1. On 24th June 1930, the plaintiffs took out this originating summons against the defendants for dissolution of the partnership firm known as the “New Bombay Flour Mills Company” and for an order that the accounts of the partnership should be taken and its affairs wound up by and under the directions of the Court. The partners of the firm, which I will shortly refer to as “the suit partnership,” were the firm of Chimanram Motilal consisting of the plaintiffs and defendants 2, 3 and 4 with a ten annas share, and 1st defendant firm of Messrs. Sarupchand Prithiraj with a six annas share in the rupee. In the firm of Chimanram Motilal the plaintiffs had a ten annas share, defendants 2 and 3 had a share of four annas, and defendant 4, a share of two annas in the rupee. The suit partnership purchased a flour mill in Bombay in October 1926, after which it commenced doing business. On or about 2nd November 1927, the suit partnership was dissolved, and an agreement to sell off the mills was entered into about the same time. The sale of the mills was completed in June 1929. Prior to the dissolution of the suit partnership the firm of Chimanram Motilal was dissolved in or about June 1927, and the disputes between the partners of that firm were referred to arbitration, but, it appears, have not yet been settled on 12th October 1934 a decretal order of reference was made to the Commissioner to take the usual partnership accounts of the suit partnership. The Commissioner made his report on 14th March 1935, and ascertained that a sum of Rs. 76,192-3-9 was due by the suit partnership to the firm of Chimanram Motilal, that a sum of Rs. 57,692-3-9 was due by 1st defendant firm to the suit partnership, and that a sum of Rs. 18,500 belonging to the suit partnership was in the hands of Messrs. Mulla & Mulla, its solicitors.
2. Two sets of exceptions to the report have been filed, one by 1st defendant firm on 1st April 1935 and the other by the plaintiffs on 3rd April 1935. I will first deal with the exceptions filed on behalf of 1st defendants. The first six exceptions relate to a sum of Rs. 50,000 which, according to 1st defendants, was paid by them to defendant 2, a partner of the firm of Chimanram Motilal, for and on account of that firm. The payment was made by making certain ‘havala’ entries to which I will subsequently refer. Plaintiffs denied the payment and objected to the item of Rs. 50,000. The objection was allowed by the Commissioner, and 1st defendants contend that the objection should have been disallowed. It is common ground that the sum of Rs. 50,000 was not paid to defendant 2 in cash, 1st defendants' case, according to the evidence of Brijlal Ramjidas, the son of one of its partners, and who subsequently became a partner himself, is that when the business of the suit partnership was closed, and the sale proceeds of the mill were realized, moneys were due to the firm of Chimanram Motilal in its account with the suit partnership, that defendant 2 as a partner of the firm of Chimanram Motilal asked Brijlal for payment of a sum of Rs. 60,000 to Rs. 65,000, and Brijlal said he would pay after the sale was completed. The sale was completed on or about 22nd or 23rd June 1929, and on 24th June Brijlal offered to pay Rs. 50,000 to defendant 2 on account, but defendant 2 told him to credit the sum to the account of another firm, viz the firm of Narandas Kedarnath, in the books of 1st defendants, and to debit it to Chimanram Motilal in the books of the suit partnership, to which Brijlal presumably agreed. It may be mentioned here that defendants 2 and 3 along with several other persons are also partners in the firm of Narandas Kedar-nath, but the other partners of the firm of Chimanram Motilal, among them being the plaintiffs, are not partners in the firm of Narandas Kedarnath.
3. In pursuance of the agreement between defendant 2 and Brijlal, entries were made in the journal of the suit partnership which was lying with 1st defendants at their ‘pedhi’ near the Share Bazar, debiting Rs. 50,000 to the firm of Chimanram Motilal, and crediting the sum to the 1st defendants. In the journal of 1st defendants' firm ‘havala’ or transfer entries were made, debiting Rs. 50,000 to the suit partnership, and crediting the sum to Narandas Kedarnath. The ‘havala’ entries were admittedly made after Aso Sud 14, S. 1985 Maru (17th October 1929), but as of 24th June 1929. The plaintiffs contend that under these circumstances there was really no payment of the sum of Rs. 50,000 to the firm of Chimanram Motilal. They say that defendant 2 had no authority to receive the sum from 1st defendants and 1st defendants were aware of this limitation on the authority of defendant 2. They further say that the entries in the books were made in collusion between 1st defendants and defendant 2 who was at the same time a partner of the firm of Chimanram Motilal, the creditors of 1st defendants, and a partner of Narandas Kedarnath, the debtors of 1st defendants and that the payment is not binding on the firm of Chimanram Motilal, nor upon the plaintiffs as the partners of that firm.
4. This being the nature of the transaction, several important questions of law and fact arise for consideration. The very first question, in the forefront of the inquiry, is whether defendant 2 as the partner of a dissolved firm, viz., the firm of Chimanram Motilal could transfer the credit of Rs. 50,000 due to the firm by 1st defendants to the firm of Narandas Kedarnath, thereby making the latter firm the debtors instead of 1st defendant firm; and, if so, whether the transfer was properly and regularly made, or was tainted by fraud or collusion. It is provided under Section 263 of the Contract Act, 1872, which applies to this case, that the rights and obligations of a partner after dissolution of the partnership continue in all things ‘necessary’ for winding up the business of the partnership. Pollock and Mulla in their Commentaries on the Contract Act, Edn. 6, point out that this section was no doubt meant to express the English law on the subject, and that it should be read with sufficient emphasis on the word ‘necessary.’ The continuing authority of the partners for purposes of winding up is described in para. 1 in Section 47 of the Indian Partnership Act of 1932 as follows:
After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise.
