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Dwarka Dass Nayar Vs. Dwarka Dass Sehgal - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtDelhi High Court
Decided On
Case NumberRegular First Appeal No. 156D of 1961
Judge
Reported inILR1972Delhi355
ActsLimitation Act, 1908 - Sections 81; Indian Contract Act, 1872 - Sections 182
AppellantDwarka Dass Nayar
RespondentDwarka Dass Sehgal
Advocates: S.N. Marwah,; K.C. Dua and; R.M. Lal, Advs
Cases ReferredDulichand Laxminarayan v. Commissioner of Income
Excerpt:
(i) limitation act (1908) - article 81--starting point--bank advancing loan to `a' on b's furnishing his fixed deposit receipt as security--on a's failure to repay loan, band adjusting loan amount against b's fixed deposit receipt--suit for recovery by `b' against `a'--limitation when starts.; in the instant case the bank advanced a loan to the appellant on the respondent standing surety and furnishing the security of his fixed deposit receipt to the bank. on the appellant's failure to repay the loan, the bank recovered the loan amount from the respondent by debiting and deducting the same from the respondent's account on may 22, 1947. the fixed deposit receipt was to mature on 15th may, 1947 and was handed over to the bank on 20th february, 1947. in this suit by the respondent against.....s.n. andley, j.(1) this is an appeal against the judgment and decree dated july 29, 1961, of the subordinate judge 1st class, delhi, whereby the suit for rs. 11,978.00/4.00 filed by the respondent was decreed for rs. 10,000.00 with proportionate costs against the appellant. (2) the case of the respondent was that he had an amount of rs. 20,000.00 on fixed deposit with the punjab national bank ltd., lango mandi branch at lahore on the basis of which the said bank had allowed the respondent cash credit facilities. the appellant approached the respondent for help in obtaining a loan of rs. 10,000.00 from the said bank which was granted to the appellant on february 29, 1947, on respondent standing surety and furnishing the security of the said fixed deposit amount. on appellant's failure to.....
Judgment:

S.N. Andley, J.

(1) This is an appeal against the judgment and decree dated July 29, 1961, of the Subordinate Judge 1st Class, Delhi, whereby the suit for Rs. 11,978.00/4.00 filed by the respondent was decreed for Rs. 10,000.00 with proportionate costs against the appellant.

(2) The case of the respondent was that he had an amount of Rs. 20,000.00 on fixed deposit with the Punjab National Bank Ltd., Lango Mandi Branch at Lahore on the basis of which the said bank had allowed the respondent cash credit facilities. The appellant approached the respondent for help in obtaining a loan of Rs. 10,000.00 from the said bank which was granted to the appellant on February 29, 1947, on respondent standing surety and furnishing the security of the said fixed deposit amount. On appellant's failure to repay the loan, the bank recovered Rs. 10,151/10.00 from the respondent by debiting and deducting the sum from his account on May 22, 1947. The respondent claimed that he was thus damnified on May 22, 1947, to the extent of Rs. 10,151/10.00 by reason of the default by the appellant in replying his loan to the said bank and the respondent was, thereforee, entitled to and did claim the said amount in the suit together with interest at the rate of Rs. 8.00 per cent per mensem amounting to Rs. l,823/6.00 totaling Rs. 11.975.00 with costs of the suit. The suit was filed by the respondent on May 20, 1950.

