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Lakshman Kushaba v. Bhikchand Raichand

Bombay High Court
Jan 7, 1929
Smart Summary (Beta)

Judgment Summary — Marten, C.J. (Appeal by defendants 2–4)

Factual and Procedural Background

The plaintiffs sued claiming a specific sum of Rs. 26,397-7-6, alleging that a partnership existed between the plaintiffs and defendant 1 in relation to the shop "Bhikchand Chhaganmal" at Nasik, formed on 27 March 1914 and alleged to have been dissolved on 15 July 1923. The plaintiffs pleaded that accounts had been settled and the balance agreed to be recovered from defendant 1; alternatively they sought to make defendants 2, 3 and 4 liable on the ground that they were members of a joint Hindu family with defendant 1 and had promised to pay.

The trial Judge (preliminary decree) declared that the plaintiffs were entitled to one-half share of the partnership and defendants 1 to 4 to the other half, ordered that one anna of the profits be held for charity, declared the partnership dissolved from 14 September 1923 and directed three categories of accounts to be taken (debts and liabilities; credits, property and effects; dealings and transactions between plaintiffs and defendants except specified items). The trial Judge dismissed the plaintiffs' claim for a specific fixed sum but continued the alternate relief and ordered costs to be paid out of the estate.

Defendants 2 to 4 appealed against the decree. The plaintiffs filed cross-objections challenging several findings of the lower Court; those cross-objections had not been served on defendant 1. The opinion records that the appeal was filed in 1925 and heard in 1929.

Legal Issues Presented

  1. Whether, on the pleadings and evidence, the suit could properly be treated and decreed as a partnership suit involving plaintiffs and defendants 1 to 4 (i.e., whether the learned Judge could convert the suit into one declaring all defendants co-partners).
  2. Whether there was sufficient evidence to hold that defendants 2 to 4 were co-partners with defendant 1 (including whether the business was ancestral or a new business and whether any minors had been admitted to partnership).
  3. Whether the trial Court's declaration and directions for accounts should be confined to the relationship between the plaintiffs and defendant 1 rather than extended to defendants 2 to 4.
  4. Whether the plaintiffs' cross-objections could be heard where they had not been served on defendant 1 and whether cross-objections by a respondent against a co-respondent are procedurally permissible.

Arguments of the Parties

Plaintiffs' Case (as pleaded and as in cross-objections)

  • The plaint alleged a partnership between the plaintiffs and defendant 1 in the shop Bhikchand Chhaganmal, lasting from 27 March 1914 to 15 July 1923, with accounts settled and a balance of Rs. 26,397-7-6 due to plaintiffs.
  • Paras. 3 and 4 of the plaint pleaded that the accounts were settled and that the balance was agreed to be recovered from defendant 1; plaintiffs therefore claimed the specific sum.
  • As to defendants 2–4, the plaint alleged they lived together as members of a joint Hindu family, had benefited by the amounts taken by defendant 1, and had promised to pay, thereby making them liable.
  • By cross-objection the plaintiffs contended (inter alia) that it was an error to hold that the partnership was not dissolved on 15 July 1923; that the accounts had been made and adjusted as alleged; that Ex. 184 (the adhawa) was a correct settlement; and that the order on costs was wrong.

Defendants' Case and Respondent Contentions (as reflected in judgment)

