P.A.R. Ramaswami Chettiar v. Srinivasa Iyer And Ors.

1. Before each appeal is dealt with separately, the undisputed facts common to the appeals may be briefly stated. The first defendant and his sons defendants 2 to 4, Nattukottai Chetties by caste, were members of a joint Hindu trading family, which carried on business under the name of P.A.R, Firm. On the 1st September, 1923, the third defendant filed a suit for partition " of the family property, impleading as defendants, the other members of the coparcenary. On the 26th February, 1924, the second defendant filed his written statement, praying also for partition. On the 14th July, 1927, a preliminary decree foe partition was made. The defendants were natives of India, but the business was being carried on at Colomba. By a power-of-attorney dated the 11th October, 1916, the fourth defendant and one Subbiah Pillai were constituted as the first defendant's agents for the purpose of conducting the business. The next power-of-attorney that has been filed, is dated the March, 1925, and was granted by the first defendant in favour of one Ponnuswami. There is some oral evidence to the effect that one Shanmugam Pillai acted as agent for some time; when he did so, does not appear But as nothing turns upon it, I need not refer to it further

2. It is common ground that the third defendant became divided in status on the date of his plaint; likewise the second defendant on the date of his written statement. The promissory notes sued on came into existence subsequent to the second defendant's written statement and before the passing of the preliminary decree. In Appeal 298 of 1928 it was the fourth defendant, acting as the first, that executed the promissory note; in other two Appeals 137 of 1929 and 454 of 1930, the endorsements were made (it is with the endorsements we are concerned) by Ponnuswami Pillai, purporting to derive his authority from the power-of-atlorney in his favour. The question in each case is, does the disruption of the joint family affect the liability of the coparceners and if so, to what extent? What is the true legal conception of the trade or business first in relation to the coparcenary and secondly in regard to the strangers who deal with the family? - this is the point that these appeals raises. In one case (Appeal 454 of 1930) the Subordinate Judge has held that the members of a coparcenary, ipso facto by reason of their status become members of a partnership and that when they become divided, the disruption of the family automatically bring about the dissolution of the partnership. In the other two cases (Appeals 137 of 1929 and 298 of 1928) the Subordinate Judge, who tried them, has expressed a different view, which, in my opinion, embodies the correct principle. The trade or business is an asset of the joint family and must be treated as any other property belonging to it. It is a distinct heritable asset, descending like other heritable property. Where as an ordinary partnership is dissolved by the death of a partner, the interest of the family in the trade passes by survivorship.

3. Again unlike a partner, a coparcener is not entitled to ask for accounts of past profits. Further a partner of an ordinary firm may, in the absence of special restriction, bind by his acts the other members of the partnership; but in the case of a trading family it is the manager alone, unless a special arrangement exists, that can take part in the business and bind by his acts his coparceners. The true legal position therefore is, that as between the coparceners, the fact that the family is engaged in trade does not convert it in relation to that trade, into a partnership. That being so when the family becomes severed, the family trade (whether it happens to be the sole item possessed by the family or one of several items) is held by the manager, who has in respect of it the same duties and the same powers, as in respect of any other similar property of the coparcenary. His powers are not those of a manager of a joint family but of a co-owner or tenant in common in management. In other words, on division the right he possesses, is merely to preserve the trade so that it may not as an item of the family property be destroyed. If for the purpose of preserving it, it becomes necessary to enter into fresh engagements, he may do so, but the object must be the preservation of the trade and not the continuing of it. It is also incidental to the trade being treated as an asset of the family, that the absence of notice on the part of those dealing with the manager is immaterial. A stranger acting on the belief that the family R is joint, may turn out to be mistaken, but in dealing with a member of a Hindu family, he does so at his peril.

4. The members of a trading family may, however in certain events stand in the relation of partners as regards the third < parties with whom they trade. As pointed out above, they stand to each other inter se as coparceners, but as regards the outside world, their position in law may be that of partners. In what circumstances their relation to third parties becomes that of partners, is expressed in different and varying language in decided cases. In some decisions it is referred to in positive terms such as, their taking an active part in it or being associated in its conduct; in other cases, the relation is inferred from the negative fact of their not having repudiated their connection with it. Despite the difference in the statement of the rule, the principle is the same, namely that of liability by "holding out" - a special application of the doctrine of estoppel recognised in Section 245 of the Indian Contract Act. The liability in such a case is analogous to that of a partner and arises from the conduct of the coparcener, who is estopped from denying the character he has assumed and on the faith of which third parties may be presumed to have acted. Their being a partnership from the point of view of the general public, it follows that the persons dealing with it will not be affected by a dissolution of which no notice has been given (Section 264 of the Indian Contract Act). On the facts of the case here, it is unnecessary to enquire whether the notice required is a specific or public notice.

5. On these principles each case must on its own merits be examined.

6. In Appeal No. 298 of 1928 the decree that was passed is against the first defendant and so far as the other defendants are concerned, to the extent of their joint family property. The third defendant appeals. The lower Court finds in effect that the amount borrowed by the fourth defendant as the first defendant's agent, was utilised for the payment of some debt incurred before the division in status. This amounts to a finding that the co-owner in management incurred the debt for a necessary purpose. The evidence through which we have been carefully taken, we must say, is not very satisfactory but we see no reason to differ from the conclusion of the lower Court. This disposes of the question of substance raised in the appeal.

