J.C Shah, J.— Santaram — hereinafter called “the plaintiff” — commenced an action in the City civil court at Bombay against his younger brother Arjun for an order winding up a partnership in respect of a business carried on by them in the name of “Hindmata Printing Press”, Bombay and for account of the business. It was the case of the plaintiff that the business was started by him in 1937 and that the defendant — his brother — joined him some time later and assisted him in carrying on the business; that by agreement, dated March 16, 1953, the defendant was admitted as a partner in the business with equal share in the profits and losses of the business, but without any interest in the machinery, goodwill and the premises which were to be utilised for the purpose of partnership; that under the terms of the partnership the defendant was carrying on the business; and that disputes arose between the parties and the business could not be carried on and accordingly the plaintiff served a notice, dated April 19, 1957, terminating the partnership.
2. The defendant by his written statement contended that he started business of the Hindmata Printing Press and admitted the plaintiff as a partner; that the assets of the business and several immovable properties were acquired with the aid of profits arising from that business; that the business was managed jointly by the plaintiff and the defendant and that the plaintiff and the defendant had equal share in the profits, losses and all assets, articles and properties of the business; that by deed, dated March 16, 1953, the terms of the partnership were recorded, and that the account of the profits and goodwill and assets including the tenancy rights in the premises in which the business was carried on should be taken.
3. The trial Judge decreed the plaintiff's suit and made a preliminary decree for accounts of the partnership declaring that the partnership was dissolved on April 16, 1957 and referred the suit to the Commissioner for taking accounts. The learned trial judge declared that in the assets of the firm including the goodwill, tenancy rights, machinery and articles described in Ex. A to the plaint and the immovable properties described in Ex. No. 1 to the written statement the partnership had no interest. He further declared that the plaintiff and the defendant had equal shares in the profits and losses of the firm, but not in the assets of the business. In appeal the High Court of Bombay confirmed the decree passed by the City civil court. With special leave, the defendant has appealed to this Court.
4. The learned trial Judge relied upon a number of circumstances in holding that the business and its assets belonged to the plaintiff exclusively till March 16, 1953 and the defendant had no interest therein. He held that the plaintiff brought in the initial capital to start the business; that the rent and bills for consumption of electricity in the premises were received in the name of the plaintiff; that the plaintiff opened bank accounts as sole proprietor of the Hindmata Printing Press; that policies of insurance were taken out by the plaintiff in respect of the assets of the business as the sole proprietor of the business; that invitation cards for the opening of new branch of the business were issued in the name of the plaintiff alone, that in the muster rolls the plaintiff was described in entries made in the handwriting of the defendant as the owner, and the defendant as the “brother of the owner”; and that the income tax assessments of the business for 1951-52, 1952-53 and 1953-54 were made in the name of the Hindmata Printing Press and the plaintiff was shown as the proprietor. The learned Judge found that in an entry in the Roznamcha, dated September 2, 1949, the word “Malkanchi” used in posting the entries for withdrawals made for household expenses referred to the plaintiff when he withdrew the money for his household expenses, or sent it to his wife or spent for his own when he was away from Bombay. He observed that in the books styled “Ramniya Sansar” and “Kangar Kayede” the two brothers were described as proprietors, and there was evidence to show that there were negotiations between the two brothers for putting an end to the disputes some time in the year 1953 and apparently the plaintiff agreed to partition certain properties, but those circumstances did not support the defendant's claim. He also found that on February 17, 1948, the two brothers executed a promissory note in favour of one Wagh for Rs 5000, but the amount was borrowed not for the purpose of the business but for the personal use of the defendant, and that the plaintiff had joined the defendant in executing the promissory note “to buy peace”.
5. The High Court agreed with all the findings recorded by the city civil court, prima facie, the finding of the trial court on the question whether the parties qua the business of the Hindmata Printing Press stood in the relation of partners with equal shares in the profits and losses, was a finding on a question of fact and the decision of the trial court confirmed by the High Court is not open to question in this Court.
6. Counsel for the defendant, however, contended that the learned Judges had failed to give due effect to certain important circumstances, and on that account the judgment of the High Court was open to challenge. Counsel said that there was clear and reliable evidence to show that Rs 5000 were borrowed by the plaintiff and the defendant from Wagh and the amount was utilised for purchasing machinery which was set up in the branch of the business at R.C Church Compound. This conduct of the plaintiff according to counsel established that even before 1953 the plaintiff and the defendant were partners in the business. Wagh, the creditor has stated that the plaintiff had told him at that time that the loan was borrowed to purchase a cylinder machine. The trial court did not believe the testimony of Wagh in view of various circumstances. The Court pointed out that the recital in the promissory note was that the loan was for personal needs, and that according to plaintiff the cost of cylinder machine is Rs 13,000 and the amount of Rs 5000 could not be sufficient to meet the cost of the machine.
