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Central United Bank Ltd. and anr. Vs. B.A. Venkatarama Naidu - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Case NumberAppeal No. 165 of 1959
Judge
Reported inAIR1963Mad302; (1953)1MLJ345
ActsPartnership Act, 1932 - Sections 32(3)
AppellantCentral United Bank Ltd. and anr.
RespondentB.A. Venkatarama Naidu
Appellant AdvocateS.K. Ahmed Hasan, ;M. Khaja Mohodeen and ;N.A. Noor Ahmed, Advs.
Respondent AdvocateG. Ramanujam, Adv.
DispositionAppeal dismissed
Cases ReferredIn Ratanji Bhagwanji and Co. v. Prem Shanker
Excerpt:
.....partner - section 32 (3) of partnership act, 1932 - whether a retired partner who failed to give public notice of his retirement liable to dealings of continuing partners of firm with third party - bank was aware about retirement of respondent from firm before suit transaction - as per section 32 (3) retired partner would be liable to third party which dealt with firm if party was not aware of retirement of that particular partner - held, retired partner was not liable to debt incurred by firm after his retirement. - - 1. this appeal raises a question about the liability of a retired partner who failed to give public notice of his retirement with respect to dealings of the continuing partners of the firm with a third party. but his claim to relief was objected to on behalf of the..........c.j.1. this appeal raises a question about the liability of a retired partner who failed to give public notice of his retirement with respect to dealings of the continuing partners of the firm with a third party.2. three persons ramakrishna chettiar, ramaswami nadar and venkatarama naidu, the defendants to the suit out of which this appeal arises, carried on business in partnership as grocers in rajapalayam. the first among them, ramakrishna chettiar, was the managing partner. he also happened to be the president of the central united bank, which is now represented by the appellant, a limited liability banking concern of the place. the partnership firm had overdraft facilities with the bank. on 8th february 1946, venkatarama naidu (the third defendant) retired from the partnership. his.....
Judgment:

S. Ramachandra Iyer, C.J.

1. This appeal raises a question about the liability of a retired partner who failed to give public notice of his retirement with respect to dealings of the continuing partners of the firm with a third party.

2. Three persons Ramakrishna Chettiar, Ramaswami Nadar and Venkatarama Naidu, the defendants to the suit out of which this appeal arises, carried on business in partnership as grocers in Rajapalayam. The first among them, Ramakrishna Chettiar, was the managing partner. He also happened to be the President of the Central United Bank, which is now represented by the appellant, a limited liability banking concern of the place. The partnership firm had overdraft facilities with the bank. On 8th February 1946, Venkatarama Naidu (the third defendant) retired from the partnership. His retirement is evidenced by a document, Ex. B. 4, executed between the partners.

Under the arrangement referred to therein the remaining two partners were alleged to run the business as before in the name of the firm. Although intimation of the retirement was given to the Registrar of Firms and to the Commercial Tax Officer of the place, no public notice of it in the manner specified in Section 72 of the Partnership Act was given. Subsequent to the retirement of Venkatarama Naidu, on 4th January 1947, Ramakrishna Chettiar, acting on behalf of the firm of which he and Ramaswami alone were partners, obtained a loan of Rs. 6000 from the bank by executing a promissory note. The loan was renewed later, such renewal being evidenced by a fresh promissory note bearing 3rd January 1950 as its date. The suit, out of which this appeal arises, is based on that note. It is not disputed that it is very clear on the evidence in the case, that the suit loan is independent of the transactions which the old firm had with the bank.

The only ground on which the retired partner is sought to be made liable is that he, having not given public notice of his retirement would be bound by the obligations of the reconstituted firm, under Section 32 of the Partnership Act. There is little doubt that the bank was, as a matter of fact, aware of the retirement of Venkatarama from the firm. The managing partner of the firm Ramakrishnna was himself the President of the Board of Directors of the Bank. The bank significantly enough did not consider that Venkatarama was liable for the suit loan when it issued a notice of demand in respect of it, as it called upon only the continuing partners to pay it off. The bank subsequently went into liquidation. It was only in the suit that was filed to recover the loan advanced, Venkatarama was also sought to be made liable and impleaded as a party. The main contest in the suit related only to his liability.

2a. Of the other defendants, the first defendant claimed benefit under Madras Act IV of 1938. He had admittedly an interest in agricultural lands. But his claim to relief was objected to on behalf of the bank on the ground that he bad been assessed to income-tax during the relevant years which disentitled him to come within the definition of the term 'agriculturist.' No evidence, however, was adduced on this question. The bank was entitled, under the circumstances to obtain a decree against the first defendant only in accordance with the Agriculturists Relief Act.

