MOHATIA BROTHERS v. BHARAT SURYODAYA MILLS CO. LTD., AHMEDABAD

The question as to when it was decided not to act upon the later deed is not material. The evidence of one of the partners of the appellant-firm that it was not acted upon and that the mother was not a partner is admissible :ind is fully corroborated by the documentary evidence. It is a statement inade by him against his own pecuniary interest. because, if the mother was a partner, the loss of the other partners would extend only to 12-anna share in the rnpee; whereas. if she was not a partner then they would have to bear losses to the full extent of 16 annas in the rupee. [1029G-H; 1030H-1031D] (2) In the register relating to the registration of firms kept under the Indian Partnership Act, an entry relating to the registration of the appeIIant-firm dated May 5. 1952. reveals that even in the year 1952, the stand of the partners of the· appellant-firm was that the mother was not a partner and that it wa-; only her minor son who was entitled to a share in the profits of the partnership. [1028G-1029Al (3) In the staiement of accouilts of the appellant-firm it is only the minor that is sho\vn to have a 4-anna share and not his mother. [1030B-C] ( 4) Applications in connection with the registration of that firm were pre rented to the Income Tax Authorities under s. 26A, Indian Income Tax Act, 1922. AU these applications were signed by the mother and they show that tho mother never claimed to be a partner of the appellant-firm and that, on the contrary, she acknowledged that it was her minor son who was entitled to the 4-anna share in the profits. [1029E-GJ ~ ; I Jc /'' ~ )I I MOHATTA BROS. v. BHARAT SURYODAYA MILLS (Khanna, J.) I 023 (5) The directors of the respondent-company ,bad passed a resolution in 1950 referring to the two partnership deeds. But the entry which was made in the register of the respondent-company regarding the partners of its managing agents as required by s. 87, Indian Companies Act, 1913, shows that after April 1, 1949, there were only 5 partners, besides the minor under the guardianship -Of his mother of the appellant-firm. If the mother had become a partner since October 24, 1949, it is unlikely that an entry to that effect would not have been made in the reJdster of the defendant-company, because, under s. 87, a return has to be sent to the Registrar of Firms regarding any change in the particulars required to be contained in the register and non-compliance with the requirement would entail imposition of fine. [1029A-E] (6) The letter of resignation sent by the appellant-firm was signed by the mother also, but there was no indication whether she signed in her capacity as partner or as the_ guardian of her minor son. [1028F-G] A B (7) Soon after the presentation of the suit, on an application under Order XXX, r.2, C.P .C., filed by the respondents, the appellant-firm declared the names C of its partners and the declaration did not show the mother as one of the partners. The question as to who should share the profits of the appellant-firm and should be other, wise entitled to its assets is essentially a matter for the partners of that firm. Unlike the case of a defendant-firm from which money j is claimed ~here each partner may be personally liable, in the case of the plain tiff (appellant) firm claiming money, it would be a wholly untenable plea for the defendants, from whom money is claimed, to urge that even though the 1nother as well as other partners claimed that it was not she but her minor son that was D entitled to the 4-anna share in the partnership, the Court should hold that it was the mother who was entitled to that share. [1030C-G] CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2075 & 2076 of 1968. From the judgment and decree dated the 29th March & 1st April 1968 of the Gujarat High Court in First Apeals Nos. 769 and 1029 of 19W. A. K. Sen, L. M. Singhvi, S. K. Bagga and Mrs. Bagga, for ~ appellant. R. P. Bhatt, B. S. Trivedi H. S. Parihar and I. N. Shroff, fer respondent. The Judgment of the Court was delivered by KHANNA, J. These two appeals on certificate by Mohatta Brothers plaintiff-firm are directed against the judgment of Gujarat High Court whereby that court reversed on appeal the judgment of the trial court awarding a decree for recovery of Rs. 77,286/0 Anna/2 Pies favour of the plaintiff-appellant against the respondent-company and dismissed the suit. The plaintiff is a partnership firm doing business under the name and style of Mohatta Brothers. The plaintiff-firm carried on the busi- ness of managing agency of the defendant company up to September 4, 1950. Sometime before that date, it appears the plaintiff-firm expre5'ed an intention of giving up the post of managing agents. On July 31, 1950 Chaturbhujdas on behalf of M/s. Chaturbhujdas, Kharawala M0hatta & Co. submitted scheme Ex. 168 in consultation with the plaintiff. Paras 