Skip to content


Joginder Nath Vs. Surinder Nath and ors. - Court Judgment

LegalCrystal Citation
SubjectFamily
CourtDelhi High Court
Decided On
Case NumberCivil Original Appeal No. 3D of 1965
Judge
Reported inILR1970Delhi171
ActsPartition Act, 1893 - Sections 4
AppellantJoginder Nath
RespondentSurinder Nath and ors.
Advocates: H.R. Sawhney,; C.V. Francis,; P.C. Khanna and;
Cases Referred(wide Birdichand Sukhraj Marwadi v. Harakchand Jagraf Marwadi
Excerpt:
partnership act, sections 4 & 68 - partnership--definition of--difference between the old definition as contained in section 239 contract act and that given in section 4 of partnership act--statement etc. in register of firm--evidentiary value of.; that the definition of partnership, as given in section 4 of the partnership act, does nto require the contribution of any capital. the old definition of 'partnership' as contained in section 239 of the contract act required that the persons who constitute partnership should have agreed to combine their property, labour or skill in some business and to share profits thereof. section 4 of the partnership act has the effect of widening the definition of partnership. whereas, originally it was necessary to agree to combine 'property, labour.....om prakash, j. (1) this judgment will dispose of two suits- c.o. 2-d and c.o. 3-d of 1965. the suits were originally instituted in the court of subordinate judges, delhi, but were transferred to the punjab high court, and on the establishment of high court of delhi, were transferred to this court. c.o. 2-d of 1965 was filed by surinder nath son of ch. bhagat ram, against his four real brothers-joginder nath, rajinder nath, narinder nath and washeshar nath (hereinafter referred to as 'the brothers') for a declaration, cancellation of a document by way of consequential relief and for an injuction. the allegations in the plaint are: surinder nath and the brothers were carrying on separate businesses on their individual accounts in rawalpindi (now in pakistan). on the partition of the country.....
Judgment:

Om Prakash, J.

(1) This judgment will dispose of two suits- C.O. 2-D and C.O. 3-D of 1965. The suits were originally instituted in the Court of Subordinate Judges, Delhi, but were transferred to the Punjab High Court, and on the establishment of High Court of Delhi, were transferred to this Court. C.O. 2-D of 1965 was filed by Surinder Nath son of Ch. Bhagat Ram, against his four real brothers-Joginder Nath, Rajinder Nath, Narinder Nath and Washeshar Nath (hereinafter referred to as 'the brothers') for a declaration, cancellation of a document by way of consequential relief and for an injuction. The allegations in the plaint are: Surinder Nath and the brothers were carrying on separate businesses on their individual accounts in Rawalpindi (now in Pakistan). On the partition of the country on the 15th August 1947, Surinder Nath had migrated to Delhi and had set up an independent business of his own of Stock and Share Brokers under the name and style of Ch. Bhagat Ram and Sons. This business was the sole proprietary business of Surinder Nath and the brothers had no interest in it. The brothers had nto made any contribution or investment in the capital nor any of them had taken part in the business. Being the eldest brother, Surinder Nath, keeping in view the financial distress of the brothers, resulting from their compulsory migration from Pakistan, consented to give them grants equivalent to one-fifth portion of the net income of the business-Ch. Bhagat Ram and Sons, though the-brothers had absolutely no interest in the business. In order that there may nto be excessive taxation, a document dated the 27th August 1951 (the date 25th August given in the plaint is wrong) was executed between Surinder Nath and the brothers, wherein the parties were discribed as partners in the business having equal shares in the profits and losses. The document was a sham affair and was never intended to govern the relations between Surinder Nath and the brothers. Surinder Nath continued to carry on the business as the sole proprietor. The brothers did nto contribute any capita] nor took part in the business even after the execution of the document. The brothers had accepted cheques issued by Surinder Nath as the sole proprietor of Ch. Bhagat Ram and Sons. They have started contending that they are partners in the business-Ch. Bhagat Ram and Sons and that the document dated the 27th August 1951 was, in fact, intended to be a partnership deed. The brothers have also started claiming interest in the assets of the business. The claim of the brothers is baseless and they have no interest in the business. The brothers are carrying on their independent vocation without giving the slightest attention to the business of Ch. Bhagat Ram and Sons. The document, dated the 27th August 1951, did nto create a partnership within the meaning of section 4 of the Indian Partnership Act. The brothers had served notice dated the 15th November 1962, alleging that the business Ch. Bhagat Ram and Sons is a partnership business and claiming shares in the business and its assets. The conduct of the brothers has done injury to the rights of Surinder Nath. The document, dated the 27th August, 1951, if allowed to stand, is likely to cause irreparable injury to Surinder Nath and his business. Surinder Nath seeks the following reliefs in his suit :-

(1)It be declared that the document, dated the 27th August 1951, did nto constitute a partnership between Surinder Nath and the brothers and that the said document is sham, ineffective and incapable of constituting partnership and that it has never been acted upon, there having been no performance by or on behalf of the brothers and that the brothers are estopped from contending to the contrary and that by way of consequential relief, the said document dated the 27th August 1951 be delivered up and cancelled and the brothers be restrained by an injunction from intermeddling with the business. (2) Independently of the above relief, it be declared that Surinder Nath is the sole proprietor/owner of the business carried on, under the name and style of Ch. Bhagat Ram and Sons, with its office at I, Sher Singh Building, K. Block, Connaught Circus, New Delhi, its assets and properties and that none of the four brothers has any interest, right or title in the said business or any of its properties and assets.

