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Balkrishan Somani Vs. Ram Krishan - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtDelhi High Court
Decided On
Case NumberLeave Application No. 700 of 1973 and Suit No. 403 of 1969
Judge
Reported in1975RLR456
ActsCode of Civil Procedure (CPC), 1908 - Order 1
AppellantBalkrishan Somani
RespondentRam Krishan
Advocates: G.S. Vohra and ; Sultan Singh, Advs
Excerpt:
.....contention must, thereforee..........of causes of action and parties o.p.d.' on the motion of defendant no. 7 that the issue with regard to jurisdiction be treated as a preliminary it was directed on september 21, 1972 that the aforesaid issue as also the additional issue be treated as preliminary issues. while arguments were being heard on the aforesaid, an application being i.a. 700/73 was filed by the plaintiff under section 20 of the code of civil procedure praying that 'in view of the averments made in the plaint and the nature of the disputes, it is expedient in the interest of the justice that permission be granted to the plaintiff to continue the above suit in delhi', apparently implying that retrospective leave be granted to the plaintiff to sue the non-residents. (3) i have beared learned counsel for the.....
Judgment:

H.L. Anand, J.

(1) This judgment would dispose of two preliminary issues with regard to the territorial jurisdiction of this Court, and objection regarding to misguide of causes of action and parties, the objection of the defendant No. 7 as to the defendant's right to raise the objection with regard to misguide and 1.A 700/73 by the plaintiff under section 20 of the Code of Civil Procedure for leave too sue non-resident defendants.

(2) It appears that by a deed of partnership made on October 31, 1955, the plaintiff, his deceased father and defendants 1 to 6, being the brothers and nephews of the plaintiff, entered into a partnership at Delhi to carry on, inter alia, business of running a factory in Kanpur which was hitherto being carried on by the plaintiff, his two brothers, defendants 1 and 2 and their late father. According to the plaintiff, the business was to be looked after by defendants No. 1, 2, 3 and 6, who were also to maintain accounts and defendant No. 6 was to give his whole time attention to the business that on account of mismanagement of the affairs of the partnership disputes arose between the parties as a result of which all the partners except the late father of the petitioner agreed to dissolve the firm in terms of a deed of dissolution made between them on May 20, 1964. The late father of the plaintiff, however, declined to sign the document and repudiated the same. However, on his death, his share in the partnership devolved on the other parties in accordance with their personal law. According to the plaintiff, the deed of dissolution was never given effect to and the factory of the partnership in Kanpur continued to vest in the partnership which remained subsisting. It, however, appears that defendants No. 1 to 6 treated the partnership as dissolved and purported to have sold the factory to a joint stock company, defendant No. 7, which was apparently constituted of defendants No. 1 to 6 and certain others and defendants 1 to 3, 5 and 6 its directors and defendant No. 4 its Secretary during the period when the sale was purported to have been made By this suit, which is described as one for dissolution of the firm and accounts, the plaintiff seeks a declaration that the deed of dissolution made on May, 20, 1964 was not binding on the plaintiff and that the sale of the factory in favor of defendant No. 7 was false, fictitious and fradulent and did not bind the plaintiff and prays for the partnership being dissolved and its accounts being taken, the amount due to the plaintiff being determined and made recoverable. The plaintiff also seeks a perpetual injunction against the defendants 'directing them to remove themselves from the factory premises'. Defendant' No. 1 admittedly ordinarily resides and carries on business in Delhi while defendants No. 2 to A and 6 reside and carry on business in Calcutta. Defendant No. 7 the joint stock company referred to above, was admittedly registered as a joint stock company in Calcutta where also it carries on its business and has no 'branch in Delhi. In the written statements filed by the defendants, a plea was raised that this Court had no jurisdiction to try the suit 'in view of the reliefs claimed.' On the pleadings of the parties, issues were framed on October 14, 1970. Issue No. 6 related to jurisdiction and is : 'Whether the Court has no jurisdiction to try this suit Subsequently by an application under Order 6 Rule 17 to the Code of Civil Procedure, being I.A.I 182/71, defendant No. 7 sought, and was granted, leave of the Court to raise the objection with regard to the misguide of parties and causes of action. It, however, appears from the order made by this Court on August 30, 1971 that the leave was granted to raise the aforesaid objection subject, however, to the right of the plaintiff 'to raise objections as to whether the defendant can take up the plea of misguide of parties and causes of action at this stage'. On the basis of the aforesaid objection, additional issue was framed. 'Whether the suit is bad for misguide of causes of action and parties O.P.D.' On the motion of defendant No. 7 that the issue with regard to jurisdiction be treated as a preliminary it was directed on September 21, 1972 that the aforesaid issue as also the additional issue be treated as preliminary issues. While arguments were being heard on the aforesaid, an application being I.A. 700/73 was filed by the plaintiff under Section 20 of the Code of Civil Procedure praying that 'in view of the averments made in the plaint and the nature of the disputes, it is expedient in the interest of the justice that permission be granted to the plaintiff to continue the above suit in Delhi', apparently implying that retrospective leave be granted to the plaintiff to sue the non-residents.