5, 6 and 7 of the scheme were as under : " ( 5) Before our this Scheme is approved by the Com pany the present Directors shall submit before the Company E F G H A B c D E F G n 1024 SUPREME COURT REPORTS [1976] 3 s.c.1'.. ' the Balance Sheets and the Profit and Loss Account upto the end of the year 1949 and get the same passed, and they shall get the Proforma Balance Sheet up to the date 31-7-5 0 prepared by the Auditors of the Company and shall hand over the same to us, and this Scheme has been given while understanding that at present everything is according to the list of machinery given to us by the present Agents. And no one has any kind of charge or debt claimable Company till this day excep'.ing the approximate amount of Rs. 4,77,850/- due to the Agents and their kith and kin till this day and the list of which is given to us. We give Scheme believing the said fact true. (6) The amounts of the Agents of the Company and their kith and kin which may have been deposited Company on the day the date 31-7-50 and which come a)lout Rs. 4,77,850/- as told by the present Agents are to be kept credited in their accounts and interest not to be given from the date 1-8-50. And when our Scheme is approved they have not to take any interest on the said amounts from the Company for five years from the date we start the work of the Mills and they have not to withdraw the said amounts for a' period of ten years therealiter but the same are to be kept credited in the Company with interest at six per cent. But the Company shall return the amounts earlier if it so desires. thereon is · (7) At present the amount of Rs. 3,46,466-11-8 is due to the Punjab National Bank Ltd. by the Company and the demand of giving bonus to the workers for the year 1949 is outstanding from the Company. The present Agent states that in both of the said matters payments can be made from the amounts obtained by selling the goods of stores, etc. which is lying with the Company at present, the list of which is given to us by the present Agents, and from the amounts of E.P.T. deposit and advance payments of the income tax. On making arrangement accordingly if the debt of the Bank is not fully paid or the liability of bonus is not fully fulfiIIed and if the Company is found responsible in any way, then the same is to be fuifilled by the present Agent. But after fuifilling all liabilities accordingly if any amount remains in balance the same shall be treated as assets of the Company and half of the said amount shall be returned to wards the above mentioned amount deposited in the Com pany and which belongs to the present Agent and their kith and kin. But on fulfilling completely the liability of the Bank from the sale of goods of the Stores, etc. if there does not remain sufficient surplus or before getting the amount of if the E.P .T. deposit and income tax advance payment amount of bonus is required to be paid the present Managing Agents has to give that amount first." I • "' ' MOHATTA BROS. V. BHARAT SURYODAYA MILLS (Khanna, J.) 1025 On the following day, i.e. August 1, 1950, the following Jetter was addressed by the plaintiff-firm to the Board of Directors of the defen- ~ ""· dant-company : "We Messrs Mohatta Brothers, the Secretaries, Trea surers & Agents of the company hereby beg to tender our resignation as Secretaries, Treasurers and Agents of the Com pany on condition of the scheme of Sheth Chaturbhujdas Chirnanlal dated 31-7-50 duly approved by the Board of Directors, being passed by the share-holders of the company in the Extraordinary General Meeting of the company to be held on 4th September, 1950. FOR MOHATTA BROTHERS Ahmedabad Shivaratan G. Mohatta Chandratan G. Moondhra D. R. Moondhra Brijratan S. Mohatta S. R. Mohatta Satyavati Mohatta" A notice was then issued for convening a general meeting of the said defendant-company on September 4, 1950 for sanctioning scheme. The said scheme was approved by shareholders on September 4, 1950. Accordingly, as from that date Messrs Chatur bhujdas Kharawala Mohatta & Co. took over as the new managing ~ agents of the defendant-company instead of the plaintiff-firm. The plaintiff's case was that the liability of the Punjab National Bank was fully discharged by sale of the stores. No bonus was held to be payable by the Industrial Court to the employees of the company It was stated that there was surplus left after dis for the year 1949. charging the liability of the Punjab National Bank from earmarked assets consisting of excess profit tax deposits, tax advance the stores. The amount and the amounts realised from the sale of plaintiff-firm claimed half the surplus in terms of clause (7) of scheme towards the deposit amounts of the plaintiff. Prayer was made for accounts of the. surplus and decree for the amount due as per terms of the scheme with 9 per cent interest. income • It may be stated that the plaintiff-firm with effect from April 1, ". 