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House Ltd. Agency Vs. Paints and Lecquers Ltd. - Court Judgment

LegalCrystal Citation
CourtKolkata High Court
Decided On
Case NumberSuit No. 2765 of 1952
Reported inAIR1954Cal409
ActsPartnership Act, 1932 - Sections 12 and 19(2); ; Code of Civil Procedure (CPC) , 1908 - Section 151
AppellantHouse Ltd. Agency
RespondentPaints and Lecquers Ltd.
Appellant AdvocateA.K. Sen and ;Monotosh Mukerjee, Advs.
Respondent AdvocateI.P. Mukerji and ;R. Guha, Advs.
DispositionApplication allowed
Cases ReferredHarwood v. Edwards
- .....applicants calling themselves also as plaintiffs are the other partners of the same plaintiff firm. the partners of the plaintiff firm are makhan lal samaddar, sm. ramala sarkar, birendra .kumar mitra, sm. karmarani bose and hari sankar dutt. the articles of partnership are contained in a deed dated 8-12-1948. the suit was instituted on or about 10-7-1952. the claim in this suit is against a defendant company by the name paints lecquers ltd. for the recovery of different sums of money like rs. 26,621-11-0 and other smaller sums like rs. 2,025/-, rs. 6,178-12-0, rs. 15,000/- and rs. 1,599-4-9. the smaller sums are said to be due by way of allowance to the plaintiff firm as managing agents of the defendant company and for commission.5. the present application is signed and verified by.....

P.B. Mukharji, J.

1. This is plaintiff's application on a Chamber summons to take the plaint off the file or alternatively to withdraw the suit with liberty to institute a fresh suit or in the further alternative to stay the suit.

2. The application is from many points of view a peculiar one.

3. The suit was filed by the House Limited Agency described as a registered firm as the plaintiff. The verification in the plaint is by Makhan Lal Samaddar a partner of the plaintiff firm. The plaint is also signed by the said part-ner Makhan Lal Samaddar. Makhan Lal Samaddar is admittedly a partner.

4. The present applicants calling themselves also as plaintiffs are the other partners of the same plaintiff firm. The partners of the plaintiff firm are Makhan Lal Samaddar, Sm. Ramala Sarkar, Birendra .Kumar Mitra, Sm. Karmarani Bose and Hari Sankar Dutt. The Articles of Partnership are contained in a Deed dated 8-12-1948. The suit was instituted on or about 10-7-1952. The claim in this suit is against a defendant Company by the name Paints Lecquers Ltd. for the recovery of different sums of money like Rs. 26,621-11-0 and other smaller sums like Rs. 2,025/-, Rs. 6,178-12-0, Rs. 15,000/- and Rs. 1,599-4-9. The smaller sums are said to be due by way of allowance to the plaintiff firm as Managing Agents of the defendant Company and for commission.

5. The present application is signed and verified by Birendra Kumar Mitra one of the partners of the plaintiff firm.

6. In the petition the main case is made on the ground that the majority of the partners consider that the suit is bound to fail and was instituted by Makhan Lal Samaddar without any justification or authority and without consulting the other partners. This is supported by a Reso-lution of the plaintiff firm in a meeting held on 28-7-1952 and attended by all the partners except Makhan Lal Samaddar who did not attend the meeting in spite of notice. The Minutes of the meeting reveal that Makhan Lal Samaddar voluntarily resigned on 9-1-1951 from the dutiesof the plaintiff's day to day administration of the agency business as from 12-1-1951. This in fact is corroborated by a letter written by Makhan Lal Samaddar dated 9-1-1951 and set out in paragraph 6 of the petition. This letter is notdisputed.

