1. This is an appeal from a judgment and decree of the first Additional Judge of the City Civil Court. It came on for hearing before Basheer Ahmed Sayeed J. and he has referred the appeal for decision by a Full Bench, in view of a conflict between certain Bench decisions of this Court,
2.The facts of the case are not the subject matter of controversy and the only question is whether the suit, which has been decreed by the learned Judge of the City Civil Court, is maintainable. Five persons, Annamalai Chetti, Palani Chetti, Rajagopala Chetti, Rajabathar Chetti and Ellappa Chetti, became partners in a Mandi business, which was carried on at Vellore under the name and style of "T. K. M. A. Rajabathar Chetty, Palani Chetti and Company". For the purpose of the business, Annamalai Chetti brought into the partnership funds belonging to the joint family of which he was the manager. Annamalai and one of his brothers, Parthasarathi appear to have got themselves divided from their, other copartners by a registered partition deed in 1926, though it is stated that the partition was not completed by division by metes and bounds in respect of every item.
These two brothers got divided 'inter se' in 1931 or 1933. While the mandi business carried on by Annamalai in partnership was continuing, he died in February 1935, leaving a widow and an only son Subramania, then a minor. On the death of Annamalai, the surviving partners reconstituted the partnership, by taking in Parthasarathi, the divided brother of Annamalai, in the place of the deceased, the name of the business being changed to suit this alteration into T. K. M. P. Rajabather Chetti, Palani Chetti and Company. However the amounts due to Annamalai either in respect of the monies he brought in or for his share of the profits were not ascertained and paid over to his legal representatives.
3.The minor son of Annamalai filed a suit, O. S. No. 41 of 1937, on the file of the Sub-Court of Vellore for a general partition in the family, impleading the representatives of the various branches and to this suit for partition he impleaded Parthasarathi Chetti as the first defendant, his sons Ramakrishna, Sampath and Ganesan, who were then minors, as defendants 2 to 4. As a part of his family assets consisted of the amounts due from the dissolved firm of T. K. M. A. Rajabathar Chetti, Palani Chetti and Co., which had been taken over by the firm of T. K. M. P. Rajabathar Chetti, Palani Chetti and Co., he impleaded the other partners of this firm, Rajagopala Chetti, as defendant 6, Palani Chetti, Rajabathar Chetti and Ellappa Chetti as defendants 13 to 15.
His claim against these five partners was that when after the death of Annamalai, the first firm became dissolved, the monies belonging to him were utilised by the new firm, and on this footing he sought as a creditor of the firm the repayment of the monies, which had been so utilised together with interest or profits. The sons of Parthasarathi were impleaded in order that any decree that might be passed against their father might be executed against their shares in the joint family properties. It might be mentioned that Parthasarathi died on 14-1-1938 during the pendency of the suit, O. S. No. 41 of 1937, and his sons defendants 2 to 4 were entered as his legal representatives.
4.The only defence of defendants 6 and 13 to 15 was that the plaintiff must have recourse to Parthasarathi alone who represented Annamalai in the partnership, but that he could have no relief as against them, and this was raised as issue No. 10, which reads thus:
"As against defendants 8 and 13 to 15, has the plaintiff a remedy or is he entitled to have recourse against only first defendant in respect of the partnership they are concerned with?'
This defence was overruled by the learned Subordinate Judge of Vellore, who decreed the plaintiff's suit against these defendants also stating, "A partition having been made, Annamalai's minor son the plaintiff, could not on Annamalai's death be represented by Parthasarathi, his lawful guardian being his mother. The partnership became dissolved by the death, and those who took over the assets and liabilities of the concern must hold themselves liable to the plaintiff. Those persons were the first defendant Parthasarathi (represented now by defendants 2 to 4) and defendants 6 and 13 to 15."
The learned Subordinate Judge then went into the accounts and made directions about the manner in which the amount due to the plaintiff from the partnership would be fixed. He went on to say,
"It is unnecessary to decide in this suit the liability of defendants 2 to 4, 6 and 13 to 15 'inter se in respect of the payment to be made to the plaintiff, and the question is left open."
This preliminary decree for partition was made on 27-11-1939. A final decree was passed on 12-3-1945. and this directed that,
"defendants 2 to 4 from out of their family properties and defendants 6 and 13 to 15 personally should pay to the plaintiff Rs. 3153-4-9 with interest at 6 per cent, per annum from the date of the preliminary decree."
This final decree was put in execution by the minor, Subramania against Palani Chetti, the 13th defendant in O. S. No. 41 of 1937, and the latter paid into court the sum of Rs. 4710-12-0, being the full amount of the decree, and thus the decree was satisfied.
5. At this stage it is only necessary to mention that the second firm became dissolved on 14-1-1938 on the death of the partner, Parthasarathi and that the accounts of this partnership have never been looked into or settled. The present suit in 1949 is by Palani Chetti, the partner who has paid off the decree in O. S. No. 41 of 1937, against his co-partners for contribution of their share of this partnership debt. The allegations made in the plaint are that after T. K. M. A. Rajabathar Chetti Palani Chetti firm became dissolved, by the death of Annamalai, a firm of T. K. M. P. Rajabathar Chetti Palani Chetti and Co. was started which went on for a period of about one and half years.
