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Hazi Mohamad Akbar and anr. Vs. Rai Dwarka Nath Sarkar Bahadur and ors. - Court Judgment

LegalCrystal Citation
Decided On
Reported in6Ind.Cas.63
AppellantHazi Mohamad Akbar and anr.
RespondentRai Dwarka Nath Sarkar Bahadur and ors.
Cases ReferredGray v. Haig
partnership - accounts--dissolution of firm--deceased partner--right of representatives to have an account--dissolution does not affect, liability of firm for subsisting contracts--duty of surviving partners to take steps for completion of unperformed engagements--one member not competent to refer to arbitration unless authorized by the other mebmers--production of account books presumption if books not produced. - .....when the five persons entered into partnership, they agreed to call it by the name of 'the united firm of 'sircar biswas and co.' in the instrument of partnership executed on the 4th november 1903, the shares of the different partners were specified, and there were various detailed provisions as to the advance of capital and the management of the business they proposed to undertake, namely, the construction of a railway bridge. five days later, on the 9th november 1903, the partners entered into a contract with the secretary of state, by which they undertook to construct the jelungi bridge within the 31st of may 1904. it is not disputed that the partners found it difficult to raise the necessary funds, and they entered into an agreement with a firm of bankers known as the chetlangis,.....

1. This is an appeal on behalf of the plaintiffs in a suit to wind up a partnership. The plaintiffs are the legal representatives of a deceased partner one Rohim Bux. The partnership was formed on the 4th November 1903, and the parties to the contract were Dwarka Nath Sircar, Shib Das Banerjee, Gagan Chandra Biswas, Rohim Bux, and Jugal Kishore Dobey; of these Rohim Bux and Dobey appear to have previously carried on business as contractors under the name of 'R. D and Co.', while Sircar and Biswas had carried on business as Engineers and contractors, under the name of Sircar, Biswas and Co.' When the five persons entered into partnership, they agreed to call it by the name of 'The United Firm of 'Sircar Biswas and Co.' In the instrument of partnership executed on the 4th November 1903, the shares of the different partners were specified, and there were various detailed provisions as to the advance of capital and the management of the business they proposed to undertake, namely, the construction of a railway bridge. Five days later, on the 9th November 1903, the partners entered into a contract with the Secretary of State, by which they undertook to construct the Jelungi bridge within the 31st of May 1904. It is not disputed that the partners found it difficult to raise the necessary funds, and they entered into an agreement with a firm of bankers known as the Chetlangis, who consented to finance them. The agreement with the Chetlangis was entered into, on the 7th January 1904, and though it was executed by all the partners, the Chetlangis insisted that the sums advanced from time to time, should be paid out on the receipt and upon the special responsibility of Sircar and Biswas. In fact, an examination of the entries in the book produced by the Chetlangis shows that the majority were signed by Sircar and Biswas, some by Sircar alone, some by Biswas and some by Dobey, and only two by Golam Hossain who purported to sign on behalf of Rohim Bux. The sums advanced by the Chetlangis evidently proved insufficient, and the partners entered into an arrangement with one Sisir Kumar Roy, who advanced money from time to time in the character of a creditor. In the Court below, there seems to have been some suggestion that he was a partner but that position was subsequently abandoned, and it has not been disputed before us that the effect of the agreement with Sisir Kumar, made on the 22nd March, 1904, was not to make him a partner. On the 23rd April 1904, an am-mukhtear-nama was executed and registered in favour of Sisir Kumar, the effect of which was to constitute him the irrevocable attorney of the firm and he was also authorised to receive, keep and pay out moneys of the partnership business. Sisir Kumar appears to have employed one Bhola Nath Ganguly as an accountant, and at one stage of the proceedings, some attempt appears to have been made to treat Bhola Nath also as a partner; this position, however, proved untenable, and the suit has proceeded on the assumption that neither Sisir nor Bhola Nath occupied the position of a partner. On the 28th June 1904, after considerable progress had been made with the work of construction of the bridge, but before its completion, Rohim Bux deed. On the 11th May 1905, the plaintiffs, one of, whom is the father and the other the widow of Rohim Bux, commenced the present action for dissolution of the partnership, for account and realisation of the assets and for incidental reliefs. It is not necessary to state the grounds upon which the action was originally sought to be defended by the surviving partners, Sircar Biswas and Dobey. It is sufficient to mention that on the 31st May 1906, the Court of first instance made the preliminary decree. Sircar and Biswas appealed to this Court, and on the 26th March 1307, their contention that the suit was not maintainable, was overruled. This objection had been based on the alternative grounds that under the partnership articles, arbitration was the only remedy, and that the father of the deceased partner had been admitted as a partner subsequent to the death of Rohim Bux. These objections failing, this Court made what may be called the common form decree, and directed the usual accounts to be taken and the final decree to be drawn up thereon. After remand, a Commissioner was appointed ; and although the proceedings before him were fairly prolonged, the accounts wore taken in a somewhat irregular and perfunctory manner. The principal defendants, Sircar and Biswas, appear to have produced statements of credits, assets, debts and liabilities, but very little effort was made to substantiate the entries in these statements by primary evidence of a reliable character. The report of the Commissioner was placed before the Subordinate Judge, and he came to the conclusion that the business had terminated in a loss, with the result that not only were the plaintiffs not entitled to any profit or return of the principal sum laid out by Rohim Bux, but they were actually bound to pay to the defendants specified sums of money. The defendants, at the same time, were made liable for the outstanding debts of the firm. The plaintiffs have now appealed to this Court, and on their behalf, it has been contended that the accounts have not been properly taken at all; that the defendants have not supported their statements by primary evidence of any value, that the sums, which were drawn out from the bankers Chetlangis, have not been shown to have been applied for the business of the firm; that the Sircar defendant had no authority to settle by reference to arbitration the claim of the firm against the Secretary of State, and in substance that the accounts have to be entirely re-investigated afresh, In our opinion, these contentions are well founded, and must prevail.

