Case: Mohatta Brothers Vs. Bharat Suryodaya Mills Co. Ltd., Ahmedabad

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 in favour of the plaintiff- appellant against the respondent-company and dismissed theplaintiff is a partnership firm doing business under the name and style of Mohatta Brothers. The plaintiff firm carried on the business of managing agency of the defendant company up to September 4, 1950. Sometime before that date, it appears the plaintiff-firm expressed an intention of giving up the post of managing agents. July 31, 1950 Chaturbhujdas on behalf of M/s. Chaturbhujdas, Kharawala Mohatta &Co. submitted scheme Ex. 168 in consultation with the plaintiff. Paras 5, 6 and 7 of the scheme were asBefore our this Scheme is approved by the Company the present Directors shall submit before the Company the Balance Sheets and the Profit and Loss Account up to the end of the year 1949 and get the same passed, and they shall get the Proforma Balance Sheet up to the date 31-7-50 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 pre sent 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 from the Company till this day excepting the appropriate 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 this 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 in the Company on the day the date 31-7-50 and which come to about Rs. 4, 77, 850/- as told by the present Agents are to be kept credited in their accounts and interest thereon is 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 thereafter but the same are to be kept credited in the Company with interest at six per cent. But the Company shall return the amount earlier if it so desires.(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 fulfilled and if the Company is found responsible in any way, then the same is to b e fulfilled by the present Agent.But after fulfilling 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 Company 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 E.P.T. deposit and income tax advance payment if the amount of bonus is required to be paid then the present Managing Agents has to give that amountthe following day, i.e. August 1, 1950, the following letter was addressed by the plaintiff-firm to the Board of Directors of theMessrs Mohatta Brothers, the Secretaries, Treasurers &Agents of the company hereby beg to tender our resignation as Secretaries, Treasurers and Agents of the Company on condition of the scheme of Sheth Chaturbhujdas Chimanlal 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 BROTHERSAhmedabadShivaratan G. MohattaChandratan G. MoondhraD.R. MoondhraBrijratan S. MohattaS.R. Mohatta Satyavatinotice was then issued for convening a general meeting of the defendant-company on September 4, 1950 for sanctioning the said scheme. The said scheme was approved by the shareholders on September 4, 1950. Accordingly, as from that date Messrs Chaturbhujdas Kharawala Mohatta &Co. took over as the new managing agents of the defendant-company instead of theplaintiffs 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 for the year 1949. It was stated that there was surplus left after discharging the liability of the Punjab National Bank from earmarked assets consisting of excess profit tax deposits, income tax advance amount and the amounts realised from the sale of the stores. The plaintiff-firm claimed half the surplus in terms of clause (7) of the 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 centmay be stated that the plaintiff-firm with effect from April 1, 1949 consisted of five partners. In addition to those five partners, Shashi Kumar, who was a minor and whose mother Satyavati was his guardian, was entitled to four Anna share in a rupee in the profits of the partnership but was not liable for its losses. Partnership deed Ex. 116 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 Satyavati was shown as a partner of the plaintiff-firm instead of her minor son Shashi Kumar.The suit was resisted by the defendant-company. Besides taking other pleas with which we are not concerned, the defendant contended that the plaintiff firm could not maintain 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 nottrial court held that the new partnership deed Ex. 116 by which Satyavati became a partner was not acted upo n. As the original partnership 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 an d 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 followingplaintiff has filed this suit for account as the account was to be taken of the realisation and expenses of the stores. But by pursis Exhibit 424 the parties have agreed about the net realisation of the stores and have therefore urged that no Commissioner 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 now nothing is required to be done and hence t here is no 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 the remaining Court-fee stamp within a month. I, therefore, pass the followingtwo 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 in favour of the plaintiff- appellant against the respondent-company and dismissed thef is a partnership firm doing business under the name and style of Mohatta Brothers. The plaintiff firm carried on the business of managing agency of the defendant company up to September 4, 1950. Sometime before that date, it appears the plaintiff-firm expressed an intention of giving up the post of managing agents. July 31, 1950 Chaturbhujdas on behalf of M/s. Chaturbhujdas, Kharawala Mohatta &Co. submitted scheme Ex. 168 in consultation with the plaintiff. Paras 5, 6 and 7 of the scheme were ase our this Scheme is approved by the Company the present Directors shall submit before the Company the Balance Sheets and the Profit and Loss Account up to the end of the year 1949 and get the same passed, and they shall get the Proforma Balance Sheet up to the date 31-7-50 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 pre sent 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 from the Company till this day excepting the appropriate 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 this 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 in the Company on the day the date 31-7-50 and which come to about Rs. 4, 77, 850/- as told by the present Agents are to be kept credited in their accounts and interest thereon is 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 thereafter but the same are to be kept credited in the Company with interest at six per cent. But the Company shall return the amount earlier if it so desires.