"The partnership business was stopped and was dissolved. The partners separated and without making any settlement of account."
After reciting the history of the liability, which arose in O. S. No. 41 of 1937, and the payment of the entirety of this joint and several decree by the plaintiff, he prays for a decree for Rs. 4169-1-0 due to him being 3/4 of the amount paid by him, the balance being his own share of the liability. It only remains to add that Ellappa Chetti, who was a partner in both the firms died before the present suit, but his legal representatives have not been impleaded as defendants on the ground stated in the plaint that he was only a working partner, who bad not invested any money in the business, and that as he had no property, no amount could be realised from his heirs or legal representatives. In the view, however, we are taking about the maintainability of this suit, it is unnecessary to consider the legal consequences of this nonjoinder.
6. The 'defendants raised two contentions: (1) that the plaintiff was in possession of the assets of the partnership, with the aid of which, the joint liability was discharged; and (2) that as a suit for the rendition of the accounts of the dissolved partnership had long ago become barred, the present suit for a sum, which would be an item of such a partnership account, which has never been taken is not maintainable; but (they) let in no evidence on the first question raised by them.
7. The second contention alone has been the subject matter of consideration by the court below. The plea of the defendant regarding the non-maintainability of the suit, which was rested on the well known decision of the Privy Council in --'Gopal Chetty v. L. G, Vijayaraghavachariar' AIR 1922 PC 115 (A) was countered by the plaintiff raising an argument that the item or liability sued on was really distinct from the partnership of T. K. M. P. Rajabathar Chetti Palani Chetti and Co. This contention was accepted by the learned Additional City Civil Judge, who decreed the suit as prayed for by the plaintiff.
8. From this decree of the learned City Civil Judge, the defendants preferred this appeal to this court, and the case came on before Basheer Ahmed Sayeed J.
9. It was contended before the learned Judge by the learned counsel for the appellants that the item in suit was really a part and parcel of the accounts of the second partnership, and that the decision in 'AIR 1922 PC 115 (A)', was a bar to the maintainability of the suit. The counsel for the respondents, however, argued that the decision of the Privy Council must be confined to suits, where the plaintiff claimed a right to a share in an asset, and could not be extended to cases, where the obligation to share a liability arising subsequent to the dissolution was being enforced; that at any rate where such a liability became embodied in a joint and several decree, as in the present case the rights 'inter se' between the judgment-debtor should be determined and regulated by Section 43 of the Indian Contract Act, and that the rules regulating action between partners should either be held inapplicable to such cases, or held modified so as to effectuate justice being done between them.
For this position he placed reliance on a decision in -- 'Chockalingam Chettiar v. Meyappa Chettiar', AIR 1939 Mad 228 (B). Counsel for the appellants relied on a later decision of a Bench of this court in Meyyappa Chettiar v. Palaniappa Chettiar', AIR 1949 Mad 109 (2) (C), as dissenting from the earlier ruling, and holding that the decision in 'AIR 1922 PC 115 (A), was as much applicable to liabilities as to assets, and that the fact that the liabilities took the form of a joint and several decree against the partners makes no difference to the principle. In view of the conflict between these two decisions, the learned Judge has referred the appeal itself to be heard by a Full Bench.
10. Before us the learned counsel for the appellants contended that the finding of the trial Judge, that the liability put in suit was unconnected with the partnership was incorrect, and that the suit was liable to be dismissed on the rule enunciated in 'AIR 1922 PC 115 (A)'. Counsel for the respondents - did not make any serious attempt to sustain the ground upon which the learned City Civil Judge has decreed the suit. But he sought to distinguish 'AIR 1922 PC 115 (A)', on three grounds: that (1) this decision has no application to suits for contribution by expartners; (2) when once a liability .of the partners becomes merged in a joint and several decree against all of them, their rights and liabilities 'inter se' were governed not by the partnership in the course of which the liability came to be incurred, but by the" statutory principles enacted in Section 43 of the Indian Contract Act.
For these two contentions reliance' was placed on the judgments of' Stone and Pandrang Row JJ. in 'AIR 1939 Mad 228 (B)'. (S) Lastly it was pressed upon us that the rule in 'AIR 1922 PC 115 (A)', was based on the earlier decisions in England before Law and Equity were merged by virtue of the Judicature Act of 1873, and that later decisions in England have upheld the maintainability of suits for partial accounting in subsisting partnerships and that in the light of these decisions, we must hold that the present suit was maintainable. It was, therefore, argued that in the light of the modern development of the law, we should not extend 'AIR 1922 PC 115 (A)', beyond the facts of that particular case.
