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  • 314 : 106 E. R. 1147, of Section 253 of the Indian Contrast Act,
  • Article 106 of the Schedule to the Indian Limitation Act.
  • Clause 25 M. 143 at p. 164 : 11 M. L. J. 353, of Section 853
  • Section 217 of the Indian Contract Act
  • 314 : 106 E. R. 1147, of Section 203
  • 42 C. 225, of Section 253.
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Cites
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Judges
Acts
  • 314 : 106 E. R. 1147, of Section 253 of the Indian Contrast Act,
  • Article 106 of the Schedule to the Indian Limitation Act.
  • Clause 25 M. 143 at p. 164 : 11 M. L. J. 353, of Section 853
  • Section 217 of the Indian Contract Act
  • 314 : 106 E. R. 1147, of Section 203
  • 42 C. 225, of Section 253.
Smart Summary

Structured Summary of the Opinion — Partnership Dissolution Appeal

Factual and Procedural Background

The plaintiff-respondent sued for dissolution of a partnership, winding up of its business, for taking accounts and for incidental reliefs. The partnership comprised two classes of partners: "capitalist" partners (including the plaintiff, the first defendant and the fathers of the second and third defendants) who supplied capital and shared profits and losses; and "Gomasta" partners (six other defendants) who received specified shares of profits as remuneration for labour and had no concern with losses. The first defendant acted as managing partner; the business dealt in rice, jute and other articles and included money-lending. The firm began in 185 JA (as stated in the opinion) and the plaintiff alleged mismanagement rendering continued profitable operation impossible, hence sought dissolution, winding up and accounts.

The defendants resisted on various grounds, principally that the suit was barred by limitation because the partnership had been dissolved earlier. The Subordinate Judge overruled the defendants' contentions and made a preliminary decree. The defendants (appellants) appealed to this Court on three principal grounds: (1) the suit is barred by limitation; (2) no personal liability can be imposed on infant representatives of one of the original partners; and (3) no decree should have been made at this stage permitting the plaintiff to recover contributed capital prior to accounting.

Legal Issues Presented

  1. Whether the suit is barred by limitation under Article 106 of the Schedule to the Indian Limitation Act on the ground that the partnership had been dissolved prior to institution of the suit.
  2. Whether personal liability can be imposed upon the infant representatives (minor partners) of Janaki Nath Poddar for obligations of the firm.
  3. Whether a decree entitling the plaintiff to recover the capital contributed (before the accounts are taken) should have been made at this stage.

Arguments of the Parties

Appellants' (Defendants') Arguments

  • The suit is time-barred under Article 106 (or Article 105 depending on the asserted date of dissolution) of the Limitation Act because the partnership had been dissolved before the suit was filed.
  • The partnership was said to have been dissolved on three alternative bases:
    • By the death of one of the original partners (the father of the second and third defendants) in February or March 1909, invoking the rule that death dissolves a partnership (subject to contract to the contrary).
    • By the retirement of one of the Gomasta partners around 1906, invoking the provision that if a partner ceases to be a member the partnership dissolves (subject to contract to the contrary).
    • By stoppage of business and refusal of partners to advance further capital, which they argued amounted to dissolution.
  • No personal liability could be imposed on the infant representatives (sons) of the deceased original partner; liability, if any, should be limited to inherited assets or as governed by law concerning minors.
  • The Subordinate Judge should not have made an order entitling the plaintiff to recover capital prior to the taking of accounts.

Respondent's (Plaintiff's) Case / Contentions (as presented in the opinion)

