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Juman Khan v. Bhoorey Khan
Structured Summary of the Opinion
Factual and Procedural Background
The suit arose from a partnership allegedly formed for manufacturing bangles at Firozabad under the name "Forward Glass Works". The plaintiff, Bhoorey Khan (opposite party No. 1), sued for dissolution of the partnership and accounts, claiming a one-fifth share (0-5-0 in the rupee) and stating in paragraph 12 of the plaint that the suit was valued at Rs. 2,000 for jurisdiction and court-fee purposes. The defendants included four persons; defendants 2 and 3 denied being partners, and defendant 1 (Jumman Khan) pleaded that he was sole proprietor and that the suit was undervalued and beyond the court's pecuniary jurisdiction.
After institution of the suit a receiver was appointed. One lot of bangles was handed over to defendant Jumman Khan on a valuation of Rs. 9,000. The remainder of partnership property was valued by the plaintiff at Rs. 27,127 and by the defendant at Rs. 40,250 — indicating a combined partnership property value in excess of Rs. 37,000. The learned Munsif held that the plaintiff's share would be Rs. 7,514 (about one-fifth of assets) and ruled that valuation for jurisdiction/court-fee in a suit for dissolution and accounts should be based on the plaintiff's share of assets without regard to liabilities; he ordered the plaint returned for presentation to the proper Court.
The plaintiff appealed. The appellate Judge (Small Cause Court, Agra) held that liabilities could not be ignored and, after a rough inquiry of assets and liabilities, estimated the plaintiff's share to be about Rs. 4,300. Because the difference between Rs. 4,000 (the Munsif's pecuniary limit) and Rs. 4,300 was small and because the Judge considered further inquiry necessary, the appeal was allowed, the Munsif's order set aside, and the case remanded to the Munsif with a direction to decide valuation after further inquiry.
The defendant filed this revision application to the High Court contending that the appellate Judge should have dismissed the appeal once he reached a conclusion by rough calculation and that the Munsif was correct in treating assets alone as the basis for valuation. Reliance was placed on the decision Inayat Husain v. Bashir Ahmad and Anr (A.I.R. 1932 All. 413).
Legal Issues Presented
- How should the valuation of a suit for dissolution of partnership and for accounts be determined for the purposes of court-fee and jurisdiction, particularly after the amendment to Section 7 (now 7(iv)(b)) of the Court-fees Act?
- Whether the valuation should be calculated by reference to the plaintiff's share of assets alone (disregarding liabilities) or must take both assets and liabilities into account (with reference to Section 48, Partnership Act)?
- Whether the Court is required to conduct a substantive or rough inquiry into accounts at the preliminary stage solely for the purpose of fixing valuation for jurisdiction and court-fee, or whether the plaintiff's own statement of the approximate sum due should generally determine valuation?
Arguments of the Parties
Applicant / Defendant's Arguments
- The defendant urged in revision that once the appellate Judge's rough calculation showed the plaintiff's share to be about Rs. 4,300, the appeal should have been dismissed rather than remanding for further inquiry.
- The defendant contended that the Munsif was correct in holding that valuation should be fixed by reference to the value of the plaintiff's share of the partnership's assets without taking liabilities into account.
- Reliance was placed on Inayat Husain v. Bashir Ahmad and Anr (A.I.R. 1932 All. 413) to support the contention that valuation could be fixed with reference to assets alone.
Plaintiff / Respondent's Position (as reflected in pleadings and proceedings)
- In the plaint the plaintiff stated that the suit was valued at Rs. 2,000 for purposes of jurisdiction and payment of court-fee.
- Pleadings indicated the plaintiff claimed a one-fifth share and that defendant 3 kept cash and accounts; the plaintiff did not in the plaint state the approximate sum he considered due to him (as required by the amended statutory provision, as held by the Court).
