Skip to content


S. Sethuratnam and anr. Vs. M. Muthiah and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberAppeal No. 571 of 1975
Judge
Reported inAIR1979Mad60
ActsIndian Contract Act - Sections 20
AppellantS. Sethuratnam and anr.
RespondentM. Muthiah and anr.
Cases ReferredIn Anarullah Shaikh v. Koylash Chunder Bose
Excerpt:
commercial - mistaken belief - indian contract act - petitioner and defendants no. 1 to 3 entered into partnership for carrying on business - firm dissolved after effecting settlement of accounts - petitioner took business of partnership firm only after satisfying himself - whether petitioner bound by settlement of accounts arrived at time of dissolution of firm - facts revealed that petitioner under bona fide impression committed mistake - settlement of account can be reopened on ground of mistake or fraud - petitioner entitled to have error rectified after finding settlement of account vitiated by error - held, petitioner not bound by settlement of accounts. - - it was also made clear that the plaintiff satisfied himself about the possession of the pumpsets with the agent sendivel.....1. defendants 1 and 2 in o. s. no. 712 of 1972 on the file of the court of the subordinate judge of tiruchirapalli are the appellants. the plaintiff (1st respondent) filed the suit for the recovery of rs. 19,030.60 with future interests and costs against defendants 1 to 3. the facts are these: on 9-2-1970 the plaintiff and defendants 1 to 3 entered into a partnership for the purpose of carrying on business in pumpsets, motors, engines of all descriptions and allied accessories under the name and style of saravana traders. the second defendant was the managing partner. the mayuram co-operative land development bank ltd., (hereinafter called the bank) placed orders with saravana traders for the supply of pumpsets of the value of rs. 24,063.36. according to the arrangement with the bank the.....
Judgment:

1. Defendants 1 and 2 in O. S. No. 712 of 1972 on the file of the court of the Subordinate Judge of Tiruchirapalli are the appellants. The plaintiff (1st respondent) filed the suit for the recovery of Rs. 19,030.60 with future interests and costs against defendants 1 to 3. The facts are these: On 9-2-1970 the plaintiff and defendants 1 to 3 entered into a partnership for the purpose of carrying on business in pumpsets, motors, engines of all descriptions and allied accessories under the name and style of Saravana Traders. The second defendant was the managing partner. The Mayuram Co-operative Land Development Bank Ltd., (hereinafter called the bank) placed orders with Saravana Traders for the supply of pumpsets of the value of Rs. 24,063.36. according to the arrangement with the bank the firm was to supply pumpsets to the nominees of the bank and on delivery of the pumpsets the bank would make the payment of the price top the firm. As per this arrangement the pumpsets were sent by the firm to their agent Sendivel at Sembanarkoil for the purpose of being supplied to the various parties named by the bank and on the basis of this the account of the bank with the firm was debited of the extent of Rs. 24, 063.36.

2. On 1-8-1971 the firm Saravana Traders was dissolved. Under the deed of dissolution Ex. A-2 the plaintiff (first respondent) was given full right and liberty in his own name to collect all the assets of the erstwhile firm and to demand and sue for the recovery of all book debts of the firm and to receive and give full and effectual discharge therefor. The other partners relinquished and released all their rights and interest in all the assets of the firm and partnership properties including stock, goodwill, furniture, book debts etc., in favour of the plaintiff. There was a further provision that the plaintiff should pay the defendant No. 1 Rs. 17,837.68, the defendant No. 2, Rs. 17,910. 67 and the defendant No. 3 Rs. 20,258.93. It is stated in the plaint that the figures were arrived at in the deed of dissolution after taking into account the sum of Rs. 24,063.36 which was outstanding and due from the bank to the firm towards the price of the pumpsets. After the deed of dissolution the plaintiff called upon the bank to pay the value of the pumpsets but the bank repudiated its liability to the firm stating that no pumpsets were delivered to the partied nominated by the bank. It is further averred in the plaint that at the time Ex. A-2 was entered into the parties were under the mistaken belief that the amount should be recovered from bank and that consequently Ex. A-2 was vitiated by common mistake. The fact that is was later on found that the bank did not owe such sum to the firm would vitiate the settlement of accounts and would amount to a substantial error affecting the settlement of account arrived at in entering into the agreement Ex. A-2, the deed of dissolution. Thus there was an unjust enrichment so far as defendants 1 to 3 are concerned at the expense of the plaintiff and the defendants 1 to 3 are bound to restore the same to the plaintiff. According to the plaintiff Sendilvel the agent had played a fraud on the firm by not delivering the pumpsets to the bank. Therefore, on 5-8-1972 the plaintiff issued a notice to defendants 1 to 3 calling upon them to pay the plaintiff Rs. 19,030.60 being the 3/4th share out of Rs. 24,063.36 after deducting the plaintiff's 1/4th share in the said amount.