  • The partnership continued in existence and was not dissolved by death, retirement of Gomasta partners, stoppage of business, or refusal to advance capital; therefore the suit for dissolution and accounts is maintainable.
  • The business had been mismanaged and in its present condition could not be profitably carried on—thus dissolution and winding up were necessary.
  • The plaintiff sought relief including a declaration to recover capital contributed and a proper adjustment of accounts; the Subordinate Judge had found facts (including withdrawals by first defendant and conduct described as treacherous) supporting an immediate declaration on capital.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Foster v. Hodgson (1812) 10 Ves. 180 at 183 : 34 E.R. 485 Limitation cannot apply between partners while the partnership continues; the Article applies only to a dissolved partnership. Used to support the proposition that Article 106 of the Limitation Act applies only after dissolution; thus limitation could not bar a suit while partnership was continuing.
Noyes v. Crawley (1878) 10 Ch. D. 31 : 48 L.J. Ch. 112 : 39 L.T. 267 : 27 W.R. 109 Distinction that limitation rules apply differently after termination/discontinuance of partnership. Cited to show that the limitation provision takes effect only after partnership termination, supporting rejection of limitation defence where partnership continued.
Knox v. Gye (1872) 5 H.L. 656 at p. 674 : 42 L.J. Ch. 234 Authority on the effect of termination on partners' rights and limitation. Reinforced the principle that limitation does not run while partnership continues; relied on in assessing defendants' limitation plea.
Gokul Krishna Das v. Shashi Mukhi Dasi 13 Ind. Cas. 23 : 16 C.W.N. 299 : 16 C.L.J. 204 Partnership agreements may provide that on death a nominee or legal representative takes the deceased partner's place; such agreement may be shown by express declaration or inferred from conduct. Applied to conclude that acceptance of the deceased partner's sons by other members and their conduct (contributing capital and withdrawing money) showed the partnership continued despite the death.
Raghumull v. Luchmondas 38 Ind. Cas. 278 : 20 C.W.N. 708 Related application of Gokul Krishna Das; concerned succession to partnership on death. Noted as applying the principle that nominees or representatives may continue the partnership; cited in support of the finding that the firm continued after the partner's death.
Goode v. Harrison (1821) 5 B. & Ald. 147 at p. 157 : 24 R.R. 307 at p. 314 : 106 E.R. 1147 English authority that death dissolves a partnership, subject to any contract to the contrary. Referenced as the English position contrasted with the Indian provisions; the Court observed that Indian law (and the parties' conduct) allowed representatives to be treated as continuing partners where there was agreement or conduct to that effect.
Sudarsanam Maistri v. Narasimhulu Maistri 25 M. 143 at p. 164 : 11 M.L.J. 353 Authority addressing when cessation of a member leads to dissolution and the inference of agreement to the contrary. Applied for the proposition that retirement of a Gomasta (an officer-like partner) need not dissolve the firm where conduct shows continuation, and the Gomastas were essentially officers remunerated by profit shares.
Moung The Ruyin v. Mah Thein Myah 27 I.A. 189 : 28 C. 53 : 5 C.W.N. 114 : 7 Sar. P.C.J. 776 (P.C.) On the question of abandonment by a partner — whether refusal to advance capital or stoppage of business constituted abandonment is a question of inference from facts of each case. Cited in support of the conclusion that refusal to supply capital or partial stoppage did not necessarily amount to dissolution; the Court found no evidence of intention to retire or abandon.
Sanyasi Charan Mandal v. Asutosh Ghosh 26 Ind. Cas. 836 : 42 C. 225 Statutory/authoritative statement that a minor admitted to the benefits of a partnership cannot be made personally liable for firm obligations; only the minor's share in firm property is liable. Relied on to hold that infant representatives could not be made personally liable for firm obligations at the time they were minors; the Court applied it to delineate liabilities depending on stages of minority and attainment of majority.
Khetra Mohan Poddar v. Aswini Kumar Saha 45 Ind. Cas. 667 : 22 C.W.N. 438 Authority concerning liability of minor partners and related principles. Used to support the statutory position that minors admitted to benefits are not personally liable; applied in determining the appellants' liabilities according to minority status.

Court's Reasoning and Analysis

The Court addressed each of the three principal grounds of appeal in turn, applying statutory provisions and the facts found by the Subordinate Judge.

1. Limitation (First Ground)

- The appellants relied on Article 106 of the Schedule to the Indian Limitation Act (a suit for an account and share of profits of a dissolved partnership must be instituted within three years of dissolution). The Court emphasized that the Article applies only to a dissolved partnership because limitation does not run between partners so long as the partnership continues.

