JUDGMENT
D.G. Karnik, J.
1. This Chamber Summons has been taken out at the instance of the defendant No. 1 in Civil Suit No. 2812 of 2001. The parties are hereinafter referred to by their status in the suit. The brief facts may be stated thus:
2. The plaintiff, defendant No. 1 and defendant No. 2 are the partners of a firm known as “Hitali Construction Company” (hereinafter referred to as ‘firm’). The plaintiff filed the suit No. 2812 of 2001 in this Court for a declaration that the firm stood dissolved with effect from the date of the filing of the suit and in the alternative for a dissolution of the firm. In the said suit, the plaintiff also prayed for an order and decree that the accounts of the suit firm be taken, the assets and properties of the firm be sold and realised and after meeting the liabilities the amount so realised should be paid to the partners according to their respective shares in the partnership firm.
3. In the said suit, the plaintiff also took out a Notice of Motion No. 1934 of 2001 for appointment of a Receiver. By an order dated 23-8-2001, the Receiver was appointed by the Court in respect of the immovable property described in the Schedule Exhibit-A to the plaint and all other assets and properties of the said firm including book debts with all powers under Order XXXXI, Rule 1 of the Code of Civil Procedure. The defendant No. 1 made a request to the Court Receiver to call upon the plaintiff’s to deposit an amount of Rs. 1.98 crores approximately and a direction to defendant No. 2 to deposit an
amount of Rs. 15 lakhs being the amounts due and payable by them to the partnership firm and also the interest thereon. The plaintiff and the defendant No. 2 disputed the liability to pay the said sum of Rs. 1.98 crores and Rs. 15 lakhs respectively. Thereupon, the receiver held a meeting on 18-7-2001 in which the claim made by the defendant No. 1 for the directions to the plaintiff and defendant No. 2 as above was considered. After hearing the arguments of the respective counsels for the plaintiff, defendant No. 1 and defendant No. 2 at length, the Court Receiver declined to issue the directions to the plaintiff and defendant No. 2 and prepared the minutes accordingly. By this Chamber Summons, the defendant No. 1 seeks to challenge the minutes prepared by the Receiver and he further seeks a direction to the plaintiff and defendant No. 2 directing them to deposit the amounts as above.
4. By a deed of partnership dated 30-4-1992, the plaintiff, defendant No. 1 and 2 and one Ms. Jaikirti Sundaram Mehta entered into a partnership for development of land and property bearing cadastral survey No. G/441 at Santacruz. Jaikirti S. Metha who was the owner of the land introduced it in the firm as her capital. She was not to contribute anything further and the balance capital was to be brought in by the remaining partners. An amount of Rs. 65,51,000/- was credited to her capital account as the value of the land brought in by her. Subsequently, she retired and the business was continued by the remaining three partners. It is not disputed that the entire remaining capital was brought in by the defendant No. 1 alone. The plaintiff and defendant No. 2 withdrew certain monies from the partnership and the amounts withdrawn are debited to their capital account. The capital account of the plaintiff shows the debit balance of Rs. 1.98 crores approximately and a capital account of defendant No. 2 shows a debit balance of Rs. 15 lakhs. The capital account of the defendant No. 1 shows a credit balance of Rs. 1.43 crores approximately.
5. Shri Naphade, learned counsel for the defendant No. 1 contended that these amounts of Rs. 1.98 crores and Rs. 15 lakhs standing at the debit of the capital account of the plaintiff and defendant No. 2 respectively were the assets of the partnership firm. The plaintiff and defendant No. 2, contends Shri Naphade, are the debtors of the firm to the extent of Rs. 1.98 crores and Rs. 15 lakhs respectively. He further contends that since receiver has been appointed in respect of all the assets of the firm including book debts, the receiver is entitled to and should call for these amounts from the plaintiff and defendant No. 2 and realise the assets of the partnership firm. Mr. Jaisinghani appearing for the plaintiff however, contends that the amount of Rs. 1.98 crores standing at debit balance in the account of the plaintiff is not a debt due to the firm. According to him, the amount was withdrawn by the plaintiff in anticipation of his share in the probable profits of the plaintiff firm; till the profit and loss account is actually prepared and profit is computed the amounts have merely been debited to the capital account and such debits do not make the plaintiff the debtor of the partnership firm. According to him, the firm is not a legal person but, firm is a compendious name for all the partners together. A partner cannot be a debtor of the firm because a person cannot be his own debtors. Arguments of Shri Jaisinghani are adopted by Shri Vijay Pandey appearing for the defendant No. 2.