1949 .consisted of five partne~. In addition to those five partners, ' Shash1 Kumar, who was a mmor and whose mother Satyavati was his guardian, was entitled to four Anna share in a rupee in the profits of 1 losses. Partnership deed the partnership but was not liable for its ~x. 115 was executed for this purpose on May 19, 1949 and was signed by the five partners and Satyavati. On October 24 1949 another partnership deed Ex. 116 was executed wherein s'atyavati was shown as a partner of the plaintiff-firm instead of her minor son Shashi Kumar. A B c D E F G H A B c D E F G H 1026 SUPREME COURT REPORTS (1976] 3 s.c.R. The suit was resisted by the defendant-company. Besides taking other pleas with which we are not conc~rned, the defendant contended that the plainllff firm could not maintam the suit as the constitution of the old firm which acted as managing agents of the defendant-company had been changed on October 24, 1949. From that date, it was stated, the plaintiff-firm consisted of six partners, including Satyavati. The newly constituted firm, according to the defendant-company, had not been registered and as such the suit was not maintainable. The trial court held that the new partnership deed Ex. 116 by which Satyavati became a partner was not acted upon. As the original part nership mentioned in the partnership deed dated May 19, 1949 had been registered, the plaintiffs suit was held to be not barred by section . 69 of the Indian Partnership Act. It is not necessary to refer to the other issues and the findings of the trial court on those issues. Suffice it to say that the defendant was held entitled to deduct certain amounts from the amount claimed by the plaintiff. The trial court accordingly passed the following order_ : for account as "The plaintiff has filed this suit account was to be• taken of the realisation and expenses of t_he parties have the stores. But by pursis Exhibit 424 agreed about the net realisation of the stores and have therefore urged that no Co=issioner be appointed and · a final decree be passed. The real account was to be taken of the actual receipts and expenses of the sale of stores. But is no now nothing is required to be done and hence there necessity of passing any preliminary decree. The plaintiffs as shown above are entitled to receive Rs. 77,286-0-2, from defendant towards their deposit amount being the net surplus which they are entitled. Hence defendants are liable to pay the said amount to plaintiff. The plaintiff should pay remaining Court-fee stamp within a month. therefore, pass the following order. I, ORDER-·· Defendants do pay Rs. 77,286-0-2 and the cost of snit to plaintiff with futnre interest at 6 per cent from 1st January. 1956. The plaintiff should pay the remaining Court fees within a month. Defendants to bear their own cost." Two cross-appeals were filed against the judgment and decree of the trial Court. One appeal was by the defendant-company praying for the dismissal of the plaintiff's suit. ·The other appeal was by the plaintiff-firm claiming for enhancement of the amount decreed by the trial court. One of the contentions advanced by the defendant company was as under : "The plaintiff-firm was not entitled to file a suit as the plaintiff-firm was differently constituted from· the firm of Mohatta Brothers as on 31st July 1950, and, in any event, as the minor Shashikumar had become major in 1953 and had • • • .. • MOHATTA BROS. v. BHARAT SURYODAYA MILLS (Khanna, J.) 102 7 become a partner of the plaintiff-firm Mohatta Brothers, Ahmedabad, and as even the name of Satya vati Devi who was the partner suing did not apepar in the entry in the regis ter of firms the present snit was barred under section 69(2) of the Act." · A B Dealing with the above contention, the High Court disagreed with the finding of the trial court that partnership deed Ex. 116 dated October 24, 1949 had not been acted upon. The learned Judges of the High Conrt held so far as the first part of the above contention is concerned that when a firm is reconstituted by introduction of a new partner, would remain the sgme registered firm, and there would be no neces- sity of fresh registration if the continuing firm was registered with the Registrar of the Firms under section 59 of the Indian Partnership Act. Dealing with the contention that Shashi Kumar had become major,. C the High Court found that there was no evidence to show the age of Shashi Kumar and the whole argument in this respect was based on niere conjecture. On the latter part of the submission, the High Court held that the mandatory condition under section 69(2) of the Indian Partnership Act was not fulfilled in the present case as the name of Satyavati who was a partner of the reconstituted firm and in whose favour a cause of action had accrued was not shown in the register of the firms. This defect was held to be fatal. The High Court in this