Banarsi Das Vs. Seth Kanshi Ram &
Ors  INSC 374 (17 December 1962)
IMAM, SYED JAFFER SUBBARAO, K.
AYYANGAR, N. RAJAGOPALA
CITATION: 1963 AIR 1165 1964 SCR (1) 316
CITATOR INFO :
RF 1991 SC1020 (13)
Limitation-Date of dissolution of
partnership-Indian Limitation Act, 1908 (9 of 1908), Art. 106-Indian
Partnership Act, 1932 (9 of 1932),s. 43-Code of Civil Procedure, 1908 (Act 5 of
1908), 0.20, r. 15.
The plaintiff filed a suit against his
brothers who had formerly constituted a joint family for a declaration that the
partnership which had been formed by them after they ceased to be joint in
respect of a sugar mill stood dissolved on May 13, 1944, on which date one of
the brothers had filed an earlier suit for dissolution of the partnership. The
earlier suit had been dismissed for default.
The plaintiff in the present suit also prayed
for a decree for accounts from defendants I and 2 as well as for the
appointment of a Receiver. The trial court decreed the suit, ordered winding up
and appointed a Commissioner. It also directed the accounts prayed for. Before
the High Court Kanshi Ram who had not filed a written statement and against
whom the proceedings in the trial court had been exparte contended that the
suit was barred by limitation and in any event he should not be called upon to
account. The plaintiff contended that the suit was one for distribution of the
assets of a dissolved firm and was not barred by limitation. The High Court while
noticing that the plea of limitation taken by one of the parties was raised
before it for the first time, held that by reason of s. 3 of the Limitation Act
it was bound to take notice of the bar of limitation and dismissed the suit.
Having decided Kanshi Ram's plea the High Court passed consequential orders
with regard to the several appeals by the other defendants. On appeal it was
contended in this Court that the question of limitation which was not raised
even in the grounds of appeal before the High Court was a mixed question of
fact and law and it should not have been entertained by the High Court.
Hold, that the suit for dissolution filed on
May 13, 1944, had ended in a dismissal for default, and as such no date 317 of
dissolution of the partnership as contemplated by 0.20, r. 15, of the Code of
Civil Procedure had been fixed by the Court; the plaint could not be construed
as the notice contemplated by s. 43 of the Partnership Act, to terminate the
partnership. Even on the assumption that the summons accompanied by the plaint
could be said to be the service of notice for dissolution of the partnership,
the date of dissolution could only be the date on which the last of the
partners was served. With all these questions of fact to be investigated, the
High Court had committed an error in treating the question of limitation as
purely one of law and allowing it to be raised at the hearing for the first
time before it, at the instance of a party who had not filed a written
statement and raised an issue on the question before the trial court.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 94 to 97 of 1960.
Appeals from the judgment and order dated
March 15, 1956, of the' Allahabad High Court in First Appeals Nos. 172, 364,
and 379 of 1954.
Veda Vyasa, R. K. Garg, D. P. Singh, Shiv
Shastri and K. K. Jain, for the appellant (in C. As. Nos. 94-96/60) and
respondent No. 2 (in C. A. No. 97 of 1960).
Rameshwar Nath, S. N. Andley and P. L. Vohra,
for the appellant (in C. A. No. 97/60) respondent No. 2 (in C. A. No. 94/60)
and respondent No. 1 (in C. As-. Nos. 95 and 96/60).
K. L. Gossain and Sohan Lal Pandhi for
respondent No. 1 (in C. As. Nos. 94 and 97/60) respondent No. 2 (in C. A. No.
95 of 60) and respondent No. 4 (in C. A. No. 96/60).
Harbans Singh, for respondent No. 3 (in C. A.
J. P. Agarwal, for respondent No. 4 (in C. A.
No. 94160) respondents No. s. 3 and 4 (in C. A. No. 95/60) respondents Nos. I
and 3 (in C. A. No. 96/60) and respondents Nos. 3 and 4 (in C. A. No. 97/60).