11. It would be convenient first to dispose of the ground upon which the trial Judge has rested his decree in favour of the plaintiff, namely, that the liability, which was the subject matter of O. S. No. 41 of 1937 was something distinct and separate from the assets and liabilities of the firm of T. K. M. P. Rajabathar Chetti and Palani Chetti and Co, The facts set out earlier, as to the manner in which the liability to the plaintiff in O. S. No. 41 of 1937 arose would make it clear, that it is' a liability of the partnership of T. K. M. P. Rajabathar Chetti and Palani Chelti and Co, since it is the partners of this firm that were directed by the decree in O. S. No. 41 of 1937 to disgorge the moneys, which had got into its assets,
If a suit for the taking of the accounts had been filed within the period of limitation in regard to the partnership of T. K. M. P. Rajabathar Chetti Palani Chetti and Co., it is obvious that this liability to Subramania, the decree-holder in O. S. No. 41 of 1937 would have figured as an item of liability to be discharged by the partnership in the taking of such accounts. The reasoning of the trial Judge on this part of the case cannot, therefore, be upheld.
12. The first two points made by the learned counsel for the respondents may be dealt with together, as both these are based on the observations of Stone and Pandrang Row JJ. in 'AIR 1939 Mad 228 (R)'. Before, however, examining the decisions of this court, it will be necessary to ascertain the precise scope and ratio of the decision of the Privy Council in 'AIR 1922 PC 115 (A)', and then to find out how far the propositions put forward by the learned counsel for the respondents are reconcilable with the principles enunciated by their Lordships.
13. In 'AIR 1922 PC 115 (A)', the facts were these: There had been a partnership between the plaintiff and the defendant, which had become dissolved in 1910. Its accounts were never looked into nor settled between the partners with the result that a suit for the taking of such accounts by either of the partners against the other would have become barred by limitation by 1913 under Article 106 of the Indian Limitation Act. While so, the plaintiff brought a suit in 1915, for the recovery of his share of certain outstandings alleged to have been collected by the defendant after the dissolution in 1910.
14. The defendant put in a written statement, in which he denied the - receipt of such assets and also pleaded that; if the accounts were taken, the plaintiff would be found indebted to the firm and also that the Indian Limitation Act was a bar to the plaintiff's claim. Kumaraswaroi Sastri J. who tried the suit, held in favour of the plaintiff and gave him a declaration that he was entitled to the share of the amounts claimed by him and ordered an account to be taken, with A view to see whether there was to be any set off in respect of the sums, which might be due from him to the defendant.
The learned Judge also held that though a suit for general partnership account being taken was barred by the Limitation Act, there was still a right in a partner to sue the Other partners for his share of the assets of the partnership, for which the period of limitation would be six years and not three years from the date of the receipt of the assets. The defendants filed an appeal to the High Court, which was heard by Sir John Wallis C. J. and Napier J.
These learned Judges affirmed the decision of Kumaraswami Sastri J. stating that they were not prepared to go behind the" earlier decisions of this court in --- 'Sokkanadha Vannimmundar v. Sokkanadha Vannimundar', 28 Mad 344 (D); -- Thiruvengada Mudaliar v. Sadagopa Mudaliar', 34 Mad 112 (E) and -- 'China Kondiah v. Narasappa Naidu', AIR 1914 Mad 295 (F), which laid down that the receipts of assets after dissolution gave rise to a fresh cause of action, to enable a partner to file a suit for a share in such assets, notwithstanding that a general suit for accounts was barred by limitation. The learned Judges also observed that the decision of the House of Lords in --'Knox v. Gye (1872) 5 HL 656. (G), favoured such a view.
The defendant appealed to the Privy Council and their Lordships reversed the decision of this court and held (i) that the receipt of the assets by a quondam partner did not furnish a fresh cause of action; (ii) that if a suit for a general account was barred, no suit for a share in individual items, which would be merely items in the partnership accounts, would lie. Their Lordships also explained the observations in (1872) 5 HL 656 (G) which favoured such a suit as applicable only to a case where the accounts between the partners had been finally adjusted. Their Lordships summed up the principle of law in these terms: "If a partnership has been dissolved and the accounts have been wound up and each partner has paid what he has to contribute to the debts of the partnership and received his share of the profits, the mutual rights and obligations having been thus all discharged and then it turns out afterwards that there was some item to the credit of the partnership which was either forgotten or treated as valueless by reason of the supposed insolvency of the debtor or for any other cause which item afterwards becomes of value and falls in, it ought to be divided between the partners in proportion to their shares in the original partnership. There is no reason why one should have it more than the other ......
If on the other hand, no accounts have been taken and there is no contest that the partners have squared up, then the proper remedy where such an item falls in is to have the accounts of the partnership taken; and if it is too late to have recourse to that remedy, then it is also too late to claim a share in an item as part of the partnership assets, and the plaintiff does not prove, and cannot prove that upon the due taking of the accounts he would be entitled to that share. It might well be the case that one of the reasons why no final balancing of accounts took place was that A owed the partnership so much money that it was anticipated that B would hereafter receive a particular item which would operate substantially to balance the claim."
15. After laying down these propositions of law, their Lordships went on to consider the Indian decisions, and particularly the decisions of the Madras High Court in 28 Mad 344 (D) and 34 Mad 112 (E) and expressed dissent from these two.
