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Ramaswami Pillai v. V.R.M.K. Muthukaruppan Chetty

Madras High Court

Nov 25, 1924

Judgment

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Factual and Procedural Background

Plaintiffs and one Muthuvairava Pillai were partners in a business carried on in Erode and other places. Muthuvairava Pillai died. The 1st defendant is his father, defendants 2 and 3 are his sons and the 4th defendant is his brother's widow; the defendants sued are legal representatives of the deceased. The plaintiffs brought suit alleging that the deceased and the defendants were members of a joint Hindu family and seeking recovery of certain sums said to be due to the partnership by the deceased partner. The original plaint contained four separate claimed items: two sums alleged to have been borrowed by the deceased on his own account and repaid out of partnership money (items 1 and 3), an amount said to have been overdrawn by the deceased (item 2), and a fourth item relating to drawings on account of salary less profit due to him.

The partnership accounts were never taken. Defendants pleaded that the suit was not maintainable because plaintiffs were not suing for an account. Plaintiffs subsequently withdrew the fourth item on the ground that it was disputed and based on a different cause of action; the Subordinate Judge allowed that amendment and proceeded to trial on the remaining three items and decreed in favour of the plaintiffs on those three items. The defendants appealed, advancing the maintainability point as a preliminary issue without going into the merits.

Legal Issues Presented

Whether the suit, framed to recover specified sums allegedly due from the deceased partner, is maintainable without seeking a full partnership account where the partnership accounts have never been taken and the partnership was dissolved by the partner's death.
Whether the specific items claimed by plaintiffs (the two loan/repayment items and the overdrawn drawings) are separable from partnership dealings so as to permit recovery without a general account.
Whether, in the circumstances (including delay and limitation concerns), the plaintiffs should be permitted to amend their plaint to claim an account at this late stage and on what conditions.

Arguments of the Parties

Plaintiffs' Arguments

Plaintiffs contended that they were not seeking an account because the items they specified were moneys taken by the deceased for his own purposes and thus separate from the partnership accounts.
Plaintiffs withdrew the fourth item before trial, treating it as a separate cause of action that would have required an account to ascertain correct credit for salary and profit share.
During the hearing of the appeal, plaintiffs' counsel requested leave to amend the plaint to claim an account, apparently because of concern that a fresh suit for an account might be barred by limitation.

Defendants' Arguments

Defendants pleaded the suit was not maintainable because plaintiffs were not suing for a full account and the partnership accounts had never been taken.
Defendants argued that, absent an account, it was impossible to determine offsets (amounts due by the partnership to the deceased) and other items that might affect the net liability, and that justice required a full accounting.
On appeal defendants repeated the preliminary point that the suit as framed was not maintainable without a claim for account.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Cross v. Cheshire, 7 Ex R 43	Held that where one partner is called upon by the act of another to pay his private debt, the former may recover the money so paid (assumpsit for money paid to the use of the other), because the debt was the defaulter's own and not connected with partnership accounts.	The court treated this as an English authority applicable to subsisting partnerships and regarded it as an exception to the general rule; it concluded this line of English authorities did not apply to the present case (a dissolved partnership by death) and so did not permit recovery without a full account here.
Smith v. Barrow, 100 ER 256 : 2 TR 476	Held that where money was wrongly carried to the partnership accounts when it was really received by one partner for the separate use of the other, an action may be maintained by the aggrieved party.	The court identified this as an English exception for subsisting partnerships (converse of Cross v. Cheshire) and, while recognizing the principle, held it inapplicable to the present case because the partnership had been dissolved by death and the alleged items were not shown to be entirely unconnected with partnership dealings.
Bedford v. Brutton, 131 ER 1171 : 1 Bing NC 399	Arises on express terms of a deed; cited for the proposition that a member of a company was allowed to sue for rent due to himself personally against trustees for the company (illustrative of cases where individual claims may be maintained).	The court observed this case proceeded on the express terms of the deed and held it had no bearing on the present matter; it did not support the defendants' position permitting piecemeal adjudication without an account here.
Ex parte Younge, 13 RR 135	Case in bankruptcy regarding a partner abstracting joint property by fraud; relevant to the proposition that partnership may prove against the defaulter's separate estate for that wrong.	The court noted this was bankruptcy procedure rather than a civil suit for account and treated it as not directly helpful to permit piecemeal adjudication of the plaintiffs' claims in the present suit.
Lakshmana Chetty v. Nagappa Chetty, (1917) 34 MLJ 408	Cited in the opinion as an instance in the discussion of when a full partnership account must be taken (i.e., one of the authorities considered when determining whether partial claims can be separated from general partnership dealings).	Used as an illustrative precedent in the court's survey of authorities; the court relied on the general principle that such authorities show that whether a partial claim is maintainable depends on special circumstances, and ultimately distinguished the present case as requiring a full account.
Annamalai Chetty v. Annamalai Chetty, (1919) 10 LW 67	Cited as an illustrative authority in the same context as Lakshmana Chetty concerning when full accounts are required.	Treated as illustrative; the court included it in the body of precedents demonstrating that courts will not allow partial accounts where justice requires final settlement of all partnership dealings.
Godhanram v. Jaharmull Puglia, (1912) ILR 40 C 335	Cited as an instance used in the court's discussion of whether a plaintiff can select a single transaction capriciously without adjusting rights and liabilities arising from other transactions.	The court cited this as authority for the proposition that a plaintiff should not be permitted to select a single transaction without adjustment of other related transactions; it supported the conclusion that a full account was required here.
Karri Venkata Reddy v. Kollu Nurasayya, (1908) ILR 32 M 76 : 19 MLJ 10	Sets out the rule that the Court must determine under what circumstances it is equitable to order a partial account and that, as a rule, relief will be given if the account sought does not involve taking a general account; refusal occurs only where a partial account would work injustice.	The court quoted and relied on this rule in analyzing whether a partial account was equitable; after applying it to the facts, the court concluded that a full account was necessary in this case and thus distinguished the present facts from those warranting only a partial account.
Sunkara Ratha Doss v. Epari Kopilo, (1916) 49 IC 191	Cited as an illustrative authority in the discussion of instances where partial claims or full accounts were treated differently by courts.	Included among illustrative precedents; the court treated it as part of the jurisprudential background demonstrating that each case depends on its special circumstances, and used that framework to justify ordering a full account here.