The Resolution proceeds to state that the partner Birendra Kumar Mitra was thereafter entrusted with the day to day administration in place of Makhan Lal Samaddar and that in spiteof this Makhan Lal Samaddar has now chosen to use the name of the firm to launch this litigation. The Resolution further states the fact that the plaintiff firm never demanded paymentof the alleged dues on which the suit has now been filed by Samaddar. In fact it was resolved in that meeting that in the best interest of the plaintiff firm and the defendant company the outstanding dues of the firm as settled and worked out by Birendra Kumar Mitra and the Company would be realised in instalments and thedefendant Company would be at liberty to pay the agreed sum within a period of three years from that date in equal annual instalments the first of such instalments being payable on or before the 30th June next and the two subse-queht payments within 30-6-1954 and 1955.

7. Both in the Minutes of this meeting aswell as in the petition there are serious allegations against Makhan Lal Samaddar and it is alleged that he has been instrumental in launch-ing different suits and proceedings in differentCourts and in the name of others.

8. The question now before the Court is whether a suit instituted in the name of the plaintiff firm by one partner can be taken off the file or stayed by a majority of other partners in the plaintiff firm.

9. Before proceeding to discuss the law attention to one more fact is necessary and that is to the specific Clause 24 of the Articles of Partnership which provides :

'In case of difference of opinion at any time during the continuance of the partnership theopinion of the majority shall prevail.'

10. Order 30, Civil P. C., makes provisions forsuits by or against firms. Rule 1 of Order 30 provides that any two or more persons claiming as partners may sue in the name of the firm ofwhich such persons are partners at the time ofthe accruing of the cause of action. It has however been observed in the case of -- 'Bhadreswar Coal Supply Co. v. Satis Chandra Nandi & Co.', AIR 1936 Cal 358 (A), that one partner can bring a suit in the firm name even when the other partners refuse to sue and in that event the other partners can ask for indemnity againstcosts from the suing partner. The question of other partners asking for the stay of suit except on indemnity was not strictly a point for decision in that case as the other partners did not take this objection but the defendant questioned the maintainability of the suit.

11. The provisions of the law of partnership with special reference to Indian Partnership Act may be examined in order to determine the question raised on this application. Section 19(2)(c),Partnership Act provides that in the absence ofany usage or custom of trade to the contrary the implied authority of a partner does not em-power him to compromise or relinquish any claim or portion of a claim by the firm. Similarly Section 19(2)(d) of the Act provides that there is no implied authority of a partner to withdraw a suit or proceeding filed on behalf of the firm.

Learned counsel for Samaddar has relied on these sections of the Indian Partnership Act to support his argument that the other partners of the plaintiff firm should not be allowed to withdraw, stay or relinquish or compromise the claim made in the suit. On a proper construction of these sections they do not in my opinion help the contention made on behalf of respondent Samaddar. Section 19, Partnership Act deals with the implied authority of a partner and is in Chapter IV of the Statute under the heading of 'Relations of partners to third parties.'

The case before me is not the case where one single partner is compromising or relinquishing or withdrawing or staying any claim or proceeding. The question here is whether the majority of partners can do so, and the question here is not concerned with partners' relations with third parties but with the relations of partners 'inter se'. I find nothing in the Partnership Act which can be construed and regarded as a statutory prohibition of the course of action now asked by the majority of the partners in this case on the present application.

12. On this question it has been argued that the provisions in Section 19(2) (c) and (d), Partnership Act are a departure from the English Law on the point and reliance has been placed on the footnote in Sir Dinshaw Mulla's Commentary on the Indian Partnership Act of 1934 criticising Lindley's observation, to which I will presently make a reference. But before I do so a common sense view of the problem presented on this application apart from the gloss of any authorities, will help to dispel many vague ideas on the subject.

13. I see no prospect of success for this suit, if for instance the defendant company calls all the majority of the partners of the plaintiff firm at the trial to depose against Makhan Lal Samaddar and to prove the agreement which I have set out and which is contained in the Minutes of the partners' meeting on 28-7-1952. Learned counsel appearing for Makhan Lal Samaddar in this application has argued that it will be at the trial for the Court to determine whether it will accept the evidence of Makhan Lal Samaddar or the evidence of other partners on this point. But then it is a foregone conclusion. I do not see how the Court can refuse to accept the evidence of the majority of the partners contained in the written minutes of the meeting attended by all the partners except the suing partner and which. fact is not disputed.

