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Sarbulal Vs. Vishalchand - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMadhya Pradesh High Court
Decided On
Case NumberSecond Appeal No. 6 of 1956
Judge
Reported inAIR1960MP113
ActsNegotiable Instruments Act, 1881 - Sections 32; Partnership Act, 1932 - Sections 48
AppellantSarbulal
RespondentVishalchand
Appellant AdvocateR.K Vijayavargi, Adv.
Respondent AdvocateS.D. Sanghi, Adv.
DispositionAppeal allowed
Cases Referred and Chhaganlal v. Jagjiwandas Gulabdas
Excerpt:
- - that the defendant had failed to show that there was an agreement between the parties that the promissory note would be enforceable only when the final accounts of the partnership business had been taken;.....had to contribute to the joint capital, the plaintiff's suit on the footing of the promissory note in suit is dearly maintainable.5. the plaintiff's suit is on the basis of a negotiable instrument which cannot be treated either as a nullity or an escrow. by the promissory note the defendant undertook an absolute engagement to pay on demand rs. 2437/- together with interest thereon. he is, therefore, bound to pay the amount according to the tenor of the promissory note. the fact that the promissory note was with reference to some partnership transactions is insufficient to restrain a suit on the basis of the promissory note which is in such a form as to bind not the partnership firm but the defendant himself.the reason is that the promissory note executed in favour of one partner by.....
Judgment:

P.V. Dixit, J.

1. This appeal arises out of a suit filed by the appellant for recovery of Rs. 2437/- and interest thereon amounting to Rs. 177/- on the basis of a promissory note said to have been executed by the respondent in his favour. The suit was decreed by the Civil Judge, Second Class, Sendhwa. On an appeal being filed by the defendant against the decision of the trial court, the learned additional Civil Judge, first class, Barwani, dismissed the plaintiffs suit.

2. The plaintiff first averred in the plaint that on 14-6-1947 the defendant executed a promissory note for a consideration of Rs. 2437/-. The defendant admitted the execution of the promissory note; but pleaded that he did not receive any consideration. According to him, he and the plaintiff were partners in grain business; that when he asked the plaintiff to settle accounts of the business, the plaintiff promised that accounts would be settled soon and pressed him to give a promissory note for Rs. 2437/- assuring him that the note would be enforced only after the accounts of the partnership business had been finally settled.

He also raised the objection that the plaintiffs claim being one arising out of a partnership transaction, he could not without asking for settlement of accounts of the business, sue on the basis of the promissory note. In his rejoinder, the plaintiff admitted that there was a partnership business between him and the defendant and that the defendant executed the promissory note for the amount which the plaintiff had advanced for the business.

3. The trial court found that the defendant executed the promissory note for the amount which the plaintiff had advanced from time to time towards the partnership business; that it was for consideration; that the defendant had failed to show that there was an agreement between the parties that the promissory note would be enforceable only when the final accounts of the partnership business had been taken; and that the plaintiff's suit on the basis of the promissory note was maintainable. On these findings, the plaintiff's claim was decreed.

The learned additional Civil Judge, first class, Barwani, also held that the promissory note was executed by the defendant alter a partial settlement ot accounts without any condition precedent to the attachment of any obligation under the note. He, however, took the view that as the promissory note related to a partnership transaction, the plaintiff could not sue on it without asking for settlement of final accounts. Accordingly he dismissed the plaintiff's suit.

4. In this appeal, there is no dispute that the plaintiff and the defendant carried on partnership business in grain and that the promissory note executed by the defendant had reference to some partnership transactions. In his evidence the plaintiff admitted that final accounts of the partnership business had not been settled and that the promissory note was obtained by him from the defendant before the final accounts. He added that it was in respect of the amount which be had advanced to the defendant as capital for the business.

The plaintiff did not make it clear whether the consideration mentioned in the promissory note was the joint capital or whether it represented the amount which the defendant had to contribute to the joint capital and which he has advanced to the defendant for investing in the partnership business. In any case, whether the promissory note was executed by the defendant after a partial settlement of accounts, or without going into the accounts just on the mere insistence of the plaintiff that a certain amount was due to him on account of the partnership business or whether the consideration of the promissory note represented the advances made by the plaintiff to the partnership business or whether it formed the amount of total capital invested in the business and furnished by the plaintiff or whether the consideration was the advance which the plaintiff made to the defendant in respect of what the defendant had to contribute to the joint capital, the plaintiff's suit On the footing of the promissory note in suit is dearly maintainable.