3. Defendants 1 and 2 filed a joint written statement. They have categorically stated that the plaintiff took over the business of Saravana Traders by virtue of Ex. A-2, the deed of dissolution only after satisfying himself. That he would get the sum of rupees, 24,063.36 from the bank. They have further denied that the agent Sendilvel had played fraud upon the firm. It was also made clear that the plaintiff satisfied himself about the possession of the pumpsets with the agent Sendivel at the time of taking over of the firm and that only thereafter he entered into Ex. A-2 dissolution agreement. In the circumstances Sendilvel must have committed fraud only after the deed of dissolution Ex. A-2 and that consequently defendants 1 and 2 would not be liable for the same. The fact that the parties were labouring under a common mistake as to their mutual rights and obligations at the time they entered into Ex. A-2 was denied. They further stated that the plaintiff was bound by the statement of account and was not competent to file a suit for reopening the account and for recovery of the money. The plea of unjust enrichment was also denied. They have further contended that the plaintiff should have taken proceedings against Sendilvel and thereby mitigated the damages to a certain extent.

4. The 3rd defendant also filed a separate written statement more or less on the same lines as defendants 1 and 2. She has also stated that the plaintiff went through the accounts carefully, ascertained the stock and accounts were settled by mutual consent. She also denied that there was any mistake much less a common mistake. She further stated that the pumpsets were available with the firms on the date of dissolution and therefore if the agent had not delivered the pumpsets to the bank after the dissolution the responsibility for the same should squarely fall on the plaintiff and it was the duty of the plaintiff to have taken appropriate proceedings against the bank and Sendilvel. She denied the right of the plaintiff to reopen the settled accounts as well as the fact that there was an unjust enrichment.

5. The learned trial Judge raised following issues for consideration :

(1) Whether the plaintiff is not bound by the settlement of accounts arrived at on 1-8-1971 ?

(2) Whether the plaintiff is entitled to reopen the same on the ground of mutual mistake?

(3) Whether the defendants are not liable for the misappropriation of Sendilvel?

(4) Whether the defendant had made unjust enrichment ?

(5) Whether the suit has not been properly valued ?

(6) Whether the 3rd defendant is liable for any claim ?

(7) To what relief if any is that plaintiff entitled ?

6. The learned Judge found that the plaintiff was not bound by the settlement of accounts arrived at on 1-8-1971, that the plaintiff was entitled to reopen the same on the ground of mutual mistake and that the defendants were liable for misappropriation committed by Sendilvel. He further found that the defendants had made unjust enrichment. In the result the trial court passed a decree in favour of the plaintiff for the recovery of a sum of Rs. 12,031.68 with future interest against defendants 1 and 2. In the trial Court, the third defendant paid Rs. 6015.84 to the plaintiff towards her share of the suit claim and accordingly she was exonerated by the plaintiff by an endorsement on the plain.

7. The aggrieved defendants 1 and 2 have filed the above appeal. On behalf of the appellants their counsel Sri. N. C. Raghavachari raised the following contentions :

(1) There has been a full and final settlement of accounts between the partners under Ex. A-2 and that as per the deed of dissolution the plaintiff has taken over the business of Saravana Traders with all its assets and liabilities and that consequently no suit will lie for reopening of settled accounts.

