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Porbandar Commercial Cooperative Bank Ltd. Vs. Bhanji Lavji and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtGujarat High Court
Decided On
Case NumberSpl. Civil Appln. Nos. 299 and 300 of 1978
Judge
Reported inAIR1985Guj106; (1985)1GLR49
ActsGujarat Co-operative Societies Act, 1962 - Sections 96; Partnership Act, 1932 - Sections 19, 19(1) and 22; Code of Civil Procedure (CPC), 1908 - Order 30, Rule 1; Constitution of India - Article 227
AppellantPorbandar Commercial Cooperative Bank Ltd.
RespondentBhanji Lavji and ors.
Appellant Advocate G.N. Desai, Adv.
Respondent Advocate J.R. Nanavati, Adv.
Cases ReferredBrettel v. Williams
Excerpt:
.....with interest - other defendants also held jointly and severally liable - findings of nominee confirmed by tribunal - act should have been done in usual course of business by virtue of section 19 - provisions of sections 19 and 22 not applicable - petitioner conceded hypothecated goods lost - sureties discharged in view of loss of goods - award of nominee partly allowed. - - money decrees were claimed against the principal debtor as well as against the partners of the concerned two firms, defendants nos. 2 and 3 were concerned, according to the board of nominees, awards were required to be passed against the concerned firms, meaning thereby against all of their partners as they had stood sureties for the repayment of the loan amounts and hence they were liable to make good the..........tribunal had patently erred in law in taking the view that if one of the partners of the firm signed a surety bond, the said act would not bind the remaining partners of the firm and consequently the awards could have been passed against the concerned firms representing all the partners :(ii) it was alternatively contended by mr. desai that even assuming that the concerned signatories had signed the surety bonds under circumstances which could not bind the remaining partners of their respective firms, even then these signatories who had signed the promissory notes would remain liable as co-promissors and decrees could have been passed against them even on that basis.(iii) mr. desai next contended that the cooperative tribunal had ex facie erred in law in taking the view that.....
Judgment:
ORDER

1. In these two petitions under Art. 227 of the Constitution of India. though styled as petitions under Art. 226, it common order of the Gujarat State Co-operative Tribunal, exercising appellate jurisdiction under the provisions of Gujarat Co-operative Societies Act. 1961 has been brought under challenge. By the said common order two appeals have been disposed of by the Tribunal. Consequently two writ petitions have been filed.

2. The petitioner in both these petitions is the Porbandar Commercial Co-operative Bank Ltd., The said bank had advanced two different amounts under two separate loan transactions to respondent No. 3 who is the common respondent. He is Mr. P. V. Simaria, proprietor of Ashok Electrical Industries. He is the principal debtor, in both the proceedings. According to the petitioner Bank the said loans were advanced on the basis of the security furnished by respondents, Nos. I and 2 which are two firms functioning at Porbandar and whose partners, according to the petitioner Bank, guaranteed repayment of both these loan amounts by principal debtor, respondent No. 3. As the loan amounts were not recovered from the principal debtor, the petitioner-Bank filed two separate arbitration cases being LVD cases Nos. 1581 of 1975 and 1582 of 1975 u/s 96 of the Act, before the Board of Registrar's Nominees, Rajkot. In both these suits there were common defendants, defendant No. I being the principal debtor, respondent No. 3 herein, while the two firms were joined as defendants Nos. 2 and 3 respectively. Money decrees were claimed against the principal debtor as well as against the partners of the concerned two firms, defendants Nos. 2 and 3 respectively. The Board of Nominees, after recording the evidence in both these cases, came to the conclusion that the principal debtor, original defendant No. 1, was liable to pay the loan -amounts-with interest as prayed for. So far as common defendants Nos. 2 and 3 were concerned, according to the Board of Nominees, awards were required to be passed against the concerned firms, meaning thereby against all of their partners as they had stood sureties for the repayment of the loan amounts and hence they were liable to make good the amounts as assured. Accordingly, both the cases were decreed and the concerned three defendants were ordered to repay the amounts jointly and severally. That resulted into two appeals before the Gujarat State Co-operative Tribunal, on behalf of original opponents Nos. 2 and 3, the firms against which awards were passed on the basis that they were sureties for, repayment of the respective loan amounts. Appeal No. 54 of 1977 was filed against the award in arbitration case No. 1581 of 1975 while appeal No. 55 of 1977 was filed by the very same defendants Nos. 2 and 3 against the award in arbitration case No. 1582 of 1975. The petitioner-plaintiff Bank was joined as common respondent No. I in both these appeals while the principal debtor was joined as common respondent No. 2 in both these appeals. These appeals came to be allowed by the Tribunal by its common, order dated October 12, 1977. The Tribunal took the view that so far as arbitration case No. 1581 of 1975 was concerned, the decision in which was the subject matter of appeal No. 54 of 1977, no decree could be passed against the original opponent No. 2 firm as the signatory below the guarantee agreement. Shri D. V. Simaria, had no authority to bind the firm and, therefore, rest of the partners of the firm. So far as original opponent defendant No. 3 firm was concerned, the Tribunal took the view that the signatory below suretyship agreement, Shri Nathalal Dhanji, who signed on behalf of the firm would not have by his mere signature bound the other partners of the firm but for the letter produced at Exh. 35/6 proving that all the remaining partners of opponent No. 3 firm had ratified the action of their colleague who had signed the surety bond on behalf of the firm. On these findings of the Tribunal, the decree and award passed by the Board of Nominees against opponent No. 3 firm would have been confirmed by the Tribunal. However, the Tribunal took the view that the partners of opponent No. 3 firm rightly disowned their liability under the surety ship agreement in favour of petitioner-Bank as they got discharged under Section 141 of the Indian Contract Act in view of the fact that the Manager of the petitioner- Bank. Shri Raval in his deposition clearly stated' that the hypothicated goods which formed the subject matter of security were lost as there was the board of Central Bank of India on the go down where these goods were stored. In that view of the matter, according to the Tribunal no award could have been passed even against the partners of original opponent No. 3 firm.

