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Madras High Court
Karri Venkatareddi vs Kollu Narasayya on 8 October, 1908
Equivalent citations: 1 Ind Cas 384
Bench: C A White, A Rahim


1. The parties to the suit out of which this appeal has arisen carried on business in partnership as contractors for the execution of earthworks and similar works for the Madras Railway Company under a registered deed of partnership dated the 1st December 1901. Under the partnership article the plaintiff Karri Venkatareddi, who is now the appellant, was to supply the funds for carrying out any work that might be undertaken, and it was the duty of the respondent Kollu Narasayya to supervise and manage all such undertakings. The latter, as the active partner, would, in the first instance, receive all moneys payable to the partnership and it is provided in paragraph. 4 of the deed that whatever cheques and cash were received by him were to be immediately made over to the plaintiff, and in the case of cheques after they had been duly endorsed by the defendant to the plaintiff. Under no circumstances were such cheques and sums of money to be withheld from the plaintiff, and the defendant was not to cash any cheque or spend any money so received. The plaintiff instituted the suit to enforce this article in the partnership deed in respect of a cheque for Rs. 936 which the defendant received from the Madras Railway Company on account of certain work done for them by the partnership and which the defendant failed to make over to the plaintiff after making the necessary endorsement. The plaintiff’s prayer was that the Court might direct the defendant to endorse the cheque in his favour and to deliver it to him or in the alternative to pay him the amount of the cheque. One of the defendant’s answers to the action was that it could not be maintained because dissolution and general accounts were not sought and this is the question with which we are now concerned. It was further pleaded as a fact that the plaintiff, after he received the cheque, agreed that its amount should be set off against what was then due to him in respect of his share of the profits of the business, and also that as the plaintiff failed to supply funds for some other partnership undertaking as required by the agreement he was not entitled to the assistance of the Court. The last two pleas have been held to be unfounded by the Court of First Instance upon the evidence taken in the case, and as that Court was of opinion that the action was maintainable, it gave a decree to the plaintiff. The defendant thereupon appealed, but in the appellate Court satisfied himself with questioning the decision of the Munsif only on the last mentioned point, and did not object to the Munsif’s findings on the other pleas. The Subordinate Judge allowed the defendant’s appeal, holding that the action was not maintainable, and dismissed it.

2. Mr. K. Srinivasa Aiyangar, who appeared for the plaintiff in the second appeal, has addressed to us an able argument in its support, urging that such an action as that of his client was always entertained, and at all events, even if there be some doubt as to whether it could be sustained under the old technical rule of English procedure the Courts have, in modern times, taken a such more reasonable attitude towards all disputes between partners, so that the old rule has for some time been obsolete. He also contends that there is no reason why the Indian Courts, which are not hampered by the technicalities of old English procedure should not, at the instance of one partner, compel the other partner to conform to the partnership articles or relieve the injured partner against a breach of such articles. We may point out here that in this case the primary relief asked for is by way of specific performance, and the alternative relief is practically a claim for damages.

3. The history of the development of the English law on the point is so fully set forth in Lord Justice Landley’s work on Partnership that it would be superfluous to recapitulate it here. The general rules that may be deduced from the authorities as well established may thus be stated.

4. In the first place the Court will not enforce the specific performance of an executory contract to carry on business in partnership. If the partnership was meant to be determinable at will, a decree to enforce the agreement would obviously be futile, and if the partnership was to be for a term of years it would not be for the benefit of persons who cannot agree that they should be compelled to do business together. The second rule is that the Court, generally speaking, will not undertake to carry on by its own officers a business which the partners to the contract cannot themselves carry on. The reasons for this rule are as apparent as those for the first rule. The third general rule is that the Court will not order a partial account to be taken of the partnership business if the rights of all the partners cannot properly be adjusted without taking a general account with a view to dissolution. Even to the first and second rule exceptions have been admitted. For instance, an agreement of partnership will be specifically enforced by ordering the execution of certain formal instruments, if otherwise the injured partner would be deprived of his legal right. So also the Court will appoint a receiver to carry on a partnership business with a view to the winding of its affairs. The third rule, as it applies now-a-days, leaves it to the Court to determine under what circumstances it would be equitable to order a partial account, having regard to the rights of the parties under the contract–See Jagadisa Aiyar v. Kuppusami 15 M.L.J. 142, Subbarayndu v. Adinarayudu 18 M. 134, Durga Prosonno Bose v. Raghunath Dass 26 C. 254. It may be taken generally that if the account sought is in respect of a matter which though arising out of the partnership business or connected with it does not involve the taking of general accounts, the Court will, as a rule, give the relief asked for and will now-a-days refuse to interfere only in those cases in which a partial account would work injustice to the other partner.

5. It has never been a hard-and-fast rule that the Court will not interfere in a dispute between the partners, simply because the dispute relates to a matter connected with the partnership business, and, apart from any technical rules relating to the form of action, the ground for non-interference would seem to be co-extensive with the inability of the Court to give any effective relief or the inexpediency of giving the relief sought having regard to the essential characteristics of a contract of partnership and the justice of the case.