(2) The plea that there was a common mistake at the time Ex A-2 was entered into is false. Admittedly, on the date of Ex. A-2, the pumpsets were lying with the agent and the plaintiff knew that the pumpsets were with the agent and would be delivered by the agent to the bank. The debit entry against the bank had been made on the basis that the agent would be making the delivery of the pumpsets to the bank in due course. The debit entry did not show that the pumpsets had already been delivered to the bank and that the bank was liable to the firm to the extent of Rs. 24,063.36. There was no question of any mutual mistake. If subsequent to the date of Ex. A-2 the agent did not deliver the pumpsets to the bank the risk for the same should be borne by the plaintiff and the plaintiff alone.

(3) In any event, even if it is assumed without admitting that Ex A-2 was vitiated by 'common mistake and by a substantial error' as alleged in the plaint the remedy of the plaintiff was to treat Ex. A-2 dissolution deed as void and issue for fresh dissolution of accounts and not merely for reopening one item in the accounts and claiming a decree for proportionate amount on that basis.

(4) He finally stressed the fact that the plaintiff, not having taken any steps either against the bank or Sendilvel for recovery of the amount and thereby mitigating damages suffered by him, would not be entitled to claim any relief against defendants 1 and 2.

8. Per contra, Sri K. Parasaran, learned counsel for the plaintiff submits that is not denied in the written statement that the pumpsets had not been delivered by the agent to the bank and that the bank wrongfully repudiated their liability. He further stated that it was wrong to suggest that Ex. A-2 agreement was entered into on the supposition that the pumpsets were only with the agent and had not been delivered to the bank. He further submitted that Ex. A-3 the balance sheet would clearly show that there was a debit entry against the bank for Rs. 41, 337. 40 which included Rs. 24,063.36 towards the price of pumpsets and if the parties had been under the impression that the pumpsets had not been delivered over to the bank there would have been such a debit entry against the bank. The said debit entry itself showed that the parties were under the bona fide impression that on the date of Ex. A-2 the pumpsets had been delivered to the bank and the bank owed rupees 24,063.36 to the firm. He further laid emphasis on the averments in para 4 of the written statement of defendants 1 and 2 that only after satisfying himself that he would be getting a sum of Rs. 24,063.36 from the bank and not merely 'in the said belief', that the plaintiff took over the business as per Ex. A-2 deed of dissolution. Sri Parasaran further argues that if it is found that a settlement of account was vitiated by fraud or substantial error or such an error which would make it inequitable to hold a party bound by it, it will be open to the court to reopen the whole account. If for some reason it will be inequitable to set aside the entire settled account, it will be open to the Court to surcharge and falsify those entries which are the result of fraud or an error. In the submission of Sri Parasaran the present suit is not a suit for damages and that consequently it is not for him to show that he had taken necessary steps against Sendilvel to recover the value of the pumpsets and that he had failed to do so. Besides, Sendilvel is a pauper to the knowledge of the defendants and no money could be realised from them. The present suit being a simple suit for the recovery of a certain sum of money from the defendants on the ground that Ex. A-2 dissolution deed was entered into by the partners on the wrong assumption that a sum of Rs. 24,063.36 was due from the bank, which as a matter of fact, was not due on that date, the plaintiff will be entitled to a decree when once he is able to establish his plea and it is not further necessary for him to establish that he had taken action against Sendilvel and failed in the action or that Sendilvel is a pauper and therefore the plaintiff will not be able to recover any money from Sendilvel.