(3) In his written statement, the appellant pleaded that the respondent did not have any fixed deposit of Rs. 20,000.00 with the said bank as alleged and that the aforesaid fixed deposit was of the Firm Dwarka Dass Ram Lal of which the respondent was a partner with Ram Lal which was carrying on Sarafa business at Dabbi Bazar and Bazar Hatta at Lahore. The said Firm had a cash credit account with the said bank and were the owners of said fixed deposit and credit account even though these were in the name of the respondent. The appellant alleged that he was the Income-tax Adviser of the said Firm at Lahore and desiring to raise the loan on the security of his immovable property situated at Lahore had requested both the partners of the said Firm, namely, the respondent and Ram Lal to help him in securing the loan. The appellant admitted that he had taken a loan of Rs. 10,000.00 on February 20, 1947, from the said bank on the security of the title deeds of his land and as further security, the said Firm had stood as surety for the appellant upon the agreement that if the said bank was not able to recover the loan from the immovable property of the appellant which had been mortgaged, the amount of the loan shall be realised out of the amount of the said fixed deposit. It was pleaded that even if the respondent had executed the surety bond, it was done on behalf of the said Firm as the amount of the fixed deposit belonged to the Firm. Liability to indemnify the respondent was denied and it was averred that such liability was only to the said Firm if it had paid the loan advanced by the said bank: to the appellant in accordance with the terms. of the guarantee and upon the appellant making a default. It was further pleaded that it was incumbent upon the said bank to make a demand for repayment of the loan upon the appellant and to first proceed against his mortgaged property and thereafter only, in the event of a shorfall, have recourse to the said fixed deposit and that as the bank failed to do so, neither the respondent nor the said Firm was entitled to claim the amount in suit from the appellant. It was urged that the respondent had filed the suit against the appellant as the latter had appeared as a witness for Ram Lal, the other partner of the said Firm, in the suit pending between the respondent and Ram Lal in the Court of another Subordinate Judge. In the additional pleas to the written statement, the appellant repeated that the amount of the Jinxed deposit belonged to the said Firm; that respondent dent alone was not competent to sue and that the' bank having failed to have recourse first to the immovable property mortgaged with it and to the appellant was not entitled to recover the amount of the loan from the amount of the said fixed deposit. It was further pleaded that gold weighing 90 Tolas I Ratti belonging to the appellant's wife Brij Rani, had been sold to the said Firm for Rs. 8,596.00 which had been kept in deposit with it and that on demand being made by the said Firm, the respondent and his partner Ram Lal agreed to adjust the said amount of Rs. 8,596.00 towards the amount recovered by the 'said bank and the remaining amount was not paid as the professional fee due to the appellant had yet to be settled. A further plea was raised in the written statement that the suit was not within time and it was pleaded that neither the respondent nor the said Firm was damnified on May 22, 1947, as alleged.

(4) The respondent filed a replication. He stated that his fixed deposit receipt was to mature by or about the time when the appellant was to repay his loan to the said bank which had agreed to advance the loan on condition that the respondent guaranteed the repayment of the loan within the above period and for this purpose the fixed deposit receipt, fully discharged by him, was handed over to the said bank to adjust the appellants town in case it was not repaid within the period of maturity of the fixed deposit. For this purpose the guarantee letter was handed over to the said bank so that the appellants loan amount could be automatically adjusted and debited to the respondent's fixed deposit at the expiry of its period without any further demand or reference being made from or to the appellant or the respondent. The title daeds, if any, deposited by the appellant were only by way of additional security. The allegation that the said Firm had stood surety for the loan was denied. The alleged agreement that the said bank shall look to the property mortgaged by the appellant and to his person as a condition precedent to the adjustment of the loan from. the amount of the fixed deposit was also denied. The surety letter was alleged to have been executed by the respondent for himself and not on behalf of or as representing the said Firm. The right of the said bank to adjust the loan in the manner it was done was asserted. The defense was stated, to be false and malicious and in collusion with Ram Lal between whom and the respondent litigation was pending. On the pleadings of the parties, the following Issues were framed:-

'1. Whether the plaintiff did not stand surety to the Punjab National Bank with respect- to the loan which was taken by the defendant from the bank 2. Whether the plaintiff has paid Rs. 10,000.00 to the bank on account of the security he gave with respect to the amount in dispute 3. If issue No. 2 is proved in favor of the plaintiff, is not he entitled to realise this amount from the defendant? 4. Is the plaintiff entitled to interest if so at what rate and to what amount 5. Whether the plaintiff is not entitled to realise Rs. 10,000.00 because the bank did not proceed with against the property of the defendant and did not make a demand from the defendant? 6. Was the bank bound to proceed in the manner referred to in issue No. 5 7. Did the plaintiff owe any amount to the wife of the defendant and he had agreed to adjust that amount towards that 8. Is the suit within time 9. Did the defendant mortgage any property with the bank: and what is its effect 10. Whether the provisions of Act Xxv of 1949 apply to this case If so, to what relief is the defendant entitled and in what manner 11. Relief ?