(2) The brothers filed a joint written statement. They denied that the business-Ch. Bhagat Ram and Sons-is the sole proprietary business of Surinder Nath or that the document dated, the 27th August 1951. was a sham affair, nto intended to be acted upon. The plea of the brothers is that the business, Ch. Bhagat Ram and Sons, was a joint Hindu family business and was being carried on by the brothers and Surinder Nath at Rawalpindi and that it continued to be a joint Hindu Family business even after the partition of the country, but that with effect from the 1st November 1947. the business was converted into a contractual partnership of which Surinder Nath and the brothers were the partners. Surinder Nath, being the eldest member of the family, was given authority to open bank accounts in the name of the partnership and operate them. The firm-Ch. Bhagat Ram and Sons. is a registered firm. duly registered with the Registrar of Firms and is being assessed to income-tax as a contractual partnership. The partnership has been acted upon for a period of about fifteen years and all the partners have been acting in terms of the partnership deed. Surinder Nath has been instituting suits in the name of Ch. Bhagat Ram and Sons as its partner and nto as its proprietor. Surinder Nath has all along been accepting the position that the business-Ch. Bhagat Ram and Sons-is a partnership business. So far as the allegation of Surinder Nath that no capital was contributed by the brothers is concerned, the brothers pleaded that no capital was needed for the business of Stock and Share Brokers as the firm Ch. Bhagat Ram and Sons had established, at Rawalpindi' a reputation of first class house of Stock and Share Brokers and dealers and the contractual business was started with the help of trade name and old established reputation and clientele. Whenever funds were needed, the parties approached their mother Smt. Bhagwanti and the needed financial help was always forthcoming. The brothers had been regularly carrying on their part and the shares of the brothers were credited to their individual accounts and the advances taken by 'them from time to time were adjusted against their shares. The brothers, further, pleaded that Surinder Nath had abused the trust reposed in him as the eldest member of the family by opening the bank accounts of Ch. Bhagat Ram and Sons and by acquiring property with the funds of the firm in his own name and the names of his relatives. Surinder Nath had made entries in the account books to the injury of the brothers and had committed acts of embezzlement. As a result of these acts of Surinder Nath, disputes between the parties had arisen. Surinder Nath had suggested that the disputes be referred to arbitration. An arbitration deed was drawn up and was signed by Surinder Nath, Joginder Nath, Rajinder Nath and Washeshar Nath. It was admitted, in that arbitration deed, that Surinder Nath and the brothers were partners in the firm, Ch. Bhagat Ram and Sons. 'The arbitration deed could nto be completed as Narinder Nath, one of the partners, was nto willing to refer the matter to arbitration. The brothers asserted that Surinder Nath was nto entitled to any of the reliefs claimed by him and his suit was liable to be dismissed.

(3) In his replication, Surinder Nath reasserted the allegations made in the plaint. He denied the allegation of the brothers that he had nto invested any capital in the business-Ch. Bhagat Ram and Sons. He pleaded that the whole of the capital was invested by him. He, however, admitted that Smt. Bhagwanti, mother of the parties, had given him some financial assistance as he had given to the brothers. Surinder Nath pleaded that he had nto only been operating bank accounts but had also executed promissory notes in his capacity as the sole proprietor of firm- Ch. Bhagat Ram and Sons. Surinder Nath admitted that he had filed suits on behalf of Ch. Bhagat Ram and Sons as a partner. He explained that as the firm Ch. Bhagat Ram and Sons was a registered firm, he had to show himself as a partner, though in fact, he was the sole proprietor of the firm. Surinder Nath admitted that an arbitration deed, as alleged by the brothers, was drawn up. His Explanationn was that he always had a soft corner for his brothers and with a view to settle the disputes he had proposed, without prejudice, that the matter may be referred to arbitration. It was, further, explained that the document was executed during negotiations for a compromise and nto as an admission of any liability and was inadmissible in evidence.

(4) On the pleadings of the parties, the learned Subordinate Judge framed the following issues :-

1. Whether the plaintiff (Surinder Nath) is the sole proprietor of the firm Ch. Bhagat Ram and Sons? O.P.P. 2. Whether the partnership deed in dispute was a sham document? O.P.P. 3. Whether the defendants are estopped from contending that the plaintiff is nto the sole proprietor of this firm? O.P.P. 4. Whether the plaintiff is nto estopped from contending that he is the sole proprietor of the said firm? O.P.P. 5. Relief.

(5) Almost one month after the filing of suit C.O.2-D by Surinder Nath, Joginder Nath filed suit C.O.3-D against Surinder Nath, Rajinder Nath, Narinder Nath, Washeshar Nath and Smt. Vidya Vanti, wife of Surinder Nath, for rendition of accounts of the firm Ch. Bhagat Ram and Sons. The allegations, in the plaint, are that a joint Hindu family firm under the name and style of Ch. Bhagat Ram and Sons, was being carried on at Rawalpindi by Surinder Nath, the brothers and their father, Ch. Bhagat Ram, who had died in 1945, that the joint Hindu family firm continued to function even after the death of Ch. Bhagat Rum, that after partition of the country, Surinder Nath and the brothers had migrated to Delhi and had rented a house at Nicholson Road and started living as members of a joint Hindu family and that on the 1st November 1947, the parties had put an end to the joint Hindu family status and had converted the business into a contractual partnership under the name of Ch. Bhagat Ram and Sons which had established a name as a reliable and respectable business House of Stock and Share Brokers and Dealers. It is, further, stated in the plaint, that according to the agreement of partnership, Surinder Nath, the eldest member of the family, was put in charge of the office and the finances and was to operate the firm account with the banks and that the terms and conditions of the partnership were reduced to writing on the 27th August 1951. The parties have been carrying on business on the terms' and conditions of the above partnership deed and accounts used to be made by the end of each financial year by Surinder Nath mainly for purposes of submission of returns to the income-tax authorities. The profits and losses thus ascertained on the preparation of yearly returns were carried to the individual accounts of the partners according to their agreed shares. There has been no rendition of accounts between the partners so far. In view of Surinder Nath occupying the fatherly position, the brothers did nto entertain any doubt about his honesty. The brothers used to draw such amounts as they needed for their personal requirements from time to time and by the end of each year the amounts drawn by them, were adjusted against their respective shares of profits and the balance remained credited to their names and constituted capital of the partnership. The partnership earned enormous profits. Surinder Nath abused the trust reposed in him and acquired securities and properties with the funds of the partnership in his own name and in the names of his relatives. Inter alia, Surinder Nath had acquired, with the funds of the firm, a piece of land measuring about 5000 sq. yards in village Nangal Devat for a sum of Rs. 10,000.00, a secondhand Ford Motor Car for about Rs. 4,000.00 to Rs. 5,000.00, an insurance policy on his own life for Rs. 20,000.00 and 2000 shares of Associated Stone Industries (Kotah) Ltd., Ramganj Mandi, Rajasthan in the name of his wife Smt. Vidya Vanti. Smt. Vidya Vanti is only a benamidar in respect of the said shares and the beneficial interest in the said shares belongs to Surinder Nath and the brothers. As Surinder Nath had made dishonest entries in the account books and had misused the funds of the partnership, Joginder Nath had dissolved the partnership by a notice dated the 11th December 1962. In his suit. Joginder Nath prays for the following reliefs :-

1.Accounts be taken and a decree for the the amount found due to Joginder Nath on taking of accounts be passed in his favor; 2. Surinder Nath be restrained from carrying on business of Stock and Share Brokers and dealers under the name and style of Ch. Bhagat Ram and Sons and may also be restrained from using partnership property, business connections of the firm and the banking facilities granted in the name of and on the faith of the goodwill and business reputation of Ch. Bhagat Ram and Sons. 3. A receiver of the partnership property be appointed.

