- Bookmark
- Share
- CaseIQ
Shankar Bandu v. Shankar Babaji And Others,
Summary of Opinion — Partnership Dispute (Dhulia Court)
Factual and Procedural Background
The plaintiff instituted Suit No. 338 of 1943 in the Civil Judge, Senior Division, Dhulia, against 14 defendants seeking a declaration that a partnership (carrying on business in cloth under the name "The Cloth Merchants' Association") had been dissolved in or about March 1948 and for an account of the partnership; alternatively, a decree for dissolution and account was sought. The plaintiff alleged that defendants 1 and 2 were grossly negligent and liable for alleged losses.
Defendant 1's written statement asserted that he was a partner and that defendant 2 was not; defendant 2's written statement pleaded inter alia that he was not a partner and that defendant 1 was. At trial it was argued by defendants 1 and 2 that defendant 2 had merely signed the partnership agreement because defendant 1 was absent and that defendant 2 was a benamidar (a nominal holder) for defendant 1.
The trial Judge found that defendant 1 had in truth entered into the partnership and that defendant 2 signed merely because defendant 1 could not remain present; consequently the trial Judge struck the name of defendant 2 off the record, amended the plaint to delete defendant 2, and passed a preliminary decree for an account treating the plaintiff, defendant 1 and the other defendants (but not defendant 2) as partners. The plaintiff appealed to the District Court which reversed the trial Court on the question of whether the 2nd defendant was a partner, restored the 2nd defendant's name and remanded the case to the trial Court to proceed on the footing that the 2nd defendant was a partner.
The 2nd defendant then appealed to this Court against the District Court's order. The primary contested matters before this Court were the proper construction of the partnership deed (Ex. 58) and the admissibility of oral evidence to show that the 2nd defendant, though a signatory, was not a partner.
Legal Issues Presented
- Whether oral evidence is admissible to show that a person who signed a written partnership deed (Ex. 58) was not a partner, notwithstanding the provisions of Sections 91 and 92 of the Evidence Act.
- Whether the absence of a cloth-dealing licence in the name of the 2nd defendant (or any prohibition in the Cloth Control Order or the licence) rendered the partnership agreement void or otherwise incapacitated the 2nd defendant from becoming a partner.
- How the partnership deed (Ex. 58) should be construed: whether the operative part or the preamble controls, and whether the deed makes the 1st or the 2nd defendant (or both) partners.
Arguments of the Parties
Contentions raised by Mr. Jahagirdar (as recorded)
- Oral evidence was admissible to prove that the 2nd defendant, though he had subscribed his signature to Ex. 58, was not a partner; evidence should be admissible despite Sections 91 and 92, Evidence Act.
- The question whether the 2nd defendant is or is not a partner is not a term of the contract of partnership; therefore the provisos to S. 92 do not bar oral evidence on that question.
- Under the second proviso to S. 92 there was a want of capacity in the 2nd defendant to be a partner (he was not a licence holder), so oral evidence is admissible to show he could not have become a partner.
- Facts may be proved to show how the language of the document relates to existing facts (invoking proviso (6) to S. 92 or similar principles).
- According to Ex. 58, the 2nd defendant could not have become a partner because he did not hold a licence for dealing in cloth, and the partnership was for doing cloth business.
Positions set out in written statements and at trial
- The 1st defendant's written statement: asserted he was a partner and that the 2nd defendant was not a partner.
- The 2nd defendant's written statement: pleaded that he was not a partner and alleged he was only a secretary of the partnership.