- The appellants advanced three specific contentions to prove dissolution prior to suit:

  1. That death of an original partner (father of second and third defendants in Feb/Mar 1909) dissolved the partnership. The Court recognized the general rule that death dissolves a partnership but stressed the qualification "in the absence of any contract to the contrary." It relied on the Subordinate Judge's factual finding that the deceased partner's sons stepped into his place, were accepted by other members as partners, contributed capital and made withdrawals; one son admitted (in evidence) they became maliks of the firm. On these facts the Court concluded that the partnership did not dissolve on the father's death.
  2. That the retirement of a Gomasta partner in 1906 dissolved the partnership. The Court observed that Gomastas were essentially officers remunerated by profit shares without concern for losses; it was reasonable to infer the parties did not intend retirement of such persons to dissolve the firm. The Subordinate Judge's findings of continuation of the firm supported rejecting this contention.
  3. That stoppage of business and refusal to advance capital constituted dissolution. The Court held neither stoppage in some departments nor a partner's refusal to advance funds necessarily dissolves the partnership; the Subordinate Judge found parts of the business continued into the months prior to suit and money-lending arrangements that continued. Refusal to supply capital is not conclusive of intention to retire. On the whole, there was no evidence of abandonment.

- Conclusion: the partnership was not dissolved prior to institution of the suit; therefore Article 106 did not bar the suit. The Court also noted that if Article 120 were applicable, the suit would still not be barred because the right to sue for dissolution of a continuing partnership exists so long as the partnership continues.

2. Liability of Infant Representatives (Second Ground)

- The Court applied Section 217 of the Indian Contract Act: a person under majority may be admitted to the benefits of a partnership but cannot be made personally liable for firm obligations; only the minor's share in firm property is liable to satisfy obligations.

- The Court outlined the temporal dimensions of liability for the appellants (sons of Janaki Nath Poddar):

  • Liability of the deceased partner at the time of his death: the appellants (as his sons) can be made liable only to the extent of assets inherited by them.
  • Liability for firm transactions after the deceased's death and before the elder son's attainment of majority: appellants are not personally liable for those transactions.
  • Liability for transactions after the elder son (Hara Mohan) attained majority: Hara Mohan would be personally liable for transactions since his majority; the younger brother (Bhuban Mohan) remained a minor at suit institution and therefore would not be personally liable for transactions after that date.

- The Court therefore accepted the appellants' contention in part and directed that these distinctions be observed when accounts are taken. The second ground of appeal thus succeeded.

3. Decree for Recovery of Capital Prior to Accounts (Third Ground)

- The appellants argued the plaintiff should not have been entitled to recover capital before accounts were taken. The Court reviewed the Subordinate Judge's factual findings: the first defendant had withdrawn capital in respect of his share and the share of the father of the second and third defendants, and had conducted himself in a manner described as treacherous toward the plaintiff when difficulties arose.

- Given these findings, and because the amount advanced by the plaintiff had been investigated and determined with no convincing demonstration of error, the Court found it just to place the plaintiff in the same position as other capitalist partners and to permit recovery of the capital. The Court therefore overruled the third ground as unsubstantial.

Other procedural matters addressed

- The Court found no fault with the Subordinate Judge's direction for production of account books; parties in possession or control must produce them and the Court has power to enforce compliance. - Allegations of misappropriation by the Gomasta partners were noted but held to be matters for determination when accounts are taken. - The Court observed that the plaintiff ultimately can obtain a decree only according to his share and that the first defendant's share should be treated separately from the appellants' shares; these points should be borne in mind when drawing the final decree.

Holding and Implications

Core Ruling: The appeal was ALLOWED IN PART and the decree of the Subordinate Judge was modified by the addition of the declaration of the liability of the appellants as specified by the Court (i.e., liability limited according to succession and minority as described).

