rs. 2,000 from the plaintiff. He denied that the sum of Rs. 2,000 advanced by him had any reference to any partnership agreement to which he and the second defendant were parties. According to his defence even the second defendant was not a partner. In fact the whole tenor of his written statement shows that defendant 3 was the sole proprietor of the mill and that any other person who advanced any money to him did so only as a creditor. The second defendant Tirjugi Narain substantially supported the first defendant. The third defendant did not enter appearance. The partnership alleged by the plaintiff is not evidenced by any formal instrument. A draft was originally made by defendant 1 and shows that at first only defendants 2 and 3 were to be the partners but subsequently the plaintiff's name was added. This is characterised by defendant 1 as an interpolation. The question has no material importance and we ignore the draft.
4. The learned Subordinate Judge, who found the plaintiff's case to be true, has relied on oral evidence principally that of the plaintiff and certain circumstances revealed by a few documents. He found definitely that each of the four partners agreed to contribute Rs. 1,000 and that they became partners having equal shares in the concern. He accepted the plaintiff's case that the first defendant did not disclose his connection with the firm as a partner in any document because he, as a legal practitioner, was debarred from entering into any transaction which amounts to trade or business. The plaintiff's suit was, however, dismissed on the question of limitation. The ground on which the lower Courts view on the question of limitation proceeds is that the suit is virtually one for 'specific portions of partnership property' and is governed by Article 106 of the Indian Limitation Act. The learned Judge further held that the partnership should be deemed to have been dissolved more than 3 years before the institution of the suit. Accordingly limitation provided for by Article 106 commenced to run from the date of dissolution and the suit having been brought more than 3 years thereafter is barred.
5. The learned Advocate for the plaintiff-appellant has challenged the judgment of the lower Court so far as it finds that a dissolution of partnership occurred more than 3 years before the institution of the suit as also the view that Article 106 of the Indian Limitation Act is applicable to the circumstances of the case. On behalf of the respondent the finding on the issue relating to the existence of a partnership has been impugned. The whole case has thus been reopened before us at the instance of one or the other of the parties. The appeal has been contested by the first defendant on whose behalf it is. strenuously contended that there was no agreement of partnership in respect of the mill in dispute, and that if there was one, the only partners were the second and the third defendant. This alternative line of argument is somewhat inconsistent with the case set up in. the written statement of defendant 1. The finding of the learned Subordinate Judge on this part of the case is based on some documents which give rise to the inference that an agreement of partnership was entered into by all the four parties to the present litigation. Great stress has been laid by the learned. Subordinate Judge on two receipts executed by the third defendant, Harnandan, Singh, one, dated 20th October 1920,. for Rs. 2,000 in favour of the plaintiff
on account of purchasing an oil engine from Messrs. Parkins & Co., Leeds, England.
and another for a like amount:
Received from Babu Trijugi Narain and Babu Bhagwant Parshad on account of making, up for the payment of an oil engine worth Rs. 3,046-15-0 (as per draft, National Bank, Calcutta).
6. The lower Court also relies on Ex. 10, which is a Sarkhat executed by the plaintiff and defendant 2 in favour of a third person who had supplied Kerosene oil for the mill. The signatures of the plaintiff, the second defendant and the third defendant on a label affixed on the account book relating to the mill are also referred to by the learned Subordinate Judge. Certain objections filed by the second defendant to assessment of income tax in respect of the flour mill and numerous entries in Ex. 6 which purports to be an extract from the account book of the mill have also been relied on. The genuineness of the account book was contested in the lower Court and has not been admitted before us, but nothing has been said which can induce us to take a different view from that taken by the learned Subordinate Judge and we hold that the account book Ex. 6 is a genuine document. Other circumstances of minor importance have also been considered by the learned Subordinate Judge. We are satisfied that he was amply justified in coming to the conclusion to which he did, namely, that the plaintiff and all the three defendants were partners. The receipt for Rs. 2,000 is so worded as to exclude an inference that the money was advanced by the plaintiff as a creditor. Similarly the receipt obtained by the first defendant is wholly inconsistent with the case now set up by him,, namely, that he advanced the sum only as a creditor. It is not likely that he contented himself with a mere receipt without obtaining a formal bond if not also some kind of security. He would have insisted on some stipulation for payment of interest. The circumstances are more consonant with the hypothesis that he advanced the sum, for himself and second defendant who were to be compensated by a share of the profits arising from the concern. That he was alive to the necessity of having his money secured when he desired to treat it as a loan is clear from the circumstance that he obtained the hypothecation bond of 7th June, 1922, by which date no hope of profit was left. In order to obtain a first charge he obtained the bond from, the third