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Debi Parshad Vs. Jai Ram Dass and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty;Commercial
CourtPunjab and Haryana High Court
Decided On
Case NumberLetters Patent Appeal No. 65 of 1951
Judge
Reported inAIR1952P& H284
ActsCode of Civil Procedure (CPC) , 1908 - Sections 100; Partnership Act, 1932 - Sections 6 and 14
AppellantDebi Parshad
RespondentJai Ram Dass and anr.
Appellant Advocate S.K. Daphtary,; Bishan Narain and; K.S. Thapar, Advs
Respondent Advocate K.L. Gosain and; H.L. Sibal, Advs.
Cases ReferredClegg v. Fishwick
Excerpt:
.....partnership. clearly, it is established that of the sum of rupees 20,000/- paid to the lessors by debi parshad rupees 2500/- was contributed by jairam das. 039208 drawn on the central bank of india limited and a further sum of rupees 2500/- on the 4th of october 1946. clearly, the evidence on the record proves that jairam das contributed to the payment of the lease money. clearly, if the lessee rights were not the property of the firm, the firm would not spend rupees 1008/- for obtaining the registered lease-deed and jairam das would not pay any amount on account of the lease money. clearly, debi parshad and bal-kishan das cannot take the benefit of the renewed lease to the exclusion of jairam das. 625 of 1951. 39. having regard to the partial success of the defendant-appellant i leave..........of 1948 for dissolution of partnership and rendition of accounts pleading that he was partner with debi parshad defendant no. 1 and balkishan das defendant no. 2 in the firm, the ambala flour mills, ambala city, the shares of the plaintiff, debi parshad and balkishan das being annas four, annas ten and annas two in a rupee respectively. the case of the plaintiff was that the period of partnership was two years, but if there was an extension of the lease of the mills by the exercise of option given to the lessee under the lease deed, exhibit d. 1, the partnership was to continue for the period of the lease. in the plaint it was said that madan lal son of the plaintiff, baikunth nath attorney of debi parshad and balkishan das defendant no. 2 were to work in the firm on salary fixed between.....
Judgment:

Harnam Singh, J.

1. In order to appreciate the points of law arising in Letters Patent Appeal No. 65 of 1951 it is essential to set out the facts of the case in some detail.

2. On the 29th of April, 1948, Jairam Das instituted civil suit No. 324 of 1948 for dissolution of partnership and rendition of accounts pleading that he was partner with Debi Parshad defendant No. 1 and Balkishan Das defendant No. 2 in the firm, the Ambala Flour Mills, Ambala City, the shares of the plaintiff, Debi Parshad and Balkishan Das being annas four, annas ten and annas two in a rupee respectively. The case of the plaintiff was that the period of partnership was two years, but if there was an extension of the lease of the Mills by the exercise of option given to the lessee under the lease deed, Exhibit D. 1, the partnership was to continue for the period of the lease. In the plaint it was said that Madan Lal son of the plaintiff, Baikunth Nath attorney of Debi Parshad and Balkishan Das defendant No. 2 were to work in the firm on salary fixed between the parties and that on the capital investments the partners were to be paid interest at six per cent, per annum.

3. In paragraph No. 3 of the plaint it was stated that a licence was obtained under the Punjab Foodgrains Control Order, 1944 for which an application was made on the 3rd of October, 1945, the licence being in the name of the Ambala Flour Mills. On the 9th October, 1945, lease-deed, Exhibit D. 1, was made, defendant No. 1 being shown as the lessee. Balance-sheets were prepared showing profits and losses, and in those balance-sheets Jairam Das, Debi Parshad and Balkishan Das were shown as partners. In para No. 3 of the plaint it was then stated that Debi Parshad operated on the accounts of the firm with various banks.

4. Debi Parshad defendant No. 1 resisted the suit pleading that he was the sole proprietor of the business, that the plaintiff and defendant No. 2 were his employees and that, in any case, the lease of the Mills was not the property of the firm. Defendant No. 1 stated in paragraph No. 20 of the written statement that the plaintiff, defendant No. 1 and defendant No. 2 were to share the profits and losses of the business in the ratio of annas four, annas ten and annas two in a rupee respectively. Balkishan Das defendant supported Debi Parshad defendant No. 1 and on the pleadings of the parties the trial Court fixed the issues specified hereunder: (1) Whether the plaintiff is a partner with the defendants and on what terms? (2) Whether the leasehold rights in question were the partnership property? (3) Is the plaintiff estopped from claiming the leasehold rights as partnership property as alleged in paragraphs Nos. 15 and 16 of the written statement of defendant No. 1? (4) Which is the accounting party? (5) Whether Section 69 of the Indian Partnership Act would bar the present suit? (6) What is the date when the partnership shall be deemed to be dissolved? (7) Whether the accounts up to the 31st of December, 1947, have been settled finally and what is its effect? (8) Relief.