In fact the essence of a partnership is that all should act together and if they cannot the majority should prevail. To hold otherwise will mean that it is not a partnership but the dictatorship of one of the partners. The specific clause in the partnership agreement in this case also expressly says that in case of any difference of opinion at any time during the continuance of the partnership the opinion of the majority shall prevail. In this case while the partnership continues there is difference of opinion whether this suit should be continued or not and I see nothing illegal in the court upholding the express terms of the partnership contract.

It will be in my view a wholly unwarrantable aberration of the law of partnership and its procedure as I understand them to allow a partnerwho chooses to continue as a partner and not to retire as in this partnership agreement or to dissolve the partnership, to have the privilege of a partner of using the name of the firm as a plaintiff in litigation and at the same time to defy and break the express contract or partnership.

14. In fact this is not quite an unknown situation in partnership law where one partner commences an action in the name of the firm against the expressed wishes of other co-partners and the procedure adopted by courts has been to stay the action until the partner bringing the action has given his co-partners a full indemnity coupled with security against all costs charges or liability by reason thereof. The Annual Practice in Notes under Order 48a, Rule 1 of R. S. C. mentions the case of -- 'Davey & Co. v. Alby United Carbide Factories Ltd. decided by Coleridge J. in Chambers on 19-3-1914 (B). This case is not reported, but it is said that it referred to the case of -- 'Seal & Edgelow v. Kingston', (1908) 2 KB 579 (C).

Sir Gorell Barnes President delivering judgment observes at p. 582 of that decision :

'It is clear upon the authority of -- 'Whitehead v. Hughes', (1834) 2 Cr & M 318 (D) that Seal had the right as one of the partners in the firm to use the name of the other partner for the purpose of bringing an action to recover a debt due to the firm on giving his partners indemnity against costs. As was said by Bailey B. in the case referred to one of several partners has a clear right to use the name of the other partners. If they object to their names being used, they may apply for an indemnity against the costs to which they might be subjected by the use of their names,'

15. On this point reference may also be made to the decision of the English Court of Appeal in -- 'Johnson v. Stephens & Carter Ltd.', (1923) 2 KB 857 (E), where Atkin L. J. speaks with approval of the principle of indemnity as condition precedent as a general rule with the exception of the case where the dissenting partner has in breach of his duty to the plaintiff colluded with the defendant and brought about the breach complained of. With particular reference to the case of 'Whitehead v. Hughes (D)', and the observations of Baley B, Atkin L. J. said

' I do not think it necessary to consider whether that case is law now, whether that is to say, one partner can use his co-partner's name as plaintiff against his will.'

16. The eleventh edition of Lindley's famous work on Partnership lays down not only the principle of permitting the suing partners to continue the action by giving indemnity to the non-suing and non-co-operating partners in the action In the name of the firm but also the practice of staying such an action.

In the words of the Editors of the eleventh edition of Lindley's Partnership the law is stated in these terms at p. 354 :

'But if it is competent to one partner to sue for the firm, it is as competent to any other partner to stay proceedings, or to put an end to the action altogether by means of a release; and, although the Court will not allow this to be done by collusion with the defendant, for the purpose of defrauding the other partners of their rights (see ante, pp. 209, 210), a release will be effectual where there is no fraud in the case.

In 'Harwood v. Edwards' (Go on Part Note), one of three partners, without the knowledgeor consent of the other two, brought an action in his name and theirs for the recovery of a debt due to the firm. The other two afterwards agreed with the defendant that proceedings should be stayed: and the Court held that this agreement bound all three; and proceedings were stayed accordingly, although the partner who promoted the action disputed the validity of the agreement, and, by the partnership articles, it had been agreed between the partners that one of them should not give a release without the assent of the others.'

