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Abdul Latiff Vs. Gopeswar Chattoraj - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1933Cal204
AppellantAbdul Latiff
RespondentGopeswar Chattoraj
Cases ReferredIn Cooper v. Eyre
- .....he had various other businesses to attend to, it was inconvenient for him to look after the said contract work personally, and so he made up his mind to appoint somebody to whom he might entrust the same. the defendant, who is a pleader, on coming to know of his intention, approached him to be so appointed. upon that it was agreed between the plaintiff and the defendant that the defendant would carry on and look after the business, by bestowing personal labour, and would receive advances from the company and make advances from his own pocket whenever necessary, would keep proper accounts of all income and expenditure and explain the same to the plaintiff, and would be liable to make good to the plaintiff all losses that would accrue by reason of negligent performance of the work; and.....

1. This is an appeal by the plaintiff from a decree dismissing his suit for accounts and for damages. Shortly put the plaintiff's case was as follows: The plaintiff had worked as a contractor for loading and unloading wagons for the Indian Iron & Steel Co. Ltd., at Santa for a long time. As he had various other businesses to attend to, it was inconvenient for him to look after the said contract work personally, and so he made up his mind to appoint somebody to whom he might entrust the same. The defendant, who is a pleader, on coming to know of his intention, approached him to be so appointed. Upon that it was agreed between the plaintiff and the defendant that the defendant would carry on and look after the business, by bestowing personal labour, and would receive advances from the company and make advances from his own pocket whenever necessary, would keep proper accounts of all income and expenditure and explain the same to the plaintiff, and would be liable to make good to the plaintiff all losses that would accrue by reason of negligent performance of the work; and that the profits would be divided half and half between the parties, but the loss, if any, would be borne entirely by the defendant. The defendant worked under this arrangement from 1st November 1919, till 15th April 1921. During this period the defendant was negligent in the performance of the work he was entrusted with and was also guilty of misfeasance and malfeasance, and did not render accounts. Consequently, on 15th April 1921, the plaintiff wrote to the company withdrawing the powers which he had conferred on the defendant to receive payments and do other acts on his behalf, and since then all connexion of the defendant with the plaintiff and with the business ceased.

2. The defendant had paid to the plaintiff in all Rs. 1,200. The prayers in the plaint were that it might be held that the defendant was bound to render account to the plaintiff for the period from 1st November 1919 to 15th April 1921, that he might be ordered to render such account, and that a decree might be passed against him for such amount as might be found due as the result of accounting and also for a sum of Rupees 4,376-3-0 which the company had deducted from the plaintiff's bills, after the defendant had ceased to work, on account of demurrage, back charges and store charges, for work which the defendant had done during the aforesaid period. The defendant took various pleas: it was averred that the suit was not maintainable in the form in which it was laid, because the relationship between the plaintiff and the defendant was not that of principal and agent, but that it was agreed between the plaintiff and the defendant's son Madan Gopal that the plaintiff would renew the contract with the company in his own name, that Madan Gopal would allow the plaintiff's name to stand in the office of the company and would carry out the works relating to the contract with his own men and money and keep the accounts, but that the defendant only managed the business for his son and had no liability to account. The terms, according to the defence, were that out of the net profits the plaintiff would get four annas and the defendant 12 annas, but it was admitted that the plaintiff was not to be liable for loss if any. It was denied that any amount had been deducted from the plaintiff's bills as alleged in the plaint. Charges of negligence, misfeasance and malfeasance were repudiated, and on the other hand it was contended that the business, which at the inception of that partnership was in ruins, attained a flourishing state during the defendant's management. Limitation was pleaded, it being said that the defendant worked till 5th April 1921, on which date he was removed by the plaintiff. It was also asserted that the plaintiff had received not Rs. 1,200 only but in all Rs. 2,517.

3. The Subordinate Judge held that the suit failed on the preliminary ground that it was not maintainable in the form in which it was laid. He nevertheless dealt with all the issues which had been framed and recorded his conclusions thereon. In the result he dismissed the suit. The first and most important question for consideration in this appeal is whether the suit in the form in which it was brought was maintainable. The Subordinate Judge held that the business in question was a partnership business within the meaning of Section 239, Contract Act, that the plaint was framed as if the relations between the parties were as those of principal and agent, while in reality the parties were partners, and that as the particulars required by Form No. 49, App. A of the Code had not been given, no decree in Form No. 21 of App. D of the Code could be made. He held therefore that the claim for accounts was not maintainable and that, inasmuch as the claim for damages was inseparable from the claim for accounts the latter claim too was incompetent. Now, it is quite true that the frame of the suit was not that of a partnership action, and read carefully, the plaint would seem to suggest that the cause of action was founded on such relations as exist between a principal and an agent, though the terms 'principal' and 'agent' appear nowhere in it. At the same time it is only fair to say that the defendant in his written statements nowhere explicitly took the plea that it was a partnership that existed between the plaintiff and Madan Gopal; but that, on the other hand, an out and out transfer of the business or rather its goodwill to Madan Gopal was suggested, it being said that the plaintiff was to get a four annas share of the net profits. The Subordinate Judge noticed this difficulty,for he observed:

The defendant's case as made in the written statement is that the plaintiff transferred his business to the said Madan Gopal in consideration of participation in the net profits of the business to the extent of four annas out of 16 annas, and hence it is clear there was no allegation of partnership in the written statements.