5. In deciding civil suit No. 324 of 1948 theCourt of first instance found for the plaintiffon issues Nos. 1 to 5 and 7 and further foundthat Debi Parshad was the accounting partyand that section 69 of the Indian PartnershipAct did not bar the suit, In the result, theCourt of first instance passed a preliminarydecree ordering that the partnership shall bedeemed to be dissolved with effect from the 29thof April, 1948.

6. From the preliminary decree. Debi Parshad defendant appealed in the Court of the District Judge. Ambala, under section 96 of the Code of Civil Procedure, while JairamDas cross-objected challenging the decision of the Court of first instance on issue No. 6. In the Court of the District Judge Debi Parshad challenged the correctness of the decision of the Court of first instance on issues Nos. 1 and 2.

7. In deciding the appeal the District Judge found against the plaintiff on issues Nos. 1 and 2 and dismissed the cross-objections. In the result the District Judge dismissed the suit leaving the parties to bear their own costs throughout.

8. From the decree passed by the District Judge on the 31st January, 1951, Jairam Das came up in further appeal under section 100 of the Code of Civil Procedure.

9. In Regular Second Appeal No. 50 of 1951 Mr. Justice Jeevan Lal Kapur has restored the judgment and decree of the Court of first instance with costs throughout, and has ordered that the Official Receiver should take possession of the partnership property and do such other acts as are necessary for carrying out the accounting which has to be done right up to the date of the final decree or up to the time the Receiver takes possession under the decree.

10. In these circumstances Debi Parshad defendant No. 1 appeals under clause 10 of the Letters Patent from the judgment given in Regular Second Appeal No 50 of 1951 on the 5th of June, 1951.

11. In admitting the Letters Patent Appeal it was ordered that the Receiver should not take possession of the property of the partnership during the pendency of the appeal. Jairam Das has applied for the vacation of that order giving rise to Civil Miscellaneous No. 625 of 1951. This judgment disposes of Letters Patent Appeal No 65 of 1951 and Civil Miscellaneous No. 625 of 1951.

12. Mr. S. K. Daphtary, appearing for the appellant, urges that the findings given by the District Judge on issues No. 1 and 2, being findings of fact, the Court had no jurisdiction to interfere with those findings in second appeal.

13. In these proceedings it is not disputed that the question whether a partner is a partner or an agent of a firm is a mixed question of law and fact. That being so, in second appeal the learned Judge was competent to examine the correctness of the finding of the Court of first appeal on issue No. 1. On this point 'Chokalinga Chettiar v. Muthu-Swami Chettiar', AIR 1925 Mad 768 and 'Chimanram Motilal v. Jayantilal Chhaganlal', AIR 1939 Bom 410 may be seen. Again, though the question covered by issue No. 2 is mainly a question of fact, but in deciding that issue the Court of first appeal did not take into consideration documents, Exhibits D. 3 and D. 13, which had an important bearing on issue No. 2. That being so the finding given by the Court of first appeal on issue No. 2 was not binding on this Court in second appeal.

14. Mr. S. K. Daphtary then urges that the judgment under appeal on issue No. 1 cannot be sustained on the evidence, oral and documentary, that was brought by the parties on the record.

15. Now, in order to establish partnership it has to be proved that there was an agreement entered into by all the partners concerned, that the agreement was to share the profits of business and that the business was carried on by all or any of the persons concerned acting for all. In this connection, section 4 of the Indian Partnership Act may be seen. In the present case Debi Parshad admitted in the written statement that there was an agreement entered into by the plaintiff and the defendants to share the profits of the business, the shares of the plaintiff, defendant No. 1 and defendant No. 2 being annas four, annas ten and annas two in a rupee respectively.

16. Mr. S. K. Daphtary points out that the judgment under appeal proceeds upon the basis that if it is shown that there was an agreement between the parties to share the profits, in the absence of other circumstances, partnership should be held to be established whereas Section 6 of the Indian Partnership Act, 1932, hereinafter referred to as the Act, enacts that receipt by a person of a share of profits of a business does not of itself make him a partner with the persons carrying on that business. In my judgment, the objection raised has force.

