Citation Codes

Equivalent Citations

citation codes

Case Number

Attorney(S)

Douglas Grant
E. Dalgado
Raikes
De Gruyther
Kenworthy Brown

Judges

Sir Lawrence Jenkins
Ameer Ali
Carson
Atkinson
Justice Buckmaster

Acts

Provincial Insolvency Act, 1907,
Insolvency Act, S. 16),

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Smart Summary

Concise Legal Summary of the Opinion

Factual and Procedural Background

These are consolidated appeals from two decrees of the High Court of Judicature at Fort William in Bengal, both dated 31 January 1919, which had reversed decrees of the Subordinate Judge of the 24th Parganahs (the Subordinate Judge's decrees are described in the opinion as dated 23rd February 1916). Each suit sought a money decree against the present appellant who was a minor when the suits were instituted.

One suit relied on a hand note signed by the minor's three adult brothers; the other on a hath chitta signed by his four adult brothers (the youngest of whom had attained majority). The plaint alleged that the defendant and his brothers were owners and partners in ancestral businesses and that the money sued for was borrowed by the brothers for those businesses. The minor was defended by his guardian for the suit.

Background on the family and businesses: the defendant and his four brothers were sons of Bhuban Mohan Mandal (a Hindu governed by the Dayabhaga School). On Bhuban Mohan's death (November 1899), two younger sons were minors; Nil Ratan, the eldest and Karta, was appointed guardian under Act VIII of 1890. Bhuban Mohan had two ancestral businesses (fuel wood at Munshigunj and rice at Kalibazar) devolving on the five sons and carried on by Nil Ratan. After the father's death, Nil Ratan started a new rice business at Orphangunj, and the defendant contended that the sums sued for were borrowed exclusively for that Orphangunj business and that that business was not ancestral.

Procedural history includes insolvency proceedings under the Provincial Insolvency Act, 1907, commenced 19 February 1912 by a creditor against all five brothers. The District Judge found the defendant was a minor and could not be adjudicated insolvent; adjudication was entered against the adult brothers. A Receiver was appointed under Section 18(1), and the Receiver was ordered to realise shares in joint property. As a result of Nil Ratan's insolvency he was removed as guardian and Mati Lal Roy appointed.

Arbitration and award: with the Judge's sanction, an arbitrator partitioned immoveable properties (award 8 October 1912), giving the minor one-fifth of ancestral and after-acquired properties; a decree in terms of the award was passed 14 January 1912. Cross-appeals in the insolvency matter were heard by the High Court on 17 March 1914: the refusal to adjudicate the minor an insolvent was affirmed, but the direction that the Receiver should realise the minor's share was set aside and replaced by an order that the Receiver should take possession of four-fifths shares of various properties.

The present suits were commenced because the dividend in insolvency to the plaintiffs fell short of the claimed amounts. The Subordinate Judge dismissed the suits in favour of the defendant. The High Court initially agreed but, after re-argument, set aside the Subordinate Judge's decrees and directed certain accounts to determine liability; those High Court decrees are the subject of the present appeals. A preliminary objection that the appeals did not lie because the order was not final was raised but overruled, and the appeals were heard.

Legal Issues Presented

Whether the defendant (a minor at the institution of the suits) was liable for debts said to have been borrowed for the Orphangunj business that was started after the ancestor's death (i.e., whether the Orphangunj business was ancestral or an extension of ancestral business such that a minor co-parcener could be held liable).
Whether, under Section 247 of the Contract Act, a minor had been "admitted to the benefits of partnership," and if so, whether liability could be enforced only to the extent of the minor's share in the firm's property.
Whether individual creditors (the plaintiffs) could maintain suits against the defendant to recover sums alleged to be due when the Receiver (appointed in insolvency) was the statutory holder of the firm's property and any right to recover firm property in the minor's possession.
Whether the Receiver was a necessary party to proceedings aimed at realising assets liable for the firm's debts and securing rateable distribution among the firm's creditors.

