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(Vatakkam Chirayil Parkum) Kurundaliammal Vs. T.P.E.N. Kunhi Kannan and ors. - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtChennai
Decided On
Reported inAIR1930Mad141
Appellant(Vatakkam Chirayil Parkum) Kurundaliammal
RespondentT.P.E.N. Kunhi Kannan and ors.
Cases Referred and Sankara Subban Pattar v. Mangalaseri Kunhu
Excerpt:
.....of rs. good faith is required in dealings between the partners, and when, as a result of the accounts produced by these working partners they induced the other partners to execute in their favour a promissory note in respect of the amounts so found to be due to these working partners according to the accounts produced by them, it is all the more necessary for them to exercise the utmost bona fides in such matters. ). i should just like to quote the passage on which great stress was laid by the learned advocate for the appellant in this case. the law in cases of this kind i apprehend to be perfectly clear. in either case it is good for nothing if either from the collusion of the parties upon the circumstances under which the settlement take place, it is proved in a court of equity..........decree in favour of the plaintiff against all the defendants for the amount due on the promissory note. defendants 1, 2 and 3 preferred an appeal to the lower appellate court. the learned subordinate judge came to the conclusion that the promissory note was executed by defendants 1, 2 and 3 as the result of fraud practised by defendants 4 and 5 and also that the plaintiff had knowledge of the defect of title of defendants 4 and 5 when he got endorsement of the note from them in his favour. on these findings he reversed the decision of the first court and dismissed the suit against defendants 1 to 3. hence this second appeal has been filed by the plaintiff against defendants 1, 2 and 3 only. we are not here concerned with the decree granted by the first court against defendants 4 and 5.....
Judgment:

Anantakrishna Ayyar, J.

1. The plaintiff as the endorsee of a promissory note, Ex. C executed by defendants 1, 2 and 3 in favour of defendants 4 and 5 instituted the original suit against all the defendants to recover the amount due on the promissory note. The plea of defendants 1, 2 and 3 was that there was no consideration for the promissory note, that it was executed on account of fraud practised upon them by defendants 4 and 5 and that plaintiff was not a holder in due course as he knew the defect of the title of defendants 4 and 5 to the promissory note. Defendant 4 did not appear in the suit and defendant 5 supported the plaintiff. The trial Court came to the conclusion that there was no fraud and that the amount must be taken to have been due. It gave a decree in favour of the plaintiff against all the defendants for the amount due on the promissory note. Defendants 1, 2 and 3 preferred an appeal to the lower appellate Court. The learned Subordinate Judge came to the conclusion that the promissory note was executed by defendants 1, 2 and 3 as the result of fraud practised by defendants 4 and 5 and also that the plaintiff had knowledge of the defect of title of defendants 4 and 5 when he got endorsement of the note from them in his favour. On these findings he reversed the decision of the first Court and dismissed the suit against defendants 1 to 3. Hence this second appeal has been filed by the plaintiff against defendants 1, 2 and 3 only. We are not here concerned with the decree granted by the first Court against defendants 4 and 5 which has become final.

2. On behalf of the appellant the learned advocate raised two points before me. In order to appreciate the first contention raised it is necessary to state a few facts. There was a partnership in timber carried on by these defendants. Defendants 4 and 5 would seem to be working partners and defendant 1, 2 and 3 really the monied partners who provided the capital. There were misunderstandings between the partners with the result that they were anxious to have the partnership dissolved and the accounts taken. Two attempts were made for settlement, the first at a place called Chokli. Though no accounts were produced at the Chokli settlement it would appear that the parties were persuaded through the intervention of some arbitrator, to fix a particular amount as the amount due to some of the partners, and that after accepting the said settlement a release deed was executed by them in favour of the others. Immediately afterwards the said settlement was set aside by consent and the release dead was treated as cancelled. There were further negotiations and at Kasargod there was another settlement. Defendant 5 was the working partner in charge of the actual partnership transactions. He produced certain account books at the settlement at Kasargod and he also produced two balance sheets, Exs.-B and I. According to these it appeared that defendant 4 was found entitled to a sum of Rs. 341-8-0 and defendant 5 to a sum of Rs. 4,885-5-6. The amount due to defendant 4 namely, Rs. 341-8-0 was treated as not really due, having regard to the state of affairs of the partnership and in respect of the amount due to defendant 5 some amount was reduced from the Rs. 4,885-5-6, appearing in the books as due to him and from the amount arrived at a sum of Rs. 1,385-0-0 was deducted on account of defendant 4 and 5's share of the loss. Rs. 215-1-0 was paid in cash and 22 logs of timber worth Rs. 570-15-0 were also given. It is in respect of the balance of Rs. 2,714-0-0 which was found to be due to defendants 4 and 5 that this promissory note, Ex.-C was executed on 30th October 1920. The finding of the lower appellate Court was that defendant 5 who was in charge of the business had tampered with the accounts and the balance sheets, Exs.-B and I, which he produced before defendants 1, 2 and 3 and on the basis of which the parties settled accounts were all tainted by fraud.

