Devji @ Deviji Shivji Vs. Maganlal R.
Athrana & Ors  INSC 108 (1 April 1964)
01/04/1964 MUDHOLKAR, J.R.
CITATION: 1965 AIR 139 1964 SCR (7) 564
Partnership-Sub-lease granted to partner of
firm-No intention to bind to firm-Can other partners of firm be liable -Indian
Partnership Act, 1932, s. 22.
The plaintiff appellant instituted a suit
against the defen- dants respondents for the recovery of a sum of Rs. 57,000/-.
The appellant was holding permanent lease
hold rights over a certain colliery. On January 31, 1949 the appellant granted
a sub-lease of the colliery to respondent No. 4 for a term of 5 years. He
joined respondents 1, 2 and 5 as defendants to the suit on the ground that
these three persons along with respondent No. 4 formed a partnership firm known
as Saurashtra Coal Concern which was joined in the suit as defendant No. 5. The
appellant's case was that respondent No. 4 was a benamidar for the partnership
firm and, therefore, all the respondents were liable for the claim.
Respondents 1 and 2 denied the appellant's
According to them, respondent No. 4 took the
sub-lease in his personal capacity and not on behalf of the other respondents.
Respondents 4 and 5 who are father and son, admitted the appellant's case that
the lease was obtained by respondent No. 4 on behalf of the partnership firm.
The trial court passed the decree against all the respondents.
On appeal, the High Court set aside the
decree as against respondents 1 to 3 but affirmed the same against respondents
4 and 5.
Held: that Section 22 of the Indian
Partnership Act, clearly provides that in order to bind a firm by an Act or an
ins- trument executed by a partner on behalf of the firm, the Act should be
done or the instrument should be executed in the name of the firm, or in any
other manner expressing or implying an intention to bind the firm. The
sub-lease was not executed in the name of the firm. On the facts of this case
it was held that in obtaining the sub-lease, the parties to it did not intend
to bind the firm by that transaction, and therefore the decree should be
limited only against respondents 4 and 5.
Karmali Abdullah Allarakia v. Vora Karimji
39 Bom. 261, Gouthwaite v. Duckworth, (1810)
12 East 421, Mathura Nath Choudhury v. Sreejukta Bageswari Rani, 46 C.L.J. 362,
Pandiri Veeranna v. Grandi Veerabhadi-aswami.
T.L.R. 41 Mad. 427, Lakshmishankar Devshankar
v. Motiram Vishnuram, 6 B.L.R. 1106 and Gordhandas Chhotalal Seth v, Mahant
Shri Raghubirdasi Gangaramji, 34 B.L.R. 1137, distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
46 of 1961.
Appeal from the judgment and decree dated
July 17, 1958 of the Patna High Court in Appeal from Original Decree No. 162 of
Sarjoo Prasad and D. N. Mukherjee, for the
R. C. Prasad, for respondents Nos. 1-3.
565 April 1, 1964. The Judgment of the Court
was delivered by MUDHOLKAR, J.-This is an appeal by a certificate granted by
the High Court of Patna under Art. 133(1)(a) of the Constitution, and arises
out of a suit instituted by the appellant against the respondents for the
recovery of a sum of Rs. 57,000/-.
The appellant holds permanent lease-hold
rights over a colliery called the Jealgora Govindpur Colliery and had worked
the colliery himself for some time. On January 31, 1949, he granted a sub-lease
of the colliery to respondent No. 4 for a term of five years. At that time,
2803 tons of slack and rubble coal was lying in the colliery, and under the
terms of a separate agreement executed by respondent No.
4, he was liable to pay for this coal at the
rate of Rs. 10/- per ton after selling it. According to the appellant, this
coal was sold by respondent No. 4, but he was not paid its price amounting to
Rs. 28,030/-. Further, according to him, royalty and commission were due to him
from the respondents in respect of the coal extracted by them from the
colliery, as also Rs. 1,355 / 8 / 3 on account of a loan taken by them from him
on February 17, 1949. The total claim was tentatively valued by him at Rs.