Arguments of the Parties

Plaintiffs' Arguments

The plaintiffs alleged that the defendant and his brothers were owners and partners in ancestral businesses and that the money sued for had been borrowed by the brothers for the purposes of those businesses.
Before the Subordinate Judge the plaintiffs appeared to rely on general principles of family ownership and partnership rather than specific provisions of the Contract Act. They argued that because the brothers lived as members of an undivided Hindu family and properties were acquired with joint funds, the defendant should be decreed liable at least to the extent of assets allotted to him on partition with the Receiver.
In the High Court, reliance was placed on provisions of the Contract Act (notably S.247) to establish liability by reason of admission of the minor to the benefits of partnership.
The plaintiffs argued (or at least contended implicitly) that, in consequence of prior insolvency proceedings, individual creditors could pursue recovery directly rather than the Receiver doing so; they ultimately declined an offer to add the Receiver as a party because they sought to recover for their own exclusive benefit.

Defendant's (and Guardian's) Arguments

The defendant (through his guardian while a minor and later by adoption when he attained majority) denied that he was a co-sharer in the Orphangunj business or had any responsibility with regard to it; this denial was included in written statements filed in each suit and later adopted on attaining majority.
The defendant’s case relied on the finding (concurrently made by lower courts) that the Orphangunj business was not ancestral and that the money sued for was borrowed exclusively for that non-ancestral business, cutting across plaintiffs' claim of liability arising by operation of law from ancestral succession.
The defendant did not dispute that any firm property in his possession could be recovered by the Receiver; he contested the plaintiffs' right to sue individually for exclusive recovery without making the Receiver a party.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Mohori Bibee v. Dhurmodas Ghase (1903) 30 Cal 539; 30 IA 114; 5 Bom LR 421; 7 CWN 441; 8 Sar 374 (Privy Council)	Establishes that a person under the age of majority cannot become a partner by contract (implicating the definition of "firm" and the nature of a minor's rights under partnership law).	The court used the precedent to interpret Section 247 of the Contract Act: since a minor cannot be a partner by contract and thus cannot be one of the persons making up a "firm," the minor's "share" under S.247 is no more than a right to participate in firm property after obligations are satisfied; it supported the conclusion that the defendant had not become a contractual partner.

Court's Reasoning and Analysis

The court's analysis proceeds from established factual findings and statutory interpretation grounded in the record:

Factual findings by the lower courts — accepted as conclusive — established that (a) the money sued for was borrowed exclusively for the Orphangunj business, and (b) that Orphangunj business was neither ancestral nor an extension of the ancestral business. The court observed that this distinction decisively undermined the plaintiffs' primary contention that liability arose by operation of law from succession to an ancestral business.
The court considered whether other bases of liability remained. It examined the Contract Act, notably Section 247 (which permits a minor to be admitted to the benefits of partnership but bars personal liability except to the extent of the minor’s share in firm property) and Section 239 (definition of "firm" and "partnership"). It observed that under the law a minor cannot be a partner by contract (relying on Mohori Bibee). Thus, the "share" mentioned in S.247 is limited and does not equate to full contractual partnership liability.
Application of S.247 required proof that the minor had been admitted to the benefits of partnership. That was a factual matter for evidence. The High Court had held admission proved on appeal, despite the point not being pleaded nor evidence being specifically directed to it; the present court noted that this set up a new case in appeal without affording appropriate evidentiary process and that the defendant had legitimate complaint about this procedure. Nevertheless, the court proceeded to consider the case on the basis of the High Court's finding without expressing an opinion on its correctness.
Even assuming admission to partnership benefits, the defendant had consistently denied membership in written statements (filed during his minority by his guardian and later adopted by him on majority), which the court treated as a relinquishment of any claim to a share in the firm's property. The court emphasized that if any firm property improperly came into the minor's possession, the Receiver (appointed in insolvency and vested with the property under the Provincial Insolvency Act, S.16 and S.18(1)) was the proper person to recover it.
The court analyzed the effect of prior insolvency proceedings and the High Court's judgment therein. It rejected the High Court's apparent view that the insolvency judgment barred recovery only by the Receiver and allowed individual creditor suits; the court explained that while no property of the minor could vest in the Receiver by adjudication, what could vest was the Receiver's right to recover property of the firm improperly in the minor's possession. The prior insolvency judgment did not confer on individual creditors the right to pursue exclusive recoveries.
The plaintiffs had been given an opportunity to add the Receiver as a party to avoid limitation objections but declined, because they sought recovery for their exclusive benefit. The court noted that the absence of the Receiver had been pleaded and an issue framed on that point, so it was not a new objection.
The court concluded that as constituted the suits were misconceived: the Receiver was a necessary party when proceedings aimed at realising assets liable for firm debts were in question, and any proceeds recovered should be applied rateably among all the firm's creditors rather than for the exclusive benefit of individual plaintiffs.

