Decree against firm - Liability of partners - Partner can contend that he was not partner of firm in question at relevant time or decree was collusive or fraudulent - When decree is found not to be so, every partner is bound by decree

BOMBAY HIGH COURT

Before :- Sharad Manohar, J.
Civil Revn. Appln. No. 326 of 1982. D/d. 29.9.1982.

Jayantilal Mohanlal - Petitioner
Versus
Narandas and Sons - Respondents

For the Petitioner (absent) :- N.V. Adhia, Advocate.
For the Respondent No. 1 :- M.A. Rane with A.M. Mody, Advocate.

Bombay High Court

JUDGEMENT

Sharad Manohar, J. - This is a revision application filed by a retired partner of the firm against which firm money decree has been passed by the Court. After passing of the decree, the decree-holder wanted to execute the same against the petitioner on the ground that he was a partner of the
firm at the time of the suit transaction. The petitioner claims to have retired from the partnership. The plaintiff filed the requisite application to the Executing Court under Order 21, Rule 50(2) of the Civil Procedure Code for bringing on record the petitioner and other partners of the defendant-firm so that he could execute the decree against them individually. This was done by him by taking out a notice in that behalf. This notice was opposed by the present petitioner on various grounds, all of which have been negatived by the trial Court and an order has been passed that the execution should proceed against the present petitioner. It is this order which the petitioner wants to be revised by this Court.
2. The facts relevant for the purpose are as follows :-
    For the sake of convenience, the parties will be referred to with reference to their position in the trial Court save and except that the petitioner, who was respondent No. 4 in the trial Court will be referred to as 'petitioner' only.
One Miss Geetaben N. Jatania who was defendant No. 2 in the suit had deposited a sum of Rs. 7,000 with the firm M/s. Damodar Vithaldas, which was defendant No. 1 in the suit. The firm/defendant No. 1 executed a deposit receipt in favour of said Miss Jatania/defendant No. 2. It is not disputed that said Miss Jatania/defendant No. 2 assigned her right, title and interest in the said deposit receipt in favour of the plaintiff.
About the next fact there is a slight ambiguity. Contention of the present petitioner is that he retired from the partnership firm/defendant No. 1 on 31-10-1976. However, this date is also referred to as 24-10-1976 in the judgment of the trial Court. Whatever that may be, it is an admitted fact that the present petitioner retired from the partnership firm/defendant No. 1 after the execution of the deposit receipt by the firm in favour of defendant No. 2.
On 15-10-1979 the plaintiffs filed a suit against the firm-defendant No.1 and also against defendant No. 2, Miss Jatania for recovery of the amount due under the deposits. In the said suit decree was passed on 17-6-1980 against the firm/defendant No.1 for a sum of Rupees 9,992.91 ps. The decree directed that amount was to be refunded by instalment of Rs. 300 each. The first instalment was to be paid on or before 15th day of each month. On 26-9-1980, the plaintiffs took out Miscellaneous Notice No. 1781/80 against the present petitioner Jayantilal Mohanlal, who was shown as respondent No. 4 in the said notice and against some other respondents. By the application in question the plaintiffs sought to bring on record the partners of the firm/defendant No. 1 so that the plaintiff could execute the decree against the said partners also. Evidently, the application was made under Order 21, Rule 50(2) of the Civil Procedure Code The learned Judge who heard the notice, however, appears to have taken the view that such an application was not competent because the original judgment- debtor, defendant No.1, had not made any default in payment of the decretal instalment. The learned Judge observed that the original judgment-debtor, defendant No. 1, was always ready and willing to pay the amount. I may state here that the fact that on the date when the said application viz. Miscellaneous Notice No. 1781/80 was made, the firm/defendant No. 1 was ready and willing to pay the amount of decretal instalment, is not disputed before me. As a matter of fact it has been the specific contention of the present petitioner in the trial Court that the original firm/defendant No. 1 against whom the decree was passed had in fact offered the amount of the instalments to the plaintiff but that the plaintiff themselves refused to accept the amount. This position appears to be to have been accepted by the learned Judge also. Evidently, according to the learned Judge the decree was an instalment decree and question of the execution of the decree would not arise unless there was any default made in payment of any instalment. Since no default was proved to have been made by the defendant-firm, question of execution of the decree does not arise. It was with this reasoning evidently, that the learned Judge dismissed the said notice by order dated 29-10-1980.