- At trial a suggestion was made that the 2nd defendant was merely a benamidar for the 1st defendant (i.e., a nominal holder), though the written pleadings did not set out the circumstances in which the 2nd defendant came to be shown and to sign as a partner.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Venkatasubbiah Chetty v. Govindrajulu Naidu, 31 Mad 45 | English law principle that oral evidence is admissible to show that the party liable on a written contract contracted as agent for others (partners), so that dormant principals may be charged even though not named. | The Court observed that although this principle allows evidence to show that a contracting party acted for others, it does not support discharging a named signatory from liability; the Court held the case in fact undermined the appellant's contention that the 2nd defendant could be discharged by oral evidence. |
| Wilson v. Hart, (1817) 7 Taunt 295 (quoted in Venkatasubbiah) | Authority illustrating that oral evidence may be used to charge a dormant principal (i.e., to show agency), and that such evidence tends to charge, not discharge, a named contracting party. | Quoted to underscore that evidence which charges a dormant principal does not discharge the named signatory; the Court used that principle to reject the submission that oral evidence could be used to relieve the 2nd defendant of the obligations he undertook by signing Ex. 58. |
| Bhagwant Genuji v. Gangabisan Ramgopal, AIR 1940 Bom 369 | An agreement to sub-let by the holder of a licence was not invalid unless the particular law or licence expressly prohibited such sub-letting; absence of an express prohibition will not make the agreement void. | The Court applied the reasoning to hold that the mere fact that the 2nd defendant had no licence in his own name for dealing in cloth did not render the partnership agreement void or incapacitate him from entering into the partnership absent a clear prohibition in the Cloth Control Order or the licence. |
Court's Reasoning and Analysis
The Court proceeded through a statutory and textual analysis, applying Sections 91 and 92 of the Evidence Act and their explanations as follows:
- The Court emphasised the operative effect of the partnership deed (Ex. 58). The appellate Judge below had found the operative part "transparently clear" and treated the 2nd defendant as a partner; the trial Judge had given undue weight to a recital in the preamble. This Court examined the deed and concluded the operative part showed the 2nd defendant alone became a partner under Ex. 58.
- On the admissibility of oral evidence, the Court analysed S. 91 and Explanation 3 to S. 91. S. 91 requires that terms of a contract reduced to writing be proved by the document itself; Explanation 3 allows oral evidence as to facts stated in a document that are not terms of the contract. The Court stated that Explanation 3 does not permit evidence that contradicts, varies or alters the written terms of a contract.
- The Court rejected the submission that the names of contracting parties are necessarily separate from the terms of the contract. Where names relate to terms that create obligations, they cannot be treated as wholly divorced from the contract's terms; accordingly the Court was unwilling to permit oral evidence to change who bears the contractual obligations reflected in the document.
- The Court considered the authority cited (Venkatasubbiah) and concluded that it in fact supports the proposition that oral evidence may be used to show agency (charging dormant principals) but not to discharge a named signatory from obligations. The quoted passage from Roscoe and Wilson v. Hart was used to show evidence tends to charge a dormant principal and does not discharge the named party.
- The Court examined the applicability of provisos to Section 92. Proviso (1) — relating to incapacity by reason of licence — was held inapplicable because the licence itself had not been produced and there was no showing that the licence or Cloth Control Order forbade entering into a partnership with a non-licence-holder. The Court noted that the licence had been obtained in the 1st defendant's name but that the shop was a family business managed by the 2nd defendant.
- The Court applied the reasoning of Bhagwant Genuji to hold that the mere absence of a licence in a person's name did not of itself render the partnership void or the party incapable of becoming a partner absent explicit prohibition.
- The Court found Proviso (6) to Section 92 inapplicable: there was no ambiguity in the deed requiring explanation as to how language related to one of several factual situations. Here the language was clear and the 2nd defendant's own signature made him liable as a partner.
- The Court noted that neither the 1st nor the 2nd defendant had pleaded facts in their written statements sufficient to bring the case within any proviso to S. 92 that would admit oral evidence to vary the written deed. Although a benami suggestion was made at trial, the Court explained that a plea of benami raised by a co-party may have particular uses (e.g., to enforce rights) but does not automatically free the named signatory from liability unless the other contracting parties agreed not to hold him liable.
- On construction, the Court concluded that the partnership deed was not susceptible of interpretation that both defendants 1 and 2 became partners; rather, the deed made the 2nd defendant the partner. The appellate Judge's view that the 1st defendant must be regarded as a partner could not be sustained on the deed's language.
Holding and Implications
Core Ruling: The appeal is dismissed; the 2nd defendant is held to be a partner under the partnership deed (Ex. 58), and the 1st defendant is not a partner.
Direct consequences for the parties:
- The trial Court's deletion of the 2nd defendant from the record and preliminary decree treating him as not a partner is not sustained; the 2nd defendant remains a partner for purposes of the suit.
- The 1st defendant is not to be treated as a partner under the deed.
