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Sunku Munuswami Chettiar Vs. Sunku Narasimhalu Chettiar (Died) and ors. - Court Judgment

LegalCrystal Citation
SubjectContract;Civil
CourtChennai High Court
Decided On
Reported in(1958)2MLJ233
AppellantSunku Munuswami Chettiar
RespondentSunku Narasimhalu Chettiar (Died) and ors.
Cases ReferredFrost v. Moulton
Excerpt:
- .....agreement is exhibit a-6.' in fact it is found that this plaintiff has attested the main partnership agreement. this document goes on to recite that this plaintiff was to contribute a fifth share of the amount to the defendant, that the plaintiff was to get profits and loss in the proportion in which he had contributed and which the defendant would get from this main partnership business, that in all these matters relating to cinema transaction the plaintiff was to conduct himself towards the defendant in the same manner in which the defendant was to conduct himself towards the three others in the main partnership business and that these two partners had together wholeheartedly effected this agreement in respect of the cinema partnership promising to abide by its terms.4......
Judgment:

Ramaswami, J.

1. This appeal is directed against the Decree and Judgment of the learned Subordinate Judge in O.S. No. 93 of 1950.

2. The facts are short and practically undisputed. The defendant along with others was running a cinema business as exhibitors and distributors. Subsequently the members who constituted this company got separated. Thereafter, the defendant and three others, who are not parties here, took over the assets and constituted themselves into a partnership at will and their deed of partnership is Exhibit B-1. The object of the partnership was to exploit the cinema house called Saraswathi Theatres and Lakshmi Talkies and two films, namely, Sivalinga Sakthi and Manimekhalai. The partnership capital was Rs. 1,11,460-10-0. Each partner had to contribute Rs. 27,865-2-6. This partnership at will after reciting the terms on which the business was to be run and including a provision for the management concludes that during the time this company is conducted, if any of the partners wishes to stop away or to take a return of the share amount all the partners shall abide by the decision of the majority.

3. This defendant apparently could not make up this amount of Rs. 27,865-2-6 and therefore assigned a share of that interest in the partnership and formed, what might be called, a sub-partnership with this plaintiff. This plaintiff was to contribute Rs. 5,573-0-6 in order to take a Fifth share of the defendant's share in the main 'partnership at will referred to. This sub-partnership agreement is Exhibit A-6.' In fact it is found that this plaintiff has attested the main partnership agreement. This document goes on to recite that this plaintiff was to contribute a fifth share of the amount to the defendant, that the plaintiff was to get profits and loss in the proportion in which he had contributed and which the defendant would get from this main partnership business, that in all these matters relating to cinema transaction the plaintiff was to conduct himself towards the defendant in the same manner in which the defendant was to conduct himself towards the three others in the main partnership business and that these two partners had together wholeheartedly effected this agreement in respect of the cinema partnership promising to abide by its terms.

4. But unfortunately, as it always happens in this temperamental cinema world, this plaintiff and the defendant were not able to get on and notice was given under Exhibit A-7 by the plaintiff to the defendant stating that he no longer desired to be a sub-partner with the defendant, and that he had terminated his relationship as a sub-partner and called upon him to return to him the sum of Rs. 5,575-0-6 contributed by him and render accounts.

5. I may for completeness of information point out that so far as this appeal is concerned we are only dealing with the rentals of cinema houses concerning which it would appear that a rental of Rs. 1,000 was assured and this defendant was to get Rs. 250. As a matter of fact, the plaintiff was being paid from time to time his share of the profits to the extent of one-fifth of the defendant's share. In fact; certain amounts have been given credit to in the plaint itself and a decree has been given. I am merely mentioning this to show that the assessment of profits and loss between the plaintiff and the defendant is not such a complicated task as might appear at first sight involving taking of accounts of the main partnership business.

6. The defendant thereupon sent a reply notice (Exhibit A-8) in which he stated that the duration of the sub-partnership was by agreement to be identical with that of the main partnership and that the nature of circumstances of the sub-partnership agreement necessitated that the duration of the sub-partnership was to be identical with that of the main partnership.