- On appeal the plaintiff's position (as assessed by the appellate Judge after a rough calculation) led to an approximate valuation of about Rs. 4,300 for the plaintiff's share when assets and liabilities were taken into account.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Inayat Husain v. Bashir Ahmad and Anr, A.I.R. 1932 All. 413 | Relied on by the defendant for the proposition that valuation may be taken from plaintiff's share of assets. | The Court held that Inayat Husain did not lay down that liabilities may be ignored; it distinguished that case because there were apparently no liabilities in that matter, so it did not support the defendant's contention here. |
| Chief Inspector of Stamps v. Ramesh Chandra, A.I.R. 1944 All. 84 | Related authority on valuation principles under the Court-fees Act. | The Court stated its view as to valuation is in accord with what was held by a Bench of this Court in this case; the case was cited to support the principle that the plaint's valuation statement is significant for preliminary purposes. |
| Jageshra v. Durga Prasad Singh, A.I.R. 1914 All. 72 | Cited (in prior authority) regarding valuation and jurisdiction principles. | The Court observed this case was not a suit for accounts but for a declaratory decree; consequently it was not applicable to the question of valuation in suits for accounts. |
| Rachappa Subrao Jadhav Desai v. Shidappa Venkatrao Jadhav Desai, A.I.R. 1918 P.C. 188 (Privy Council) | Quoted in prior cases for a principle concerning notional vs. real value for jurisdiction. | The Court found that the passage relied upon in earlier judgment was not a general proposition applicable to suits for accounts: the Privy Council's observations related to a case where a fixed fee under Schedule II applied, and so the sentence had been used out of context in prior authority. |
Court's Reasoning and Analysis
The Court analysed the issue in several sequential steps, applying statutory provisions and partnership-accounting rules to the facts of the case:
- Statutory amendment scrutinized: The Court examined the amendment to Section 7 of the Court-fees Act (re-numbered as Section 7(iv)(b) by later notation) introduced by the U.P. Act of 1938, which added a proviso that the valuation "shall be the approximate sum due to the plaintiff" and that this sum would form the basis for calculating the valuation for an appeal from a preliminary decree. The Court concluded that under the amended provision the plaintiff must state the approximate amount he considers due and that merely stating a value for court-fee is insufficient.
- Partnership accounting principle: The Court referred to Section 48 of the Partnership Act (provisions for settling accounts after dissolution). From Section 48 the Court reasoned that determining the amount due to a partner necessarily involves taking both assets and liabilities into account — because assets are applied in an ordered manner (pay debts to third parties, repay advances, repay capital, then distribute residue among partners). Consequently, valuation that ignores liabilities is inaccurate where liabilities exist.
- Assessment of prior authority: The Court considered Inayat Husain and found it did not hold that liabilities could be disregarded; that earlier case apparently involved no liabilities, so the asset-only valuation there did not support a general rule for suits involving accounts and liabilities.
- On the question of whether the Court must hold a regular enquiry at the preliminary stage to determine valuation: The Court rejected the view that a full or even detailed inquiry into accounts should be conducted at the preliminary stage solely to fix valuation. It reasoned that such an enquiry would amount to deciding the suit at the threshold and could be futile and unjust in contested matters because rough calculations and incomplete inquiries can be unreliable.
- The Court identified the legitimate function of the plaint's statement: Section 7(iv)(b) as amended contemplates reliance on the approximate sum stated by the plaintiff in the plaint; if the plaintiff later obtains an amount in excess, he will pay court-fee on the excess. The Court allowed for narrow exceptions where the valuation statement is obviously wrong on admitted facts (e.g., plaintiff admits no liabilities and assets' value is admitted, or plaintiff expressly admits a different amount in the plaint).
- Application to the present case: The Court held that the appellate Judge was correct to set aside the Munsif's order (because the Munsif had accepted valuation without having the plaintiff state the approximate sum), but erred in directing the Munsif to hold an enquiry to determine the approximate amount due. Instead, the correct procedure was to direct the Munsif to require the plaintiff to state the approximate sum due and to amend the plaint accordingly; thereafter the Munsif should decide the case on the basis of the amended plaint so long as the suit is cognizable by him.
Holding and Implications
Holding:
Revision allowed in part; the lower court's order is modified.
The Court's explicit procedural holding consists of the following points:
- The plaintiff must be required to state the approximate sum he considers is due to him in a suit for dissolution and accounts under Section 7(iv)(b) of the Court-fees Act (as amended).