9. In the light of the respective contentions strenuously put forward on either side it is for me to consider whether the suit is maintainable and the plaintiff will be entitled to a decree against defendants 1 and 2 as claimed by him. Ex A-1 is a deed of partnership. It shows that the plaintiff and defendants entered into a partnership to carry on the business under the name and style of Saravana Traders. Each of the partners contributed Rs. 5000/-each towards capital. Second defendant was to be managing partner in charge of the day to day administration of the firm. The net profits of the firm have to be apportioned equally. Ex. A-2 is the deed of dissolution dated 1-8-1971. Under the terms of Ex. A-2 the partnership was to be dissolved with effect from that date. The accounts of the assets and liabilities were taken as on 31-7-1971 and finally profit and loss account and a balance-sheet was prepared and signed by all the partners. The said balance-sheet is Ex. A-3 dated 31-7-1971. The assets and liabilities as per the balance-sheet and the goodwill of the business were allotted to the plaintiff. He was given the full right and liberty in his own name to collect all the assets, Government securities etc., of the erstwhile firm and to ask, demand, and sue for recovery of all the book debts of the firm and to recover and to receive and give full and effectual discharge therefor. In their turn, the defendants relinquished and released, all rights and interests in all the assets of the firm and the partnership properties including stock, goodwill, furniture, book debts etc. In consideration of all this, the plaintiff was to give the first defendant Rs. 17,837.68, the second defendant Rs. 17,910.67 and the third defendant Rs. 20,258.93. It was further stipulated that the income-tax or sales tax found payable by the firm in respect of all assessments upto and inclusive of 11-7-1971 shall be borne by all the partners equally, and that the refund receivable by the erstwhile firm in respect of the said period shall belong to all the partners equally. It is not disputed that on the basis of this deed of dissolution the plaintiff paid the respective amounts mentioned therein to the defendants.

10. Before the firm was dissolved the firm had entered into an agreement with the bank under which the firm was to supply certain pumpsets to the nominees of the bank and that the bank would pay the price to the firm on such delivery. It is also not in dispute that the pumpsets were to be delivered to the nominees of the bank by one Sendilvel who was the agent of the firm at all relevant periods. Ex. A-3, the balance sheet shows that as on that date a sum of Rs. 41,337.40 was due from the bank and this included a sum of rupees 24,063.36 being the value of nine pumpsets. As per the deed of dissolution the plaintiff had to recover the said amount from the bank. It has also to be kept in mind that the accounts were settled on the basis that his amount was due to the firm from the bank as on the date of dissolution and the various amounts payable to the defendants was arrived at only after taking this matter into account. Subsequent to the date of dissolution the plaintiff issued Ex. A-4 notice dated 9-5-1972 to the bank calling upon them to pay the amount due to the firm. The bank sent Ex. A-5 reply repudiating its liability to pay the value of nine motor pumpsets as the motor pumpsets had not been supplied to its nominees and those nominees had to purchase the motor pumpsets from others.

11. There is no difficulty in coming to the conclusion on the materials placed before Court that the nine pumpsets had not been delivered to the bank. On this score, the contention of Mr. N. C. Ragavachari that there is no evidence to show that the agent had not delivered the pumpsets to the bank has only to be overruled. In para 5 of the written statement of defendants 1 and 2, it is stated that the plaintiff also verified about the possession of the pumpsets now in question with the agent Sendilvel at the time of taking over of the firm, that only thereafter he agreed to take over the firm and that if any fraud had been committed by Sendilvel it must be after the dissolution of the firm and by Sendilvel acting as the plaintiff's agent. In his evidence before Court as D. W. 1 the second defendant has stated that on the date of Ex. A-2 the deed of dissolution Saravana Traders had already sent the nine motor pumpsets to Sendilvel, but those nine pumpsets had not been taken delivery of by the nominees of the bank. Gopalan, the salesman of Saravana Traders went to verify the matter and reported about the fact of the nominees of the bank not having taken delivery of the pumpsets. If has therefore been established that the bank's nominees and not been supplied with the nine motor pumpsets and consequently the debit entry against the bank to the extent of rupees 24,063.36 being the value of the nine pumpsets was a result of either a mistake or an error. In the circumstances, no blame could be fastened on the plaintiff for not having taken any proceedings against the bank for the recovery of Rs. 24,063.36 towards the value of the pumpsets.