3. On 24-11-1980, the plaintiff took out second notice Miscellaneous Notice No. 2260/80 to bring the names of persons mentioned as respondents Nos. 1 to 5 on record in the decree. Evidently. this application was also made under Order 21, Rule 50(2). Respondent No. 4 is none other than the present petitioner and the present petitioner and other respondents were sought to be brought on record on the ground that they were the partners of the Judgment-debtor firm. It is the order on this application that has given rise to the present revision application. Only the present petitioner and original respondent No. 5 appeared in response to the notice. The present petitioner filed his reply on behalf of original respondent No. 5. To the reply there was rejoinder filed by the plaintiff-decree-holder and to the rejoinder the present petitioner filed a surrejoinder. It is unnecessary to set out the contentions raised to the reply and surrejoinder separately. The substance of the contentions of the present petitioner in reply to the plaintiff's notice was as follows:
    (a) Firstly, according to the petitioner the second application under Order 21, Rule 50(2) of the Code was barred by the principle of the res judicata, having regard to order dismissing its first notice for similar relief.
    (b) Secondly according to the petitioner he was only a dormant partner of the defendant-firm and hence was not liable for the dues of the partnership firm.
    (c) Thirdly, the defendant-firm was always ready and willing to pay the decretal amount by instalments as fixed by the decree. Contention was that the amount of each instalment was in fact offered by the defendant-firm to the plaintiff-decree-holder which amount was unjustifiably rejected by the plaintiff.
    (d) Fourthly, it was contended that the petitioner had retired from the partnership on 31-10-1976 much before the date of the filing of the suit and hence no decree could be passed against him.
    (e) Lastly, it was contended by way of sur-rejoinder that firm-defendant No. 1 was adjudicated insolvent by an order of adjudication passed by this Court on 17-2-1981. Contention was that in view of the said order of adjudication no partner of the firm could be proceeded against and hence the application had become infructuous.
4. All the abovementioned contentions of the petitioner were rejected by the trial Court. As regards the first contention, the trial Court found that the first notice which was dismissed on 29-10-1980 was not dismissed by the Court on merits at all but it was dismissed because according to that Court the question of execution had not arisen at all. The Court dealing with the first notice had found that there was no default committed by the defendant-firm in the matter of payment of the instalments fixed by the decree and hence there was no question of any execution of the decree and if that was so there was no further question of decree being executed against any of the partners of the firm. The second plea relating to the petitioner being mere dormant was not seriously pressed at all and hence the Court found it to be wholly untenable. So far as the 3rd contention was concerned, it does not appear to have been pressed into service at all before the trial Court. The only contentions which were really adjudicated seriously were that:
    (i) The plaintiff's second notice which was an application under Order 21, Rule 50(2) of the Civil Procedure Code was not maintainable:
    (ii) That the defendant having been adjudicated insolvent each of the partners of the firm must be deemed to have become insolvent and he could not be proceeded against in any Court.
The plea that the petitioner was absolved from the liability because he had retired from the partnership on 31-10-1976 was repelled by the Court on the ground that the notice of his retirement was not given by him as required under the Partnership Act. So far as the plea of insolvency was concerned, the learned Judge held that the firm which was declared insolvent was a totally different entity from the firm-defendant No.1. The learned Judge further found that original respondents Nos.1, 2, 3 and 5 were also the partners of the firm M/s. Damodardas Vithaldas (Export) and that they were adjudicated insolvents but the present petitioner was not a party to the insolvency proceedings and was not adjudicated insolvent in the said proceedings. In this view of the matter, the learned Judge held that so far as the present petitioner was concerned, there was absolutely no reason why the application under Order 21, Rule 50(2) of the Civil Procedure Code should not be allowed and as to why the execution should not proceed against the petitioner. By his order dated 24-7-1981, the learned Judge made the notice absolute so far as the present petitioner was concerned and discharged the notice as against rest of the original respondents.
The present petitioner filed an application to the Full court of the Court of Small Causes against the said order but by its order dated 4-12-1981. the Full Court entirely agreed with the judgment of the trial Court as also the reasoning on which it was based. Hence, the Full Court dismissed the said application.