7. Reliance was placed by the defendant upon certain entries in a “rough cash book” of the firm which was tendered in evidence by the defendant. In that book there were two entries — (1) for Rs 5000 borrowed from Wagh, and (2) for Rs 2000 debited to B.J Contractor. The learned trial Judge was of the view that the entries produced were unreliable and were apparently fabricated with a view to support the case of the defendant. There were several entries in the rough cash book dated, June 11, 1948, and before the last credit entry and before the last two debit entries there were certain figures which indicated that the previous entries had been totalled up before the two entries were posted. All these credit entries were in the handwriting of the plaintiff, but the last two entries of Rs 5000 and Rs 2000 were in the handwriting of Nadkarni, Accountant in the firm. In the view of the learned Judge these entries were “of a doubtful character”, because it appeared that the previous entries on the same page, in the handwriting of the plaintiff, were crossed out, though according to Nadkarni whenever rough entries were posted in the fair cashbook cross-marks were placed on the entries in the rough cash book. That clearly indicated that the disputed entries were not posted in the fair cash book and no explanation for the failure to post them in the fair cash book was given. The plaintiff stated that the fair cash books relating to the business prior to the year 1953 were left by him at the Press when the defendant took charge of the business. This part of the case was not challenged by the defendant. But the books of account were not produced by the defendant. The defendant, it is common ground, was entrusted with the management of the business under the deed of partnership and when the disputes arose between the parties he had custody of all the books of account and he had withheld those books of account from the Court.
8. Counsel for the defendant contended that the amount of Rs 5000 borrowed under the promissory note dated February 17, 1948, from Wagh was treated as debt due by the partnership after the year 1953 and was paid out of the profits of the business, but there is no reliable evidence in support of that case. It is common ground that the loan of Rs 5000 borrowed from Wagh has been repaid, but there is no evidence about the source from which it was repaid. On the evidence no link is established between the amount invested for setting up a Branch of the business at R.C Church Compound and the amount borrowed from Wagh. A detailed argument was advanced before the trial court with regard to the borrowing of Rs 5,000 from Wagh under the promissory note, dated February 17, 1948, for utilising the sum for purchasing a cylinder machine, but no argument was apparently advanced before the High Court in that behalf. The judgment of the High Court exhaustively refers to the arguments advanced before that Court, there is no reference to the argument that the finding of the trial court that the amount of Rs 5000 was borrowed not for the purpose of the business but for the purpose of the defendant was not sustainable.
9. It was also urged that the Courts below had ignored the admission of the plaintiff that the defendant was managing the partnership business. There is, in our judgment, no substance in this contention either. After 1949 the defendant was apparently taking an active interest in the management of the business and under the deed of partnership, dated March 16, 1953, he was given the sole management of the partnership business. Disputes had started between the plaintiff and the defendant and there were negotiations between them for settlement. It appears that certain close relatives of the parties also lent their good offices in the negotiations, but nothing concrete resulted. There is no warrant for the contention that the courts below ignored the so-called admission of the plaintiff that the defendant was taking an active part in the management of the affairs of the business for some time before 1953. It cannot be said, merely because of the plaintiff's willingness to negotiate, that the defendant was admitted as a partner in the business since the year 1937.
10. Reliance was also placed upon certain recitals in the deed of partnership. In the preamble, insofar as it is material, after setting out the names of the two contracting parties, it is recited:
“WHEREAS from about the 14th day of December, 1937, down till today the said Shantaram Kanoji Tankar were carrying on the business in the name, style and firm of ‘Hindmata Printing Press’ situate at Mistry Building, Jorbai Wadia Road, Parel, Bombay-12, as the sole proprietors thereof AND WHEREAS the parties hereto have been carrying on the said business in the name, style and firm of Hindmata Printing Press on certain terms and conditions mutually agreed upon by and between them but no written record thereof having been made…”
The use of the words “were carrying on the business” and “sole proprietors” is relied upon by counsel for the defendant. But, in our judgment, the use of these expressions does not justify an inference that by some inadvertence the name of the defendant was omitted from the recitals in the preamble. Reliance was also placed upon paras 3, 8, 12, 15 and 17 of the deed of partnership. But, there is nothing in the recitals in those paragraphs which supports the case of the defendant that he was a partner in the business before March 16, 1953. Para 3 only recites that the defendant was put in sole charge and management of the business; para 8 recites that out of net profits from the business a fourth share shall be set apart for the improvement of the press and repayment of the debts of the business and the remaining profit shall be equally shared by the partners. Para 12 authorises the managing partner to operate all accounts and withdraw from the Banks such amounts as he shall need for the conduct and management of the business and by para 15 certain publications brought out in the name and style of Hindmata Prakashan up to December 31, 1952, shall be owned by the partnership. Para 17 incorporates an arbitration clause under which all disputes and differences and questions whatsoever were to be referred to arbitration. But none of these clauses assist the defendant in upsetting the inference arising from the overwhelming evidence led by the plaintiff, on which reliance has been placed by the trial court and the High Court, that the defendant had no right of ownership in the business prior to 1953.