16. Such being the decision of the Privy Council, it will be convenient now to consider whether the grounds of distinction already enumerated and urged by the learned counsel for the respondents which are supported by some observations in AIR 1939 Mad 228 (8) are correct. Before examining this decision in detail, it is necessary to trace the course of the decisions in this court, both before and after AIR 1922 PC 115 (A) to discover the ratio upon which they are rested.
17. The first decision of this court, to which it is necessary to refer is that of Muthuswami Aiyar J. in -- 'Subbarayudu v. Adinarayudu', 18 Mad 134 (II). As the headnote brings out the point in the decision it is sufficient to refer to it: "A and B were partners. A decree was passed against them for the payment of a certain debt, each partner being liable for the whole sum and being bound to indemnify the other against the payment of more than his share. A paid B's share as well as his own and brought a suit against B for contribution. B contended that A's claim being in respect of a partnership transaction ought to be adjusted when the partnership was settled, and that the suit did not lie." The District Munsif decreed the claim, which was a suit on the Small Cause Side of the Court. In a revision to this court, his Lordship held that the claim in suit could not be considered as a partnership transaction saying,
"It is no doubt a settled rule of law that advances made by one partner to the partnership concern can only result in matters of account and cannot be made the subject of a separate suit. But to this general rule there are exceptions when advances are made by one partner not to the partnership concern but to the other partner in respect of what he is to contribute to the joint capital as in -- 'French v. Styring", (1857) 2 CBNS 357 (I)."
It is unnecessary to investigate as to whether the learned Judge was right on the facts in holding that the transaction before the court was not a partnership transaction. But the proposition of law laid down by the learned Judge is not open to exception. If however the learned Judge meant to draw a distinction based upon the existence of a decree as making any difference, it would not appear to rest on any intelligible principle.
In this context we might usefully refer to the observations in -- 'Sadhu Narayana Iyengar v. Ramaswamy Iyengar', 32 Mad 203 (J), a decision of Miller and Sankaran Nair JJ. There also the question was whether when a partner had been compelled to pay more than his share of a debt due by the partnership, he could maintain a suit for contribution apart from a suit for general account. Dealing with the decision in 18 Mad 134 (H), the learned Judges pointed out,
"The English cases referred to in 18 Mad 134 (H) have therefore, no application and the facts of 18 Mad 134 (II) itself are not sufficiently clear either in the report or in the printed papers to enable us to say certainly that that case is on all fours with the present case. But if that case is not distinguishable on the facts, we should find some difficulty in following it on the grounds stated in the judgment; for it is not easy to see how the making of a decree against the partners imposes upon them any liability which did not attach to them as partners before the suit."
We respectfully agree with these observations about 18 Mad 134 (H).
18. After 18 Mad 134 (H), the next case to be noticed is 28 Mad 344 (D) where the question related, like the one in AIR 1922 PC 115 (A), to a plaintiff's claim for a share in the assets received, and not to a claim for contribution as in 18 Mad 134 (H); the learned Judges following -- 'Mer-wanji Hormusji v. Rustomji Burjorji', 6 Bom 628 (K) and the interpretation there of (1872) 5 HL 656 (G), held that the receipt of assets furnished a fresh cause of action to the other partner which could be put in suit, notwithstanding that a suit for general accounts by the plaintiff was barred under Article 106 of the Limitation Act.
In answer to the plea of the defendant that if the accounts were taken, the plaintiff would be found owing to the defendants, the learned Judges said that the defendant might be at liberty to go into the accounts, and if possible defeat the plaintiff's claim by showing that the net balance was against the plaintiff. This last observation was characterised by Lord Phillimore in AIR 1922 PC 115 (A) in these terms:
"With great deference this reasoning begs the question. How is it to be known that some of the partners would exclusively benefit by the realisation of the assets which come in after dissolution? To meet this objection the learned Judges assume that accounts may be taken and that they have done enough for the ex-partner who is sued in saying that he may have the accounts taken, but if the policy of the law be that after the period of limitation no accounts shall be taken for the excellent reason that materials for taking such accounts may have disappeared, it is not legitimate to say to the person sued, 'either pay on the footing that accounts have been' taken which we know have not been taken and on the footing that all matters have been squared up between you and your partner, when we have no knowledge that there has been any such squaring up, or submit to that taking of accounts against which the legislature has protected you."
This decision, having been disapproved by the Privy Council, it is not further necessary to consider it.