12. The next question is whether on the date of Ex. A-2, deed of dissolution, they knew that the pumpsets had not been delivered to the bank or its nominees. No doubt, ad already stated, it is averred in the written statement in paragraph 5 that on the date of Ex A-2 the plaintiff verified about the possession of the pumpsets now in question with the agent Sendilvel at the time of taking over the firm and only thereafter he agreed to take over the firm. I have already extracted the deposition of D. W. 1 to the effect that Gopalan the salesman of Saravana Traders reported after personal verification that the pumpsets had not been taken delivery of by the nominees of the bank on the date of Ex. A-2. Ex. A-29 is the reply notice dated 11-9-1972 sent by Mr. Subbiah, advocate on behalf of defendants 1 and 2 to the plaintiff. It is not mentioned in Ex. A-29 that even on the date of Ex. A-2, deed of dissolution, the plaintiff was aware that the nominees of the bank had not taken delivery on the nine pumpsets and that the pumpsets were on that date lying with Sendilvel. The substance of the contention in Ex. A-29 is that the plaintiff agreed to take over the firm with a right to collect all the outstanding dues to the firm subject to all risks and that when once the other partners had retired from the firm they would not be responsible for any loss which may be incurred by the plaintiff. It is also stated in Ex. A-29 that defendants 1 and 2 were not aware of what transpired between the plaintiff and the bank. The plaintiff as P. W. 1 deposed that Ex. A-3 was signed by the parties in the belief that the pumpsets bad already been delivered to the nominees of the bank and that the value thereof would be received from the bank. No question has been put in cross-examination to P. W. 1 suggesting that on the date of Ex. A-2, Gopalan the salesman of Saravana Traders verified and reported that the nine pumpsets had not been taken delivery of by the nominees of the bank. In fact, the second defendant as D. W. 1 has admitted in his evidence that he had not instructed his counsel either to mention this fact in Ex. A-29 or cross-examine the plaintiff on this aspect. It is therefore not possible to accept the contention of the learned counsel for the appellants that the plaintiff was aware on the date of Ex. A-2 that the pumpsets had not been taken delivery of by the nominees of the bank and they were still lying with the agent Sendilvel on that date when the partners entered into Ex. A-2 deed of dissolution, and that consequently the plaintiff should suffer the loss, if any, by reason of his failure to realise Rs. 24,063.36 from the bank. If really the parties knew that the pumpsets were lying with their own agent Sendilvel on the date of Ex. A-2 the bank would not have been debited with the value of the nine motor pumpsets in Ex. A-3 balance-sheet. It therefore follows that the entry in Ex. A-3 balance-sheet to the extent of Rs. 24063.36 is the result of an error or a mistake. It is also admitted in para 4 of the written statement of defendants 1 and 2 that the plaintiff took over the business by virtue of the dissolution deed dated 1-8-1971 only after satisfying himself that he would be getting the sum of Rs. 24,063.36 from the bank and not merely 'in the belief'. As rightly contended by Sri Parasaran for the plaintiff this averment in the written statement has gone even further than the averment in para 12 of the plaint where the plaintiff had stated that the said payments (amounts paid to defendants 1 to 3 as provided for under Ex. A-2) were made by the plaintiff to the defendants 'in the belief' that he would be getting the amount of Rs. 24,063.36 from the bank. There is therefore absolutely no doubt that the plaintiff entered into Ex. A-2 deed of dissolution on the fundamental assumption that he would be recovering Rs. 24,063.36 from the bank.