57,000/-. He joined respondents 1, 2 and 5 as defendants to the suit on the
ground that these three persons along with respondent No. 4 formed a
partnership firm known as Saurashtra Coal Concern which was joined in the suit
as defendant No. 5 and is now respondent No. 3 before us. The appellant's case
was that respondent No. 4 was a benamidar for the partnership firm and,
therefore, all the respondents were liable for the claim.
Respondents 4 & 5, who are father and
son, admitted the appellant's contention that the lease was obtained by
respondent No. 4 on behalf of the partnership firm, but their contention was
that they surrendered their lease-hold interest to the appellant on November 1,
1950, which was accepted by him, and that he was, therefore, not entitled to
the claim in respect of royalty and commission from them for the period
subsequent to November 1, 1950. Further, according to them, the coal which was
lying in the colliery was not actually weighed at the time of the agreement and
the figure of 2803 tons was put down only as a rough estimate. According to
them, on the date of the surrender of the lease by them, there was a stock of
more than 2803 tons of slack and rubble, etc., as well as soft coke, including
the stock left by the appellant at the time of granting the sub-lease, because
that could not be sold, and the appellant took possession of the entire stock
lying in the colliery in November, 1950, after promising to adjust it towards
the dues. They, therefore, 566 disclaimed all liability to pay the price of
2803 tons of coal. They also denied having taken a loan from the appellant as
alleged by him.
No separate written statement was filed on
behalf of respondent No. 3, but respondents 1 & 2, who were defendants 2
& 4 in the trial court, denied the appellant's claim totally. According to
them, respondent No. 4 took the sub- lease in his personal capacity and not on
behalf of the 'other respondents. They averred that there was no privities of
contract between them and the appellant and that, therefore. he was not
entitled to a decree against them.
The real facts, according to them, are that
the respondent No. 4 took a sublease of the property from the appellant and
gave a managing agency of the same to the Saurashtra Coal Concern of which the
first respondent is the financing partner and the second respondent is the working
This concern was, they say, never a
sub-lessee of the appellant. They also denied having anything to do with the
stock of coal which the appellant is alleged to have sold to the 4th
The trial court negatived the claim of the appellant
in respect of the loan but decreed the claim for Rs. 28,030/- as the price of
coal and commission thereon against all the respondents. It further passed a
preliminary decree for ascertaining the precise amount of royalty and
commission which would be due to the appellant on account of the sub- lease.
The trial court further said that the minimum amount under this head would be
Rs. 26,000/-. Respondents 1 to 3 preferred an appeal to the High Court and the
High Court accepted it. Thus, the position now is that the decree of the trial
court stands only against respondents 4 & 5, but has been set aside as
against respondents 1 to 3.
In view of the fact that both the courts
below have found concurrently that the sub-lease in question was taken by respondent
No. 4 alone, the only point urged by Mr. Sarjoo Prasad in support of the appeal
is that respondent No. 4 being a partner in the Saurashtra Coal Concern, all
the partners of the firm are liable under the lease inasmuch as the firm
admittedly came into possession of the demised colliery. He points out that
even according to respondents 1 to 3, they came into possession of the demised
colliery immediately after the execution 'of the sub-lease, and wants this
Court to infer from this that the partnership had already come into existence
before the lease was obtained.
This, however, has never been the case of the
appellant in the courts below. The only case which he put forward was that the
lease was taken by respondent No. 4 on behalf of all the respondents. In other
words, his case was that respondent No. 4 was a benamidar for the partnership
It is only 567 this case which the
respondents had to meet, and in our judgment, it would not be proper to permit
the appellant to make out an entirely new case at this stage. Apart from that,
s. 22 of the Indian Partnership Act, 1932, clearly provides that in order to
bind a firm by an act or an instrument executed by a partner on behalf of the
firm, the act should be done or the instrument should be executed in the name
of the firm, or in any other manner expressing or implying an intention to bind
the firm. The sub-lease was not executed in the name of the firm, and it has
been found by the courts below that respondent No. 4 in obtaining the lease,
did not act 'on behalf of the firm. This in substance means +,hat in obtaining
the sub-lease, the parties to it did not intend to bind the firm by that
In support of his contention, Mr. Sarjoo
Prasad has strongly relied upon the decision in Karmali Abdulla Allarakia v.
