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Debesh Chandra Mukherjee v. Benoy Krishna Banerjee
Structured Summary of the Judgment
Factual and Procedural Background
Five persons were partners in a firm carried on as "Annapurna Rice Mills Company" under a partnership deed dated 6 December 1919. On 20 November 1933 three of the five partners — the Plaintiff (Benoy Krishna Banerjee), Defendant No. 2 (Sitangshu Sikhar Banerjee), and Ramesh Ch. Mukherji (since deceased and represented by Defendant No. 1) — borrowed Rs. 6,500 from Birendra Chandra Chatterji under a hatchitta whose signatures read:
“Benoy Krishna Banerjee for the Annapurna Rice Mihs Co. Sitangshu Sikhar Banerjee, Ramesh Chandra Mukherji.”
The loan was entered in the firm's books as a loan taken by the firm and interest was paid from time to time to the creditor. In about 1935 the creditor sued the three individual borrowers (not the partnership) and obtained a decree requiring repayment by instalments. The Plaintiff paid the whole decretal amount and thereafter sued the two co-borrowers (the remaining defendants) for contribution of amounts in excess of his share.
The defendants contended that the suit for contribution was not maintainable because the debt was a partnership debt — an item of partnership account — and the Plaintiff could not recover proportionate shares from only some partners without making all partners parties and without an adjustment of partnership accounts. The lower courts rejected this defence and decreed in favour of the Plaintiff. Defendant No. 1 (one of the co-defendants) appealed against that decision.
Legal Issues Presented
- Whether the loan in question was a partnership debt (payable by all partners jointly) or a separate liability of the three signatories, and, relatedly, whether a suit for contribution by one partner who paid the decree could be maintained against only two co-judgment-debtors when the partnership as a whole was not a party.
- Whether a prior decree obtained by the creditor against some partners (and not against the firm) operates as res judicata on the question whether the liability was a partnership debt or a separate liability.
- Whether any clause in the partnership deed (specifically paragraph 8) prevented borrowing for partnership purposes by less than all partners, thereby affecting whether the debt was a partnership debt.
Arguments of the Parties
Appellant / Defendant No. 1 (and Co-Defendants)
- The loan was taken by and on behalf of the partnership and was therefore an item of the partnership account.
- Because it was a partnership debt, a partner who pays the whole debt cannot sue some (but not all) co-partners for contribution; the remedy lies in partnership accounting and adjustment involving all partners.
- The suit was therefore not maintainable in the absence of other partners and without adjustment of partnership accounts.
- It was suggested (in pleadings) that the two co-signatories may have signed as guarantors rather than as principals, but the stronger contention advanced was that the loan was a partnership obligation.
Respondent / Plaintiff (and Respondent's Counsel Mr. Chatterji)
- The Plaintiff relied on the fact that the hatchitta bore an individual signature of the three and that a decree had been obtained against those three individuals; it was argued (by Respondent's counsel) that the joint decree supports the view that the liability was a separate joint liability of the three and therefore capable of contribution among them.