Court's Reasoning and Analysis

The court conducted a structured analysis applying established partnership principles to the facts before it:

Background legal principle: The court recited the established English rule that, as a general rule, courts will not interfere between partners unless for dissolution or winding up, but noted that modern practice has relaxed that rule where justice requires intervention to prevent a partner deriving advantage from his own misconduct. The court relied on Lord Lindley's statement that whether an action between partners can be maintained without taking a general account depends on the specific circumstances and whether justice can be done without a general account.
Characterisation of the claimed items: The court examined each of the three items remaining in the plaint. It held that item 2 (the overdrawing/drawings) represented drawings by the deceased partner and was therefore connected with partnership business (partners are entitled to use partnership funds up to their share of profits). The first and third items (two loans of Rs. 10,000 and Rs. 3,000) were shown in the partnership accounts as repayments and had been borrowed in the name of the partnership; thus they could not be treated as entirely unconnected with partnership business.
Need for accounts: Given that the defendants had no personal knowledge of the dealings and that taking accounts could reveal amounts due by the firm to the deceased (which could offset the claimed items) or could reveal additional amounts claimable by plaintiffs, the court concluded that justice required a final partnership account. The court emphasized that if items were criminal misappropriations, plaintiffs' remedy would be in tort against the deceased's separate estate, but if money were due by the firm to the deceased, the defendants were entitled to the benefit of that sum. Thus a partial determination without an account could create injustice.
Application of precedents: The court reviewed English and Indian authorities. It observed that the English cases relied upon by respondents (Cross, Smith, Ex parte Younge, Bedford) generally refer to subsisting partnerships and act as exceptions to the general rule—principally intended to preserve partnerships by avoiding dissolution. Because the present partnership had already been dissolved by death, the court found those exceptions inapplicable. Indian precedents and Karri Venkata Reddy were cited for the proposition that whether a partial account may be ordered depends on equity and whether a partial account would work injustice; applying that test, the court found injustice would result from denying a full account here.
Procedural fairness and amendment: Plaintiffs had twice declined earlier opportunities to amend to claim an account and had proceeded to trial on the narrower pleadings. During appeal plaintiffs sought leave to amend, apparently because a fresh suit for accounts may be barred by limitation. Given that plaintiffs had obtained a decree on the three items in the lower court and the equities involved, the court deemed it appropriate—albeit indulgent—to permit amendment now, but only on the condition that plaintiffs pay all the defendants' costs of the original trial and of the appeal within two months. If plaintiffs comply, the suit will be remanded for fresh disposal after amendment; if not, the suit will be dismissed with costs throughout.
Limitation consideration: The court noted that a fresh suit for an account would now be barred under Article 106 of the Limitation Act because the deceased died in 1919, and that fact influenced the court's willingness to permit the amendment subject to costs conditions.