7. For Rs. 6137-8-0 in the lower Court's decree, which is admitted to be a mistake, Rs. 5649 should be substituted. The subsequent interest should be at 6 per cent, and not 10 per cent, as is mentioned in the lower Court's decree. Subject to this modification, the appeal is dismissed with costs.

8. As regards Appeal No. 137 of 1929, the lower Court passed a decree against the first defendant alone and the plaintiff has appealed. In Appeal No. 454 of 1930, a decree was passed against the first defendant and the joint family-assets of the fourth defendant. In this case also the appellant is the plaintiff. In these two cases, if the borrowings are to be regarded as the acts of a co-owner in management, no possible justification can exist but they are sought to be justified as the acts of a partner, it being contended that there was no notice of the dissolution of the partnership. Were it possible to hold that the coparceners became partners in law by " holding out ", the position for which the plaintiff contends, would logically follow. In the case of a trading family, the test of necessity is, whether the debts incurred are incidental to the family business, and it is rightly pointed out, that this is not a deviation from the fundamental principle that what is done must be for the benefit or necessity of the family. (See Mayne's Hindu Law, 9th Edn. pp. 398 and 399). But the question in the present cases is, did the respondents, applying the principles stated above, become partners by "holding out" at all? The strongest piece of evidence relied upon for the plaintiffs is the following admission of the second defendant in his written statement in the partition suit.

This defendant worked as agent in the said P.A.R. firm (the defendants' firm) at Colombo and so this defendant has to recover salary and money for samans in connection therewith

9. This so-called admission, far from showing that the second defendant in associating in the conduct of the trade held himself out as a partner, clearly means that he worked in the firm in the capacity of an agent. There is no evidence worth mentioning that the respondents held themselves out by conduct or otherwise as partners. Moreover, granting that the respondents at some time assumed the character of partners, the powers-of-attorney on the faith of which the plaintiffs acted, destroy the theory of estoppel. In those documents, the assertion is made that the first defendant is the owner of the trade and that the attorney in each case is a mere agent.

10. In the result, each of these two Appeals (No. 137 of 1929 and 454 of 1930) fails and is dismissed with costs.

Venkataramana Rao, J.

11. I agree. The facts are very clearly set out in the judgment of my Lord, the learned Officiating Chief Justice and I do not think it necessary to repeat them. The question which falls to be decided in this case is what is the effect of a disruption of the joint family on a joint family business carried on by a manager in regard to the liability of the members for debts incurred by him after such disruption ostensibly for the purposes of the business. Before division in status there can be no question that the members of the family are liable for debts incurred by the manager to the extent of their shares in the joint family properties, even though they may not have taken any part in the business. But do they continue to be so liable even after division? Mr. K.S. Krishna-swami Aiyangar, the learned Counsel for the appellant says they do unless they have repudiated their liability by a specific or a general notice. I am unable to agree with this contention. The joint family business is an asset of the joint family and when there is a division in status no matter how brought about, there is no obligation on any member to publish a notice of such division. A creditor dealing with the manager of a joint family does so with knowledge of the limitations on his powers whether the dealings relate to business or any other asset of the family. The members of a joint family as such are not partners of a joint family business carried on by a manager The legislature has given effect to this legal conception by way of statutory declaration in Section 5 of the Partnership Act. It is not therefore desirable to apply all the principles of partnership law to a joint family business as such. But it is contended that by way of equity we should do so. Of course, if a member of a family takes an active part in the business and by his conduct induces the belief that he is a partner, the principles of partnership law may be applied to him so far as is necessary to do justice. But there is no reliable evidence in this case that any member of the family took any such part in the conduct of the business. Mr. Krishnaswami Aiyangar relies on an admission of second defendant in his written statement that he for some time acted as the agent of the first defendant and there he has rendered himself liable as a partner We must take the admission as it is and that does not render him liable as a partner Even assuming by his conduct before the institution of the partition suit by the third defendant which caused the disruption of the family, made the plaintiff believe he was a partner, the suit moneys were advanced by the plaintiff long after such disruption on the faith of a power of attorney executed by the first defendant which unmistakably indicates that plaintiff gave credit to the first defendant alone (vide also his evidence). Therefore on the evidence on record I do not feel justified in rendering the second defendant liable on the ground that he did not give notice of the division. It is further contended that by the mere fact that the division in status is effected, the manager is not obliged to stop the business but on the other-hand it is his duty to preserve it and for that purpose he can carry on the business. No doubt the members of a family, as soon as a division in status takes place, become tenants in common and there may be an obligation to preserve a property which one of them is in possession of. There must be evidence to show that in the circumstances of this case it was necessary to incur the debts for the preservation of the business as a valuable joint family asset. Such evidence is clearly wanting.

20. In the result this appeal fails and has to be dismissed with costs. In regard also to the other two appeals A.S. No. 137 of 1929 and A.S. No. 298 of 1928 I concur in the order proposed by my Lord.