19. The next decision in order of dale is the one already referred and that is in 32 Mad 203 (J), where the question arose about the maintainability of a suit for contribution by a partner, who had paid more than his share of a decree, jointly and severally passed against the partners. The learned Judges held that the suit would lie, notwithstanding that the suit, as a suit for an account and a share, was clearly barred by limitation. They also held that this was not a case of a transaction outside the partnership. The learned Judges followed the decision in 28 Mad 344 (D) as authority for the view that if the defendant was enabled to go into the accounts to show that no amount was payable by them, justice was done to both the parties. This position is set out in these terms: "Justice is done if the defendant is allowed to show that on a settlement of accounts he would not be liable. This principle is, we think, applicable and should be applied to the present case; the fact that here the plaintiff has paid a debt, while there the defendant had realised assets, does not affect the principle, nor are we able to distinguish this case on the ground that in 28 Mad 344 (D) and the other cases which support the view there taken, the suit was by a representative of a deceased partner. The suit is, therefore, good as a suit for contribution, but the first defendant must be allowed to show, if he can, that on a settlement of accounts the amount payable by him as contribution is wiped out or reduced."
The learned Judges saw no distinction between a suit for a share of the assets as in 28 Mad 344 (D) and a suit for contribution as in the case before them and following this decision decreed the suit, subject to the defendant going into the accounts. It will thus be seen that the whole basis of the decision is the correctness of the reasoning in 28 Mad 344 (D) and as this must be taken as overruled by the Privy Council 32 Mad 203 (J) must likewise be treated as incorrectly decided. We respectfully agree with the observation of the learned Judges here that there is no difference in principle between a plaintiff's claim to a share of the assets and a suit for contribution towards the liabilities discharged by the plaintiff in excess of his share.
20. The next decisions of this court are those in 34 Mad 112 (E) and AIR 1914 Mad 295 (F). Both these were suits by the plaintiffs, claiming a share of the assets, which had fallen in after the dissolution, but as those are covered by the same principles, as in 34 Mad 112 (E), and as this decision has been overruled by the Privy Council, it is unnecessary to deal with them in any detail. These decisions must also be considered as overruled" by the Privy Council in AIR 1922 PC 115 (A). These exhaust the cases before the decision of the Privy Council.
21. Subsequent to the Privy Council decision, there are two rulings of this court in -- 'Ramaswami Pillai v. Muthukaruppan Chetty', AIR 1925 Mad 737 (L) and -- 'Santhanakrishna Naidu v. Chellappa Aiyar', AIR 1927 Mad 650 (M), the one in 1925 and the other in 1927 but these do not call for any detailed consideration on this occasion. The first decision arose out of a suit after dissolution for one item of the partnership account, but filed at a time when a suit for general accounts was not barred/ The learned Judges laid down that a suit for partial accounts would be entertained1 only in exceptional cases and that the case before them did not fall within that exception, but granted to the plaintiff leave to amend his plaint by converting the suit into one for general accounts on payment of the costs incurred by the defendant upto that date. In the second case Krishnan and Odgers JJ. also held that such a suit did not lie, but refused to permit the plaintiff to amend the suit into one for general accounts.
22. The next decision bearing upon the question-now under discussion is that in -- "Arunachalam Servai v. Nottam Beer Varu Rowther', AIR 1928 Mad 588 (N). The suit was for contribution from the defendant on the ground that the plaintiff and the defendant having been joint debtors under a decree, the plaintiff had been compelled to pay for the satisfaction and discharge of that decree over and above the amount payable for his share. The defence raised was that the debt in respect of which the decree was passed was a debt due by a partnership in which the plaintiff and defendant were partners and that, therefore, the plaintiff was not entitled to sue for contribution, and could, if at all, file a suit only for the taking of the partnership accounts. The judgment of the court, consisting of Wallace and Srinivasa Aiyangar JJ. was delivered by Srinivasa Aiyangar J. who said,
"Prima facie, when there is a decree against two persons jointly and severally, each is liable to contribute equally to discharge the decree, and there is always in such cases an implied contract of indemnity that, if one of them should be compelled to pay up more than his share the other is bound to make good the same. This is, however, on the basis that the obligations of the defendant 'inter se' are determined only by the decree and are not subject to any other rights or obligations. No doubt if it should be established that, having reference to the facts of the particular case, such implied contract as between co-judgment-debtors should be deemed to be displaced, then the legal principle may not be applicable ..... Again it was open to the defendant to set up and prove that as a fact the plaintiff discharged the decree not from his own funds but only from partnership moneys and that therefore the very cause of action for the plaintiff failed.... When both the judgment-debtors are partners in a business and the judgment debt is a partnership debt the discharge of that debt has been held not to give to the partners so paying off a right to levy contribution from his other partner without reference to the partnership accounts, because on the legal principle that under the contract of the partnership each partner is only the agent of the other and the rights of the partners are not with reference to single item of transactions but to the taking of the entire accounts of the partnership. But such a principle is inapplicable to the case of a debt which is not properly and legally a partnership debt."
The learned Judge then proceeded to find that the debt in question" was not a partnership debt. On this finding of fact it was held that the plaintiff's suit was maintainable. The learned Judge also went on to state that the decisions in 28 Mad 344 (D) and 32 Mad 203 (J), must be taken to have been overruled by the Privy Council in AIR 1922 PC 115 (A) and that in the case of a dissolved partnership, the only right of a partner was to have the accounts taken, and if that right were barred by the law of limitation, he could have no right to claim any sum, which would be an item in such a suit for accounts.