Holding and Implications

Holding:

The court allowed the plaintiffs to amend their plaint to claim a full partnership account, but only on the condition that plaintiffs pay all defendants' costs of the original trial and of the appeal within two months. If plaintiffs comply with this condition, the suit will be remanded for fresh disposal after amendment; if they do not, the suit will be dismissed with costs throughout.

Implications:

The direct effect on the parties is that the plaintiffs may proceed to convert the suit into one seeking a full partnership account, but only upon satisfying the conditional costs order; otherwise, their suit will be dismissed.
The court determined that a full partnership account is necessary to do justice between the parties in this matter because the items claimed are connected to partnership dealings and because potential offsets and additional claims could arise from an account.
The court distinguished the English exceptions that allow piecemeal claims in subsisting partnerships, holding those authorities inapplicable to this case because the partnership had been dissolved by death; the decision is therefore grounded in the specific facts and procedural history and does not purport to establish a new general principle beyond the application to these facts.

Show all summary ...

1. Plaintiffs and one Muthuvairava Pillai were partners in a business carried on in Erode and other places. The 1st defendant is father of the late Muthuvairava Pillai, defendants 2 and 3 are his sons and 4th defendant is his brother's widow. Plaintiffs have brought this suit against the defendants as legal representatives of the deceased Muthuvairava Pillai alleging that the latter and the defendants were members of a joint Hindu family. The suit is to recover certain sums of money due to the partnership firm by the deceased partner, and in the original plaint there were four such items. The first and the third are said to be sums borrowed by the deceased on his own account and repaid out of partnership money; the second item is the amount said to have been overdrawn by the deceased and therefore due to the firm; the fourth item is also an amount relating to his drawings on account of his salary less the profit which is due to him.

2. The accounts of the partnership, which became dissolved by the death of Muthuvairava Pillai, have never been taken and, consequently, the defendants pleaded that this suit was not maintainable, as plaintiffs were not suing for an account. Subsequently, the plaintiffs withdrew their claim to the fourth item on the ground that that item was disputed and was based on a different cause of action to the other three. Defendants again opposed this amendment and repeated their plea that the suit should be for the taking of accounts. This item which has been withdrawn would, to a certain extent, necessitate taking of an account in order to ascertain whether the amount credited to the deceased as his share of the profits was correct; but nevertheless the Subordinate Judge allowed the amendment and proceeded to trial holding that the suit is maintainable. After taking evidence on the merits of the case he has decreed plaintiffs' suit in respect of the three items which still remained in the plaint. The defendants now appeal and again plead that the suit as framed is not maintainable, and this has been argued as a preliminary point without going into the merits of the case.

3. It was a very well-established rule in English Law that Courts would not interfere between one partner and another unless it was for the purpose of dissolving the partnership or, if it was dissolved, of finally winding up its affairs. This rule has in later years been considerably relaxed because it was found to work hardship in certain cases and in the result Courts have interfered in order to prevent a partner deriving advantage from his own misconduct and have not insisted on the other partners submitting either to continuance of the wrong or to a dissolution; but the reason for the relaxation of the rule has been explained in Lord Lindley on Partnership. 8th Edition, page 630 as follows :

"The first question (namely, when can an action be maintained between partners without taking a general account of all the partnership dealings and transactions) can only be answered generally by saying that each case must depend upon its own circumstances and upon whether justice can really be done without taking such an account."