5. The only points that were urged before me by Mr. Adhia, the learned Advocate appearing for the petitioner are the following:
    (a) That the second notice taken out on 24-11-1980 was barred by the principles of res judicata in view of the order of dismissal of the earlier notice dated 29-10-1980 for the same relief.
    (b) The proceedings under Order 21. R.50(2) could not be decided on affidavits. Contention was that since facts were in dispute, the question in issue had to be decided in the same manner as the trial of a suit and by deciding the question on the strength of the affidavits only the petitioner was deprived of the opportunity to lead evidence to prove that the firm was defendant No.1 in the suit against which firm the decree is passed by the Court:
    (c) In view of the insolvency of the defendant-firm, the decree could not be executed even against its partners having regard to the provisions of Sections 7 r/w.99 of the Presidency Towns Insolvency Act,
The answer to the first contention of Mr. Adhia is already indicated above while stating the facts. The answer given by both the Courts below to this contention is quite correct. The order dated 29-10-1980 dismissing the petitioners' application for bringing the partners of the firm on record was not dismissed on merits: it was dismissed on the ground that after all the partners were sought to be brought on record with a view to execute the decree against them, but that the question of execution of the decree did not arise because there was no default in the payment of the instalment decree passed against the firm. The Court on the previous occasion did not hold that in no circumstances the partners could be brought on record. The Court held, by necessary implication, that if there was a default committed by the partnership, decree could be executed by the plaintiff against the firm and at that time the question of bringing the partners of the firm on record would be relevant. I do not mean to suggest that the reasoning is correct or unassailable or that it might be approved of by this Court. The point is that the previous Court had not rejected the application for bringing the partners of the firm on record for all the times. On the other hand, by necessary implication, the Court had given liberty to the firm to make such an application if occasion for execution of the decree against the firm arose. It is nobody's case that on the date of the second application under Order 21, Rule 50(2) such occasion had not arisen. There is no evidence to show that the firm had in fact paid all the instalments due till date of the second application. If that is the position, the second application under Order 21, Rule 50(2) could certainly be entertained. The plea of res judicata in such a case would be misconceived.
6. The plea about want of Jurisdiction for the Court to decide the dispute on affidavits is equally misconceived. The contention is that the liability of the petitioner for a decree passed against the firm was disputed by the present petitioner and under Order 21, Rule 50(2) such a dispute has got in be tried in the same manner in which the suit may be tried. A suit cannot be decided, contends Mr. Adhia, only on the basis of affidavits. He contends that this constitutes a material irregularity in the exercise of its jurisdiction by the Court.
This aspect is further sought to be highlighted by reference to the finding recorded by the learned Judge, viz. that the firm which was adjudicated insolvent was not the same firm against which the decree was passed in the present suit. Contention is that if the proceeding was tried as a suit oral evidence would be led by the petitioner to show that the firm against which the decree was passed in the suit was the self-same firm which was adjudicated insolvent in the insolvency proceedings.
In the first place, to my mind, the contention has no statutory basis at all. Order 21, Rule 50(2) specifically states that if the partner who is sought to be brought on record disputes his liability, the liability shall be tried in any manner in which any issue in the suit may be tried and determined. The words "any manner in which any issue in a suit may be tried" are the key-note for this purpose. Under Order 19, Rule 1 of the Code, any Court may at any time, for sufficient reasons, order that any particular fact or facts may be proved by affidavit. The proviso to the said rule enjoins that if either of the parties bona fide desires the production of the witness for cross-examination and that such witness is available for cross-examination, the evidence shall not be recorded by the Court by affidavits. Applying that provision to the procedure in this case, it will be seen that whatever may be the contentions of the present. petitioner with a view to dispute his liability, that dispute does give rise to certain issues between parties and such issues could be tried by affidavit by virtue of the provision of the said Order 19, Rule 1. It is to be noted that at no time the present petitioner even gave an indication to the Court that he wanted oral evidence to be led in support of his contention nor did he express any desire to cross-examine any of the affiants of the affidavits. The grievance is being made for the first time only before me. That being the position. I find no jurisdictional irregularity in the order passed by the Court after examining the affidavits filed by the parties.