Holding and Implications

APPEALS ALLOWED.

Holding (direct effect): Their Lordships advised that the appeals be allowed; the decrees of the High Court dated 31 January 1919 are to be discharged; the decrees of the Subordinate Judge (the opinion refers to restoration of decrees dated 28 February 1916) are to be restored; the respondents in each appeal must pay to the appellant the costs of the appeals in the High Court and must also pay the costs of these appeals. The opinion concludes with "Appeal allowed."

Implications: The direct consequence is that the Subordinate Judge's dismissals in favour of the defendant are restored and the plaintiffs' attempts to recover individually (without making the Receiver a party) fail. The court treated the Receiver as a necessary party for proceedings to realise assets liable for firm debts, with any realised proceeds to be distributed rateably among the firm's creditors. The opinion does not purport to lay down a broader new precedent beyond applying established principles (including the proprietary observation that a minor cannot be a contractual partner and the necessity of the Receiver in insolvency-realisation proceedings), and no broader implications beyond the immediate consequences to the parties are discussed in the text.

Note: This summary is based exclusively on the content of the provided opinion and does not add, infer, or import information not contained in that text.

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Sanyasi Charan Mandal v. Krishnadhan Banerji And Others

These are consolidated appeals from two decrees of the High Court of Judicature at Fort William in Bengal, passed in separate suits on the 31st January, 1919, reversing two decrees of the Subordinate Judge of the 24th Parganahs, dated the 23th February, 1916.

In each suit a money-decree was sought against the present appellant, who was a minor at its institution. One suit was brought on a hand note signed by the minor's three adult brothers; the other on a hath chitta signed by his four adult brothers, the youngest of them having then attained majority.

The ground of liability stated in the plaint is that the defendant and his, brothers are owners and partners in ancestral businesses, and the money claimed was borrowed by the brothers for the purposes of the businesses.

The minor defended in each case by his guardian for the suit.

The defendant and his brothers ware the five sons of Bhuban Mohan Mandal, a Hindu governed by the Dayabhaga School of Law. He died in November, 1899, and at that time his two younger sons were minors. Nil Ratan, the eldest brother and the Karta of the family, was appointed their guardian under Act VIII of 1890.

Bhuban Mohan had two businesses, one for fuel wood at Munshigunj, and the other for rice and other articles at Kalibazar. Each devolved as an ancestral business on the five sons, and was carried on by Nil Ratan as the Karta, assisted by his adult brothers. After the father's death a new business in rice was started by Nil Ratan at Orphangunj, and it is the defendant's case that the money sued for was borrowed exclusively for the purpose of this business, and that the business was not ancestral.

The Subordinate Judge decided in the defendant's favour and dismissed the suits. The High Court on appeal apparently took the same view in the first instance, but as the result of a re-argument, set aside the Subordinate Judge's decrees and directed certain accounts against the defendant not because his liability was established but for the purpose of determining whether or not he was liable. It is from these decrees of the High Court that the present appeals have been preferred.

A preliminary objection was taken that the appeals did not lie " because the order was not final," but their Lordships did not give effect to it and the appeals have been heard.