5. There is a proviso to the section with which we are not concerned. This section is based on Section 38 of the English Partnership Act. The only distinction between Section 263 of the Indian Contract Act and Section 47 of the Indian Partnership Act, is that instead of the words “the rights and obligations of the partners” we have a fuller expression, viz., “the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners.” Both sections no doubt refer to the mutual rights and obligations of the partners after dissolution, and from the wording of S. 47 it seems that even the authority of a partner to bind the firm is one of the mutual rights and obligations of the partners in the winding up of the firm. It is therefore clear that though the dissolution of a firm causes a dissolution of the partnership between the partners, the partnership still subsists, but merely for the purpose of winding up its business and adjusting the rights of the-partners inter se, and for this purpose the authority of the partners to bind the firm, and all their other mutual rights and obligations, continue notwithstanding the dissolution. The power of each partner however extends only so far as it is necessary to wind up the affairs of the firm and to complete transactions already begun. It has been held that if a debt is owing to a firm, payment by the debtor to any one of the partners extinguishes the claim of all the partners and discharges the debtor, even though a particular partner or a third person is appointed to collect the debts owing to the firm, and whether the debtor is aware of such appointment or not. Any partner of a dissolved firm can therefore recover payment of a debt due to the firm. He can effectually release the debtor and also give a valid receipt for the debt. But neither the release nor the receipt will be binding on his co-partners if the receipt is given, of the releasing partner acts in fraud of his co-partners and in collusion with the debtor: see (1839) 9 Ad & E 641,1 (1811) 2 Camp 5612 and 41 Mad 446.3
6. A partner can also accept a bill of exchange for a debt: (1829) 4 Car & P. 108.4 He has however no authority to acknowledge a debt, or by his act or admission to involve his co-partners in any new legal liability. Counsel for its defendants thereupon contended that if a partner in a winding up can recover a debt due to the firm, he can also deal with it after recovery in any manner he pleases. That proposition however is subject to this qualification that the dealing in order to be binding on the co-partners must be ‘necessary’ in the winding up. It is pointed out in Lindley on Partnership, Edn. 9, at p. 195, that although a partner has power to receive payment of a debt and to give a discharge for it on payment, it does not follow that he has power to compromise or settle the debt in any way he likes without payment, Nor can he discharge a separate debt of his own by agreeing that it shall be set off against a debt due to the firm. It is of course open to the co-partners either to ratify the act of the partner which is primarily not binding on them, or to acquiesce in it. But otherwise the act must be an act necessary in the winding up of the partnership. It was also contended on behalf of 1st defendants that it was competent for a partner of a dissolved firm to transfer a debit balance due by the firm from one creditor to another, and that he could also transfer a credit balance due to the firm from one debtor to another, provided that in either case the transaction was not fraudulent nor collusive. Counsel relied principally on two old English cases. In (1857) 2 H & N 3265 it was held that a partner had power to bind his co-partner by assenting to the transfer of a debt due to both of them in account with one bank to an account with another. That was however not the case of a dissolved firm; it was the case of a going concern. The other case is (1824) 4 Dowl & Ry 7,6 in which A who was indebted to B & Co., was released by B & Co., on his assigning to B & Co., a debt due to him by C & Co. Notice of the assignment was given to a partner of C & Co., who promised to pay B & Co., the debt owing by C & Co., to A. B & Co., sued C & Co., for moneys had and received. C & Co., had been dissolved as to some of its members only, and in the course of the argument the Court doubted whether that was a dissolution of the partnership in the proper sense of the word. It was however held that a promise to pay made by one partner for and in the name of the rest, coupled with the declaration that a notice of the assignment to the other partners of C & Co., would have made no difference, was a perfectly good promise to bind the other partners. It was, therefore, argued that if a debit balance could be transferred by a partner, as in those two cases, why could not a partner transfer a credit balance, as in the present case? Counsel stated that this would follow from the propositions, that a partner could recover a debt in the winding up of his firm, that a debtor would be discharged if he paid the money to anyone of the partners, and that the partner who recovered the debt could deal with it in any manner he chose. It was also argued that each partner's agency, as described in Section 251 of the Contract Act, continued after dissolution, and could only be terminated, or any special agreement amongst them could be given effect to, by a suit in which either a receiver was appointed or an injunction granted restraining one partner from receiving money due to the firm. Counsel further contended that a partner of a dissolved firm could also effect a ‘novatio’ by substituting one debtor to the firm for another; and that is what has happened in this case. I think it is quite clear that the act done or transaction entered into by the partner of a dissolved firm must satisfy the main requirement of the law that it is an act or transaction which is necessary in the winding up. The winding up only can be proceeded with after dissolution, and no other business can be carried on in the name of the firm. As pointed out by Halsbury, Vol. 22, para. 194:
After dissolution, the partnership subsists merely for the purpose of completing pending transactions, winding up the business, and adjusting the rights of the partners; and for these purposes, and these only, the authority, rights and obligations of the partners continue.
7. What was the nature of the transaction in this case? Defendant 2 as the partner of the firm of Chimanram Motilal, who were the creditors of 1st defendants, told Brijlal who represented 1st defendants to pay the sum of Rs. 50,000 to Chimanram Motilal, not in cash, but by appropriating the sum towards payment of a debt due to 1st defendants by the firm of Narandas Kedarnath in which he and defendant 3 and others were partners, but in which the plaintiffs had no concern, thereby making Narandas Kedarnath the debtors of Chimanram Motilal instead of 1st defendant firm. Could it be said that such a transaction was necessary in the winding up of the firm of Chimanram Motilal, and binding upon it and upon the plaintiffs who were its partners? It is nobody's case that all the partners of Chimanram Motilal, ratified the transaction afterwards or acquiesced in it. It was a transaction in which the duty of defendant 2, as partner of the creditor firm of Chimanram Motilal might have conflicted with his interest as a partner of the debtor firm of Narandas Kedarnath. He might have been interested in wiping off the liability of Narandas Kedarnath to 1st defendants, to the extent of Rs. 50,000, thereby allowing 1st defendants to wipe off their liability pro tanto to Chimanram Motilal, whereas his partners might not have been. The firm of Narandas Kedarnath had an account with 1st defendants, but there was no account of Chimanram Motilal and Narandas Kedarnath at the material dates in 1929. The partners of Chimanram Motilal had disputes inter se, and Brijlal representing 1st defendants knew, or at any rate had heard of the same.
8. It is true that there is no authority in point which lays down that knowledge of such disputes puts the debtor under any particular obligation not to pay the debt to one of the partners of the creditor firm. If knowledge of an agreement or arrangement among the partners of a dissolved firm not to call in the debts or that debts due to the firm should be paid to a particular partner or person only does not impose any such obligation, knowledge of disputes among the partners of the creditor firm may also not prevent the debtor making his payment, though it should put the bona fide debtor on his guard before making a payment. I do not think it can be said that a joint payment of a debt to all the partners or a joint receipt by the partners is strictly necessary. The statement of Lord Phillmore, in (1922) 1 AC 488,7 viz., that if a debt is due to a firm, and both the ex-partners are alive, the debtor can only safely pay upon the receipt of both, does not really apply in this case. It was applicable only in the peculiar facts and circumstances of that case in which the partnership had been dissolved and all the accounts taken, and each partner had paid his share of the debts and received his share of the profits, and then it turned out afterwards that there was an item to the credit of the partnership which was either forgotten or treated as valueless, but afterwards became of value and fell in. In such a case a joint receipt would be necessary. But I do not think a joint receipt by the partners of a dissolved firm for a debt is ordinarily necessary in the winding up of a firm. The objection to the payment of Rs. 50,000 in this case is not that there was no joint receipt passed by all the partners of Chimanram Motilal. What is objected to is that defendant 2, by reason of his peculiar position as a partner of a creditor firm and a partner of a debtor firm at the same time, has acted in a manner which might be prejudicial to his co-partners and certainly not necessary in the winding up. He himself may have no objection to make Narandas Kedarnath the debtors of Chimanram Motilal instead of 1st defendants, but the other partners of Chimanram Motilal may have had such objection, and the plaintiffs did in fact object to the payment of the Rs. 50,000 in this manner after they had taken inspection of the relevant entries in the books.