(6) The suit has been contested by Surinder Nath and his wife, Smt. Vidya Vanti. Rajinder Nath, Narindar Nath and Washeshar Nath have filed written statement, supporting the claim of Joginder Nath. In his written statement, Surinder Nath has denied that the firm Ch. Bhagat Ram and Sons was a joint Hindu family firm at any time. Surinder Nath has asserted that he was and is the sole proprietor of the firm. Surinder Nath has denied that the shares standing in the name of Smt. Vidya Vanti belong to the firm, Ch. Bhagat Ram and Sons and were purchased with the funds of the firms. His plea is that the shares were purchased by Smt. Vidya Vanti with her own funds and are her exclusive property. Surinder Nath denies that the brothers have any interest in the shares, securities and properties mentioned in the plaint. Surinder Nath has pleaded that the suit is liable to be stayed in view of his suit C.O. 2-D. Other pleas, taken in the written statement of Surinder Nath, are substantially the same as have been taken up in the plaint and the replication in suit C.O. 3-D.

(7) In her written statement, Smt. Vidya Vanti denies that 2,000 shares of Associated Stone Industries, belong to the firm Ch. Bhagat Ram and Sons or were purchased with the funds of the firm. She asserts that she had purchased the shares with her own money and is the sole and exclusive owner of the shares. She also pleads that the suit against her is barred by time, that she is neither a necessary nor a proper party and the suit is, thereforee, had for misguide of parties and that the suit does nto disclose any cause of action against her.

(8) Joginder Nath filed replication. He repeated the allegations made in the plaint. The learned Subordinate Judge framed the following issues in suit C.O. 3-D :-

1.Is the suit liable to be stayed under section 10 or section 151 Civil Procedure Code Opd 2. Is the suit had for misguide of parties Opd 3. Was the partnership deed dated 27-8-1951 executed between the parties a sham transaction and unreal document and was nto to be acted upon between the parties as alleged in para No. 4 of the written statement of defendant No. -)ff OPD. 1. 4. Are the properties described in para 11, clauses a, b and c of the plaint acquired with partnership funds and in the manner described in para Ii of the plaint If so to what effect Opp 5. Were 2,000 shares mentioned in para 11(d) of the plaint acquired by defendant No. 1 in the name of defendant No. 5 benami with the partnership funds If so to what effect OPP. 6. Was any business under the name of Ch. Bhagat Ram and Sons carried on as a joint Hindu family business Opp 7. If issue No. 6 is proved, was that joint Hindu family business terminated on 1-11-1947 If so to what effect 8. Was the joint Hindu family business converted into contractual partnership on 1-11-47 If so, to what effect.

(9) On an objection by the learned counsel for Joginder Nath, issue No. 8 was deleted as nto material. Later on, the following two additional issues were struck in CO. 3-D :-

1. Whether the plaintiff's claim against defendant No. 5 (Smt. Vidya Vanti) is barred by time 2. Whether the document dated the 27th August 1951 creates the relationship of partners in view of the fact that no capital was to be contributed by any of the partners nor was the same required ?

(10) The original issue No. 1 was decided against Surinder Nath by the learned Subordinate Judge by his order dated the 1st April 1964. It was held that suit C.O. 3-D was nto liable to be stayed; but the learned Subordinate Judge directed that the two suits be consolidated and tried together. By an order of the High Court dated the 3rd March 1965, evidence was directed to be recorded in C.O. 3-D in which Joginder Nath is the plaintiff and Surinder Nath is one of the defendants.

(11) Lengthy arguments were addressed in the two suits. During the course of the hearing of arguments, an application was put in by Surinder Nath for amending the plaint in the suit filed by him. That application was dismissed by the order of the Court dated the 28th August 1968. Joginder Nath, almost after the close of arguments, also put in an application, for disposal of his application filed under section 476 and 479A, Code of Criminal Procedure, against Surinder Nath. Reply to that application was filed by Surinder Nath. On the 28th May 1969, Surinder Nath filed an application under section 476 and 479-A, Code of Criminal Procedure, against Joginder Nath.

(12) The learned counsel for the parties agreed that issues Nos. 4 and 5, in suit C.O. 3-D, should nto be decided, at the present stage, as the parties have nto led evidence on the issues in view of the order of the Court dated the 3rd December 1965. In that order, the Court had observed :-

'ATthe present stage either the value of the shares or the factum whether these shares belonged to the firm or individually to Surinder Nath is nto in issue. As already stated, the issue is whether there was a partnership and if there was a partnership the questions as to what assets were the assets of the partnership and whether any transaction entered into on behalf of the partnership by defendant No. 1, who was the Managing Partner, was or was nto in order, are questions which can be gone into only subsequent to the preliminary decree, if passed.'

(13) Thus, the aforesaid, issues Nos. 4 and 5 are to be decided after the passing of the preliminary decree, if any. Issue No. 2 and the additional issue about limitation are connected with issue No. 5. As issue No. 5 cannto be decided at this stage, issue No. 2 and the additional issue have to be left undecided.