- The sum so stated by the plaintiff shall be treated as the valuation of the suit for purposes of payment of court-fee and for determining jurisdiction.
- Except where the valuation can be determined from admitted facts, the Court at the preliminary stage is not to embark upon an inquiry into accounts for the purpose of fixing the approximate amount due to the plaintiff; a full or partial preliminary inquiry is generally inappropriate and may be unjust or futile.
Direct consequences for the parties and case management:
- The High Court modified the appellate Court's remand direction: instead of ordering the Munsif to conduct an enquiry into the approximate amount due, the Munsif is to require the plaintiff to state the approximate sum due and to seek amendment of the plaint accordingly.
- After such amendment, the Munsif shall proceed to decide the suit if, after amendment, the suit remains cognizable by him; no further preliminary inquiry into valuation is necessary unless the valuation is obviously wrong on admitted facts.
- Costs of the revision are to abide the result (i.e., costs are deferred pending final outcome of the suit).
Broader implications as stated in the opinion:
The Court's ruling sets a procedural rule as to how valuation for jurisdiction and court-fee should be ascertained in suits for dissolution and accounts under the amended statutory provision: reliance primarily on the plaintiff's own statement of the approximate sum due, and avoidance of a preliminary investigative inquiry into accounts except in clear cases based on admitted facts.
Note: This summary is strictly drawn from the provided opinion. No facts, arguments, or holdings not expressly contained in the opinion have been added.
1. This is a defendant's application in revision.
2. Bhoorey Khan, opposite party No. 1, instituted the suit which has given rise to this revision for dissolution of partnership and ac-counts on the allegations that he and defendants I to 4 entered into a partnership for the purposes of manufacturing bangles at Firozabad and to carry on the business in the name and style of "Forward Glass Works"; that the partnership was at will and that later on defendant 4 retired from the partnership so that on the date of the suit the plaintiff and defendants l to 3 were the only partners of the partnership; that the plain-tiff's share in the partnership was 0-5-0 in the rupee; and that defendant 3 kept the cash and the accounts. The reliefs prayed for in the plaint were that the partnership be dissolved and the accounts of the partnership business be taken, and a decree for the amount found due to the plaintiff be passed in his favour. In para. 12 of the plaint, the plaintiff stated, "that the suit is valued at Rs. 2000 both for the purposes of jurisdiction and payment of court-fees." Defendants 2 and 3 denied that they were partners in the partnersbip. Jumman Khan, defendant 1, stated that 1949 he was the sole proprietor of the firm, Forward Glass Works, Firozabad and the plaintiff not a partner therein. He further pleaded the suit had been undervalued and the court paid was insufficient, and that it was beyond pecuniary jurisdiction of the Court.
3. After the institution of the suit a receiver was appointed to take charge of all the pro] ties belonging to the firm. One item of the fir; property consisting of bangles was made over the defendant Jumman Khan on a valuation Rs. 9000. The rest of the properties were valued by the plaintiff at Rs. 27,127, and by the defendant at Rs. 40,250. Thus, the partnership property Was admittedly worth more than Rs. 37,000 The learned Munsif held that the plaintiff's share being about one-fifth, the value of the assets his share would be Rs. 7514. He further held that in a suit for dissolution of partnership a for accounts the value for purposes of court-fee and jurisdiction should be fixed at the value the plaintiff's share in the assets without taking into account the liabilities of the firm. In the result he ordered that the plaint be returned presentation to the proper Court.
4. The plaintiff went up in appeal again this order. The learned Judge, Small Cause Court: Agra, who heard the appeal held that the liabili ties could not be disregarded in arriving at true valuation of the suit. He entered into rough enquiry about the assets and liabilities the firm and came to the conclusion that the value of the plaintiff's share was roughly about Rs. 4300. But considering that the difference between Rs. 4000, which was the limit of the Munsif's pecuniary jurisdiction, and Rs. 4300, the value of the plaintiff's share on a rough calculation, was very small, he thought that the case needed further enquiry as to the approximate amount due to the plaintiff. He, therefore, allowed the appeal, set aside the decree of the lower Court and remanded the case to the Munsif directing him to decide the question of valuation after holding further enquiry.