9. In my opinion it is not a necessary act in the winding up of a dissolved firm for a partner to create a ‘novatio’ in respect of a debt owing to the firm. That is not recovering a debt, but really continuing it through somebody else as the debtor. His partners may previously consent to it or subsequently ratify or acquiesce in it; otherwise it is not binding upon them. But even assuming for the sake of argument that the making of a ‘novatio’ is a necessary act in the winding up, it will still not be binding upon the co-partners, if it is tainted by fraud or collusion. There is no fraud nor collusion charged in the plaint, though the plaintiffs had inspection of the books and the entries before taking out the originating summons. In the attorneys' correspondence which had previously ensued between the parties, the plaintiffs have alleged the 11st defendants in collusion with defendants 2, 3 and 4 have been putting off making up the partnership accounts in spite of the plaintiffs' repeated demands, but 1st defendants denied the charge. The plaintiffs, however, alleged in the objections brought in by them that the ‘havala’ entries in respect of the sum of Rs. 50,000 in the partnership books of account appear on the face of them to be collusive and made at a much later stage. Their counsel contended that the entries were made after the correspondence commenced on or about 29th October 1929. It is admitted that the ‘havala’ entry in 1st defendants' journal was not made on 24th June 1929, but was made sometime after 17th October 1929. The precise date on which it was made is uncertain according to Brijlal's evidence, but he stated that it was not made after Diwali, i.e after 1st November 1929. It may be here pointed out that 1st defendants took nearly a week to reply to the plaintiffs' letter of 29th October 1929.
10. In his evidence, Brijlal stated that he had asked his clerk, Madanlal, to enter the ‘havala’, but Madanlal forgot to carry out his instructions, and that Madanlal must have possibly found out at Diwali or prior to it on’ making up the accounts that the ‘havala’ entry had not been made, and so he must have had made it up at the time. In his cross-examination, however, Brijlal's explanation was a little different. He said that Madanlal told him whilst comparing the accounts that he had omitted to enter the ‘havala’, and Brijlal told him that he could enter it even then. The entry in the journal of the suit partnership appears also on the last page, and it was suggested by plaintiffs' counsel that it was made at the same time as the ‘havala’ entry in the journal of 1st defendants. He particularly relied on Brijlal's answer in cross-examination that until the ‘havala’ entry was actually made in October, though as of June 1929, no entry was made anywhere in any of the books of 1st defendant firm in respect of this sum of Rs. 50,000. At the same time it is clear that in or about June 1929, all the sale proceeds of the mills had been realised, and there is an entry under date, 26th June, on the same page showing the last balance of the sale proceeds that were realised. I am constrained to say that the entries are not altogether free from doubt, but, as it has always been held, suspicion is not proof of fraud.
11. There are, however, other surrounding circumstances which the Court has to consider in arriving at its conclusion. At all material dates in dispute the firm of Chimanram Motilal had no account with the firm of Narandas Kedarnath, nor had Narandas Kedarnath any account with Chimanram Motilal. For all practical purposes Narandas Kedarnath were strangers to Chimanram Motilal. Narandas Kedarnath had an account with 1st defendants and it seems moneys were owing to the 1st defendants in that account. Plaintiffs' counsel suggested in his cross-examination of Brijlal that apart from monetary dealings between the two firms 1st defendants were also partners in the firm of Narandas Kedarnath or were interested in Narandas Kedarnath. This was denied by Brijlal, and all that the plaintiffs' witness, Dwarkadas Bhimraj, the son of plaintiff 2, could say was that it appeared that 1st defendants were partners with Narandas Kedarnath. Later on in his cross-examination he said that 1st defendants had a share in the firm of Narandas Kedarnath and that he had once asked Joharmal, the chief partner in 1st defendant firm, about it, and Joharmal had said that was so. The evidence on this point, however, is not conclusive, and I cannot, therefore, hold that 1st defendant firm had share in the firm of Narandas Kedarnath. Defendants 2 and 3, however, who are, brothers, are related to Joharmal. I have already stated before that defendant 2 was at the time a common partner of the firm of Chimanram Motilal and the firm of Narandas Kedarnath, and as a partner of Narandas Kedarnath he might have been interested, and probably was interested, in the “novatio”, whereas the plaintiffs were not.
12. He was present all the time at the hearing on the reference before the Commissioner, but he was not called as a witness nor did he give evidence on his own behalf. The only witness called on behalf of its defendants was Brijlal. It is difficult to understand why it was thought necessary to call only one party to the agreement and not the other, when the latter was really the man who had first moved in the matter and knew all about the transaction: see 29 Bom LR 1392.8 Counsel for 1st defendants argued that the onus of proving fraud or collusion, which is akin to fraud, was on the plaintiffs, and that they had failed to prove it, and that therefore it was not necessary to call defendant 2. It was, however, for 1st defendants not only to prove the transaction, but to show that it was perfectly bona fide. There should be sufficient and cogent proof of the “novatio”. Brijlal only stated that defendant 2 asked him to transfer the sum of Rs. 50,000 from the account of Chimanram Motilal to Narandas Kedarnath, and he did so. The name of defendant 2 does not appear in any of the entries. The books of Narandas Kedarnath were not put in. Corresponding entries were probably made in the books of Narandas Kedarnath, but they were not proved. The evidence on the record is, in my opinion, incomplete. It also appears that defendants 2, 3 and 4 are not on good terms with the plaintiffs. In fact they refused to join the plaintiffs in the originating summons, and were, therefore, impleaded as party defendants.
13. Taking all these circumstances into consideration I am not satisfied that this transaction is above board. I am inclined to hold that it was entered into in collusion between 1st defendant firm and defendant 2. Counsel for 1st defendants argued that the firm had in no way benefited by the transaction. I am not so sure of that. There is no evidence as to the financial position of the firm of Narandas Kedarnath, and their account with 1st defendants was closed in or about October 1930. The 1st defendants got rid of their liability to pay Rs. 50,000 to the firm of Chimanram Motilal, and by crediting the amount to Narandas Kedarnath diminished to that extent the liability of Narandas Kedarnath who may or may not have been in a position to pay off the entire amount due by them to 1st defendants. Counsel further argued that it would be a great hardship now to hold 1st defendants liable for the sum, as their claim against Narandas Kedarnath was barred. But that in itself is no argument, if the transaction is not binding on all the partners of Chimanram Motilal. The 1st defendants knew very well when the originating summons was taken out that plaintiffs disputed the payment of the sum of Rupees 50,000 by 1st defendants in the manner an which it was paid.
14. They could have then adopted such proceedings as they might have been advised to take against Narandas Kedarnath, but they chose not to do so. In my opinion the learned Commissioner was right in holding that defendant 2 could not bind his co-partners by allowing moneys due by one firm to be paid by another firm with which his other partners except his brother defendant 3 had no concern. I therefore hold that the alleged payment of Rs. 50,000 does not in law amount to a payment to the firm of Chimanram Motilal, and therefore exceps. 1 to 6 filed by 1st defendant firm must be dismissed. I will deal with exceps. 7 and 8 later. The exceptions filed by the plaintiffs are referable to surcharges 3 and 4 of the surcharges brought in by them. Surcharge 4 is consequential upon surcharge 3. The plaintiffs have surcharged the sum of Rs. 1,75,558-0-3, being the amount of interest payable to Messrs. Chimanram Motilal on their capital account at the rate of seven and a half per cent up to 11th October 1934, and further interest from 12th October 1934 till payment. 12th October is the date of the decretal order of reference to the Commissioner. The ground of the surcharge is stated as follows:
As regards the capital account it was agreed that interest was to be charged at the rate of seven and a half per cent with yearly rests, and accordingly interest was charged at the end of the year 1926.