7. The plaintiff has thereupon filed this suit for recovery from the defendant Rs. 6,201-0-6 or in the alternative to direct the defendant to render an account of the profits and loss sustained by the defendant in the partnership business of the defendant his three other partners, Kullappa Mudali, Ratna Mudali and Pazhani Mudali from March, 1949 upto 7th October, 1949 and to appoint a Commissioner for taking of accounts if necessary. In this connection we must also read paragraph 14 of the plaint also along with this relief column because that shows the exact scope of the suit as envisaged by this plaintiff. This paragraph runs as follows:

As the plaintiff is a sub-partner with the defendant and the plaintiff may be liable for losses and be entitled to the profits of the defendants herein, in the firm, and the defendant being the accounting party to the plaintiff has to tender an account from March, 1949 to 7th October, 1949 when die sub-partnership was terminated by notice and to pay the plaintiff such amount as may be ultimately found due for capital and profits with further interest. Hence the plaintiff files this suit in the alternative for taking of the necessary accounts and for recovery of such amount as may be ultimately found due from the defendant, if this Court holds that the suit must be for accounting and not for a specified and definite sum.

8. The learned Subordinate Judge tried two additional issues 1 and 2 as preliminary issues.

Issue 1 : Is the sub-partnership entered into between the plaintiff and defendant one at will as alleged by the plaintiff or for the period to be concurrent with and during the subsistence of the partnership?

Issue 2 : Is the suit as framed not maintainable for the reasons stated in paragraph 9 of the written statement?

9. The term 'sub-partner' is not a happy one because it is well settled that one partner cannot foist upon the other partners a perfect stranger. That will be going against the fundamental principle of partnership which is a creature of contract and not one of status and is presumed to be founded on personal confidence between the partners and therefore not to admit of its rights and duties being transferred as a matter of course to representatives and assignees.

10. But it is now well settled that such a sub-partnership can be created in the following sense:

I 'take it' said Lord Eldon to have been long since established that a man may become partner with A, where A and B are partners and yet not be a member of that partnership which existed between A and B (Ex pane Barrow (1815) 2 Rose 252),... A partner can give to a third person an interest in his share, but cannot make him a partner, Bray v. Fromont (1821) 6 Mad. 5. It may be that there are cases in which a stranger may be jointly interested with a member of a partnership, so far as the shares in the partnership of that member are concerned; such mutual interests may amount to a partnership, but it is not a partnership in the main firm, but what is called a sub-partnership, the effect of which would be that the stranger who is a partner in the sub-partnership would not be a partner in the main partnership, Seodoyal v. Joharmull I.L.R.(1923) Cal. 459.

11. In fact it has been pointed out in Pollock on the Law of Partnership, Fifteenth Edition (1952), at page 77:

An unauthorised attempt by one partner to admit a new member into the firm, otherwise than by assignment of his share, would have at most the effect of creating a sub-partnership between himself and the new person; that is, there would be as between themselves a partnership in his share of the profits of the original firm. But as against the original firm itself the newcomer would have no rights whatever. Lindley 69; Brown v. De Tastat (1821) Jac. 284; Ex parte Barrow (1815) 2 Rose 252.

It is in this sense that the sub-partnership has been created between this plaintiff and the defendant.

12. The rights and liabilities of the sub-partnership have also become well settled - See Halsbury's Laws of England (Hailsham Edn.), Volume 24, Section 88i, p. 460 and for the American Law which is practically the same 40 American Jurisprudence Section 199, page 268 and it has received statutory sanction in Section 29 of the Partnership Act. This corresponds to Section 31 of the English Partnership Act and Section 27 of the uniform Partnership Act (United States of America). This Court in Chidambaram Chetty v. Karuthan Chetty (1916) 2 M.W.N. 18, has laid down.

In a partnership suit the sub-partners under a partner cannot be made parties under Order 1, Rule 3 of the Civil Procedure Code. An assignee of a share of the profits of a partner is no partner in that partnership; has no demand against it; has no account in it and must be satisfied with a share of the profits given to his assignor. The sub-partners must ordinarily accept the account taken between the partners but have not the right and are not subject to any duty to take part in the proceedings in which it is taken. The sub-partners are not required to concern themselves with the account to be taken at the dissolution of the partnership.

13. This statement has been amplified in various other decisions Sundara Bat v. Ramlal (1942) N.L.J. 229, Dhanaji v. Gulabchand : AIR1925Bom347 at 427. But the main outline of the rights and liabilities of a sub-partnership envisaged in this decision has remained unshaken.

14. In regard to the duration of this sub-partnership it is also now equally well settled. It has been held in Frost v. Moulton (1856) 21 Beavan 596:

Where one of several partners agrees with a stranger for sub-partnership, it is not to be implied in the absence of any agreement, that the duration of the sub-partnership is to be co-extensive with the original partnership.