7. But even apart from the factual position mentioned above and apart from the question of the inter-action of the provisions of Order 21. R.50(2) and O.19(1) of the Code, what is to be noted is that the question to be decided under Order 21, Rule 50 is the narrow question as to whether he was a partner of the firm at the relevant time or not. He cannot question the liability of the firm itself. It was open for him to contend that he was not the partner of the firm in question at the relevant time. It was also open for him to contend that the decree passed against the firm of which he was a partner, was the result of collusion, or fraud or of similar other circumstances. But save and except the above contentions, no contention was available for him to defeat the decree passed against the firm as such. Further, once the decree against the firm was found not to be collusive or fraudulent, every partner of the firm would be bound by the decree. If any authority is necessary for this proposition, it is to be found in the decision of the Supreme Court in the case of Gambhir Mal Pandiya v. J.K. Jute Mills (AIR 1963 SC 243). The head-note of the report correctly sets out the ratio of the decision as follows :
    "Order 21, Rule 50(2) deals with executions, but really is a part of the provisions relating to suits against firms contained in O.30 and must be viewed along side to get the true meaning of the words "The liability of such person." O.30 permits suits to be brought against firms. The summons may be issued against the firm or against persons who are alleged to be partners individually. The suit, however, proceeds only against the firm. Any person who is summoned can appear, and prove that he is not a partner and never was: but if he raises that defence, he cannot defend the firm. Persons who admit that they are partners may defend the firm, take as many pleas as they like but cannot enter upon issues between themselves. When the decree is passed, it is against the firm. Such a decree is capable of being executed against the property of the partnership and also against two classes of persons individually. They are : (1) persons who appeared in answer to summons served on them as partners and either admitted that they were partners or were found to be so, and (2) persons who were summoned as partners but stayed away. The decree can also be executed against persons who were not summoned in the suit as partners, but R.50(2) of Order 21 gives them an opportunity of showing cause and the plaintiff must prove their liability. This enquiry does not entitle the persons summoned to reopen the decree. He can only prove that he was not a partner, and in a proper case that the decree is the result of collusion, fraud or the like. But he cannot claim to have other matters tried, so to speak, between himself and his other partners. Once he admits that he is a partner and has no special defence of collusion, fraud etc. the Court must give lease forthwith. The proper meaning of the words "The liability of such person" in Order 21, Rule 50(2) thus is that primarily the question to try would be whether the person against whom the decree is sought to be executed was a partner of the firm, when the cause of action accrued, but he may question the decree on the ground of collusion, fraud or the like but so as not to have the suit tried over again or to raise issues between himself and his other partners. It is to be remembered that the leave that is sought is in respect of execution against the personal property of such partner and the leave that is granted or refused affects only such property and not the property of the firm. Ordinarily, when the person summoned admits that he is a partner, leave would be granted unless he alleged collusion, fraud or the like."
In the lower Courts, the petitioner's contention was that he was not a partner of the firm on the date of the suit or on the date of the decree but it was rightly negatived by the courts below and it was rightly not even urged before me. In the circumstances, the only question that remains for the Court to decide is as to whether the petitioner proves that he was not a partner of the firm at the relevant time. The relevant time, in the instant case, is the date 20-10-1976 when the deposit receipt was executed by firm in favour of the defendant No.2. On this date, the petitioner was admittedly a partner of the firm. The question to be decided by the Court, therefore, was a very narrow question. This question could be decided conveniently on affidavits and the answer to it could not be anything but that the petitioner was liable for the decree passed against the firm. This is so for the simple reason that no partner of the firm can get himself absolved from the liability towards the creditor of the firm by resorting to the simple expedient of retiring from the firm after the firm becomes indebted to the creditor. The lower Court has held that petitioner was liable for the dues because he had not given notice of retirement. But to my mind apart from the question of absence of the notice of retirement, even if the notice of retirement was given, still the petitioner could not be absolved from the liability by giving his unilateral notice of the retirement. He would have to satisfy the Court that after the notice of retirement, the creditor acquiesced in that position and agreed to get his dues satisfied from the newly constituted partnership firm. Nothing of this kind has happened in this case. This being the position the liability of the petitioner for the partnership dues till the date of his retirement cannot be avoided by him.