15. The learned Commissioner came to the conclusion that in making up the accounts no interest should be allowed to either party after the date of the dissolution of the suit partnership, and he directed that the accounts should be made up on that basis. At the third meeting before the Commissioner, held on 25th February 1935, Mr. Munshi on behalf of 1st defendants made a statement which the learned Commissioner has taken down as follows:
A note may be taken that we are agreed that interest and the capital account is to be calculated at seven and a half per cent and on the current account at four per cent.
16. Counsel on behalf of plaintiffs and also on behalf of defendants 2, 3 and 4 agreed. Thereafter the surcharges were discussed. Mr. Amin on behalf of the plaintiffs said as follows:
Surcharges 2, 3 and will depend on the finding on the item of Rs. 50,000, and after it is decided items of interest will be adjusted, there being no dispute as to the rate of interest.
17. Mr. Lalji on behalf of defendants 2, 3 and 4 said that the statement was correct, and Mr. Munshi on behalf of 1st defendants stated: “I agree.” He further stated that only objection 2, viz., the objection as to the sum of Rs. 50,000, remained to be determined. The objection was then gone into. Evidence was led on behalf of the parties, and the Commissioner gave his judgment on 11th March 1935. Thereafter there was considerable discussion as to what Mr. Munshi meant when he stated on 25th February 1935 “I agree,” and the learned Commissioner found that counsel ad not applied his mind to the question whether in law interest could run as against 1st defendants after the date of dissolution, and was only considering the question as to the rate of interest, and the question whether interest should be simple or compound with periodical rests. He held that the statement could not be used as an admission binding on 1st defendants. Plaintiffs, on the other hand, contend that the learned Commissioner ought to have held that it was admitted on behalf of 1st defendants that interest was agreed to be paid in the capital account at the rate of seven and a half per cent per annum with yearly rests up to the date of payment, and that only the amount of the said interest was to be affected according as the objection to the item of Rs. 50,000 was allowed or disallowed. It was also argued that the admission made by counsel was one of fact, and that his clients, 1st defendants, were bound by it. Mr. Munshi stated to the Commissioner, and also said it to the Court, that when he said that he agreed he said so under some misapprehension, and that the Court would not hold his clients bound by it. He said it never occurred to him that what he “agreed” to would be construed to apply to a matter which involved as big a sum as Rs. 1,75,000 odd. On the other hand Mr. Amin stated that there was no misapprehension, that the admission was or must be presumed to have been made on instructions, and that counsel could not go behind it.
18. In order to show that there was no room for misapprehension he wanted to tender the partnership account filed by 1st defendants before the arbitrator Mr. Taraporewala in which it is alleged that 1st defendants had themselves charged interest on their capital account at the rate of seven and a half per cent with yearly rests up to the date of payment. The learned Commissioner, however, rejected the application as being irrelevant, and in my opinion rightly. I do not think that the admission was merely an admission of fact. It has been well established that in the absence of an express agreement no interest would run on the capital account of each partner after dissolution. Such an agreement may either be express or it may be inferred if the partners have themselves been in the habit of charging such interest in their accounts. A stipulation that interest should be allowed on the capitals of the partners may be presumed from the usage of those who carried on the partnership business. But where interest on capital is payable, it stops running at the date of dissolution, unless otherwise agreed: see (1872) 8 Ch 1,9 practically overruling the decision in (1865) 3 De GJ & S. 162.10 I do not think counsel intended to give up this contention of law with regard to a very large sum of interest, and when he said that items of interest would be adjusted, the rate being admitted to be seven and a half per cent. I do not think he intended to mean that the items were merely to be worked out arithmetically without further argument. Secondly, counsel seems to have inadvertently expressed himself in a way as to make his agreement far more extensive than he thought or meant it to be. Even if it is held that the admission is one purely of fact, which I doubt, 1st defendants are not bound if it was made under a misapprehension: see 2 Ch 638.11 Its was not a case, as Kekewich, J. pointed out in his judgment, which was overruled by the appeal Court, where counsel miscalculated the pecuniary value of his concession or took any chance.
19. The amount of interest was assessed and is clearly mentioned in the surcharge, so that there was no chance of any miscalculation. If there was misapprehension, as counsel says there was, I do not see any reason why a Court should be deprived of its general authority to do justice between the parties, either on account of an unauthorised act of counsel, or an admission which was inadvertently made. I, therefore, hold that 1st defendants are not precluded from raising the legal contention whether any interest could be allowed on the capitals after the date of dissolution in the taking of the accounts.
20. The next question is whether the plaintiffs should have been allowed to lead evidence to prove the agreement mentioned in the ground of surcharge No. 3, viz., that interest was to be charged at the rate of Reven and a half per cent with yearly rests on the capital amount. The 1st defendants' counsel argued that in the first place the agreement was not clearly stated, and, secondly, that it had not been expressly pleaded in the plaint, nor referred to in any other document or correspondence before, and there was no direction to the Commissioner to take the partnership accounts on the basis of the alleged agreement. I do not agree with the contention that the agreement has not been clearly stated. The agreement as stated is that interest was to be charged at the rate of seven and a half per cent with yearly rests on the capitals, and in accordance with that agreement interest was charged at the said rate until the end of 1926, i.e, before the dissolution of the partnership. It cannot be said that interest was actually charged at that rate on the capital account before dissolution, because the agreement was to charge it only up till the date of dissolution and not thereafter.
21. The next question is whether the plaintiffs should have been allowed to lead evidence to prove the express agreement before the Commissioner, and whether they should be allowed to prove the same even at this stage in Court. It is true that it has not been pleaded. If it had been pleaded it would ordinarily have had to be proved in Court, and not before the Commissioner. A reference to the Commissioner to take the accounts on the footing of such an agreement, if and when proved before the Commissioner, would be outside the scope of Section 75 and O. 26 of the CPC. In a suit for dissolution of partnership and the taking of partnership accounts the Court usually passes a preliminary decree declaring the proportionate shares of the parties, fixing the day on which the partnership stands, or is deemed to have been, dissolved, and directing such accounts to be taken and other acts to be done as it thinks fit under the provisions of O. 20, R. 15 of the Code.
