TaxTMI 
TaxTMI 
1976 (10) TMI 160
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....ants Nos. 1 to 3 in the second appeal viz. Ivan E. John, Maurice L. John and Doris Marzano, grandsons and grand-daughter of one A John, are partners of the registered firm called 'John & Co.'. There are three spinning mills and one flour mill at Jeoni Mandi, Agra, which are compendiously described as 'John Mills'. Originally, the members of the John family were the exclusive owners of all these mills which have been in existence since the beginning of the current century. In course of time, some strangers acquired interest therein and by the time the present his commenced, the following became the joint owners thereof to the extent noted against their names :- 1. Ivan E. John, Maurice L. John and Doris Marzano, appellants Nos. 1 to 3 in Appeal No. 572 of 1974 and respondents Nos. 1 to 3 in Appeal No. 416 of 1973-Partners of the firm 'John & Co.', appellant No. 4 in Appeal No. 572 of 1974 and respondent No. 4 in Appeal No. 416 of 1973 : 11/40th share 2. Seth Munilal Mehrs (respondent No. 6 in appeal No. 416 of 1973 and respondent No. 9 in Appeal No. 572 of 1974) and Hiralal Patni (respondent No. 5 in Appeal No. 416 of 1973, decea....
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....9-10 which, on going into the accounts, was found to be due to the latter in respect of the supply of cotton. Nearly five months thereafter i.e. on July 6, 1948 the aforesaid partners of M/s. John & Co. succeeded in obtaining another financial accommodation from Sethiya & Co. vide agreement Exhibit 168 : Exhibit A-1S. By this deed, the financiers agreed, for the efficient working of the mills, to advance loan, as and when required, upto the limit of Rs. 25.5 lakhs to the partners of M/s. John & Co. on condition that they i. e. the financiers would have a floating and prior charge for all monies due to them for the time being including the amount due to them on the date of the agreement and all monies which they might choose to advance under the agreement, on all business assets including stores, coal, oil process etc. of the aforesaid three spinning mills. 4. Describing himself as the sole proprietor of the firm 'Sethiya & Co.' and 'M/s. Tejkaran Sidkaran'. Seth Loonkaran Sethiya filed in the Court of the Civil Judge, Agra on April 18, 1949 an original suit, being suit No. 76 of 1949 against M/s. John & Co. and its aforesaid partners (hereinafter referred to as &....
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....s to the defendants first set (for carrying on the business of the mills and payment of the claims of Raja Ram Bhawani Das and to meet other liabilities) up to the limit of Rs. 20 lakhs inclusive of the aforesaid amount admittedly found due to him from the defendants first set on the date of the agreement and to make a further advance of a sum of Rs. 5,50,000/- on the security of business assets and stocks other than bales of yarn and cotton; that it was also stipulated that he would have a floating and prior charge for the entire amount due to him on the date of the agreement on all the business assets including stores, coal, oil process etc. of all the three spinning mills of the defendants first set and that he would be paid interest at the rate 6 per cent pet annum from date of including liability in respect of each individual item besides commission at the rate of 1 per cent on all sales of products of the three spinning mills whether sold directly or otherwise during the currency of the agreement and a further commission at the rate of 12 per cent on value of all the purchases of cotton required for consumption of the three spinning mills and godown rent as might be agreed. T....
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....h both sets of the defendants were liable to pay. 6. The statement of account as contained in Schedule A annexed to the plaint was as follows : 7. The suit was contested by both sets of defendants on various grounds. Defendants first set inter alia pleaded that there was no settlement of accounts between them and the plaintiff as alleged by the latter; that the accounts were liable to be reopened as they were tainted with fraud, obvious mistakes etc., and that on a true and correct accounting a large sum of money would be found due to them; that though the plaintiff and Seth Sugan Chand (who owned Indra Spinning and Weaving Mills and had a covetous eye on John Mills) had obtained various documents, agreements, vouchers, receipts etc. at various times from them, the same were of no legal value as they were secured by the former by practising undue influence, fraud, coercion and misrepresentation. It was further pleaded by the defendants that the plaintiff had illegally and contrary to the agreement dated July 6, 1948 debited them with huge amounts which were not really due to them. It was further pleaded by the said defendants that the cotton supplied to them by the aforesaid ....