(14) In view of what has been stated above, the principal question which requires decision, in both the suits, is whether the business, Ch. Bhagat Ram and Sons, was, on the 11th December 1962, the date on which the notice of dissolution was served by Joginder Nath, exclusively owned by Surinder Nath or was partnership business whose partners were Surinder Nath and the brothers. Section 4 of the Partnership Act delines partnership as 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. In determining whether a group of persons does or does. nto constitute partnership, or whether a person is or is nto a partner, regard shall be had to the real relation between the parties as shown by all the relevant facts taken together. Section 6 of the Partnership Act. Sharing of profits will be an important criterion, but is nto conclusive. Taking part in the conduct of a business is another important .element to be considered though with a similar qualification (Meenakshi Achi and another v. P. S. M. Subramaniam), (1) The true test for determining whether a person receiving a share of profits in a business is or is nto a partner in the business is to examine whether the business was carried on by the others acting for him and whether the relationship of principal and agent subsisted between them (Mohammed Musa Sahib and others v. N. K. Mohammed Chouse Sahib and another.

(15) The principles, enunciated above for determining whether a group of persons are partners or not, are nto disputed. The contention of the learned counsel for the brothers, was that it was unnecessary to discuss the evidence in the case in the light of the above principles in as much as the question whether Ch. Bhagat Ram and Sons was a partnership and Surinder Nath and the brothers were its partners stood concluded, against Surinder Nath, because of the fact that Surinder Nath and the brothers had gto the firm, Ch. Bhagat Ram and Sons, registered under the Partnership Act and in the application made turn registration which was signed by Surinder Nath and the brothers. Ch. Bhagat Ram and Sons was stated to be a partnership and Suririder Nath and the brothers to be its partners. The learned counsel placed reliance on section 68 of the Partnership Act. That Section reads :-

'(1)Any statement, intimation or notice recorded or noted in the Register of Firms shall, as against any person by whom or on whose behalf such statement, intimation or notice was signed, be conclusive proof of any fact therein stated. (2) A certified copy of an entry relating to a him in the Register of Firms may be produced in proof of the fact of the registration of such firm, and of the contents of any statement, intimation or notice recorded or noted therein.'

(16) It is clear that a statement, intimation or notice filed with the Registrar of Firms and recorded and noted in the Register of Firms under Chapter Vii of the Partnership Act is conclusive evidence of the facts stated therein against the person signing the statement etc. The argument of the learned counsel for Surinder Nath that the statement etc. is conclusive evidence if the dispute is between the partner, signing the statement and a third party and nto when the dispute is between the partners themselves. runs counter to the plain language of the section and cannto be accepted. The statement etc. is conclusive evidence whether the dispute is between partners or between a partner and a third party.

(17) Surinder Nath admits that he and the brothers had applied for the registration of the firm. Ch. Bhagat Ram and Sons, under the Partnership Act. He, further admits that he had signed the application for registration and had also filed a copy of the partnership deed in support of it. Roshan Lal Public Witness 3, Clerk, Registrar of Finns, had brought the original application for registration of the firm. Ch. Bhagat Ram and Sons, together with the partnership deed. Surinder Nath admitted that the application brought by Roshan Lal bore his signature and the signatures of the brothers. Exhibit P. 2 is, thereforee, conclusive proof, against Surinder Surinder Nath had admitted Exhibit P. 2 to be a true copy. Under sub-section (2) of section 68 of the Partnership Act, exhibit P.2 can be used for proving the contents of the statement filed by Surinder Nath and brothers under section 58 of the Partnership Act. Surinder Nath admitted his signature on this statement. 'Exhibit P. 2 is, thereforee, conclusive proof, against Surinder Nath. of the fact that the firm, Ch. Bhagat Ram and Sons, was a partnership firm and that Surinder Nath and brothers were its partners since the 1st November 1947. Surinder Nath cannto be permitted to disprove this fact. It is, thereforee, to be held. on the basis of Exhibit P.2, that Ch. Bhagat Ram and Sons was a partnership firm and that Surinder Nath and the brothers were its partners on the 11th December. 1962.

(18) The authority Firm Het Ram Padam Chand v. Firm Subhag Chand Rikhab Das and others, cited by the learned counsel for Surinder Nath, is distinguishable. In that authority, a suit was brought against the firm Het Ram Padam Chand whose partners were Het Ram and Padam Chand. Both the partners had died before the institution of the suit. The firm was represented by the widow of Het Ram and the heirs of Padam Chand. The widow of Het Ram had denied the existence of partnership. One of the grounds, taken up, was that it was nto proved that the application for registration of partnership had been signed by Het Ram. It was held that as Het Ram had nto signed the application for registration, the certificate of registration was only a presumptive piece of evidence against his heirs and nto a conclusive proof. In the present case, Surinder Nath had admittedly signed the application for registration and also filed the affidavit. The entry in the Register of Firms is, thereforee, conclusive proof, against him of the fact. that Ch. Bhagat Ram and Sons was a partnership and that Surinder Nath and the brothers were its partners.

(19) Apart from the provisions of section 68, Partnership Act, there is abundant evidence, on record, that Ch. Bhagat Ram and Sons was a contractual partnership on the 11th December 1962 and was nto the exclusive proprietary concern of Surinder Nath. Exhibit P. I is a copy of the partnership deed, executed by Surinder Nath and the brothers, on the 27th August, 1951, The original partnership deed has been deposited with the Income-tax Authority. The execution of the partnership deed and its contents are admitted to be correct by Surinder Nath. The contents of Exhibit P. I are reproduced below in extenso :-

'THISdeed of partnership made this 27th day of August 1951 between Surinder Nath, Ch. Joginder Nath, Ch. Narinder Nath, Ch. Rajinder Nath and Ch. Washeshar Nath, sons of late Ch. Bhagat Ram of Rawalpindi all now residents of Delhi, called the partners witnesseth as under :- 1. That the parties hereto have been carrying on business of stock and share brokers since 1-11-47 under the name and style of Ch. Bhagat Ram and Sons, as partners and since no regular deed was written, the parties hereto have considered it necessary to put down in writing the terms of partnership. 2. That the business being of such a nature that it requires personal untiring efforts and no capital investment, no capital has been contributed by any partner. 3. That there being no mutual difference of any nature. whatever, the shares of above named five partners in the profits or losses of firm shall be equal as given below :- 1. Ch. Surinder Natli 1/5th 2. Ch. Jaginder Nath l/5th 3. Ch. Narinder Nath l/5th 4. Ch. Rajinder Nath l/5th 5. Ch. Washeshar Nath l/5th 4. That the office shall be in the charge of Ch. Surinder Nath and the bank accounts in the name of the firm shall be operated upon by Ch. Surinder Nath while other partners shall be field workers. 5. That the partnership business has kept proper accounts which are closed on 31st day of March every year and shall continue to be closed every year on 31st March. 6. That the account books, securities, scrips etc. shall be kept at the place of business and be open to the inspection of all partners. 7. That the partnership shall be terminable at will. 8. That the partners shall carry out their respective jobs diligently, sincerely and honestly. 9. That if unfortunately any dispute or difference arises about the construction, meaning and effect of this deed respecting the accounts, profits or losses of the business or rights and liabilities of the partners, the matter shall be referred to an Arbitrator approved by majority of partners, whose decision will be final. 10. That all the partners with unanimous consent can alter, add to or delete any of the paras of this Deed.