In the present case, the defendants state that an account should have been taken in order that the amount due by, or to, Muthuvairava Pillai might be finally determined. Plaintiffs answer to this is that they are not asking for the taking of accounts because the items specified by them as being due by the deceased are moneys which were not brought into the partnership accounts but were taken by the deceased for his own purposes. So far as item 2 is concerned, this is clearly wrong, for it represents the amount of drawings by the deceased partner, drawings which he was entitled to make, for as a partner he was entitled to use as much of the partnership money as would represent his share of the profits. Similarly, as regards the other two items, I do not think that they can be treated as sums of money entirely unconnected with the partnership business. They represent two sums of Rs. 10,000 and Rs. 3,000 respectively, borrowed by the deceased in the name of the partnership, and the repayment of these loans is shown in the partnership accounts. The question whether the firm received the benefit of these two sums of money is one which has to be determined on a consideration of the evidence; and I may say here that, if really the money was not credited to the partnership at all, it is extraordinary that Muthuvairava Pillai should have shown the repayment of the money in the partnership accounts, thus clearly proving his own misappropriation. However that may be, I. think that these items cannot be treated separately from the partnership business and I do not think that the cases relied upon by the respondents are any authority to the contrary, i. e., Cross v. Cheshire 7 Ex R 43, Smith v. Barrow 100 ER 256 : 2 TR 476, Bedford v. Brutton 131 ER 1171 : 1 Bing NC 399 and Ex parte Younge 13 RR 135 ]. In the first of these cases [Cross v. Cheshire 7 Ex R 43 ] the suit was held to be maintainable because it was for an amount which had been decreed against the partnership in respect of the private debt of one of the partners; the second case [Smith v. Barrow 100 ER 256 : 2 TR 476 : ] is somewhat similar, for it was a suit by one partner against another to recover his own money which had by mistake been put into the partnership funds. Again in Bedford v. Brutton 131 ER 1171 : 1 Bing NC 399 a member of a company was allowed to sue for rent due to himself personally as against the trustees for the company. The fourth case [in Ex parte Younge (4)] does not refer to a suit but to Bankruptcy proceedings. In Smith v. Barrow 100 ER 256 : 2 TR 476 the suit was allowed, but with regard to the further claim for a sum of £30 which was due to the partnership, it was held that the action could not be maintained. In Bedford v. Brutton 131 ER 1171 : 1 Bing NC 399 it was pointed out by Tindal, C. J., that if the action were virtually and substantially an action on covenant, brought by the assignees of one partner, who has become bankrupt, against three of his partners, to recover damages against them, to which the plaintiff himself must be contributory if he succeeds, the action would not be maintainable. And we may observe that in all these cases the principle is that, where justice requires that all the dealings of the partnership should be finally determined, the Courts will not allow a partial account to be taken but that when the basis of the claim is unconnected with the partnership business, or is only very remotely connected therewith, an action is maintainable, when no injustice is caused by dealing with this one claim separately. As instances of the former class of case I may refer to Lakshmana Chetty v. Nagappa Chetty ( 1917) 34 MLJ 408, Annamalai Chetty v. Annamalai Chetty ( 1919) 10 LW 67 and Godhanram v. Jaharmull Puglia (1912) ILR 40 C 335 and to Karri Venkata Reddy v. Kollu Nurasayya ( 1908) ILR 32 M 76 : 19 MLJ 10 and Sunkara Ratha Doss v. Epari Kopilo ( 1916) 49 IC 191 as instances of the latter. As pointed out in Lindley on Partnership, each case must depend on its own special circumstances and upon whether justice can be done without taking an account.

4. In the present suit, the defendants have no personal knowledge of the transactions and business of the partnership, but they are entitled to have all the questions at issue determined by taking of accounts; for it may well be that, if accounts are taken amounts will be found due by the partnership to the deceased which must be set off against the items now claimed separately. It is possible also that in addition to the items claimed separately, plaintiffs may be entitled to recover a further amount; in either case, justice will not be done between all the parties unless their claims are determined by final settlement of accounts. Even if the items claimed by plaintiffs were really items criminally misappropriated by the deceased, their action would be an action in tort and they would only have the right to recover any damages for which the deceased is liable out of his assets in the hands of the defendants. If, on the other hand, some money is due by the firm to the deceased, the defendants are entitled to have the benefit of that amount. It is impossible therefore to do justice to all the parties without taking a final account of the partnership.

5. Plaintiffs have definitely, and somewhat obstinately, declined to alter their suit into one for taking of accounts and have proceeded to trial on the basis that this was not necessary. During the hearing of the appeal, however, Mr. A. Krishna-swami Aiyar for the plaintiffs made a request that the amendment of the plaint may now be allowed for apparently plaintiffs are afraid that a suit for account would now be barred by limitation. Inasmuch as the plaintiffs have established their claim in the Lower Court to certain items I think it is equitable that an account should be taken but as they obstinately refused to make any such amendment of their plaint in the earlier stages of the trial, they arc responsible for all the costs that have hitherto been incurred. I would therefore allow the amendment to be made on condition that plaintiffs pay all the defendants' costs of the original trial and in this Court within two months. If that is done, the suit will be remanded for fresh disposal after amendment of the plaint but in default the suit will be dismissed with costs throughout.