- The appeal to this Court by the 2nd defendant is dismissed subject to the modification that the 2nd defendant, not the 1st, is a partner; consequential amendments to the decree may be required, and the case is to proceed on that footing (as noted, the District Court had remanded matters to the trial Court for further issues on the footing that the 2nd defendant was a partner).
- The Court awarded costs against the appellant in this appeal ("dismissed with costs").
Broader precedent: The opinion applies and explains existing principles under Sections 91 and 92 of the Evidence Act and relevant case law (including Bhagwant Genuji and Venkatasubbiah). The Court did not purport to establish a novel legal principle but applied settled rules on the construction of written contracts and the limitations on oral evidence to vary written terms.
Disposition: Appeal dismissed. (V.R.B.)
This appeal is filed against the order passed by the Assistant Judge Dhulia, allowing the appeal filed by the plaintiff & setting aside the decree passed by the trial Court striking off the name of the 2nd defendant and holding the 2nd defendant not to be a partner.
2. The plaintiff filed suit No. 338 of 1943 in the Court of the Civil Judge, Senior Division, at Dhulia against 14 defendants for a declaration that the partnership between himself and the defendants had been dissolved in or about March 1948 and for an account of the partnership. Alternatively, the plaintiff claimed a decree for dissolution of partnership and for accounts.
3. It was the plaintiff's case that the plaintiff and the defendants had entered into a partnership to carry on business in cloth in the name and style of “The Cloth Merchants' Association”, and that certain terms were agreed upon and the same were recorded in an agreement.
4. The plaintiff claimed in the suit that defendants 1 and 2 were grossly negligent in their conduct and were liable to make good an amount alleged to have been lost by them and account of the partnership should be made on that footing.
5. Defendant 1 by his written statement inter alia contended that he was the partner and that the 2nd defendant was not a partner of the firm. He also contended that the suit was not maintainable on the footing that there had been a dissolution of the firm. The 2nd defendant by his written statement contended inter alia that he was not a partner and that the 1st defendant was a partner.
6. He also contended that an amount of Rs. 15,000/- was lost on account of the unexpected accident of robbery and that he was not liable for the amount. At the trial evidence was sought to be led on behalf of defendants 1 and 2 that defendant 2 signed the partnership agreement, because defendant 1 was not present at the time when the agreement was executed and presented for registration. It was also urged that the 2nd defendant was merely a benamidar for the 1st deft, and was not liable on the partnership agreement.
7. The learned trial Judge held that it was the 1st defendant who had entered into the partnership agreement, and that the 2nd defendant had signed the partnership agreement merely because the 1st defendant could not remain present. The learned Judge accordingly directed that the name of the 2nd defendant be struck off as he was improperly joined as a party to the suit.
8. The learned Judge accordingly amended the plaint by deleting the name of the 2nd defendant and proceeded to pass a preliminary decree for an account on the footing that the plaintiff, defendant 1 and the other defendants, but not defendant 2, were partners. Against that decree, an appeal was preferred by the plaintiff to the District Court.
9. The contention substantially was that it was the 2nd defendant who was a partner. The learned District Judge held that the 2nd defendant was a partner of the firm and that the order passed by the trial Court striking off the name of the 2nd defendant was erroneous.
10. The learned Judge accordingly rectified the decree passed by the trial Court and restored the name of the 2nd defendant on the record and directed that the case be sent back to the trial Court for deciding other questions on the footing that the 2nd defendant was a partner. Against that decree the 2nd defendant has come to this Court in appeal.
11. Now, the learned appellate Judge observed that the partnership deed Ex. 58, in the operative part thereof was “transparently clear” and it showed that the 2nd defendant, who was described as the owner and manager of the shop Trimbak Bandu Shet, was a partner of the suit firm. He further observed that even though the preamble of the deed referred to cloth licence holders it did not prohibit a non-licence holder from becoming a partner.
12. In the view of the learned appellate Judge the trial Court had discarded the operative part and had given undue importance to the recital contained in the preamble and he had thereby subordinated the operative part to the recital contained in the preamble. On a construction of the deed of partnership, the learned Judge held that the 2nd defendant had agreed to become a partner of the firm and that he was liable to be so treated. The learned Judge then observed that the partnership agreement was entered into for and on behalf of the joint family of defendants 1 and 2 and because the 2nd defendant had subscribed his signature to the document Ex. 58, he must be regarded as a partner of the firm. The learned Judge accordingly modified the decree passed by the trial Court and declared that the 2nd defendant was also a partner of the firm and on that footing, he remanded the suit for decision of the remaining issues on the footing that the 2nd defendant was not a partner of the firm.