318 1962. December 17. The judgment of the
Court was delivered by MUDHOLKAR, j.-These are appeals by certificates granted
by the High Court of Allahabad under Art. 133 (1) (c) of the Constitution from
its judgments dated March 15,1956. The relevant facts are briefly as follows :
The plaintiff Kundanlal and the defendants 1
to 5 Banarsi Das, Kanshi Ram, Kundan Lal, Munnalal, Devi Chand and Sheo Prasad
are brothers and formed a joint Hindu Family, till the year 1936. Amongst other
properties the family owned a sugar mill at Bijnor in Uttar Pradesh called
"Sheo Prasad Banarsi das Sugar Mills". After the disruption of the
family the brothers decided to carry on the business of the said sugar mill as
partners instead of as members of -a joint Hindu Family. The partnership was to
be at will and each of the brothers was to share all the profits and losses
equally. The mill was to be managed by one of the brothers who was to be
designated as the managing partner and the agreement arrived at amongst the
brothers provided that for the year 1936-37, which began on September 1,1936,
the first defendant Banarsi Das, who is the appellant in Civil Appeals 94 to 96
of 1960, was to be the managing partner. The agreement provided that for
subsequent years the person unanimously nominated by the brothers was to be the
managing partner and till such unanimous nomination was made, the person
functioning as managing partner in the previous year must continue. For the
years 1941-44, Kundanlal was the managing partner. On May 13,1944, Sheo Prasad
defendant No. 5 now deceased, instituted a suit in the court of the Subordinate
judge, First Class, Lahore, for dissolution of partnership and rendition of
accounts against Kundanlal and joined the other brothers as defendants to the
suit, In the course of that 319 suit the court, by its order dated August
3,1944, appointed one Mr. P.C.Mahajan, Pleader, as Receiver but as the parties
were dissatisfied with the order the matter was taken up to the High Court in
revision where they came to terms. In pursuance of the agreement between the
parties the High Court appointed Kanshiram as Receiver in place of Mr. Mahajan
as from April 5,1945. In the meanwhile, the District Magistrate, Bijnor took
over the mill under the Defence of India Rules and appointed Kundanlal and his
son to work the mill as agents of the U. P. Government for the year 1944-45.
This lease was renewed by the Government for the year 1945 46. On August
28,1956, the parties, except Devi Chand, made an application to the Court at
Lahore praying that the Receiver be ordered to execute a lease in favour of
Banarsidas for a period of five years. It may be mentioned that this
application was made at the suggestion of the District Magistrate; Bijnor. The
Subordinate Judge made an order in terms of the application. In September 1946,
Banarsidas obtained possession of the mill. It may be mentioned that Sheo
Prasad had in the meanwhile applied to the court for distribution amongst the
erstwhile partners of an amount of Rs. 8,10,000/(out of the total of Rs. 8,30,000/-)
which was lying with the Receiver and suggested that the amount which fell due
to Kundanlal and Banarsidas should be withheld because they had to render
However, the aforesaid amount lying with the
receiver was distributed among stall the brothers and Devichand acknowledged
receipt on November 14, 1946. On October II, 1947, the Lahore suit was
dismissed for default, the parties having migrated to India consequent on the
partition -of the country.
On November 8,1947, Sheo Prasad instituted a
suit before the court of Civil judge, Bijnor against his brothers for a
permanent injunction restraining Banarsidas from acting as Receiver. The suit,
how320 ever, was dismissed on March 3,1948. On July 16, 1948, Sheo Prasad
transferred his 1/6th share to Banarsidas and since then Banarsidas has been
getting the profits both in respect of his own share as well as in respect of
that of Sheo Prasad.
On October 7,1948, the suit out of which
these appeals arise was instituted by Kundanlal against all his brothers
claiming the reliefs set out in para 29 of the plaint. The reliefs are as
"(a) That it may be declared that the
partnership of the Shiv Prasad Banarsi Das Sugar Mills, Bijnor between the
parties was dissolved on 13th May, 1944 and if in opinion of the court the
partnership is still in existence, the court may be pleased to dissolve it.
Valued at Rs. 5000.
(b) That an account be taken from defendants
I and 2 or any of them and decree be passed in favour of the plaintiff for the
amount that may be found to be due to the plaintiff on account of his share in
the assets and profits and sums of money in their possession. Valued at Rs.
(c) That a pendete lite interim Receiver may
be appointed for the Seth Shiva Prasad Banarsi Das Sugar Mills, Bijnor.
