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Gordhandas Baldeodas v. Bhulabhai Ranchoddas

Bombay High Court

Jan 6, 1931

Judgment

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Structured Summary of the Opinion

Factual and Procedural Background

The plaintiffs, described as shroffs and merchants, sued the defendants for Rs. 3,274-7-3 with interest at 6% on Rs. 3,128-5-3 from 10th August 1930 until judgment. The claim arises from an account that subsisted between the two firms. One partner of the defendant firm, Bhulabhai Chhotalal, appeared and raised defences; the other partner, Maneklal, did not appear and showed no interest in the proceedings.

Documentary and oral evidence relied upon by the plaintiffs include:

Exhibit A, which indicates the account between the firms was a mutual, open and current account for Samvat year 1982.
Exhibit B, a writing dated 16th October 1926 signed by Maneklal, acknowledging the defendant firm's indebtedness as Rs. 3,096-4-6 and providing for yearly instalments of Rs. 500 beginning 26th October 1927, with a clause that default of the first instalment would entitle plaintiffs to sue for the whole sum with interest.
Payments of Rs. 25 (9th January 1928) and Rs. 500 (10th January 1928, proceeds of a hundi) were made after Ex. B; plaintiffs' witness Gordhandas Baldeodas said these were sent with a covering letter in Maneklal's handwriting, but that letter is missing.
Account entries (Exs. D, E, F, and G) show the defendants' account remained open with balances carried forward and interest added; the account continued as current/open at least until Samvat 1984 when additional credit items appear.
A notice by the plaintiffs (Ex. 11) dated 2nd and 3rd July 1929 called on the partners to pay Rs. 3,070-4-0 with further interest; there was no reply.

The defendants' main assertions were: (a) the defendant firm had been dissolved by 11th May 1926 (2nd Chaitra Samvat 1982), (b) Maneklal lacked authority to bind the firm by Ex. B, (c) on dissolution the defendants handed over goods of value Rs. 500 and three decrees to the plaintiffs in liquidation of the plaintiffs' claim, and (d) the plaintiffs' claim was time-barred. The plaintiffs' witness Gordhandas Baldeodas testified that the particulars annexed to the plaint were correct and was not cross-examined on the account's correctness.

Legal Issues Presented

Whether the defendants proved that the partnership was dissolved on or before 11th May 1926 (2nd Chaitra Samvat 1982) so as to affect the plaintiffs' claim.
Whether Maneklal had authority, express or implied, to bind the defendant firm by the written acknowledgment Ex. B.
Whether Section 21(2) of the Limitation Act bars reliance upon a written acknowledgment signed by one partner in the circumstances of this case.
Whether the plaintiffs' claim was barred by limitation.

Arguments of the Parties

Plaintiffs' Position

The account between the firms was a mutual, open and current account (Ex. A) and the particulars annexed to the plaint are correct (evidence of Gordhandas Baldeodas), not effectively challenged.
Ex. B is an acknowledgment of indebtedness executed by Maneklal on behalf of the defendant firm and created instalment obligations; default in the first instalment occurred, giving rise to the plaintiffs' cause of action under Ex. B.
After Ex. B there was partial payment (Rs. 25 and Rs. 500), and account entries show the account remained open with balances carried forward and interest added.

Defendants' Position

The defendant firm had been dissolved on or about 11th May 1926, before Ex. B, a fact they say was known to the plaintiffs.
Maneklal had no authority, express or implied, to bind the defendant firm by Ex. B; consequently, Ex. B cannot be relied upon against the firm (reliance placed on Section 21(2) Limitation Act).
At dissolution the defendants allegedly handed over goods (value Rs. 500) and three decrees to the plaintiffs in liquidation of the plaintiffs' claim.
The plaintiffs' claim is time-barred.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Premji Ludha v. Dossa Doongersey	Used to infer that close personal relationships may support an inference of notice; interpreted to require, under Section 21(2) Limitation Act, that a partner signing an acknowledgment must have authority (express or implied) to bind the firm and that in a going mercantile concern such agency is generally presumed.	The court held that the facts in Premji Ludha were materially stronger than those proved here and that the analogy did not support the defendants' case; the decision was discussed but not found determinative in the present facts.
Krishnabai v. Varjivandas	Distinguished Premji Ludha with reference to Section 264 of the Contract Act (as noted by this court in a prior decision).	The court observed that Premji Ludha had been distinguished in Krishnabai v. Varjivandas and reiterated that the present facts do not make Premji Ludha controlling.
Dalsukhram v. Kalidas	Authority supporting the proposition that in a mercantile concern authority to sign acknowledgments may be presumed.	Referred to as supportive of the presumption of agency in a going mercantile concern where dissolution is not proved.
Gadu Bibi v. Parsotam	Also cited as authority for the proposition that agency may be presumed in a mercantile concern for the purposes of acknowledgments.	Used alongside Dalsukhram to support the presumption that a partner signing Ex. B had authority when the firm was a going concern.
Valasubramania Pillai v. Bamanathan Chettiar	Madras decisions indicating that evidence of authority from other partners may be necessary and may not be presumed, even in mercantile concerns.	The court noted these Madras authorities to explain a contrasting view but stated it was bound by its own courts' authorities and applied the presumption of agency in the present facts.
Shaih Mohideen Sahib v. Official Assignee of Madras	Another Madras decision cited to show that evidence of authority may be required rather than presumed.	Cited as part of the body of Madras decisions that take a different approach; the court recognized this contrast but applied the law as binding in its jurisdiction.
K.B.V Firm v. Seetharamaswami	Madras authority relating to the requirement of evidence of authority from partners.	Mentioned to illustrate regional variance in approach; did not alter the court's application of a presumption of authority here.
Veeranna v. Veerabhadraswami	Another Madras case cited on the necessity of evidence of authority.	Noted as part of the Madras line of decisions; the court acknowledged these decisions but followed the authorities binding on its own bench.