2. It has not been disputed, indeed this point was settled by the preliminary decree, that the partnership was dissolved by the death of Rohim Bux. It is necessary, therefore, to wind up the partnership and to take the accounts for this purpose. The right to call for an account upon the dissolution of a firm, is mutual, and each partner is entitled to an account from his co-partners of their partnership dealings and transactions unless he has legally waived or parted with such right. It is well settled, that the personal representatives of a deceased partner are entitled to an accounting from the surviving partners. Clegg v. Fishwick 1 Ha. and TW. 390 : 1 Mac. and G 294 : 47 E.R. 1463 : 41 E.R. 1278 : 19 L.J. Ch. 49 : 13 Jur. 993 ; Taylor v. Taylor 28 L.T.N.S. 189. It is equally clear that as the surviving partner is bound to account to the representatives of the deceased partner, the representatives of the deceased are bound to account when the deceased partner had the management or control of the assets of the firm. Before the accounts are taken, therefore, it is necessary to determine the precise extent to which each partner took part in the management of the firm. This has not been done in the present case, and although vague allegations have been made to the effect that Rohim Bux took a prominent and active part in the management of the contract business, it is impossible, upon the record as it stands, to form any definite conclusion on the matter. It cannot be disputed, of course, that in so far as Rohim Bux may be proved to have taken part in the management, his representatives are liable to render an account; at the same time it has to be borne in mind that the plaintiffs had no concern with the management after the death of Rohim Bux, and the account books remained presumably in the custody of the surviving partners, or of their creditor, Sisir Kumar Roy and his officer, Bhola Nath Ganguly ; under such circumstances, it is the duty of the surviving partners to produce the account books, so that the accounts may be properly adjusted. In this matter, it is clear that no serious effort has been made either to compel Sisir Kumar and his officer to produce the account books if they are still in their custody or even to examine them as witnesses in the case. The defendants, therefore, must, after remand, take all necessary steps to produce the account books, or to cause their prod action by Sisir Kumar and his officer. The very circumstance that they produced certain abstract statement of the assets, credits and liabilities of the firm, shows that they have materials at their disposal which ought to be brought before the Court. It may, further, be pointed out that as to a considerable portion of the sums advanced by the Chetlangis from time to time, the defendants, Sircar and Biswas, have a special responsibility ; the monies were paid out by the bankers on the authority of these two persons, and they are bound to prove that the sums so drawn were applied by them for the purposes of the partnership business. It is clear from the proceedings that although an agreement in favour of the bankers was originally executed by all the partners, it was agreed that the sums advanced from time to time should be paid out on the responsibility of Sircar and Biswas; it is, therefore, obligatory upon them to explain how these sums have been applied for the benefit of the partnership. If this is done, a considerable portion of the capital of the firm will be accounted for. As regards the expenditure, the materials on the record are in a state of considerable confusion : it is alleged that the partners from time to time withdrew portions of the sums they had paid for the business, but there is a dispute as to what suras were actually paid and withdrawn. On this part of the case, the course adopted by the defendants in the Court below was inexplicable; they produced a rough statement marked 'Exhibit W1' to show what sums were drawn out by Rohim Bux. It is doubtful whether the entire document is in the handwriting of one person; it is clear, however, that it was prepared under the directions of Sircar, and a part, at least, was written out by Hari Charan; when Hari Charan came into the witness box, the document was not shown to him, and he was not called upon to explain when and from what materials it had been drawn up: on the other hand, it was proved by another witness, Kali Prasanna. Whether the document, if proved, would be of any assistance to the defendants, we are not in a position to say; but it is clear that if it is alleged by the defendant that Rohim Bux or any other partner withdrew a part of the capital from time to time, the fact has to be established by trustworthy evidence. It has, moreover, been suggested that the business resulted in a loss, because Rohim Bux and Dobey employed their own men and made payments which were not justifiable; no evidence, however, has been adduced in support of these charges, which cannot be seriously considered unless proved beyond dispute. After remand, therefore, not only must the receipts of the partnership business be proved, but the manner, in which the sums have been spent, must be established. This brings us to the consideration of a very important matter in connection with the management of the firm, after its dissolution by reason of the death of Rohim Bux.