(d) Any other relief which the plaintiff may
be entitled against any or either of the defendants as the court may deem fit
(e) Costs may be awarded to the
plaintiff." On July 30, 1949 , Banarsidas filed his written statement but
none of the other dependents put in an 321 appearance. On Decemberl8,1950, an
application which had been made for the appointment of a Receiver was dismissed
on the ground that kanshi Ram who had been appointed as Receiver by the Lahore
High Court continued to be the Receiver. It may be mentioned that during the
pendency of this suit the appellant Banarsidas entered into an agreement with
Devchand and Kanshi Ram whereunder he took over all their rights and interests
in the said mill for a period of five years commencing from July 1, 1951. On
February 19,1951, he made an application to the court for directing Kanshi Ram
to give a lease of the mill to him for a period of five years commencing from
July 1, 1951. It may be mentioned that under an earlier arrangement Banarsidas
had obtained a lease for a similar term which was due to expire on June 30,
1951. On April 26 1951, one Mr. Mathur was appointed Receiver by the court and
in july 1 951, he granted a lease for five years to Kundanlal on certain terms
which would be settled by the court. It may be appropriate to mention here
that, issues in the suit instituted by Kundanlal were framed on December 7,
1951, and one of the important issues was whether the lease dated September 12,
1946, granted to Banarsidas was void ab initio or wits voidable and in either
case what was its effect. On April 2, 1954, the advocate appearing for
Kundanlal stated that he did not wish to press this issue and that the only
question left was of taking accounts. In view of this concession by the
plaintiff, the Court decreed the suit in the following terms:
"1. The suit is decreed for declaration
that the S. B. Sugar Mills, Bijnor, stood dissolved with effect from 13th May,
1944. The plaintiff's share is declared to be 1/6th; of defendant No. 1 Seth
Banarsi Das as 1/3rd and of defendants 2 to 4 1/6th each.
2. Seth Kanshi Ram is held liable to render
accounts to the plaintiff and other defendants in respect of joint stores and
lubricants in Exhibits I and 7.
3. Shri P. N. Mathur shall continue to be the
receiver till further orders.
4. And it is ordered that Shri Kashi Nath who
is appointed Commissioner for the purpose of winding up the affairs of the
Mills, in this case, shall prepare accounts of the credits, properties and
effects and stocks now belonging to the said mills and then submit the report
to the court. After the report has been submitted and objections heard and
decided, the court would fix a date for the sale of the assets of the Mills.
The Commissioner shall receive instructions from the court from time to time.
Three appeals were preferred before the High
Court against this decision. One was by Kanshi Ram, another by Banarsidas and
the third was by Munnalal. It may be mentioned here that the suit has been
decreed ex-parte against both Kanshi Ram and Munna Lal. It may also be
mentioned that even in the appeals the winding up of the partnership business
and the appointment of Mr. Kashi Nath as Commissioner for this purpose was not
challenged by any party to the appeals.
These appeals were heard together and were
disposed of by a common judgment by the High Court on March 15, 1958. The High
Court, in effect, dismissed the appeals of Banarsidas and Munnalal but granted
partially the appeal of Kanshi Ram.
As a result of the High Court's decision,
Kundanlal's suit stood decreed for declaration that the partnership 323 should
be dissolved with effect from May 13, 1944, and that the six brothers had
shares in the partnership as found by the trial court. But the suit stood
dismissed with regard to other reliefs. As there were three appeals before the
High Court, the appellant Banarsidas has preferred three separate appeals for
complying with the requirements of the law.
Before the High Court the stand taken by the
parties was this : Devichand and Munnalal wanted that the winding up order
should be set aside while Kundanlal wanted that it should be upheld but that he
should not be asked to render any accounts. Kanshi Ram contended that the suit
was barred by time and that at any rate he should not be called upon to
account. The appellant Banarsidas wanted that the winding up order should be
maintained and also wanted that accounts should be rendered both by Kundanlal
and Kanshi Ram. The ground on which the High Court dismissed the suit was that
the suit for accounts was barred by Art. 106 of the Limitation Act. It was,
however, contended before the High Court on behalf of the plaintiff that
although a suit for accounts and share of profits may be barred by time, the
suit in so far as it related to the distribution of the assets of the dissolved
firm was not barred by limitation as such a suit falls outside Art. 106 of the
This contention was also rejected by the High
Court and it held that not only the claim for accounts and share for profits
was time-barred but also the claim for distribution of the assets of the
dissolved firm was time-barred. The High Court was alive to the fact that the
plea of limitation was not taken by any of the defendants in the trial court
but was of the opinion that the plaint itself disclosed that the Suit was
barred by time and, therefore, it was the duty of the court under s. 3 of the
Limitation Act to dismiss it.
