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S.P. Periaswami Konar and anr. Vs. S. Mikole Udayar and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1975)1MLJ70
AppellantS.P. Periaswami Konar and anr.
RespondentS. Mikole Udayar and anr.
Cases ReferredGopala Chetti and Anr. v. Vijayaraghava Chettiar
Excerpt:
- .....he was instituting the suit. the high court took the view that notwithstanding, the frame of the suit, the suit was virtually one for account and the privy council agreed with that view. in so agreeing, the judicial committee pointed out:.though the pleading may not be quite precise or technical, it is impossible to assign any other character to a plaint alleging a continued agency in the defendant for the purpose of drawing and expending the plaintiff's money, and praying for relief on the ground that the agent had drawn from his principal more than he had expended for him. to such a claim by a principal, the agent may answer that accounts have been settled between him and his principal, or that, though none have been settled, he has in the course of his agency applied for the.....
Judgment:

M.M. Ismail, J.

1. Defendants 1 and 2 in O.S. No. 8 of 1960 on the file of the Court of the Subordinate Judge, Sivaganga, are the appellants herein. Admittedly, the first respondent herein entered into a contract with the Highways Department for the construction of Kodaikanal Moonar Road. After having taken this contract, he entered into a partnership with the appellant and the second respondent for the purpose of carrying out the contract taken by him from the Highways Department. The terms of the partnership were reduced to writing under Exhibit A-1 dated 18th May, 1955. Even though the partnership agreement was reduced to writing on 18th May, 1955, the said document itself provided that the partnership must be deemed to have come into existence on 25th January, 1955. According to the agreement between the parties, each one of the partners was to contribute a sum of Rs. 10,000 towards the capital of the partnership business and they had to divide the profits or losses equally as between them. Clause 7 of the partnership deed provided that under the control and direction of the first respondent herein, the appellant and the second respondent should carry on the construction work and keep proper accounts for the receipts and expenditure, keeping vouchers, bills, invoices etc. to support the expenditure and render a true and proper account of the receipts and expenditure relating to the partnership. The document expressly contemplated the partnership to cover a single venture and to come to an end on the venture itself coming to a close. In addition to this, the partnership deed further provided that it was open to any of the partners to give notice of dissolution of the partnership in the event of there being no proper understanding between the partners or the partnership venture itself ending in a loss. On the allegation that the appellants herein and the second respondent did not diligently, honestly and properly carry out the contract work and the first respondent himself had to take up the contract work and even then the contract work was not completed within the time fixed the Government themselves took over the work in March 1958. Thereby the partnership became dissolved in March, 1958 and the suit was instituted by the first respondent herein for rendition of accounts against the appellants and the second respondent herein. The prayers in the suit were;

(a) for directing the defendants to render true and proper accounts supported by vouchers, bills, invoices etc., of their management of the joint contract and venture regarding the Kodaikanal Monar Road from January 1955 to 1958, when the partnership became dissolved to the satisfaction of the plaintiff ;

(b) to receive from the plaintiff statement of charges and falsifications for amounts misappropriated and loss caused on account of fraud, misfeasance and malfeasance and non-feasance and neglect of the defendants in their management ;

(c) to direct the defendants to pay the amounts that may be found due to the plaintiff on the taking of such accounts with subsequent interest ;

(d) ....

(e)....

Among the various defences put forward by the appellants herein, they contended that there was a dissolution of the partnership and settlement of accounts by agreement between the parties in August, 1956 and consequently the suit instituted on 30th March, 1960 was barred by limitation. They also put forward the contention that the partnership itself was an illegal one, being opposed to public policy since the Madras De-tailed Standard Specification, which applied to the contract taken by the first respondent from the Highways Department, provided that the contractors should not, without the written consent of the Executive Engineer assign the contract nor sublet any portion of the same, and in this particular case notwithstanding this prohibition the first respondent had entered into a partnership with the appellant and the second respondent for carrying out the contract. Yet another contention put forward by the appellants and the second respondent was that the partnership agreement was not entered into by the first respondent in his individual capacity; but he entered into the partneiship on behalf of another partnership viz., Michael Udayar and Company of which the first respondent was only a partner, and the other partners of Michael Udayar and Company had not been impleaded in the suit in question and therefore the suit was not maintainable. The learned Subordinate Judge of Sivaganga, who disposed of the suit originally by judgment and decree dated 9th November, 1961, accepted all these three defences of the appellants and the second respondent herein and dismissed the suit. Against this dismissal, (he first respondent preferred an appeal to this Court viz., in A. S. No. 259 of 1962, and the said appeal was disposed of by a Bench of this Court on 8th September, 1966. The learned Judges who constituted the Bench reversed the conclusion of the learned Subordinate Judge on two points viz., that the partnership was opposed to public policy and consequently illegal and the suit was not maintainable because the other partners of Michael Udayar and Company were not impleaded as parties to the suit, and with regard to the other point viz., that the partnership stood dissolved by agreement between the parties on 19th August, 1956, the learned Judges held that the matter should be remitted for fresh consideration giving an opportunity to both parties to produce documentary evidence to establish the case whether the partnership stood dissolved on 19th August, 1956 or not. With this direction, the appeal was allowed and the suit was remitted to the trial Court for fresh disposal. Thereafter the suit was disposed of by the learned Subordinate Judge on 17th April, 1967. The learned Subordinate Judge pointed out that in spite of numerous adjournments given to the appellants and the second respondent for producing necessary evidence they had not : produced any documentary evidence to substantiate their contention that the partnership stood dissolved on 19th August, 1956 and the accounts were settled between the parties. Consequently , he accepted the case of the plaintiff that the partnership was dissolved only in March, 1958 when the Government took over the construction work themselves and therefore passed a preliminary decree for rendition of accounts as prayed for in the suit. Before the learned Subordinate Judge, the appellants and the second respondent put forward a contention that the prayer for rendition of accounts in the suit was misconceived and the proper prayer should have been for taking of the accounts of the partnership itself. This contention was not entertained by the learned Subordinate Judge on the ground that such a condition was not put forward on the earlier occasion or even before the High Court when A. S. No. 259 of 1962 was disposed of and there was no pleading or evidence in support of that contention and consequently he was not prepared to entertain that objection at that stage. It is against this preliminary decree passed by the learned Subordinate Judge, the present appeal has been preferred by defendants 1 and 2 in the suit.