13. In this appeal from order Mr. Jahagirdar has contended that the learned Appellate Judge was in error in holding that oral evidence was inadmissible in evidence to prove that the 2nd defendant who had subscribed his signature to Ex. 58, was not a partner.
14. Mr. Jahagirdar contended that the question whether the 2nd defendant is or is not a partner of the firm is not a term of the contract of partnership and therefore evidence is admissible notwithstanding the provisions of Ss. 91 and 92, Evidence Act, to show that it was the 1st defendant who intended to join the firm as partner and not the 2nd defendant.
15. Further, Mr. Jahagirdar contended that according to the agreement Ex. 58 the 2nd defendant could not have become a partner, because he was not a holder of a licence for dealing in cloth and the partnership was brought into existence for doing business in cloth.
16. Mr. Jahagirdar relied upon the second proviso to S. 92 and contended that there was want of capacity in the 2nd defendant to be a partner and, therefore, oral evidence is admissible to show that he could not have become a partner of the firm. Lastly, Mr. Jahagirdar urged that facts may, notwithstanding that a contract by law is required to be in writing or the terms thereof have to be reduced to writing, be proved to show in what manner the language of the document is related to existing facts.
17. According to Mr. Jahagirdar, the facts show that the first defendant became a partner and not the second defendant. Now, it has to be noted that the 1st defendant in his written statement pleaded that he was a partner and that the 2nd defendant was not a partner. Similarly, the 2nd defendant pleaded that he never became a partner, but he was only a secretary of the partnership.
18. In the written statements of the 1st defendant and the 2nd defendant their case as to the circumstances in which the 2nd defendant came to be shown as a partner and came to sign the deed of partnership as a partner were, it is admitted, not set out. If evidence is proposed to be led to vary or modify the terms of a document or a writing, there must be a proper pleat raised which brings the case within any of the provisos to S. 92, Evidence Act.
19. But no such plea was raised either by the 1st defendant or the 2nd defendant. It is true that at the trial it was suggested that the 2nd defendant was merely a benamidar for the 1st defendant, but it was never suggested that all the parties agreed that the 2nd defendant was not to be liable and the 1st defendant was alone to be liable under the partnership agreement which was signed by the 2nd defendant.
20. A plea of benami may be raised by the 1st defendant if he desires to enforce any rights against the partnership. But by raising the plea of benami the 2nd defendant cannot escape his liability under the deed of partnership unless the other parties to the agreement have agreed not to hold him liable.
21. Explanation 3 to S. 91, on which reliance was sought to be placed by Mr. Jahagirdar, provides that the statement, made in any document whatever, of fact other than the facts referred to in S. 91, shall not preclude the admission of oral evidence as to the same facts.
22. Now, the operative part of S. 91 requires that the terms of a contract, or of a grant, or of any other disposition of property, which have been reduced to the form of a document, shall be proved by production of the document itself, or by secondary evidence of its contents in cases where secondary evidence is admissible.
23. But in the 3rd Explanation it is provided that the mere statement made in any document of a fact which is not a term of a contract, does not preclude the admission of oral evidence as to that fact. The 3rd Explanation does not deal with evidence which may be used for contradicting, varying or altering the terms of a contract, grant, or disposition of property contained in a document, but enables evidence to be given relating to facts which do not constitute terms of a contract, even though the original document has been produced.
24. Mr. Jahagirdar contended that a recital as to the names of contracting parties cannot be regarded as a term of the contract. I am unable to accept that argument without qualifications. Where a contract is entered into between parties, the contract deals with the subject matter as well as the persons between whom it is entered into, and the names of the parties in so far as they relate to terms which create obligations cannot be regarded as so divorced from the terms of the contracts, that evidence may be led to show that some other persons who intended to incur obligations under the contract instead of the parties designated therein.
25. Reliance was sought to be placed in support of his contention by Mr. Jahagirdar upon a judgment of the Madras High Court reported in — ‘Venkatasubbiah Chetty v. Govindrajulu Naidu’, 31 Mad 45 (A). The headnote of that case is as follows:
“Under English Law in an action on a written contract, oral evidence is admissible to show that the party liable on the contract contracted for himself and as the agent of his partners. Such partners are liable to be sued on the contract, though no allusion is made to them in it.”