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....f on the defendants first set in relation to the execution of the agreements between Sethiya & Company and the defendants first set. The trial court also held that there was no accounting on April 4, 1949, as alleged by the plaintiff and that both the plaintiff and the defendants first set committed a breach of agreement dated July 6, 1948. The breach committed by the defendants first set according to the trial court lay in their unjustifiably handing over possession to M/s. John Jain Mehra & Co. of the goods on which the plaintiff held a charge thereby furnishing him with a cause of action against both sets of defendants. The trial court also held that under Clause 13 of the agreement dated July 6, 1948, a charge in favour of the plaintiff was created in respect of the entire business assets including stock-in-trade, stores, coal, oil etc. lying inside the three spinning mills which were being run by John & Company; that defendants first set utilised consumed and otherwise dealt with the goods which were burdened with the floating charge from July 6, 1948, to April 13, 1949, when John & Co. ceased to be a going concern and there was a final rupture between the plaintiff and the de....
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....judgment and decree of the trial court, being first appeal No. 65 of 1955, praying that the decree passed by the trial court in favour of the plaintiff be set aside and the suit dismissed with costs throughout. 11. The High Court allowed both the appeals No. 465 of 1954 and No. 65 of 1955 partially by its aforesaid judgment dated December 22, 1972, holding inter alia that no fraud, undue influence, coercion or misrepresentation was practised by the plaintiff on the defendants first set in connection with the execution of agreement dated February 9, 1948, or agreement dated July 6, 1948 (which is the basis of the suit); that the agreement dated July 6, 1948, was neither insufficiently stamped nor did it require registration; that though it appeared that the deed of dissolution dated July 22, 1948, was prepared for the purpose of the case, there was sufficient evidence on the record to indicate that Seth Suganchand had withdrawn from the partnership carried on under the name of Sethiya & Co. with effect from June 30, 1948, and had nothing to do with the transaction evidenced by the agreement dated July 6, 1948, which was entered into by the plaintiff as the sole proprietor of Seth....
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....unting on that date, it could not be said that accounts were finally settled between the parties on April 4, 1949, the defendants first set had failed to point out which entry in the charts (Exh. 6103 to 6112) produced by the plaintiff was wrong; that Rs. 49,35,925/5/7 were advanced by Sethiya & Co. to the defendants first set under the agreement dated July 6, 1948, from the date of its execution to the date of the suit; that a sum of Rs. 11,17,000/- was due to old Sethiya & Co. from the defendants first set upto June 30, 1948 under the agreements dated June 14, 1947 and February 9, 1948; that Rs. 1,55,000/-were advanced by Sethiya & Co. on July 3, 1948 to the defendants first set for purchase of the share of Beni Madho; that in accordance with the obligation undertaken by it under para 1(8) of the agreement dated July 6, 1948, Sethiya & Co. paid, on the basis of transfer voucher (Exh. 3039) dated February 28, 1949, drawn by the defendants first set, a sum of Rs. 17,79,100/- to Tejkaran Sidkaran in full satisfaction of the amount due to the latter under the agreement dated February 9, 1948; that whereas the aggregate of the debit items came to Rs. 82,47,380/15/4, the aggregate of t....
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....tiff had charge and which was in deposit with the Bank in the Court's account - would also be utilised towards the satisfaction of the aforesaid amount decreed in the plaintiff's favour. It is against this judgment and preliminary decree that the present appeals are directed. 12. We have heard counsel for the parties at length and gone through the entire record relevant for the purpose of the appeals before us. As per contentions of the counsel, the following mam questions arise for our determination :- (1) Whether the first 'Sethiya & Co.' (of which the plaintiff and Seth Suganchand were partners) was dissolved with effect from June 30, 1948, as claimed by the plaintiff ? (2) Whether the agreement dated July 6, 1948, was entered into by the plaintiff with the defendants first set as a sole proprietor of Sethiya & Co. or was it entered into by his as a partner of Sethiya & Co.? (3) Whether the suit is barred by Section 69 of the Partnership Act ? (4) Whether Seth Suganchand was a necessary party to the suit ? (5) Whether any material alterations were made in the aforesaid agreement dated J....
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....the preamble of Exh. 168 has been scored out, it has not been initialled either by the plaintiff or by any one of the partners of John & Co. It is also significant that while affixing his signatures on Exh. 168 and its counterpart Exh. A-1 the plaintiff described himself as a partner of M/s. Sethiya & Co. The contention of the plaintiff that his partnership with Seth Suganchand came to an end with effect from June 30, 1948, and the agreement dated July 6, 1948 was entered into by him with the defendants first set as the sole proprietor of Sethiya & Co. is further falsified by the dissolution deed dated July 22, 1948, itself produced by him before the trial Court on December 13, 1949 which would have passed muster if the defendants had not been vigilant. It seems that on seeing this deed written partly on an impressed stamp paper of Rs. 10/- which was not in use in July, 1948, the suspicion of the defendants about the spurious character of the deed was aroused and they hastened to make an application requesting the trial court that in view of the fact that the deed appeared to have been 'anti-dated and manufactured for the purpose of the case', the stamp papers on which it w....