  • The trial Judge and some evidence indicated the plaintiffs' specific claim based on an agreed settlement on dissolution was false; the trial Judge concluded that plaintiffs concocted a story of dissolution and settlement.
  • Evidence indicated that defendant 2 was not a direct partner (described by a plaintiff's witness as a "sub-partner") and defendant 3 was paid a salary (not a partner remuneration), undermining the contention that all coparceners were co-partners.
  • The defendants objected to the plaintiffs' cross-objections being heard without service on defendant 1 and relied on the procedural rule (as stated in precedent) that cross-objections are not ordinarily to be used by a respondent against a co-respondent and that respondents could have appealed instead.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Gangayya v. Venkataramiah (Madras Full Bench) A contract of partnership entered into by the manager (karta) of a joint Hindu family with strangers does not ipso facto make the other members of the family partners; non-partner members cannot themselves maintain partnership suits based on that contract. The Court relied on this principle to support the conclusion that entering into a partnership with one coparcener does not automatically make all coparceners co-partners and to hold that the learned Judge erred in declaring all defendants co-partners in the partnership suit.
Kharidar Kapra Co. Ltd. v. Daya Kishan (Allahabad High Court) The Allahabad High Court was disposed to be in favour of the law laid down in the Madras Full Bench decision (i.e., the same principle that a manager's contract does not make other members partners). Used as corroborative authority that supports restricting partnership rights and liabilities to those who are actually partners rather than all members of a joint family.
Vadilal v. Shah Khushal (this Court) Though a person carrying on business may be a coparcener in a joint family, it does not necessarily follow that all his coparceners are his partners entitled to rights and liable for liabilities of that business. Applied to emphasize that a partnership should be confined to those who are actual partners; served as precedent for modifying the decree to confine partnership declarations and accounts to plaintiffs and defendant 1.
Sanyasi Charan Mandal v. Krishnadhan Banerji (49 I.A.) Distinguishes ancestral business (where rights and obligations may pass by operation of law) from a new business started after the ancestor's death (where partnership relations rest on contractual arrangements); also cautions that admission of a minor to partnership-benefits is a fact to be proved by evidence and should not be treated as established without proper pleading and evidence. The Court invoked this distinction to conclude there was insufficient evidence of an ancestral business and to note that one party was a minor who could not be treated as having agreed to join a new business; thus the finding of co-partnership with all coparceners was not supported.
Nursey Virji v. Alfred H. Harrison (Sir Basil Scott, C.J. & Chandavarkar, J.) Ordinary rule that cross-objections under Order 41, Rule 22 CPC are intended as objections by respondents against appellants and are not ordinarily cross-objections against a co-respondent; a respondent should pursue an appeal instead of filing cross-objections against a co-respondent except in very special circumstances. The Court relied on this procedural authority to hold that the plaintiffs' cross-objections against defendant 1 (a co-respondent) were procedurally improper, especially since they had not been served on defendant 1 and no exceptional ground justified relaxation of the rule; the cross-objections were dismissed with costs.

Court's Reasoning and Analysis

The Court proceeded step-by-step from the pleadings and evidence to test the propriety of the trial Judge's conversion of the suit and his resulting declarations:

  1. Pleadings and issues: The Court first identified that the plaint and original issues plainly alleged a partnership only between the plaintiffs and defendant 1 (not between plaintiffs and defendants 1–4), and that the High Court's judgment mis-stated these pleadings and issue 1.
  2. Trial Judge's findings on specific claim and settlements: The trial Judge found that the plaintiffs' specific claim for a fixed sum based on an agreed settlement on dissolution was fabricated. The trial Judge also held Ex. 184 (the adhawa) to be a rough estimate and not a final settlement; the appellate Court records and accepts these factual findings made by the trial Judge.
  3. Whether other coparceners became partners: The Court reviewed the law (citing Gangayya, Kharidar Kapra, Vadilal, and Sanyasi Charan Mandal) and emphasized the principle that a manager or one coparcener entering into a partnership does not automatically make all joint-family members co-partners. The Court found no adequate evidence of an ancestral business that would carry partnership relations by operation of law, and noted at least one party was a minor incapable of binding consent to a new partnership.
  4. Evaluation of the evidence: The Court examined witness admissions—plaintiff 2 had previously admitted there was no partner except defendant 1; other witness statements were inconsistent and appeared tailored to meet difficulties; Vasudev Hari admitted defendant 2 was not a direct partner and defendant 3 was paid a salary. The Court held that to find co-partnership with defendants 2–4 on the evidence would be to create a new case for the plaintiffs, which is impermissible.
  5. Appropriate scope of partnership suit and accounts: The Court reasoned that a partnership suit is a particular remedy concerned with accounts between actual partners and should be confined to the partners who are properly before the Court. Although the plaintiffs might have a separate remedy (in another proceeding) to recover a debt from coparceners if defendant 1 were unable to pay, that inquiry could not be conducted by converting the present suit into a general proceeding against all coparceners.
  6. Procedural objection to cross-objections: Regarding plaintiffs' cross-objections, the Court held they could not be heard because they were not served on defendant 1 and because ordinary practice and precedent bar a respondent from filing cross-objections against a co-respondent except in exceptional circumstances; no such circumstances existed and plaintiffs had ample time to take proper steps.