6. As regards the specific relief which the plaintiff seeks in this suit, the law on the point is thus laid down in Lord Justice Fry’s book on Specific Performance on page 363 of the 4th Edition:

7. “The Court will not, generally speaking, enforce a contract to enter into a partnership whilst it remains executory, but, nevertheless, when the partnership has been constituted, the Court will, by injunction, enforce the performance of particular terms though it may be incompetent to enforce all the terms: this is the common course of practice in the Court.” The only objection that can be urged to the practice is that it would involve the Court’s interference on every occasion when one partner refuses to conform to a partnership article, but the answer to that is best given in the words of Sir John Leach, M.R., in Richards v. Davies (1831) 39 Eng. Rep. 427 at P. 428, when he was pressed with the same argument on behalf of a partner who refused to render account of a certain partnership transaction, because dissolution was not asked for:”What right has the defendant to complain of such new bill, if he repeats the injustice of withholding what is due to the plaintiff?” It need hardly be pointed out that to enforce a particular term of a partnership or to restrain its breach is not substantially open to the same objections as enforcing the performance of a contract to carry on a partnership business. We were at first inclined to think that there was a serious objection to the enforcement of a particular article in case of a partnership terminable at will as is the case here. But, after consideration, we think the following observations of Lord Justice Lindley are applicable to the present case. He says in his book at p. 570:”Where the partnership is determinable at will, there is, it is said, more difficulty in interfering if a dissolution is not sought; for, supposing the Court to interfere, the defendant may immediately dissolve the partnership. But supposing him to do so, an injunction will not necessarily be futile inasmuch as, so long as it continues in force, the defendant is rendered powerless for evil, and a notice by him to dissolve the partnership cannot per se operate as a dissolution of the injunction.” In view of what has been said as to the plaintiff’s right to specific performance, it becomes hardly necessary to say anything about the alternative prayer, because, as appears from the record, the cheque for Rs. 936 has not been cashed by the defendant.

8. But as the question has been exhaustively argued at the Bar, it seems advisable to deal with it. Whether the alternative remedy be regarded as a claim for damages or for a partial account as contended for by the learned Vakil for the respondent, in either view there appears to be no reason why the Court should not grant the relief asked for. Under the partnership deed the defendant was, in any event, bound to hand over the cheque to the plaintiff without reference to the state of the partnership accounts. The plaintiff supplied all the funds with which the business was carried on, and it is quite reasonable that he should have provided for the safe-guarding of his money, as he has done in clear and explicit terms. In a case like this, if the Court were to refuse to interfere until the partnership was dissolved, the plaintiff might be subjected to serious loss, as the effect might be that the plaintiff would remain under an obligation according to the term of the contract to go on supplying funds in order to complete the works already undertaken, whilst the defendant who did not bring in any capital would be able to appropriate to his own use all the moneys coming in–may be large sums–and it may turn out that he has no means to repay them in case the accounts are found to be against him. It is certainly equitable, perhaps necessary, in this case that the plaintiff should be given the relief he wants, unless there is a rule of law which stands in the way of granting such relief. We have already indicated that there is no such rule of law now in force, and the statement of Wigram V.C. in Fairthorne v. Westen (1877) 67 En. Rep. 432, 434 leaves no doubt on the point. He says at p. 434 that there is no such universal rule of law at the present day, and he adds that it is essential to justice that no such universal rule should be sustained. The authority of Holloway, J. in Golla Nagabhushanan v. Kanakala Gangayya (1864) 2 (sic) M.H.C.R. p. 28 has, however, been relied on to the contrary. No doubt, the learned Judge seemed to think that the old rule was still in force and that a partial account could be ordered only in exceptional circumstances. With the greatest respect due to so distinguished a Judge we are inclined to adopt Wigram V.C.’s proposition as more correctly stating the law. If there be no such rule, then Holloway, J.’s dictum that the exceptions to the rule should be extended, has obviously no force. But we fail to see why further exception should not be admitted to the rule, supposing one to exist, if the exigencies of a particular case require it. The cases of Musummat Soonder Bebee v. Khilloo Mull and another (1870) 2 N.W.P.H. Ct. Reports 90, Virdachala Nattan v. Ramasami Nayakan (1863) M.H.C. Rep. 1862-1863. p. 341 and Chunder Sikhur Biswas v. Ram Buksh Chetlunjhee (1878) 1 C.L.R. 545, are all practically open to the same criticism.

9. We would, therefore, reverse the judgment of the lower appellate Court and restore that of the Munsif. It has been suggested by Mr. Seshagiri Iyer, who appeared fort the respondents, that in case we should hold that the suit is maintainable, we should give him an opportunity of meeting the appellant’s case on the other pleas, on which the lower appellate Court has come to no finding. But the findings on these points of the Original Court were not challenged, and the defendant chose to rest his case in appeal on the question of law which was argued before us.

10. We do not think that we ought to accede to the respondent’s prayer.

11. This appeal is allowed with costs.

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