That case is also an authority for the position, that if such a right to have the accounts taken could not be exercised at the instance of the plaintiff by reason of Article 106, it could not be exercised at the instance of the defendant. This decision, therefore, renders no assistance to the respondent. On the other hand, it is clear that the learned Judges would have held the suit before them not maintainable, if the debt was' a partnership debt "in a real sense."
23. 'Ellappa Mudaliar v. Swaminatha Mudaliar', AIR 1933 Mad 775 (O) was the next occasion when this matter was considered by this court. It came up before this court in a revision petition, against the decree of the Subordinate Judge of Chingleput, who dismissed the plaintiff's small cause suit. The plaintiff alleged that he and the defendant, who were partners had dealings with another firm, and that the latter obtained a joint and several decree against the plaintiff and the defendant to the extent of Rs. 612-3-0. Execution was taken against the plaintiff alone, and the plaintiff had to pay up the whole decree amount.
He, therefore, brought the suit for contribution for half of the decree amount against the defendant. The plea of the defendant was that the plaintiff had discharged the debt out of the assets of the partnership, which he had in his hands, but took no issue nor adduced any evidence in regard to it. He also contended that one Balasubramaniam, not a party to the suit, was also a partner along with the plaintiff and defendant so that the plaintiff if at all was entitled to 1/3, not 1/2 of the sum against the defendant, and that the partnership was still subsisting, and had not been dissolved; the suit was not maintainable, the plaintiffs only remedy being to claim the amount in a suit for the taking of accounts of the partnership.
The Subordinate Judge found that the suit transaction was connected with the partnership of the plaintiff and the defendant. He held" that the Suit was not maintainable, and dismissed the same. Ramesam J. who heard the revision petition, allowed it on the ground that 18 Mad 134 (H) had decided that a suit of this nature was maintainable. The reason of the rule was stated by the learned Judge thus:
"In the present case the decree has been obtained by a stranger in respect of a partnership debt and the plaintiff alone had to pay up the whole of the decree amount. Prima facie therefore, he is entitled to recover one-third of the decree amount from the defendant." It will be seen that as the partnership there was subsisting, the decision in AIR 1922 PC 115 (A) had no application to its facts. But it is not possible to sustain the argument that in the case of a subsisting partnership suits for contribution for payment of particular items in excess of their share might be open to the partners. As pointed out by this Court in AIR 1927 Mad 650 (M), "In fact if the suit for damages alone regarding one item is allowed to be maintained, then it may be that a partner may be decreed to pay a sum of money whereas when the general accounts are taken and the whole profits ascertained payment may be due to him. It is to avoid such difficulty and to avoid multiplicity of suits it is insisted that a suit between partners should be a suit for general accounts."
Though in the earlier case, the claim was by the members of partnership for damages for breach of a covenant, the principle is equally applicable to suits for the recovery of sums, which would become items in an account of the partnership, if such accounts were taken.
24. The next decision is the one in AIR 1939 Mad 228 (B). The facts of the case are somewhat complicated. One Avadiappa Chetti, the father of the first plaintiff and the grandfather of the second plaintiff, was the partner in' a certain firm, which was dissolved in November 1908 by the retirement of one partner, Jayangondan, and the accounts were never taken or settled between the partners. In February 1908 this Jayangondan, as agent of another firm, lent 3000 dollars to the firm, in which he and Avadiappa were partners. The partner of the lending firm, and his sons, instituted a suit in 1912 against the partners of the firm, composed of Avadiappa and Jayangondan, and impleaded to that suit the son and grandson of Avadiappa and obtained a decree in 1919 against the partners personally, and against their sons to the extent of their shares in the joint family estate.
The plaintiffs, who were the sons of Avadiappa, were compelled to deposit the entire decree amount in June 1923, as a result of execution proceedings taken for the attachment and sale of their family house. The plaintiffs then brought a suit against the legal representatives of the other partners for the share of the latters' liability under the decree. The Subordinate Judge dismissed the suit on the ground that the firm of which Avadiappa was a partner having been dissolved as early as 1908, without the accounts of that firm being settled, the suit by the plaintiffs, which was virtually a suit for contribution, by a representative of one of the partners against the representatives of the other partners was barred by the rule laid down in AIR 1922 PC 115 (A).
The plaintiffs appealed to this court, and it came on in the first instance .before Madhavan Nair and Stone JJ. and as they differed on the question whether the suit lay, it was referred to Pandrang Row J: as a third Judge. The argument addressed to the learned Judges in the first instance is summarised by Madhavan Nair J. at page 233 thus:
"that the present suit is not one for an account or for dissolution by a member of the firm against the firm and that such a suit cannot be instituted by the plaintiffs, who are only members of the family of Avadiappa, one of the partners; that the liability which is sought to be enforced is an amount made payable by the decree, that the debt thus gets transformed into purely a decree debt, and that those who are made responsible to pay it by the decree must contribute towards this in proper proportions."