Inwitness Whereof the said partners have hereunto respectively signed on this 27th day of August 1951 at Delhi. 1. Witness Address 1. Sd./ Surinder Nath 2. Sd./ Jaginder Nath 3. Sd./ Narinder Nath 4. Sd./ Rajinder Nath 5. Sd./ Washeshar Nath 2. Witness Address Seal of Court Sd; Special Magistrate 1st Class, Delhi.

(20) The agreement, Exhibit P. 1, contains all the three elements to the definition of partnership as given in section 4 of the Partnership Act. It is an agreement between all the persons concerned; the agreement is to share profits of a business, and it lays down that the business will be carried on by all, Surinder Nath being in charge of the office and the finances, the brothers being field workers. On the basis of the agreement. Exhibit P. 1, it is nership firm and nto the exclusive proprietary concern of Surinder nership firm and nto the exclusive proprietary concern of Surinder Nath.

(21) It was contended by the learned counsel for Surinder Nath that the agreement Exhibit P. 1 did nto amount to an agreement of partnership as no capital was required, 'and in fact, no capital was contributed, by any of the partners. Joginder Nath has stated as Public Witness 4 that all the assets of the joint Hindu family were put into the firm Ch. Bhagat Ram and Sons. But the partnership deed Exhibit P. 1 does nto show that the assets of the joint Hindu family were put into the firm. On the other hand, clause (2) of Exhibit P. 1 specifically says that no capital investment was required and that none was contributed. Joginder Nath has admitted that the document Exhibit P. I represents the real terms agreed between the parties and that what is stated therein represents true facts. It has, thereforee, to be taken, that no capital was contributed by any of the partners. Capital is to be distinguished from the property of the firm. By the capital of a partnership is meant the aggregate of the sums contributed by its members for the purpose of commencing or carrying on the partnership business and intended to be risked by them in that business (Lindley on Partnership, Twelfth Edition, page 357). In the present case, there is no-evidence that the partners had contributed any sums for commencing or carrying on business. Surinder Nath and Joginder Nath have admitted that if funds were needed, those were supplied by their mother.

(22) As no capital was contributed, no profits could be earned, argued the learned counsel for Surinder Nath. and no partnership could come into existence. According to the learned counsel. the earnings of the brothers could be wages but nto profits. It is now well-settled that joint capital is nto essential to the existence of partnership. The definition of partnership, as given in section 4 of the Partnership Act, does nto require the contribution of any capital. The old definition of 'partnership' as contained in section 239 of the Contract Act required that the persons who constitute partnership should have agreed to combine their property labour or skill in some business and to share profits thereof. Section 4 of the Partnership Act has the effect of widening the definition of partnership. Whereas, originally it was necessary to agree to combine 'property, labour and skill' us well as to share profits, now all that need be considered is an agreement to share profits. The limitation effected by the words 'property, labour and skill' has been removed (wide Birdichand Sukhraj Marwadi v. Harakchand Jagraf Marwadi,. The argument of the learned counsel for Surinder Nath that as no capital was contributed, the agreement Exhibit P. I could nto bring about a contractual partnership, is to be rejected.

(23) The next contention of the learned counsel for Surinder Nath was that the agreement Exhibit P. I was a sham transaction and was never intended to be acted upon and that it was executed for avoiding oppressive taxation. In this connection, the learned counsel referred to certain circumstances. The first circumstance, relied upon. was that the brothers were carring on their independent businesses and had nto taken any part in the business of Ch. Bhagat Ram and Sons. It was, on the other hand, urged on behalf of the brothers, that they had been participating in the business of Ch. Bhagat Ram and Sons. Surinder Nath, as D.W. 7, has stated that Joginder Nath had started share business of his own, that he was the Managing Director of Rawalpindi Theatres, that the live brothers had floated a company 'Chaudhry Brothers', that later on, the company was dissolved and was reconstituted with two brothers, including Joginder Nath as partners and that Joginder Nath had produced the picture 'Sohni Mahiwal' for Chaudhry Brothers. Surinder Nath has, further, stated that Joginder Nath was busy with his own ventures and was nto doing any business for Ch. Bhagat Ram and Sons. Joginder Nath has admitted that he had become a member of the Delhi Stock Exchange in 1948. At one stage, he stated that he had become a member of the Stock Exchange on behalf of Ch. Bhagat Ram and Sons, but later on, he admitted that he had become member of his own and had purchased shares with his own money and that the income derived from the transactions was his. Joginder Nath also, admitted that five brothers had floated a company-Chaudhry Brothers- and that later on it was dissolved and only two brothers remained proprietors of the company and that he had produced the picture ' Sohni Mahiwal'. Joginder Nath asserted that he was doing work for Ch. Bhagat Ram and Sons while at Bombay. He admitted that he could nto produce any documentary evidence in support of his assertion. Joginder Nath was admittedly doing his individual business. It is difficult to believe that he had done any business for Ch. Bhagat Ram and Sons after the 27th August, 1951, the date on which Exhibit P. I was executed. Surinder Nath has stated that Rajinder Nath had never done any work for Ch. Bhagat Ram and Sons. According to Surinder Nath. Rajinder Nath had entered into a partnership with Amar Nath Bhalla of Rawalpiindi. Rajinder Nath was also doing share business under the name of Ch. Rajinder Nath and Company. He was also doing insurance business. Ram Lal Chadha D.W. 6 stated that Rajinder Nath was doing business of a share broker between 1950 and 1953. According to Surinder Nath, Narinder Nath was doing his own business of unporting needles and machinery parts and Washeshar Nath was Secretary of Rawalpindi Theatres and was doing his own business of money lending. Neither Rajinder Nath, nor Narinder Nath nor Washeshar Nath has appeared in the witness-box to rebut the allegations made against them, on oath, by Surinder Nath. An adverse inference is to be drawn against them. Though Rajinder Nath and Narinder Nath have nto produced any evidence and have nto come in the witness-box, yet Joginder Nath has put in hundis Exhibits P. 25 to P. 36. On the back of the hundis Exhibit P. 25 to Exhibit P. 32 and Exhibit P. 36 signatures of Rajinder Nath appear and on the back of the hundis Exhibit P. 34 and Exhibit P. 35 signatures of Narinder Nath appear. The signatures are for 'Ch. Bhagat Ram and Sons.' These signatures do nto lead to the inference that Rajinder Nath and Narinder Nath have done any field work as required by Exhibit P. 1 for Ch. Bhagat Ram and Sons.