Direct consequences for the parties:

  • The Court held that the suit was not barred by limitation because the partnership had not been dissolved prior to institution of the suit (first ground dismissed).
  • The appellants (infant representatives of the deceased partner) are protected from personal liability while minors; their liability is limited according to the stages described: liability to extent of inherited assets for obligations of the deceased at his death; no personal liability for firm transactions until the elder son's majority; personal liability for transactions after Hara Mohan's majority applies to him alone; Bhuban Mohan remained not personally liable at suit institution.
  • The plaintiff was entitled to the declaratory relief allowing recovery of the capital contributed in the special circumstances found by the Subordinate Judge; the third ground was overruled.
  • Costs: because the appeal failed to a large extent, the appellants were ordered to pay the plaintiff-respondent's costs in this Court; the hearing fee was to be assessed at three-fourths of the prescribed amount.

Broader legal implications: The opinion applies existing statutory provisions and precedents to the particular facts and records. It does not purport to lay down a new legal principle; rather, it clarifies application of established rules relating to (a) when limitation begins to run in partnership disputes, (b) the effect of death or retirement where conduct shows continuation of the firm, and (c) the limits of personal liability of minors admitted to the benefits of a partnership. No novel precedent was announced beyond these applications to the facts of the case.

    Haramohan Poddar v. Sudarson Poddar

    1. The suit, which has given rise to this appeal, was brought by the plaintiff-respondent for dissolution of a partnership, for winding up its business, for taking the accounts and for incidental reliefs. The case for the plaintiff is that there were two lets of partner?, sailed respectively capitalist partners and Gomasta partners. The first class included the plaintiff, the first defendant and the fathers of the second and third defendants, who were to provide the capital, receive a share of the profits and hear the leases in stated proportions. The second class included the remaining six defendants who were to receive specified shares of the profits as remuneration for their labour, hut had no concern with the looses. The business was carried on in rice, jute and other articles and also included mercy lending. The firm was started in 185 JA; and the first defendant has ever since acted as the managing partner. According to the plaintiff, the business has not been properly managed for game time past and in its present condition, can no longer be carried on profitably. He accordingly prays that the partnership may be dissolved, the business wound up and the accounts adjusted. The defendants have resisted the claim on a variety of grounds which need not be enumerated in detail for our present purpose; it is (efficient to state that they have sought to defeat the action en the plea of limitation ; their allegation in substance is that the partnership was, in fact and in law, dissolved long before the institution of the suit. The Subordinate Judge has overruled the contentions of the defendants and has made a preliminary decree. That decree has been assailed before us on grounds which may be formulated under three heads, namely, first, that the suit is barred by limitation; secondly, that no personal liability can be imposed upon the infant representatives of one of the original partners and thirdly, that no decree should have been made at this stage in favour of the plaintiff, entitling him to recover the capital supplied by him.