(3) I have beared learned counsel for the parties at length on the two preliminary issues, the objection of the plaintiff with regard to the right of defendant No. 7 to raise the issue with regard to misguide of parties and causes of action and the plaintiff's application under Section 20. CPC.

(4) While granting leave to the defendant to raise the pleas with regard to misguide of parties and causes of action which led to the present issue, this Court had directed in its order of August 30, 1971 that the leave was being granted subject to the right of the plaintiff to object to the addition of the said pleas as being belated. It would, thereforee, be appropriate to consider the aforesaid objection before consiedering the aforesaid additional issue. Order 1 Ruk 13 of the Code of Civil Procedure provides that 'all objections on the ground of non-joinder or misguide of parties shall be taken at the earliest possible opportunity and, in all cases where issues are settled, at or before such settlement, unless the ground of objection has subsequently arisen, and any such objection not so taken shall be deemed to have been waived.' Issues were settled in this case on October 14, 1970. The application for leave to amend the written statement so as to incorporate the pleas of misjoinder, being LA. 1182/71, was filed on behalf of defendant No. 1 on or about August 2,1971. It was not disputed on behalf of the said defendant that the aforeasaid plea was not based on any subsequent event. In the result, the objection with regard to misguide of cause of action and parties would be deemed to have been waived by defendant No. 7 and the objection on that score could not, thereforee, be raised. In view of this, it is unnecessary to consider the aforeasaid issue and I hold accordingly.

(5) As issue No. 6 and I.A. 700/73 are inter connected, these could be conveniently dealt with together. It was not disputed that the deed of partnership, to which the plaintiff and defendants 1 to 6 were parties, was executed at Delhi where also the head office of the partnership was situated. The suit being essentially for dissolution of partnership and the erstwhile partnership which is situated outside the jurisdiction, this court would have undoubted jurisdiction to try it so far as defendants 1 to 6 are concerned. The lack of jurisdiction of this Court was, however, canvassed by the defendants only in relation to defendant No. 7, a joint stock company in corporated at Calcutta and constituted by some or all of the defendants.

(6) In the first instance the territorial jurisdiction of this Court with reference to defendant No. 7 was sought to be justified on the ground that defandant No. 7 though a joint stock company in name and form, was in fact only a compendious description, as it were, of the other defendants who constituted it and some of whom were at the material time and even now are its directors or officers and a plea was made that I should invoke the doctrine of tearing of the corporate veil and hold that some of the defendants who were the promoters and directors or officers of the said company gave territorial jurisdiction to this court to deal with the said defendant No. 7. This contention, to my mind, is based on a fundamental confusion of thought with regard to concept of a joint stock company. It is a legal person quite distinct from the members who constitute it or the officers or the directors who manage it. Unlike a firm, a joint stock company is not a compendious way of describing the members who constitute it. It is true that the doctrine of tearing of the veil has been applied at times both in England and the United States as indeed by Courts in this country for certain purposes but an extension of the doctrine is not possible to assume jurisdiction where the company is registered out side the jurisdiction, has its registered office outside such jurisdiction, and carries on business outside such jurisdiction. The application of the doctrine has been carried to the farthest limit in the United States but even there it was not applied to the extent sought to be applied to the present case. In England and in this country, the application of the doctrine so far has been confined to cases involving fraud of the revenues. It is, thereforee, not possible to hold that defendant No. 7 resides or carries on business within the jurisdiction merely because of the situs of the residence of some of the other defendants who may be its members and/or officers. This contention must, thereforee, be rejected.

(7) The jurisdiction of this Court vis-a-vis defendant No. 7 is next sought to be justified on the ground that the suit being for the dissolution of partnership and for accounts, the plaintiff was entitled under it to assail any act of misfeasance of the partnership or of the partners collectively or of any partner individually with reference to the assets of the partnership of the erst while assets of the partnership and that in such a suit, this Court could be properly seized of the question if the transfer of the factory situated in Kanpur by the partnership or the partners collectively or individually to the detriment of the plaintiff was a fictitious or a collusive act with a view to determine the precise extent of the assets of the partnership for the purpose of ultimately ascertaining the entitlement of the plaintiff. This contention, however, ignores a clear distinction between the subject matter of a suit and the parties to it. The jurisdiction denotes the power that a Court has over a matter and may have reference either to the subject matter of the suit or the parties and it is for this reason that Section 20 of the Code of Civil Procedure, which regulates the territorial jurisdiction of Courts, lays down the two-fold test either of which may be satisfied to attract the territorial jurisdiction of a Court. One test has relation to the situs of the causes of action whether in whole or in part while the other has relation to the situs of the defendant or, where there are more than one, of some of them. If the jurisdiction of a Court is sought to be justified on the basis of situs of cause of action only that part of the suit will be within jurisdiction which has relation to that cause of action. The cause of action for the suit for dissolution certainly arose partly in Delhi where the partnership was entered into but the act of the partnership or the individual partners in dealing with the factory which was alleged to have done, was a distinct cause of action and it was common case of the parties that nothing in relation to the transfer of the factory was done at Delhi. That being so, the situs of the cause of action for the suit for dissolution and accounts would not take within its sweep the transaction with regard to the alleged fraudulent transfer of the factory at Kanpur. Even if it be assumed for the sake of arguments that the transaction with regard to the transfer of the factory would form part of the cause of action with regard to the dissolution of the partnership and accounts, it may even then justify seizing by this Court of the question as to whether the transfer was fraudulent or not and if the factory still continued to be the property of the partnership. But it would still not justify the assumption of jurisdiction with regard to dependant No. 7 because what is assailed is the action of the partnership of the partners in transferring the assets to defendant No. 7. No action of defendant No. 7 is sought to be assailed and thereforee, on the notional extension of the cause of action, it would be difficult to bring within the ambit of the territorial jurisdiction of this Court, defendant No 7. This contention must, thereforee fail.