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....pplication for stay of that order and on July 4, 1950, his counsel, Shri Walter Dutt, made the following statement :- The court may for the purpose of deciding the issue under Section 69, Partnership Act take into consideration the fact that the "document purporting to be a dissolution deed executed between the partners of Sethiya & Co. is not genuine although this fact is not admitted by the plaintiff and the court may therefore, discard such portions of the oral evidence of both plaintiff and Seth Suganchand as it considers would be rendered unreliable if the view be taken that the document in question was a fabricated one and the court may presume that the document was not executed on the date on which it purports to be executed. 15. On a consideration therefore of the totality of the tell-tale facts and circumstances especially the aforesaid description of the plaintiff as partner of Sethiya & Co. in the preamble and at the food of Exh. A-1 and Exh. 168, the clumsy attempt made to obliterate the aforesaid description in the preamble of Exh. 168. the execution of a part of the so called deed of dissolution of partnership dated July 22, 1948 on the aforesaid non....
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....(Exh. B-17) for Rs. 1,68,552. 14/6 as partner of Sethiya & Co. also go to demolish the theory of dissolution of the firm 'Sethiya & Co.' on June 30, 1948 which the plaintiff sought to build up on sandy foundations and furnish as eloquent proof of the fact that the firm was very much in existence when the agreement (Exh. 168) dated July 6, 1948, came into being. It has also to be borne in mind that service by post or advertisement in some paper of notice about the retirement of a partner from a partnership firm on persons who are in know of the existence of the firm and have been carrying on dealings with it is of utmost importance to prevent them from assuming that the partnership continues. In the instant case, it is manifest from the evidence adduced by the plaintiff himself that neither he nor Seth Suganchand gave notice in writing to the defendants first set that the latter had retired from Sethiya & Co. with effect from June 30, 1948. The evidence also makes it clear that the concerned persons and the general public were not informed about the retirement of seth Suganchand from the partnership firm 'Sethiya & Co.' by publication of a notice in some paper. The a....
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....rovisions of Sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not effect- (a) the enforcement of any right to sue for dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or... 20. A bare glance at the section is enough to show that it mandatory in character and its effect is to render a suit by a plaintiff in respect of a right vested in him or acquired by him under a contract which he entered into as a partner of an unregistered firm whether existing or dissolved, void. In other words, a partner of a erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of Section 69 of the Partnership Act. In the instant case, Seth Suganchand had to admit in unmistakable terms that the firm 'Sethiya & Co.' was not registered under the Indian Partnership Act. It cannot also be denied that the suit out of which the appeals have arisen was for enforcement of the agreement entered into by the plaintiff as partner of Sethiya & Co. which was ....
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....t the consent of the party bound is exactly the same as that of cancelling the deed." 25. To the same effect are the observations made by the Privy Council in Nahtu Lal and Ors. v. Musamat Gomti and Ors. 26. Now a comparison of Exh. A-1 (produced by the defendants first set) with Exh. 168 (produced by the plaintiff) would show that besides the obliteration of the word 'partner' from the preamble as stated above, the plaintiff made two other alterations in Exh. 168. Originally, the second proviso to Sub-clause (8) of Clause 1 of the agreement stood as given in Exh. A-1 ran thus :- The payment for purchase of cotton will be made on the first (underlining is ours) day of its receipt in the mills of the partners. 27. In Exh 168, however, the word 'first' has been changed into 'tenth' thus making it read as "the payment for purchase of cotton will be made on the tenth (underlining is ours) day of its receipt in the mills of the partners." 28. The third alteration is no less important. As would be evident from Exh. A-l, Sub-clause (3) of Clause 12 of the agreement as actually drawn up between the parties read as follows :-  ....
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....med by the plaintiff was in fact not due to him. 33. Question No. 7 :-The High Court has for cogent reasons held that the goods on which the burden of charge lay being available for the satisfaction of the liabilities, if any, under the agreement dated July 6, 1948, the defendants second set could not be held personally liable for payment of the decretal amount. The opinion expressed by the High Court is correct and we see no warrant or justification to interfere with the same. 34. In view of the foregoing, we have no hesitation in holding that as material alterations have been made by the plaintiff in the agreement dated July 6, 1948 (which is the basis of the suit) rendering it void and as the bar of Section 69 of the Partnership Act clearly applies to the case, the suit is clearly untenable and has to be dismissed. 35. In the result, Appeal No. 572 of 1974 is allowed and the suit out of which it arose is dismissed. Consequently, Appeal No. 416 of 1973 fails and is dismissed. In the circumstances of the case, parties are left to pay and bear their own costs of these appeals. ============= Document 1 "1. Settled balance on 4th April, 1949 according to accounts books ....