Bombay High Court
M/S. Glorious Plastics Ltd. vs Laghate Enterprises And Others on 28 September, 1992
Equivalent citations: AIR1993BOM224, 1993(1)BOMCR179, (1993)95BOMLR969, 1993(1)MHLJ869, AIR 1993 BOMBAY 224, (1997) 1 BANKLJ 397, (1993) MAH LJ 869, (1994) 1 CIVILCOURTC 134, (1993) 1 BOM CR 179
ORDER
1. The Chamber Summons has been taken out on behalf of the plaintiffs for grant of leave to the plaintiffs under Order XXI Rule 50 of the Code of Civil Procedure, 1908 (for short 'the Code'), to execute the decree passed in the suit on 2nd September, 1988 against the respondents. On 20th July, 1990, the Chamber Summons was made absolute. However, on behalf of the 4th respondent herein, a Chamber Summons bearing No. 858 of 1991 was taken out to set aside the Order passed on 20th July, 1990 as against the 4th respondent. On 18th September, 1992, the said Chamber Summons bearing No. 858 of 1991 was made absolute and the Order passed on 20th July, 1990 in the present Chamber Summons was as against the 4th respondent only set aside and the Chamber Summons was restored to file for rehearing today as against the 4th respondent only. Hence, the hearing of the Chamber Summons as against the 4th respondent only has proceeded before me.
2. In respect of amounts due and payable under sixteen Bills of Exchange drawn by 1st defendants on the 2nd defendants in favour of the plaintiffs, on 2nd February, 1988, the plaintiffs lodged the suit against the defendants for recovery of Rs. 5,67,800/- together with interest on Rs. 5,00,000/- to be calculated at the rate of 18% per annum from the date of the suit till payment and costs of the suit. The 1st defendants are a partnership firm. The 2nd defendants are also a partnership firm. The leave under Order XXI, Rule 50 of the Code is sought as against the 4th respondent herein on the footing that the 4th respondent was a partner in the firm of the 2nd defendants and as such, liable to pay the decretal amount to the Plaintiffs.
3. Mr. Shah, the learned Advocate appearing for the plaintiffs, has submitted that the 4th respondent, being a partner in the firm of the 2nd defendants (for short 'the said firm') is liable to pay the decretal amount to the plaintiffs though he was neither sued in his individual capacity as a partner in the said firm nor a writ of summons to answer the plaint in the suit was served upon him. Mr. Shah has further submitted that under Section 25 of the Indian Partnership Act, 1932 (for short, 'the said Act'), every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner and since the 4th respondent was a partner in the said firm when the said Bills of Exchange were accepted by the 2nd defendants, the 4th respondent is also liable to pay the decretal amount to the plaintiffs. Mr. Shah has further submitted that the said firm is registered with the Registrar of Firms under the provisions of the said Act and the extract of registration issued in the year 1989 by the Registrar of Firms shows the name of the 4th respondent therein as partner in the said firm and as such, in any event, the 4th respondent held out himself to be a partner in the said firm and has rendered himself liable for the obligations of the said firm under the provisions of Section 28 of the said Act. Mr. Shah has further submitted that the notice of retirement of the 4th Respondent from the said firm though published in the vernacular newspaper on 7th October, 1988 is not in compliance with the provisions of Section 72 of the said Act as public notice of the retirement of the 4th respondent has not been effected by publication in the official gazette and no notice has been given to the Registrar of Firms till 3rd January, 1992 and as such, under Section 63 of the said Act, and as such, the 4th respondent has not ceased to be liable. Mr. Shah has lastly submitted that since fads are in dispute, the question in issue has to be decided in the same manner as the trial of a suit and, therefore, the hearing of the Chamber Summons be adjourned to Court for recording evidence. In support of his this submission Mr. Shah has relied upon the case of Jayantilal Mohanlal v. Narandas and Sons, .
4. Mr. Tulzapurkar, the learned counsel appearing for the 4th respondent, has submitted that since the plaintiffs had dealt with the said firm without knowing that the 4th respondent was a partner therein, under Section 32 of the said Act, the 4th respondent is not liable to pay the decretal amount to the plaintiffs payable by the said firm under the decree passed in the suit on 2nd September, 1983. Mr. Tulzapurkar has further submitted that since the fact of retirement of the 4th respondent is not disputed, no evidence is required to be led to prove the retirement of the 4th respondent from the said firm and it is not necessary to adjourn the hearing of the Chamber Summons for recording evidence. Mr. Tulzapurar has further submitted that in the facts of the case, Section 25 of the said Act has no application and that there is no material on record to show that the 4th respondent held out himself to be partner in the said firm after his retirement therefrom on 1st April, 1982, In support of his submissions, Mr. Tulzapurkar has put reliance on the case of Jwaladutt R. Pilliani v. Bansilal Motilal, reported in AIR 1929 PC 132 as also on the case of Bhaishankar Motiram v. Lakshmi Dyeing Works reported in AIR 1930 Bom 449 (DB). He has also put reliance on the case of M/s Juggilal Kamlapal v. M/s. Sew Chand Bagree, .