Court's Reasoning and Analysis

The court's analysis proceeded in a sequential manner, grounded in the evidence and applicable legal principles:

On the burden of proof and dissolution: The defendants bore the onus to prove that the partnership was dissolved on 11th May 1926 (2nd Chaitra Samvat 1982). The court examined the defendants' account books and other evidence and found no formal proof of dissolution or of affairs being finally wound up. The rough cash book was not produced, and the fair cash book was maintained month-to-month rather than day-to-day; nothing in the books demonstrated a formal dissolution. Witness testimony did not establish notice of dissolution to the plaintiffs. The court therefore concluded the defendants did not discharge the onus of proving dissolution.
On inferring dissolution from inability to pay: The court rejected the argument that the firm's inability to meet liabilities ipso facto established dissolution. It held that dissolution cannot be inferred merely from the fact of inability to pay; dissolution must be shown as an act of the parties or from circumstances clearly leading to that inference. The evidence of shop closure and related events did not suffice to infer dissolution.
On notice to plaintiffs and authority of Maneklal: The court noted there was no public notice of dissolution; Maneklal, who allegedly knew of dissolution, was not called to give evidence; Mohanlal denied being informed. Because the defendants failed to prove that notice of dissolution was given to the plaintiffs, the court held that the protection in Section 21(2) of the Limitation Act (that no partner will be chargeable by reason only of a written acknowledgment signed by any partner) would not bar the plaintiffs from relying on Ex. B. Put another way, absent proof of dissolution or notice thereof, the firm must be deemed a going mercantile concern and authority to sign Ex. B could be presumed for Maneklal as against the plaintiffs.
On precedents and interpretation of Section 21(2): The court considered the defendants' reliance on Premji Ludha v. Dossa Doongersey but found the facts of that authority materially stronger and distinguished it (also noting prior distinction in Krishnabai v. Varjivandas). The court cited other authorities (Dalsukhram v. Kalidas; Gadu Bibi v. Parsotam) supporting the presumption of agency in a going mercantile concern, and noted conflicting Madras authorities that require evidence of authority. The court stated it was bound by its own courts' authorities which support presumption of agency where dissolution and notice are not proved.
On limitation: The court analyzed the limitation point with reference to Ex. B. It held that the cause of action under Ex. B arose on default of the first instalment (26th October 1927). The plaint was filed on 28th August 1930, which the court found to be within three years of that cause of action. Alternatively, if the account is treated as a mutual, open and current account continued up to Samvat 3984 (as reflected in the ledger entries), the suit would also be in time. The court accepted the plaintiffs' evidence of part payment (Rs. 525) after Ex. B.
Conclusion of analysis: On the combined basis that the defendants failed to prove dissolution or notice of dissolution, that Maneklal's authority could be presumed in a going mercantile concern, and that the suit was filed within the applicable limitation period, the court resolved the contested legal issues in favour of the plaintiffs' legal position.

Holding and Implications

Holding:

Order accordingly.

Implications (direct effect on the parties):

The court held that the defendants failed to prove that the partnership had been dissolved as of the alleged date; consequently, the firm must be treated as a going mercantile concern for the purposes of Ex. B.
The court held that, in the absence of proof of dissolution or notice thereof to the plaintiffs, Maneklal's written acknowledgment (Ex. B) must be presumed to have been executed with authority to bind the firm as against the plaintiffs.
The court held that the plaintiffs' cause of action arising from default under Ex. B (first instalment due 26th October 1927) was within the limitation period when the plaint was filed on 28th August 1930; alternatively, continuation of a mutual, open and current account and a subsequent part payment also supported the suit being within time.
The direct consequence for these parties is that the defendants' principal defences (dissolution, want of authority, and limitation) were rejected by the court; the plaintiffs' claim thus remained actionable and the court ordered accordingly.