Odgers, J.

6. The facts have been fully set out by my learned brother. I agree, but I will add a few words on my view of the legal point which has been raised, viz., whether the Subordinate Judge was right in his view that the adjudication of the three items claimed in the suit does not necessitate a taking of the entire accounts of the partnership. In considering this question it is important to remember that the partnership during the subsistence of which the various acts alleged against Muthuvairava Pillai took place was dissolved before suit by his death. There is also no question that if a partnership account were taken certain amounts would be found due to the deceased partner, Muthuvairava Pillai who had 1/16th or 1/17th share in the partnership and who would not be liable to his partners in any event for more than 15/16 or 16/17ths of the amounts in question. The present defendants arc the father, sons, and brother's widow of Muthuvairava Pillai. The rule laid down in Karri Venkata Reddi v. Kollu Narasayya (1908) ILR 32 M 76 : 19 MLJ 10 is that the Court is to determine under what circumstances it would be equitable to order a partial account and that if the account sought for does not involve the taking of a general account the Court will as a rule give the relief asked for and will refuse to interfere only in those cases in which a partial account would work injustice to the other partner. In Lakshmana Chetti v. Nagappa Chetti (1917) 34 MLJ 408 it was said the plaintiff was practically suing himself and his partner and that as he sought to establish liability against the defendants on the basis of accounts and had not asked for them the suit would not lie. In Godhanram v. Jaharmull Puglia (1912) ILR 40 C 335 at 340 in a suit by a principal against an agent it was held that plaintiff could not be permitted to select capriciously a single transaction and claim the fruits thereof without the adjustment of the rights and liabilities of the parties in relation' to other transactions. Lord Lindley in his work on Partnership (8th Edition), p. 539, says that the old rule was that the Court would not decree a partnership account unless a dissolution was sought on the ground that formerly Courts of Equity were adverse to any interference between one partner and another. This rule has been however relaxed in more modern practice when justice demands the Courts' intervention to prevent some definite wrong or redress some particular grievance. The Courts will not now, if it is possible to avoid it, allow a partner to derive advantage from his own misconduct by compelling his co-partner to submit either to a continued wrong or to a dissolution. It is argued for the respondent that the present case comes within the modern rule of exceptions, which rule, be it noted, is expressly said to be designed to prevent the necessity of suing for a dissolution. Here dissolution has already taken place. The cases cited by Mr. A. Krishnaswami Aiyar for the respondents are the following: Cross v. Cheshire 7 Ex R 43, Smith v. Barrow 100 ER 256 : 2 TR 476, Ex parte Younge 13 RR 135 and Bedford v. Brutton 131 ER 1171 : 1 Bing NC 399. In Cross v. Cheshire 7 Ex R 43 it was held that if one of the partners is called upon by the act of the other to pay his private debt, the former may recover the money so paid by an assumpsit for money paid to the use of the other, as the defaulter had admitted that the debt was his own and not connected with the partnership accounts. (The italics are mine.)

7. In Smith v. Barrow 100 ER 256 : 2 TR 476 it was held that where money was wrongly carried to the partnership accounts when it was really received by one partner for the separate use of the other, an action may be maintained. This is the converse case to Cross v. Cheshire 7 Ex R 43.

8. Ex parte Younge 13 RR 135 was the case of one partner abstracting the joint property of the partnership by fraud. it was held that the partnership might prove against his separate estate for that wrong. The case was in bankruptcy. Bedford v. Brutton 131 ER 1171 : 1 Bing NC 399 proceeded on the express terms of the deed and can have no bearing on the present case.

9. The English cases quoted all refer to subsisting partnerships and as stated form exceptions to the general rule in order to preserve the partnership and prevent dissolution. In my opinion they do not apply to the present case. In my opinion justice cannot be effectively done here without taking a regular partnership account which moreover will be essential at some time or another. It is therefore clear to me that the Subordinate Judge ought to have held the suit not maintainable without a prayer for an account. A fresh suit for that purpose would now be barred under Article 106, Limitation Act, as Muthuvairava Pillai died in 1919. The plaintiffs had two opportunities of amending their plaint and did not take advantage of either. I think, under the circumstances, though I feel it is an indulgence, that on condition that they pay all the costs incurred up to date, they may be allowed to amend at this stage. I agree with the order proposed as to the conditions under which amendment should be allowed.