(5) The trial Court came to the conclusion that it was the respondent and not the said Firm who had stood surety to the said bank with respect to the loan advanced to the appellant; that the respondent had paid Rs. 10,000.00 to the said bank on May 22, 1947, with respect to the loan advanced to the appellant; that the said bank was entitled to make the adjustment as it did; that the respondent was not entitled to the interest claimed; that the respondent himself did not owe any money to Brij Rani, wife of the appellant, and that as the adjustment had taken place on May 22, 1947, that suit which had been filed on May 20, 1950, was within time.

(6) We will first deal with the question of limitation. It is not disputed that Article 81 of the Indian Limitation Act, 1908, is applicable to the case. This Article provides a limitation of three years in a suit by a surety against the principal debtor from the date when the surety pays the creditor. The argument on behalf of the appellant is that inasmuch as the fixed deposit receipt had admittedly been fully discharged and handed over to the said bank on February 20, 1947, the payment by the surety to the said bank against the loan of the appellant must be taken to have been made on this date and not on May 22, 1947, when the bank made the actual adjustment. Alternatively it is argued that according to the respondent's case as set out in his replication that 'the loan amount was to be automatically adjusted from and debited to the plaintiff's deposit at the expiry of the period without any further demand being made from or any reference made to the defendant or the plaintiff', the payment by the respondent must be taken to have been made on May 13, 1947-the date of maturity of the fixed deposit receipt-and not on May 22, 1947, when the actual adjustment was made by the said bank.

(7) That the actual adjustment was made on May 22. 1947, is proved by exhibit Public Witness . 2/1 which is the attested copy of a voucher of the said bank bearing that date. By this voucher the said bank debited 'F.D.A/c Dwarkadas Saraf' with Rs. 20.601/10.00 and credited 'promote account Dwarkadas Nayar' with Rs. 10.151/10.00. In addition the respondent has .produced Harbans Lal (Public Witness I ) who was the Manager of the concerned Branch of the said bank at Lahore. He has stated that the said 'fixed deposit receipt matured on May 15, 1947, and the said bank adjusted the appellant's account on May 22, 1947, after deducting the amount from the said fixed deposit receipt of the respondent. This statement finds support from Ex. P. 2 which is a copy of the promote account of the appellant wherein his loan account has been adjusted on May 22, 1947, by crediting him with Rs. 10,151/10.00. It is, thereforee, proved that the actual debit to the respondent was only on May 22, 1947 even though the said fixed deposit receipt had matured on May 15, 1947.