    2. As regards the first point, the second and third defendants, who are the appellants before this Court, have contended that the suit is barred under Article 106 of the Schedule to the Indian Limitation Act. That Article provides that a suit for an account end a share of the profits of a dissolved partnership must be instituted within three years from the date of the dissolution. It is plain that the lection applies only to a dissolved partner-ship. The reason is obvious: it is an elementary principle that limitation cannot apply as between partners so long as the partnership continues. [Foster v. Hodgson (1812) 10 Ves. 180 at 183 : 34 E. R. 485.].; it is different after there has been a termination of the partnership or discontinuance of it [Noyes v. Crawley (1878) 10 Ch. D. 31 : 48 L. J. Ch. 112 : 39 L. T. 267 : 27 W. R. 109. Knox v. Gye (1872) 5 H. L. 656 at p. 674 : 42 L. J. Ch 234.]. The defendants have consequently argued that the partnership was dissolved before the commencement of the suit. This contention has been based on a throe-foil ground. It has been contended, in the first place, that under Clause (1821) 5 B. & Ald. 147 at p. 157 : 24 R. R. 307 at p. 314 : 106 e. r. 1147, of section 253 of the indian contrast act, the partnership was dissolved by the death of one of the original partners, namely, the father of the second and third defendants, in February or Marsh, 1909; in this view, the present suit, instituted on the 8th September 1913, would be barred by limitation under Article 105. In our opinion, this contention is not wellfounded. No noubt, Clause (1821) 5 B. & Ald. 147 at p. 157 : 24 R. R. 307 at p. 314 : 106 e. r. 1147, of section 203 provides that a partnership, whether entered into for a fixed term or not, is dissolved by the death of any partner. But this rule is subject to the important qualification embodied in the opening words of the section, namely, in the absents of any contract to the contrary." Partners may accordingly agree that on the death of any of them, his nominee or legal representative shall be entitled to take his place. Whether in a particular case there has or has not been such an agreement, may be proved by an express declaration to that effect or may be determined from the conduct of the parties. This is clear from the decision in Gokul Krishna Das v. Shashi Mukhi Dasi 13 Ind. Cas. 23 : 16 C. W. N. 299 : 16 C. L. J. 204, which was applied in Raghumull v. Luchmondas 38 Ind. Cas. 278 : 20 C. W. N. 708., the judgment of the latter case has subsequently been affirmed by the Judicial Committee. Now, in the case before us, it has been found by the Subordinate Judge that, on the death of the father of the second and third defendants, I the latter stepped into his place, they were accepted by the other members, without question, as partners in a continuing firm and in that character contributed capital and withdrew sums of money from time to time. The second defendant, indeed, admitted on the 17th March 1916 in the course of his deposition in another suit, that on his father's death he and his brother became maliks of the firm. In these circumstances, it is now impossible for them to maintain, even with a show of plausibility, that the partnership was dissolved on the death of their father. It has been contended in the second place that the partnership was dissolved so far back as 1906 by the retirement of one of the Gomasta partners, and reliance has been placed upon Clause 25 M. 143 at p. 164 : 11 M. L. J. 353, of Section 853 which provides that, if from any cause whatsover, any member of a partnership ceases to be so, the partnership is dissolved as between all the other members. This, as in the case of Clause (1821) 5 B. & Ald. 147 at p. 157 : 24 R. R. 307 at p. 314 : 106 E. R. 1147, is subject to any agreement to the contrary, which may be established by proof of express declaration or may be inferred from conduct. Now, there can be no doubt that notwithstanding the retirement of Gomasta?, the partnership in this case has been carried on as a continuing firm. This is obviously natural; the Gomastas were no doubt called partners, but they were essentially officers of the firm. They were paid, not a fixed salary, but a share of the profits by way of remuneration; the manifest object was to stimulate their industry and it is significant that they had no concern with the losses. It would be clearly reasonable to hold that the parties never inteded that the retirement of one or other of persons in such position should lead to the dissolution of the partnership. In the third place, the contention has been put forward Mi at the partnership was dissolved, as the business was stopped and the partners refused to advance further sums on the capital account. There is plainly no force in this contention. Neither stoppage of business nor refusal of a partner to make further advances can be treated as dissolution of the firm. The Subordinate Judge has found upon the evidence---and his finding has not been successfully displaced that the business of the firm, in some of the departments at least, was earned on to a date only a few months prior to the institution of the suit. The business of the firm included money-lending, and regular arrangements were undoubtedly in existence for the collection of the dues in 1912, if net in 1913. It 13 further plain that refusal by a partner to Supply capital whenever the demand is made on him is not conclusive proof of his intention to retire within the meaning of Clause 26 Ind. Cas. 836 : 42 C. 225, of Section 253. The question, whether there has been abandonment by a partner is a matter of inference to be drawn from the fasts of each case. Moung The Ruyin v. Mah Thein Myah 27 I. A. 189 : 28 C. 53 : 5 C. W. N. 114 : 7 Sar. P. C. J. 776 (P. C.). Sudarsanam Maistri v. Narasimhulu Maistri 25 M. 143 at p. 164 : 11 M. L. J. 353. In the present case, we can find no indication of an intention to retire or abandon on the part of any of the partners. We hold accordingly that the partnership was not dissolved before the institution of the suit which is consequently not barred under Article 106. If Article 120 is held applicable, the suit is plainly not barred, as the right to sue for dissolution of a continuing partnership exists so long as the partnership continues. The first ground urged in support of the appeal cannot consequently be maintained.