17. Explanation II occurring in Section 6 of the Act provides 'inter, alia' that the receipt by a person of a share of the profits of a business does not of itself make him a partner with the persons carrying on the business. Clearly, the Act does not provide for the initial presumption in favour of existence of partnership in case of receipt by a person of share of profits of business. On the other hand Section 2(3), English Partnership Act, 1890, does provide for such a presumption. Section 2(3) of the English Act reads: 'Receipt by a person of share of the profits of a business is 'prima facie' evidence that he is a partner in the business.' That being the situation of matters, we have to determine the question covered by issue No. 1, regard being had to the real relation between the parties as shown by all relevant acts taken together. Indisputably participation in profits is strong evidence of partnership.

18. But it was said that mutual agency between the parties has not been established and there is evidence to show that there was no partnership. I do not accede to the objection raised.

19. Exhibit P. 16/A shows that on the 3rd of October, 1945, Jairam Das acting for the firm applied under the Punjab Agricultural Produce Markets Act, 1939, for a license showing in that application Debi Parshad, Jairam Das and Balkishan Das to be the partners of the firm. Again, acting for the firm Jairam Das applied under the Punjab Foodgrains Control Order, 1944, for authority to purchase, sell or store for sale in wholesale quantities all kinds of foodgrains and wheat products throughout the territory of the Punjab. License, Exhibit P. 4, was granted on that application and all these years the Ambala Flour Mills, Ambala City, has been working on the basis of the license, Exhibit P. 4.

20. In the proceedings relating to the assessment of income-tax for the year 1948-49 Baikunth Nath with Sheo Parshad, authorised representative of the firm, appeared before the Income-tax Officer. A perusal of a copy of the order passed by the Income-tax Officer, Exhibit P. 19, shows that Jairam Das & Balkishan Daswere shown to be the partners of Messrs. Ambala Flour Mills, Ambala City. In making the order, the Income-tax Officer found that Balkishan Das being a partner of the firm the salary paid to him was inadmissible.

21. Exhibit P. 20 is a copy of the order passed by the Additional Income-tax Officer made on the 15th May, 1948, showing Jairam Das, Debi Parshad and Balkishan Das to be the partners of the firm.

22. Exhibit P. 18 is a copy of the return of income of the Ambala Flour Mills for the income-tax year 1948-49. In this return which was filed on the 12th of November, 1948, Debi Parshad, Jairam Das and Ealkishan Das are shown to be the partners of the firm, their shares being annas ten annas four and annas two in a rupee respectively. In filing this return Debi Parshad acted for the firm.

23. Exhibit P. 17 is a copy of the return of income of the Ambala Flour Mills filed on the 25th June, 1947. Exhibit P. 17 appears to have been signed by Debi Parshad, Jairam Das and Balkishan Das as partners of the firm.

24. From what I have said above it is plain that there is abundant evidence on the record showing that there was mutual agency between Debi Parshad, Jairam Das and Balkishan Das in the matter of the business of the Ambala Flour Mills. Exhibit D. 13 shows that on the 9th of October, 1945 Jairam Das paid rupees 2,500/- to the firm per cheque No. 039208 drawn on the Central Bank of India Limited. On the 10th of October, 1945 Jairam Das paid rupees 4,000/- to the firm per cheque No. 69532 drawn on the same bank. On the 31st of December, 1946, a sum of rupees 6,176/11/-was debited to the capital account of Jairam Das on account of losses. In Exhibits P. 1 and P. 2 Jairam Das, Debi Parshad and Bal-kishan Das are shown to be partners of the Ambala Flour Mills.

25. But counsel for the appellant argues that the lease-deed, Exhibit D. 1, made on the 9th of October, 1945, and the documents, Exhibits D. W. 1/1 to D. W 1/8, D. W. 4/1, D. W. 5/1 to D. W. 5/3, D. W. 7/1 and D. W. 7/2 and D. W. 6/1 to D. W. 6/5 show that Debi Parshad was the sole proprietor of the Ambala Flour Mills. The documents other than Exhibit D. 1 deal with the loan transactions of the firm with the Central Bank of India Limited and the account of the Ambala Flour Mills with the Central Bank of India Limited, Imperial Bank of India, Ambala City. Bharat Bank, Limited, and the Punjab National Bank Limited, Ambala City. Exhibit D. W. 6/1 is a pronote for a lac of rupees in favour of the Central Bank of India executed by the firm showing that Debi Parshad was the proprietor. This loan was raised against the pledge of goods given in Exhibits D. W. 6/7 and D W. 6/8 dated the 27th of November, 1945.