3. The learned Subordinate Judge who passed such decree, however, added a rider thereto namely that if the bank was able to produce within a period of two months a certificate from the Collector that the debtor was paying income-tax during the relevant years and thus not entitled to the benefits of that enactment, he would be liable for the entire amount. The passing of such a conditional decree is hardly consistent with sound procedure. If a party failed to produce evidence before the Court in support of his case, it will bethe duty of the court to decide the case on the materials placed before it and not pass a conditional or second decree if evidence to support it were to be produced in future. It is, however,unnecessary to pursue that matter as the contingency contemplating production of the collector's certificate, never happened. There is no challenge by the defendants 1 to 2 to the decree against them.

4. The claim against Venkatarama was rejected by the learned Subordinate Judge on the ground that the bank was factually aware of his retirement from the firm before the suit transaction. Mr. Ahmed Meeran appearing for the bank contests this view by referring to Section 32(3) of the Indian Partnership Act which according to learned counsel casts a statutory liability on retired partners if they had not taken the precaution of issuing public notice of their retirement. Section 32(3) states,

'Notwithstanding the retirement of a partner from a firm he and the partners continue to be liable as partners to third parties for any act done by any of them which wouid have been an act of the firm if done before the retirement until public notice is given of the retirement.

Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.'

Section 72 defines the mode of giving public notice, that read with Section 32(3) would require that notice of retirement should be given to the Registrar of Firms, by publication in the official gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business, as to the fact of retirement.

5. The direct or literal meaning of the wordsof Section 32(3) would, no doubt, convey the idea that a retiring partner will, in the absence of public notice of his retirement, continue to be liable even in respect of transactions entered into, subsequent to his retirement, by the continuing partners of the firm with a stranger, irrespective of the fact whether such a person was in fact aware of the retirement. But the proviso to the sub-section qualifies that rule. It says that the retired partner would not be liable to any third party who deals with the firm without knowing that he was a partner. Is a case where the third party knows that the retired partner was not in fact a member of the firm different? Reason and justice demand that the rule as to non-liability should be the same in both the types of cases.

6. Mr. Ahmed Meeran, however, contends that as the words employed in Section 32(3) ate clear, it is obligatory on the Courts not to confine its application to cases where the third party had no notice of the retirement.

7. Recently, one of us while sitting alone, bad to consider in Peria Mara Gounder v. Rama-swarm Gounder : (1962)1MLJ106 the circumstances in which the apparently wide terms of a statute should be given a restricted meaning. It has been pointed out in that case, that the fundamental rule of interpretation of statutes is the ascertainment of the intention of the Legislature. Such intention has to be ascertained ordinarily from the language of the statute whose language is plain and unambiguous. But the language of every statute has to be read in the light of its other provisions, and when the ordinary meaning of the terms of any section leads to contradiction of the purpose of the enactment or to inconvenience, absurdity, hardship or injustice it would be open to the court in certain circumstances to supply an omission or to give a restricted meaning to the words. We will have to consider therefore whether a literal construction of Section 32(3) is opposed to the intention of the legislature, as evident from the provisions of the Act and leads to an absurdity amounting to repugnance.

8. Section 32(1) provides for a case in which a partner may retire without disturbing the firm. Sub-section (3) to Section 32 puts an end to the partnership between partners qua the retiring partner. The consequence is that rule as to the agency of each partner to the rest of the partners would cease to apply in the case of the retiring partner. A strict application of this rule would cause hardship to third parties who were having and continue to have dealings with the firm without knowing that a particular partner had retired. Its object therefore is not to impose a statutory liability on the retiring partner but to protect third parties, embodying a rule of estoppel so far as the retiring partner is concerned, for repudiating the agency of others. In Benjamin Scarf v. A. G. Jardine, (1882) 7 AC 345, Lord Selborne observed,

'The principle of law which is stated in Lindley on Partnership is uncontrovertible, namely, that where an ostensible partner retires or where a partnership between several known partners is dissolved those who dealt with the firm before a change took place are entitled to assume, until they have notice to the contrary, that no change has occurred; and the principle of which they are entitled to assume is that of the estoppel of a person who has accredited another as his known agent for denying that agency at a subsequent time as against the person to whom he has accredited him by reason of any secret revocation. Of course in partnership there is agency--one partner is the agent of another and in the case of those who, under the direction of the partners for the time being, carry on business according to the ordinarycourse, where a man has established such an agency and has held it out to others, they have a right to assume that it continues, until they have notice to the contrary.'