2. V.K. Thiruvenkatachari, learned Counsel for the appellants, contends that as a matter of law, whenever a partner files a suit against his other partners in relation to matters concerning the partnership after the partnership has been dissolved, the only remedy available to him is to file a suit for general accounting and he cannot file a suit for rendition of accounts by the other partners and this legal position will always be available to the appellants herein notwithstanding the fact that such a contention in this particular form was not raised either in the written statement or before the learned Judge of this Court who disposed of A.S. No. 259 of 1962. We are clearly of the opinion that this contention is certainly available to the appellants herein . As a matter of fact, the learned Subordinate Judge erred in holding that there was no evidence in support of this contention. Once the contention is purely one of law flowing from the admitted relationship between the parties as partners, there is no question of there being any evidence to support this contention. All that the contention involves is that so long as the first respondent has filed the suit in his capacity as a partner of the firm against the defendants in their capacity as the other partners, the only remedy available to him is to ask for a general accounting in relation to the partnership in which each one of the partners will have to tender accounts to the other partners and the first respondent has no right to ask for rendition of accounts by defendants 1 to 3 in his favour and with reference to such a contention the question of there being any evidence in support of the contention does not arise. We can also in this context usefully refer to the decision of the Privy Council in Hurronath Roy Bahadoor v. Krishna Coomar Bukshi (1885-86)13 I.A. 123 : I.L.R. 14 Cal. 147. In that case, a principal filed a suit alleging that the agent had taken out moneys from the treasury and had misappropriated them and the balance that was due against him was a particular sum of money for the recovery of which he was instituting the suit. The High Court took the view that notwithstanding, the frame of the suit, the suit was virtually one for account and the Privy Council agreed with that view. In so agreeing, the Judicial Committee pointed out:.though the pleading may not be quite precise or technical, it is impossible to assign any other character to a plaint alleging a continued agency in the defendant for the purpose of drawing and expending the plaintiff's money, and praying for relief on the ground that the agent had drawn from his principal more than he had expended for him. To such a claim by a principal, the agent may answer that accounts have been settled between him and his principal, or that, though none have been settled, he has in the course of his agency applied for the principal's benefit as much as he has received or more. Nothing could prevent the defendant in a suit framed like this from claiming the benefit of an account if in his favour, just as the plaintiff claims it if a larger sum than he specifies should be found due to him. Such a suit is essentially one for account.

Applying the principles of that decision to this case, it would follow that on the allegation of the first respondent himself that he entered into a partnership with defendants 1 to 3 and agreed with them that defendants 1 to 3 under his control should carry out the contract work and should maintain proper accounts and in so far as defendants 1 to 3 have not performed their obligations diligently and honestly, he was instituting the suit for rendition of accounts, the suit was virtually one for general accounting of the partnership.

3. It is not in dispute that the first respondent instituted the suit only in his capacity as a partner. Equally it is not in dispute that defendants 1 to 3 were sued only in their capacity as partners. Again, it is not in dispute that the subject-matter of the controversy related to the partnership business. It is against the background of this admitted position only, the question whether the first respondent was entitled to a decree for rendition of accounts by the defendants in his favour, arises. We are clearly of the opinion that the first respondent is not entitled to any such rendition of accounts by defendants 1 to 3 in his favour and the only relief to which the first respondent is entitled is a decree for general accounting in regard to the entire transactions of the partnership from its commencement till it came to an end. Mr. Kesava Iyengar, the learned Counsel for the first respondent, in this connection, drew our attention to the provisions contained in Section 48 of the Indian Partnership Act, 1932 and contended that in Clause 7 of the partner-ship deed entered into between the parties, it has beep expressly provided that the construction work must be Carried out by defendants 1 to 3 under the control of the first respondent and they should maintain and render proper accounts to the first respondent. No doubt, this obligation has been agreed to between the parties, but in our opinion that obligation will have to be worked out in the decree of taking general accounts of the entire partnership and because of such provision contained in the partnership deed, it cannot be contended that 'the first respondent is entitled to a rendition of accounts from defendants 1 to 3 independent of any general account relating to the partnership. The position in this behalf is not in dispute and has been clearly laid down in Section 4 of the Indian Partnership Act, 1932. That section provides : 10

On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners, or their representatives according to their rights.