5. Under the deed of partnership executed on 22nd July, 1973, the said firm was constituted and the 4th respondent was a partner therein. The said firm was reconstituted under the Deed of Partnership executed on 1st April, 1979 whereby some of the partners therein retired with effect from 1st April, 1979 and the 5th Defendantjoined the partnership. The 4th respondent continued to be a partner therein. By a further Deed of Partnership executed on 1st April, 1982, the said firm was again reconstituted whereby the respondents 1, 2, 3 and 4 retired from partnership with effect from 1st April, 1982 and one Kaumudi Ajit Karve and the 5th defendant continued to be partners therein. The said firm was registered under the provisions of the said Act. However, the intimation about retirement of the respondents from the said firm was not given to the Registrar of Firms under the provisions of the said Act till 3rd January 1992. An assessment Order to assess income of the said firm under the Income-tax Act, 1961 for the assessment year 1983-84 was passed on 27th March, 1986 and the fact of the respondents including the 4th respondent having retired from the said firm from the beginning of the accounting year 1982-83 (i.e. the period ending on 31st March, 1983) has been recorded therein. Form 11 required to be filed under the provisions of the Income-tax Act, 1961 was filed and the registration to the said firm as reconstituted under the said Deed of Partnership dated 1st April, 1982 was granted for the assessment year 1983-84. On 30th December, 1983, the respondents 3 and 4 addressed a letter to the Sales Tax Officer 8th, G-Ward, Unit No. 1, Bombay, and inter alia, intimated the Officer that with effect from 1st April, 1982, the respondents had retired from the said firm and that as from 1st April, 1982, the respondents were not responsible and liable for the deeds of the said firm. The public notice recording the fact of retirement of the 4th Respondent from the said firm with effect from 1st April, 1982 was published in a vernacular newspaper on 7th October, 1988 and as aforesaid, notice about it has been given to the Registrar of firms under Section 63 of the said Act on 3rd January, 1992. No notice has been published in the Official gazette. The 5th defendant has filed an affidavit in these proceedings wherein he has admitted that the 1st respondent is not a partner either of the 1st defendants or of the 2nd defendants, he having retired therefrom. The 1st respondent had retired from the said firm along with the 4th respondent under the same said Deed of Partnership dated 1st April, 1982 and as such, the admission of the 5th defendant supports the contention of the 4th respondent that he had retired from the said firm with effect from 1st April, 1982.
6. The above referred documents prove beyond reasonable doubt that the 4th respondent had retired from the said firm with effect from 1st April, 1982. The said sixteen Bills of Exchange on the basis whereof the plaintiffs had claimed the amount in the suit were drawn on 1st March, 1985 and accepted by the 5th defendant as partner in the said firm on that day. All the said Bills of Exchange became due on 28th August, 1985. Hence, the 4th respondent was not a partner in the said firm when the liability of the said firm of the 2nd defendants arose under the said sixteen Bills of Exchange. In Section 25 of the said Act, the general rule as to a partner's liability for acts of the firm, based as it is on the principle of agency, properly confines that liability only to acts of the firm done while he is a partner. Hence, under this section, the act of the firm in respect of which liability is sought to be enforced against a party must have been done while he was a partner. This being not so in the present case, Section 25 of the said Act has no applicability.
7. Section 28 of the said Act reads as under:--
"28. Holding out -
(1) Any one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm is liable as a partner in that firm to any one who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.
(2) Thereafter a partner's death the business is continued in the old firm-name, the continued use of that name or of the deceased partner's name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death."
Ordinarily a person becomes liable for the debts and obligation of a firm because he is a partner in that firm. But a person who is not in fact a partner may also become liable to another whom he has led to believe that he is a partner and to act on that behalf. In such a case, though not in point of fact a partner, he is rendered liable for the obligations of the firm to that person because he held himself out as a partner. However, in order to hold a person liable as a partner, though in fact" he may not be one, on the basis of holding out, it must be established -
i) that by words or conduct he represented himself to be a partner or knowingly permitted himself to be represented as a partner to anyone, and
ii) that the other person acting on the faith of the representation gave credit to the firm.