22. The Commissioner has no power to decide questions relating to the terms of the partnership, its duration, or the shares of the partners. He is bound by the terms of the decretal order of reference, and under the decretal order of reference dated 12th October the suit was referred to him to take an account of all the dealings and transactions among the partners of the suit partnership and to ascertain and report what balance, if any, was due from or by one of the partners to the other after making all just allowances. No other specific direction was given, and counsel for the plaintiffs contended that the Commissioner was not preoluded from going into the question of this agreement. He argued that the decree had no reference whatever to the mode in which accounts were to be taken, and this was a question which properly arose upon the taking of the accounts. He relied on the observations of Turner, L.J, in the case which I have already referred to before in Pilling v. Pilling. I do not agree that this is merely a question as to the mode of taking accounts.
23. The question which arose in that suit, viz., whether accounts ought to be taken according to the books of account or according to the articles of partnership, was such a question. But the proof of an agreement, which forms an exception to the general rule of law, that no interest is to be allowed in the capital account after dissolution, is not a matter concerning the mode of taking accounts. I do not also agree with the contention of counsel for 1st defendants that the decretal order of reference operates as res judicata on all points not dealt with by it, on the analogy of Expln. 5 to section 11 of the cpc, which provides that any relief claimed in the plaint which is not expressly granted by the decree shall be deemed to have been refused. No relief in the plaint on this originating summons was claimed on the basis of the agreement put forward by the plaintiffs at the hearing before the Commissioner, and it therefore cannot be said that it must be deemed to have been refused.
24. The mere fact that interest on a particular basis was not claimed in the pleadings should not preclude the plaintiffs from proving the same, even at this stage, in order to enable the Court to determine all the questions in controversy between the parties, before the final decree is passed. The amount involved is a very large one, and I think I should in fairness to the plaintiffs allow them to lead evidence in Court to prove the alleged agreement, viz., that interest was to be charged at the rate of seven and a half per cent per annum with yearly rests on the amount standing to the credit of the capital account of the partners till payment. I reserve the costs of and incidental to this further inquiry. I may here refer to the judgment of the Privy Council in 42 IA 91,12 in which the report of the Assistant Referee showed that large sums, forming part of the assets, were in the hands of the appellants, and had been used by them in continuing the business of the partnership after dissolution for their own benefit. Interest was not claimed in the plaint, but was allowed on the principle of law stated in the judgment. In the result, exceptions 3 to 9 filed on behalf of the plaintiffs must be dismissed. The remaining exceptions filed on their behalf, and exceptions 7 and 8 filed on behalf of, 1st defendants, will stand over until the determination of the question relating to the alleged agreement.
25. 10th December:— The remaining exceptions came on for hearing again for the determination of certain questions which remained to be considered. The questions are: (1) Whether there was an agreement as alleged between the two partners of the suit partnership that interest was to be charged at the rate of seven and a half per cent per annum with yearly rests on the amount standing to the credit of the capital account, of each of the partners from the date of its dissolution until payment; (2) whether interest is payable on the capital amounts of the partners before and up to the date of dissolution; and (3) whether the plaintiffs are entitled to interest on the sum of Rs. 50,000 which, as I have held, was not a proper and legal payment to the firm of Chimanram Motilal, and, if so, at what rate, and from what date? There was no specific provision in the Contract Act for payment of interest to partners in their capital accounts. It is, however, pointed out in Lindley on Partnership, Edn. 10, p. 465, that partners are not entitled to interest on their respective capitals unless there is some agreement to that effect, and that such an agreement may be inferred if they have themselves been in the habit of charging such interest in their accounts. Later on, on the same page, it is stated that where interest on capital is payable, the interest stops at the date of dissolution unless otherwise agreed. In this connexion I may also refer to the observations of Lord Selborne, L.C, in Barfield v. Lough, borough that, (p. 3):
A claim to have partnership accounts, subsequent to the dissolution of a partnership, taken with interest as between the partners, must (in the absence of any facts raising particular equities) be maintained, if at all, upon the footing of an agreement to that effect.
26. The agreement alleged by the plaintiffs in the case before me is that interest was to be charged on the amount standing to the credit of the capital accounts of the partners at seven and a half per cent per annum with yearly rests. Plaintiffs' counsel at the resumed hearing stated that the agreement was to pay interest “irrespective of profit or loss.” Those words “irrespective of profit or loss,” were not in the agreement mentioned to me. The plaintiffs, therefore, have to prove the agreement as originally alleged, and the onus of proving it is on them. At this hearing only the plaintiffs and 1st defendant firm appeared through their respective counsel. Defendants 2, 3 and 4 have not appeared. Two witnesses were examined on behalf of the plaintiffs with regard to the alleged agreement for payment of interest after dissolution, viz., plaintiff 1. Motilal Chimanram, and Dwarkadas Bhim-raj, the son of plaintiff 2. Plaintiff 1 was the senior and principal partner of the firm of Chimanram Motilal until its dissolution. He said that the flour mills in question were first purchased in 1925 in partnership between his firm of Chimanram Motilal and Basantlal Gorakhram and Hansraj Kanji, and that the shares of those three partners were six annas, six annas, and four annas in the rupee respectively. That partnership, which I will call the old partnership, continued till about 24th October 1926, when owing to some disputes between Motilal and Basantlal Gorakhram it was dissolved. Before dissolution, however, it was suggested by the partners that the mills should be put up for sale by private auction, and pending the sale there were negotiations between plaintiff 1, representing the firm of Chimanram Motilal, and one Joharmal Sarupchand, representing 1st defendant firm, to form a new partnership which would purchase and work the mills. There was an interview about two or three days before the auction was held at which plaintiff 1 and Joharmal were present. The interview was at the “pedhi” of Chimanram Motilal. Defendant 2, Narandas Pokermal, was also present. In fact defendant 2, was the person who was sent by plaintiff 1 to fetch Joharmal for the interview. Plaintiff 1 said that Dwarkadas Bhimraj was also present at the interview. Joharmal could not remember whether Dwarkadas was or was not present, but defendant 2 was positive that he was not. There is no dispute that a new partnership was formed between the firm of Chimanram Motilal and the firm of Sarupchand Prithiraj, and that the shares of the new partners were fixed at ten annas and six annas in the rupee respectively.
27. It is also admitted that there was a talk about the capital to be brought in by the new partners, and Joharmal agreed that his firm of Sarupchand Prithiraj would bring in about three to four lacs of rupees, and the rest would be brought in by the firm of Chimanram Motilal for the working of the mills. There was also a talk about the payment of interest on the capital to be brought in by the partners, and it was agreed that interest was to be paid at the rate of ten annas per cent per mensem with yearly rests. So far there is no dispute.