13. When once it is found that the fundamental assumption on the basis of which the plaintiff entered into Ex. A-2 deed of dissolution, in the sense that the plaintiff bona fide believed that the sum of Rs. 24,063.36 was due and payable to the firm from the bank and that there would be no difficulty in recovering the said sum from the bank, and once it is further found, that on the date of Ex. A-2 no money was at all due and payable from the bank as is found entered in Ex. A-3 balance-sheet, the question that falls for consideration will be whether the plaintiff will entitled to any relief. In this context Sri N. C. Ragavachari contends that if it is assumed that there was a mistake then Ex. A-2 as a whole should be declared to be void and the plaintiff must be directed to file a fresh suit for dissolution of the partnership and for taking of general accounts. He relied upon S. 20 of the Contract Act which states that where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement void. On the facts of the case and the evidence as disclosed by the evidence of D. W. 1, it is clear that defendants 1 and 2 did not accept the case of the plaintiff that there was any mutual mistake in entering into Ex. A-2, deed of dissolution and that they were aware that on the date of Ex. A-2 the pumpsets had not been delivered to the bank's nominee and were lying with Sendilvel. Defendants 1 and 2 have nor been able to establish that the plaintiff was aware that on the date of Ex. A-2 no amount was due from the bank as the pumpsets had not been delivered to the bank's nominees. That means, that the plaintiff was at any rate under a mistake which was unilateral, but at the same time defendants knew what the real state of affairs was, and that they did not care to apprise the plaintiff of the real position. If that is so the plaintiff would be entitled to get the necessary relief he prays for. The contention of Sri N. C. Ragavachari that Ex. A-2 should be declared null and void and the plaintiff must be asked to seek for dissolution of the partnership afresh cannot be accepted as once the partnership stood disclosed there is no possibility of reconstituting a dissolved firm. They only query will then be whether the settlement of accounts as per Ex. A-3 on the basis of which Ex. A-2 was entered into should be reopened in toto, or the particular error that had crept into Ex. A-3 with regard to the debit entry of Rs. 24,063.36 against the bank will alone have to be rectified. A settlement of account can be reopened on the grounds of fraud or mistake or some ground which court would accept as having led one of the parties to accept the account as correct which in equity would be considered as unconscionable.

14. In Bullen and Leake's Precedents of Pleadings, ninth edition at page 585 it is stated as follows :

'The plea of a settled account is a good defence to a claim for an account, and if coupled with an allegation that the balance shown by such account had before action been paid to the plaintiff, it is also a good defence to an action for money received by the defendant to the use of plaintiff. In reply to such a plea, however, the plaintiff may allege that the settlement ought to be set aside, because the account contains errors of such a kind, or to such an extent, that it would be inequitable to hold him bound by it. He must, in his reply or other pleadings, specify the errors which he relies (Parkinson v. Halsbury, (1867) 2 HL 1; and if he contends that such errors were made fraudulently, this must also be clearly stated. If he succeeds in proving fraud, the account will be wholly set aside, and the defendant must account de novo for every penny which he has received. The same result will follow where there is no fraud, if a considerable number of errors is shown in the account. Indeed, if the parties stand to each other in a fiduciary relation (e.g., as solicitor and client, trustee and cestui que trust, guardian and ward), the plaintiff need only prove one 'grave or substantial error' and the account will be taken as though there had been no settlement (Per Davey, L. J., in Re Webb, (1894) 1 Ch. pp. 83; (1894) 63 L. J. Ch. 145. Where there is no such relation and no fraud, and the plaintiff cannot prove any large number of errors, he will probably only obtain leave to 'surcharge and falsify', as it is called. Proof of one 'definite and important error' will entitle him to this (Parkinson v. Hanbury) (supra). It means that the account stands for what it is wort; but that either pary may try and amend it, either by adding items in his favour which were wrongly omitted (that is surcharging), or by striking out items against himself which were wrongly inserted (that is, falsifying). Whether an account shall be opened, or leave only given to surcharge and falsify, is a matter entirely in the discretion of the Court; and whenever one party is allowed to surcharge and falsify, the other may do do too. (See Williamson v. Barbour, (1877) 9 Ch D 529, Getting v. Keighley, (1878) 9 Ch D 547 : 48 LJ Ch 45)'

In Halsbury's Laws of England, Fourth Edition, by Lord Hailsham, volume 16 at page 834, paragraphs 1247 and 1248 it is stated as follows :

'1247 : Re-opening a settled account.-In certain cases a settled account will be reopened on the ground of mistake, as where accounts are drawn up and assented to by parties under a common mistake as to their rights and obligations, or where by mistake too little has been accepted or too much admitted. The Court will also order a settled account to be reopened for fraud, even in respect of a single fraudulent item, and may do so after the account has been closed a considerable time in the case of persons occupying the position of principal and agent or trustee and beneficiary.

