1. This First Appeal has been filed by the two plaintiffs against the judgment and decree dated 20-1-1949 of Sri Dinabandhu Das, District Judgeof Keonjhar-Balasore, arising out of a suitbrought by the plaintiffs claiming damages to theextent of Rs. 15,000/- against the defendants forbreach of contracts. The two plaintiffs are dealersin mustard oil at Balasore and the defendantsconstitute a firm dealing in mustard oil at Cawnpore.
The plaintiffs' case is that the defendants entered into two contracts with them (the plaintiffs) -- one on 5-4-1943 and the other on 21-4-1943 -- to supply mustard oil. The first contract was to supply 1056 tins or mustard oil at the rate of Rs. 29/- per maund and the secondcontract was to supply 286 tins of mustard oil at the rate of Rs. 36/- per maund. In pursuance of the said contracts the plaintiffs paid an advance of Rs. 1000/- through a Bank Draft and despatched 1519 empty tins. The defendants avoided performance of the said contracts on the false pretext that export of mustard oil outside the United Provinces had been banned.
The plaintiffs further alleged that they had approached the District Magistrate of Balasore to request the District Magistrate of Cawnpore to grant a permit for the export of mustard oil. The District Magistrate of Balasore having written such a letter of request, one of the plaintiffs along with their lawyer Sri Gyanaranjan Patnaik, B.L., who has been examined in the present case as a witness, approached the District Magistrate of Cawnpore who endorsed on the said letter that there was no ban for the export of mustard oil from Cawnpore to Orissa.
With this endorsement the second plaintiff and the lawyer Sri Patnaik approached the defendants' firm for taking delivery of the articles, but the defendants' firm having refused to deliver and having finally cancelled the contracts on 14-7-1943 on the pretext of the aforesaid ban, the present suit for damages has been brought. It is to be noted here that the contracts were for delivery of the tins at Cawnpore Railway Station (f.o.r. Cawnpore).
The plaintiffs calculated the damages on the basis of the difference of prices prevailing at Balasore. The total amount on the basis of this difference is Rs. 9986/-. They have claimed the price of the tins at Rs. 3987/6/- (at Rs. 2/10/- per tin) and for refund of the advance of Rs. 1000/-.
2. The main defence is that the suit is hit by the provisions of Section 69, Partnership Act as the plaintiffs constituted a firm which has not been registered and the persons suing are not shown on the register of firms as partners in the firm, and the Court at Balasore has no jurisdiction as no part of the cause of action arose within the jurisdiction of the Balasore Court. The defendants, while denying any completed contracts between the parties, have further alleged that the contracts, if any, became impossible of performance due to the existence of legal ban issued by the Government of United Provinces that the mustard oil could not be exported from the United Provinces.
The defendants further alleged that neither of the plaintiffs nor their pleader ever approached them for taking delivery of the tins of the mustard oil, and they (the defendants) having waited for three months were finally compelled to cancel the order booked with their firm as there was no knowing that the ban imposed by the United Provinces Government would be relaxed. They therefore sent a cheque for Rs. 796/13/9 towards the sum of Rs. 1000/- received from the plaintiffs deducting an amount of Rs. 203/2/3 as their costs as per their debit note dated 19-4-1943.
3. Most of the issues have been decided in favour of the plaintiffs. It has been found by the learned District Judge that the Court at Balasorehas jurisdiction as part of the cause of action arose within his jurisdiction. According to the learned District Judge both the contracts were really completed at Balasore even though the delivery of the goods was to be made at Cawnpore (f.o.r. Cawnpore). The learned District Judge having come to the conclusion that the goods as contracted between the parties were to be delivered at Cawnpore has found that the question of contracts being impossible of performance on account of the ban imposed by the Government of United Provinces does not arise.
He has further found that the refusal on the part of the defendants' firm on 21-7-1943 to deliver the goods to the plaintiffs at Cawnpore when the 2nd plaintiff with their lawyer approached the defendants is a wilful breach of the contracts and the cancellation of the contracts is wrongful. Having found that the goods were to be delivered at Cawnpore, he has calculated the extent of damages on the basis of the prices prevailing at Cawnpore and not at Balasore as claimed by the plaintiffs.
4. The only point on which the plaintiffs' suit stands dismissed is that the present suit is hit by the provisions of Section 69, Partnership Act. The present plaintiffs are Muhammadans and are two brothers being Joint in mess, residence and property. The relevant provisions barring the present suit appear in Section 69(2), Partnership Act running as follows:
'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.'
'Partnership' has been defined in Section 4 as:
' 'Partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm' and the name ' under which their business is carried on is called the 'firm name'.'
It is clear from Section 5 of the Act that the relationship of partnership under the Act arises from contract and not from status. Business carried on by members of a Hindu undivided family has been specifically excluded from the operation of the Act. Certain tests have been laid down in Section 6 for determining whether a group of persons is or is not a firm. It provides that regard shall be had to the real relation between the parties as shown by all relevant facts taken together. The two Explanations in the said section are important.
'Explanation 1 -- The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persona partners.'
'Explanation 2-- The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business....'
As it appears manifestly from the above provisions, the fundamental ingredients to constitute a partnership are that there must be an agreement amongst the persons to share the profits of the business and that the business is carried on by all or any of them acting for all. It is also clear that mere sharing of profits or gross returns does not of itself make the persons partners unless there is a distinct agreement to that effect. It is to be mentioned here that the agreement contemplated under the section need not be an express agreement in writing, but an implied contract, which can be inferred from the conduct of the parties in relation to the business and the circumstances transpiring in the case, is sufficient.
5. It will next be necessary to consider what is the nature of evidence placed on record from which it can be inferred whether there was an implied contract between the parties to share the profits as the manifest fact is that in the present case there was no express contract in writing. The plaintiffs are Muhammadan brothers styling themselves as:
'SHAIK KABIR SHAIK ALIM, Importers & Exporters of Grains, M. Goods, Perishables Merchants, Commissions Agents, Wholesale Dealers, General Order Suppliers and Government contractors.'
This appears from quite a fair number of letters written by the plaintiffs -- (Exts. K, W, R & T). The letters (Exts. K & W) have been signed by both Sk. Kabir and K. Alim whereas the letters (Exts. R. & T) appear to have been signed by only one of them (Sk. Alim) even though the letters appear to have been written on behalf of both of them carrying on the business. Ext. 35, a letter dated 7-8-1943 from Balasore to the defendants, purports to have been written on behalf of both Sk. Kabir and Sk. Alim with the letterhead as we have mentioned above.
It is important to note here that in this letter there Is a clear mention that 'the man who went to you (the defendants) was one of the partners of the firm'. This letter is to be read along with paragraph 13 of the plaint wherein the plaintiffs state as follows:
'Para. 13. That after the defendants' letter of the 14-7-1943, the District Magistrate of Balasore addressed a letter to the District Magistrate of Cawnpore on the 17-7-1943 and this letter was carried personally by the plaintiff No. 2 who took along with him his pleader Babu Jnyanaranjan Patnaik, B. L. to Cawnpore and the letter having been delivered to the District Magistrate of Cawnpore, the latter endorsed on the said letter as follows:
'There is, at present, no ban on the export of mustard oil from Cawnpore to Orissa.'
This endorsement was shown by the plaintiff No. 2 and his pleader to the Manager of firm and the delivery of the articles was demanded, but the said Manager flatly refused to take any notice of the endorsement.'
This is sufficiently clarified from the statement on oath of plaintiff No. 2 himself, who was examined in the Court below as P. W. 3, that he, accompanied by their lawyer (P. W. 2), went to the defendants' firm with the endorsement of the District Magistrate of Cawnpore and he (plaintiff No. 2) demanded mustard oil on behalf of both the plaintiffs. From the above therefore it is clear that in this particular business one of the plaintiffs was acting on behalf of both and the letter Ext. 35 clearly acknowledges the position that plaintiff No. 2 is a partner in the firm of the two plaintiffs.
One more feature in the present case is also made clear by reference to Ext. 2 and the evidence of P. W. 1, the clerk of the plaintiffs. Ext. 2 is the Profit and Loss Statement of Sk. Alim and Sk. Kabir from Rokar for the year 1943-1944. This shows that a statement of profit and loss was prepared for the year 1943-44. The statement of P.W.1 runs to the effect: 'The plaintiffs are joint in mess and all their business is joint. Therefore they jointly share in profits and losses of the oil business also.' The admitted case on behalf of the plaintiffs is therefore to the effect that they jointly share in both the profits and losses of the oil business with which we are concerned in the present suit.
6. We will next discuss a few decisions of the several High Courts as to from what circumstances an implied agreement can be inferred. The law is well settled and this is manifest from the fundamental conception of Mohammadan law that it is only in a loose sense that property is said to belong to a joint Mohammadan family. In a Mohammadan Joint family there are many males and females who have no interest in the joint property.
On the other hand there are many others who have interest in the joint property but are no part of the family. The law does not recognise a Mohammadan joint family as a legal entity as in the sense of a Hindu joint family who can sue and be sued against as a legal entity as represented by the Karta. When Mohammadans who live and mess together trace their origin to a common ancestor, carry on business jointly and make acquisitions, their rights are to be determined with reference to contract, either express or implied.
It will be sufficient for us to refer to a decision of the Allahabad High Court in support of this well established principle which is reported in the case of -- 'Shukrulla v. Mt. Zohra Bibi', AIR 1932 All 512 (A). The plaintiffs, therefore, in the present case cannot be said to carry on the business by virtue of their status.
7. The next question is what are the circumstances under which an agreement of partnership can be inferred. Our attention has been drawn to a decision of Vivian Bose J. of the Nagpur High Court (as he then was) in the case of -- 'Firm Haji Isa Haji Noor v. Saru Bai', AIR 1938 Nag 324 (B). His Lordship observed in that case:
'An agreement of partnership need not be express. It can arise out of a mutual, understanding evidenced by a consistent course of conduct, and indeed, by the express admission of the parties concerned.'
There the business was being carried on byMohammadan brothers for a long time. His Lordship observed that it could not be suggested for a moment that it was for philanthropic purposes, but that they must be carrying on business to make profits out of it and they all Intended to share in the benefit of the proceeds. There one person was actually conducting the business on behalf of all his associates and was not conducting the business for his own separate and exclusive benefit. An agreement of partnership, therefore, could safely be inferred from these circumstances as observed by his Lordship.
8. The next case that we will discuss is reported in -- 'Tajammul Hussain v. Ahmad Ali', AIR 1937 Oudh 438 (C). There the business was started by a Mohammadan and was being carried on by him. On his death his heirs inherited the business as tenants-in-common. Indeed this alone is not sufficient to make them partners, because they were not partners by status. But when they continued to carry on the business and share in the profits, the necessary inference was that they entered into an implied agreement of a new partnership of the business left by their father and continued by them.
It was further observed in explaining Explanation 1 to Section 6 of the Act that participation in profits was not conclusive and could not of itself constitute a partnership. The question of partnership is indeed a question of intention which must be decided on a consideration of the conduct of the parties and of all the surrounding circumstances. Nevertheless their Lordships in that case found that participation in profits was a very cogent piece of evidence which must be given due weight in the light of other circumstances even though that alone was not conclusive.
It is to be observed here that their Lordships in that case were impressed by the feature of the continuance of the business by his sons for long after the death of the father to infer an implied agreement of partnership. It is quite reasonable that in such circumstances no other alternative is possible. If as a matter of fact Mohammadan brothers continued the business for a long time sharing in the profits and losses from year to year, the only inevitable inference is of an implied agreement as the position of status is excluded as a matter of law.
9. Our attention has been drawn to an English decision of the year 1872 of their Lordships of the Judicial Committee reported in -- 'Mollwo, March & Co. v. Court of Wards', (1872) LR 4 PC 419 (D). The observations run thus:
'It appears to be now settled that although a right to participate in the profits of trade is a strong test of partnership, and that there may be cases where, from such participation alone, it may, as a presumption, not of law but of fact, be inferred; yet that whether that relation does or does not exist must depend on the real intention and contract of the parties ....
Where a man holds himself out as a partner, or allows others to do it, the case is wholly different. He is then properly estopped from denying the character as he has assumed, and upon the faith of which creditors may be presumed to have acted. A man so acting may be rightly held as a partner by estoppel.
Again, wherever the agreement between parties creates a relation which is in substance a partnership, no mere words or declarations to contrary will prevent, as regards third persons, the consequences following from the real contract ...... It is sufficient for the present decision to say, that to constitute a partnership the parties must have agreed to carry on business and to share profits in some way in common.'
Indeed these observations have got to be considered along with the express language of our legislation, that is, Explanation 1 to Section 6, Partnership Act. In our view, even though the sharing of the profits is certainly not itself sufficient for the purpose of proving an agreement of partnership it may in certain circumstances appear to be a very cogent piece of evidence to weigh with the Courts of fact. Their Lordships of the Judicial Committee have observed definitely that this item of evidence of participation of profits may in certain cases raise a presumption not of law but of fact. But nevertheless, as observed by their Lordships, whether that relation exists or not must depend on the real intention and contract of the parties.
A few other English decisions of the years sub-sequent to 1890 were cited before us in support of the contention that sharing of the profits and losses of the business is sufficient for the purpose of shifting the onus to the other side to prove absence of such an agreement. We are not inclined to attach importance to the English decisions subsequent to the year 1890 on account of the difference in language of the English Statute and that of Explanation 1 to Section 6 of our Partnership Act, 1932. The corresponding provisions are contained in Section 2, Sub-sections (2) and (3) of the English Partnership Act of 1890.
'Sub-section (2) : The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns, have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.
Sub-section (3) : The receipt by a person of a share of the profits of a business is 'prima facie' evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business, does not of itself make him a partner in the business, ......'
In Sub-section (3) they have a clear provision that the receipt by a person of a share of profits of a business is prima facie evidence that he is a partner in the business, which is absent in our statute.
10. Mr. Mohanty, appearing on behalf of the appellants, has placed strong reliance on a Pull Bench decision of the Patna High Court reportedin -- 'Hira Lal v. Jamaluddin', 224 Ind Cas 106 (Pat) (E). In that case the trial Court found that the two plaintiffs were partners. The reasons in support of this finding by the trial Court are contained in the paragraph which is quoted in the report. It runs thus:
'It is an admitted fact and the bond (Ext. 1) also shows that the money was advanced from the joint fund of the plaintiffs in the shop. It is also an admitted fact that the plaintiffs have joint wholesale business in spices etc. and also joint money-lending business. P. W. No. 1 admitted that the profits are divided and taken by each of the plaintiffs at the close of the year when account is made.
P. W. No. 1 admitted in cross-examination that the plaintiffs live separately and they do not constitute a joint family. Admittedly one of the plaintiffs is not an agent or servant of the other. Each of the plaintiffs has a definite share on the shop business and it cannot be altered by the other. I therefore find that the plaintiffs are partners and they constitute a firm.'
But their Lordships of the Patna High Court observed that in spite of these circumstances there was no partnership on account of the absence of the important element of the definition of the partnership which emphasises that partnership must be carried on by all or any of the partners acting for all. In that case there was no evidence that the business of the plaintiffs was carried on in this manner or that one of the plaintiffs could act or have ever acted for the other for the purpose of business.
Without discussing the case any further we can immediately observe that the decision has no application to the facts before us inasmuch as we have indicated above that in fact in this case plaintiff No. 2 was acting on behalf of both and that he represented himself to be a partner to these defendants.
11. Mr. Mohanty further relies upon a Single Bench decision of the Allahabad High Court reported in -- 'Mirza Najm Effindi v. Firm Kohinoor Footwear Co.', AIR 1946 All 489 (F). The finding in that case that there was no partnership was based upon the observation:
'In this case there is not an iota of evidence to show that there was any such agreement or contract between the plaintiffs, and therefore they could not be partners as defined in the Act.'
12. The position of law therefore is clear that the partnership arising out of the status of the parties as in a Hindu joint family is taken out of the provisions of the Partnership Act and only such partnerships which are based upon agreements between the parties are hit by the provisions of Section 69 of the Act; but nevertheless the agreement may be either express or implied and the implied agreement can be inferred from the conduct of the parties and various other circumstances appearing in the case. According to the law, mere sharing of the profits is not sufficient to prove an agreement of partnership; but in certain cases sharing of profits may appear tothe Court of fact to be a very cogent piece of evidence.
13. In the case before us, therefore, the facts being that the parties are two Mohammadan brothers and they were carrying on the business under the trade name of the firm (Sheik Kabir Sheik Alim, Importers & Exporters of Grains M. Goods, Perishables Merchants, Commission Agents, Wholesale Dealers, General Order. Suppliers and Government Contractors), as indicated above, and there is absolutely unimpeachable evidence that they were sharing the profits of the business; further it appears from the admitted correspondence that one of the plaintiffs was acting on behalf of both in the business and was representing himself as a partner -- these circumstances lead us to infer that there must be an implied agreement of partnership between the parties to constitute a partnership. We would, therefore, agree with the learned Court below and find that the plaintiffs' suit is hit by the mischief of the provisions of Section 69, Partnership Act.
(His Lordship considered other points raised and concluded :)
14-16. As the suit is hit by the provisions of Section 69, Partnership Act, the plaintiffs' suit is bound to fail, and, therefore, the appeal is dismissed with costs.
17. I agree.