3. So far as arbitration case No. 1582 of 1975 was concerned, its decision was made subject matter of appeal No. 55 of 1977. Very same reasoning was adopted by the Tribunal for exonerating opponents Nos. 2 and 3 firms from the liability in view of the fact that the partner who signed the surety bonds could not bind the other partners in view of Section 19 of the Indian Partnership Act. Hence the partnership firms, opponents-original defendants Nos. 2 and 3 were exonerated from their liabilities. The Tribunal further held that in that case there was no evidence of ratification by other partners of any of the firms as was in the companion matter, and therefore, there was no question of binding other partners of the firm to meet the suit liability. On the basis of the said findings, the Tribunal allowed both the appeals and dismissed the petitioner-Bank's arbitration cases against original defendants Nos. 2 and 3 respectively in both the matters. That is how the petitioner-plaintiff Bank is before this Court in the present proceedings.

4. Mr. G. N. Desai, learned advocate appearing for the petitioner-Bank in both these matters, raised the following contentions.

(i) The Co-operative Tribunal had patently erred in law in taking the view that if one of the partners of the firm signed a surety bond, the said act would not bind the remaining partners of the firm and consequently the awards could have been passed against the concerned firms representing all the partners :

(ii) It was alternatively contended by Mr. Desai that even assuming that the concerned signatories had signed the surety bonds under circumstances which could not bind the remaining partners of their respective firms, even then these signatories who had signed the promissory notes would remain liable as co-promissors and decrees could have been passed Against them even on that basis.

(iii) Mr. Desai next contended that the Cooperative Tribunal had ex facie erred in law in taking the view that the sureties would get discharged under Section 141 of the Indian Contract Act so far as Appeal No. 54 of 1977arising from judgment and award in Arbitration Case No. 1581 of 1975 was concerned.

(iv) Lastly Mr. Desai contended that in any view of the matter, once the individual partners pf opponents Nos. 2 and 3 firms had signed the surety bond in arbitration case No. 1582 of 1975, they could not escape their liability as sureties to meet the suit claim in the absence of pleadings and proving their defence under Section 141 of the Indian Contract Act; that so far as the aforesaid arbitration case was concerned, as held by the Co-operative Tribunal itself no such evidence were placed and consequently the award ought to have been passed at least against the concerned signatories in their individual capacities as, sureties for the suit claim.

5. Mr. J. R. Nanavati, learned advocate appearing for the respondents on the other hand supported the common order passed by the Tribunal in both the appeals. I shall deal with the submissions canvassed by Mr. Desai seriatim.