3. The lower appellate Court has discussed this question of the fraud practised on defendants 1, 2 and 3 at the time of the settlement. A commissioner was appointed to go into the interpolations and alterations made in the accounts by the partners in charge of the business. It is unnecessary for me to go into the details of the mistakes and frauds which the lower appellate Court finds proved. To take one instance, in para. 15 of the lower appellate Court's judgment, in considering item 166 of the commissioner's report, it is observed that the entry as it stood at first related to a debit of Rs. 15 on 15th November 1919 in the firm's books. The figures were subsequently changed into Rs. 715. The sum is said to have been sent to one Kamevadi Chappa for meeting expenses in connexion with the partnership. The alteration of the figures '15' into '715' clearly benefits the working partners to the extent of Rs. 700. This alteration of the figure '15' into '715' in respect of a debit on 15th November 1919 is carried out both in the ledger and also in the fair day book. But unfortunately for defendants 4 and 5, the rough daybook contains only the original entry '15', so that the lower appellate Court had before it a case where accounts had been tampered with by partners who kept the accounts and who produced those accounts as the accounts properly representing the affairs of the partnership at the settlement made by them with the other partners, defendants 1, 2 and 3. No doubt certain explanations were offered with reference to these entries. The lower appellate Court in para. 15 observed that it was unable to accept the explanation. My attention was drawn by the learned advocate for the respondent to other similar entries also where figures '100' was changed into ''300' and various similar changes were made; for example, Rs. 20 changed into Rs. 320 and 7 annas 7 pies changed into Rs. 100-7-9. Sitting in second appeal it is not necessary for me to multiply instances.

4. What has been found by the lower appellate Court therefore comes to this. Defendants 4 and 5 working partners in charge of the accounts represented to the other three capitalists partners, defendants 1, 2 and 3 that the accounts produced by defendants 4 and 5 before defendants 1, 2 and 3 represented the real state of the transaction of the partnership. Further they produced for the purpose of the settlement two abstract balance sheets, Exs. B and I which represented the result of the accounts, according to the altered state of the accounts. Now it goes without saying that partners who do not take, an active part in the partnership are entitled to rely on the accounts produced by the working partners who were in charge of the same. Good faith is required in dealings between the partners, and when, as a result of the accounts produced by these working partners they induced the other partners to execute in their favour a promissory note in respect of the amounts so found to be due to these working partners according to the accounts produced by them, it is all the more necessary for them to exercise the utmost bona fides in such matters. The plea of defendants 1, 2 and 3 in the present case that the promissory note was executed by them owing to fraud practised by defendants 4 and 5 has been amply proved, and the materials on record warrant the finding of the lower appellate Court in their favour. It was, however, argued by the learned advocate for the appellant that the present case comes within the principle enunciated by the Privy Council in the case reported in M. Kellor v. Wallace [1851] 5 M.I.A. 372 (P.C.) the principle is set out in the judgment delivered by the Right Hon'ble Pemberton Leigh, No doubt in cases where parties elect to proceed not on the basis of accounts but in spite of the same, if, for example, they say expressly or by necessary implication that whatever might be the state of accounts, the parties do not want to take the actual accounts but want to avoid the labour and trouble of going through the accounts, but voluntarily agree to have a particular amount fixed (really it is, in such cases, by way of compromise of their claims), then it is not open to one of them subsequently to say that if the accounts as subsequently gone into prove that the amount due by one party is much less than the amount which the parties mutually agreed that they are not bound by the agreement. That is it is no answer to say that the parties were not wiser in the first instance. It is open to parties to compromise matters in dispute, and questions relating to settlement of accounts are not an exception to this rule. That was the case which the Privy Council had to consider in the case reported in M. Kellor v. Wallace [1851] 5 M.I.A. 372 (P.C.). I should just like to quote the passage on which great stress was laid by the learned advocate for the appellant in this case. At p. 395 it is stated:

The law in cases of this kind I apprehend to be perfectly clear. Parties having accounts between them may meet and agree to settle those accounts by the ascertainment of the exact balance; and, if they mean to ascertain the exact balance, it may be necessary for that purpose, and probably is necessary in most cases, that voucher should be produced, and that all the information which is possessed on one side and the other should be furnished in the settlement of those accounts; and, if it alter wards turns out that there are errors in the account it is a sufficient ground for opening the account and for setting it right in a Court of Equity If on the other hand, persons meet and agree, not to ascertain the exact balance, but agree to take a gross sum as the balance, a sum which one is willing to pay and the other is content to receive as the result of those accounts, it is obvious that the production of vouchers is entirely out of the question and errors in the account or so also, for the very object of the parties is to avoid the necessity for producing those vouchers, upon the assumption that there are or may be errors in the account so settled; therefore it is either an account stated and settled, in the formal sense of that expression, or, it is the case of a settlement by compromise.