context observed : D "In view of this legal position which we have discussed the second mandatory condition under section 69 (2) is not fulfilled in the present case as the name of Satyavati who was partner of the reconstituted firm and in whose favour the cause of action had accrued is not shown in the register of firms. This defect would be fatal as the first defect of want of registration of the firm itself and in both the cases we would have no option but to dismiss the suit. view of the matter it would be wholly unnecessary to go into any of the other contentions which have been raised in these two appeals and to record any· finding on the issues relating to the merits of the case or as regards the other appeal of the plaintiff as well. Howsoever much we may regret to dismiss the plaintiff's suit which apparently is well founded by up holding this technical objection of the defendant company. we are bound to dismiss this suit as in law a non-compliance of this second mandatory condition is also equally fatal as the non-compliance of first condition. At the same time, however, in the circumstances of the cases while dismissing the plaintiff's suit we would order both the parties shall bear their own costs all throughout." In In appeal before us Mr. Sen on behalf of the appellants has assail ed the judgment of the High Court in so far as it has disagreed with the finding of the trial court that Satyavati was not a partner of plaintiff-firm and the deed of partnership dated October 24, 1949 had not been acted upon. Mr.· Sen has also questioned the correctness oE the view taken by the High Court regarding the construction of section E F G H .. A B c D E F G H 1028 SUPREME COURT REPORTS [1976] 3 S.C.R. • 69 (2) of the Indian Partnership Act. As against that, Mr. Bhatt on behalf of the respondents has canvassed for the correctness of the view taken by the High Court, both on the question of fact as well as on the question of law. >- -~ r After hearing the iearned counsel for the parties and after having been taken through the relevant material on the record, we are of the opmivn that the trial court took a correct view of the matter in so far as it has held that Satyavati did not become a partner of the plaintifi- firm and that the deed of partnership dated October 24, 1949 was not acted upon. The main consideration which prevailed with the High Court holding that Satyavati became a partner of the plaintiff-firm was the execution of deed of partnership dated October 24, 1949. According to this deed, Satyavati became a partner to the extent of 4 Annas share out of 16 Annas, which had been previously held by her minor son " Shashi Kumar. Shashi Kumar under the deed of partnership of May 19, 1949 was entitled to the share of profits to the extent of four Annas in a rupee and was not liable for the losses which were to be borne by the other five partners. Satyavati became entitled undec the deed of October 24, 1949 not only to the share of profit to the extent of 4 Annas in a rupee but also became liable to share losses to extent. The other circumstance relied upon by the High Court was resolution dated January 21, 1950 passed by the Board of Directon of the defendant-company. That meeting was presided over by In that resolution Shivratan G. Mohatta, partner of the plaintiff-firm. there was reference to partnership deeds dated May 19, 1949 and October 24, 1949 which had been received along with letter dated December 1, 1949 from Mohatta Brothers. The Board of Directors took note of the changes mentioned in the above two partnership deeds and agreed to accept the partners therein mentioned. The third cir cnmstance relied npon by the High Court is letter dated Augnst 1, 1950 Ex. 118 which was sent on behalf of the plaintiff-firm, Mohatta resignation as Secretaries, Brothers, for the purpose of tendering letter was Treasnrers and Agents of the defendant-company. This ,signed, besides the other partners, by Satyavati. There was, however, no indication in the letter as to whether Satyavati signed it in her capa- city as a partner or as the gnardian of her minor son Shashi Kumar. " As against the circumstances relied upon by the High Court, we find that in the register relating to the registration of firms kept under the Indian Partnership Act, an entry was made on May 5, 1952 relat ing to the registration of the plaintiff-firm. The above entry was plainly in pursuance of application filed on behalf of the plaintiff-firm shortly before the making of that entry. The above entry shows that the position taken up on behalf of the plaintiff-firm even in the year 1952 was that there were only five partners of the plaintiff-firm and that in addition to that, Shashi Kumar minor was admitted benefit of partnership. The entrv thus reveals that even in the. year 1952 the stand of the partners of the plantiff-firm was that Satyavati was not a partner r>f the olaintiff-firm