25. We are not now concerned with the first point of the suit not being by a partner, and against a partner, for on both sides in that case, the sons and grandsons of the partners had taken the place of the original partners. It is only the second point that is relevant in the present context. It will be seen that two points were made to distinguish the decision of AIR 1922 PC 115 (A) from the case before the court. The first was that the Privy Council decision had no application to cases where it was a liability that was sought to be enforced, and that the rule was confined to cases where an asset was sought to be shared; secondly that the debt merging into a decree made a difference in the applicability of the rule. Madhavan Nair J. repelled both the contentions. He said:
"It seems to me that though it has not been decided by the Privy Council the same conclusion should follow if the claim arose with respect to a liability as in the present case."
He also relied upon two unreported decisions of this court in App. No. 100 of 1923 (Mad) (P) and S. A, No. 392 of 1925 (Mad) (Q) In both these cases the liability of the partners had ripened into a decree and contribution was sought by the partner, who discharged the entirety of the debt and the suits were held not maintainable.
26. Stone J. however dealt with the matter thus: after referring to the decision in AIR 1922 PC 115 (A) as one where the question related to the sharing of assets the learned Judge proceeded,
"And it is said that the same reasoning applies to a case of a liability. Thus, where it appears that the liability arose in 1908 and the firm dissolved in 1908 as the right to an account was barred by 1911 if a partner is made liable by a decree passed in 1919 for the whole of the debt he has no right to claim, from his other partners and co-defendants to the suit, a contribution. I am by no means persuaded that their Lordships of the Privy Council have so decided ...... I content myself with saying that assuming that case decided all that the Advocate General says it decides, I still fail to see what it has to do with the right of contribution claimed in the case."
And he then went to deal with the other point that the plaintiff and the defendants were not the original partners. Dealing with the question about the effect of the liability ripening into a decree the learned Judge said,
".... that the debt of record created by the decree in the suit brought by the creditor relates to a liability that had been in existence ever since the original debt was contracted in 1908 and therefore to a liability that was in existence prior to the dissolution in 1908, .... Nor do I consider it necessary to decide in this case whether the principle in AIR 1922 PC 115 (A) applies to a case of later discovered liabilities as it applies to the case of later discovered assets. It is not necessary in my opinion to decide either point."
27. Pandrang Row J., the third Judge, who heard the case, upheld the view of Stone J. He held that the rule, which prevented a partner from suing for his share of any particular asset or for contribution in respect of any particular partnership transaction, was designed to discourage multiplicity of actions.
"It does not however follow that an action for contribution will not lie even in respect of a transaction or debt which does not or cannot form an item in the general partnership because the transaction or debt is not a partnership transaction or debt at all ...... The reason for the general rule that no action for contribution by a partner against his copartners will lie applies however only when the contract of partnership subsists, and only to cases where the action for contribution is brought by a partner as such against his co-partner as such..... Where the partnership relation no longer exists, and where there is no likelihood of any restitution being necessary there is no reason jn my opinion to apply the rule prohibiting actions for contribution as between persons who were once partners but have ceased to be such."
Having thus held that the rule, which prevented actions for contribution between partners as being confined to cases where the partnership was subsisting, the learned Judge went on to hold that the cause of action in the suit for contribution arose only when the common burden was discharged. In the case before the learned Judge, the right to contribution arose 12 years after a suit for accounts as between the partners became barred, and the partnership relation had come to an end for all purposes.
28. The learned Judge went on to say
"if the whole decree had been satisfied by Avadiappa himself in 1923, can it be said that he would have had no right to sue the defendants 1 to 3 for contribution merely because the decree debt itself was in respect of a partnership debt? In such a suit he would not be agitating any of his rights as partner but only his right as a co-judgment-debtor, who has paid off en firely the decree debt which was binding on the defendants also.
I fail to see how his action for contribution could be regarded as an action for contribution by a partner against his co-partners. His right would not be based to any extent on his right as a partner, and the partnership having come to an end long before, it is difficult to see why his right to contribution as a co-judgment-debtor should be held to be so intimately bound up with the extinct contract of partnership that it could only be exercised along with his right to take an account of the partnership."
He then referred to the several cases decided in Madras and distinguished several of them on the ground that the point which actually arose for decision before the learned Judge did not arise in them. The learned Judge held that the decision of the Privy Council in AIR 1922 PC 115 (A) would equally apply to cases of contribution, but that it would not apply to the case before him, as Avadiappa himself had not been the plaintiff and secondly his right to contribution was not based
"on his right as a partner but something which was independent of the partnership, namely, the payment of a joint decree debt by one of several co-judgment-debtors, and it was not necessary for the plaintiff to go behind the decree and establish the partnership for the purpose of sustaining his right."
"it is the defendants who seek to rely upon their rights as partners as a defence to the action for contribution."
29. He therefore held that the fact that the liability arose out of a partnership, which had been dissolved but whose accounts had not been taken was no bar to the plaintiff's suit. The learned Judge finally concluded thus:
"After careful consideration I am of opinion that if the present suit for contribution has been brought by Avadiappa himself it would have been maintainable and that the Privy Council decision in AIR 1922 PC 115 (A) would not have stood in his way."