(8) The appellant has cited various cases in support of his contention that the payment by the respondent was on February 20, 1947 or, at any rate, on May 15, 1947 and not on any subsequent date. The case reported in Air 1926 Nag 429 in re: Vinayakroo v. Shripatrao(1) has been cited in support of the proposition that payment can be either by payment in money or by transfer of property which is taken as equivalent of money and, thereforee, the handing over of the fixed deposit receipt fully discharged by the respondent on February 20, 1947, the date of the loan, was tantamount to - payment and the said date is the date on which the respondent was damnified. It is not even the appellant's case that the bank could have recourse to the said fixed deposit receipt on the date when it advanced the loan to him. In fact, his case is that the said bank could not have recourse to the said fixed deposit receipt until it had recourse first to the property mortgaged and to the person of the appellant. On the other hand, it is proved by Harbans Lal (Public Witness . 1) that the respondent's fixed deposit receipt for Rs. 20,000.00 was to remain with the bank as security for the loan advanced to the appellant and the adjustment was made only on May 22, 1947. The handing over of the fixed deposit receipt by the respondent fully discharged at the time it was taken as security cannot amount to payment within the meaning of Article 81 of the Indian Limitation Act, 1908 as contended by the appellant. The aforesaid observation in the said case is also to be found in the case reported in A.I.R. 1924 Lah 657 in re : Nur Samand Khan v. 'Fajja and others (2) where the decree debt of the principal debtor was discharged by the surety by the execution of a bond and mortgage deed in favor of the creditor and it was observed that by the execution of the mortgage deed, not only the principal debtor had been exonerated from liability but the sureties had themselves been damnified to the extent of the amount covered by the mortgage deed executed by them in favor of the creditor which was equivalent to payment under section 145 of the Indian Contract Act. This case also would not help the appellant because the right of the surety to recover the amount from the principal debtor arises only if the surety has been damnified either by payment of money to or by transfer of property in favor of the creditor which has the effect of discharging the principal debtor. From the circumstances of the present case it is clear that the appellant had not been discharged of his liability on February 20, 1947, when he took the loan from the bank by the handing over of the fully discharged fixed deposit receipt to the bank. His discharge to the bank came about only on May 22. 1947, when his own loan account was credited with Rs. 10,151/10.00nd the respondent was damnified by the adjustment made by the bank on this date as shown by Exhibits P. 2 and Public Witness 2/1. The next case relied upon which is a Full Bench decision of the Allahabad High Court reported in : AIR1958All170 in re: Lala Shanti Sarup v. Janak Singh and others') would also not held the appellant In this case a self-liquidating mortgage for the purpose of satisfying the claim of the mortgages was executed and it was held that time would begin to run from the date of the execution of this mortgage under Article 83 of the Limitation. Act. This was not the case of a surety falling under Article 81. The only assistance that can be derived from this case is that the execution of the self-liquidating mortgage was treated as payment on the date of its execution. This case cannot be applied to the facts of the case before us. The appellant's reliance on the decision of the Supreme Court : [1958]1SCR1331 in re: Kashinath Sankarappa Wani v. New Akot Cotton Ginning and Pressing Co. Ltd. (4) appears to be completely misconcaived. In this case Article 60 of the Limitation Act, 1908, was applied to a suit on the basis of a deposit receipt of 12 months providing for the cesser of the interest after the due date. The Supreme Court observed that limitation for a suit to recover the amount would be not from the date of demand but from the date of the expiry of the period of 12 months when the amount became due. In the case reported in : AIR1928Cal361 in re: Gahar Ah Houladar v. Abdual Owahab Sikdar and others(5) payment was made by a co-judgment debtor in Court which was appropriated by the Court in full satisfaction of the decree. was held that a suit for contribution by the judgment-debtor who deposited the amount against his co-judgment debtor begins to run from the date of acceptance of deposit in Court as the ' court was looked upon as the agent or quasi agent of the judgment-debtor who deposited the amount. There was no payment by the respondent in the present case to the said bank until the latter adjusted the loan granted to the appellant from out of the monies which became due to the respondent on the maturity of the fixed deposit receipt and this adjustment was done only on May 22, 1947 and cannot be deemed to have been made on May 15, 1947 which was the date of maturity of the fixed deposit receipt. This case also would not, thereforee, help the appellant. The decision reported in 60 Indian Cases 23 in re : Yinke Supara and another v. Maung Kin(6) is also of a payment in Court. It was held in this case that limitation will run from the date on which the surety pays the money into Court and not from the date on; which the creditor draws it out. It is not possible to apply this case to the case before us. Similarly, the- consorted in 39 Indian Cases 432 in re: Shwe Zan U v. Shawe Pru(7) where the surety made payment by incurring a fresh obligation to the same creditor and not actually handing over the money would not the relevant to the present case.

(9) Time under Article 81 of the Limitation Act, 1908, starts running only from the date of actual payment surety to the creditor irrespective of whether the payment is in money or by incurring a fresh obligation to the same creditor. In either case it is necessary that the principal debtor should be discharged of his liability' to the creditor. thereforee, do not find any substance in the argument that payment must be deemed to have been made by the respondent to the said bank in this case either on February 20, 1947 when the respondent handed over the fixed deposit recent duly disbarred to the said bank on May 15, 1947 when that fixed deposit receipt matured for payment. Until adjustment or appropriation by the said bank there cannot be said to have been any payment made: by the respondent to the said bank. Such adjustment having been made only on May 22, 1947 time would start to run from' that date. The present suit having been filed two days before the expiry of three years from May 22, 1947, is well within time.

