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Gouri Sankar Sheroff and ors. Vs. Central Hindusthan Bank Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKolkata High Court
Decided On
Case NumberA.F.A.D. Nos. 642 and 643 of 1952
Judge
Reported inAIR1959Cal262
ActsCode of Civil Procedure (CPC) , 1908 - Order 21, Rules 49 and 50; ;Partnership Act, 1932 - Section 31
AppellantGouri Sankar Sheroff and ors.
RespondentCentral Hindusthan Bank Ltd. and ors.
Appellant AdvocatePrafulla Kumar Roy and ;Subodh Kumar Bhattacharyya, Advs.
Respondent AdvocateP.K. Bose and ;Amiya Lal Chatterjee, Advs. in S.A. 642/52 and ;Ranjit Kumar Banerjee and ;Bimal Kumar Banerjee, Advs. in S.A. 643/52
DispositionAppeal allowed
Excerpt:
- .....shankar and atul being among the directors and shareholders of this new concern. on 6-12-1947 the asia electrical works as constituted by these persons transferred by deed the entire business of the firm except the stock-in-trade and furniture which, it was mentioned in this very doucment, had already been sold on that very date as per cash memo, dated 6-12-1947. the plaintiff ranjit kumar bose having obtained a decree on the original side of this court against 'asia electric works' for the balance of the principal and interest said to be due on a hundi dated 18-1-1947 applied for execution of the same in the court of the munsif of howrah, after the necessary certificate of non-satisfaction had been obtained from the high court. process was issued by the munsif for the attachment of the.....
Judgment:

K.C. Das Gupta, J.

1. These two appeals have been heard together as they raise several common questions of law and fact. Second Appeal No. 643 of 1952 arises out of a suit brought by the respondent Ranjit Kumar Bose for a declaration that certain electrical goods that were attached in an execution case in execution of a money decree obtained by him against Asia Electric Works are in law liable to attachment and sale in execution of that decree and for setting aside the order passed by the executing Court in an application under Order 21, Rule 58 of the Code of Civil Procedure by the Asia Mechanical and Electrical Works Ltd.

2. It appears that two persons, Hrishikesh Mondal and Dasurathi Mondal, carried on business as partners in a firm in the name and style of Asia Electric Works. On 18-1-1947 three other persons, Gouri Sankar Sheroff, Baidyanath Sarkar and Atul Chandra Banerjee, were taken as additional partners and the firm as newly constituted continued business till the 31st day of October, 1947 on which date the two partners Hrishikesh and Dasurathi retired under a deed registered on that date. The three continuing partners, Atul Chandra Banerjee, Baidyanath Sarkar and Gouri Sankar Sheroff, however, continued business as partners under the same firm name Asia Electric Works. The Asia Mechanical and Electrical Works, Ltd. was incorporated as a public company limited by shares on 18-10-1947 Baidyanath, Gouri Shankar and Atul being among the directors and shareholders of this new concern. On 6-12-1947 the Asia Electrical Works as constituted by these persons transferred by deed the entire business of the firm except the stock-in-trade and furniture which, it was mentioned in this very doucment, had already been sold on that very date as per cash memo, dated 6-12-1947. The plaintiff Ranjit Kumar Bose having obtained a decree on the Original Side of this Court against 'Asia Electric Works' for the balance of the principal and interest said to be due on a Hundi dated 18-1-1947 applied for execution of the same in the Court of the Munsif of Howrah, after the necessary certificate of non-satisfaction had been obtained from the High Court. Process was issued by the Munsif for the attachment of the movables belonging to the judgment-debtor, Asia Electric Works. In execution of this, it is said, the electric goods mentioned in the schedule to the plaint of the title suit brought by Ranjit Kumar Boss (out of which S. A. No. 643 of 1952 has arisen) were attached. A claim under Order 21, Rule 58 of the Code of Civil Procedure having been put in by the limited company, Asia Mechanical and Electrical Works, Ltd., the learned Munsif on a consideration of the evidence before him held that the petitioner, the Asia Mechanical and Electrical Works, Ltd., had interest and possession in the articles attached at the date of their attachment and directed them to be released from attachment. In the present suit Ranjit Kumar Bose prays that this decision may be set aside and it may be declared that these articles were liable to attachment and sale in execution of his decree.