Holding and Implications

Holding: The appeal by defendants 2 to 4 is allowed. The trial Court's preliminary decree is modified by confining the declaration of partnership and the directions for accounts to the relationship between the plaintiffs and defendant 1 only. The suit against defendants 2, 3 and 4 is dismissed with costs. The plaintiffs' cross-objections are dismissed with costs. The opinion concludes with "Appeal allowed."

Implications:

  • The direct effect is that the partnership declaration and ordered accounting will be limited to plaintiffs and defendant 1; defendants 2–4 are no longer treated as co-partners in that decree and are dismissed from the suit with costs.
  • The Court left open the plaintiffs' right to pursue any separate proceedings (not within this partnership suit) against defendants 2–4 for any debt or liability that might arise if defendant 1 is found liable and cannot pay; however, such claims must be pursued by proper separate proceedings and were not adjudicated here.
  • The Court applied existing authorities to reinforce the settled rule that a manager's or one coparcener's partnership contract does not ipso facto bind other coparceners as partners; the judgment modifies the decree in accordance with that rule rather than creating a new precedent.

Disposition recorded in the opinion: appeal allowed; cross-objections dismissed; decree modified to confine declaration and accounts to plaintiffs and defendant 1; suit dismissed as against defendants 2–4 with costs.

Show all summary ...

Marten, C.J:— The appeal in this case is by defendants 2 to 4 against the original plaintiffs and defendant 1 from the preliminary decree passed by the trial Judge declaring that in the suit partnership the plaintiffs are entitled to a half share and defendants 1 to 4 to the other half, both being bound to hold one anna out of the profits for charity and that the partnership shall be deemed to have been dissolved as from 14th September 1923. The decree also ordered accounts to be taken as follows:

(a) An account of the debts and liar bilities of the said partnership on the aforesaid date.

(b) An account of the credits, property and effects on the aforesaid date.

(c) An account of all dealings and transactions between plaintiffs and defendants not disturbing any subsequent settled accounts except the adhawa, Ex. 184, and any further item or items that may hereafter be found necessary to be excepted.

2. Then the decree proceeded:

“The claim for a specific sum alleged to have been fixed on settlement and promised to be paid is dismissed. Though this claim is dismissed the alternate prayer subsists, and it is decreed as above. Just as plaintiff has falsely set up the claim for a fixed sum, so also the defendants have set up absolutely false points of defence to escape the liabilities as partners and coparceners. Both the parties are equally guilty. It is just the same whether cost's are thrown on parties themselves or they are ordered to come out of the partnership property the shares being equal. I, therefore, order that all costs shall come out of the estate.”

3. It is necessary to see in the first place what precisely was the suit that the plaintiffs brought, and in this respect it will be found that the pleadings and issue 1 are incorrectly stated in the judgment under appeal. If one looks to para. 1 of the plaint, it is clear that what is alleged is that the partnership between the plaintiffs and defendant 1 was effected for the shop named Bhikchand Chhaganmal at Nasik. This partnership is alleged to have lasted from 27th March 1914 to 15th July 1923, when it is alleged to have been dissolved. And then in paras. 3 and 4 it is pleaded in effect that the accounts were settled and the balance of Rs. 26,397-7-6 was agreed to be recovered by the plaintiffs from the defendant. Accordingly, the plaintiffs claim that specific sum.