6. The commercial men in the accountants on the one hand and lawyers on the other have different notions respecting the nature of the firm and it’s assets. Commercial men and accountants look upon the firm in the same way in which the lawyers look upon a Company a Corporation i.e. a body distinct from its members and having rights and obligations different from those of it’s members. Hence, in keeping the partnership accounts, the firm is made a debtor to each partner for what he brings in into the common stock and each partner is made a debtor to the firm for all that he takes out of that stock. In the mercantile view, each partner is a debtor or creditor of the firm. The tax laws of this country also, in many ways, look at the firm in the same way as the accountants. The firm is regarded as a separate assessable entity under the Income-tax Act. The firm is assessed separately as a distinct taxable entity, an assessee, under the Income-tax Act. Tax is paid by the firm on the profits made by the firm. The net profits after the payment of the taxes are distributed amongst the partners in proportion of their share in the profits. Until recently, the partners also used to pay separate income tax on the profits coming to their hands. But this notion of the accountants and commercial men is not the legal notion of the firm. The firm is not regarded by lawyers as distinct from the partners comprising it. Unlike a corporation firm is not a legal person; partners are collectively called as a firm. What is called the property of the firm is firm’s property and what is called as the debts and liabilities of the firm are their (partners’) debts and their liabilities. In point of law, the partner is not a debtor or creditor of co-partners and in law, he cannot be either a debtor or creditor of the firm of which he is a partner. If any authority is needed to support these propositions it can be found in the decision of the Apex Court in Malbar Fisheries Co. v. Commissioner of Income-tax .
7. A Division Bench of this Court has taken the same view in Karamchand v. Madhavdas . In para-9 of the judgment, the Division Bench observed :
“It is well settled that there is no relationship as of debtor and creditor
between partners unless and until the partnership has been dissolved and
accounts have been taken and it is ascertained what amounts is due by
one partner to another. Until the accounts are taken, the only right that a
partner has is to call upon the other partners to render accounts to him.”
8. The suit is for dissolution of the partnership and taking accounts.
Pending decision of the suit, it cannot therefore, be said that the plaintiff or the
defendant No. 2 are debtors of the firm. Consequently, it cannot also be said that
monies standing as a debt balance in the capital account of the plaintiff and
defendant No. 2 is a debt due to the firm which the receiver is entitled to recover,
until the settlement of the accounts. The firm has sold some of the premises
which it has constructed; the balance premises are yet to be sold. After the
balance premises are sold a large money is likely to flow into the coffers of the
firm. After meeting all the expenses, it is possible that there would be some
surplus/profit to the firm. Each partner would be entitled to his share in the profit.
The amount of the profit payable to the plaintiff and defendant No. 2 would be
reduced to the extent of debit balance standing in their capital account. Profit
payable to the defendant No. 2 would be augmented to the extent of the credit
balance standing in his account. In other words, profit less the amounts already drawn by the plaintiff and defendant No. 2 would only be paid to them. If there is still same excess drawing by the plaintiff or defendant No. 2. It can then be recovered from them. This would be at the stage of the final settlement of the accounts. Till the accounts are settled, it cannot be said that the plaintiff and defendant No. 2 are the debtors of the firm.
9. In Jugal Kishore Maheshwari v. Hari Narain reported in AIR 1971 Rajasthan 111, the Division Bench of the Rajasthan High Court quoted with approval the following paragraph from the Halsbury’s Law of England.
“Partners are not, as regards partnership dealings, considered as debtor and creditor inter se until the concern is wound up or until there is a binding settlement of the accounts. It follows that one partner has no right of action against another for the balance owing to him until after final settlement of the accounts; but a partner may have a right of action against another for a debt which is independent of the partnership accounts.”
I am in respectful agreement with the said paragraph.
10. In view of the above, the plaintiff and defendant No. 2 are not debtors of the firm. The receiver was therefore, entitled to call upon the plaintiff and defendant No. 2 to deposit any money. No error is committed by the receiver.
Chamber Summons dismissed with costs.