1. This second appeal arises out of the suit by five plaintiffs members of a certain firm called N. A. P. S. R. M. Venkatarama Aiyar & Co., to recover certain amounts due from the defendants who are the partners of another firm known as T. M. R. S. Muthiah Bagavathar & Co. The District Munsif gave a decree. On appeal the Subordinate Judge reversed the decree and dismissed the plaintiff's suit. Plaintiffs 2 and 3 are the appellants before me. The other plaintiffs had been made respondents.
2. The facts of the case will now be stated. One Perumal Aiyar, whose widow is the 4th plaintiff and daughter-in-law is plaintiff 5, and defendant 2 Ranga Aiyar are the members of the firm N. A. P. S. R. M. While that firm was going on, defendant 2 wanted to start another firm. But as the new firm would require some capital he arranged that the N. A. P. S. R. M. firm should lend up to the limit of Rs. 1,000, to the new firm to enable it to carry on its business. It was agreed that at the end of three years accounts should be taken of the new firm and that the N. A. P. S. R. N. firm should get one-third of the. profits of the new firm. To evidence this arrangement Ex. 1 was executed on 10th October 1917. It is conceded before me that the new firm took shape on 1st Arpisi 1917, that is 17th October. A week before the formation of the new firm the plaintiffs' firm advanced Rs. 100, to defendant 2 for being used as capital of the new firm. Again on 29th October 1917, the plaintiff's firm advanced cloths to the value of Rs. 653, to be used for similar purpose. Two days later, on 31st October, a sum of Rs. 400, was similarly advanced. All these items, the moneys and the cloths were handed over to defendant 2 who handed them to the new firm. The present suit is virtually a suit to recover the value of three sums minus Rs. 180, which was the value of some cloths which were returned out of the cloths advanced by the plaintiffs firm. The defendants' plea in the written statement was that there was no dealings between the plaintiffs' firm and the defendants' firm and that the plaintiffs lent money or sold goods to Rangaier, defendant 2, and that defendant 2 sold these goods or advanced these moneys to the defendants' firm, or in other words there were two distinct contracts, one between the plaintiffs' firm and defendant 2 and the other between defendant 2 and the defendants' firm and that there was no privity between the plaintiffs' firm and the defendants' firm and therefore the suit was not maintainable. It is true that there was a further plea in para. 7 of the written statement with reference to the notice sent by the plaintiffs' prior to suit on 25th October 1920, and where they say that the suit is not also maintainable on the ground that a suit for the capital alone is not sustainable in law. That plea no doubt implies that the plaintiffs' firm was a partner in the defendants' firm. But they have not actually pleaded that the plaintiffs' firm was such a partner. That plea merely amounted to saying that on the facts alleged in the plaintiffs' notice, whatever they may legally amount to, the suit is not maintainable.
3. Five issues were framed. We are not concerned with the first and the fourth issues as there is no dispute about them,
4. The issue 2 is 'if so, is the present suit, as framed not maintainable?'
5. The issue 3 is
Were the amounts referred to in paras. 5 and 6 of the written statement advanced by the defendant 2 only and not by the plaintiffs as alleged by them.
6. This was really intended to raise the plea already stated by me. Issue 5 is merely a general issue.
7. On issue 2 the District Munsif found that the suit is maintainable and on issue 3, he found that there were not two contracts, but that the goods were supplied by the plaintiffs' firm to the defendants' firm through defendant 2, and defendant 2 in handing over the money and the goods to the defendants' firm acted as their agent and not as an independent contracting party. He, therefore, decreed the plaintiffs' suit. There was an appeal by the defendant.
8. The Subordinate Judge stated two points for decision, (1): Whether the suit as framed is not maintainable? (2) Whether the items in dispute were advanced to the defendants' firm or to defendant 2 alone?
9. These again are the same points as I have set forth above. In para. 3 he finds that Ex. 1 was genuine. In para. 4 he finds on the main point in dispute against the plaintiffs and in favour of the defendants. But I am unable to follow his reasoning in this paragraph. First he says that at the time when Ex. 1 was executed the new firm had not come into existence and defendant 2 was not then an agent of the new firm. He may be right in this. But I do not see what bearing it has got on the question at issue in the case. After the new partnership was formed defendant 2 was one of its partners. As a partner he was an agent of the new partnership and his knowledge is the knowledge of the firm. After the new firm was formed, defendant 2 regarded himself as its agent as to the money and goods he took from the plaintiffs' firm and delivered them to the new firm only as agent and not in his individual capacity. This fact presumably known to himself must be regarded as also known to the defendants' firm. If so, the money and the goods delivered by the plaintiffs to defendant 2 were taken by the defendants' firm on the footing that the money and the goods were ad- vanced by the plaintiffs' firm through 2nd defendant. The Subordinate Judge gives an illustration at the bottom of p. 2:
A lends money to B and B lends the same sum to C. C is liable to B and B in his turn is liable to A.......
10. This illustration is very simple. No body can quarrel with it; only it has nothing to do with the case and the giving of that illustration does not advance the matter any further. I am, therefore, unable to accept the finding of the Subordinate Judge on the question whether there were two separate contracts or not?