Vora Karimji Jiwanji and others(1). That was
a case in which the question for consideration was whether one of the two
partners is liable upon a hundi drawn by one of the partners though the hundi
was not drawn in the name of the firm. The Privy Council following the decision
in Gouthwaite v. Duckworth(1) held that the other partner would be liable
though on the face of it the hundi did not purport to be on behalf of the firm.
That decision, however, does not help the appellant, because while the
transaction in connection with which the hundi was drawn, was admittedly a
partnership transaction, in the case before us, it has been found that the
transaction, that is, the taking of the sub- lease, was not on behalf of the
partnership. The next case relied upon was Mathura Nath Choudhury v. Sreejukta
Bageswari Rani and others(2). In that case, the question was whether the firm
is liable for the money borrowed by one of its partners. The High Court pointed
out that this is a question of fact and depends upon the facts and
circumstances of each particular case. In that case also, it was found that the
liability arose upon a contract entered into by one of the partners in connection
with the partnership business. This case is, therefore, similar to the one just
referred to above. The third case relied upon is Pandiri Veeranna v. Grandi
Veerabhadraswami(4). In that case, the question was whether the fact that one
of the several partners had authority to acknowlede liability to save
limitation as against his partners, had to be established only by direct
evidence or whether it could be inferred from the surrounding circumstances.
The High Court held that it was (1) ILR 39 Bom. 261 at 274, etc.
(2) (1810) 12 East 421.
(3) 46 CLJ 362.
(4) ILR 41 Mad. 427 (Full Bench).
568 permissible to establish the existence of
authority from the surrounding circumstances. The case is thus of no assistance
to the appellant. The next case relied upon was Lakshmishankar Devshankar v.
Motiram Vishnuram, etc.(1).
There, it was held that where money borrowed
by one partner in the name of the firm but without the authority of the co-
partners has been applied to paying off the debts of the firm, the lender is
entitled in equity to repayment by the firm of the amount which he can show to
have been so applied and the same rule extends to money bona fide borrowed and
applied for any legitimate purposes of the firm. It is difficult to appreciate
how this case advances the present matter further, because here, the sub-lease
has not been obtained in the name of the firm. The last case relied upon was
Gordhanadas Chliotalal Seth v. Mahant Shri, Raghuvirdasji Gangaramji(2) That
again is a case in which the firm was held to be bound by the debts contracted
by the managing partner for the purposes of the factory run by the firm. All
the partners were held liable, because the transaction was entered into, by the
managin partner for the purpose of the partnership business. This case is
similar to the one just referred to above and is, therefore, of no assistance
to the appellant.
Mr. Sarjoo Prasad also referred to two other
decisions in Ram Kinkar Banerjee and others v. Satya Chararan Srimani and
others(3) and Raja Sri Sri Jyoti Prasad Singh Deo Bahadur v. Samuet Henry
Seddon(4). In these cases, the defendants sought to be made liable were
assignees of a lease, but that is not the case here. Indeed, Mr. Sarjoo Prasad
quite rightly conceded that respondents 1 to 3 cannot be made liable upon the
ground that there was a privity of estate between them and the appellant.
We, therefore, agree with the High Court that
the decree should be limited only against respondents 4 and 5, and dismiss the
appeal with costs.
(1)6 BLR 1106. (2) 34 BLR 1137.
(3)AIR 1939 P.C. 14. (4) ILR 19 Pat. 433 at