Case: Gambhir Mal Pandiya Vs. J. K. Jote Mills Co., Ltd., Kanpur And Another

2. The facts of the case are very simple Messrs. J. K. Jute Mills Co. Ltd., ( the answering respondents) entered into a contract with a firm, Messrs Birdhi Chand Sumer Mal, for the supply of certain articles. The contract was entered into by one Seth Tikam Chand, a partner in the firm. One of the terms of the contract was that in a case of a dispute between the parties, it would be referred to the Merchants Chamber of Commerce, Kanpur, for arbitration. It appears that a dispute arose, which was referred to the Chamber of Commerce, and an award in favour of the Mills was given on January 8, 1947. Two years later, the award was made into a rule of the Court, and a decree, followed in favour of the Mills. The firm of Birdhi Chand Sumer Mal consisted of two partners; the other partner was one Mr. Pandiya, the predecessor-in-interest of Seth Gambir Mal Pandiya the appellant. In execution of the decree passed against the firm, the Mills wished to proceed against the personal property of Mr. Pandiya, and field an application for the leave of the Court under O.21, R. 50(2) of the Code of Civil Procedure. In answer to the notice which was issued, the appellant Seth Gambir Mal Pandiya, appeared and raised objections. He contended that he had not been served in the proceedings relating to the arbitration; nor of the making and the filing of the award in Court. He also contended that Seth Tikam Chand, who had signed the contract containing the arbitration clause with the Mills, had no authority to enter into an agreement containing such a clause or to refer the dispute to arbitration on behalf of the other partner. He, therefore, maintained that the award was not binding on him.      3. The contentions of the appellant were not accepted by the First Civil Judge, Kanpur, who allowed the application of the Mills and granted them leave under the rule. The appellant then filed an application for revision in the High Court of Allahabad, which was heard by C. B. Agarwala and Beg. JJ. Agarwala, J. held that although the decree passed against the firm was to be deemed to have been passed against all the individual partners thereof, it was binding proprio vigore only against the partnership property and personally against those persons who are mentioned in cls. (b) and (c) of R. 50(1), O.21, and that the decree was not binding against the appellant, who had not been served in the suit and would be binding only when a summons was served upon him to appear under sub-r (2) and his liability was determined. The reason given by the learned Judge was that a person who was not served in the suit could question his personal liability under the decree, even though he admitted himself to be a partner, upon any ground which was open to him if he had been served in the suit, and that such a person could raise the objection that as the decree was the result of an award which was based upon an agreement of reference to arbitration to which he was not a party, he was not personally liable under the decree. Beg J., on the other hand, held that inasmuch as the appellant admitted that he was a partner in the firm of Birdhi Chand Sumer Mal, he was not entitled to raise any objection either to the contract or the reference to arbitration or the award. The learned Judges having disagreed about the interpretation to be placed on sub-r (2) of R. 50, the case was laid before Mukherji, J. He agreed with the conclusion of Beg. J. and in accordance with his opinion. the application for revision was dismissed. The Divisional Bench, however certified the case as fit for appeal to this Court, and the present appeal has been filed.

Court's reasoning:
8. From the above analysis, it is clear that a plaintiff need sue only the firm, but if he wants to bind the partners individually he must serve them personally, for which purpose he can get a discovery of the names of partners of the firm. Persons served individually may appear and file written statements, but the proceedings go on against the firm only. They may, however, appear and plead that they are not partners or were not partners when the cause of action arose. But even if no other partner appears there may be a decree against the firm if the firm has been served with the summons. The gist of O. 30 thus is that the action proceeds against the firm, and the defence to the action by persons admitting that they are partners is on behalf of the firm. Persons sued as partners may, however, appear and seek to establish that they are not partners or were not partners when the cause of action arose ; but if they arise this special plea, they cannot defend the firm. This was laid down in connection with the analogous provisions of the English rule in Weirand Co. v. Mc Vicar and Co. 1925-2 KB127. Parners appearing and admitting their positions as partners can only defend the firm, because the suit continues in the firms name. The law is thus not concerned with a fight between the partners inter se, and an action between the partners is not to be tried within the action between the firm and the plaintiff. Of course, the partners who admit that they are partners need not raise a common defence. They may raise inconsistent defences, but all such defences must be directed to defend the firm and the plaintiff must surmount all such defences. Sees v. Wadeson (1889) 1 QB714. The purport of the rules as well as the two English cases which have correctly analysed the rules on the subject (the English and the Indian rules being alike ) is that the partnership is sued as a partnership and though the partners may put in separate defences, those defences must be on behalf of the firm. If some of the partners do not appear, those that do, must defend the firm; but if no proper defence is raised by them, the plaintiff cannot be deprived of a judgment. The judgment and decree thus obtained are executable against the partnership assets. This brings in the provisions of O. 21. R. 50 of the Code9. That rule enables a decree obtained against a partnership firm to be executed against the property of the partnership. Next, it enables the decree to be executed individually against a person who appeared in his own name under R. 6 or R. 7 of O. 30 or who admitted on the record or was adjudged to be a partner. Next, the decree can be executed against any person who is served individually as a partner but has failed to appear. Next, it permits the decree to be executed with the leave of the Court against persons belonging to the category of the person above mentioned, provided that they are summoned and either admit their liability or after an issue is tried, their liability is determined10. A large number of cases decided in India and England have laid down the kind of issue which may be tried under O. 21 R. 50(2) of the Code and the cognate provisions of the English rules. Since the English cases are first in point of time, we shall begin with them. It must be remembered in this connection that the English rules prescribe forms for recording appearance by persons summoned in actions against firms19. In our judgment, the view expressed in these later cases is the correct one.As we have pointed out O.30 of the Code 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 no 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 O.21 gives them an opportunity of showing cause and the plaintiff must prove their liability. This enquiry does not entitle the person 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 leave forthwith20. In our opinion, of the three constructions suggested by the learned Attorney-General the widest meaning cannot be attributed to the wordliability. The proper meaning 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 alleges collusion fraud or the like. No such question has been raised in this case, and the decision given by the High Court cannot be disturbed.