3. As we have already stated, when Rohim Bux died, although considerable progress had been made with the work of construction of the bridge, it had not been completed. It is not disputed that the dissolution of the partnership did not affect the liability of the firm for subsisting contracts, and it was, therefore, the duty of the surviving partners to take all steps necessary for the completion of their unperformed engagements. Featherstonhaugh v. Fenwick 17 Ves. 298 at p. 308 : 11 R.R. 77; Anderson v. Weston 6 Bing. N.S. 296 : 9 L.J.C.P. 194 : 4 Jur. 105; Cholmondeley v. Clinton Cooper 80 : 35 E.R. 483 : 34 E.R. 515. The surviving partners, in the case before us, acted within their powers and in discharge of their duty when, after the death of Rohim Bux, they performed their engagements with the Secretary of State. It appears, however, that a large sum of money was due from the Secretary of State on account of work done. The surviving partners submitted their bill, to which exception was apparently taken; the result was that Sircar alone entered into an agreement with the Secretary of State to refer the matter to arbitration. This was done on the 27th November 1905, that is more than 6 months after tne institution of the present suit by the representatives of Rohim Bux against Sircar and the other surviving partners; the Arbitrator made his award on the 28th April 1906, by which it was held that Rs. 77,788, was due on the bill which had been presented for Rs. 1,27,124. This implied a loss of nearly Rs. 50,000 to the firm. The Commissioner and Subordinate Judge have both treated the award as binding upon the plaintiffs and conclusive against them. The plaintiffs challenge this position on the ground that the surviving partners had no authority to refer the matter to arbitration, specially after a suit had been commenced for the dissolution of the partnership. In our opinion, this contention is well founded, and must prevail.