(24) It follows, from the above discussion, that none of the brothers had done any business for Ch. Bhagat Ram and Sons after the 27th August 1951. This circumstance might have furnished a ground for dissolution of partnership. But it does nto show that the partnership deed Exhibit P. I was a sham transaction. The failure of the brothers to do work for partnership, as agreed in Exhibit P. 1. did nto make the partnership agreement without consideration. The partnership agreement remained a valid agreement despite that failure, it may be stated, incidentally. that admittedly Surinder Nath was doing his individual business, other than the business of Ch. Bhagat Ram and Sons.

(25) Another Circumstance, relied upon by the learned counsel for Surinder Nath, was that in spite of the partnership deed, Exhibit P. 1, Surinder Nath was issuing cheques as proprietor of Ch. Bhagat Ram and Sons and that one of the cheques were issued in favor of the brothers who accepted the cheques. It has been admitted by Joginder Nath. the brother who has appeared in the witness-box, that Surinder Nath was signing cheques as proprietor of Ch. Bhagat Ram and Sons. He has. further admitted that in the pass book Exhibit Public Witness 5/5 of the Punjab National Bank. there is an entry that a cheque of Rs. 9,000.00 was issued in favor of Chaudhry Brothers on behalf of Ch. Bhagat Ram and Sons and that the cheque was signed by Surinder Nath as proprietor of Ch. Bhagat Ram and Sons. According to clause (4) of the partnership deed. Exhibit P. 1. Surinder Nath was to be in charge of the office and was to open accounts in the banks. He was partowner of the business as a partner, His signing the cheques as proprietor, in the circumstances, cannto lead to the inference that the partnership deed Exhibit P. 1 was a sham affair. Surinder Nath had taken loans and executed promissory notes on behalf of Ch. Bhagat Ram and Sons. He could do so as the managing partner.

(26) Lastly, the learned counsel referred to the letters, Exhibit D/1, Exhibit D/3, Exhibit D/4, Exhibit D/5 and Exhibit D/6, written by Joginder Nath to Surinder Nath, on various dates. In the letters, Joginder Nath had requested for financial assistance and had stated that he was in financial distress. The learned counsel for Surinder Nath argued that if Joginder Nath was entitled to the profits of Ch. Bhagat Ram and Sons as a partner, he would have asked for his share in the profits instead of asking for financial assistance from Surinder Nath. Surinder Nath has admitted that Joginder Nath had over drawn his account regarding the share of Ch. Bhagat Ram and Sons. Naturally, Joginder Nath could nto have asked for his share of profits as he had already overdrawn. Moreover, the letters are to be considered in the light of the fact that a younger brother was writing to his elder brother for assistance. The relations between the brothers were nto strained at that time. It would have been improper for the younger brother to remind the elder brother about the share of profits.

(27) There are circumstances, on the record, which go to show that Ch. Bhagat Ram and Sons, was a partnership business. Though in the Plaint in C.O. 2-D and the written statement in C.O. 3-D, Surinder Nath has stated that the business, Ch. Bhagat Ram and Sons, was started by him at Rawalpindi, yet in the very first line of his examination-in-chief as D.W. 7, he has stated that business, Ch. Bhagat Ram and Sons, was joint Hindu family business and was sponsored by Ch. Bhagat Ram in 1915. Then, he has stated that after the death of his father in 1945, he started his own independent business under the name of Ch. Bhagat Ram and Sons. Again, in his examination-in-chief, he has stated that he had started his independent business under the name of Ch. Bhagat Ram and Sons in 1947. Surinder Nath admits that though he was doing his independent business, all the brothers lived and messed with him. There is evidence, on the record, that joint Hindu family firm was nto dissolved after the death of the father and that the family and the business continued to be joint till 1st November, 1947, on which date the business Ch. Bhagat Ram and Sons was converted into a partnership business. Ch. Bhagat Ram had died in November 1945. On the 6th December 1945. Surinder Nath and the brothers had made an application to the Oriental Bank of Commerce Ltd. Lahore at Rawalpindi, for the opening of a Current Deposit Account in the name of the firm, Ch. Bhagat Ram and Sons. Copy of the application is Exhibit P. 14. It was stated, in the application, that Surinder Nath and the brothers were carrying on business as a joint Hindu Family under the name of Ch. Bhagat Ram and Sons. Exhibit P. 16 Exhibit P. 17 and Exhibit P. 18 are documents which were executed by all the brothers for Ch. Bhagat Ram and Sons in connection with the opening of the Current Deposit Account. After partition of the country, Surinder Nath and the brothers had rented a building on Nicholson Road, Delhi and were messing and living jointly. Exhibit D. 7 is the copy of an order, in a suit, filed by the Oriental Bank of Commerce Ltd., against the joint Hindu Family firm-Ch. Bhagat Ram and Sons. Surinder Nath and the brothers were made parties to the suit as members of the joint Hindu Family. The statement of Surinder Nath that after the death of Ch. Bhagat Ram in 1945, the joint Hindu Family business-Ch. Bhagat Ram and Sons-had come to an end is wholly incorrect.