3. The defence of the Asia Mechanical and Electrical Works, Ltd. was that under the terms of the assignment the limited company was liable only for certain liabilities of the partnership firm and the present plaintiif's dues were not one of them and the goods which were their property were not in any way liable to attachment and sale in execution of the plaintiff's decree.

4. As has already been noticed, three different firms continued business in the common firm name of Asia Electric Works. At first there were Hrishikesh Mondal and Dasurathi Mondal who carried on business with this firm name; from 18-1-1947 up to 31-10-1947 the five persons, Hrishikesh, Dasurathi, Gouri Sankar, Baidyanath and Atul continued business as partners with this firm name; and from the 31st of October, 1947 till apparently 6-12-1947 three persons, Gouri Sankar, Baidyanath and Atul continued business in this firm name. On 6-12-1947 it appears that the entire business including the stock-in-trade was sold by these three partners to the limited company, Asia Mechanical and Electrical Works, Ltd. The important question that arose for the consideration of the Court was whether the decree obtained by Ranjit Kumar Bose was against the firm as originally constituted by Hrishikesh and Dasurathi or against the firm as constituted by the five partners.

5. The trial Court held that the decree having been passed against the firm at a time when it was constituted by the five partners was binding upon all those five partners. It held further that the transfer in favour of the limited company was fraudulent and was made with the object of defeating the claim of the creditors of the partnership firm. It held that the assets which had formerly belonged to the partnership firm as constituted by the five partners should still be held as assets of that firm. In this view the trial Court decreed the title suit and ordered cancellation of the order passed in the claim case in the Munsif's Court and gave a declaration that the properties mentioned in the schedule to the plaint in the title suit were liable to be attached and sold in execution of the decree obtained by Ranjit Kumar Bose.

6. On appeal by the present appellants, Asia Mechanical and Electrical Works. Ltd., the teamed District Judge disagreed with the trial Court on the question whether the decree obtained by Ranjit Kumar Bose was against the old firm as constituted by Hrishikesh Mondal and Dasurathi Mondal or against the new firm constituted by these two along with other three partners. He was of opinion that the Hundi was executed on behalf of the old firm as represented by the two Mondals and that it was not binding upon the incoming partners and held that though the firm name continued to be the same the decree was obtained against the old firm as constituted by the two Mondals and not against the newly constituted firm. He was, however, of the opinion that the assets of the old firm which continued in the hands of the newly constituted partnership could be followed by the decree-holder in exaction of the decree though the newly added partners would not be personally liable for the debts. He further found in agreement with the trial Court that the conveyance of 6-12-1947 to the limited company was a fraudulent transaction for the purpose of defeating the creditors of the old firm and so he held that the decree-holder Ranjit Kumar Bose was entitled to disregard the conveyance and follow the assets of the old firm in the hands of the limited company. On these conclusions he allowed the appeal in part and upheld the decree of the learned Subordinate Judge subject to the modification that the decree would be deemed to be against the old firm represented by the two Mondals and the Asia Mechanical and Electrical Works, Ltd. would be liable only to the extent of the assets of the old firm in their hands.

7. It is surprising to notice that neither in the trial Court nor in the appellate Court there appears to have been any consideration of the question whether or not the electrical goods mentioned in the schedule to the plaint ever formed part of the assets of the new firm or even the old firm. The trial Court appears to have assumed for the purpose of this litigation that the goods certainly formed part of the assets of the new firm as constituted by the five partners. The appellate Court appears to have assumed for the purpose of the appeal that the goods did form part of the assets of the old firm as constituted by the two Mondals. We look in vain, however, for any evidence on this point. Even if the Court of appeal is right in its view that the assets of the old firm which have come into the hands of the Asia Mechanical and Electrical Works, Ltd, are liable to be attached and sold in execution of the decree obtained against the old firm the question of fact that fell to be decided for a proper decision of the suit was whether in fact these electrical goods mentioned in the schedule to the plaint, which were admittedly attached in the execution case, ever formed part of the assets of the old firm. If they did not, the decision on the question of law that the assets of the old firm could be followed into the hands of Asia Mechanical and Electrical Works, Ltd. would be of little assistance to the plaintiff. We invited the learned Advocate for Ranjit Kumar Bose to point cut before us any evidence that would assist his client for a conclusion that these goods mentioned in the schedule to the plaint ever formed part of the assets of the old firm as constituted by the Mondals. He was unable to point out any evidence on this point and was compelled to concede that there is, in fact, no evidence on this point. In the absence of evidence on this point the plaintiff's suit is bound to fail. It may be mentioned here that the decision of the Court of Appeal below that the decree obtained by Ranjit Bose was in law a decree against the old firm is binding on us. I may add that this decision appears to be fully justified by the materials on the record.