4. Then in para. 8 the case against defendants 2, 3 and 4 is stated:

“They all live together as members of a joint Hindu family and the amounts of the plaintiffs' claim have been taken by defendant 1 for the benefit of the joint Hindu family and all the defendants have been benefited by the same. And all the defendants promised to pay these amounts at the time when the account was settled between them. Hence all the defendants being liable to the plaintiffs' claim, they are made as defendants in this suit.”

5. The plaintiff, therefore, claims Rs. 26,397-7-6. It will, therefore, be seen that the claim was for a specific sum found due on a settled account, on a dissolution of the partnership between the plaintiffs and defendant 1, and that it was sought to make defendants 2 to 4 liable on the ground that they were members of a joint Hindu family with defendant, 1, and alternatively that they expressly promised to pay this particular sum. Accordingly, it is important to observe that this alleged partnership was with defendant 1. Therefore, the statement in the judgment that the plaintiffs allege “that defendants had themselves carried on cloth business in partnership &c.” is inaccurate. Similarly, issue 1 as stated in the judgment is inaccurate, viz.,

“was the partnership between the plaintiffs and defendants dissolved on 15th July 1923, as in the plaint.”

6. We have looked at the original issue, and find that in the original it was defendant 1. That indeed is borne out by issue 5:

“Are defendants 2 to 4 joint with defendant 1 and are they liable to plaintiffs?”

7. As regards certain parts of the case, the learned Judge decided in favour of the defendants. Shortly stated, he came to the conclusion that this story about an agreed account on dissolution was false. Then in para. 9 he says:

“My definite conclusion is… that plaintiffs became anxious to close the shop and that they had eventually to close it by force in Bhadrapada and file suit on a coined story of dissolution agreed to and balance promised.”

8. And as regards the adhawa, Ex. 184, he held in para. 7:

I reject the plea that the adhawa was an accurate settlement for determination of rights and liabilities of the partners inter se or with the shop just as I reject defendant's plea that he signed the profit entry under an inducement or for income-tax purposes. I hold that Ex. 184 was a rough estimate for understanding the pecuniary position of the shop in general made with the consent of all but not understood or meant to be a final settlement of pecuniary liabilities as between the partners.’

9. The specific claim in the suit having thus been disposed of, the learned Judge treated the suit, as I understand his judgment, as a partnership suit, and accordingly directed that there must be a dissolution and an account taken subject to the questions (a) and (b) which he mentioned in para. 10. Let that be so. Then on that basis we must treat this suit as a partnership suit, and we also take it that the story of the plaintiffs that the defendants expressly promised to pay the settled amount is unfounded. We are, therefore, left with this that a partnership is pleaded as between the plaintiffs and defendant 1, and we are asked to bring in defendants 2, 3 and 4 on the ground that they are members of the joint Hindu family with defendant 1. Then at the end the learned Judge finds as follows in para. 26:

“The dissolution may be as between plaintiffs and defendant 1; on deduction of profits from the balance the liability will have to be made good by all jointly as co-debtors; for dissolution and settlement it may be a suit as between plaintiffs and defendant 1; for enforcement of the liability for the balance it is a debt due to plaintiffs from all the defendants under a khata opened in defendant 1's name for them all, with the consent of them all, not an implied consent of coparceners to the manager's Act but an express consent by actual conduct to their being treated as co-debtors with defendant 1.”

10. And then in the preliminary decree, which I have already stated, the learned Judge makes a declaration that defendants 1 to 4 are entitled to a half share of the profits of the partnership.

11. The question then arises as to whether a partnership suit in that form will lie. In Gangayya v. Venkataramiah (1) the Madras Full Bench decided that a contract of partnership entered into by the manager of a joint Hindu family with strangers does not ipso facto make the other members of the family partners; and not being partners, the other 4 members, whether divided or undivided, cannot institute any suit in respect of partnership, (e.g) a suit for dissolution of partnership. In Kharidar Kapra Co. Ltd. v. Daya Kishan (2) the Allahabad High Court was disposed to be in favour of the law laid down in the Madras case. And a similar view of the law will be found in Mayne's Hindu Law, Edn. 9, at pp. 398 and 399. In our own Court, in Vadilal v. Shah Khushal (3), it was held that though a person carrying on business is a coparcener in a joint family, it does not necessarily follow that all his coparceners are his partners in that business, entitled with him to its rights and responsible with him for its liabilities.