6. So far as the first contention of Mr. Desai is concerned, it must be kept in view that the surety bonds in both these cases have been signed by Shri D. V. Simaria as partner of common opponent No. 2 firm running in the name of M/s. Bhanji Layji, while Shri Nathalal Dhanji has signed as partner of common original opponent No. 3 firm, Messrs Dhanji Meghji & Co., Before their signatures as partners of the concerned firms can bind the respective firms and other partners of those firms, it has to be established by the petitioner-Bank that the concerned signatories had the express or implied authority to bind the remaining partners of the firms. Such an authority can be traced only from Section 19 of the Indian Partnership Act. The said Section reads as under:

'19 (1). Subject to the provisions of Section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm.

The authority of a partner to bind the firm conferred by this section is called his implied authority.

(2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to -

(a) submit a dispute relating to the business of the firm to arbitration firm in his own name,

(b) open a ban king account on behalf of the

(c) compromise or relinquish any claim or portion of a claim by the firm,

(d) withdraw a suit or proceeding filed, on behalf of the firm,

(e) admit any liability in a suit or proceeding against the firm,

(f) acquire immovable property on behalf of the firm,

(g) transfer immovable property belonging to the firm, or

(h) enter into partnership on behalf of the firm.'

Mere look at the aforesaid section shows that before an act of a partner can bind the firm and, therefore, rest of the partners, it must be shown that the concerned act was done in the usual way to carry on the business of the kind carried on by the firm. On the facts of the present case it is nowhere shown that it was the business of either opponent No. 2 firm or opponent No. 3 firm to underwrite the loan transactions of third parties by standing as sureties. The evidence on the contrary shows that the firm of Bhanji Lavji was carrying on business of selling pure ghee and similarly opponent No. 3 firm, Dhanji MeghjJi & Co., was also a business firm caring on commercial activities. In that view of the matter Section 19 cannot be pressed in service by Mr. Desai for the petitioner-Bank. Section 22 of the Indian Partnership Act also cannot be of much assistance to Mr. Desai for the petitioner-Bank for the simple reason that it is merely a procedural provision which shows how a partner can bind his firm and the rest of the partners of the firm, once his act is within the four corners of Section 19(l). It is obvious that the procedure of Section 22 can be pressed in service provided the basic condition for foisting the liability on the firm and the remaining partners is established as per the requirement of Section 19(l). If that basic requirement is. not satisfied, even though the partner complies with the procedure of Section 22 of the Act by executing instruments in the manner provided by Section 22, it would remain an abortive exercise. On the facts of the present case it has been found by the Tribunal that it was not the usual course of business of either of the two firms to execute any surety ship contracts for the. benefit of third parties when they became debtors. In this. connection it is profitable to refer to the following discussion found at page 203 of 'Lindley on Partnership' 11th Edition.

'How far one partner can, bind the firm by a guarantee, obliging the firm to pay, if some other person does not, has been much disputed. The later cases, however, decide that unless it can be shown that the giving of guarantees is necessary for carrying on the business of the firm in the ordinary way, one of the members will be held to have no implied authority to bind the firm for, generally speaking, it is not usual for persons in business to make themselves answerable for the conduct of other people.'

The learned author in this connection has referred to the case of Brettel v. Williams, (1849) 4 Ex. 623; wherein the facts were that the defendants who were railway contractors had made a sub-contract for performance of part of some work they had undertaken. The sub-contractor required a quantity of coal, and one of the defendants, in the name of the firm, guaranteed to the plaintiffs, who were coal merchants, payment of coal to be supplied by them to the sub-contractors. It was held in that decision that this guarantee did not bind the partners of the contractor signing it. As seen above- Indian statutory provisions lay down the same principle. In that view of the matter the Tribunal was eminently justified in taking the view that merely because the concerned two partners signed as sureties on behalf of their respective firms, by these acts alone they could not bind any other partners of the firms or the firms themselves for the purpose of answering the claim of the petitioner- bank. The first contention of Mr. Desai, therefore, has to be repelled.

7. That takes me to the second contention of Mr. Desai. So far as this contention is concerned, it need not detain me any further. The case of the petitioner-Bank in both the arbitration cases was that defendants Nos. 2 and 3 firms were to be made liable only as sureties. No case was put up by the petitioner Bank against the concerned partners who were signatories below the surety bonds that they were liable in their individual capacities as copromissors who had signed promissory notes. As such a case was not initially put up by the Bank against the concerned signatories no such new case can be permitted to be made out in Article 227 proceedings when before both the courts below the petitioner-Bank had not thought it fit to urge such a case. My permitting Mr. Desai to raise such a contention in the present proceedings would clearly prejudice the concerned defendants and would take them by surprise. When this difficulty was noticed by Mr. Desai, he fairly conceded that he would not press the present contention. It is, therefore, answered as not pressed.