By these documents, cotton-seed, wheat, gram, 'toria,' rice, paddy, sugar, gur and other commodities, loose or in bags or in bales, stored in the godowns of the firm were to be security for the loan. On the 2nd of July, 1947, the overdraft limit was raised to the sum of rupees ten lacs, but the loan was against the goods belonging to the firm which were pledged with the bank. In my judgment the fact that Debi Parshad was shown in the bank transactions to be the sole proprietor of the firm is not sufficientto rebut the evidence examined by the plaintiff showing the existence of partnership. The record does not show as to why in dealings with various banks Debi Parshad was shown to be the sole proprietor of Messrs Ambala Flour Mills but it is common knowledge that banking companies object to dealing with un-registered-firms with many partners.

26. Counsel for the appellant then argues that the lease-deed, Exhibit D. 1, militates against the truth of the case set up by the plaintiff. From that which appears hereinafter it follows that the lease made on the 9th of October, 1945, was acquired with the money belonging to the firm and was the property of the firm.

27. Giving the matter my anxious consideration, I find that though no presumption arose from the receipt by Jairam Das of a share of the profits of the business in favour of existence of partnership the evidence on the record proves beyond doubt that Jairam Das, Debit Parshad and Balkishan Das were partners in the firm.

28. Mr. S. K. Daphtary challenges the correctness 6f the judgment under appeal on issue No. 2. In arguing this point, it is said that the lease-deed. Exhibit D. 1, was made by the lessors including Madanlal, son of the plaintiff, and Ram Samp, nephew of the plaintiff, in favour of Debi Parshad and that Debi Parshad lessee paid rupees 20,000/- to the lessors before the Sub-Registrar. In making the payment of rupees 20,000/- Debi Parshad gave cheque No. 039208 dated the 9th of October 1945, for rupees 2500/- to Ram Sarup and Madanlal. As would appear from Exhibit D. 13 by this cheque Jairam Das had paid rupees 2500/- to the firm. Clearly, it is established that of the sum of rupees 20,000/- paid to the lessors by Debi Parshad rupees 2500/- was contributed by Jairam Das. Exhibit D. 13 shows that on the 4th of October, 1946, Jairam Das paid rupees 2,500/- to the firm. The particulars of this payment as given in Exhibit D. 13 are:

'By amount of lease for one year in account of Rs. 5000/-, Rs. 2,500/- already paid for the period 1-10-1945 to 30-9-1946.'

Out of the lease money of rupees 20,000/-Jairam Das had to pay rupees 6000/- for the period between the 1st of October, 1945, and the 30th of September, 1946. Of the sum of rupees 5000/- Jairam Das paid rupees 2500/-on the 9th of October, 1945, by means of cheque No. 039208 drawn on the Central Bank of India Limited and a further sum of rupees 2500/- on the 4th of October 1946. Clearly, the evidence on the record proves that Jairam Das contributed to the payment of the lease money. Exhibit D. 4 shows that on the 9th of October, 1945, the firm paid rupees 1008/- for the purchase of the stamp for the lease-deed, registration expenses and other miscellaneous charges. Clearly, if the lessee rights were not the property of the firm, the firm would not spend rupees 1008/- for obtaining the registered lease-deed and Jairam Das would not pay any amount on account of the lease money. Section 14 of the Act reads: 'Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, oracquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.'

29. In the Indian Partnership Act by Pollock and Mulla 1st Edition at page 40 the statement of law on the point under consideration is stated to be that land bought in the name of one partner, and paid for by the firm out of the profits of the partnership business, is partnership property unless a contrary intention appears. In the present case payments made to the lessors are shown in the partnership accounts.

30. Finding as I do that the partnership paid for the lease, the lessee rights are partner-ship property.

31. Mr. S. K. Daphtary argues that the lease made on the 9th of October, 1945, being for a term of two years, the existing lease is not the property of the partnership. On this point the lease-deed, Exhibit D. 1, reads: '2. That at any time before the expiry of the term of two years of the lease or on the completion of the first period of two years the said lessee shall be entitled at his own option and will extend the lease for a further period and term of two years from the expiration of first term, i.e., from 1st day of October, 1947, to the 1st day of October, 1949, at the same rent and conditions and provisions as are herein contained.

Provided also that at any time before the expiry of the second period of two years of the extended period of lease, that is to say on or before the 1st day of October, 1949, the said lessee shall be entitled at his own option and will extend the period of lease for a further period of two years from the date of the expiration of the 2nd period i.e., from the 1st October, 1949, to the 1st October, 1951. at the same rent and conditions and provisions as are herein contained provided further that no fresh indenture shall be required to be executed for the extended periods of 'lease.'