12. Then in Sanyasi Charan Mandal v. Krishnadhan Banerji (4) it is stated (p. 114 of 49 I.A):

“The distinction between an ancestral business and one started like the present after the death of the ancestor as a source of partnership relations is patent. In the one case these relations result by operation of law from a succession on the death of an ancestor to an established business, with its benefits and its obligations. In the other they rest ultimately on contractual arrangement between the parties. The inability of a kart a to impose on a minor coparcener the risks and liabilities of a new business started by himself, is fully discussed by both Courts, and their Lordships agreeing with the conclusion at which they have arrived on the point, do not deem it necessary to enter on a further discussion of this aspect of the case.”

13. Then further on it is stated (p. 115 of 49 I.A)’.

“Thus ill the grounds of appeal it is contended that the defendant and his four brothers having all along lived as membars of an undivided Hindu family, and properties having been acquired with the joint funds and the defendant having got some of those properties in his share on partition with the receiver, the learned Subordinate Judge ought to have passed a decree against the defendant at any rate so far as the assets of the firm allotted to his share are concerned.

“The answer to the case thus made is given by the Subordinate Judge towards the close of his careful and well reasoned judgment, and their Lordships are in complete agreement with what is there said.”

14. And then as to the allegation that the minor had been admitted to the benefit of the partnership, their Lordships say (p. 116 of 49 I.A):

“This is a fact to be established by evidence, and though it was neither pleaded nor made an issue at the trial, the High Court, without inviting evidence specifically directed to this point, held the admission proved, and thus set up a new case in appeal. The defendant has just ground of complaint as to this, and the procedure is not one to be commended.”

15. Now in the present case I would hold that there is no adequate evidence to show that there was an ancestral business. The defendants may be descended from an ancestor who bought and sold cloth, but it is not shown to us that there was an ancestral business on the material dates in this case. The defendants were left orphans at an early age, and consequently it appears to be a case where really a new business was in fact started by the elder brother in this family. Moreover, it is to be observed that one of the parties, at any rate, was a minor and, therefore, there was no question as to his having agreed to open a new business or to enter into any partnership with the plaintiffs.

16. The question, therefore, comes to this whether it was open to the learned Judge to convert this suit or its pleadings and issues into a totally different suit, namely, one founded on an alleged partnership between the plaintiffs and defendants 1 to 4. In this respect I should point out that in various parts of the evidence plaintiff 2 admitted that there was no partner except defendant 1. He had already stated that in a previous suit of 1920 and when the statement was put to him he had to admit in effect that it was correct. The other Plaintiff 1 Bhikchand deposed in para. 1 of his evidence that defendant 1 was their partner, but in para. 11 he said that the shop was to admit the defendant's family as a partner, and in para. 17 he said that all the defendants came to be partners. I do not think that evidence can really be of value. It seems to me evidence given to meet difficulties which the witness himself created during his examination.

17. On the other hand, Vasudev Hari, another plaintiff's witness admits that defendant 2 was not a direct partner. He was a sub-partner. He also admitted that defendant 3 was paid a salary.

18. It seems to me, therefore, that if we were to go in any detail into the evidence which the learned Judge has relied on as establishing this joint liability of defendants 2 to 4 on the ground that they were co-partners, we should really be making to a large degree a new case for the plaintiffs. Partnership is a particular relationship, and it seems to me prima facie that a partnership suit should be kept to accounts between the partners that are concerned. This of course, is without prejudice to the question whether, if on taking the partnership accounts a sum was found payable by defendant 1, then whether in some other proceeding if defendant 1 was unable to pay, the plaintiffs might not recover the amount as being a debt due from members of a joint family. It seems to me then that the matter cannot be gone into in this partnership suit, and that to frame, as the learned Judge has done, a declaration which prima facie makes all the defendants co-partners of the plaintiffs is an incorrect method and one which would create difficulties. After all, I take it that one individual A is entitled to enter into a partnership with another individual B although B may happen to be a member of a joint Hindu family, and that it does not necessarily follow that because he enters into a partnership with one coparcener B, he thereby becomes a partner with the other members of B's joint family of whose existence he may not even be aware.