In the absence of fraud, a settled account will be reopened if serious errors or errors to a considerable extent in amount an in the number of the items are shown; or if the account is erroneous, even if only in respect of one item, and from the relative situations of the parties, or the manner in which the settlement took place, or the nature of the error proved, it appears that the settlement ought not to be taken advantage of by the accounting party. Thus, where there is a fiduciary relationship between the parties, such as that of solicitor and client, the account will be reopened more redily and on proof of smaller errors than in cases where there is no such relationship. Undue influenhce may be the principal ground for reopening a settled account where the relationship between the parties is that of solicitor and client.

1248. Liberty to surcharge and falsify : Without wholly re-opening a settled account the Court may grnat liberty to surcharge and falsify if this will meet the justice of the case. If a single definite error is proved, liberty to surcharge and falsify will be given, since the discovery of one error implies that others may be found. Where there has been a long lapse of time and loss of books and documents the court may decline to open the accounts altogether and give liberty to surcharge and falsify only, notwithstanding, that numerous and important errors in the accounts are proved. Notice and particulars of a surcharge must be given to the accounting party.'

In Halsbury's Laws of England, Third Edition, volume 28, Simonds Edition, at page 551 it is stated as follows :

'1071. Reopening settled accounts : Though a settled account between the partners is a good ground of defence to an action for an account, the court may, in special circumstances, reopen the accounts or give liberty to surcharge and falsify............'

In Lindlay on Partnership, thirteenth Edition by Ernest Somell, page 535, it is stated as follows :

' A settled account may be impeached either wholly or in part on the ground of fraud or mistake. If there be fraud, or if any mistake affects the whole account, the whole will be opened, and a new account will be directed to be taken, without reference to that which has been stated; but if there be no fraud, and if no mistake affecting the whole account can be shown, but the correctness of some of the items in it is, nevertheless, disputed, the account already stated will not be treated as non-existing, but will be acted upon as correct, save so far as the party dissatisfied with any item can show it to be erroneoud. In a case of fraud, an account will be opened in toto, even after the lapse of a considerable time, but if no fraud be proved, an account which has been long settled will not be reopened in toto; the utmost which the court will then do will be to give leave to surcharge and falsify.'

In M'Kellar v. Wallace (1853) 8 MPC 378 the law has been stated thus:

'Thus 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 vouchers 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 afterwards turn 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...........'

In Gething v. Keighley (1878) 9 Ch. D 547 it is held that where an account is impeached, if a single important error is established, the Court will not, except in the case of fraud, order the whole account to be opened, but will make a decree that the plaintiff may be at liberty to surcharge and falsify. In that case in a partnership action, where one error of 1950 was established in an account long settled K. Jessel, M. R. held that 'in taking the accounts the plaintiff should be at liberty to surcharge and falsify, and that such liberty should not be limited to errors appearing from the books.'

15. The principle laid down in the above extracts is that a settled account can be reopened on grounds of fraud, mistake or some ground which Court would accept as having led one of the parties to accept the account as correct which in equity would be considered as unconscionable, to quote Chagla, J., as he then was, in Maneklal v. Jwaladutt : AIR1947Bom135 . But if the mistake or error is in respect of only one item and there is no case that there are large number of errors, the plaintiff will be entitled to surcharge and falsify. Surcharge is explained by Bullen and Leake as adding items in plaintiff's favour which were wrongly omitted and falsifying is explained as striking out items against the plaintiff which were wrongly inserted. Therefore, in the instant case, on the facts it has been found that the plaintiff at the time he entered into Ex. A-2, dissolution agreement and the respective amounts were determined to be paid by the plaintiff to the defendants, the parties were under the impression that a sum of Rs. 24,063.36 was due and payable to the firm by the bank and that plaintiff would be entitled to recover the same. When once it is found that the very such assumption was untrue it would be unconscionable to make the plaintiff bound by the said entry in Ex. A-3. If, as a matter of fact, the plaintiff had known that such large amount was not due and payable by the bank he would not have agreed to the terms found in Ex. A-2 dissolution agreement. Therefore, it will be only equitable to give the plaintiff the relief for falsifying that entry. In other words, that entry will have to be struck out as against the plaintiff.