(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 fulfilled and if the Company is found responsible in any way, then the same is to b e fulfilled by the present Agent.But after fulfilling 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 Company 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 E.P.T. deposit and income tax advance payment if the amount of bonus is required to be paid then the present Managing Agents has to give that amountthe following day, i.e. August 1, 1950, the following letter was addressed by the plaintiff-firm to the Board of Directors of thes Mohatta Brothers, the Secretaries, Treasurers &Agents of the company hereby beg to tender our resignation as Secretaries, Treasurers and Agents of the Company on condition of the scheme of Sheth Chaturbhujdas Chimanlal 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 BROTHERSAhmedabadShivaratan G. MohattaChandratan G. MoondhraD.R. MoondhraBrijratan S. MohattaS.R. Mohatta Satyavatie was then issued for convening a general meeting of the defendant-company on September 4, 1950 for sanctioning the said scheme. The said scheme was approved by the shareholders on September 4, 1950. Accordingly, as from that date Messrs Chaturbhujdas Kharawala Mohatta &Co. took over as the new managing agents of the defendant-company instead of thes 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 for the year 1949. It was stated that there was surplus left after discharging the liability of the Punjab National Bank from earmarked assets consisting of excess profit tax deposits, income tax advance amount and the amounts realised from the sale of the stores. The plaintiff-firm claimed half the surplus in terms of clause (7) of the 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 centmay be stated that the plaintiff-firm with effect from April 1, 1949 consisted of five partners. In addition to those five partners, Shashi Kumar, who was a minor and whose mother Satyavati was his guardian, was entitled to four Anna share in a rupee in the profits of the partnership but was not liable for its losses. Partnership deed Ex. 116 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 Satyavati was shown as a partner of the plaintiff-firm instead of her minor son Shashi Kumar.The suit was resisted by the defendant-company. Besides taking other pleas with which we are not concerned, the defendant contended that the plaintiff firm could not maintain 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 nottrial court held that the new partnership deed Ex. 116 by which Satyavati became a partner was not acted upo n. As the original partnership 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 an d 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 followingf has filed this suit for account as the account was to be taken of the realisation and expenses of the stores. But by pursis Exhibit 424 the parties have agreed about the net realisation of the stores and have therefore urged that no Commissioner 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 now nothing is required to be done and hence t here is no 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 the remaining Court-fee stamp within a month. I, therefore, pass the followingorder.ORDERDefendants do pay Rs. 77, 286-0-2 and the cost of the suit to plaintiff with future interest at 6 per cent from 1st January, 1956. The plaintiff should pay the remaining Court fees within a month. Defendants to bear their owncross-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 plaintiffs 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 asplaintiff-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 Shashi kumar had become major in 1953 and had become a partner of the plaintiff-firm Mohatta Brothers, Ahmedabad, and as even the name of Satyavati Devi who was the partner suing did not appear in the entry in the register of firms the present suit was barred under section 69(2) of thewith 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 Court 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, it would remain the same registered firm, and there would be no necessity 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, 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 mere 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 show n in the register of the firms. This defect was held to be fatal. The High Court in this context observedview of this legal position which we have discussed the second mandatory condition under section 69(2) is not fulfill led 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. In that 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 plaintiffs 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 plaintiffs suit we would order both the parties shall bear their own costs all throughout."

Reasoning:
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 plaintiff-firm are concerned, it would be Shashi Kumar who would be entitled to the same. That position is also accepted by Satyavati in the applications in connection with the registration of the firm to the income-tax authorities. It would, in our opinion, be a wholly untenable 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 defendant-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 person 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 fo r that is that a creditor of a defendant-firm can, except in 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 t he 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 Shivratan. It is plain that if Satyavati were a partner of the plaintiff-firm, Shivratan and other partners would have to bear losses to the extent of 12 Annas in a rupee. As against that, if Shashi Kumar be en titled to share profits to the extent of 4 Annas in a rupee and be not liable for the losses, in such an event Shivratan and other partners A would have to bear the losses to the full extent of 16 Annas in a rupee. If despite that fact, Shivratan has deposed that Satayvati did not be come a partner of the plaintiff-firm and the deed of partnership dated October 24, 1949 was not acted upon, his statement in this respect should not, in our view, be rejected, especially when there is over r whelming documentary evidence which lends support to the aboveentire 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 t he 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 partnership. The question, to which a reference has been made in the course of arguments, as to when it was decided not to act upon the deed of partnership dated October 24, 1949 is hardly of much importance, the material thing is that the said deed w as not given effect to or acted upon by the parties concerned. The firm which came into existence as per deed of partnership dated May 19, 1949 was admittedly registered under the Indian Partnership Act and its partners were shown in the Register of Firms.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 court. In view of this conclusion of ours, it is not necessary to go into the legal question as to, what should be the proper const ruction 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 marked the finding of the High Court that Satyavati had become a partner of the plaintiff-firm and that the deed of partnership dated October 24, 1949 had been actedHigh 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 the light of the conclusion we have arrived at, it becomes essential to remand the matter to the High Court so that the cross appeals filed by the parties may be disposed of on merits.