5. Against this decision the defendant ha come up in revision to this Court and it is urged on his behalf that once the lower Court has come to the conclusion that on a rough calculation, the valuation of the share of the plaintiff was Rs. 4,300 he should have dismissed the appeal and not remanded the case for further enquiry. It is further urged that the Munsif was right in holding that the valuation of the suit should be ascertained on a calculation of the value of the plaintiff's share in the assets of the partnership without taking into consideration the liabilities. In support of this contention reliance is placed upon a ruling of this Court in Inayat Husain v. Bashir Ahmad and Anr. A.I.R. (19) 1932 All. 413.
6. Before 1939, the court-fee payable in suits for accounts was to be calculated in accordance with the provisions of Section 7 (iv) (f), Court-fees Act, which provided that the valuation was to be "according to the amount at which the relief sought as valued in the plaint." By the U.P. Act of 1938' the following proviso has been added:
Provided further...that such amount shall be the approximate sum due to the plaintiff and the said sum shall form the basis for calculating (or determining) the valuation of an appeal from a preliminary decree passed in the suit.
7. The section has been re-numbered as 7(iv) (b).
8. It is clear that under the amended provisions, in a suit for accounts the plaintiff must state the amount that he considers is approximately due to him. It will not do for him to merely value his suit for purposes of payment of court-fee at a certain figure. In the present case the plaintiff has not given this information in the plaint. As we have pointed out above, he has merely stated in para. 12 of the plaint that the valuation for purposes of payment of court-fee and jurisdiction is Rs. 2000. This is not enough under the present law and the Court below should have required the plaintiff to state the approximate amount that he considers is due to him.
9. The next point to be considered is how the approximate amount due to the plaintiff is to be calculated. In a suit for dissolution of partnership and for accounts the Court has to find out the amount due to the plaintiff in accordance with the provisions of Section 48, Partnership Act. Section 48 runs as follows:
48. In settling the accounts of a firm after dissolution, the following rule shall, subject to agreement by of the partners, be observed:
(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.
(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:
(i) in paying the debts of the firms to third parties;
(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;
(iii) in paying to each partner rateably what is due to him on account of capital; and
(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.
10. It is obvious that the amount due to the plaintiff cannot be found out unless both the assets and liabilities are taken into account. In Inayat Husain v. Bashir Ahmad and Anr. A.I.R. (19) 1932 All. 413 the Court did not any where lay down that the valuation of the plaintiff's share was to be calculated with reference to the assets only and that the liabilities were to be disregarded. It is true that in that case the value of the plaintiff's share in the assets of the partnership was taken as the valuation for purposes of payment of court-fees. But from the judgment it does not appear that there were any liabilities at all. That case, therefore, does not support the contention of the learned Counsel for the applicant. In our view the lower Court was right in holding that in calculating the approximate amount due to the plaintiff, not only the assets but also the liabilities should be taken into account.
11. This brings us to a consideration of the question whether the amount approximately due to the plaintiff has to be ascertained upon a regular enquiry made by the Court. We cannot persuade ourselves to think that this can be the intention of the law.