8. So far as the third contention of Mr. Desai is concerned, it is equally devoid of any merit. The Tribunal, on evidence, has taken the View that the Manager of the petitioner Bank itself clearly admitted in his evidence that the hypothecated goods were lost as the board of another bank, viz, Central Bank of India was placed on the go down containing the goods. It is a pure finding of facts based on relevant evidence which cannot be gone behind in the present proceedings. The finding reached by the Tribunal is that the petitioner Bank had lost the security and hence pro tanto sureties were discharged despite the ratification of the surety ship agreement by all the partners of defendant No. 3 firm as per Exh. 35/6. As this finding is based on relevant evidence and especially in the light. of the admissions by the petitioner-Bank's own Manager, Shri Raval, no fault can be found with the conclusion reached by the Tribunal on this aspect. It must, therefore, be held that the Tribunal was justified in taking the view that the sureties were discharged under Section 141 of the Indian Contract Act so far arbitration case No. 1581 of 1975 is concerned. The third contention, therefore, stands repelled.

9. So far as the last contention raised by Mr. Desai is concerned, Mr. Desai submitted that in any view of the matter, so far as arbitration case No. 1582 of 1975 goes, the Tribunal could not have wholly dismissed the suit of the petitioner against the concerned two defendants which were mentioned to be the two firms whose two partners admittedly signed the surety bond. Mr. Desai submitted that at least these two signatories could have been made liable to answer the claim even if the other partners of the concerned firms might get exonerated because of the finding reached by the Tribunal in the light of Section 19 of the Indian Partnership Act. Mr. Desai further submitted that in seeking decrees personally against the signatories of the surety ship agreement, no new case is being made out as from the very beginning the petitioner-Bank has sought for a money decree against all the partners of the concerned two partnership firms by suing them in the names of the firms as permitted by Order 30 Rule I CPC on the ground that they were liable as sureties for the debt of original defendant No. 1 and the passing of the decree against the concerned signatories would also be on the basis that they were sureties. No new case is thereby made out against the concerned signatories. Mr. Nanavati, learned advocate appearing for the respondents vehemently combated the aforesaid contention and submitted that both the arbitration cases were filed against the firms and not against the partners and, therefore, no decree could be passed against the partners. It was also submitted that even if it is assumed that the two partners who had signed the surety bond were parties to the dispute, even then they were not sued in their personal capacities but only as partners of the firm, hence no personal decrees can be passed against them. Alternatively Mr. Nanavati submitted that even as signatories below the surety bond if the concerned two partners are to be held liable to meet the suit claim, they would be entitled to submit that under Section 141 of the Indian Contract Act they are discharged as the security is lost.