There is nothing to show that the 4th respondent himself represented or permitted others to represent to the plaintiffs that he was a partner in the said firm of the 2nd defendants on 1st March, 1985. Mr. Shah has relied upon the extract of registration of the said firm issued in the year 1989 and submitted that the same amounted to permitting others to represent to the plaintiffs that the 4th respondent was a partner in the said firm as on 1st March, 1985. This is not correct since on the admission of the plaintiffs themselves, till the time of taking out of the present Chamber Summons, the plaintiffs did not know as to whether the 4th respondent was even a partner in the said firm. In the affidavit affirmed on 13th September, 1989 in support of the present Chamber Summons, the plaintiffs have stated as follows:--
"I say that the names of the partners of defendant No. 2 were not available with the plaintiffs at the time of filing of present suit and, therefore, the plaintiffs were unable to join the respondents as defendants."
Hence, the question of the plaintiffs acting on the faith of alleged representation that the 4th respondent was as on 1st March, 1985, a partner in the said firm and giving credit to the said firm on that basis did not arise. In the facts of the case, it is crystal clear that the plaintiffs dealt with the said firm without knowing that the 4th respondent was a partner therein. The portion of Section 32 of the said Act relevant for the purposes of the present Chamber Summons reads as under :
"32. Retirement of a partner -
(1) & (2) ..........
(3) Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement.
Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner."
The rule laid down in the proviso engrafts on important exception upon the general rule contained in sub-sec. (3). A person who is not known to be a partner in a firm cannot be said to owe any duty to give notice of his retirement to persons who do not know that he has been a partner. The proviso is to the effect that even where there is failure to give public notice a retired partner will not be liable to a third party who did not know of such person being a partner and deals with the firm after such retirement.
8. The law relating to partnership in India was, prior to 1932, contained in Chapter XI (Ss. 239-266) of the Indian Contract Act, 1872. Section 264 read as under :--
"264. Persons dealing with a firm will not be affected by a dissolution of which no public notice has been given, unless they themselves had notice of such dissolution."
In the case of Jualadutt R. Pillai (supra), the Privy Council while interpreting the said Section 264 held -
"Where on the dissolution of partnership, public notice of dissolution is given, but no notice is given to the old customers, the retiring partner is still liable to the old customer if he continues to give credit to the partnership."
In the case of Bhaishankar Motiram (supra), the plaintiff had entered into the suit transaction with a firm after one of the two partners of it had retired, but before notice of dissolution of the partnership was published. Plaintiff however was not aware of the time he entered into the transaction that the retiring partner was a member of the firm. Plaintiff sue to recover amount due in respect of his transaction. The Division Bench of this Court held -
"that S. 264 did not apply to such a dormant partner."
It was further held -
"that no liability would attach to the retiring partner as he retired before the suit transaction and was unknown to the plaintiff when he transacted with the firm."
In the case of Messrs. Juggilal Kamalapat (supra), the Calcutta High Court while interpreting proviso to Sec. 45(1) of the said Act which in principle is similar to the proviso to sub-section (3) of Section 32 of the said Act, held -
"But for the proviso the dissolution of a firm would not have affected the liability of a partner who had gone out of it or of a dormant partner until public notice of the dissolution was given. The effect of the proviso is to except the case of a partner who was not known to the person dealing with the firm to be a partner and who has retired from the firm without any public notice of dissolution being given."
9. The only question that is open for determination under Rule 50 of Order XXI of the Code is whether the 4th respondent sought to be proceeded against was a partner in the said firm at the material times so as to be enable to pay the decretal amount of the said decree passed against the said firm. There is no statutory bar preventing this Court from deciding the issue involved on affidavits more particularly when the fact of retirement of the 4th respondent from the said firm is not in dispute. Order XXI, Rule 50 of the Code specifically stated that if the liability is disputed, Court may order that the liability of such person be tried and determined in any manner in which any issue in a suit may be tried and determined. Under Order XIX, Rule 1 of the Code any particular fact or facts may be proved by affidavit. In the facts of the case, in my view the present chamber summons can be disposed of an affidavits without recording evidence. Accordingly, I have declined to adjourn the hearing of the Chamber summons to Court for recording evidence. Even in the case of Jayantilal Mohanlal (supra) relied upon by Mr. Shah, it has been held that issues arising out of dispute regarding partner's liability towards decree passed against firm can be tried by affidavit by virtue of provision of Order XIX Rule 1 of the Code.
10. In the circumstances, the Chamber Summons is dismissed as against the 4th Respondent. There shall, however, be no order as to costs.
Chamber Summons dismissed.