It was then contented before the High Court
on behalf of the plaintiff that as in none of the appeals preferred 324 before
it the appellants had questioned that portion of the decree which granted the
plaintiff the relief of a share in the assets of the partnership and therefore
it ought not to be interfered with. The High Court, however, resorted to O. 41,
r. 33 of the Code of Civil Procedure and held that under this provision, it was
competent to it to disallow the claim decreed by the trial court. Upon this
view, the High Court allowed Kanshi Ram's appeal, but lost sight of the fact
that same order had to be made with regard to the moneys lying in the court.
In his appeal, it was contended by Banarsidas
that that portion of the decree which declared the partnership to have been
dissolved on May 13, 1944, should be set aside. But the High Court refused to
permit him to urge this point in as much as he had admitted in his written
statement that the partnership was dissolved on May 13,1944. The High Court
also said that the decree which had been passed against Banarsidas in so far as
this relief is concerned was a consent decree and that an appeal therefrom is
barred by s.96, sub-s. (3), of the Code of Civil Procedure. Upon this view, the
High Court dismissed his appeal.
Dealing with Munnalal's case, the High Court
observed that the only relief sought by him was that Banarsidas should be asked
to render accounts for the year 1944-1945, and that as it had already held,
while dealing with Kanshi Ram's appeal that this claim was barred by time, his
appeal should also be dismissed.
Banarsidas has come up in appeal against the
judgments and decrees of the High Court in all the three appeals and his
appeals are Civil Appeals Nos. 94 to 96 of 1960. Kundanlal has preferred an
appeal from the judgment and decree of the High Court in Kanshi Ram's appeal,
which is numbered 325 Civil Appeal No. 97 of 1960. This judgment governs all
The points raised by Mr. Veda Vyasa on behalf
of Banarsidas are these :
(1) Under the Partnership Act, the partners
are entitled to have the business of the partnership wound up even though a
suit for accounts is barred under Art. 106 of the Limitation Act.
(2) Kanshi Ram having been appointed a
Receiver by the Court stood in a fiduciary relationship to the other partners
and the assets which were in his possession must be deemed to have been held by
him for the benefit of all the partners. Therefore, independently of any other
consideration, he was bound to render accounts.
(3) The question of' limitation was not
raised in the plaint or the grounds of appeal before the High Court and as it
is a mixed question of fact and law, it should not have been made this
foundation of the decision of the High Court.
If it was thought necessary to allow the
point to be raised in view of the provisions of s. 3 of the Limitation Act, the
courts should at least have followed the provisions of O. 41, r. 25, Code of
Civil Procedure, and framed an issue on the point and remitted it for a finding
to the trial court.
(4) The Court was wrong in holding that
limitation for the suit commenced on May 13, 1944.
(5) The High Court was wrong in resorting to
the provisions of O.41, r.33, of the code of Civil Procedure.
Before we consider the points raised by Mr.
Veda Vyasa, we would like to point Out that at 326 the commencement of the
argument, Mr. Veda Vyasa made an offer that if all the parties agreed,
Banarsidas was prepared to waive his claim for accounts against Kundanlal and
Kanshi Ram provided that the decree of the trial court was restored in other respects.
While the learned counsel appearing for those two Parties were willing to
accept the offer, two others were not, and, therefore, we must proceed to
decide the appeals on their merits. The most important point to be considered
is whether the suit was barred by limitation. If the appellants in these
appeals succeed on this point, the first, second and fifth points will really
not arise for consideration.