28. Joharmal, however, alleged that he told plaintiff 1 that the partners of his firm would not be able to attend to the business of the suit partnership, and that Brijlal Ramjidas would be the real partner and attend to the business. Defendant 2 who gave evidence on behalf of 1st defendant firm has corroborated Joharmal in that statement. Brijlal Ramjidas was also called, and though he was not present at the interview, he said that he was also subsequently informed by Joharmal to the same effect. On the other hand, plaintiff 1 denied that it was stated that Brijlal was to be the real partner. According to him all that Joharmal said was that the business of the suit partnership would be looked after both by Joharmal himself and by Brijlal. With regard to the payment of interest on capital, plaintiff 1 stated that Joharmal asked him what was the condition as to payment of interest on the capitals in the old partnership, and he told Joharmal that it had been agreed that interest was to be paid at seven and a half per cent with yearly rests, irrespective of profit or loss, and whether the mills worked or not, to which, according to him, Joharmal agreed in relation to the suit partnership. The next witness, Dwarkadas Bhimraj, stated in his examination-in-chief that plaintiff 1 told Joharmal that interest would be paid at that rate on the capital amounts irrespective of profit or loss, and whether the mills worked or not, and after dissolution until payment. In his cross-examination he first omitted those words “after dissolution until payment,” but later on he mentioned that interest was to be paid till payment. Joharmal and defendant 2 deny that there was any such agreement, and as I have stated before, defendant 2 even denies that Dwarkadas was present at the interview. According to defendant 2, the arrangement between the partners of the old partnership was that interest was to be paid on the capitals only if the mills fetched a price of over rupees eight lacs at the auction, as that was the sum which was invested by the old partnership in the mills. If the mills fetched less, interest was to be paid, but the loss was to be recovered from the partners. That is why he said, entries calculating interest were made in the capital accounts of the partners. It appears that there was a loss of about Rs. 85,000 on the auction sale, and the entry showing the loss has been put in, but the other entries showing how interest was calculated in the capital accounts of the old partners are not relevant for proving that there was also an agreement for payment of interest in the capital accounts of the partners of the suit partnership.
29. The oral evidence so far as it goes is not, in my opinion, conclusive on the question of the agreement alleged by the plaintiffs. It must be remembered that witnesses were deposing from memory in 1935 to conversations which took place as far back as 1926, and I do not accept the evidence either of plaintiff 1 or Dwarkadas on the question of the alleged agreement. It is also not clear what occasion there was to discuss the question of the dissolution of the suit partnership even before it had commenced. The plaintiffs' counsel argued that the question of payment of interest on capital in the event of there being a loss must have arisen because the old partnership had resulted in a loss of Rs. 85,000. On the other hand, it is also clear that the exact loss was not ascertained until after the auction was held, and the interview at which the suit partnership was formed was before the auction. Assuming even that there was an occasion to discuss the question of the payment of interest on dissolution in the event of the partnership resulting in a loss, it does not necessarily follow that any agreement was actually arrived at. Apart from the oral evidence however there is certain documentary evidence on which the plaintiffs rely. Admittedly there were three sets of books of account, one kept by the firm of Chimanram Motilal, one kept by 1st defendant firm of Sarupchand Pithiraj, and the third, being the books of the suit partnership, which were also kept by 1st defendant firm. The books of Chimanram Motilal are not before the Court. That firm was dissolved in June 1927, and the books were handed over to the arbitrator, Mr. Bagdi, to whom the disputes of the partners of Chimanram Motilal inter se were referred.
30. It was argued that there could be no entries of interest on the capital account in the books kept by Chimanram Motilal as the firm was dissolved before the year was out. Probably there were none but in the absence of the books, the Court cannot express any opinion definitely whether there were none, nor whether any entries were made subsequently, that is, after the dissolution of that firm. Plaintiffs however rely on the entries in the 1st defendants' books which show that interest was calculated at ten annas per cent per mensem with yearly rests in their own capital account. The accounts for the years 1926–1927, 1927–1928, 1928–1929, 1929–1930 have been put in, and the accounts for 1927–1928 and 1928–1929 show that interest was calculated in the capital account after the dissolution of the suit partnership in November 1927. Joharmal was asked to explain those entries. He said he knew nothing about the account books, that he did not attend to the business of the suit partnership, and that the entries might have been made by mistake. Brijlal Ramjidas said that his father was a partner in the firm of Sarupchand Prithiraj in 1926 and is so even now, and that he became a partner in his own right only in 1930–1931, though throughout he and his father have been joint.
31. He further stated that Joharmal informed him that he was to be the real partner in the suit partnership, and that he acted as such, though it was the 1st defendant firm which financed him for purposes of carrying on the business of the suit partnership. This was the contention at first put forward by 1st defendant firm when the originating summons came on for hearing before Eangnekar, J., but eventually they gave it up, and it is conceded that the questions as to whether 1st defendants were the partners or whether Brijlal Ramjidas was the partner cannot be re-agitated now. It may be that there was evidence supporting either of these points of view, but with that I am not now concerned. Counsel for 1st defendant firm however argued that interest was calculated in the capital account of 1st defendants in their books, because 1st defendant firm acted on the sup position, since found to be untenable and given up, that Brijlal was the real partner, and that they were advancing moneys to him on which he would have to pay interest, to them. I agree with plaintiffs' counsel that if Brijlal was the real partner, and 1st defendant firm only financed him for the purposes of the business, the on tries would not have been made in the way they have been made. At the same time there is some evidence to show that Brijlal attended to the business and signed cheques as a partner, and even filed a suit against the firm of Chimanram Motilal as such partner. He also stated that he was liable to pay interest to 1st defendant firm, but that he had not paid, as accounts were-not made up. If the matter had stood there, it would have been difficult to accept this explanation.
32. But there are books of the suit partner, ship, also written up and maintained by 1st defendant firm, and it is significant that in those books no interest is calculated either in the account of Chimanram Motilal or in the account of 1st defendants as partners of the suit partnership. The re-suiting position is therefore somewhat curious. In 1st defendants' own books interest is calculated for the reason suggested, whereas in the books of the suit partnership, also kept by 1st defendants interest is not calculated in the capital accounts, and I have not got any satisfactory explanation for the difference in the entries in the two sets of books. It is further significant that such an important agreement as the one now alleged should not have been recorded anywhere by the parties all these years. It is not even mentioned in the plaint. It was mentioned for the first time in the surcharges filed by the plaintiffs, and I allowed the plaintiffs an opportunity to prove the agreement, considering its importance to them, and in order that all the disputes between the parties may be adjudicated by the Court before the final decree. Taking the whole of the oral evidence and the documentary evidence, and reading it together, I am unable to hold that the onus which lay on the plaintiffs has been discharged, and therefore, in my opinion, the partners are not entitled to any interest on their capitals after the dissolution of the partnership.