17. In the present case before me there is no allegation of any fraud or collusion as between the majority of the partners and the defendant company. So far as Sub-clauses (c) and (d) of Section 19(2), Partnership Act are concerned, it is clear in this country that there is no implied authority any more after this Statute, for one partner to compromise or relinquish any claim by the firm or to withdraw a suit or proceeding filed on behalf of the firm. To that extent the observations just quoted from Lindley are not applicable in India. But then as I have said before that Sub-clauses (c) and (d) of Section 19(2), Partnership Act can not be interpreted to mean a prohibition on the majority of partners to act under Section 12(c), Partnership Act and under an express contract of partnership providing that in case of any difference their opinion shall prevail, and so to discontinue the suit initiated by one partner in the name of the firm without the consent and against the wishes of all other partners.

18. The practice of staying the action in such cases raised the question of how long the stay is to operate. Either it has to be a perpetual stay of a perpetual injunction restraining the suing partner from prosecuting his action in the name of the firm or the stay has to be limited to such time as the suing partner furnishes the indemnity and security and decided cases are silent on the point what happens if no security is furnished at all. Such a stay is in my view unfair to a defendant to the action because it places him indefinitely in a situation where the suit is Kept pending against such defendant. I see no legal justification or principle by which a defendant should be made to suffer this situation for the internecine quarrels between the partners in an action where the firm is the plaintiff and for which internecine quarrels the defendant is in no way responsible.

From that point of view I would much rather adopt the course of ordering the plaint to be taken off the file and if thereby the partnership suffers any loss in the matter of the recovery of its dues, the disappointed partner can be left to his remedy under the contract of partnership and under the partnership law either to sue for dissolution or for retirement as in this case with a claim for the loss if such there be due to the wilful misconduct of the other partners.

19. I do not consider that an indemnity for costs by the suing partner is necessarily an adequate compensation to allow the action to proceed. In the first instance it is unfair in my view and unjustifiable on principle to ask the majority of partners whose decision is by specific agreement said to prevail in any matter of difference to be reduced to the position of helpless onlookers in a suit which they not only disapprove but in which they say that the agreement with the defendant is such that is bound to defeat the suit. Then again it means that further proceedings will have to be taken which might mean a regular suit to enforce the indemnity given inthis case by the suing partner. The costs for realising such an indemnity may be unrecoverable and I do not see why the partnership assets should be used to realise and enforce such indemnity. After all the firm or the partnership is not a legal entity like a corporation or a Joint Stock Company but is merely a compendious name for a group of persons called partners. If the majority of such partners by their very contract of partnership have stipulated that the opinion of the majority shall prevail then in my view the action should not be allowed to proceed.

20. It must be emphasised that by Section 18, Partnership Act it is distinctly laid down that the partner is an agent of the firm for the purposes of the business of the firm subject to the provisions of the Act. It is in my view a part of business of the firm to decide whether certain dues to the firm have become recoverable from third parties and whether such dues should be recovered by litigation. If therefore the suing partner's agency is denounced by the majority of the partners to sue on behalf of the firm then the action should not be allowed to proceed. Subject to contract between the parties, Section 12, Partnership Act provides in Sub-clause (c) that any difference arising as to the ordinary matters connected with the business may be decided by the majority of the partners. In my view whether an action should be brought to recover dues owing to the firm is ordinarily connected with the business of a firm. This majority principle is ingrained in the very nature of partnership apart from the specific agreement in the Articles of Partnership in this case.

21. To allow the suit to continue in these circumstances will be in my judgment to encourage abuse of the process of the court and the ends of justice demand that the suit should be discontinued under the inherent powers of the court under Section 151, Civil P. C. I therefore direct and order that the plaint be taken off the file and the partner Makhan Lal Samaddar to pay the costs of this application to the present applicant and to the defendant. He will also pay the costs incurred up to date in this suit to the defendant company. All payments of costs as directed by this order will be paid by Makhan Lal Samaddar personally and not out of the partnership funds.

22. The application being on Chamber Summons is certified for counsel. A point was taken in the affidavit that the application should have been made on notice of motion but was not pressed before me. I need hardly add that although a Chamber Summons, it was listed with motions and heard in court and treated as a motion. Nevertheless I direct that the costs of this application be taxed as a Chamber Summons.

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