5. The plaintiff's suit is on the basis of a negotiable instrument which cannot be treated either as a nullity or an escrow. By the promissory note the defendant undertook an absolute engagement to pay on demand Rs. 2437/- together with interest thereon. He is, therefore, bound to pay the amount according to the tenor of the promissory note. The fact that the promissory note was with reference to some partnership transactions is insufficient to restrain a suit on the basis of the promissory note which is in such a form as to bind not the partnership firm but the defendant himself.

The reason is that the promissory note executed in favour of one partner by another binding himself and not the firm, gives an independent cause of action in respect of a matter which though arising out of a partnership transaction or connected therewith, does not involve the taking of general account. The executant partner, can, therefore, be sued upon by a copartner on the promissory note without taking final accounts of the partnership business and whatever the state of accounts between the two may be.

6. There is no such rigid or inflexible rule that a partner can sue his copartner only for dissolution of partnership and accounts or for accounts of an already dissolved partnership. The question whether a suit can be instituted by one partner against another without taking a general account of the partnership dealings and transactions depends upon the circumstances of each ease. In Karri Venkata Reddi v. Kollu Narasayya, ILR 32 Mad 76 the general principle was stated to be thus:

'In regard to suits by one partner against another for a partial account, the general rule, as applied in India, is that if the account is sought in respect of a matter, which, though arising out of partnership business, or connected with it, does not involve the taking of general accounts, the court will as a rule give the relief applied for'.

The decisions in Durga Prossono Bose v. Raghu Nath Dass, ILR 26 Gal 254, Guda Kulita v. Joyram Das, ILR 26 Cal 262-Note & Ellappa Mudaliar v. Swaminatha Mudaliar, AIR 1933 Mad 755 (FB) also enunciate the same rule. In Ramanath v. Pitambar Deb ILR 43 Cal 733: (AIR 1916 Cal 788), it was held by a Division Bench of the Calcutta High Court that an action for the balance ot a settled account would not be restrained merely because there were other unsettled accounts between the parties.

7. It has been stated in 'Lindley on Partnership' (11th edn.) at page 668:

'Again, if one partner gave to his co-partner a bill or note which was in such a form as to bind not the firm, but the partner who gave, it, he might be sued by his co-partner thereon, whatever the state of the accounts between the two might be, and although the bill or note in question had reference to some partnership transaction; for by giving the bill or note, the demand in respect of which if was given was isolated from the general partnership account'.

In Maung Kyan Naga v. Arunachalam Pillai, AIR 1927 Rang 327, Vishnu Ramchandra v. Ganesh Krishna, AIR 1921 Bom 449 and Chhaganlal v. Jagjiwandas Gulabdas, AIR 1940 Bom 54 a suit by one partner on the basis of a promissory note against the partner giving it and binding himself was held to be maintainable though the note had reference to some partnership transaction. The instant case is no different.

8. Mr. Sanghi, learned counsel for the respondent, sought to argue that the observations reproduced above from 'Lindley on Partnership' relate to a promissory note or bill for advances made by one partner to a partnership firm; that there was a material distinction between capital contribution and advances; and that whereas a suit on a promissory note for advances made by one partner to the partnership firm was maintainable, a suit on a promissory note for capital contribution would not lie.

I do not agree. It is no doubt true that there is a distinction between a partner's capital and what is due to him for advances by way of loan to the firm. The distinction is material with reference to interest, with reference to clauses in partnership articles fixing the amount of capital to be advanced and risked and prohibiting the withdrawal Of capital, and with reference to the priority of payment in the event of dissolution and a deficiency of assets. But the distinction is not material so far as the institution of a suit by one partner for recovery of advances or capital contribution is concerned.

A partner cannot, without asking for adjustment of general account, sue for an advance made by him for his share of capital which is only an individual item of partnership account. So also he cannot sue his copartner for money lent by him to the partnership which also formed an item in the partnership account. But once a partner gives a promissory note to another partner for advances or for capital contribution binding himself to pay the amount on demand, then the demand in respect of which the note is given is isolated from the general partnership account and it makes no difference for the maintainability of the suit whether the promissory note is in respect of capital contribution or for advances made to the partnership. The money recovered in such a suit can always he adjusted in a suit to: account, if the suit is not barred.

9. For these reasons, the decision of the learned Additional Civil Judge, first class, Barwani is set aside and the decree passed by the court of the Civil Judge, second class. Sendhwa, in favour of the appellant and against the respondent is restored. The appellant shall have costs there and in the lower appellate court.


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