The businesses were conducted by Nil Ratan and his adult brothers for many years with success. Ultimately, however, there were financial difficulties, and on the 19th February, 1912, proceedings under the Provincial Insolvency Act, 1907, were commenced by a creditor against all five brothers in the Court of the District Judge at Alipur.

It was established to the satisfaction of the Judge that the defendant was a minor and so could not be adjudicated insolvent, and that the minor was a joint owner in the family business inherited from his father. There was, however, an adjudi-

cation against the adult brothers, " they being the members of the firm Bhuban Mohan Mandal and Nil Ratan Mandal."

A Receiver was appointed under Section 18 (1) of the Act, and the property of the insolvents thereupon vested in him. He was ordered to realise not only the four-fifths share of the insolvents in the joint property, but also the minor's share in the joint properties acquired after the father's death. As a result of his insolvency, Nil Ratan was removed from the guardianship of the minor, and Mati Lal Roy was appointed in his place.

On the 19th August, 1912, with the sanction of the Judge, Mati Lal Roy and the Receiver agreed to appoint an arbitrator to effect a partition of the immoveable properties, and on the 8th October, 1912, an award was made under which the minor got one-fifth in both ancestral and after-acquired properties, Mati Lal Roy having claimed that the after-acquired properties were purchased out of the income of the ancestral properties. On the 14th January, 1912, a decree was passed in terms of the award.

In the meanwhile cross-appeals had been preferred by Mati Lal Roy and the Creditors from the orders of the Judge in Insolvency, and on the 17th March, 1914, they were heard by the High Court with the result that the order refusing to adjudicate the minor an insolvent was affirmed, but so much of the order as directed the Receiver to realise the minor's share was set aside, and in lieu thereof it was ordered that the Receiver should

" take possession of four-fifths share of the business, and four-fifths share of all the properties purchased since the death of Bhuban Mohan Mandal, and also four-fifths share of the other properties jointly held by the infant and his brothers."

It is in these circumstances that the present suits were commenced, as the dividend received by the plaintiffs in this insolvency fell short of the amount due.

It is established by concurrent findings by the Lower Courts, first, that the money now in suit was borrowed exclusively for the purpose of the Orphangunj business, and, secondly, that this business was neither ancestral nor an extension of the ancestral business. These findings must now be deemed conclusive, and this strikes at the very root of the case 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 Karta to impose on a minor co-parcener the risks and liabilities on 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 this point, do not deem it necessary to enter on a further discussion of this aspect of the case.

What has to be seen in the peculiar circumstances of this dispute is not merely whether the minor has come under any liability in respect of the debts of the Orphanganj business, but whether that liability can be enforced by the plaintiffs in the suits as constituted.

It is important at this point to bear in mind (a) that at the institution of the suits the defendant was a minor; (b) that in the written statement filed in each suit on his behalf by his guardian for the suit, it was denied that he was a co-sharer in the business, or had any responsibility with regard to it; (c) that when at a later stage of the litigation the minor attained majority, he adopted these written statements ; and (d) that at the time the business of the firm had ceased.

The ancestral character of the Orphanganj business being negatived, the plaintiffs have attempted to formulate other grounds of liability. Before the Subordinate Judge the claim seems to have been rested on general principles rather than on the specific provisions of the Contract Act. Thus in the grounds of appeal it is contended that the defendant and his four brothers having all along lived as members 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 firms allotted to his share are concerned.

The answer to the case thus mala 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. In the High Court, however, reliance was evidently placed on the Contract Act, for its provisions are mentioned and discussed. It becomes necessary, therefore, to examine the Act so far as it bears on the question now in contest. Section 247 provides that a person, who is under the age of majority according to the law to which he is subject, may be admitted to the benefits of partnership but cannot be made personally liable for any obligation of the firm; but the share of such minor in the property of the firm is liable for the obligations of the firm.

To bring this section into play it must be proved that the minor has been admitted to the benefits of the partnership. 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 commendad; still in the view their Lordships take, they will deal with the case on the basis of the High Court's finding without expressing an opinion as to its correctness. Under the section, liability is limited to the share of the minor in the property of the firm.