10. The aforesaid contention of Mr. Desai is well sustained. The objection raised by Mr. Nanavati cannot hold good for the simple reason that the arbitration case is filed against the firms which would necessarily imply suing the partners of the firm, as permitted by Order XXX Rule (1) C.P.C. It is trite, to say that the firm is not a legal entity. However, only for convenience of suing all the partners of the firms, the procedure permitted by Order XXX can be followed. Still, the proceedings would remain proceedings against the concerned partners. The concerned partners are actually sued through the name of the firm. Hence it cannot be said that the partners who actually signed the surety bond were not parties to the dispute. It is also necessary to note that the case of the petitioner-Bank from the beginning is that the concerned partners of the firms are liable as sureties to meet the claim of the bank and that the bond is signed by the concerned partners and hence they are liable along with other partners. It is true that the concerned partners have not signed in their individual capacities. However that can hardly make any difference so far as present proceedings are concerned. It may be noted that strict and rigorous provisions of C.P. Code do not apply to the trial of a dispute u/s. 96 of the Act. It has to be decided according to justice, equity and fair play. If this was a full-fledged civil suit tried by a regular civil court, Mr. Nanavati could have urged with emphasis that by merely suing partners under O. 30 R. I through the name of the firm, no personal decree can be passed against the concerned partners unless he was also joined in his personal capacity as a defendant. It is also true that in a suit governed by O. 30, C.P.C., each partner appearing individually can put in a separate written statement but each written statement is the written statement of the firm. It is only when a person is sued personally along with the firm that he may put in a personal defence, (See AIR 1953 Bom 23 (25), AIR 1925 Bom 494 (496)). Still, however, the fact cannot be lost sight of that the present proceedings are to be decided on principle of justice, equity and good conscience and not strictly according to the rigorous procedural provisions of the C.P.C. Let us see if basic requirements of justice and fair play are met in this case or not. The partners of defendants Nos. 2 and 3 firms who have actually signed the surety bond are deemed to be parties to the dispute. They knew the case of the plaintiff which they had to meet. The case of the plaintiff-bank against these partners hinges on the surety bond below which they have signed, They did not dispute their signatures below the bond. Their defence u/s. 19 of Contract Act was rejected by the nominee's Court and decree for full amount was passed against all partners of the firm as sureties. The Tribunal has exonerated the rest of the partners in the light of S. 19 of the Indian Partnership Act. Still however, the award passed by Nominee's Court against partners who actually signed the bond was also set aside by the Tribunal. Mr. Desai seeks restoration of that limited award against actual signatories of the surety bond. It is, difficult to appreciate how this limited restoration of nominee's award against actual signatories of the bond as partners of the firms can in any way take them by surprise. Plaintiffs case was contested on merits and issues were joined, evidence was also led by the concerned defendants on all material aspects of the case. Hence justice and fair play demands passing of a limited decree against only 2 partners of the two firms who signed the bond while dismissing the claim against rest of the partners and the firms themselves. Once it is found on evidence that the concerned two partners had signed the surety bond which cannot bind the remaining partners, there is no reason why proper award cannot be passed against the signatories of the surety bond in their personal capacities as sureties. Mr. Nanavati's objection that even the concerned signatories would get exonerated on account of Section 141 of the Indian Contract Act cannot help him in arbitration case No. 1582 of 1975 for the simple reason that the Tribunal has found that no such defence was put up on behalf of the defendant-firms in that case, and there was no evidence on record to show that the security in that case was lost by the petition -creditor. Consequently the benefit of Section 141 which was available in companion case No. 1581 was not available to the defendants in arbitration case No. 1582 of 1975. Hence the last contention raised by Mr. Desai has got to be accepted. It is held that even though other partners of the concerned two firms are not liable and no decree can be passed against the concerned two firms as such, the respective two partners, Shri D.V. Simaria and Shri Nathalal Dhanji who had signed the surety bond would remain personally liable to answer the suit claim as sureties. Decree can be passed against these two partners to the aforesaid extent ever though further relief cannot be granted to the petitioner against the remaining partners of the said two firms.

11. In the light of the aforesaid discussion the following result is arrived at :

Special Civil Application No. 3W of 1978 which arises from a common order of the Tribunal in appeal No.54 of 1977 will have to be dismissed, as no fault can be found with any of the finding of the Tribunal in that appeal However, so far as special civil application No. 299 of 1978 is concerned which a rises from common order of the Tribunal in appeal No. 55 of 1977 which in its turn arose from the decision in arbitration case No. 1582 of 1975. it is held that the Tribunal was not justified in allowing the said appeal. The judgment and order of the Tribunal allowing appeal No. 55 of 1977 stand quashed and set aside. However, that will not result in automatic confirmation of the -award of the Registrar's Nominee in Arbitration Case No. 1582 of 1975, instead, award - decree will be passed against the respective two partners of opponents Nos. 2 and 3 firms, namely, Shri D. V. Simaria and Shri Nathalal Dhanji who will be held personally liable to meet the claim of the petitioner-Bank in Arbitration Case No. 1582 of 1975. They shall jointly and severally pay Rs. 22015-33 with 13% interest per annum to the petitioner-Bank. They shall also pay costs of the laved case to the petitioner-Bank. The award passed by the Registrar's Nominee in arbitration case No. 1582 of 1975 shall be restored to the aforesaid limited extent. It is clarified that awards passed by the Nominee against original defendant No. I - principal debtor in both the cases (common respondent. No. 3 herein) will of course remain untouched as they have already become final. Rule issued in special civil application No. 299 of 1978 is made absolute partially to the extent indicated in this judgment. Rule issued in special civil application No. 300 of 1978 shall stand discharged. In the facts and circumstances of the case there will be no order as to, costs in both the special civil applications.

12. Order accordingly.


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