(10) The next question is whether the amount of Rs. 20,000.00 with was placed upon deposit under the aforesaid fixed deposit receipt with the said bank: belonged to the Firm Dwarka Dass Ram Lal. of which the respondent was one of the two partners, or to the respondent exclusively). It is not disputed that the said Firm had no account with the said bank in its own name; that the said fixed deposit receipt was in the name of the respondent and that the three accounts with the said bank which have been proved in this case were all 'in the name of the respondent alone. There is, however, oral :as wall as documentary evidence to show that the Firm was the true owner of the three accounts with the said bank as also of the sum of Rs. 20,000 which was placed on fixed deposit. In his statement (Exhibit D. 2) in another pending litigation between him and Rani Lal. which was agreed to be read as evidence in this case, tile respondent iis D.W. stated that he and Ram Lal started a Sai'afa shop in Dabbi Bazar, Lahore, in partnership in 1926-27 and in 1944 a branch was opened in Bazar Hatta. Ram Lal used to sit in the Dabbi Bazar shop whereas he sat in the Bazar Hatta shop. He has further stated. that he had three accounts with the said bank, namely. ( 1) fixed deposit account of Rs, 20,000.00 which was his personal account: (2) current personal account called as account No. 1 and (3) current account known as account No. 2 against the fixed deposit receipt. He has further stated that No. 2 account was started for the bentest of the partnership against the fixed deposit of Rs. 20,000.00. He further states that Ram Lal had contributed Rs. 20,000.00 to the partnership in the shape of gold and he, the respondent had made available the sum of Rs. 20,000.00 covered by the fixed deposit receipt in respect of which a current account had been opened with the said bank. It, thereforee, appears that the amount of Rs. 20,000.00 covered by the fixed deposit receipt on the basis of which current account No. 2 was opened was the respondent's share of the contribution to the Firm and current account No. 2 was of the Firm. In the said suit, the respondent produced a Chitha signed by him and Ram Lal which distributed the assets and liabilities of the Firm between the two of them as on March 23. 1947 and this was signed in June. 1947. A copy of this Chitha (Exhibit D.I/A) is made a part of the evidence in this case. In this Chitha the said bank is shown as a debtor to the extent of Rs. ll,276.00. In the relevant account, a copy of which is Exhibit DW. 2/2, the said bank has credited a sum of Rs. 10.298/6.00 as balance of the said fixed deposit after adjustment of the loan of the appellant. It may here be mentioned that the amount adjusted against the loan of the appellant was Rs. 10.298/6.00.

(11) Account No. 1 (Exhibit Public Witness .I/6) is a cash credit account in the name of the respondent but the address of the respondent h; Dabbi Bazar, Lahore, where Ram Lal was sitting at the shop and not Bazar Hatta, Lahore, where respondent was sitting at the shop. It is from this account that a sum of Rs. 20,000.00 is transferred to the fixed deposit account on April 27, 1946 and there are numerous entries showing transfer of various amounts from this account to account No. 2. On. June 10, 1947, an amount of Rs. 1,816/11/3 has been credited to this account being the balance of account No. 2.

(12) Account No. 2 is Exhibit Public Witness .I/2. This account also is a cash: credit account and is in. the name of the respondent with the address at Dabbi Bazar, Lahore, and not Bazar Hatta, Lahore. In this account also there are numerous entries showing amounts transferred from this account to account No. 1. The balance of Rs. 10,298/6.00 on the fixed deposit account is also entered in this account. Further, on June 10, 1947, the balance of Rs. 1,816/11/3 referred to earlier is shown as having been transferred to account No. 1.

(13) The respondent has admitted in his cross examination that account No. 3 with the said bank, though in his name, was for the Firm and it was started for the benefit of the Firm on the basis of the Fixed deposit receipt for Rs. 20,000.00 standing in his own name in the said bank. He has further admitted that Ram Lal, the other partner, had 50 per cent interest in this account. We are, thereforee, satistied that all the accounts with the said bank as also the amount of Rs. 20,000.00 placed on fixed deposit and the fixed deposit account opened on its basis, though in the name of the respondent alone, were The accounts of the Firm in relation to the business of the Firm.