4. The Subordinate Judge however thought, and in this respect he was right, that whatever might have been the words used in the pleadings, the relationship between the parties was to be determined upon the real character of the contract between them, which in his opinion was a partnership contract. There is no document evidencing the contract, nor any direct oral evidence beyond what the plaintiff and the defendant themselves have given as witnesses examined in the case. There is some evidence proceeding from witnesses who have spoken to what they afterwards heard from the parties themselves; and inferences have also to be drawn from their subsequent conduct. For the purposes of this case Madan Gopal may be ignored, for it is conceded that his name was introduced merely to shield the plaintiff from difficulties that were anticipated, because the defendant had engaged in a business which as a legal practitioner it was not open to him to do, and that the real contracting parties were the plaintiff and the defendant. (Their Lordships then discussed evidence and proceeded.) The essential ingredients of the transaction were that the business was to remain in the name of the plaintiff, and so far at any rate as the company was concerned, it was the plaintiff who would take the work under contract from the company, he would make over the work for management to the defendant, and the defendant would get 12 annas out of the net profits as his remuneration, the plaintiff would get the remaining four annas thereof but would not be liable for the loss if any. The distinction between agency and partnership is sometimes a very subtle one, especially in cases where one party gets as his remuneration a share in the profits and does not remain liable for the loss, and this distinction becomes important when a question arises in connexion with their dealings with third parties. 'Partnership' is defined in Section 239, Contract Act, and 'Agency' in Section 182, and although every partner is an agent of the firm and his other partners for the purposes of the business of the partnership, Section 242 says:

No contract for the remuneration of a servant or agent of any person, engaged in any trade or undertaking by a share of the profits of such trade or undertaking shall, of itself, render such servant or agent responsible as a partner therein, nor give him the rights of a partner.

5. The receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner in the business, but it is now well settled, notwithstanding many dicta and decisions to the contrary, that the receipt of a share of the profits is not a conclusive test of partnership. In Boss v. Parkns (1875) 20 Eq 331 Jessel, M.R. observed:

It is said (and about that there is no doubt) that mere participation in profits inter se affords cogent evidence of partnership. But it is now well settled by the case of Cox v. Hickman (1860) 8 HLR 268, Bulten v. Sharp (1865) 1 CP 86 and Mollow v. Court of Wards (1873)4 PC 419 that although a right to participation in profits is a strong test of partnership and there maybe cases where upon a simple participation in profits there is a presumption, not of law, but of fact that there is a partnership yet whether the relation of partnership does or does not exist must depend upon the whole contract between the parties, and that circumstance is not conclusive.

6. On the other hand an agreement to share all profit and all loss is an agreement of partnership even though the words 'partner' or 'partnership' do not occur in the agreement, while even though some losses are to be shared in by the parties the agreement may show that a partnership was not intended. In Lindley on Partnership, Edn. 7, p. 46, it is said:

Whatever difference of opinion there may be as to other matters, persons engaged in any trade business or adventure upon the terms of sharing the profits and making good all losses arising therefrom, are necessarily to some extent partners in that trade, business or adventure; nor is the writer aware of any case in which persons who have agreed to share profits and losses in this sense have been held not to be partners.

7. Again at p. 48 it is said:

The inference that where there is community of profit there is a partnership so strong that even if community of loss be expressly stipulated against, partnership may nevertheless subsist. In Cooper v. Eyre (1788) 1 HBL 37, Lord Loughborough is reported to have said. 'In order to constitute a partnership communion of profits and loss is essential.' But there is nothing to prevent one or more partners from agreeing to indemnify the others against loss, or to prevent full effect from being given to a contract of partnership containing such a clause of indemnity.

8. Judged by the tests laid down in the propositions quoted above the terms of the agreement, such as they have been alleged on behalf of the parties in this case, would be equally consistent with a partnership as with an agency. But a more certain test is to find out whether not only was there a common business but a common interest of all the parties in it, or whether the common business was to be carried on by the defendant on behalf of the plaintiff so that the plaintiff could be regarded as the principal. On this point there is not, nor indeed could there be any, direct evidence, so long as the terms were not put into writing. But there are the following facts, viz., the plaintiff was to take the contract in his own name, and there is no evidence that he was under any obligation to disclose the name of the defendant to the company; the work was to stand in his own name so far as the company was concerned and there is nothing to suggest that the company was going to hold anybody else liable for any loss that might be caused. There is no evidence suggesting that anybody else than the plaintiff was to have a voice in determining what work was or was not to be undertaken or when the work was to be stopped or whether the contract with the company was or was not to be renewed on the expiry of its period (vide Ex. A (9)) or other matters of that description. By themselves these two circumstances may not be enough, but taken along with participation in profits and non-liability for the loss, they may not unreasonably in our judgment, be regarded as taking the case beyond the pale of a partnership contract.