Section 32(3) therefore enacts a liability on the well known principle of holding out. This principle is also recognised in the case of dissolutionunder Section 45 of the Partnership Act, The partnership Act is an amending enactment and is by no means a complete one. It repealed Ch. XI of the Indian Contract Act which contained provisions relating to the law of partnership. It is a well recognised rule of construction that for a due appraisement of the content of a statutory provision and to gather the intent of the legislature while enacting it, the previous law on the subject andthe mischief which the statute intended to cure should be looked into. Under the law as it stood prior to the Indian Partnership Act, an active partner who had retired from a firm could continue to remain liable fof the debts contracted subsequently by the continuing firm unless those who had previous dealings with the firm had actual notice of the retirement. In order that the retiring partner Can escape liability in regard to the future acts of the continuing partners, individual notice of retirement to the old constituents was necessary. Public notice was necessary to avoid the claim of those who only deal with the continuing firm after the retirement. In Jwaladut R. Pillani v. Bansilal Motilal, ILR 53 Bom 414 : AIR 1929 PC 132 (which was a case of dissolution of partnership), the Privy Council held that in regard to persons who had previously dealt with the old firm it was necessary that they should receive actual notice of dissolution and public notice was not sufficient.

9. Thus the law prior to the enacting of the Indian Partnership Act was the same as in England. The law in England can be stated thus: (1) a creditor who had previous dealings with the firm is entitled to treat all those whom he knew to be members of it as remaining until he has actual notice to the contrary; (2) a creditor who has had no previous dealing with the firm but who knew who the partners were because of the use of their names in the note paper etc., is entitled to treat such persons as the remaining members of the firm until either he receives actual notice to the contrary, or the retirement is published in the London Gazette, (3) a creditor who has not had previous dealings with the firm or knowledge of its constituent is not entitled to hold the retired partner liable for debts incurred by the firm subsequently to his retirement notwithstanding that no notice of any sort is given (Vide Pollock on the Law of Partnership, 15th Edn. page 96).

Taking the first two cases referred to above, the disadvantage of the law is that it envisages no uniform method of issuing notice of retirement to all those who have dealings with the firm before and after the retirement. What Section 32 of the Indian Partnership Act does is to remove the distinction between public notice and private notice. It enacts that public notice would be sufficient both in the case of the old customers as well as those who dealt with the firm after the retirement of a particular partner, the third category of cases referred to above rests on a different basis. That principle would remain unaffected by Section 32(3) as before. In other words, Section 32(3) is not intended to create a liability where none existed before or to penalise a retired partner who failed to give public notice of his retirement. The true basis of the liability of a retiring partner is, as we said, on the principle of holding out. There can be no holding out if the person who deals with the new firm is aware of the retirement of a particular partner. In Ratanji Bhagwanji and Co. v. Prem Shanker, : AIR1938All619 , Misra, J. recognised that a retiring partner could escape liability in respect of transactions entered into by the continuing partners after his retirement if the third party was aware that the former had ceased to be a partner of the firm.

In our opinion, the proviso to Section 32(3) and the corresponding provision in Section 45 with its proviso indicate beyond doubt, that only persons who were not aware of the retirement of a particular partner could take advantage of Section 32(3) or Section 45. The purpose of Section 32(3) is more to specify how notice should be given. Its main object is to avoid the necessity of giving actual or private notice to the various persons. In other words, it specifies the mode by which the retiring partner may be relieved of the responsibility of issuing notice to the various classes of persons who might enter into transactions with the surviving partners. Public notice is intended only to serve a purpose, namely, to bring home to the pgrsons concerned the fact of retirement That purpose will undoubtedly be served in a better way by personal or actual notice. To contend that actual notice cannot take the place of the public notice is to miss the substance of the matter and argue counter to the very principle on which the retiring partner's liability is based. In Jarvis v Hemmings, 1912-1 Ch 462, a question somewhat analogous to the present one arose. Under the relevant statutory provision a landlord, who was given certain rights on condition of his issuing notice by registered post addressed to his tenants, was held to have satisfied the requirements of the statute where he gave persona! notice. Warrington J. observed:

'No service can be better than personal service. The object of the section is that the notice shall come to the knowledge of the person for whom it is intended and there cannot be any reason why that should be secured by service by registered post, rather than by personal service, which is a surer mode of service. I cannot imagine, therefore, that there can be any reason why it should be sent by registered post and in no other way. Therefore on the true construction of the section, quite independent of authority, I should have thought that the service was sufficient.'

10. We are therefore of the opinion that theappellant bank which was aware of the retirementof the respondent (third defendant) would not beentitled to hold him liable in respect of a debt incurred by the firm after the retirement of the respondent. The appeal fails and is dismissed withcosts.


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