(14) The respondent has not sought to justify before us his stand in the trial Court that the aforesaid accounts were his own individual accounts. His learned counsel has argued the case on the assumption that all these accounts with the said bank were the accounts of the Firm and not of the respondent.

(15) The argument is that since these accounts and the fixed deposit receipt were in the name of the respondent he, as benamidar, was competent to file the present suit and it is not open to the appellant to challenge the maintainability of the suit on the ground that it was the Firm. which was the surety and which was the owner of the said bank accounts and the fixed deposit receipt.

(16) Reliance is placed upon the decision of the Privy Council reported in I.L.R. 46 Cal 566 in re: Gur Narayan v. Sheolal Singh which settled the controversy as to the maintainability of an action by the benamidar. The Privy Council dealt with the question whether a person who has no beneficial interest in the property which stands in his name or is acquired .in his name. can maintain an action in respect thereof. Their Lordships observed:-

'THE binomial has no beneficial interest in the property or business that stands in his name; he represents, m fact, the real owner, and so far as their relative legal position is concerned he is a mere trustee for him. Their Lordships find it difficult to understand why, in such circumstances, an action cannot be maintained in the name of the benamidar in respect of the property although the beneficial owner is no party to it.'

(17) They then observed that it was open to the beneficial owner to apply to be joined in the action; but whether he is made a party or not, a proceeding by or against his representative in its ultimate result ih fully binding on him. This principle has been accepted and followed in subsequent decisions and some of these decisions are reported in I.L.R. 15 Lah 732 in re: Puran Das v. Shiromani Gurdwara Parbandhak Committee and another) I.L.R. 44 Btmi 352 in re : Ramchandra Vithal Bhat v. Gajanannarayan DeshMukh and another(1o) I.L.R. 42 Mad 348 : Vaitheswara Aiyer v. Srinivasa Raghava Iyengar and others (II) 52 Hidian Cases 324 in re : Goivan Dhangar v. Sheikh Gondar(12) 62 Indian Cases 799 in re: Bhana Mal v. Beli Ram (13) 70 Indian Cases 849 in re : Shafiud-Din and another v. Musammat Hurmat and others;(14) 35 Calcutta L.J. 43 in re : Panchu Gopal Chattopadhya and another v. Srimali Matang M Debi(15) and 33 Calcutta L.J. 369 in re : Krishnajiban Sanval v. Mahammad Masiuddin Mandal and others').

(18) It cannot also be disputed that a partner in a firm can be a benamidar for another as has been held in the case : [1965]55ITR651(SC) in re: The Commissioner of Income-tax. Gujaral v. Messrs.. A. Abdul Rahim and Co. (17) and the effect of such a situation is only this that the benamidar is accountable to the real partner for the profits earned by him from and out of the partnership The Supreme Court has observed that :-

'Quite other partners, the benamidar has separate and real existence; he is governed by the terms of the partnership deed; his rights and liabilities are governed by the terms of the contract and by the provisions of the Partnership Act; his liability to third parties for the acts of the partnership is co-equal with that of the other partners; the other partners have no concern with the real owner; they can only look to him for enforcing their rights or discharging their obligations under the partnership deed. Any internal arrangement between him and another partner is not governed by the terms of the partnership, that arrangement operates only on the profits accruing to the benamidar; it is outside the partnership ship arrangement. If a benamidar possesses the legal character to enter into a partnership with another, the fact that he is accountable for his profits to, and has the right to be indemnified for his losses by. a third party or even by one of the partners does not disgorge him of the said character.'

(19) The present is not a case where a partner in a partnership is a benamidar for an outsider. The question that arises in this case is whether a partner can be a benamidar either qua the partnership or qua the other partner or partners. The case of the appellant is that the respondent was not his surety at all and that it was the Firm which was the surety and with had given the security through the respondent one of its partners.