12. In a suit for (dissolution of?) partnership and accounts the Court will ultimately have to go into the accounts, find out the assets and the liabilities and then determine the amount due to the plaintiff. All these processes will have to be gone into in the course of the suit. If this enquiry has to be embarked upon at the very threshold of the suit merely for the purposes of ascertaining the valuation of the suit for the purposes of payment of court-fee and jurisdiction, then practically the whole suit will have to be decided. Nor can we see that in a contested matter any satisfactory result can be arrived at by a rough calculation and an incomplete enquiry. The difficulty envisaged by us is fully illustrated by the result arrived at by the lower Court on a rough calculation. The learned Judge of the Court below has come to the conclusion that Rs. 4300 would be the approximate amount due to the plaintiff. Naturally he is not satisfied with it because calculation cannot be said to be exact, an throw the plaint on the result of such a rough enquiry may cause injustice. We think, therefore, that in a case of this kind where an enquiry into the valuation of the plaintiff's share have ultimately to be made in the suit itself, should not be undertaken at the preliminary stage. It cannot be the intention of the law the valuation of the suit for purposes of jurisdiction and payment of court-fees must be determined upon a regular enquiry to be made a the amount due to the plaintiff. Section 7(iv) (b) as amended speaks of the valuation put down in the plaint as the approximate sum due to the plaintiff. This must inevitably refer to the statement of the plaintiff himself as to what he thinks is the approximate sum due to him. If an amount in excess of the amount which he has stated in the plaint is ultimately found d him, he will, of course, be required to pay court-fee on such excess amount. There is, therefore, no loss of revenue to the State. There may, however, be cases in which upon the admitted facts of a case, the Court can say without making any enquiry at all, that the valuation put down by the plaintiff is obviously wrong. For instance, where the plaintiff himself has admitted in the body of the plaint that on the taking of accounts such and such an amount will be found to him, but has deliberately undervalued his claim for purposes of payment of court-fees; or where the plaintiff admits that there are no liabilities and the value of the assets is also admitted, then, in such cases, the Court will be justified in not accepting the valuation as put by him in the plaint, and in calling upon him to correct it according to his own admission. In other cases what the plaintiff states to be the approximate gum due to him is to be taken as determining the valuation of the suit. Our view is in accord with what was held by a Bench of this Court in The Chief Inspector of Stamps v. Ramesh Chandra A.I.R. (31) 1944 All. 84.
13. It may further be pointed out that where the defendant alleges that on proper accounts being taken no amount will be found due to the plaintiff or that an amount less than the amount. alleged by the plaintiff will be found due, he can hardly be in a position to take the plea of undervaluation. Such a plea coming from him will not be entertained by the Court.
14. In Inayat Husain's case A.I.R. (19) 1932 All. 413, it was apparently held that:
Where the valuation of the suit for purpose of jurisdiction is contested, the value must be determined by the Court; and where the valuation can be ascertained correctly, the plaintiff cannot be allowed to put an arbitrary value upon his claim, nor can be allowed to overvalue or undervalue his claim with a view to choose his forum.
15. As we have pointed out earlier in this judgment, that was a simple case in which the value of the assets found by the amin was not disputed and there did not seem to have been any liabilities. That was, therefore, a case where the valuation of the suit could be correctly ascertained without any difficulty. If, however, the learned Judges meant to lay down that in all cases for accounts where the valuation is contested the Court is bound to enter into an enquiry as to the amount due to the plaintiff, we respectfully differ.
16. Two cases were relied upon by the learned Judges for the views expressed in that case: (1) Jageshra v. Durga Prasad Singh A.I.R. (1) 1914 All. 72 and (2) Rachappa Subrao Jadhav Desai v. Shidappa Venkatrao Jadhav Desai A.I.R. (5) 1918 P.C.188. Now Jageshra's case A.I.R. (1) 1914 ALL.72 was not for accounts at all. The relief claimed was to obtain a declaratory decree where consequential relief was prayed. Rachappa Subrao Jadhav's case A.I.R. (5) 1918 P.C. 188 which was decided by the Privy Council was also not a suit for accounts. The learned Judges in Inayat Husain's case A.I.R. (19) 1932 ALL. 413 have relied upon the following passage supposed to have been laid down by their Lordships of the Privy Council:
When a notional value, different from the real value, is placed upon property for the purpose of the court-fee, such notional value cannot displace the real value for the purpose of jurisdiction.
17. This sentence is not to be found in the judgment of the Privy Council and with great respect to the learned Judges we find that no such general proposition was laid down by their Lordships of the Privy Council. In that case the suit was, for the purpose of jurisdiction, valued at Rs. 69000 and therefore was filed in the Court of the first Class Subordinate Judge of Belgaum, Bombay, but a court-fee only of Rs. 10-6-0 was paid. The reliefs sought were:
(1) a declaration that the plaintiff being the lawfully adopted son of the deceased Venkatrao Desai is owner of all his property...Rs. 130 (2) a permanent injunction may be issued to the defendant prohibiting him from causing obstruction to the immovable and movable property that is in the plaintiff's possession. Valuation for this purpose is Rs. 5.