33. The next question is, whether the plaintiffs are entitled to interest on their capital accounts before and up to dissolution, and, if so, out of what is the interest to be paid? The law on the subject was codified in England in the Partnership Act of 1890, and in India under the Indian Partnership Act of 1932. Counsel for 1st defendant firm relied on a statement of the law in (1867) 2 Ch 250.13 In that case there was a written agreement between the partners under which each of the two partners was to have interest at five per cent on the capitals, and the profits were after deduction of interest to be then equally divided between the partners. The partnership was dissolved and the joint trade between the partners thereupon came to an find. It was pointed out by Lord Chelmsford, L.C, at p. 253, that as the partner, ship articles were out of question, there was no longer an existing agreement for payment of interest upon the capital of the partners, and he adds: “Indeed, as I have already shown, there are no profits of the trade, in the proper meaning of those words, from which interest could be deducted.” There is no doubt that as far as capital is concerned, viz., the contribution which each partner makes for commencing or carrying on the partnership business, he has no right to sue to recover it, and he can only get back his capital on dissolution of the partnership out of any surplus assets that may remain over after payment of the liabilities. If he cannot recover his contribution until the liabilities are first paid off, he is equally not entitled to recover interest on that capital. He can recover such interest if there is either an express agreement between the partners, or there is an agreement which can be implied from the usage of their trade or from the practice of their firm. Under Section 24(4) of the English Partnership Act of 1890 a partner is not entitled before the ascertainment of profits to interest on the capital subscribed by him. This is subject to any agreement, express or implied, between the partners. The wording of Section 13(c) of the Indian Partnership Act, is somewhat different, for it is there provided that subject to contract between the partners where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits. This is a more explicit statement of the law, though neither the english act nor the indian act is applicable to the case before me. The principle, however, of the common law which is applicable is that any agreed interest on the capital brought in by a partner into the business is, unless the contrary is clearly expressed, a payment in lieu or on account of profits, and accordingly chargeable to profits only.
34. It is, therefore, necessary for the plaintiffs to prove in the first place that there was an express or implied agreement that interest was to be paid on the capitals before and up to dissolution. The plaintiffs' counsel relied on the evidence of Joharmal that he asked plaintiff 1 about payment of interest on the capital, and plaintiff 1 replied that interest would be paid by the firm at ten annas per cent per mensem. He argued that this amounted to an absolute and unqualified agreement to pay interest on the capital amounts irrespective of profit or loss. I do not agree with that contention. Counsel next argued that such an agreement would also be implied by reason of the fact that interest on the capital accounts of the two partners has been calculated up to the end of 1926, that is for about two months after the commencement of the suit partnership. That interest has been so charged is admitted, though the amount of interest charged in the account of the firm of Chimanram Motilal is for a much longer period than the interest calculated for 1st defendant firm. The interest calculated in the account of the firm of Chimanram Motilal begins with 1st January 1926, that is long before the commencement of the suit partnership, because the firm of Chimanram Motilal was also a partner in the old partnership. Those entries were, however, made at a time when there was no ascertainment of profit or loss in the suit partnership, and no evidence has been led to show why the entries were made. Plaintiffs' counsel further relied on the calculation of interest made by 1st defendant firm in their own books of account prior to dissolution; but I have already referred to this when dealing with Brijlal's explanation of the books. I cannot, therefore, spell out from the entries by themselves any implied agreement to pay interest in the capital accounts before dissolution.
35. It was next argued that 1st defendants were precluded from contending that the plaintiffs were not entitled to such interest by reason of certain statements made by their counsel before the learned Commissioner. On 25th February 1935, the Commissioner took a note that Mr. Munshi, counsel for 1st defendants, stated that parties were agreed that interest on capital account was to be calculated at seven and a half per cent and on the current account at four per cent. On 11th March 1935, there is a further statement made by Mr. Munshi, and taken down by the Commissioner as follows: “Up to date of dissolution we agree that interest should be on the basis of yearly rests.” This makes the earlier statement of 25th February clear that the seven and a half per cent was to be calculated with yearly rests; but the question is whether Mr. Munshi on behalf of 1st defendants agreed that interest was to be calculated at that rate, even though the suit partnership had resulted in a loss. No doubt the partners knew that the business had resulted in a, loss, and Brijlal Ramjidas has admitted it before the Commissioner. But in the absence of any clear note to that effect by the learned Commissioner I cannot take it that counsel meant that interest was to be calculated at that rate irrespective of loss, merely because it was known that the partnership had resulted in a loss. It appears from exception 7 that the Commissioner understood Mr. Munshi to mean that 1st defendants had agreed that the interest should be paid otherwise than out of the profits. The Commissioner has not taken any note of the argument on the subject, and in neither of his two judgments has he referred to this point, nor given any reason why he held that it was agreed that interest should be paid otherwise than out of profits. There being no express or implied agreement, as I have held, the parties must fall back upon the legal position that partners are not entitled to interest on the capital accounts even before dissolution unless there are profits.
36. The third and the last question is, whether the firm of Chimanram Motilal is entitled to interest on the sum of Rs. 50,000, and, if so, at what rate, and from what date. I have already dealt with this sum in my earlier judgment, and I have held that it was not a proper and legal payment by 1st defendant firm to the firm of Chimanram Motilal, and that the entries relating to this payment were made by collusion between defendant 2 and 1st defendant firm. It was argued on behalf of 1st defendants that they were not liable to pay interest on this amount, as there was no demand made by the firm of Chimanram Motilal for the same. It is, however, in evidence that a demand was made for payment of a sum of Rs. 60,000 to Rs. 65,000 as and when further sale proceeds of the mills had come in, but the amount was to be paid later when the sale was completed. There was a demand, but in my opinion payment was made, in the manner in which it was made by collusion. The 1st defendants are, therefore, liable to pay interest on that sum by reason of their collusive or fraudulent dealing with it. It is a sum which, in my opinion, was falsely kept back by 1st defendants from the firm of Chimanram Motilal. I do not think that it is a case in which the principle laid down in 57 IA 24514 applies, viz., that until the accounts are taken it is impossible to say what, if anything, is due from, one partner to his co-partners. The question is not one of taking of accounts, bub of wrongfully withholding payment of a particular sum of the use of which the firm of Chimanram Motilal has been deprived. They were deprived according to me from the date when the ‘havala’ entries were made, and I direct that in making up the accounts the 1st defendant firm should account to the firm of Chimanram Motilal for this sum with simple interest at six per cent per annum from 24th June 1929, till judgment with further interest at six per cent per annum till payment.
37. The Commissioner's report will therefore have to be varied and the figures worked out on the basis of my findings on these exceptions, viz., on the basis that 1st defendants are liable to account for the sum of Rs. 50,000 with interest as aforesaid, but that no interest is to be calculated on the capital accounts of the partners from and after 1st January 1927, until dissolution and also after dissolution. The exceptions will be put down for further hearing and for argument of costs on Friday next, 13th December 1935.
38. 11th March 1936:— In the second part of my judgment on the hearing of these exceptions delivered on 10th December 1935, I held that in making up the final accounts 1st defendant firm, should account for the sum of Rs. 50,000 to the firm of Chimanram Motilal with simple interest, and that the Commissioner's report would have to be varied on the basis of my findings on the exceptions. The exceptions were ordered to be put down for further hearing and for argument of costs before me, and they have come up for hearing to-day. The first question that was argued was whether the sum of Rs. 50,000 and the interest thereon were to be paid to the suit partnership consisting of the firm of Chimanram Motilal and 1st defendant firm of Sarupchand Prithiraj, or whether they were to be paid to the firm of Chimanram Motilal. According to my judgment both the sum and the interest are to be paid to the firm of Chimanram Motilal. Counsel for the plaintiffs stated that interest on Rs. 50,000 calculated from 24th June 1929, till 10th February 1936, worked out at Rs. 19,900, but the exact figure of interest up to date is to be mentioned later. It appears from the report of the Commissioner, dated 14th March 1935, that on that date a sum of Rs. 18,500 belonging to the suit partner, ship was in the hands of their attorneys Messrs. Mulla & Mulla. That amount, I understand, has been invested, and the exact amount in their hands with the interest accrued due thereon is also to be mentioned later. The original figures mentioned in the Commissioner's report will have to be varied accordingly.