(20) A contract of surety or guarantee is a .contract to which there 'are three parties, namely, (1) the creditor; (2) the principal debtor and (3) the surety. Section 126 of the Indian Contract Act defines a contrast of guarantee as a contract to perform the promise, or discharge the liability, of a third person in case of his default. It is no doubt true that in so far as the said bank was concerned, the surety was the respondent in whose name the said fixed deposit receipt was issued but we think there is substance in the case of the appellant that it was the Fum which had agreed to furnish the guarantee and had, for that purpose authorised the respondent to furnish the guarantee which was furnished in the name of the respondent as the fixed deposit receipt and the accounts with the said bank stood in his name.

(21) If the contract relating to the guarantee which the appellant entered into was with the Firm, the respondent would not be a benamidar but would, as a partner of the Firm, be its agent for the purpose of the guarantee. On this aspect of the matter, Ram Lal (DW.4), the other partner of the Firm, has stated that the respondent agreed to give security for the loan on behalf of the Firm and actually did give the guarantee as a result of which the said bank debited Rs. 10,000 on account of the guarantee in the Firm account with the bank. He .has further stated that the fixed deposit receipt for Rs. 20,000-/ in the name of the respondent was the money of the Firm. He has not been shaken in cross-examination because he has asserted that the respondent gave security to the bank after consulting him though he was not present at the time of the giving of the security or the advancing ing of the loan by the bank. The appellant as his own witness has stated that he and the respondent went to Ram Lal, the other partner in the Firm, and the latter told the respondent to give security on behalf of the Firm. The statement of the respondent that he had furnished the guarantee to the said bank in his personal capacity cannot be believed particularly when his testimony that the amount of Rs. 20,000.00 covered the fixed deposit receipt belonged to him is found to be false and the said amount really belonged to the Firm. The fact that the fixed deposit receipt was handed over by the respondent after he had fully discharged it to the said bank loses significance because in so far as the bank was concerned, the discharge had to be by the respondent in accordance with the tenor of the document which was in the name of the respondent. We have, thereforee, no hesitation, in coming to the conclusion that as between the parties to this litigation, it was the Firm which had entered into the contract of guarantee which was executed and performed by the respondent in his capacity as a partner and as an agent of the Firm.

(22) To constitute a partnership, section 4 of the Indian Partnership Act requires (1) an agreement between two or more persons; (2) to share the profits of a business (3) carried on by all or any of these persons acting for all. As has been observed by the Supreme Court in : [1956]29ITR535(SC) in re: Dulichand Laxminarayan v. Commissioner of Income-tax, Nagpur,(18) English as well as Indian law has for specific purposes relaxed its rigid notions and extended a limited personality to firm. Their Lordships further observed :-

'NEVERTHELESS,the general concept of partnership. Firmly established in both systems of law, still is that a firm is not an entity or 'person' in law but is merely an association of individuals and a firm name is only a collective name of those individuals who constitute the firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership.'

It is, thereforee, evident that the mere fact that the said fixed deposit receipt which stood in the name of the respondent was delivered to the said bank fully discharged by the respondent would not be destructive of the appellant's case that it was the Firm-and not the respondent in his personal individual capacity:-which had agreed to and did furnish guarantee to the said bank.

(23) The present is a case of a partner acting as an agent for the Firm of which he is a partner and not of his being a benamidar for the Firia. As observed by the Privy Council in Gur Narayan's case (supra.) the. benamidar has no beneficial interest in the property or business that. stands in his name. That is not so in the case of a partner quiz another partner. The principles of benami, thereforee, will not have any application to this case.

(24) thereforee, on the finding and/or assumption that the bank aconite with the said bank; the said fixed deposit receipt and the amount covered by it were the bank accounts and monies belonging to the Firm and our finding that it was the Firm which had agreed 'to furnish the guarantee, it must be held that the respondent alone and in his individual capacity was not competent to file the present suit for indemnification by the appellant, It was the Firm which was damnified and it must be the Firm which sues for indemnification. The respondent was an agent who was employed to furnish the guarantee on behalf of the Firm and to represent the Firm in its dealings with the said bank within the meaning of section 182 of the Indian Contract Act. In so far as the appellant is concerned, the principal, namely, the Firm Dwarka Dass Ram Lal, was a disclosed principal and the action against him must be by or on behalf of the Firm or in the names of all its partners and not by the respondent in his personal individual capacity as in this case.