(28) Surinder Nath has admitted that Ch. Bhagat Ram and Sons was registered as a partnership firm under the Income tax Act and that the registration was renewed from year to year. Exhibit P. 8 to Exhibit P. 11 are applications addressed to the Income-tax Officer for renewal of the registration for the years 1957-58 to 1960-61. In these applications, Surinder Nath and brothers have been shown as partners of the firm, Ch. Bhagat Ram and Sons, and the share of each has been showin as 1/5th. Exhibit P. 4. Exhibit P. 5 and Exhibit P. 6 are the assessment orders relating to income tax of Messrs Bhagat Ram and Sons. The firm was assessed as a partnership firm. Surinder Nath and the brothers were shown as partners having 1/5th share in the business in the assessment orders. Exhibit P. 3 does nto show that the brothers were partners in the firm Ch. Bhagat Ram and Sons. Exhibit P. 12 is a copy of the plaint, in a suit, filed, on behalf of Ch. Bhagat Ram and Sons, by Surinder Nath as the managing partner. This suit was filed in November 1959. Exhibit P. 13 is a copy of another plaint in a suit filed by Ch. Bhagat Ram and Sons. The plaint was signed by Surinder Nath as a partner. It has already been shown that on the application of Surinder Nath and the brothers, the firm was registered-with the Registrar of Firms under the Partnership Act. An important piece of evidence, showing that the business Ch. Bhagat Ram and Sons was a partnership business and Surinder Nath and the brothers were partners in the business is Exhibit Public Witness 4/1. It is a copy of an agreement entered into between Surinder Nath, Joginder Nath. Rajinder Nath and Washeshar Nath, on the 17th day of June 1962 appointing Shri Mehtab Singh Advocate as an Arbitrator. The agreement is as under :-

'THISagreement made this 17th day of June 1962 amongst Shri Surinder Nath, Joginder Nath, Rajinder Nath, Narinder Nath and Washeshar Nath, sons of late Chowdhry Bhagat Ram Ji and partners of the firm of Messrs Chowdhry Bhagat Ram and Sons of New Delhi. Whereas the parties who have a partnership known as Chowdhry Bhagat Ram and Sons as registered in Income-tax Department and carry on business at New Delhi and whereas the parties now want to dissolve the partnership finally but have differences with regard to assets, liabilities and accounts. They hereby appoint Bk. Mehtab Singh Sahib. Advocate of Delhi as the sole arbitrator to divide the assets and liabilities of the firm after going through all the accounts of the Firm. The partners have been living together and as such the arbitrator will have full authority to enquire into the assets of each partner and each and every member of their family to arrive at any decision with regard to the divisibility of assets whether standing in the name of any of the partners or any member of their family. They further agree that this award shall be final and binding on all the partners. Sd. Surinder Nath Sd. Josinder Nath Witness, sd. Rajinder Nath Sd. Washeshar Nath.'

(29) In the above document, Surinder Nath clearly admitted that the brothers were the partners of firm Ch. Bhagat Ram and Sons. which was a partnership business. Surinder Nath had agreed to the appointment of an arbitrator for the division of the assets and liabilities of the firm Ch. Bhagat Ram and Sons. These admissions were made as late as in June 1962, when disputes had already arisen between the parties. The document was put to Surinder Nath in the witness-box. He did nto offer any Explanationn about the admissions. In the replication, an objection was taken, that the document was nto admissible in evidence as it was executed in the course of negotiations for a compromise. But no such objection was taken when the document was tendered in evidence and put to Surinder Nath. The admissions, contained in Exhibit Public Witness 4/1. are decisive, though nto conclusive. of the matter that Ch. Bhagat Ram and Sons was a partnership business and the brothers were its partners. During the course of his evidence, Surinder Nath has admitted that on the 31st March, every year, balance was struck and profit or loss was debited to the account of each brother, to the extent of 1/5th share. Surinder Nath has, further admitted, that each brother used to draw money from the funds of Ch. Bhagat Rani and Sons and that the amount used to be adjusted at the end of the year. The Explanationn of Surinder Nath was that his brothers had no source of income and he used to pay 1/5th of the net income of the business, Ch. Bhagat Ram and Sons to each brother as financial assistance. The Explanationn is devoid of any merit. The Explanationn is in conflict with the allegation of SurinderNath that each brother was carrying on individual business and that Joginder Nath. Washeshar Nath and Rajinder Nath had undertaken ventures to the tune of lakhs, If the object of Surinder Nath was to render assistance only, then each brother would have been given according to his needs and nto l/5th of the net income. The fact that each brother was allowed to draw amounts from the funds of Ch. Bhagat Ram and Sons and was given l/5th of the net income leads to the inference that each brother had l/5th share in the business. This finding renders the plea of Surinder Nath that he was giving 1/5th of the net income to each brother to avoid the payment of excessive taxation untenable. It may be that the joint Hindu Family firm, Ch. Bhagat Rani and Sons, was converted to a contractual partnership to avoid the payment of income-tax. Nonetheless it was a contractual partnership.

(30) The only conclusion, from the above discussion is, that the document. Exhibit P.T, was a genuine partnership deed and was intended to be acted upon and was nto a sham affair. The document establishes that the firm Ch. Bhagat Ram and Sons was a contractual partnership and that Surinder Nath and the brothers were its partners, each having l/5th share and that the firm was nto the exclusive proprietary concern of Surinder Nath. on the 11th December. 1962.

(31) Before parting with the discussion with respect to Exhibit P. 1, it may be pointed out that it was contended on behalf of Joginder Nath that a deed of partnership was executed even before the execution of Exhibit P. I. Reliance was placed on Exhibit P. 20 and Exhibit P. 21 which make reference to an earlier partnership deed, dated the 6th October 1947. The learned counsel for Surinder Nath objected to the raising of the above contention because of the fact that the case of Joginder Nath all along was that the first formal deed of partnership was executed on the 27th August 1951 and Joginder Nath could nto be permitted to put forward a new case at the stage of arguments. The objection of the learned counsel is well founded. In his plaint in C.O. 3-D. joginder Nath has clearly stated that the joint Hindu family firm was converted into a contractual partnership on the 1st November 1947 (Paragraph 4 of the plaint) and that the business of the partnership continued without a written agreement till the 27th of August 1951 (Paragraph 8 of the plaint). In paragraph 5 of the written statement filed in C.O. 2-D, it has been stated :-

'THEpartnership deed .executed between the parlies on 27-8-1951 (the date 25-8-1951 given by the plaintiff is wrong) is a genuine document. The parties were working as partners from 1-11-1947 Without a written deed but to avoid any possible misunderstanding or false claim (as now put in by the plaintiff) the parties reduced the terms of their partnership into writting,'

(32) It is clear that the case of Joginder Nath has been that the contractual partnership had come into existence on the 1st November 1947 and that a formal deed of partnership was executed for the first time on the 27th August 1951. Joginder Nath cannto be permitted, to make out a new case, without appropriate amendment of the pleadings, if permissible, that a partnership existed before the 1st November 1947 and a partnership deed was written on the 6th October 1947.