and that it was her minor son I • MOHATTA BROS. v. BHARAT SURYODAYA MILLS (Khanna, /.) I 02 9 Shashi Kumar who was entitled to share in the profits of the partner ship. This entry would be mexplicable if Satyavati had become a partner of the plaintiff firm with effect from October 24, 1949. A Another circumstance which goes to show that Satyavati did not become a partner of the plamtiff-firm is the entry in the registers of the defendent-company. According to section 87 of the Indian Compa nies Act 1913, which was the Act in fqrce at the relevant time, every company shall keep inter alia at its registered office a register of managmg agents containing with respect to each of them the following particulars, that is to say, in the case of a firm, the full name, address and nationality of each partner, and the date on which each became a partner. The entry which was made in the register of the defendant company regarding the partners of its managing agents showed after April 1, 1949 there were five partners besides Shashi Kumar minor under the guardianship of his mother Satyavati, of the firm of the managing agents Mohatta Brothers. Although the above entry was made on October 6, 1949, no subsequent entry was made after showing Satyavati as partner of the firm of Mohatta Brothers. Had Satyavati in fact become a partner since October 24, 1949 of Mohatta Brothers, it seems unlikely that an entry to that effect would not be made in the register of the defendant-company. It may aloo be mentioned in the above context that return has to be sent Regis'.rar of Firms under section 87 regarding any change in the parti culars required to be contained in the register. Failure to comply with the above directions entailed imposition of fine. The third significant circumstance which tends to show that Satya vati despite the execution of the deed of partnership dated October 24, 1949 did not become a partner of the plaintiff-firm is evidenced by applications in connection with the registration of that firm which were income-tax authorities under section 26A of presented the Indian Income-tax Act, 1922. Ex. 280 to 286 are the appli cations which were filed on behalf of the plaintiff-firm for the years 1949-50 to 1956-57. In all these applications, Shashi Kumar minor under the guardianship of Satyavati was shown entitled to 4 Anni!! share in a rupee in the plaintiff-firm. Satyavati was not shown in any of these applications as partner of the plaintiff-firm. All. these appli cations which were signed by Satyavati clearly go to show that during these years she did not claim herself to be partner of the plaintiff firm. On the contrary, she acknowledged that it was her minor son Shashi Kumar who was entitled to 4 Annas share in the profits of the partner ship. Documentary evidence which has been brought on the record our opinion, clearly lends support to the statement of Shivratan (PW 1) that partnership deed dated October 24, 1949 was not acted upon and that Satyavati did not become a partner of the plaintiff-firm. ~ivan. Das PW, who was an employee of the defendant-company, ha~ likewise deposed that Satyavati was never a partner of Mohatta Brothers. During the hearing of the appeal, affidavit of Satyavati has been filed stating that she was never a partner of Mohatta Brothers and it B c D E F G II I 030 SUPREME COURT REPORTS [1976] 3 s.c.R. A B c was her son Shashi Kumar who was at all material times admitted to· the benefit of the partnership. Mr. Bhatt has objected to this Court taking notice of the contents of the affidavit of Satyavati including her disclanner of any interesnn the plaintiff-firm. In this respect we arc of the view tha: even without the above affidavit, the material on the record clearly goes to show that Satyavati was not a partner of the plaintiff-firm. In addition to what has been pointed out, we find that in the state ment of accounts of the plaintiff-firm it is Shashi Kumar and not Satyavati who is shown to have 4 Annas share in the plaintiff-firm. Entries show that Shashi Kumar shared the profits as well as the losses in that proportion. The significant thing which emerges account books is that Satyavati was not shown as the person entitled to 4 Annas share in the partnership firm. Soon after the present suit had been filed, on application filed on behalf of the defendants under Order XXX, Rule 2 of the Code of the plaintiff-firm were Civil Procedure, names of the partners of declared on behalf of the plaintiff-firm. In the declaration the name of Satyavati was not mentioned as one of the partners of the plaintiff· firm. The question as to who should share the profits of the plaintiff firm and should be otherwise entitled to its assets is essentially a matter for the partners of the plaintiff-firm. The facts of the case disclose that the partners of the plaintiff-firm have agreed between themselves that so far as the 4 Annas share