16. There is also another aspect, as put forward by Sri Parasaran on behalf of the plaintiff. If it turns out by evidence that no amount was due as on the date of Ex. A-2 from the bank and it was wrongly assumed that such amount would be forthcoming from the bank to the firm and would be recoverable from the bank by the plaintiff, then the entire liability of Rs. 24,063.36 could not be fastened on to the plaintiff alone. In other words, as a result of that false entry which has put the burden of the whole amount of Rs. 24,063.36 on the plaintiff, there has been an unjust enrichment on the part of the defendants as regards 3/4th share of that amount which they are in duty bound to disgorge. There is force in this contention and I have no hesitation to accept the same.

17. Sri N. C. Raghavachari, learned counsel for the appellants cited the decisions in Anarullah Shaikh v. Koylash Chunder Bose ILR (1882) Cal 118 and Sheffield Nickel Co. v. Unwim (1877) 2 QB 214. In Anarullah Shaikh v. Koylash Chunder Bose, ILR (1882) Cal 118 there plots of land were let to A under one Kabuliat. A relinquished two plots, but admitted to being in possession of one, alleging that the kabuliat had been obtained by fraud and misrepresentation. In that context, it has been held that 'as the lease was an entire contract one portion only could not be repudiated on the ground of fraud, but that, if the tenancy was to be avoided on the ground of fraud, it must be avoided in toto.' In my view this decision is not applicable to the case on hand. I am also of the opinion that the other decision cited by Sri N. C. Raghavachari equally does not apply to the facts of this case.

18. The decision in Gopala chetty v. Vijayaraghava-Chariar ILR (1922) Mad 378 : AIR 1922 PC 115 which was cited at the Bar is only authority for the position that 'if a partnership has been dissolved and accounts have been wound up, the mutual rights and obligations of the partners therein being discharged, and an asset which has been forgotton or treated as valueless afterwards falls in. It ought to be divided between the partners in proportion to their shares in the partnership'. Sri Parasaran for the plaintiff, however, makes use of this decision in his favour on the ground that if after dissolution and settlement of accounts an asset which had been lost sight of at the time of dissolution falls in, the same could be divided between the partners in the ratio of their shares in the partnership, there is no reason why, if it is found after dissolution of the partnership that an amount was assumed to be owing to the firm from a debtor and that prticular debt had been alloted to one partner and it subsequently turns out that such amount was really not due to the firm, should not be divided among all the partners. There is force in this contention. However, this decision is not directly in point to the matter in controversy.

19. Then Sri. N. C. Raghavachari contended that since the plaintiff did not take any action against Sendilvel he could not be said to have mitigated damages and that on that ground alone the suit is liable to be dismissed. I have no heistation in rejecting this contention. The suit is not one for damages on the ground that the plaintiff has not been able to recover any money from Sendilvel or for contribution as in commonly understood. The suit simpliciter is only for rectification of an error in the settlement of account arrived at among the partners and it has been found by me that Ex. A-2 dissolution agreement was entered into by the plaintiff on the fundamental assumption that a sum of Rs. 24,063.36 was due from the bank and that he would be able to recover the same without any difficulty. Once that item in the settlement of account is found to be vitiated by an error, he is entitled to have the error rectified and get the appropriate relief. Apart from that, the plaintiff himself has spoken to the fact that Sendilvel is a pauper and no money could be recovered from him. As against this, there is no contra evidence on the side of defendants 1 and 2 prove that the money could be recovered from Sendilvel and that the plea of the plaintiff that he is a pauper is false.

20. For the reasons stated above, I agree with the finding of the trial Court that the plaintiff is not bound by the settlement of accounts arrieved at under Exs. A-2 and A-3 to the extent of Rs. 24,063.36 against the bank and that he is entitled to recover 3/4th of the said amount from defendants 1 to 3. The third defendant has already settled the claim against her with the plaintiff on payment of Rs. 6000/-. Therefore, the trial Court has granted a decree directing each of the defendants 1 and 2 to pay the plaintiff a sum of Rs. 6,015.84 with interest thereon at 6% per annum from 21-1-1972 till date of realisation. I confirm the judgment and decree of the trial court. The appeal fails and accordingly is dismissed with costs.

21. Appeal dismissed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //