Case: L. Ishwar Dass &amp; Others Vs. The Haryana Woollen &amp; General Mills Limited

2. On December 1, 1950 the appellants entered into a partnership agreement with the respondent for the purpose of carrying on the business of supply of blankets to the Army. The formal deed of partnership was executed on March 6, 1951. The partnership deed recites that the appellants (who were parties Nos. 2 and 3 to the deed) were weaving experts while the respondent (who was party No. 1 to the deed) used to do the work of spinning woollen yarn. It further recites that the three parties had formed a partnership for the purpose of supplying 5000 blankets to the Government of India in conformity with Specification No. I. N. 2689. The deed of partnership indicates the proportion of shares held by the three parties in the venture in the following manner:Haryana Woollen and General Mills Ltd. Party No. 1,2/16 sharesYoung and Co., Party No. 27/16 sharesIshwar Das, Party, No. 3 and Appellant No. 1 in this case.7/16 sharesThe partners were to be responsible for profit and loss in the ratio of their shares. The respondent, Haryana Woollen and General Mills Ltd. (hereinafter briefly described as the defendant or the defendant mill) was to spin the yarn and the appellants were to manufacture the blankets and produce the finished products according to the aforesaid specification. We are not concerned with all the terms of the partnership deed and it is not necessary to set them out here. We shall, however, be concerned with three terms which are set out below.That the parties Nos. 2 and 3 will purchase and supply wool to party No. 1 for spinning. If parties Nos. 2 and 3 could not supply wool, party No. 1 will not at all be responsible, but in that event, the said firm will be responsible for all the losses.21. That the party No. 1 will have to spin yarn ofcounts for the contract. Party No. 2 and Party No. 3 will continue to enter in a register the verification of correctness of count at the time of receiving yarn. If party No. 1 could not prepare yarn of this count, then the parties Nos. 2 and 3 will not at all be responsible for the supply of the material, blankets and losses. If the yarn of the specified count is continually received, then the said firm will be liable for any loss that may take place.22. That, if the Party No. 1 had to dispose of any yarn or wool of the said firm, then the Party No. 1 would endorse in favour of Parties Nos. 2 and 3 the payment of the bill of sale and would not himself receive any payment.The plaintiffs case in the plaint was mainly on the following lines. Though the plaintiff No. 1 had invested Rs. 21,411/12as./9ps. and plaintiffs Nos. 2 and 3 had invested Rs. 21,450/10as/ops. the defendant mill had not invested its share of the capital. Further, though the defendant mill was required under the agreement of partnership to spin yarn ofcounts, the defendant mill did not do so and the yarns prepared by the defendant mill were of a much lower count from which blankets could not be manufactured according to the specification. The defendant mill had also, it is alleged, prepared yarn much below the normal yield and misappropriated a part of the wool supplied by the plaintiffs by mixing it with inferior wool supplied by the defendant mill. In respect of a total quantity of 174 mds. 32 srs. and 8 chs. of wool supplied by the plaintiffs the defendant mill had not rendered any account whatsoever.

Court's reasoning:
9. The plaintiffs thereupon brought the matter on appeal to this Court by special leave. This Court on that occasion held that clause No. 21 of the terms of partnership which laid down the condition regarding spinning of yarn ofcount was operative as from December 1, 1950. To that extent the finding of the lower courts was set aside. Since there was no clear finding by the lower courts on the question whether there had been any breach before March 6, 1951, this Court held that this question should be gone into at the time of giving the final decree. In any event final accounting was to be done on the basis that all the conditions of the deed of partnership were operative fromThis Court also gave a direction that the question as to what happened to the balance of 21 mds. of wool given by the appellants after March 6, 1951would have to be determined in accounting and at the time of final decree and further, provided that in regard to the question of damages the matter was to be dealt with in accordance with Sec. 13 of the Partnership Act. The appeal was, therefore, allowed by this Court to the extent we have just indicated and the preliminary decree was modified accordingly. The case thereupon went back for further hearing.The High Court and the subordinate courts had previously recorded their findings only with regard to 3 mds. 24 srs. and 2 chs. of yarn which had been supplied by the defendant mill to the plaintiffs after March 6, 1951. According to that finding this 3 mds. 24 srs. and 2 chs were of the required count. This finding could not be traversed again and was to be taken as final.The question, however, still remained as to what had happened to the balance quantity of wool supplied by the plaintiffs to the defendant mill. Could it be said that the return of some wool and waste by the defendant mill as found by the trial Court after remand was in compliance with the terms and conditions of the partnership ? The question that the High Court thought was important for decision was this : Was the defendant mill justified in returning a quantity of the wool without turning it into yarn ?According to the High Courts interpretation of this Courts Judgment and decree "the question whether 3 mds. 24 srs. and 2 chs. supplied after the 6th of March was in accordance with the terms of the contract, was not left open but the question whether the balance of 21 mds was properly accounted for in terms of the agreement, had to be determined by the trial Court. The High Court found that the trial Court had not decided this matter and directed that the records be sent to the trial Court to determine whether in returning the balance wool the defendant mill had committed any breach of the terms of partnership or not. The High Court directed that each party would be given one opportunity to lead all such evidence as it may deem fit and as may be relevant and the trial Court after hearing the arguments would send a report to the High Court through the Senior Subordinate Judge. The High Court gave other ancillary directions. Pursuant to this direction the learned Subordinate Judge First Class, Panipat recorded the evidence of Ishwar Das Plaintiff and Jei Narain Managing Director of the defendant mill on August 31, 1965 and submitted a report to the High Court. In the report the learned Subordinate Judge gave the opinion that the defendant mill had committed breach of contract with regard to the balance quantity of 21 mds. of wool also. The learned Subordinate Judge found that the entire quantity of 21 mds. of wool supplied by the plaintiff in March 1951 was for spinning and that the defendant, when he returned carded and mixed wool on March 13, 1951 without spinning the same, committed a breach of the contract. The High Court then considered this report and accepted the finding of the trial Court "that the entire quantity of 21 mds. was given for spinning and...12 mds. 24 srs. and 15 chs. out of it was returned unspun and this amounted to a breach. The High Court therefore directed that the Commissioner appointed by the trial Court should in addition to the matter already referred to him in regard to the breach prior to March 6, 1951 go into the breach after March 6, 1951. In the final result, therefore, the appeal of the defendant was rejected and thefiled by the plaintiffs were accepted by the High Court.15. Against this decision of a Single Judge of the High Court there was a Letters Patent appeal in which the Division Bench of the High Court held that the wool supplied by the plaintiffs to the defendant mill on or after March 6, 1951 had been duly and properly returned and accounted for by the defendant mill and therefore the defendant mill had committed no breach of contract with regard to it. The plaintiffs had filedbefore the Division Bench in connection with the Letters Patent appeal on the ground that the learned Single Judge should not have directed the Local Commissioner to take any accounts between the parties because he had already done so and submitted a report to the trial Court. With regard to thisthe Division Bench held that since they had found that there had been no breach of condition No. 21 between the parties after March 6, 1951 the additional direction given by the learned Single Judge was unnecessary and it was not therefore necessary for the matter to go back to the Local Commissioner any further. To this extent the Local Commissioner was directed not to take any further accounts. But since this was the result of the partial success of the defendant mill the cross objections of the plaintiffs were dismissed. As a result of the part success of the defendant mill the Division Bench directed that the accounting between the parties was to be done only with regard to the period before March 6, 1951 on the basis that the defendant mill has committed breach of condition No. 21 of the deed of partnership between the parties and that he has committed no breach of contract after that date. The plaintiffs have now come on appeal against this Judgment of the Division Bench of Punjab High Court in the Letters Patent appeal.The main contention of the appellants before us was that the Division Bench of the High Court misunderstood the real issue between the parties. The appellants make out their case in the followingmanner. In the order dated May 11, 1963 of the trial Court there had been a finding that since the defendant mill had committed a breach of the contract it alone was responsible for the loss suffered by the partnership. The significance of this finding which in effect is based on condition No. 21 of the partnership deed is that a single breach of condition No. 21 will make the defendant mill responsible for the entire loss during the whole period of partnership. Conditions 20 and 21 have to be read together to understand the real purport of these conditions. If the plaintiffs were to fail in their obligation of purchasing and supplying wool to the defendant mill the entire responsibility forall the lossesof the partnership firm were to be borne by the plaintiffs and the defendant mill was not to take any share of it at all. Likewise if the defendant mill was to fail in its obligation of spinning yarn of the requisite count i.e.count then the plaintiffs "will not at all be responsible for the supply of the material, blankets and losses. That is to say, the plaintiffs will in that event be absolved from supplying further material i.e. wool to the defendant mill and also from supplying blankets to government and they would also not be responsible for the loss which would be borne entirely by the defendant mill. If, however, the defendant mill discharged its own obligation i.e. to say "if the yarn of the specified count is continually received then any loss that arose after that would accrue to the firm. Such loss apparently would be treated as the loss of the firm to be distributed among the partners in the shares specified in the partnership deed n the ordinary way. According to the plaintiffs, the learned trial court had decided that since the breach of contract had been committed by the defendant mill, the defendant mill alone would be responsible for the loss suffered by the partnership firm. Theplaintiffs contended that this finding of the trial Court had not been challenged by the defendant mill either before the learned Senior Subordinate Judge or before the High Court at any stage and consequently the defendant mill should not be permitted to challenge that finding in thisplaintiffs have, of course, objected to two findings of the Local Commissioner viz. one as to the spinning charges and the other as to the question of interest. But these questions are still to the determined by the learned Subordinate Judge at the time of giving the final decree. The plaintiffs urged that the Division Bench of the High Court had made an obvious error in holding that accounting was to be done only with regard to the period before March 6, 1951. The learned counsel on behalf of the defendant mill sought to challenge the finding of the trial Court that the defendant No. 1 was to be responsible for the entire loss of the partnership firm under condition 21 but though we asked him to show whether this finding of the learned trial Court had been challenged at any stage either before the learned Senior Subordinate Judge or before the High Court he has not been able to satisfy us on this point. There is no doubt that this particular finding is being challenged for the first time before this Court. We, therefore, accept the plaintiffs contention that the finding of the trial court on this point is final and conclusive. The learned Single Judge of the High Court in so far as he sustained the order of the trial Court is correct. The learned Single Judge was wrong in directing the trial Court to send the case again to the Local Commissioner to report on the breach committed after March 6, 1951. The plaintiffswas quite correct that in view of condition No. 21 no fresh report was called for to ascertain the loss suffered by the firm on account of breach committed before and after March 6, 1951 separately.