The ratio of this decision is, therefore, this: that where the liability of a partnership is merged in a decree, and this is discharged by one of the partners, the suit for contribution is maintainable by such partner against others notwithstanding that a suit for accounts is barred.
30. We cannot agree with this reasoning of the learned Judge. In our judgment the decision in AIR 1922 PC 115 (A) is as much a bar to the maintainability of a suit for contribution as to a suit for a share of subsequently recovered assets. To adopt the words of Lord Philhmore, it might well be the case that one of the reasons why no final balance of accounts took place was that the partnership owed money to a stranger, and it was anticipated that the partner who actually made the payment would be called upon to do so. In our opinion, it makes no difference whether the debt thus discharged has ripened into a decree or has been discharged would be an item in the accounts of the partnership, if taken, and if it is too late for the plaintiff to have the accounts taken, it is too late for him either to recover his share of the subsequently obtained asset, or to obtain contribution from his quondam partners in their share of the liability, which he has discharged.
31. We do not consider that Section 43 of the Indian Contract Act confers upon the plaintiff the right which he now contends or prevents the defendant from pleading that the relationship between him and the plaintiff is that of partners, and that as the accounts of the dissolved partnership cannot now be taken a suit for one of the items in that account cannot be the subject of claim. It is not correct to say that the existence of the partnership relationship between the plaintiff and the defendant is irrelevant for the determination of the rights and liabilities of the parties in the present instance.
For instance, the learned counsel for the respondent had himself to concede that if the plaintiff had discharged the decree debt with the aid of partnership funds, he certainly could not have a right to sue for contribution. Similarly if the plaintiff had under the partnership agreement, the right to a 3/4 or other share in the partnership assets and liabilities, it could not be contended that he could make any claim for contribution unless he has paid more than such share, and that he cannot insist on paying merely an equal share along with the other partners. These show that it is really on the basis of the partner-relationship that the suit for contribution is founded.
32. We do not also find any substance in the contention that the decision in AIR 1922 PC 115 (A) is now out of date by reason of the development of the law in England. In the 11th (1950) Edition of Lindley on Partnership, the modern law is thus stated at page 603,
"The account which a partner may seek to have taken may be either a general account of the dealings and transactions of the firm, with a view to a winding up of the partnership; or a more limited account, directed to some particular transaction as to which a dispute has arisen. Speaking generally, unless an account has already been taken, whenever a partner either has in his hands money which his partners allege to belong o the firm or is alleged by his partners to owe money to the firm in connection with partnership transactions, such money can only be recovered from him in an action for an account; and in that action it will be open to him to show that the money is his or that a larger sum is due to him."
AIR 1922 PC 115 (A) is cited as authority in the proposition of law stated in the last paragraph. The change in the law is indicated in the paragraph following this on page 604,
"It was formerly considered that no account between partners could be taken in equity, save with a view to a dissolution, and a bill praying an account but not a dissolution has been held bad on demurrer. But this rule has been gradually relaxed; for it has been felt that more injustice frequently arose from the refusal of the court to do Jess than complete Justice, than could have arisen from interfering to no greater extent than was desired by the suitor aggrieved ...... The old rule, therefore, that a decree for an account between partners will not be made save with a view to the final determination of all questions and cross-examinations between them, and to a dissolution of the partnership, must be regarded as considerably relaxed, although it is still applicable where there is no sufficient reason for departing from it."
33. The Author then proceeds to discuss the cases where accounts have been ordered without dissolution but as these are cases, arising out of the subsisting partnerships, they may be omitted from consideration.
34. We have examined the several decisions in England cited in Lindley, but none of them lends any support to or countenance the contention now put forward by the learned counsel for the respondent that a suit by partner for the recovery of a sum, which would be an item in the partnership accounts, could be instituted after the dissolution of the firm without a suit for general accounts, or if a right to a general account was barred by the law of limitation. We have, therefore, no hesitation in rejecting this argument of counsel for the respondent.
35. The last decision, which it is necessary to refer is AIR 1949 Mad 109 (2) (C). The facts of the case are nearly identical with those in AIR 1939 Mad 228 (B) and the present case, namely, the discharge of a decree debt due by the partnership by one of the partners and a suit by him for contribution against the other partners for their share. The learned Subordinate Judge had held following AIR 1922 PC 115 (A) that the suit was not maintainable. The argument before the High Court was based upon the decision of Pandrang Bow J. and Stone J. in AIR 1939 Mad 228 (B). After referring to cases earlier to and later than AIR 1922 PC 115 (A) Horwill J. who delivered the judgment of the Bench said,
"We cannot but conclude, therefore, that the decision in AIR 1939 Mad 228 (B) is not only against the current of recent decisions in this High Court, but also against the principles laid down by the Privy, Council in AIR 1922 Mad 115 (A)."
36. In view of what we have stated above, this decision is correct, and in our opinion, it enunciates the rule consistent with the decision in AIR 1922 PC 115 (A).
37. In the result, the appeal is allowed and the suit is dismissed with costs throughout.