5. Having come to the conclusion that the case before me is not a case of the kind put forward by the learned advocate for the appellant based on the second aspect mentioned in the judgment of their Lordships it follows that I am unable to uphold his contention for another reason also. It should be noticed that the Privy Council in the case in M' Kellor v. Wallace [1851] 5 M.I.A. 372 (P.C.) proceed further to state:

In either case (that is, in either of the two cases contemplated by his Lordship in the previous sentences) it may be vitiated by fraud; in either case it is good for nothing if either from the collusion of the parties upon the circumstances under which the settlement take place, it is proved in a Court of equity that the transaction was not so fairly and so fully understood between the parties, either from the confusion in which it was involved or from misrepresentations made on the one side or the other, as it ought to have been, and that injustice has been done to either side.

6. It being thus clear that fraud is a ground for interference in both cases, the question is whether fraud has been legally found in the present case. In Lindley on Partnership, Edn. 9, at p. 591 there is a paragraph relating to agreements made between partners at the time of dissolution and based on false and incorrect accounts. It is stated that:

not with standing the inability of a retiring partner and of those claiming under him to avoid an agreement fairly come to between him and his copartners, the good faith and open dealing which one partner has a right to expect from another never require to be more scrupulously observed than when one of them is retiring upon terms agreed to upon the strength of representations as to the state of the partnership accounts; and an agreement entered into on a dissolution will be set aside if it can be shown to have been based upon error or to have been tainted by fraud, whether in the shape of positive misrepresentation or of concealment of the truth.

7. A case is mentioned where in circumstances similar to the present case, a plaintiff gave a note for the amount of the balance and afterwards discovering mistakes be filed a bill for a new account. The defendant of course pleaded 'accounts stated.' The Court decreed that the defendant should give a new account. It is not necessary to quote other cases to which my attention was drawn by the learned advocate for the respondents. The case of Law v. Law [1905] 1 Ch. 140, was also referred to in support of the same proposition. Here not only were the accounts produced by defendants 4 and 5, but two balance sheets, Exs. B and I, were prepared by them and produced before defendants 1 to 3 on the faith of which defendants 1 to 3 took upon themselves the partnership business and sent off defendants 4 and 5, promising to pay them under this note a sum of money after giving them some cash and some logs of timber. Having regard to the fraud practised upon defendants 1 to 3 as shown by the numerous instances of falsification of accounts by defendants 4 and 5, I think the lower appellate Court was entitled to come to the conclusion that this settlement was not binding upon defendants 1 to 3 and that the promissory note was accordingly vitiated.

8. The next question that was argued on behalf of the appellant was that, in any event, not being a party to the promissory note in the first instance but only an endorsee from defendants 4 and 5 he was entitled to protection and that his suit should not have been dismissed, whatever remedies defendants 1 to 3 might have against defendants 4 and 5 in respect of any fraud practised upon them. The answer to that is that unless the plaintiff proves that he is a holder in due course within the meaning of Section 9, Negotiable Instruments Act, he could not have any higher or superior rights against defendants 1, 2 and 3 than defendants 4 and 5 themselves would have. In this case there is the finding arrived at by the lower appellate Court in para. 28 of its judgment on p. 10 that the plaintiff knew of these disputes and that he took the note with notice of the defect of title of defendants 4 and 5. That finding is enough to disentitle the plaintiff to the benefits of a holder in due course. There was also another matter mentioned to me which would equally disentitle the plaintiff to relief on this footing. As I mentioned already, the promissory note is dated 30th October 1920. It was endorsed in favour of the plaintiff by defendants 4 and 5 on 27th July 1921. In the plaint it is mentioned in para. 5 that the due dates were 31st December 1920 and 31st March 1921. I understand that it means that the amounts became payable on these respective dates. The plaintiff's endorsement is dated subsequent to the second of the dates mentioned in the plaint and, that being so, on that ground also the plaintiff could not be said to be a holder in due course.

9. The learned advocate for the appellant, however, argued that in the case of promissory-notes payable on demand there is no such thing as the date on which the amount became payable, because he argued that in the case of every promissory-note payable on demand the amount becomes payable on the execution of the promissory-note and that the words 'after the same became payable' should not be taken to apply to such promissory-notes. I need not express any opinion in this case on this question, as I have held against the appellant on the other point already mentioned by me; but my attention was drawn to the cases reported in Communden Mohideen Sahib v. Oree Meerah Saib 7 M.H.C. 271, Van Ingen v. Dhunna Lall [1882] 5 Mad. 108, and Sankara Subban Pattar v. Mangalaseri Kunhu [1910] 33 Mad. 34, where this Court observed that if, after the execution of an 'on demand' promissory-note, the holder of the promissory-note made demands on the maker, then a subsequent indorsee from such holder could not be said to be a holder in due course' within the meaning of Section 9. However, as I said, it is unnecessary for me to decide in this particular case this point, as I have found that the lower appellate Court was entitled to come to the finding that the plaintiff had notice before he took endorsement of the defect of title of defendants 4 and 5 to the promissory-note in question.

10. It, therefore, follows that both the contentions raised by the learned advocate for the appellant should be overruled, with the result that the second appeal is dismissed with costs.


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