11. In reversing the finding of the Sub-ordinate Judge, I am not dealing with any question of fact. But I am reversing it purely on legal grounds, namely that defendant 2, being a partner in the new firm, is an agent of that partnership and his knowledge must be taken as the knowledge of that firm; and as to the footing on which the plaintiffs' firm gave the goods and money to defendant 2 him- self there is no dispute, as the plaintiffs' account Ex. A shows. As a matter of fact the learned vakil for the respondents now admits Ex. 1. After that admission there is no question as to the footing on which the goods were taken by defendant 2 from the plaintiffs' firm. The only question is how did they pass from his hands to the defendants' firm? As to this on purely legal grounds I reverse the finding of the Subordinate Judge.
12. The question that next arises is whether the suit is not maintainable on the ground that defendant 2 is a partner in both the firms. At this day this question is scarcely capable of arguments. The Subordinate Judge has not dealt with this point, but he has really dealt with some other point which I will deal with later on. I will deal with it as the learned vakil for the respondents has argued it.
13. In Kasinath Kedari v. Ganesh  26 Bom. 739 Crowe and Batty, JJ., referring to Rustomji v. Sheth Purushothama Das  25 Bom. 606 quote from Lindley on Partnership, p. 267 thus:
There appears to be no reason why, if two firms have common partners, an action should not be maintained by one firm against the other not perhaps in their mercantile names, but by those members of one firm who are not common to both, against the members of the other firm.
14. This is precisely the procedure that has been followed in this case. The plaintiffs have excluded defendant 2 and sue all the members of the new firm. In Vellayappa Moothan v. Krishna Moothan : AIR1918Mad258 Sadasiva Aiyar, J. points out that Jenkins C. J. himself in Rustomji v. Sheth Purushothama Das  25 Bom. 606 modified his first general statement of the law. Phillips, J. at p. 40 of 34 M. L. J. says the same thing. Order 30, Rule 9, new Civil P. C., is practically conclusive on the matter. Lakshmana Chetty v. Nagappa Chetty  34 M. L. J. 403 is not against this view. I, therefore, think that the suit is maintainable.
15. The learned vakil for the respondents then argued another point which looks like the point dealt with by the Subordinate Judge in para. 5 of his judgment. He suggests that the plaintiffs' firm is a sharer in the defendants' firm by reason of Ex. I and if so, the suit to recover one of the items of the defendants' partnership is not maintainable. If the premises is right the conclusion is right. But I am unable to agree with the premises. Section 240, Contract Act, provides that:
A loan to a person engaged or about to engage in any trade or undertaking upon a contract with such person that the lender shall receive interest at a rate varying with the profits or that he shall receive a share of the profits, does not of itself constitute the lender a partner or render him responsible as such.
16. On reading the terms of Ex 1 carefully I am of opinion that beyond the position of the lender entitled to recover the capital advanced with 14 annas per cent per mensem and one-third of the profits in case the defendants' firm is successful, the plaintiffs' firm has nothing to do with the defendants' firm, nor can it be said that the plaintiffs' firm is represented by defendant 2 in the defendants' firm as a sub-partner. In Ex. 1 the defendent 2 says that it is all his own business and that he carries on the work of that firm and takes his own salaries. It is not shown that beyond sharing the profits in case that business is successful, the plaintiffs' firm has nothing to do with that business. I am, therefore, of opinion that the plaintiffs' firm cannot be said to be a partner of the defendants' firm. If it is not a partner by merely advancing capital it is now entitled to sue for the capital like any outside lender. That being so, the other cases relied on by the learned vakil for the respondents do not apply. In Kasinath Kedari v. Ganesh  26 Bom. 739 both the plaintiffs were partners in the defendants' firm and it was on that ground that the suit there was held not to be maintainable. In Lakshmana Chetty v. Nagappa Chetty  34 M. L. J. 403 there was a sole plaintiff who was a partner with the defendant's father and therefore the suit was held not to be maintainable. In Annamalai Chetty v. Annamalai Chetty  10 M. L. W. 67 the plaintiff was a partner in the Mandalay firm along with the defendants 1 to 10. The fact that the defendants 1 to 7 and 11 formed partners of another firm has no bearing on the point for discussion. In Subramanian Chetty v. Lakshmanan Chetty A. I. R. 1924 Mad. 161 also the plaintiffs' father was a member of the defendants' firm. In all these cases the suit was by the partners for one item of their transactions with the partnership and such suits were held not maintainable subject to certain exceptions, an example of which we have in Karri Venkata Reddy v. Kollu Narasiah  32 Mad. 76 In the present case the suit was not by a partner but by a lender. Therefore there is nothing to prevent the suit being maintainable on the ground that a partner must wait for a general dissolution and cannot sue for a specific item.
17. The result is that the Subordinate Judge's decision is reversed and the District Munsif's decision will have to be restored. But the learned vakil for the respondents points out that there is no justification in giving a decree for a whole of the decree amount as one-fifth of it belongs to defendant 2. If the defendants are unwilling that any decree should be passed' against them for this one-fifth I do not see why I should give a decree for this one-fifth due to defendant 2.
18. In the result, I would pass a decree for four-fifths of the decree amount against the defendants to be recovered in the first instance from the assets of the defendants' partnership and in default from them individually. The plaintiffs will recover the proportionate costs on the four-fifths throughout. The defendants will bear their own costs.
19. The memorandum of objections is dismissed with costs.