32. Mr. S. K. Daphtary points out that the renewed lease for the period ending on the 30th of September, 1951, was obtained by Debi Parshad in exercise of the option given to him under the lease-deed, Exhibit D. 1, and is not the property of the partnership. I am not impressed with the argument raised for it has been decided more than once, that if one partner obtains in his name, either during the partnership or before its assets have been sold, a renewal of a lease of the partnership property, he will not be allowed to treat the renewed lease as his own and as one in which his co-partners have no interest. On this point 'In Re Biss; Biss v. Biss', (1903) 2 Ch 40, and 'Clegg v. Fishwick', (1850) 19 LJ Ch 49, may be seen.

In the last mentioned case, the facts were that the plaintiff was the administratrix of one of several partners in a coal mine, and she filed a bill some years after the death of the deceased, against the surviving partners, for an account and a dissolution, and for a declaration, that the renewed lease which had beenobtained by the defendants, might be declared subject in equity to a trust for the benefit of the partnership. On those facts, it was held that the old lease being the foundation for the new one, the parties interested jointly with others could not take the benefit of the renewed lease to the exclusion of those others. No attempt was made to show that the rule laid down in 'Biss v. Biss', and 'Clegg v. Fishwick', did not govern the present case and I have no doubt that the cases govern the point raised. Clearly, Debi Parshad and Bal-kishan Das cannot take the benefit of the renewed lease to the exclusion of Jairam Das.

33. Mr. S. K. Daphtary finally urged that the judgment under appeal is wrong in so far as it directs accounts to be taken right up to the time of the final decree. I do not see any substance in the argument. Section 37 of the Act provides that where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent, per annum on the amount of his share in the property of the firm.

In the present case the partnership being at will stood dissolved on the date of the institution of the suit, but notwithstanding the dissolution of the firm Debi Parshad and Balkishan Das carried on the business of the firm with the property of the firm. On these facts, Jairam Das, plaintiff, is entitled at the option of himself to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or interest at the rate of six per cent, per annum on the amount of his share in the property of the firm. The property of the partnership which has been used by the continuing partners since dissolution is 'inter alia' goodwill of the Ambala Flour Mills and the leasehold-rights which expired on the 30th of September, 1951. On the amount, if any, due to Jairam Das in the capital account he is by agreement entitled to charge interest at six per cent, per annum. That being so, the judgment under appeal on this point is not open to objection.

34. As stated above in the judgment under appeal the Receiver was ordered to take possession of the partnership property under the decree. This was done under Order XX Rule 15, Civil Procedure Code, read with form No. 21 Appendix D of the Civil Procedure Code. Considering, however, that the plaintiff is entitled to a share of the profits attributable to the use of his share of the property I do not think that the direction as to receivership is justified.

35. Admittedly the accounts are complicated and require an examination. In other words, in the present case an examination and adjustment of accounts is necessary. That being so, I appoint the Official Receiver, Ambala, to be a Commissioner under Rule 11 of Order XXVI of the Code of Civil Procedure to go intothe accounts of the partnership and to transmit the proceedings which he may hold to determine the extent of the liability of the parties to the litigation and to report his own opinion on the point referred to him for examination to the Court of first instance.

In the investigation the commission will take the following accounts: (1) an account of the credits, property and effects belonging to the partnership; (2) an account of the debts and liabilities of the partnership? (3) an account of all dealings and transactions between the plaintiff and the defendants from the commencement of the partnership and to take into consideration the goodwill, the leasehold-rights which expired on the 30th of September, 1951 and the stock-in-trade of the partnership in determining the profits attributable to the use of plaintiff's share of the property of the firm and give the plaintiff the right to exercise his option under section 37 of the Act.

36. On the present record the work that the commissioner will have to do cannot be estimated. I leave the question of the fixation of the remuneration of the commission to the Court of first instance with the direction that Jairam Dass plaintiff will be required to pay 25 per cent, of the amount to be paid to the commission and the balance will be paid by Debi Parshad and Balkishan Das in the ratio of their shares in the business.

37. No other point was raised in these proceedings.

38. In the result, I set aside the order directing the Official Receiver to take possession of the partnership property but in other respect maintain the judgment and decree under appeal subject to the directions given above. In the circumstances of the case separate orders are not necessary in Civil Miscellaneous No. 625 of 1951.

39. Having regard to the partial success of the defendant-appellant I leave the parties to bear their costs in this Court.

40. Office to draw up the preliminary decree incorporating the directions given above,

Weston, C.J.

41. I agree.


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