In S. 239 there is a definition of the word "firm." It is there said that persons who have entered into partnership with one another are called collectively a " firm." In the earlier part of the section it is enacted that " partnership" is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business and to share the profits thereof between them.

A person under the age of majority cannot become a partner by contract, Mohori Bibee v. Dhurmodas Ghase (1903) 30 Cal 539 : 30 IA 114 : 5 Bom LR 421 : 7 CWN 441 : 8 Sar 374 (PC) and so according to the definition he cannot be one of that group of persons called a " firm." It would seem, therefore, that the share of which Section 247 speaks is no more than a right to participate in the property of the firm after its obligations have been satisfied.

Though there may be this right, in fact it is not claimed by the defendant. On the contrary, the written statements deny his membership of the partnership; this denial was made on his behalf during his minority, and it was adopted by him when he attained his majority. This attitude he still maintains, and it can only be regarded as a relinquishment of all claim to a share in the property of the firm. It is still the property of the firm and is liable as such to the obligations of the firm.

But all the property of the firm vested in the Receiver on the making of the order of adjudication (Provincial Insolvency Act, S. 16), and if any part of it has got improperly into the possession of the minor, the right to recover it is in the Receiver. This is not disputed by the defendant; and it is only by its coming into the hands of the Receiver that its rateable distribution among the general body of creditors can be secured. Nor does it make any difference that the business was conducted by the male adult members of a Hindu family governed by the Dayabhaga; the rights and liabilities of a minor member of such a family would be measured by similar principles for the purpose now under consideration.

The learned Judges in the High Court seem to have thought that the judgment on appeal in the insolvency proceedings put a bar in the way of a recovery by the Receiver, and so justified the plaintiffs' suits; but this proceeds on a misconception of what was actually decided.

It is quite true that in that judgment it was said that "the essence of the matter is that the share of the infant has not vested in him and he is consequently not entitled to deal with it......But whatever remedies may be available hereafter to the Receiver or to the Creditor, it is clear that the properties of the infant cannot be dealt with by either of them in these proceedings." This was a correct statement of the legal position; but it in no way justifies the conclusion in the judgment now under appeal that in consequence of it " the defendant cannot now contend that it is only the Receiver (and not any individual creditor) who can deal with his share of the partnership properties." No property belonging to the minor could vest by the adjudication in the Receiver, but what would vest in him would be the right (if it existed) to recover from the minor property in his possession belonging to the firm.

It was then urged that any suit now instituted by the Receiver would be barred by limitation; but when Counsel for the plaintiffs was asked whether to obviate this, he was prepared to add the Receiver as a party, so that any assets realised could come into his hands for rateable distribution, he declined the offer, and frankly admitted that it would be of no use to his clients unless they could recover for their own exclusive benefit.

The absence of the Receiver from the suits is not an objection taken for the first time at this stage of the litigation. It was pleaded as a defect in the written statement, and an issue was framed on the point.

The plaintiffs do not now contend that the defendant has become personally liable, and so it is unnecessary to discuss the terms of S. 248.

In their Lordships' opinion, therefore, these suits constituted as they are, as misconceived. In the circumstances the Receiver is a necessary party to any proceeding for the purpose of realising assets liable for the firm's debts, and the proceeds of any realisation would be applicable not towards the exclusive discharge of any individual debt as the plaintiffs desire but for rateable distribution among the whole body of the firm's creditors.

Their Lordships will, therefore, humbly advise His Majesty that the appeals be allowed, and that in each suit the decrees of the High Court dated the 31st January, 1919, be discharged, and the decrees of the Subordinate Judge, dated the 28th February, 1916, be restored, and that the respondents to each appeal do pay to the appellant the costs of the appeals in the High Court. They will also pay the costs of these appeals.

Appeal allowed.

Sanyasi Charan Mandal v. Krishnadhan Banerji And Others

Concise Legal Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Plaintiffs' Arguments

Defendant's (and Guardian's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Sanyasi Charan Mandal v. Krishnadhan Banerji And Others

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