19. When then in the present case we find that the plaint itself only alleged a partnership between A and B, and not between anybody else, and when even the issues are framed on the same basis, then I think the suit is primarily based on an ordinary partnership and dissolution and that accounts should be confined to the relations between the parties in that suit, without prejudice, as I have already stated, to any claim that the plaintiff may subsequently have against the other coparceners.

20. That being so, it seems to me that this order of the learned Judge cannot stand and that it will have to be modified by confining it to a declaration as between the plaintiffs and defendant 1, and by confining the accounts in a similar way to the partnership as between the plaintiffs and defendant 1. This will be without prejudice to any other claim that the plaintiffs may be advised to make against defendants 2 to 4 in the event of the accounts when taken resulting in any liability by defendant 1 to the plaintiffs. On the other hand, the suit, under these circumstances, will have to be dismissed as against defendants 2 to 4 with costs throughout.

21. I come next to the cross-objections which have been filed by the plaintiffs. They claim that it was an error to hold that the partnership was not dissolved on 15th July 1923; that it was an error to hold that the accounts were not made and adjusted as alleged by the plaintiffs; that the lower Court's view with regard to the adhawa, Ex. 184, is not correct; and that the order as to costs is wrong. In the first place, these cross-objections are only headed as between the appellants (viz., defendants 2 to 4) and respondents 1 and 2, who are the plaintiffs. Further they have not been served on defendant 1. It is clear that these cross-objections cannot be heard in the absence of defendant 1, because if they were held good, they would involve, amongst other things, an immediate judgment against defendant 1 for the amount claimed in the suit, and he would thereby be deprived of the benefit of having the accounts taken as directed by the preliminary decree. That is conceded by the learned pleader for the plaintiffs, and he requests that we should give an adjournment in order to enable defendant 1 to be served. But it is to be observed that this is an appeal of 1925 and we are now in 1929. The plaintiffs, therefore, have had ample time to put this case in order. A further objection, which has been taken by the defendants, is that according to the practice of this Court, cross-objections ought not to be filed by one co-respondent against another co-respondent except, at any rate, in very special circumstances. For instance, in Nursey Virji v. Alfred H. Harrison (5). Sir Basil Scott, C.J, and Chandavarkar, J., decided that the ordinary rule is that the cross-objections provided for by O. 41, R. 22 of the CPC, are cross-objections which are aimed against an appellant from a decree of a lower Court and are not cross-objections against a corespondent. In any case such cross-objections will not be allowed as against a co-respondent, where the respondent could have preferred them by way of appeal. Clearly this is a case where the plaintiffs could have preferred these cross-objections by way of an appeal. No doubt, that judgment also says (p. 512):

“There are, no doubt, exceptional cases in which the rule might be relaxed so as to allow a cross-objection by a respondent against a co-respondent; but we do not think that this is such a case.”

22. So too here we see no exceptional ground why cross-objections against a co-respondent should be allowed. And still less do we think that a special indulgence should be granted in a case where the appellants did not take the trouble to make a necessary person, viz., defendant 1 a party to the cross-objections. We think, therefore, that in the present case the procedure by way of cross-objections is erroneous, and that even if we could look upon it as an exceptional case, we are not prepared to exercise our powers having regard to the fact that the plaintiffs have not made the necessary persons parties to the proceeding, notwithstanding the great lapse of time that has taken place since the original appeal was filed.

23. In these circumstances, we think that the cross-objections must be dismissed with costs.

Patkar, J.:— I agree.

V.S/R.K

24. Appeal allowed.