Case: Major S. S. Khanna Vs. Brig. F.J. Dillon

Brig. F.J. Dillon and Major S.S. Khanna hereinafter called Dillon and Khanna respectively carried on business in partnership as Construction Engineers. They agreed to dissolve the partnership with effect from February 15, 1956. By the deed of dissolution it was agreed that Dillon was to take over all the assets and properties of the partnership as absolute owner and to pay all the debts and to discharge all the liabilities of the partnership and to keep Khanna indemnified against all demands and claims in relation to the partnershipthe deed did not terminate the disputes between the partners, and Khanna commenced an action against Dillon in the Court of the Subordinate judge, 1st Class, Delhi "for dissolution of the partnership and rendition of accounts". On January 12, 1957, the parties arrived at a compromise (which was incorporated into a decree of the Court) confirming the earlier dissolution of the partnership, subject to a scheme of winding up, under which all outstanding realised from the debtors of the firm and the sale proceeds of certain assets were to go into a banking account to be opened in the joint names of Dillon and Khanna and were to be applied in the first instance to meet the liabilities of the dissolved firm, and the balance in that joint account was to belong to Dillon. Some outstanding of the dissolved partnership were collected by Dillon and were deposited in the joint account of Dillon andfiled a suit in the Court of the Subordinate judge at Delhi for a decree for Rs. 54, 250.00 with future interest alleging that between the months of May 1957 and November 1957 he had, at the request of Khanna, advanced in three sums an aggregate amount of Rs. 46, 000.00 as short- term loans which Khanna had promised to but had failed to repay. Khanna pleaded that he did not borrow any loans- from Dillon, and that the amounts claimed in the action being advanced, even on the pled of Dillon. out of joint funds belonging to the two partners, action for recovery of those amounts was, in law not maintainable.Out of the issues raised by the Trial Court in the suit the third, issue viz: "Whether this suit is not maintainable and the plaintiff is not entitled to institute this suit, as alleged in paras Nos. 15, 16, 17, 18 of the written statement was at the request of Khanna tried as a preliminary issue, and it was held that the suit being by a partner against another partner of a dissolved firm which was in the process of winding up, and in respect of advances from the partnership assets, was notHigh Court of Punjab in exercise of its revisional jurisdiction set aside the order, and directed that the suit be heard and disposed of according to law.

Court's reasoning:
For the effective exercise of its superintending and visitorial powers, revisional jurisdiction is conferred; upon the High Court and it would be putting an unwarranted restriction upon the jurisdiction of the High Court to restrict it to those cases only where no appeal would reach the High Court from the final order passed in the pro- ceeding. We are therefore unable to agree with the view which prevailed with the Rajasthan High Court that there is a restriction placed upon the power of the High Court in the exercise of the revisional jurisdiction as would limit the exercise of that power only to cases where no appeal is competent from the final order passed in the suit orthird question may now be dealt with. By the order passed by the Court of First Instance on the third issue it was held that the suit filed by Dillon was not maintainable. That decision, in our judgment, affected the rights and obligations of the parties directly. It was a decision on an issue relating to the jurisdiction of the Court to entertain the suit filed by Dillon. In any event the decision of the Court clearly attracted cl. (c) of s. 115 Code of Civil Procedure, for the Court in deciding that "the suit was not maintainable as alleged in paragraphs 15, 16, 17 and 18 of the written statement" purported to decide what in substance was an issue of fact without a trial of the suit on evidence. Dillon alleged in his plaint that at the request of Khanna, he had advanced diverse loans (from the funds lying in deposit in the joint account) and that the latter had agreed to repay the loans. The cause of action for the suit was therefore the loan advanced in consideration of a promise to repay the amount of the loan, and failure to repay the loan. By his written statement Khanna had pleaded in paragraph 15 that Dillon had not advanced any money to him and that Dillon had not claimed the amount for himself and there- fore he was not entitled to file a suit for recovery of the amounts. By paragraph 16 he pleaded that Dillon having admitted in the plaint that the amounts in suit were to be paid back to the joint account he was not entitled to file the suit. By paragraph 17 it was pleaded that a suit by one joint owner against the other joint owner for recovery of the Joint Fund or any item of the joint fund was not maintainable and by paragraph 18 he pleaded that Dillon could not institute a suit against him because the amount was not repayable. All these contentions raised substantial issues of fact which had to be decided on evidence, and Dillon could not be non-suited on the assumption that the pleas raised were correct. At the threshold of the trial two problems had to be faced : (1) Whether in a suit to enforce an agreement to repay an amount advanced in consideration of a promise to repay the same, the question as to the ownership of the fund out of which the amount was advanced is material ; and (2) if the answer is in the affirmative, whether the fund in fact belonged jointly to Dillon and Khanna.The Judge of the Court of First Instance unfortunately assumed without a trial an affirmative answer to both these questions. Under 0. 14 r. 2, Code of Civil Procedure, where issues both of law and of fact arise in the same suit, and the Court is of opinion that the case or any part thereof may be disposed of on the issues of law only, it shall try those issues first, and for that purpose may, if it thinks fit, postpone the settlement of the issues of fact until after the issues of law have been determined. The jurisdiction to try issues of law apart from the issues of fact may be exercised only where in the opinion of the Court the whole suit may be disposed of on the issues of law alone, but the Code confers no jurisdiction upon the Court to try a suit on mixed issues of law and fact as preliminary issues. Normally all the issues in a suit should be tried by the Court ; not to do so, especially when the decision on issues even of law depend upon the decision of issues of fact, would result in a lop-sided trial of the suit. We are at this stage not expressing any opinion on the question whether the allegations made by Dillon and Khanna are true ; we are only concerned to point out that what was regarded as an issue of law as to maintainability of the suit could only be determined after several questions of fact in dispute between the parties were determined. In proceeding to decide the third issue merely on the pleadings and on the assumption that the allegations made by the defendant in his written statement were true and those made by the plaintiff were not true, and on that footing treating the- joint account as of the common ownership of the two partners, the trial Judge acted illegally and with material irregularity in the exercise of his jurisdiction.