- Respondent's counsel also placed reliance on several authorities (Subbarayadu v. Adinarayadu; Gudlavalleru Venkataratnam v. Vettathambi Venkataratnam; Laban Sardar v. Choyen Mallik) to support the contention that liability could be separate even if money was used for partnership purposes.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Durga Prosanna Bose v. Raghu Nath Das | Illustrates the principle that if a debt is truly a partnership debt, a partner who satisfies it cannot recover proportionate shares from only some co-partners; it is an item of partnership account. | Used to support the general rule that partnership debts are to be adjusted in partnership accounts and cannot give rise to contribution actions against some (but not all) partners absent special circumstances. |
| Guda Kulita v. Joyram Das | Same principle as above regarding partnership debts and the limitation on suing co-partners individually for contribution. | Referred to as part of the line of authorities establishing that rule; relied upon in concluding the law on this point is well settled. |
| Sadler v. Nixon | Supports the rule that a partner paying a partnership debt cannot recover proportionate shares from some co-partners where the debt is a partnership liability. | Grouped with other authorities to show settled law on partnership debts and contribution claims. |
| Sedgwick v. Daniell | Authority for the proposition that where the liability is separate and independent of the partnership, a suit for contribution may lie. | Applied to show the contrasting category in which contribution claims are maintainable — i.e., where the debt is not a partnership obligation but a separate liability of certain partners. |
| Subbarayadu v. Adinarayadu | Example where transactions were held to be separate and de hors the partnership, permitting an action for contribution. | The court distinguished that case as one where the facts showed a separate transaction; it accepted Subbarayadu as supporting the separate-liability exception but found the present facts different. |
| Gudlavalleru Venkataratnam v. Vettathambi Venkataratnam | Relied upon by respondent; cited in the opinion (and discussed) concerning circumstances where partnership accounts and parties may affect recovery. | Distinguished: the court noted that in that case the suit was after dissolution and all partners were parties, allowing different contentions based on partnership accounts; it was held not to contradict the present conclusion. |
| Laban Sardar v. Choyen Mallik | Held that borrowing to furnish initial capital prior to commencement of partnership was not a partnership debt; payment by one partner could amount to supplying entire capital and invite contribution under the agreement. | Distinguished: the court observed it concerned pre-partnership transactions and initial capital, not a borrowing by the existing partnership treated in its books as a firm loan. |
| Sadhu Narayana Aiyangar v. Ramaswami Aiyangar | Authority for the view that a decree against some partners does not impose on them a liability which did not attach to them as partners before the suit. | Relied upon to reject the respondent's contention that a joint decree against some partners conclusively showed the debt to be a separate liability; the court accepted that a decree alone does not create a new inter se liability among partners. |
Court's Reasoning and Analysis
The court began by stating the established legal distinction: where a debt is a true partnership debt, a partner who pays it may only charge the payment in partnership accounts and cannot recover proportionate shares from some (but not all) partners unless special circumstances exist (for example, an express promise of indemnity). Conversely, where the liability is separate and independent of the partnership, contribution actions can be maintained.
The dispositive factual issue was whether the loan was a partnership debt or a separate personal liability of the three signatories. The court examined the documentary and ledger evidence and noted:
- The hatchitta was signed by the Plaintiff "for the Firm" while the other two signed in individual capacities (and there was a suggestion they might have signed as guarantors).
- It was nonetheless not disputed anywhere that the loan was a partnership debt.
- The firm's account books treated the loan as an advance to the Firm and contained entries showing interest being paid directly to the creditor.
The Court then addressed the two grounds on which the lower courts had resolved the matter against the defendants:
- Res judicata: The Court rejected the contention that the creditor's success in a separate suit against the three signatories (in which the Plaintiff had unsuccessfully contended that other partners were necessary parties) precluded the present defence. The Court explained that the creditor had the right to sue the individual borrowers; the fact he did not sue the firm did not convert a partnership debt into a non-partnership one. Moreover, the earlier suit did not decide inter se questions between partners and thus could not operate as res judicata in the present proceedings between co-partners.
- Partnership deed restriction (paragraph 8): The Court interpreted paragraph 8, which permits borrowing jointly if more capital is necessary after the business prospers, as not restricting the ordinary borrowing powers of an individual partner for partnership purposes. Accordingly, the provision did not demonstrate that money could not be borrowed for partnership purposes except by all partners acting jointly.
The Court considered authorities cited by the parties and counsel. It accepted that the cited cases established two distinct categories: (a) partnership debts which must be adjusted in partnership accounts, and (b) liabilities separate from the partnership which permit contribution claims. The decisions relied on by the respondent were distinguished on their facts (e.g., pre-partnership capital advances, transactions held de hors the partnership, or suits after dissolution with all partners before the court).
Applying these principles to the facts (book entries, treatment of the loan as an advance to the firm, interest payments, and the undisputed characterisation of the loan as a partnership debt), the Court concluded that the loan was a partnership debt and that the Plaintiff's suit for contribution against only two co-partners without making the other partners parties and without an adjustment of partnership accounts was not maintainable.
Holding and Implications
Primary Holding: The appeal was allowed; the judgments and decrees of the lower courts were set aside; and the Plaintiff's suit for contribution was dismissed.
Direct Consequences for the Parties:
- The Plaintiff's suit for contribution against the two co-defendants is dismissed.
- The parties were directed to bear their own costs in all Courts, having regard to the special circumstances of the case.