(8) Lastly, it was contended that in any event, this Court having been properly seized of the suit for dissolution of the partnership and rendition of accounts, would have to go into the question as to the assets of the partnership, ascertain their value for the purpose of allocation between the partners in the process of rendition of accounts and to that extent, thereforee, to investigate if the transfer of the factory by defendants 1 to 6 in favor of defendant No. 7 was fictitious and if so, whether the factory still constituted part of the assets of the partnership and that it was, thereforee, proper that defendant No. 7 was associated with the present proceedings because any finding with regard to the transfer which would have its impact on the interest of the said defendant would entitle the said defendant to be heard. It was further contended that qua the controversy with regard to the validity of the transfer of the factory, the said defendant was a necessary and in any event a proper party and thereforee, this Court should exercise its discretion under Section 20(b) of the Code of Civil Procedure and grant leave to the plaintiff to sue the said defendant. The plea for leave was, however, contested on behalf of the said defendant on the ground that in relation to the alleged transfer, the said defendant was the principal defendant and, thereforee, the principle of the rule incorporated in Section 20(b) could not be attracted. It was further contended that in any event, leave should have been sought before or at the time of the institution of the suit and could not be granted with retrospective effect.

(9) It appears to me that the plea of the plaintiff for leave under Section 20(b) of the Code of Civil Procedure must prevail. Having regard to the situs of the execution of the deed of partnership and the residence of the principal defendants, this Court is properly seized of the controversy if the partnership subsists or has been dissolved and if the plaintiff is entitled to a decree for dissolution and rendition of accounts. Since the Kanpur factory was the main asset of the partnership, it follows that the precise position of the said factory would have to be determined in the suit in the context of the controversy that there has been a purported transfer of the assets in favor of defendant No. 7 and that the transfer was fictitious and, thereforee, void and that in consequence the said factory continued to be part of the assets of the partnership and be thereforee, brought within the nucleus for the purpose of distribution between the partners. If, thereforee, this Court has to determine the question as to the validity of the transfers, it is proper that defendant No. 7, who was the recipient of the benefit on the transfer and would, thereforee, be affected if an adverse finding is returned on the question of transfer, remains associated with the proceedings and is able to protect its interest. The presence of the said defendant would also be necessary for. the determination of the aforesaid question and its participation in the proceedings would in any event be proper. Admittedly the principal defendants are the erstwhile partners who are arrayed as defendants 1 to 6. Some of them reside and carry on business within the jurisdiction while others do not but so far as they are concerned, this Court has undoubted jurisdiction because of the situs of the cause of action vis-a-vis the partnership. The plea with regard to the invalidation of the alleged transfer in favor of defendant No. 7 is not the substantial part of the relief sought by the plaintiff The principal relief, as indeed the grievance, is that partnership has to be dissolved and those who are liable to render accounts must be compelled to do so. The relief with regard to declaration regarding alleged transfer is only a subsidiary relief in aid of the main relief. Defendant No, 7 could not, thereforee, be legitimately described as the principal defendant in relation to the said subsidiary relief. Ordinarily, leave of the Court must be sought before or at the time of instituting the suit but there is sufficient authority for the proposition that leave may be granted at any later stage of the suit and no principle or precedent was cited which may compel me to hold to the contrary. It would, thereforee, be in the interest of justice that leave is granted to the plaintiff to sue defendant No. 7 even though the said defendant No. 7 resides and carries on business outside the jurisdiction.

(10) As a result of the aforesaid discussion, I find the additional issue against defendant No. 7 while Issue No. 6 is found against the plaintiff. I.A. 700/73, however, succeeds and the plaintiff is granted leave under Section 20(b) of the Code of Civil Procedure to sue defendant No. 7 and to continue the proceedings on that basis.


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