9. It is quite true that for a partnership it is not essential that there should be a common stock or that there should be a joint capital or stock, and the dictum that a partnership in profits is a partnership in assets by which they are made is also not universally true. It may be, and indeed it is nothing extraordinary, that in a partnership concern, the duty is delegated to one partner, to decide upon what contracts should be undertaken or even to enter into contracts in his own name, and to another to finance the enterprise and to a third to manage or carry out the work; but these are more or less matters of delegation. But when the division of work in the aforesaid way is founded not merely on mutual consent given for the sake of mutual convenience but is founded on an assertion of a right and to the exclusion of others, such as appears to have been the case here, more cogent proof is necessary to hold that notwithstanding all this the intention was to create a partnership. These circumstances ordinarily would militate against a supposition of the parties having a common interest in the business, though the business itself is a common one. It has been argued that the stipulation, that the defendant was to advance money was inconsistent with the theory of agency, and the fact that he would charge no interest on such advances but get a share in the profits suggests that the intention was to make him a dormant partner, that is to say, one who was not known or appeared to be such and whose real character was concealed under the cloak of a mere lender of money. But on examining the materials on the record, we are satisfied that it was never contemplated that the defendant would, in fact have to make any very considerable advances, and the evidence that there is on the record amply establishes that the business was carried on and was also intended to be carried on with the amount that was due from the company at the inception and with further advances made by the company.

10. That the relationship between the parties was not that of partners also appears, in our judgment, from the contents of such letters as Ex. 1(d) written by the defendant to the plaintiff, and Ex. 1(g) and Ex. 1(m) which were written by the plaintiff to the defendant and to which the defendant never protested. We sea no good reason to think that the letters produced are not genuine. They have a ring of sincerity and truth which, in our opinion, it is impossible for any man to simulate or fabricate. Some argument has been advanced before us, based on the fact that in some letters from the company to the plaintiff the letter was addressed as M.A. Latif & Co., or M.A. Latif and Brothers (vide e.g,. Exs. A-6, A-7 and A-9), that in one of the letters (Ex. A-9) the company enquired about, the name by which the partnership was to be known, that a bill (Ex. D) was made out in the name of M.A. Latif & Co., and that in some of the bills Ex. D series the defendant signed for M.A. Latif & Co. But we are not prepared to infer from these that the company meant to suggest that the plaintiff was really carrying on the business in partnership with somebody else. The defendant does not suggest that he was included in M.A. Latif & Brothers; nor can it be contended that because he was signing for Latif & Co. he must have been a partner of that firm any more than an agent working under it. The plaintiff admittedly had various other businesses which were carried on under the name of M.A. Latif & Brothers or M.A. Latif & Co. As regards the letter Ex. A (9) in which the company addressing the plaintiff in December 1920, as M.A. Latif & Brothers enquired of him of the name by which the partnership was to be known, we do not think that this inquiry suggests that there was in fact a legal partnership in existence, far less any such between the plaintiff and the defendant.

11. On the other hand in March 1921 the company appears (vide Ex. 2(h), to have referred to the defendant as the 'Babu' appointed by the plaintiff for the works and there is also a large volume of documents showing that the company regarded the plaintiff alone as their contractor. One very strong circumstance which in our opinion, completely demolishes the defendant's case as to partnership is that afforded by his own conduct; if there was a partnership which the plaintiff had wrongfully dissolved, as it is his case, it is inexplicable that the defendant should not have raised a protest expressly stating that he was a partner or should have refrained from resorting to the Court within the time allowed by law to assert his rights and to ask for relief. His explanation is that he might thereby get into trouble as he is a pleader. But in this respect his position as defendant to-day is not any better. We cannot but reject this explanation. (Their Lordships then considered the question of shares of the parties and of limitation and proceeded). We have carefully considered these and other materials, e.g., Exs. 1 (f) and 1 (j), to which our attention has been drawn, but we are unable to agree with the Subordinate Judge. In our opinion what has been proved falls far short of establishing a refusal such as Article 89, Lim. Act contemplates. It is quite true that the refusal need not always be expressed and may, on the other hand, be inferred from circumstances, and it would also be correct to say that failure to comply with a definite demand may sometimes amount to a refusal. But we fail to discover in this case anything which would even remotely suggest a repudiation on the part of the defendant of a liability to account or any circumstances from which the failure or omission on his part to render accounts might be construed as a refusal.

12. It may also be mentioned here that a refusal and time having run therefrom was never even pleaded. In our opinion no part of the claim is barred. It has been suggested in the arguments addressed to us on behalf of the respondent that there was no liability on his part to render account. The ground for this plea it is difficult to make out. When the plaintiff was to get a share of the profits, and when under his agreement it was the defendant's own case that he was to keep the accounts (Madan Gopal being now out of the way) and when it has been established beyond doubt that he handled the cash and never made over the books, it is idle to contend that he was not bound to account. The conclusions which we have recorded above are sufficient to establish the position that the plaintiff is entitled to a preliminary decree for accounts for the period in suit on the footing of the defendant having been an agent liable to render the same. (The judgment then considered other minor points and allowed the appeal and dismissed the cross-objections).

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