    3. As regards the second point, it has been urged that no personal liability can be imposed upon the infant representatives of Janaki Nath Poddar, one of the original partners. This contention is clearly well-founded. Section 217 of the Indian Contract Act provides that a person who is under the ago of majority according to the law to which he is subject may be admitted to the benefits of a partnership, but can-not 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. Consequently, the right of the minor to claim a certain proportion of the divisible income and ultimately to re-claim a certain proportion of capital at the proper times, if and whenever it is found that there is profit to divide and surplus assets to distribute, may be made available for the benefit of the creditors of the firm. Bat the position is incontrovertible that the infant, who is admitted to the benefits of the partnership, cannot be made personally liable for any obligation of the firm. Sanyasi Charan Mandal v. Asutosh Ghosh 26 Ind. Cas. 836 : 42 C. 225. Khetra Mohan Poddar v. Aswini Kumar Saha 45 Ind. Cas. 667 : 22 C. W. N. 438. It is not necessary at the present stage to consider the effect of Section 243 which defines the liability of a minor partner on, attainment of majority, unless he gives public notice of his repudiation of the partnership. This provision seems to place the creditora of the firm in a more favourable position than in England, Goode v. Harrison (1821) 5 B. & Ald. 147 at p. 157 : 24 R. R. 307 at p. 314 : 106 E. R. 1147. In the present ease, at the time of the death of Janaki Nath Poddar, both his sons were infants; one of these, Hara Mohan, attained majority subsequently and the either, Bhuban Mohan, was a minor at the date of the institution of the suit. It is plain that the liability of these appellants has to be considered in three stages. As regards the personal liability of Janaki Nath Poddar at the time or his death, the appellants, as his sons, can be made liable only to the extent of the assets inherited by them, As regards liability for the transactions of the firm since the death of Janaki Nath Poddar, the appellants are not personally liable up to the date of attainment of majority of the elder brother, Hara Mohan Poddar. For transactions since that date, Hara Mohan would be personally liable, but his brother Bhuban Mohan would not be so liable, as he continued to be a minor. These distinctions must be borne in mind when the accounts are taken. The second ground must consequently prevail.

    4. As regards the third point, it has been argued that no decree should have been made in favour of the plaintiff so as to entitle him to recover the capital contributed, even before the accounts are taken. There is no force in this contention in the special circumstances of this case. The Subordinate Judge baa found that the first defendant has withdrawn the capital in respect of his share and the share of the father of the second and third defendants. The Subordinate Judge has further stated that as soon as difficulties arose in conducting the business of the firm, the first defendant, who was the managing partner, "asted treacherously towards the plaintiff and left him to his fate." In these circumstances, it is only just that the plaintiff should be placed in the same position as the other capitalist partners. In addition to this, the amount advanced by the plaintiff has already been investigated and determined, and no serious endeavour has been made to convince us that the amount has been erroneously calculated; it would thus be an idle fromality to leave the matter open for fruitless discussion. The third ground must consequently be overruled as wholly unsubstantial.

    5. We may add that in the course of argument, an objection was taken to the order for the production of account bocks, but we were satisfied that the direction given by the Subordinate Judge was not open to criticism. All account books must be produced by the parties who have possession of or control over them. If a party disobeys the order made in this behalf," the Court has ample power to enforce its order. We were also invited to consider the effect of the alleged misappropriation by the Gomasta partners; but this is a question which cannot be usefully discussed till the accounts have been taken and the facts ascertained. It was also suggested that the plaintiff can ultimately obtain a decree, only according to his share, and that the share of the first defendant should he treated separately from that of the appellants. These prayers are reasonable and may be borne in mind when the final decree is drawn up.

    6. The result is that this appeal is allowed only in part and the decree modified by the addition of the declaration of the liability of the appellants as stated above, As the appeal has failed to a large extent, the appellants will pay the plaintiff-respondent the costs in this Court, but the hearing fee will be assessed at three-fourths of the prescribed amount.

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    Haramohan Poddar v. Sudarson Poddar
    (Mar 19, 1920)