Broader legal implications:

The opinion applies and discusses existing authorities on the presumption of agency in a going mercantile concern and the effect of Section 21(2) of the Limitation Act; it does not announce or state that it is establishing a new legal principle beyond applying and distinguishing prior decisions. The court expressly noted differing regional authorities (Madras decisions) but applied the authorities binding in its own jurisdiction.

K.N/R.K

End of summary.

Show all summary ...

1. The plaintiffs, who are shroffs and merchants, claim from the defendants a sum of Rs. 3,274-7-3 with interest on Rs. 3,128-5-3 at 6 per cent from 10th August 1930 till judgment. The claim is made in respect of an account which subsisted between the two firms. Bhulabhai Chhotalal, who was a partner in the defendant firm, has appeared on behalf of the firm and raised certain defences to the suit. The other partner Maneklal has not appeared and has evinced no interest in these proceedings.

2. Exhibit A shows that the account which subsisted between the two firms was in the nature of a mutual, open and current account. That account is for the Samvat year 1982. According to the evidence of Gordhandas Baldeodas, Maneklal made up the accounts of his firm with him and executed a writing Ex. B, whereby he acknowledged the indebtedness of the defendant firm on an adjustment of account up to date in a sum of Rupees 3,096-4-6 and agreed on behalf of the defendant firm that the amount so found due should be paid to the plaintiffs by yearly instalments of Rs. 500, the first instalment being payable on 26th October 1927, and in default of payment of the first instalment the plaintiffs were to become entitled to recover the whole amount together with interest. Default was committed in payment of the first instalment and the plaintiffs are now suing for the whole amount due to them under this agreement. Since the execution of Ex. B the defendants have paid to the plaintiffs a sum of Rs. 25 in cash on 9th January 1928, and a sum of Rs. 500 being the proceeds of a hundi on 10th January 1928. The hundi and the cash according to the evidence of Gordhandas Baldeodas, were sent by Maneklal of the defendant firm with a messenger who brought with him a covering letter which was in the handwriting of Maneklal and was on behalf of the defendant firm giving instructions that the amount of the hundi when realized, as well as the sum of Rs. 25 paid in cash should be credited to the defendants in the defendants' account with the plaintiffs. This letter according to Gordhandas is missing. The date of Ex. B is 16th October 1926. The accounts, Exs. D, E, F, and G show that the defendants' account in the plaintiffs' books has remained open but with the exception of the two credit items of Rs. 25 and Rs. 500 in the account for Samvat year 1934, balances have been carried forward from year to year with the addition of interest, there having been no fresh transactions. The character of the account as a current, mutual and open account seems to have been continued at any rate till 1984 Samvat when there are credit items in addition to debit items in the account. Ex. 11 is a notice addressed by the plaintiffs to the two partners in the defendant firm calling upon them to pay up the sum of Rs. 3,070-4-0 with further interest. This letter is dated 2nd and 3rd July 1929. To this letter there is no reply by either partner.

3. The main contentions on behalf of the defendant firm are that at the date of Ex. B the defendant firm was dissolved to the knowledge of the plaintiffs and that Maneklal had no authority, express or implied, to bind the defendant firm by an acknowledgment of the nature of Ex. B. It was further contended that at the date of the dissolution the defendant firm handed over to the plaintiffs the remaining goods they had with them of the value of Rs. 500 and three decrees of the Court of Small Causes in their favour against third parties in liquidation of the plaintiffs' claim against the defendants. Gordhandas Baldeodas stated that the particulars of the plaintiffs' claim annexed to the plaint were correct. He was not cross-examined with regard to the correctness of the account and it may be taken as conceded that the accounts for which the plaintiffs are suing are correct. The defendants also contend that the plaintiffs' claim is time-barred.

