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Chandooru Punnayya (Dead) and anr. Vs. Sree Venugopala Rice Factory Company, Ltd. - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported in43Ind.Cas.508
AppellantChandooru Punnayya (Dead) and anr.
RespondentSree Venugopala Rice Factory Company, Ltd.
Cases ReferredStead v. Salt
Excerpt:
contract act (ix of 1872), sections 196, 197, 251 - partnership sub-partners, liability of, for partnership debts--arbitration, submission to, by managing partners, whether binds other partners--companies act (vi of 1882) section 21--articles of association--share, charge for debt on--registered company, debtor of, becoming share-holder, effect of--specific relief act (i of 1877) section 42--suit, by share-holder debtor to establish extent of right in company property, maintainability of. - - the objection is not good......by this condition when he became a shareholder under section 21 of the indian companies act. the award debt is one which plaintiff was jointly bound to pay to the company with others and at the dates when the company was registered and the articles confirmed, it was not barred by limitation, so that we need not decide if the debts referred to in article 39(b) should be subsisting debts or not. the company was, therefore, entitled to debit against plaintiff's share, etc., the debt due by him at any time before payment of those shares, and no question of limitation arises.6. a further question about the maintainability of the suit was raised based on section 42 of the specific relief act, there is also the objection that plaintiff's suit refers to one item only of an account between the.....
Judgment:

Krishan, J.

1. The facts necessary for the disposal of the second appeal may be briefly staled as follows: One Pedda Ramanna and plaintiff's witnesses Nos. 7, 8 and 9 were partners of a firm. Plaintiff and one Ramayya were jointly interested in all the business carried on by P. Ramanna and they were thus interested also in the partnership share of Ramanna in this firm, though Ramanna alone was the partner. Their position was that of sub-partners with Ramanna in his partnership share, Ramanna representing the whole share in the firm. The defendant is a registered Company, having been so registered in June 1909, but the Company was started originally as an unregistered one. The firm and the unregistered Company had dealings with each other. On account of a dispute as to the amount due on these dealings, there was a reference to arbitration: but the written reference was signed by only two of the partners of the firm, plaintiff's witnesses Nos. 8 and 9, and pot by the other two. There was an award in favour of the Company for Rs. 575 and odd in December 1906. Pedda Ratnanra had also a share in the unregistered Company. When that Company was registered that share was split into 4, and 2 of them were given to plaintiffs and 2 to Ramayya. The registered Company took over all the assets and liabilities of the unregistered one and the amount of the award thus became one of the assets of that Company and the share amount originally payable to Ramanna, and now in equal halves to plaintiff and Ramayya, was one of its liabilities.

2. In 1910 the Company passed a resolution and made a formal debit entry in their books against plaintiff and Ramayya of one half of the balance due under the award against each. Plaintiff sued in Original Suit No. 174 of 1912 to have it declared that the debit against him was illegal and for recovery of the amount due. The Company sued both plaintiff and Ramayya for Rs. 495 and odd on dealings, on the footing that the debit was right, in Original Suit No. 413 of 1.2 and the cases were tried together.

3. Plaintiff contended that the award and the debit were not binding on him and that the debt was barred by limitation at the time of the debit and that the resolution of 1910 was not valid against him and, therefore, the debit was illegal. The Munsif found that plaintiff and Ramayya were liable to pay any debts legally due by Ramanna to the Company, but he held that the award was not binding on Ramanna or on the plaintiff and Ramayya, as the reference had not been signed by the former; he did not consider whether apart from the award any sum was due on the original dealings themselves. He gave a decree to the plaintiff declaring the debit against him was wrong but no decree for any money apparently because of other items of account between the parties. In the Company's suit he gave a decree against Ramayya for Rs. 231 and odd on account, but dismissed the suit against the plaintiff who was the third defendant there.

4. On appeal by the Company the Subordinate Judge concurred with the Munsif on the question of plaintiff's and Ramayya's liability for trade debts properly due by Ramanna, but reversed his finding as to the binding character of the award, holding that it was binding. He also overruled the plea of limitation. He dismissed the plaintiff's suit and gave a decree to the Company as sued for.