11. It was the case of the plaintiff that the defendant worked with him only on condition that he and his wife and children were maintained by the plaintiff was highly improbable. Whether the plaintiff had created any expectations in the mind of the defendant that he would be given some remuneration is wholly irrelevant in determining whether the plaintiff had agreed to treat the business. The defendant's claim that he was the partner prior to the year 1953 must fail.
12. We are unable to agree that the defendant did not object to the plaintiff alone representing the business when he obtained leases of the premises in which the business was carried on, in opening the Bank accounts, purchasing properties in his name, in proceedings for assessment of income tax, obtaining fire insurance policies, maintaining the muster rolls of employees and making the declaration under Section 4 of the Press Act, because the plaintiff was the elder brother and the defendant out of respect allowed him to pose as the owner of the business, even though he had an equal right. These circumstances and others are formidable evidence of conduct in favour of the plaintiff, and there is not a single circumstance in favour of the defendant's case which may throw doubt on the truth of the plaintiff's story. We are accordingly of the view that the courts below were right in holding that the business of the Hindmata Printing Press since the commencement in the year 1937 was the exclusive business of the plaintiff till he admitted the defendant as a partner in the year 1953. It must inevitably follow that all the assets of the business belonged to the plaintiff and the defendant had no interest therein.
13. Counsel for the defendant contends that in any event by virtue of Section 14 of the Partnership Act, 1932, all the assets with aid of which the business was carried on by the plaintiff must be deemed in law to have become partnership assets, under the deed of partnership, dated March 16, 1953. Section 14 of the Partnership Act, 1932, provides:
“Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.”
Property belonging to a person, in the absence of an agreement to the contrary, does not, on the person entering into a partnership with others, become the property of the partnership merely because it is used for the business of the partnership. It will become property of the partnership only if there is an — agreement express or impliedth — at the property was, under the agreement of partnership, to be treated as the property of the partnership.
In Lindley on Partnership, 12th Edn., it is stated at p. 365:
“Again, it by no means follows that property used by all the partners for partnership purposes is partnership property. For example, the house and land in and upon which the partnership business is carried on often belongs to one of the partners only, either subject to lease to the firm, or without any lease at all…. If, however, a partner brings such property into the common stock as part of his capital it becomes partnership property, and any increase in its value will belong to the firm.
… the only true method of determining as between the partners themselves what belongs to the firm, and what not, is to ascertain what agreement has been come to upon the subject. But this is by no means always an easy matter.”
We are unable to agree with counsel for the defendant that whenever there is a partnership and the assets which originally belonged to one of the partners are used for the purposes of the partnership, they must be presumed to have become partnership assets. In Miles v. Clarke (1953) 1 All ER 779 the defendant started the business of a photographer and then admitted the plaintiff — a successful free lance photographer — as a partner. The leasehold premises, furniture and studio equipment belonged to the defendant. It was intended to record the terms of partnership into a formal agreement, but no terms were ever settled, except that the partners were to share the profits equally. On dissolution of the partnership it was held that no terms ought to be implied except such as were essential to business efficacy and that only the consumable items of stock-in-trade were to be regarded as assets of the partnership, and the lease of the property, equipment and personal goodwill were to be treated as being the property of the partners who brought them into the business.
14. There is no evidence in the present case that the plaintiff had, when entering into a partnership with the defendant, surrendered his individual interest in the assets brought by him into business, or had admitted that the defendant was to be the owner in equal share with him in all the assets brought into the partnership. The right of the defendant to a share in the assets brought into the business depended upon the terms of the agreement of partnership. There is no rule that whatever is brought by a partner in the partnership and is continued to be used by the members is presumed to have become the property of the partnership.
15. The appeal therefore fails and is dismissed with costs.