15. This has been set out in Lindley on Partnership (11th Edition), at page 180:

So, if one of several partners forms a sub-partnership with a stranger, the fact that the principal partnership has been entered into for a certain number of years is no proof that the sub-partnership was intended to last for the same number of years, or for as many of them as were unexpired when the sub-partnership was formed.

16. In other words, the position taken by the learned advocate who gave the notice on behalf of the defendant would be correct, if there had been an agreement that the duration of the sub-partnership in question was to be identical with that of the main partnership. If that agreement has been proved or at least if there is other proof to show that duration of the sub-partnership was to the coeval with that of that main partnership, then the suit can be held to be premature as has been held by the learned Subordinate Judge.

17. The only point therefore which has got to be decided in this appeal which has been filed by the defeated plaintiff against the findings in favour of the defendant under additional issues 1 and 2 is, has it been shown that this sub-partnership was to be of the same duration as the main partnership rendering this suit for taking of accounts premature?

18. In this case the party who set up the agreement must actually prove it because it is the case for the plaintiff that there was no such agreement and as a matter of fact that it was the other way about. He testified:

It was understood that defendant should pay me my share capital when called upon and also my share in the profits earned by him. There was no provision for any loss as the business was conducted on a profitable scale.

The defendant though he set up an agreement in the notice given by him, did not pursue it by getting into the box and speaking to the agreement by mentioning the place, the time and the persons present when that agreement was made. On the other side we have got the plaintiff getting into the box and saying that the money was to be returned on demand.

19. So we are left to construe the documents Exhibits B-1 and A-6. The learned advocate for the appellant pertinently points out at the outset that these documents do not contain any assertion showing that the sub-partnership and the main partnership were to be of the same duration. His argument is that if there was really any such agreement, nothing was easier than to mention this in the sub-partnership agreement and that the fact that it was not so done is proof positive that there was no such agreement and that, as a matter of fact, the understanding was that the share capital was to be returned on demand when the plaintiff and the defendant could not get on together subject of course to taking of accounts arising from profits and loss. In support of this my attention was drawn to Exhibit B-1, which as I have already stated, is an agreement entered into among four persons including this defendant. The general scheme of things was that each of them was to contribute Rs. 27,865-2-6 as share capital, that the two cinema houses were to be run for exploiting and exhibiting the pictures, that the business was to be maintained in a particular way, that if the partners could not get along together, as it very often happens in the cinema world, any of the partners who wished to stop away could take a return of the share amount provided all the partners decided the matter and that the majority decision would be binding on them. It stands to common sense that these two sub-partners must nave patterned their conduct on the line of the main partnership conduct. This receives support from the clause in Exhibit A-6 which recites that the sub-partners should behave towards each other just as the main partners were contemplated to behave towards one another.

20. As against this it is pointed out that there is specific clause which says:

individual No. 2 (plaintiff) shall get from individual No1 (defendant) one-fifth share out of the share that is got by individual No. 1 and in the profit and loss. To make individual No. 2 liable to and get from the share of individual No. 1 through individual No. 1 just as individual No. 1 and his other three sharers are entitled at the time individual No. 1 shares the profit or loss in the cinema mentioned above; individual No. 1 should divide and give to individual No. 2 the profit and loss pertaining to the one-fifth share.

In other words, the learned advocate for the respondent stresses that this shows that the sub-partnership is to be of the same duration as the main partnership, namely, its distribution and taking of accounts must await the dissolution and taking of account of the main partnership. I do not say that this is an impossible interpretation but only that it is not consistent with the circumstances of the case as well as the failure on the part of the defendant to prove the agreement specifically set up by him and which he failed to pursue by getting into the box and subjecting himself to cross-examination. On the other hand, all that this clause seems to mean is nothing more than what Section 29(2) of the Partnership Act already confers upon sub-partners.

21. In these circumstances, I am unable to confirm the findings of the learned Subordinate Judge on additional issues 1 and 2. I find on issue 1 that the sub-partnership entered into between the plaintiff and defendant was one at will as alleged by the plaintiff and that the period of partnership was not to be concurrent with and during the subsistence of partnership. On issue 2, I find that the suit is maintainable. The suit as framed is maintainable because it cannot be tried as a simple suit for recovery of money but only as one for taking of accounts, there being no question of dissolution as the partnership has already been dissolved. So I set aside the dismissal of the suit and barring the two issues which have been disposed of by me, the suit is remanded and the learned Subordinate Judge is directed to dispose of the suit in the light of the observations made above. Costs to abide by and be provided for in the revised decree. Court-fee to be refunded.


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