(25) Section 230 of the Indian Contract Act provides that in the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal nor is he personally bound by them. We, thereforee, hold that the respondent having entered into the contract of guarantee as an agent of the Firm Dwarka Dass Ram Lal of which he was a partner, the present suit in his personal and individual capacity is not maintainable.

(26) The aforesaid finding is enough to dispose of the appeal but we will deal with the other points raised. The maintainability of the suit has been challenged on another ground. It was alleged by the appellant that it was agreed as a condition of the contract of guarantee that the said bank: will have recourse to the said fixed deposit receipt only if it was not able to recover the loan from the immovable property of the appellant which had been mortgaged and form the appellant. It was further averred that the said bank never took any steps for recovering the amount of loan due to it from the property mortgaged with it or from the appellant and it was, thereforee, not entitled to realise the amount from the fixed deposit receipt and, for that reason, the respondent was not entitled to file the suit. Apart from the bare assertion of the appellant. there is no evidence to support this part of his case. Even Ram Lal, the other partner of the Firm, has not made any statement to support the appellant. In fact, this case was not even put to Harbans Lal (Public Witness .I) who was the Manager of the said bank at the relevant time. We, thereforee, do not find any substance in this point.

(27) Then it was argued on behalf of the appellant that it was the case of the respondent that the appellant had failed to repay the loan to the said bank on demand whereas it was admitted by Harbans Lal (PW.I) that the said bank had not made any demand in writing from the appellant. It was, thereforee, contended that in the absence of a demand, there could not be said to have been any default on the part of the appellant and, thereforee, the respondent was not bound to perform the promise, or discharge the liability, of the appellant within the meaning of section 126 of the Indian Contract Act. The appellant has not elicited any statement from Harbans Lal (PF.I) to the effect that the said bank was bound to make a demand before having recourse to the fixed deposit receipt. On the contrary, Harbans Lal has categorically stated that the bank was not bound to make a demand before adjusting the loan. The circumstances in which the contract of guarantee was entered into also point to the conclusion that no demand was to be made by the bank as a condition precedent to the adjustment of the loan from the fixed deposit receipt. The fixed deposit receipt was due for maturity on May 15, 1947, while the loan to the appellant was advanced on February 20, 1947. The sole object of obtaining a discharge from the respondent of the fixed deposit receipt at the time of advancing the loan to the appellant would be that it should not be necessary for the said bank to approach either the respondent or the appellant for the adjustment of the loan at the time of the maturity of the fixed deposit receipt. We, thereforee, hold that the appellant has failed to prove that a demand by the bank was a condition precedent to its right to adjust the loan and that the said bank were entitled to make the adjustment on the date of maturity of the fixed deposit receipt.

(28) The last point urged by the appellant is that there was an agreement between the appellant and the Firm that the amount which had been paid to the said bank would be adjusted against the amount due from the firm to Brij Rani, wife of the appellant, and the amount of fee due to the appellant as the Income-tax Adviser of the Firm. It is alleged that gold weighing 90 Tolas I Ratti belonging to the wife of the appellant was sold to the said Firm and its price amounting to Rs. 8,596.00 was kept in deposit with it. it is true that Ram Lal has supported this part of the appellant's case but he has not, in our opinion, spoken the truth. In the suit filed by Brij Rani against Ram Lal and the respondent for recovery of the amount alleged to be due to her on account of the sale of gold, Ram Lal appeared as a witness and stated that Brij Rani had demanded the amount of Rs. 8,596.00 in 1951. He has further stated that she had not authorised him to pay the amount to anybody else on her behalf. Even the appellant has stated that the respondent has told him that his wife had prohibited him to pay her amount to anybody as she wanted to purchase gold therewith. it is impossible to believe in view of these statements that Ram Lal and the respondent would have agreed to the adjustment as pleaded by the appellant and this part of the appellant's case appears to us to be false. 477HCD/72

(29) Upon our finding that the respondent was not entitled to file the suit in his own name and in his individual capacity, the result is that the appeal is allowed. The judgment and decree of the trial Court are set aside. The parties will bear their respective costs of this appeal and of the suit.


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