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K. Pitchiah Chettiar Vs. G. Subramaniam Chettiar and ors. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai
Decided On
Reported inAIR1934Mad494; 150Ind.Cas.777
AppellantK. Pitchiah Chettiar
RespondentG. Subramaniam Chettiar and ors.
Cases ReferredNowell v. Nowell
Excerpt:
.....in that case covered only the actual loss in the carrying out of the partnership and did not cover excess advance of capital followed by loss of capital, still the principle that the community of profit involves like community of loss was applied by the learned judge. the learned judge then gives an arithmetical example where one partner advances 1,000 for speculation in cotton, and winds up like this: the appeal must therefore fail and is dismissed with costs......this seems to be a mistake because neither the pleadings nor the issues nor the order of the learned judge referring the matter to the official referee stated that the parties were to be interested in the assets and liabilities in equal proportions. but however, as nobody is affected by it and as everybody knew that the partnership ended in loss, nobody cared to question the correctness of this statement in the preliminary decree by an appeal. clause 7 of the preliminary decree providedthat the question whether some partners are en are not liable for losses of the said partnership be and is hereby reserved.3. the official referee submitted his report on 24th november 1932. objections were filed by both parties and when the case came on for disposal before our brother stone, j., on.....
Judgment:

Ramesam, J.

1. This appeal arises out of a partnership action. The plaintiff and the three defendants carried on the partnership. Towards the end it was working at a loss and the plaintiff filed the suit on 16th November 1931, for winding up the partnership. In the plaint the plaintiff alleged that the shares were as follows: Plaintiff, 4 annas, defendant 1, 4 annas; defendant 2, 4 annas and defendant 3, 2 1/2 annas, out of a total of 14 1/2 annas, in other words, the shares were 8/29, 8/29, 8/29 and 5/29. It is unnecessary to notice the written statement of defendant 1. Defendants 2 and 3 filed a joint written statement in which they admitted that there was a partnership of which they were members but denied that they were liable to bear any portion of the losses. At the first hearing two issues were framed : '(1) What are the terms of the partnership agreement between the plaintiff and the defendants? (2) Are defendants 2 and 3 partners, and if so are they not liable for the losses of the partnership?

2. On 19th April 1932, the matter was referred to the Official Referee for taking accounts. The order expressly reserved the question of whether some partners are or are not liable for losses. A preliminary decree was passed on 28th April in which it was stated that all the partners were interested in the assets and profits in equal proportions. This seems to be a mistake because neither the pleadings nor the issues nor the order of the learned Judge referring the matter to the Official Referee stated that the parties were to be interested in the assets and liabilities in equal proportions. But however, as nobody is affected by it and as everybody knew that the partnership ended in loss, nobody cared to question the correctness of this statement in the preliminary decree by an appeal. Clause 7 of the preliminary decree provided

that the question whether some partners are en are not liable for losses of the said partnership be and is hereby reserved.

3. The Official Referee submitted his report on 24th November 1932. Objections were filed by both parties and when the case came on for disposal before our brother Stone, J., on 27th November 1933, the objections were not pressed by the learned advocate who appeared for defendants 2 and 3, viz., Mr. V.V. Srinivasa Ayyangar, and nothing more was said by him. Thereupon the learned Judge passed a decree directing that the losses also should be borne in the proportions alleged in the plaint. Defendant 2 has filed this appeal. Defendant 3 says that he is too poor to file an appeal and that he supports defendant 2. On this appeal it is argued that defendant 2 had witnesses ready and they ought to have been examined by the learned Judge. Upon this argument being put forward, we wanted to ascertain what exactly happened at the time of the final hearing. We accordingly requested Mr. Srinivasa Ayyangar to state what happened before the learned Judge. He told us that he said that he would not press the objections and nothing else. He admitted that he never offered to examine his witnesses. Mr. Radhakrishnayya who now appears for the appellant argues that even if this were so the burden of proof is on the plaintiff to prove the case set up by him in his plaint and if he does not prove his case he ought to fail even if the defendant does not examine his witnesses. The question thus, reduces itself to one of burden of proof in other words, who should fail if No. evidence is offered on either side. Section 253(2), Contract Act, lays down that all partners are entitled to share equally in the profits of the partnership business and must contribute equally towards the losses sustained by the partnership. As I read the section it lays down two presumptions with which the Court should start. The two presumptions are clubbed in one sub-section. They are (1) if no, specific contract is proved, the shares of the partners must be presumed to be equal.

4. In the present case the plaintiff alleged unequal shares which were not denied, by the defendants. So the parties being agreed on their pleadings as to the shares possessed by them in the profits, there is no scope for the application of this first presumption. The second presumption is that where the partners are to participate in the profits in certain shares they should also participate in. the losses in similar shares. Now the section says that both should be in equal shares but implies that if unequal shares are admitted by the partners as to profits that applies equally to losses. In the absence of a special agreement, that this should be the presumption with which one should start is merely a matter of common sense and in India one has only to rely on Section 114, Evidence Act, for such a principle. This principle is in consonance with the decision in Nowell v. Nowell (1869) 7 Eq. 538, where there is an agreement to share the profits and losses in certain shares but the question arose whether that agreement as to lasses covers the case of a partner advancing a larger capital and the capital being lost. Sir W.M. James, V.C., observed:

Whether moneys are brought in originally as capital or advanced subsequently, or paid by one partner at the winding up, is in my judgment, wholly immaterial. In the absence of stipulation to the contrary the community of profit involves like community of loss.

5. Though the agreement in that case covered only the actual loss in the carrying out of the partnership and did not cover excess advance of capital followed by loss of capital, still the principle that the community of profit involves like community of loss was applied by the learned Judge. The learned Judge then gives an arithmetical example where one partner advances 1,000 for speculation in cotton, and winds up like this:

If it only produces 900 could it be contended that the capitalist partner is to put up with the entire loss and that the game of partnership between the man without money and the man with, was to be on the principle of heads, I win; tails, you lose?

6. We entirely agree in those remarks of the learned Judge. The same principle is also inferable from the remarks of Jessel, M.R., in In re Albion Life Assurance Society (2), at p. 87. This case related to an insurance company which is of course a more complicated matter than a partnership. In an insurance company it is the share-holders that advance the capital and though the shareholders and the policy holders participate in the profits, the share-holders are to participate first in certain percentage in the profits and then only all are to share in the profits equally. On this ground it was held that their position is not similar in an insurance company where if there was a loss the shareholders must share the losses and the policy-holders cannot be asked to bear them. But in discussing the matter Jessel, M.R., states the principle thus:

It is said, as a general proposition of law, that in ordinary mercantile partnership where there is a community of profits in a definite proportion, the fair inference is that the losses are to be shared in the same proportion.

7. This principle though it could not be applied in that particular case states a general principle applicable to all oases of ordinary partnerships. The learned Judge then proceeds to say that it must be logically carried out to its legitimate extent and where the capital is lost the partners should bear the loss. In some respects it resembles the case before Sir W.M. James, V.C. The principle above stated by us is exactly the same as in these two cases and we think that it is embodied in Section 253, Contract Act. That being so, it is for defendants 2 and 3 to adduce evidence to show that while they participated in the profits they were not liable for any share of the loss. It is so peculiar a contract and so much out of the ordinary partnerships that if no such contract is proved the general presumption that profits and losses are to be shared in equal or similar shares would apply and the plaintiff would get a decree. Therefore the burden of proof is on the defendants and they not having offered to adduce evidence, the learned Judge's judgment is right. The appeal must therefore fail and is dismissed with costs.

Madhavan Nair, J.

8. I agree.


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