In the plaint in the present suit, the
plaintiff Kundanlal alleged in para 10 that the partnership being at will it
stood dissolved on May 13, 1944, when Sheo Prasad filed suit No105 of 1944 in
the court of the Sub-Judge, Lahore. No doubt, as pointed out by the High Court,
Banarsidas has admitted this fact in his written statement at no less than three
places. The admission, however, would bind him only in so far as facts are
concerned but not in so far as it relates to a question of law. It is an
admitted fact that the partnership was at will. Even so, Mr. Veda Vyasa points
out, the mere filing of a suit for dissolution of such a partnership does not
amount to a notice for dissolution of the partnership. In this connection, he
relies upon 68, Corpus Juris Secundum, P. 929. There the law is stated thus :
The mere fact that a party goes to court asking for dissolution does not
operate as notice of dissolution., He then points out that under O.20, r. 15,
of the Code of Civil Procedure, a partnership would stand dissolved as from the
date stated in the decree, and that as the Lahore suit was dismissed in default
arid no decree was ever passed therein it would be incorrect even to say that
the partnership at all stood dissolved because of the institution of the suit.
On the other hand, it was contended on behalf
of some 327 of the respondents that the partnership being one at will, it must
be deemed to have been dissolved from the date on which the suit for
dissolution was instituted and in this connection reference was made to the
provisions of sub-s.
(1) of s. 43 of the Partnership Act which
reads thus :
"(1) Where the partnership is at will,
the firm may be dissolved by any partner giving notice in writing to all the
other partners of his intention to dissolve the firm." The argument seems
to be based on the analogy of suits for partition of joint Hindu family
property, with regard to which it is settled law that if all the parties are
majors, the institution of a suit for partition will result in the severance of
the joint status of the members of the family.
The analogy however cannot apply, because, the
rights of the partners of a firm to the property of the firm are of a different
character from those of the members of a joint Hindu family. While the members
of a joint Hindu family hold an undivided interest in the family property, the
partners of a firm hold interest only as tenants-in-common.
Now as a result of the institution of a suit
for partition, normally the joint status is deemed to be severed, but then,
from that time onwards they hold the property as tenants-in-common i.e., their
rights would thenceforth be somewhat similar to those of partners of' a firm.
In a partnership at will, if one of the partners seeks its desolution, what he
wants is that the firm should be wound tip, that be should be given his
individual share in the assets of the firm (or may be that he should be
discharged from any liability with respect to the business of the firm apart
from what may be found to be due from him after taking accounts) and that the
firm should no longer exist. He can call for the dissolution of the firm by
giving a notice as provided in sub-s. (1) of s. 43 i.e., without the
intervention of 328 the court, but if he does not choose to do that and wants
to go to the court for effecting the dissolution of the firm, lie will, no
doubt, be bound by the procedure laid down in 0.20, r. of the Code of Civil
Procedure, which reads thus:
"Where a suit is for the dissolution of
a partnership or the taking of partnership accounts, the Court, before passing
a final decree, may pass a preliminary decree declaring the proportionate share
of the parties, fixing the day on which the partnership shall stand dissolved
or be deemed to have been dissolved, and directing such accounts to be taken,
and other acts to be done, as it thinks fit." This rule makes the position
clear. No doubt, this rule is of general application, that is, to partnerships
at will as well as those other than at will; but there are no limitations in
this provision confining its operation only to partnerships other than those at
will. Sub-s. (1) of s.
43 of the Partnership Act does not say what
will be the date from which the firm will be deemed to be dissolved. For
ascertaining that, we have to go to sub-s. (2) which reads thus :
"The firm is dissolved as from the date
mentioned in the notice as the date of dissolution or, if no date is so
mentioned, as from the date of the communication of the notice." Now, it
will be clear that this provision contemplates the mentioning of a date from
which the firm would stand dissolved. Mentioning of such a date would be
entirely foreign Lo a plaint in a suit for dissolution of partnership and
therefore such a plaint cannot fall within the expression "notice"
used in the Sub-Section. It would follow therefore that the date of service of
a summons accompanied by a copy of a plaint in the suit for dissolution of 329
partnership cannot be regarded as the date of dissolution of partnership and s.
43 is of no assistance.