in the profits and assets of the plain tiff-firm are concerned, it would be Shashi Kumar who would be entitled to the same. That position is also accepted by Satyavati the applications in connection with the registration of the firm to the It would, in our opinion, be a wholly unten income-tax authorities. able plea for the defendant from whom money is claimed, to urge that even though Satyavati as well as the other partners claim that it is not she but her son Shashi Kumar who is entitled to 4 Annas share in the partnership, the court should hold that it is Satyavati who is entitled to that share. The distinction between a plaintiff-firm and a defen dant-firm in the above context should not be lost sight of. So far as a defendant-firm against whom a suit for recovery of money has been filed is concerned, it would be open to the plaintiff to prove that a per son is a partner of the defendant firm despite the denial of that fact by that person as well as the other partners of the defendant-firm. The reason for that is that a creditor of a defendant-firm can, except some cases to which it is not necessary to refer, also proceed against the personal assets of each and every partner. Such a consideration does not hold good when the dispute relates to the question as to who are the partners of the plaintiff-firm. It has been mentioned above that Shivratan stated in the course of his deposition that partnership deed dated October 24, 1949 had not been acted upon. This statement is against the pecuniary interest of It is plain that if Satyavati were a partner of the plaintiff Shivratan. firm, Shivratan and other partners would have to bear looses to the extent of 12 Annas in a rupee. As against that, if Shashi Kumar be entitled to share profits to the extent of 4 Annas in a rupee and be not D E F G H I MOHATTA BROS. v. BHARAT SURYODAYA MILLS (Khanna, J.) 1031- liable for the losses, in such an eveut Shivratan and other partners would have to bear the losses to the full extent of 16 Annas in a rupee. If despite that fact, Sh1vratan has deposed that SatayvatJ did not be come a partner of the plaintiff-firm and the deed of partnership dated respect October 24, 1949 was not acted upon, his statement in this should not, in our view, be rejected, especially when is over whelming documentary evidence which lends support to the above statement. The entire course of dealings shows that despite the execution of the deed of partnership dated October 24, 1949, the said partnership deed was not acted upon and the relations between the partners of the plaintiff-firm continued to be governed by the deed of partnership dated May 19, 1949 according to which it was not Satyavati but her son Shashi Kumar who was entitled to four Annas share in the part nership. The question, to which a reference has been made course of arguments, as to when it was decided not to act upon t!tc deed of partnership dated October 24, 1949 is hardly of much impor tance, the material thing is that the said deed was not given effect or acted upon by the parties concerned. The firm which came existence as per deed of partnership dated May 19, 1949 was admitted ly registered under the Indian Partnership Act and its partners were shown in the Register of Firms. A B c D Looking to all the facts we are of the opinion that the trial court took a correct view of the matter in so far as it held that Satyavati had not become a partner of the plaintiff-firm and that the deed of partner- ship dated October 24, 1949 had not been acted upon. The High Court, in our opinion, was in error in reversing that finding of the trial E court. to go In view of this conclusion of ours, it is not necessary into the legal qu, estion as to what should be the proper construction of section 69(2) of the Indian Partnership Act. Learned counsel for the parties are agreed that such question would arise only in case we had affirmed the finding of the High Court that Satyavati had become a prtner of the plaintiff-firm and that the deed of partnership dated October 24, 1949 had been acted upon. F The High Court did not deal with the merits of the cross-appeals filed by the parties in view of its finding on the point as to whether Satyavati had become partner of the plaintiff-firm and the construction it placed upon section 69(2) of the Indian Partnership Act. In light of the conclusion we have arrived at, it becomes essential remand the matter to the High Court so that the cross-appeals filed G by the parties may be disposed of on merits. We accordingly accept the appeals, set aside the judgment of the High Court and remand the case to it for disposal of the appeals filed by the parties on merits Looking to all the circumstances, we leave the parties to bear their own costs of these appeals. As the matter has been pending for a long time, the High Court may dispose of the appeals at an early date. H V.P.S. Appeals allowed. ' •