39. The only remaining question is one of costs on which I have heard counsel. The costs are to be dealt with under different heads, viz., (a) the general costs of the action before the decretal order of reference; (b) the costs of defendants 2, 3 and 4 of the issue tried before Rangnekar, J., viz., whether 1st defendants were a partner in the suit partnership or only Brijlal Ramjidas as alleged by 1st defendants; (c) the costs of the reference before the Commissioner; and (d) the costs of the hearing of the exceptions in Court. With regard to the general costs of the action the costs of all parties must come out of the partnership assets, as all the partners were entitled to appear on the originating summons. The costs of the issue tried by Rangnekar, J., so far as the plaintiffs and 1st defendant firm are concerned, have already been dealt with by the learned Judge who found the issue against 1st defendants. The costs of defendants 2, 3 and 4 have been reserved, and I will deal with the same later. With regard to the costs of the reference there is no doubt that the time before the Commissioner was almost entirely occupied by consideration of the question whether the payment of Rs. 50,000 by 1st defendant firm to defendant 2 was proper. There was some argument before the Commissioner as to the admission made by Mr. Munshi, counsel for 1st defendants, with regard to the payment of interest on capitals after dissolution. But, as I have said before, the entire hearing before the Commissioner related to the question of the payment of Rs. 50,000, evidence was laid on both sides, and the matter was decided by the Commissioner in favour of the plaintiffs. I have also decided the same question on the hearing of these exceptions in favour of the plaintiffs, and I therefore direct 1st defendants to pay all the plaintiffs' costs of the reference before the Commissioner.
40. With regard to the costs of the exceptions there is a certain amount of difficulty because there are various exceptions filed on behalf of the plaintiffs and also on behalf of 1st defendants, and my findings have not been entirely for the one side or the other. I have held on the first six exceptions filed by 1st defendants that the payment of Rs. 50,000 was wrongful and that those exceptions must be dismissed. With regard to exceptions 7 and 8, 1st defendants have substantially succeeded, except that I have allowed interest on the capitals up to 1st January 1927, as appearing in the books of account. The question relating to the payment of Rs. 50,000 was contested at great length before me, and on my finding in favour of the plaintiffs I direct 1st defendants to pay seven-eighths of the plaintiffs' costs of the hearing of those exceptions. With regard to the remaining one-eighth of those costs I make no order. With regard to the exceptions filed on behalf of the plaintiffs I have held that exceptions 3 to 9 should be dismissed. I have also held on exceptions 1 and 2 against them. As to exceptions 12, 13 and 14 which go along with exception 12, the firm of Chimanram Motilal are entitled to interest on the sum of Rupees 50,000 as stated before. Exceptions 15 and 16 must be dismissed. With regard to exceptions 10 and 11 filed on behalf of the plaintiffs, I allowed the plaintiffs to prove the agreement alleged by them. A considerable amount of evidence was led on the question of this agreement, and I held that the onus had not been discharged by the plaintiffs and that they had failed to prove the agreement. I therefore direct the plaintiffs to pay three-fourths of 1st defendants' costs of the hearing of the plaintiffs' exceptions excluding exceptions 10 and 11. I make no order as to the remaining one-fourth costs of those exceptions. As to the costs of exceptions 10 and 11 and the costs of the issue as to the alleged agreement, the plaintiffs must pay 1st defendants' costs. The two sets of costs, viz., the costs of the reference and seven-eighths costs of hearing of 1st defendants' exceptions which have been ordered to be paid to the plaintiffs will be set-off against the three-fourths costs of the hearing of the plaintiffs' exceptions and the costs of the hearing of exceptions 10 and 11 and the issue as to agreement which have been ordered to be paid by the plaintiffs to 1st defendants.
41. I will now deal with the costs of defendants 2, 3 and 4. I have already held that they are entitled to the general costs of the action. With regard to their costs of the hearing of the issue before Rangnekar, J., which have been reserved, it was pointed out to the Court that they took no part at the hearing and did not support the plaintiffs in their contention that it was 1st defendants and not Brijlal Ramjidas who were the partners in the suit partnership. At the same time plaintiffs' counsel has not been able to show that defendants 2, 3 and 4 took up an obstructive attitude towards the plaintiffs or helped 1st defendants. The issue was between the firm of Chimanram Motilal on the one hand and 1st defendant firm on the other, and defendants 2, 3 and 4 as partners of Motilal Chimanram were entitled to appear at the hearing on that issue. It does not matter if they did not take an active part at the hearing. I order that their costs of the issue which were reserved by Rangnekar, J., should also come out of the general assets of the suit partnership. Defendants 2, 3 and 4 were parties to the order of reference and were, therefore, entitled to appear before the Commissioner. I have already stated that almost the entire time of the Commissioner was taken up with the question of the payment of Rs. 50,000, and on that question defendants 2, 3 and 4 supported 1st defendants both before the Commissioner and also on the hearing of the exceptions before me. I order that defendants 2, 3 and 4 should only get their general costs of the reference; they must bear the rest of their costs of the hearing before the Commissioner themselves and also the costs of the hearing of the exceptions in Court. Exception 17 must be dismissed; I make no order as to the costs of that exception. The costs of all the parties of this hearing on costs and for further directions will come out of the general assets of the suit partnership to be mentioned again for further directions on the Report.
42. March, 26:— On the figures being mentioned to the Court’ and a typed copy showing the calculations handed in, there will be a decree in favour of the firm of Messrs. Chimanram Motilal which consisted of the two plaintiffs and defendants 2, 3 and 4 for Rs. 98,976-1-6, to be recovered as follows: 1st defendants to pay to the firm of Messrs Chimanram Motilal Rs. 75,750-13-6, interest to run thereon at six per cent per annum from this date till payment. The firm of Messrs Chimanram Motilal are hereby authorised to recover Rs. 23,225-4-0, being the net sale proceeds of the securities in the hands of Messrs. Mulla & Mulla, solicitors, after deduction of their costs, and to appropriate the sum in part payment of the decretal amount of Rs. 98,976-1-6, 1st defendants to pay 3/8tbs, plaintiffs to pay 25/64ths and defendants 2, 3 and 4 to pay 15/64ths of such costs of the suit and of the reference as were ordered to be paid out of the partnership assets on 11th March 1936, including the costs of to-day's appearance and hearing, and also the costs, in the same proportions, of the reference to the arbitration of Mr. V.P Taraporewala, Bar-at-law, which proved abortive. Liberty to apply.
P.R/R.K
43. Order accordingly.
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