8. But to my mind, the above objection is capable of being repelled by assuming that whatever the petitioner wanted to prove was in fact proved by him. He wanted to prove that the firm M/s. Damodardas Vithaldas against whom the decree was passed by the Court was the self-same firm M/s. Damodardas Vithaldas (Export) against which an order of adjudication of insolvency was passed in the insolvency proceedings. I may assume that he has proved the fact that the two firms are one and the same. If that is assumed then the second objection vanishes. Because no prejudice is caused to him by virtue of decision by the lower Court on the basis of the affidavits. I am assuming this position because the last point raised by Mr. Adhia arises only if the two firms are assumed to be the same. I make it clear that I do not find any fault with the reasoning of the trial Court in holding that two firms are not established to be the one and the same firm. But for the sake of argument. I will assume that they are the same. In that event, the second objection of Mr. Adhia will vanish but the third objection will have to be considered. His third objection is that once the firm is adjudicated insolvent, the decree passed against the firm cannot be executed against any of its partners. In support of this contention, reliance is placed upon the provisions of Section 7 read with Section 99 of the Presidency Towns Insolvency Act. But I am not at all satisfied that the said provision warrants any such conclusion. Section 7 of the Act provides that the Insolvency Court shall have full powers to decide all questions arising in any case of insolvency coming within the cognizance of the Court or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property of the insolvent. Section 99 of the Act provides that any two or more persons, being partners, or any person carrying on business under a partnership name, may take proceedings or be proceeded against under this Act in the name of the firm. But from the above provisions, it doesn't necessarily follow that once the partnership is adjudicated insolvent, all the persons who appear in the Register of Firms as the partners of the firm on the date of the adjudication automatically become insolvent. Under the general law, every partner may be individually liable for the dues of the partnership, but that does not mean that if the partnership firm is adjudicated insolvent without the partner being made party to the insolvency proceedings, the partner automatically becomes insolvent. If any authority is necessary for the proposition, it can be found in the judgment in AIR 1925 Lahore 379. It was held by a learned single Judge of the Lahore High Court in that case that where a decree has been passed against the firm but all the members have been served individually, the decree can be executed against them personally though the firm has been declared insolvent and though there has been no application under Order 21, Rule 50. From this it necessarily follows that the insolvency of the firm does not result ipso facto into the insolvency of the partner of the firm.
But for the purpose of this petition, it is not necessary for me to give a final decision on this aspect of the matter. The point is that so far as the present petitioner is concerned, on his own admission, he was not a partner of the firm on the date when the firm was adjudicated insolvent. The provisions of Section 99 of the Insolvency Act, therefore do not come into picture at all and if that is the position, it is difficult to see as to how Section 7 of the Insolvency Act would bar the execution of the decree against the petitioner, who was the partner of the firm but who is not amenable to the jurisdiction of the Insolvency Act under Section 7 of the Act. The question between the decree- holder and the partner is not a question arising out of the insolvency proceedings. If the firm becomes insolvent, all the properties of the firm vests in the official assignee, but the property of the partner who has not become insolvent cannot vest in the official assignee and if the decree-holder has recourse against such property of the individual partner, the Insolvency Court has no function to perform at all so far as the questions arising in insolvency are concerned. In this connection, it is to be noted that on the petitioner's own showing the present petitioner was not one of the partners of the firm who was adjudicated insolvent in the insolvency proceedings. The trial Court has pointed out that the other respondents who were sought to be impleaded were adjudicated insolvent in the said proceeding, but the present petitioner was not one amongst those who were adjudicated insolvent. In fact, it is not his case that he was ever adjudicated insolvent. If he was, and the insolvency was subsisting, he could not have filed this Revision Application at all. In this view of the matter, it cannot be said that the petitioner was amenable to the jurisdiction of the Insolvency Court or that he was declared insolvent by the Court. If that is the position, it is impossible to see any justification for the contention that the proceeding against the petitioner under Order 21, Rule 50(2) could not be taken and order under said provision could not be passed against the petitioner.
For all the above reasons, the Revision Application fails. The Rule earlier issued stands discharged. However, in the circumstances of the case, there shall be no order as to costs.

Application dismissed.
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