4. It is well settled that it is incompetent to one of the members of a partnership, to bind the firm by a submission to arbitration [Stead v. Salt 3 Bing. 101 : 28 R.R 602 : 10 Moore. 389 : 3 N.L.J. (O.S.) C.P. 175 : 28 R.R. 602; Adams v. Bankart 1 C.M. and R. 681 : 40 K.R. 670 : 5 Tyr. 425 : 1 Gale 48 : 4 L.J. Ex. 69; Antram v. Chace 5 East. 209.] The reason, which is usually assigned for this rule, is, that the reference of disputes to arbitration, even though they relate to dealings with the firm, cannot be said to be an act done for carrying on its business in the ordinary way. Section 263 of the Indian Contract Act to which reference was made, is consequently of no avail. The decision in Administrator-General v. Official Assignee 32 M. 462 : 6 M.L.T. 188 : 3 Ind Cas. 163, upon which reliance was placed on behalf of the respondents, is also of no assistance to them; that case merely affirms the doctrine enunciated by Vaughan Williams L.J. in In re Bourne (1906) 2 Ch. 427 at p. 430, that as between surviving partners and the representatives of the deceased partner, there is an overriding duty in the survivors to wind up the partnership assets, and to do such acts as are necessary for the purpose, and if it is necessary for that winding up either to continue the business or borrow money, or to sell assets, whether those assets are real or personal, the right and the duty are coextensive. The decision cannot be treated as any authority for the proposition, that one partner is competent, without special authority, to bind the firm by a submission to arbitration. On the other hand, the cases of Ram Bharose v. Kallu Mall 22 A. 135 and Dattoobhoy Hassum v. Vallu Mahomed Rahmutullah 1 Bom. L.R. 828, follow the English decisions and recognize the doctrine that one of several partners cannot bind the others by a submission to arbitration, as it is no part of the ordinary business of a trading firm to enter into a submission to arbitration. It is, moreover, clear from the decision in Mutton v. Royle (1858) 3 H. and N. 500 : 27 L.J. Ex. 486, that when a partnership has been dissolved, and it has been agreed that one of the partners shall get in the debts due to the firm, he has no power, after bringing an action in the name of the firm for a debt due to it, to bind his copartners by a reference of all matters in difference between the plaintiffs and the defendants. A similar view has been adopted by the Supreme Court of the United States. in Karthans v. Ferrar (1828) 1 Peter 222 and Hall v. Lauving 91 U.S. 170, on the ground that the rule is based upon sound principles, irrespective of doctrines peculiar to English Jurisprudence. The principle is lucidly explained by Story in his work on Partnership, Section 114, where it is pointed out that one reason which has been assigned in support of the rule is that reference to arbitration is not within the scope of the ordinary business or of the powers or authorities necessary or proper to carry on the business of the partnership. Another reason sometimes assigned is, that the award may call upon the partners to do acts which they might not otherwise be compellable to perform; but the soundest reason seems to be, that as it takes away the subject-matter from the ordinary cognizance of the established Courts of Justice, which have the best means to investigate the merits of the case by proper legal proofs and testimony, and the means of arbitrators to accomplish the same purposes are very narrow and often wholly inadequate, it ought not to be presumed that the partners mean to waive their ordinary legal rights and remedies, unless there be some special delegation of authority to that effect, either formal or informal [Harrington v. Higham 13 Barb. 660, and the Notes to Chardonv. Oliphant (1813) 6 Am. Dec. 572 and Hubchins v. Johnson (1837) 30 Am. Dec. 622.] It is pointed out by Story, however, that although it is not competent to a partner without special authority to make a reference to arbitration, he has ample authority to settle or compromise claims of, or against, the firm and it is not easy to see in what respect the power to release or compromise a partnership debt differs essentially from a submission to arbitration. It is suggested by the learned author that the compromise of a debt by taking less than its nominal amount seems to be an incident to the collection of the debt, and may, therefore, be fairly deemed within the discretion confided to each partner, and indeed, in practice, it is so ordinarily, treated. This distinction, though somewhat refined, is appreciable, and as pointed out by Story, was recognized by Roman Jurists, who admitted a release or discharge by one joint creditor as an extinguishment of the entire contract, and yet held that it was not competent for one of two creditors or partners to compromise a suit, or to submit a controversy touching their joint demands to arbitration, without the consent of the other (Domat on Civil Law, 1,15,3, 11). We must hold, therefore, that the reference to arbitration by the Sircar defendant is not binding upon the plaintiffs, and this conclusion is strengthened by two circumstances; in the first place, as already pointed out, the reference was made after the commencement of the present suit, and with full notice of the claim of the plaintiffs; in the second place, the partnership contract between the parties expressly provided that no partner should, without the consent of the other partners, release or compound any debt owing to, or claimed, by the firm, and if any partner does so, he should, if required by the other partners, make good to the firm the full amount of such debt or claim. Besides, if there was any urgency and. speedy settlement of the claim against the Secretary of State was needed, the defendants might have got a receiver appointed who might have wound up the business under the directions of the Court. Under such circumstances, the conduct of the Sircar defendant was wholly unjustifiable. The result, therefore, is, that the award is not binding upon the plaintiffs. It is open, however, to the surviving partners to show, if they can, that what was paid by the Secretary of State on the basis of the award, was all that was legitimately recoverable from him; in other words, that the claim which had been originally put forward and embodied in the bill submitted, was grossly exaggerated. If this is proved, the defendants would not be liable for damage on account of the reference to arbitration; but if they fail to establish this position, they must be held liable for the loss which has been caused by the reference to arbitration. The burden is consequently cast upon them of explaining fully the details of the claim against the Secretary of State; that is, the grounds on which the claim was advanced at the original figure, and how a reduction could justly be made. This may involve a protracted investigation, but for this the defendants are entirely to blame, and as they put forward the claim against the Secretary of State, they may legitimately be presumed to have in their possession, materials upon which their claim was based.

5. We have now dealt at sufficient length with the main points in the case, and it is not necessary for our present purposes to examine minutely the criticisms which have been directed against the accounts, in so far as they have been produced. The conclusion at which we have arrived is, that the accounts have been very perfunctorily taken, and that the defendants have not done their best, (as they were bound to do), to assist the Court in taking the accounts, and in winding up the partnership. When the case is taken up again, the matter must be thoroughly investigated, and the parties may usefully remember what was said by Sir John Romilly in Gray v. Haig 20 Beav. 219 : 52 E.R. 587, namely, that if an accounting party does' not produce the accounts, or destroys them before the matters have been finally adjusted, the Court will presume everything, most unfavourable to him, consistent with the established facts.

6. The result, therefore, is that this appeal must be allowed, and the final decree made by the Subordinate Judge discharged ; the case will be remanded to him, in order that the accounts may be investigated and taken afresh on the lines indicated in this judgment. The defendants must, in the first instance, supply funds for payment to be made to the Commissioner who will take the accounts; the costs of the Commissioner will be dealt with by the Court below when the final decree is drawn up.

7. As the appellants have substantially succeeded in this appeal, they are entitled to their costs in this Court; they will also be entitled to get Rs. 200 from the defendants, which was the amount of the fee paid by them to the Commissioner for the investigation in the Court below.

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