defendant treating him, as the sole owner of the mill. It is urged by the learned Advocate for the first defendant that Harnandan who is a near relation, of the plaintiff, was not in collusion with the first defendant. On the contrary, it is pointed out that in the suit in which the first defendant obtained a simple money decree against Harnandan defendant 3 on foot of the bond of the 7th June 1922, he (Harnandan) raised the same questions as the plaintiff has done in the present case. This may be true. We are inclined to think that Harnandan is in the confidence of the plaintiff and is not now colluding with the first defendant. The fact, however, remains that Harnandan Singh was persuaded to assume the entire liability upon himself by executing the hypothecation bond of 7th June 1922, by which be agrees not only to pay the sum of Rs. 1,600 said to have been due on that date to the first defendant but also all other sums which may be found to be due from the mill. Apparently the arrangement was acceptable both to the third defendant and the first defendant, the latter obtaining a first charge on the mill, the former being recognised as the sole owner of the concern. Such an arrangement however acceptable to them was obviously detrimental to the interests of the plaintiff, if not also to those of the second defendant. It is not, in these circumstances, quite material to find whether the bond of 7th June 1922 was the result of any collusion between the first and the third defendants. Both of them found it to their interest to place the concern on an entirely new footing. There is nothing to show that the plaintiff was aware of this new arrangement. The decree obtained by the first defendant in his suit against the third defendant was, as already stated, a simple money decree. When the mill was attached in execution of that decree, the plaintiff obtained a cause of action for the suit like the one before us.
7. The next question is whether the plaintiff's claim, for the relief already mentioned is governed by Article 106 of the Indian Limitation Act, and if so, whether it is barred. We do not think that Article 106 of the Limitation Act can have any application to the circumstances of the present case. That Article provides for a suit
for an account and a share of the profits of a dissolved partnership,
8. Limitation for such a suit runs from the date of dissolution. It seems to us that the whole object of the present suit is to obtain a declaration that the third defendant is not the sole owner of the mill, and that the plaintiff has a. one fourth share therein and further that the defendant 1 is not entitled to have the mill attached and sold in execution of a decree obtained against the third defendant as if it belonged to him exclusively. In no sense can such a suit be considered to be one for account or for a share of the profits of a dissolved partnership. It is possible, indeed, likely, that after a declaration of the nature claimed in this suit is granted, the plaintiff or any other partner may institute a suit for dissolution and for profits. The plaintiff's cause of action for the present case has no reference whatever to dissolution of partnership or the profits of the firm. As already said the sole-object of the suit is to have it determined whether, as is alleged by the first defendant, the third defendant is the sole owner of the concern or whether other persons including the plaintiff have a share therein. In this view we are clearly of opinion that the plaintiff's cause of action arose when the mill was attached. It is not contended that the suit is barred by the rule of limitation applicable to declaratory suits.
9. The learned Subordinate Judge seems to be of opinion that in so far as the third defendant executed the hypothecation bond of 7th June 1922, in, favour of the first defendant taking upon himself all the obligations of the firm and treating himself as the sole owner of the concern, a position which was accepted by another partner, namely, the first defendant, a dissolution was inevitably brought about. In his opinion one or both of the parties to that transaction ceased to be partners, and, therefore, the partnership should be deemed to have dissolved. We do not think that any arrangement arrived at between two out of four partners behind the back of others can have the effect of dissolving the partnership as a whole. It is true that Section 253 of the Indian Contract Act provides that unless a partnership has been entered into for a fixed term any partner may retire from it at any time and that if any member of a partnership ceases to be so, the partnership is dissolved. But a retirement to have such effect must be to the knowledge of other partners. In general an unambiguous intention to retire should be communicated to the other partners by a formal notice or some overt act signifying a clear intention to cease to be a member of the partnership.
10. In this view the partnership found by the learned Subordinate Judge to have come into existence some time in October 1920, continued to subsist till one or more of the partners ceased to be such by retirement or otherwise intimating his or their intention to put an end to partnership. The evidence does not disclose any formal notice or overt act by any of the members signifying his intention to retire and to terminate the partnership. The controversy which arose out of the pleadings in this suit may possibly have that effect, but it is not necessary for us to express any decisive opinion on that question.
11. On the findings arrived at by us we think that the plaintiff is entitled to the relief of declaration that Luxmi Flour Mill belongs to a partnership, of which the plaintiff and the three defendants are the members, and that it does not belong exclusively to the third defendant. The plaintiff appellant will have his costs here and in, the Court below.