As has been pointed out by the Editor of Pollock and Mulla on the Sale of Goods Act and the Partnership Act, Third Edition (1965) at page 366.

no suit can be maintained by one partner against another in respect of any transaction which forms an item of the partnership account, for such a suit would, from its very nature, involve the taking of the whole partnership account, and this can only be done in a suit for an account.

As we pointed out already, the admitted position in the present suit is that the first respondent instituted the suit in his capacity as partner and he sued defendants 1 to 3 in their capacity as his partners and the subject-matter of the suit is an item of the partnership account. Consequently, the very terms of Section 46 as well as the comment thereon which we have extracted will clearly show that the only relief to which the first respondent is entitled is a decree for general accounting. The same position has been stated in Halsbury's Laws of England, IIIrd Edition, Volume 28 at page 577, as follows:

Upon dissolution each partner is entitled as against the other partners in the firm and all persons claiming through them in respect of their interest as partner , to have the partnership property applied in payment of the firm's debts and liabilities, and after such payment to have the surplus assets applied in payment of what is due to the partners after deducting what may be due from them to the firm. For this purpose any partner or his representatives may bring an action to have the business and affairs of the partnership wound up by the Court with all proper accounts and inquiries. Subject to any contrary agreement, this implies a right to have the assets sold to provide a fund for discharge of liabilities, and for the adjustment of the rights of the partners among themselves.

The important thing to be noticed is that it is a mutual accounting and not one partner alone accounting to any one or more of the other partners, and this results from the peculiar relationship existing between the partners arising out of the contract of partnership. It is this position that was pointed out by this Court in Chockalingam Chettiar v. Meyappa Chettiar and Ors. : AIR1939Mad228 , where it was observed:

This appeal contract of partnership has the effect of preventing a partner either from suing for his share of any particular asset belonging to the partnership or for contribution in respect of any particular partnership transaction, because the contract of partnership implies that all individual claims of one partner against the others must be the subject of a single action for accounts and also because of the rule of law which discourages multiplicity of actions...as a partner suing as such and claiming a share out of the partnership assets as such, or claiming contribution as a partner has no absolute or independent right against his co-partners, those rights can only be agitated as part of his general right to have an account taken of the partnership....

It is the mutuality of this relationship as well as the rights and obligations arising from it that led a Bench of the Lahor High Court to state in Arura Mal Uttam Chand v. Makhan Mal Amir Chand and Ors. A.I.R. 1930 Lah. 725.the position of parties in partnership suits is in some particulars different from that of the position of parties in an ordinary suit (say for money). Thus each of the partners to a partnership suit, however he may be formally ranked, is really in turn plaintiff and defendant and in both capacities comes before the Court for the adjudication of his rights relatively to the other partners which the Court endeavours to determine by its decree....Further in a partnership case the position of the parties may be transposed, that is, a defendant may become a plaintiff or one or more defendants may be found entitled with the plaintiff to certain sums of money payable by one or more of the remaining defendants.

This position results from the basic position of the partners, viz., each one of them is an agent of the other. Therefore, there cannot be suits and cross suits-filed by each one of the partners praying for a decree for rendition of accounts by the other or others and that is the rationale behind the insistence on a single action for general accounting, impleading all the partners as parties to the action. In view of this alone, the Privy Council in Gopala Chetti and Anr. v. Vijayaraghava Chettiar (1922) 49 I.A. 181, : 43 M.L.J. 305 : I.L.R. 45 Mad. 378 : A.I.R. 1922 P.C. 115 held thus:

If a partnership has been dissolved and the accounts have been wound up, and each partner has said 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.... If on the other hand no accounts have, been taken and there is no contention that the partners have squared up, then the proper remedy when 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 is this decision that was followed by this Court in Chocklinga Chettiar's case : AIR1939Mad228 , referred to above. Consequently, having regard to this legal position, we are clearly of the opinion that the only relief to which the first respondent is entitled in law is a decree for general accounting as between the partners, in which the rights and obligations of all the partners mutually will be determined and an account will be taken of the transactions of the partners as well as the assets and liabilities of the partnership, and in working out this and settling the accounts certainly the contract entered into between the parties will be taken note of and given effect to and there is nothing in law prohibiting such a contract between the parties being worked out in the course of the taking of such general account. This position is confirmed by the provisions contained in Order 20, Rule 15, Civil Procedure Code, as well as the form of preliminary decree prescribed in Form No. 21 in Appendix -D to the First Schedule of the Code.

4. Having regard to this legal position we allow the appeal, and in modification of the decree passed by the learned Subordinate Judge, we pass a preliminary decree for taking accounts of the partnership from January, 1955 to March, 1958 when the partnership stood dissolved. There will be no order as to costs both in this Court and in the lower Court.


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