8. If we assume for the sake of argument that the electrical goods mentioned in the schedule to the plaint did form at one time part of the assets of the old firm as constituted by Hrishikesh Mondal and Dasurathi Mondal the question arises whether after the new firm came into existence and those assets passed into the hands of the new firm they were still available for the payment of the debts of the old firm. Clearly the law entitles a creditor to proceed against all the assets of the partnership firm. If, however, what was the property, of the partnership firm becomes the property of somebody else the property will be liable for the debts only if it is impressed with a charge or a lien. In the absence of any lien or any other charge a creditor cannot reach the property which has ceased to be the property of the partnership firm and has become the property of some other person. The real question, therefore, is whether after the formation of the new firm with five persons as its partners articles which had formed property of the old firm continued to be the property of the old firm. One has to remember that whenever the constitution of a firm changes by addition of new members as partners there is a break in the identity of the firm whether or not the name continues to be the same. It seems to me to be odd to say that the property, which is now the property of the new firm which is not identical with the old firm, will still be considered to be also the property of the old firm. Our attention has not been drawn to any authority taking this view and I am unable to see anything in principle to justify the conclusion that after a change in the constitution of the firm by the addition of new partners what formerly was the property of the old firm continues to be the property of the old firm in spite of it having been taken over by the new firm. It might at first sight seem unfair and unreasonable that such a change in the constitution of the firm would deprive the creditor of a part of his remedy and that this might easily open the door to collusive transactions. Clearly, however, when the change in the constitution is merely a paper transaction or a fraudulent transaction and not a genuine and real transaction, the Court would disregard the change in the constitution of the firm and would regard the property as continuing to be the property of the old firm in spite of the apparent, though not real, change in its constitution. Where, however, as in the present case, there is a real change in the constitution and the new firm as existing and doing business after 18-1-1947 is a new identity there seems to be no justification for the view that whatever was the part of the property of the old firm continues to be its property in spite of such change.

9. Even apart from the fact, therefore, that the plaintiff has failed to prove that the electrical goods mentioned in the schedule to the plaint ever formed part of the assets of the old firm, the plaintiff's suit was bound to fail as with the constitution of the new firm consisting of five members the assets of the old firm ceased to belong to it and could not, therefore, be attached. If these properties could not reach in the hands of the old firm it could obviously not be attached in the hands of the Asia Mechanical and Electrical Works, Ltd.

10. I would, therefore, allow this appeal, set aside the judgment and decree of the Court below and order that the suit be dismissed.

11. S. A. No. 642 of 1952; The other appeal, namely S. A. No. 642 of 1952 arises out of a suit by the Central Hindusthan Bank Ltd. This bank brought the present suit for recovery of a sum of Rs. 4305/10/- on an overdraft account which had been opened and operated by the Asia Electric Works. In the suit as originally framed only the Asia Electric Works and its two original partners, Hrishikesh Mondal and Dasurathi Mondal, were impleaded as defendants. Later on, the plaint was amended and Gouri Sankar Sheroff, Baidyanath Sarkar and Atul Chandra Banerjee and the limited concern, Asia Mechanical and Electrical Works, Ltd., were added as parties. There was in this case no dispute as regards the amount as mentioned in the plaint being due on the overdraft account. The real question in dispute was whether only the firm as originally constituted by Hrishikesh and Dasurathi was liable for the amount or whether the added defendants were also liable.