26. This is also the law in India as there is nothing in S. 91, Evidence Act to show that the Legislature intended to depart from this settled rule of English Law.”
27. It is difficult to see how this case assists the contention which is sought to be raised by Mr. Jahagirdar. As I will presently point out, instead of supporting the contention raised by Mr. Jahagirdar, it destroys the argument which is sought to be raised by him. If one person has entered into a contract with others, evidence may be led for the purpose of showing that he acted not only for himself, but for others as well. But that is far from saying that the names of the parties to the contract are not at all to be regarded as terms of the contract.
28. In the judgment in ‘Venkatasubbiah's case (A)’, at page 46, there is a quotation from Roscoe's Nisi Prius Evidence which is to the following effect:
“In an action on a written contract between plaintiff and B, oral evidence is admissible, on behalf of the plaintiff, to show that the contract was in fact though not in form, made by B, as agent of the defendant; for the evidence tends not to discharge B, but to charge the dormant principal; — ‘Wilson v. Hart’, (1817) 7 Taunt 295 (B).”
29. The statement contained in the second part of the sentence that “the evidence does not tend to discharge B, but to charge the dormant principal”, would clearly show that evidence cannot be led for the purpose of discharging the 2nd defendant from liability which he has undertaken under the agreement Ex. 58.
30. Section 92, Proviso (1), can also have no application to the facts of the present case. The licence which was obtained for carrying on business in cotton cloth was admittedly obtained by the 1st defendant in his own name. But the licence does not appear to have been produced in this case, and there is nothing to show that the terms of the licence prohibited the holder from entering into a partnership for carrying on business in cloth with any person who was not the holder of a licence.
31. As the learned appellate Judge has pointed out, the licence was obtained for the business of the shop carried on by defendants 1 and 2 and that defendant 2 was managing the business of that shop. Even though the shop was started in the name of the 1st defendant and he had a licence, the 2nd defendant was managing the shop and the shop was the family shop of defendants 1 and 2.
32. It is true that under the Cloth Control Order, for carrying on business in cloth, a licence was required. But unless there was a provision in the Cloth Control Order or in the terms of the licence which prohibited the holder of a licence from entering into a partnership with another person who is not holding a licence, it cannot be said that the partnership agreement entered into between the 2nd defendant and the plaintiff and the other defendants was unenforceable.
33. In — ‘Bhagwant Genuji v. Gangabisan Ramgopal’, AIR 1940 Bom 369 (C), this Court after an exhaustive consideration of the case law on the subject held that an agreement to sub-let entered into by the holder of a licence from the Collector for collection of ‘tolls’ on a public road was not invalid, unless the sub-letting was absolutely prohibited or shown to be opposed to any provisions of the law.
34. In that case, in the licence there was a clause against sub-letting or assignment except in the particular manner stated therein. The Court held that the clause did not render the sub-letting void. The mere fact that the 2nd defendant had no licence in his own name for dealing in cloth did not render the partnership agreement void or unlawful and did not incapacitate him from entering into an agreement of partnership with others who did hold a licence for carrying on business in cloth in their own names.
35. Proviso (6) to S. 92 also has, in my judgment, no application to the present case. There is no ambiguity in the language which is required to be explained. Proviso (6) will not apply to those cases where the language is clear. It may apply where the language used in a document applies to one of two or more sets of facts and evidence is intended to be given to show in what manner the language used was related to those facts.
36. In the present case, the 2nd defendant himself having signed the deed of partnership, he alone was liable as a partner, and there was no question of leading evidence to explain the statement that the 2nd defendant became a partner by reference to existing facts.
37. In my view the partnership deed is not susceptible of the interpretation that both defendants 1 and 2 became partners of the partnership. It is the 2nd defendant who alone became a partner under the deed. The view taken by the learned appellate Judge that the 1st defendant also must be regarded as a partner cannot be sustained. It must therefore be held that the 1st defendant is not a partner and that the 2nd defendant is a partner.
38. Subject to that modification and the consequential modification which may be required to be made in the decree, this appeal is dismissed with costs.
V.R.B
Appeal dismissed.
Alert