Broader Implications: The Court applied established principles distinguishing partnership debts (to be adjusted in partnership accounts and not recoverable by suing some partners) from separate liabilities (where contribution actions may lie). The opinion treats this as an application of settled law and does not purport to lay down a novel legal principle beyond the analysis and distinctions drawn from existing authorities.
Judge Roxburgh concurred with the judgment (noted: "I agree").
The Judgment of the Court was as follows:—
Mukherjea, J.:— This is an appeal on behalf of Defendant No. 1 and it arises out of a suit for contribution commenced by the Plaintiff under the following circumstances. Five persons were members of a partnership business which was carried on under the name and style of Annapurna Rice Mills Company and the partnership deed was executed on December 6th, 1919. On November 20th, 1933, three out of these five persons, namely the Plaintiff, the Defendant No. 2 and Ramesh Ch. Mukherji, since dead and now represented by Defendant No. 1, borrowed a sum of Rs. 6,500 from a person named Birendra Chandra Chatterji on a hatchitta which was executed by them in the following manner:—
“Benoy Krishna Banerjee for the Annapnrna Rice Hills Co. Sitangshu Sikhar Banerjee, Ramesh Chandra Makherji.”
It is not disputed that the loan was entered in the books of the Company as a loan taken by the Firm itself and the interest due on the debt was paid from time to time to the creditor Birendra Ch. Chatterji. Sometime in the year 1935 the creditor instituted a suit, not against the partnership, but against these three persons individually, for recovery of the money due on the hatchitta and got a decree according to which the money was payable in certain instalments. Benoy Kr. Banerji, the Plaintiff, had to pay the entire decretal amount and he now seeks to recover from the two Defendants the amount paid by him in excess of his share.
The defence really was that a suit of this character was not maintainable; the loan having been taken by end on behalf of the Firm was an item of the partnership account and the suit for contribution would not lie in the absence of the other partners and without an adjustment of the partnership accounts. This contention has been negatived by both the Courts below who have passed a decree in favour of the Plaintiff. It is the propriety of this decision that has been challenged in this second appeal before us.
The law on this point seems to me to be pretty well settled and has been discussed in a number of decisions of the different High Courts in India. If the debt was really a joint debt of the entire partnership, the Plaintiff by satisfying the debt could not sue his co-judgment-debtors who are only two out of the whole body of partners for contribution. It would be an item of partnership account and the partner who pays the whole of this partnership debt, though he would be entitled to charge the sum paid in the partnership accounts, could not recover proportionate shares from some of the other partners in the absence of special circumstances. Durga Prosanna Bose v. Raghu Nath Das (1), Guda Kulita v. Joyram Das (2) and Sadler v. Nixon (3). The special circumstances spoken of here generally arise where there is an express promise by the Defendant to indemnify the Plaintiff. If, on the other hand, the liability which the Plaintiff has satisfied was a separate liability, quite independent and altogether apart from the partnership, a suit for contribution would undoubtedly lie. Sedgwick v. Daniell (4) end Subbarayadu v. Adinarayadu (5). It may be pointed out here that in England prior to the Judicature Acts no action in common law could be maintained by one partner against another if it involved taking of partnership accounts but the reason was that the Courts of Common Law had no machinery enabling them to do justice in matters of accounts. After the Judicature Acts the question as to whether an action could be maintained between the partners without taking a general account could be answered by saying that it was dependent upon the circumstances of each case and whether justice could really be done without taking such accounts. Vide Lindley on Partnership, pp. 648-650, 10th Edition. Some of the old English decisions which were prior to the Judicature Acts are still helpful for the purpose of illustrating the circumstances under which action by one partner could be maintained against another. To me it seems that if really the debt is a partnership debt arising out of partnership business, it would be manifestly in, equitable to allow the Plaintiff, even if he paid the whole of the debt, to such only some of the co-partners for contribution even though there was a join decree passed against the Plaintiff and the Defendant. If the other partners and the partnership accounts are before the Court, it would be possible for the Court to adjust the liabilities of the different partners in proportion to the interests in the partnership assets and the Defendants also can raise questions of set off or make other equitable claims against the Plaintiff.