4. The defendants in my opinion have failed to prove that the defendant firm was dissolved on 11th May 1926 being 2nd Chaitra Samvat 1982 as alleged by them. The defendants rely upon certain account books which they have produced showing that they were not written up after the 2nd Chaitra 1982. The rough cash book has not been produced. The fair cash book shows that it was not written up from day to day but from month to month. There is nothing in the books of account to show that a formal dissolution of the firm had been effected or its affairs finally wound up. Bhulabhai Chhotalal states in his evidence that the shop where the business of the defendants was being carried on was originally at Bhuleshwar. On 14th March 1926, it was shifted to Laxmi Narayan building where it continued for two months and three days. After the business was stopped Maneklal hired the business premises for his own residence and continued there up to 11th May 1926. The onus was on the defendants to prove the dissolution. In my opinion they have not discharged the burden. The dissolution is said to have taken place about the middle of a commercial year which is not very usual. It is contended that as the defendants had become defaulters and were unable to pay their debts their business became ipso facto closed. A dissolution of a partnership cannot necessarily be inferred from a circumstance that it is unable to pay its growing liabilities. The dissolution must be established as an act of the parties, or from circumstances leading clearly to such an inference. I am unable to infer a dissolution from the mere circumstance, if that circumstance can be said to be proved, that the business was stopped after 11th May 1926. According to Mohanlal Chhotalal he noticed the closing of the shop for the first time at the end of Samvat year 1982 or the beginning of 1983 corresponding with 4/5th November 1926. Both he and his partner Gordhandas Baldeodas have stated that neither of them had any notice of the dissolution at the date of Ex. B.

5. Reliance is placed on behalf of the defendants on Section 21(2) of the Lim. Act, by which it is provided that no partner will be chargeable by reason only of a written acknowledgment signed by any partner. No doubt if the knowledge of the alleged dissolution could be brought home to the plaintiffs, they would not be allowed to rely upon Ex. B as against Bhulabhai Chhotalal without proving that Maneklal had express authority from Bhulabhai to pass the acknowledgment. The defendants want the Court to infer that because Maneklal and Mohanlal were brothers and were meeting each other frequently Maneklal must have informed Mohanlal of the dissolution of the defendant firm. Maneklal has not been called to give evidence in this case. Mohanlal has denied that Maneklal ever informed him of the dissolution of the firm. The onus was on the defendants to prove that notice of dissolution was given to the plaintiffs. It is common ground that no public notice was given of the dissolution of the firm. The defendants in my opinion, have failed to prove that in the absence of such notice, the partners in the plaintiffs' firm or either of them had notice of the alleged dissolution.

6. Reliance is placed bn behalf of the defendants on the case of Premji Ludha v. Dossa Doongersey (1). I am asked to infer as was done in that case from the close relationship existing between Manek lal and Mohanlal that Mohanlal was well aware of the dissolution of the firm. The facts found in that case were much stronger than those which have been proved to exist in the present case.

7. That case was distinguished by me in Krishnabai v. Varjivandas (2), with reference to its bearing on Section 264 of the Contract Act. I am unable to agree that the analogy of Premji Ludha v. Dossa Doongersey is applicable to the facts of the present case. It has also been contended on behalf of the defendants that even in the absence of a notice of dissolution, Section 21(2) of the Lim. Act, would be an effective bar to this suit. The case of Premji Ludha v. Dossa Doongerseg is an authority so far as this Court is concerned for the proposition that the meaning to be given to the word “only” in Section 21(2) of the Lim. Act, is that it must also be shown that the partner signing the acknowledgment had authority express or implied, to do so and that in a going mercantile concern such agency is to be presumed as an ordinary rule. If further authorities were needed in support of the proposition I would refer to Dalsukhram v. Kalidas (3) and Gadu Bibi v. Parsotam (4). According to the Madras decisions evidence of authority from the other partners seems to be necessary and may not be presumed even in a mercantile concern: see Valasubramania Pillai v. Bamanathan Chettiar (5), Shaih Mohideen Sahib v. Official Assignee of Madras (6), K.B.V Firm v. Seetharamaswami (7) and Veeranna v. Veerabhadraswami (8). In this connexion I am bound by the authority of our own Courts. In the absence of proof of a dissolution and knowledge of such dissolution on the part of the plaintiffs, I must hold that so far as the plaintiffs are concerned the defendant firm must be deemed to have been a going mercantile concern at the date of Ex. B, and that Maneklal who signed Ex. B in the name of the defendant firm must be presumed to have had authority from his partner Bhulabhai Chhotalal to sign the acknowledgment on behalf of the firm.

8. The suit in my opinion is otherwise in time. The suit is based upon Ex. B, and the cause of action under Ex. B did not arise until default was made in the payment of the first instalment which was made payable on 26th October 1927. The plaint in this suit was filed on 28th August 1930, which is within three years of that date. If the account between the parties is deemed to be current mutual and open which, in my opinion it is, the suit would still be in time as that mutual open and current account was continued up to Sam vat 3984. Further if the suit can be said to be in respect of the amount found due as under Ex. B, there was a part payment of Rs. 525 in Samyat year 1984, and I see no reason to disbelieve the evidence of Gordhandas Baldeodas that the hundi and cash sent at the time were accompanied by a letter in the handwriting of Maneklal which letter has since been misplaced.