12. The trial Court came to the conclusion that though the overdraft account was originally opened and operated by the Asia Electrical Works as it was originally constituted by the two partners, Hrishikesh and Dasuarthi, the new firm after it came into existence and consisted of five members accepted the liability for this debt and thus all the five partners became liable. As regards Asia Mechanical and Electrical Works, Ltd. the trial Court was of opinion that the conveyance of assets by the continuing partners was in fraud of the bank, and the liability of the Asia Mechanical and Electrical Works, Ltd. would be limited only to the extent of the assets of the partnership firm, Asia Electrical Works, in their hands. The trial Court accordingly ordered

'that Money Suit No. 9 of 1947 and Title Suit No. 2 of 1950 be decreed on contest with costs. Money Suit No. 9 of 1947 be decreed against all defendants on record for the amount claimed, subject to this reservation that the liability of defendant No. 7, viz. Asia Mechanical and Electrical Works, Ltd., will be limited only to the extent of assets of the partnership firm, Asia Electrical Works, in their hands'.

13. Here also the learned District Judge, who heard the appeal, disagreed with the trial Court on the question whether the new firm as constituted by the five partners was liable for the amount. He was of opinion that the mere fact that the overdraft bank account was operated on after the re-constitution of the firm cannot show that the re-constituted firm assumed liability. In his opinion 'neither in fact nor in law the incoming partners shouldered responsibility for the dues of the Central Hindusthan Bank Ltd'. But as he was of opinion that though the new partners were not personally liable for the debt of the old firm, yet the assets of the old firm that came into their hands continued to be liable and that the document by which the old partners retired did not effect any change in this position he found that the conveyance in favour of the limited company was fraudulent document executed with the purpose of depriving the bank of its remedy against the assets of the old firm and the bank was entitled to follow the assets even in the hands of the limited company disregarding the conveyance in its favour. Accordingly in modification of the order of the trial Court he passed the following order;

'The decree of the learned Subordinate Judge is affirmed subject to the modification that the defendants other than the Mondal defendants will be liable only to the extent of the joint assets of the old partnership business of the two Mondals, who I will be personally liable also'.

14. It seems difficult to understand how the learned District Judge could affirm a decree against the defendants Nos. 5, 6 and 7 even after his conclusion that the incoming partners were not liable. This part of his decree must, therefore, be set aside in any case. The question that further remains for consideration is whether in addition to a decree being passed against the first three defendants, the Asia Electrical Works, Hrishikesh and Dasurathi, there should also be a decree against the limited company with the rider that the limited company would be liable only to the extent of the joint assets of the old partnership business in its hands.

15. It is worth mentioning that in this case also there is in fact no evidence to show that any assets of the old partnership business as constituted by Hrishikesh and Dasurathi ever passed into the hands of the limited company. Undoubtedly the limited company did acquire--whether fraudulently or otherwise--some property from the Asia Electric Works as constituted by the three continuing, partners on 6-12-1947. There is nothing to show, however, that the properties which then passed into the hands of the limited company had at any time formed part of the assets of the old firm constituted by the two Mondals. Apart from this, as I have already indicated in deciding Second Appeal No. 643 of 1952, what formed part of the assets of the old firm could not in law be considered to continue to be the assets of that firm after the new firm was constituted and took over the assets of the old firm. The only occasion on which the creditors could reach the assets which had at one time belonged to the old firm but now belonged to a new firm would be when these assets were impressed with a lien or some other charge in favour of the creditors. In the absence of any such lien or charge a creditor could not reach assets which had at one time belonged to the old firm but which had ceased to be the property of the old firm.

16. I would, therefore, allow this appeal and order in modification of the orders passed by the courts below that the suit be decreed against the first three defendants, namely, Asia Electric Works, Hrishikesh Mondal and Dasurathi Mondal. It is proper to add that the defendant Asia Electric Works is the old firm as constituted by Hrishikesh Mondal and Dasurathi Mondal.

17. In the peculiar circumstances of these cases we order that the parties will bear their own costs throughout in both the cases.

U.C. Law, J.

18. I agree.


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