Even assuming, however, that the term
"notice" in the provision is wide enough to include within it a
plaint filed in a suit for dissolution of partnership, the sub-section itself
provides that the firm will be deemed to be dissolved as from the date of
communication of the notice. It would follow, therefore, that a partnership
would be deemed to be dissolved when the summons accompanied by a copy of the
plaint is served on the defendant, where there is only one defendant, and on
all defendants, when there are several defendants. Since a partnership will be
deemed to be dissolved only from one date, the date of dissolution would have
to be regarded to be the one on which the last summons was served. Now, if the
High Court wanted to give the benefit of the provisions of s. 43 to any of the
parties--defendants before it , it should have borne in mind the full
implications of those provisions. We have no material on record for as certain
the date on which the last summons was served in this case. Since that date is
not known or could have been known by the High Court, it was in error in
holding that the suit was barred by time.
The High Court has overlooked the fact that
even upon the argument addressed before it on behalf of Kanshi Rain, the
question of limitation was not one purely of law but was a mixed question of
fact and law and, therefore, it was not proper for it to allow it to be raised
for the first time in argument. We are satisfied that what the High Court has
done has caused prejudice to some of the parties to the suit and on that ground
alone, we would be justified in setting aside its decision. If the High Court
felt overwhelmed by the provisions of s. 3 of the limitation Act, it should at
least have given an opportunity to the parties which supported the 330 decree
of the trial court to meet the plea of limitation by amending their pleadings.
After allowing the pleadings to be amended, the High Court should have framed
an issue and remitted it for a finding to the trial Court. Instead of doing so,
it has chosen to treat the pleading of one of the defendants as conclusive not
only on the question of fact but also on the question of law and dismissed the
suit. It is quite possible that had an opportunity been given to the
defendants, they could have established, in addition to proving the dates on
which the summonses were served, that the suit was not barred by time because
of acknowledgment in the course of the discussion, the High Court had said that
it was not suggested before it by anyone that the claim was not barred by
reason of acknowledgments. Apparently, no such argument was advanceb before it
on behalf of the plaintiff and the defendant Banarsidas because the counsel
were apparently taken by surprise and had no opportunity to obtain instructions
on this aspect of the case. We are clearly of opinion that the High Court was
in error in allowing the plea of limitation to be raised before it particularly
by defendants who had not even filed a written statement in the case. We do not
think that this was a fit case for permitting an entirely new point to be
raised by a non-contesting party to the suit.
In view of our decision on this point, it
would follow that the High Court's decision must be set aside and that of the
trial court restored. We may, however, mention that some of the parties
including the appellant Banarsidas and the plaintiff-respondent, Kundenlal as
well as the defendant respondent Kanshi Ram were agreeable to certain
variations in the decree. But as there were other parties besides them to whom
these variations are not acceptable, we are bound to decide the appeals on
merits. For the aforesaid reasons, we allow the appeals of Banarsidas and
Kundanlal and restore the decree of the trial 331 court, but make no order as
Along with the appeals, we heard two Civil
Miscellaneous Petitions, Nos. 1482 of 1962 and 1534 of 1962. The first is to
the effect that the lease granted by this Court during the pendency of these
appeals should be terminated early.
It is said that the reason why the term of
five years was fixed was that this Court was seized with the litigation and it
was expected to last for five years. But as it happens, it has terminated
within about a year and a half and therefore there is no reason for the lease
Apart from the fact that it would not be in
the interest of the parties to determine the lease before its expiry we doubt
whether we can legally do SO. We, therefore, reject this application. As
regards the other application, it is agreed between parties that it should be
considered by the Receiver when the assets are distributed.
We may also mention that during arguments it
was stated before us on behalf of Banarsidas that he had installed some new
machinery for the efficient running of the mill and that before the mill is
sold he should be allowed to remove the machinery. It was suggested that
perhaps it would be in the interest of all the parties if the mill is sold
along with the new machinery at the date of sale. The other parties, however
said that it would be best if Banarsidas removes the machinery before the
expiry of the lease. In the circumstances, we can give no direction in the
matter. It will be open to the parties, however, to agree upon the course to be
adopted when the Receiver sets about selling the machinery, or if they do not
agree, to obtain directions from the High Court.
While we dismiss the Civil Miscellaneous
Petitions, we make no order as to costs.