The whole controversy therefore, ??? far as this appeal is concerned, centres round the point whether the debt in this case was a partnership debt payable by all the partners jointly or it was really a debt contracted by three of them on their own personal liability which would make it a transaction quite separate and different from the partnership business. From the facts appearing on the record we find that the hatchitta was signed by the Plaintiff as representative and on behalf, of the Firm. The other two partners indeed signed it in their individual capacities and there may be some truth in the suggestion made in the written statement that they had signed it as a sort of guarantors, the creditor not being inclined to advance money on the credit of the partnership business alone. But it is not disputed anywhere that it is a partnership debt. From the account books of the Firm it seems clear that the loan was treated as an advance made by the creditor and not by the borrowers to the Firm and there were various entries in the account books showing payment of interest direct to the creditor Birendra Chatterji. The Court of Appeal below finds against the Defendants practically on two grounds. The first ground is that in the money suit instituted against the Plaintiff and the two Defendants by the creditor, a defence was taken by the present Plaintiff that the other partners were necessary parties to the suit. As this contention was negatived and a decree was passed against the Plaintiff and the two Defendants, it is argued that the decision is res judicata on the question as to whether it was a partnership debt or otherwise. This contention, in my opinion, is manifestly untenable. The creditor had undoubtedly the right to proceed against the borrowers if he so chose and because he did not elect to proceed against the Firm itself it could not be said that the debt was not a partnership debt. The Court was bound to give the Plaintiff a decree in the suit as it was framed. No question as between the Defendants inter se could be or was raised in the suit which could be said to operate as res judicata in the present litigation. The other ground put forward by the District Judge is, that under the partnership deed no money could be borrowed unless all the partners joined in the transaction. This ground also does not bear examination. Paragraph 8 of the partnership deed to which our attention has been drawn lays down that if the business prospers and more capital is necessary, which the partners are not able to advance, then it would be open to the partners jointly to borrow capital by hypothecating the entire partnership business. Nothing is stated here which would limit or restrict in any way the ordinary powers which a partner has got, to borrow money for partnership purposes. Mr. Chatterji who appears for the Respondent has laid considerable stress on certain decisions which are to be found in the cases of Subbarayudu v. Adinarayudu cited above, Gudlavalleru Venkataratnam v. Vettathambi Venkataratnam (6) and Laban Sardar v. Choyen Mallik (7). In none of these cases was the borrowing made on behalf of the partnership though the money might have been actually spent for partnership purposes. In the case of Laban Sardar v. Choyen Mallik , the money was borrowed to furnish the initial capital of the business and the payment of the entire sum by the Plaintiff was held and in my opinion rightly, to amount to a supply of the entirety of the capital by one of the partners, half of which had to be contributed under the agreement by the other partner. It was a transaction prior to the starting of the partnership business and could not be said to be a partnership debt in any sense of the word. In the case of Subbarayudu v. Adinarayudu , it was found actually by the learned Judges on the facts of the case that the transactions were separate and altogether de hors the partnership and as such capable of sustaining an action for contribution. Mr. Chatterji argues that the fact that a joint, decree was passed against three partners jointly is quite sufficient for the purpose of showing that it was a separate liability incurred by the three partners jointly. I do not think that we can accept that contention as correct. In our opinion the mere fact that a decree was passed against some of the partners would not impose upon them any liability which did not attach to them as partners before the suit. This was the view taken by Mr. Justice Miller and Mr. Justice Sankara Nair in the case of Sadhu Narayana Aiyangar v. Ramaswami Aiyangar (8). The case of Gudlavalleru Venkataratnam v. Vellathambi Venkataratnam is also distinguishable. There the suit was instituted after the dissolution of the Firm and all the partners were parties to the suit. It was held by Mr. Justice Sundara Iyer that it would be open to the Defendant to show that nothing was really due to the Plaintiff according to the accounts of the partnership business as they stood. This, in our opinion, does not lay down any principle contrary to what we have expressed. Our conclusion therefore is that the Appellant is right in his contention that the suit was not maintainable unless the other partners are made parties to the suit and the partnership accounts are adjusted.
The result is that the appeal is allowed, the judgments and the decrees of the Courts below are set aside and the Plaintiff's suit is dismissed.
Having regard to the special circumstances of the case, we direct that the parties do bear their own costs in all the Courts.
Roxburgh, J.:— I agree.
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