4. In second appeal both these points have again been raised before us. Considering the position of the plaintiff and Ramayya with reference to Ramanna in the firm, there can be no doubt that they were bound by the debts of the firm equally with Ramanna, though they were not the principal partners but only sub-partners of Ramanna; they were thus liable to the creditors of the firm just as much as Ramanna and the other partners were. I agree with the Subordinate Judge that they were bound to pay the award amount-to the Company. Though the reference to the arbitration was only signed by two of the partners, they were the partners who were in charge of the business of the firm and were keeping the accounts thereof, about which the dispute arose. The submission was on behalf of the firm. The arbitration and the award were entered in the books of the firm and the award amount was also entered in the books as a debt of the firm. Plaintiff's seventh witness has accepted the award. No objection was taken by the other partner Ramanna. In fact in 1907, Ramayya paid to the Company a sum of Rs. 252 and odd towards the award amount. No doubt the general authority of a partner under Section 251 of the Contract Act to represent his co-partners is not' sufficient to bind them by a submission to arbitration by him [see Bam Bharcse v. Kallu Mal (1900) A.W.N. 12 and the case of Stead v. Salt (1825) 3 Bing. 101 : 3 L.J.C.P. 175 cited there]. Special authority is needed for the purpose. Such special authority need not, however, be express but may be implied from conduct. And furthermore where a partner acts without authority, his action may nevertheless be ratified by his co-partners as he is in the position of their agent by virtue of Section 251, and an agent's unauthorized act can be ratified by the principal--tide Section 196 of the same Act. under Section 197, ratification may be express or implied from conduct. The circumstances above set out and Ors. referred to by the Subordinate Judge in paragraph 4 of his judgment show that there is sufficient evidence of conduct to support an inference of ratification, if not of implied authority to refer, against Ramanna and if the debt is binding on him, plaintiff is bound by it also.

5. The next question is whether the debt was barred by limitation and unenforceable when debited against plaintiff. In this connection Article 39(b) of the Articles of Association of the Registered Company in which plaintiff is a share holder is most important. Under it any debt due by a share-holder to the Company jointly with another is made a first charge on his share, dividend and interest. Whether the plaintiff signed the articles or not he bound himself by this condition when he became a shareholder under Section 21 of the Indian Companies Act. The award debt is one which plaintiff was jointly bound to pay to the Company with others and at the dates when the Company was registered and the articles confirmed, it was not barred by limitation, so that we need not decide if the debts referred to in Article 39(b) should be subsisting debts or not. The Company was, therefore, entitled to debit against plaintiff's share, etc., the debt due by him at any time before payment of those shares, and no question of limitation arises.

6. A further question about the maintainability of the suit was raised based on Section 42 of the Specific Relief Act, There is also the objection that plaintiff's suit refers to one item only of an account between the parties. It is not necessary, however, to decide these objections as plaintiff's suit fails on other grounds. I agree in dismissing the second appeal with costs.

Spencer, J.

7. I agree. I see no difficulty in arriving at the conclusion that the plaintiff's share was legally liable for the debt to the Company. The plaintiff was the assignee of the shares of P. Ramanna in the unregistered Company, the assets and liabilities of which were taken over by the new registered Company when it was formed, The plaintiff, when he became a shareholder in the defendant Company, was bound by all its Articles of Association, one of which had the effect of charging the shares of share-holders with liability for any debt which they owed to the Company jointly with any other person.

8. This was an ordinary incident of Company Law and is commonly inserted in Articles of Association. The plaintiff, therefore, became liable by assignment of P. Ramanna's shares in the old Company for his assignor's debts to the Company to the extent of the plaintiff's share, and the Company were legally entitled by their articles to set off the plaintiff's proportionate share of the debt due to them against his share as a member of the Company.

9. The Company having been registered within three years of the date when P. Ramanna's liability to the Company, through the firm of high he was a partner, was fixed by the award of arbitrators on December 29th, 1906, no question of limitation arises.

10. An objection has been raised by respondent as to the maintainability of the suit under Section 42 of the Specific Relief Act. As the plaintiff was not only a debtor to the Company but also a share-holder, he was entitled to institute a suit to establish the extent of his right to property in the Company's hands without asking for any further relief. He was not entitled to ask the Company to pay him on demand the amount of the shares held by him out of their capital, as though they formed a debt due to him by the Company. The objection is not good. The second appeal fails, however, on the merits for the reasons given by me, which my learned brother has set forth more fully and with greater detail in his judgment.

11. It is dismissed with costs.


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