(3) If it be deemed desirable to grant to the plaintiff any other relief besides this the same may be given.
18. The Judicial Committee held that from an examination of the plaint it was clear that as to the whole of the properties in suit excepting one house no consequential relief could have been prayed and that even as to the house the injunction prayed was demurrable in the sense that no cause of action was disclosed which could have supported this relief.
19. The Privy Council further found that the valuation of Rs. 130 put down on the relief for declaration was not its true value, but had been noted in the plaint in accordance with the practice prevailing in Bombay for declaratory relief to be valued at Rs. 130 as being the value on which the fee nearest to Rs. l0 would be leviable. The defendant did not take any objection to the jurisdiction of the Court or to the amount of court-fee paid on the plaint in the trial Court. The Subordinate Judge decreed the suit. The defendant filed two appeals--one in the Court of the District Judge and the other in the High Court. In these appeals the defendant seems to have raised the plea that the suit was not cognizable by the Subordinate Judge because under. Section 8, Suits Valuation Act the valuation for purposes of jurisdiction should have been the same as was put down for purposes of court-fee, the ' case being one in which ad valorem court-fee was payable. The District Judge upheld his plea, but the High Court rejected it. The defendant went up in appeal to the Privy Council. The Privy Council on these facts strongly repelling the defendant's technical plea and holding that the Court-fees Act was not intended
"to arm a litigant with a weapon of technicality against his opponent, but to secure revenue for the benefit of the State", observed as follows:
If regard be had to the real as distinct from the imputed value of the property, the suit was properly instituted in the Court of the First Class Subordinate Judge, and if any part of the fee payable and paid was a fixed fee under Schedule II of the Act, then the notional value of the property or any part of it could not displace its real value for the purposes of jurisdiction.
20. It will be observed that no valuation for the purposes of court-fee is required to be stated when the relief sought is a declaratory relief on which a fixed court-fee under Schedule II, Court-fees Act is payable and it should be further observed that to such a case Section 8, Suits Valuation Act does not apply and does not require the plaintiff to fix the same valuation for jurisdiction as for payment of court-fee. In short, the words,
"notional value of the property or any part of it could not displace its real value for the purpose of jurisdiction"were used by the Privy Council in connection with a case in which a fixed fee under Schedule II was payable, and not in connection with a case truly falling under Section 7 (iv), Court-fees Act.
21. It may be said that if no enquiry is to be made by the Court, the plaintiff will have the liberty to choose his own forum. We think in a suit for accounts this is to some extent, inevitable. This difficulty was recognized by this Court and so at one time rules were framed that all suits for accounts, were to be valued between the sums of Rs. 100 and Rs. 500 and so were made entertainable by Munsifs. In any case, this is a lesser evil than the evil of asking the Court to embark upon an enquiry which in the end may prove to have been wholly futile and sheer waste of time.
22. We, therefore, hold that in a suit for accounts under Section 7 (iv) (b), Court-fees Act as applicable to these Provinces:
(1) The plaintiff should be required to state the approximate sum due to him;
(2) The sum so stated by the plaintiff shall be taken as value of the suit both for purposes of payment of court-fee and jurisdiction;
(3) Even if the matter is contested, the Court, at the preliminary stage, is not to enter into any enquiry for the purpose of determining the approximate amount due to the plaintiff except when the matter can be decided upon the admitted facts of the case.
23. In our opinion, the lower Court rightly set aside the order of the Munsif and rightly remanded the case to him but erred in ordering him to hold an enquiry as to the approximate amount due to the plaintiff. What it should have done was to ask the learned Munsif to require the plaintiff to state what, according to him, was the approximate sum due to him and to proceed upon that basis.
24. We, therefore, allow this revision in part and modify the order passed by the lower Court and direct that the learned Munsif shall require the plaintiff to state the approximate sum due to him and to apply for the amendment of the plaint accordingly. When this has been done by the plaintiff, the learned Munsif shall proceed to decide the case if after the amendment of the plaint the suit is cognizable by him. No further enquiry into the valuation of the suit shall be necessary. Costs of this revision shall abide the result.
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