(33) According to Exhibit P. I the partnership, Ch. Bhagat Ram and Sons. was terminable at will. Under section 43 of the partnership Act, the partnership could be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. Such notice was given by Joginder Nath to all other partners on the 11th December, 1962. The notice was received by the partners on the 12th December 1962. The firm, Ch. Bhagat Ram and Sons. stood dissolved on the 12th December, 1962.

(34) There is nothing on the record to show that Surinder Nath or Joginder Nath was, in any manner, estopped from bringing the suit brought by him.

(35) The above discussion has practically covered all the issues involved in the two suits which can be decided at the present stage. The findings on different issues may be recorded. Suit C.0.2-D Issue No. 1.

(36) The plaintiff, Surinder Nath, is nto the sole-Proprietor of the firm Ch. Bhagat Ram and Sons. Issue No. 1. The partnership deed in dispute was nto a sham document. Issue No. 3. The defendants are nto estopped from contending that the plaintiff is nto the sole proprietor of the firm. Issue No. 4. The plaintiff Surinder Nath is nto estopped from contending that he is the sole proprietor of the firm. Issue No. 5. The suit of the plaintiff, Surinder Nath deserves dismissal, in view of the above findings. Suit C.O. 3-D. Issue No. 1. Decided by the learned Subordinate Judge by his order dated the 1st April 1964. The suit is nto liable to be stayed. Issue No. 2. Nto to be decided. Issue No. 3. The partnership deed dated the 27th August 1951 was nto a sham transaction and unreal document. It was to be acted upon. Issue Nos.4 and 5 Nto to be decided. Issue No. 6. A business under the name of Ch. Bhagat Ram and Sons was carried on as joint Hindu family business. Issue No. 7. The joint Hindu family business was dissolved on the 1st November 1947 and a contractual partnership was entered into between Surinder Nath and the brothers under the name and style of Ch. Bhagat Ram and Sons. Additional issue regarding capital Though no capital was contributed by the partners, yet Ch. Bhagat Ram and Sons was a partnership firm under the partnership Act. The result is that the suit C.O. 2-D filed by Surinder Nath is dismissed. The parties are real brothers. They are left to bear their own costs of the suit.

(37) In suit C.O. 3-D, filed by Joginder Nath a preliminary decree for rendition of accounts is passed. It is declared that the partnership Ch. Bhagat Ram and Sons, stands dissolved with effect from the 12th December, 1962. It is further declared that each of the partners, Surinder Nath. Joginder Nath, Rajinder Nath. Narinder Nath and Washeshar Nath had l/5th share in the partnership business. It is also declared that Surinder Nath is liable to render accounts. It is directed that Surinder Nath be restrained from carrying on business of stock and Share Brokers and dealers under the name and style of Ch. Bhagat Ram and Sous and from using partnership property, the business connection of the firm and the banking facilities granted in the name of the firm. The order with respect to cost. will be made at the tune of passins the final decree.

(38) Shri Bishamber Dayal Advocate, by agreement of parties is appointed Commissioner to take accounts of the partnership. His remuneration is fixed at Rs. 2,000.00 in the first instance. Surinder Nath, Joginder Nath, Rajinder Nath, Narinder Nath and Washeshar Nath will each pay Rs. 400.00 to the Commissioner. The commissioner will submit his report within three months.

(39) It will nto be just and proper to appoint a Receiver unless and until issues Nos. 4 and 5 which relate to property alleged to be partnership property are decided. The parties have nto led any evidence on these issues because of the order of the Court. The parties should now lead evidence on issues Nos. 2, 4 and 5 and the additionnl issue about limitation on a date to be fixed by the office.

(40) The application filed under sections 476 and 479A, Code of Criminal Procedure, by Joginder Nath, may be taken up. The allegations, in the application, are that tire court had in his suit, issued an injunction, restraining Surinder Nath from disposing of or, in any way, dealing with the property given in the Schedule A attached to his application for the issue of the injunction and that at Seriall No. 40 in Schedule A were mentioned the shares of Machinery . It is, further, alleged that the said restraint order was served on Surinder Nath on the 28th December, 1962. Surinder Nath, in his affidavit in reply to the application, had stated that out of the properties mentioned in Schedule A, he held certain properties as his own and that the other properties had long been sold off. The shares of Machinery ., were nto mentioned as being held by Surinder Nath. But an affidavit, filed by Surinder Nath. in Letters Patent Appeal No. 39-D of 1965, showed that Surinder Nath held 1,000 shares of the Machinery . on the 27th December 1962 and that those shares had been sold in 1963, 1964 and 1965. It is alleged that the statement, made by Surinder Nath, in his affidavit, filed against the restraint order, that he held no share of Machinery . was false and that he was guilty of offences under sections 193, 195 and 200, Indian Penal Code. The reply of Surinder Nath to that application, is that shares mentioned, in his affidavit, filed in the Letters Patent Appeal, do nto belong to the firm Ch. Bhagat Ram and Sons but were purchased by him for the firm Ch. Gokal Chand and Sons, which was his sole concern. It is further, pleaded by Surinder Nath that the shares which were purchased by Ch. Bhagat Ram and Sons had been sold to one Dr. D. N. Wadia from whom he had purchased the shares for Ch. Gokal Chand and sons.

(41) From the allegations, made in the application and the replyliled thereto, it is clear that the question which arises for decision is, whether 1,000 shares of Machinery . were owned by Ch. Bhagat Ram and sons on the 27th December 1962. There is no evidence either way on the record. For the proper decision of the application, it is necessary that the parties should produce evidence on the point. They are directed to produce evidence on a date to be fixed by the office.

(42) The application, filed by Surinder Nath, under sections 476 and 479 A Code of Criminal Procedure, is connected with the aforesaid application of Joginder Nath. Both the applications will be tried and decided together.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //