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Madras High Court
P.L.S.P. Muthiah Chetty Through … vs K.R.V.R. Veerappa Chetty And Ors. on 21 January, 1929
Equivalent citations: (1929) 56 MLJ 776
Author: Ramesam


Ramesam, J.

1. These two appeals arise out. of the same original suit and in each appeal there is a memorandum of objections. Appeal No. 340 of 1924 is by the plaintiff and the memorandum of objections is by the 1st respondent who is the 1st defendant. Appeal No. 204 of 1925 is filed by defendants 1 and 7 and the memorandum of objections is preferred by the plaintiff who is the 1st respondent.

2. The facts may be briefly stated as follows: Defendants 1 to 3 and the father of the 4th defendant entered into a partnership for carrying on a money-lending business at Harit Buntar in the Federated Malay States under the name and style of R.M.V.R.A.M. This was on 23rd March 1914. Four partners had equal shares in it. The 4th defendant’s father died in August 1916; but the business was continued with the 4th defendant as a partner in his place by the consent of all the partners. In or about April 1917 a new partnership was constituted by taking in two new partners, defendants 5 and 6. In the new partnership the 1st defendant’s share was the largest and the shares of the 5th and 6th defendants were smaller than the others. The 7th defendant is a son of the 1st defendant, the 8th defendant is a son of the 4th, the 9th defendant is a son of the 6th defendant and the 10th defendant is a son of the 5th. On the 25th January, 1919, the 3rd defendant executed Ex. C in favour of the present plaintiff purporting to transfer his interest in the partnership. He informed the firm of the fact of transfer by two letters, Ex. E, dated the 28th of January 1919 sent directly and Ex. D (1) handed over to the plaintiff and forwarded by him with Ex. L. Ex. H is a hundi for Rs. 16,500 which was the consideration for the assignment. The 1st defendant having learnt of Ex. E replied by a registered letter Ex. F dated 4th March 1919. In it he says that he had written to Arunachalam the 6th defendant who was then the local agent to close the business at the termination of his agency and wind up the firm and not to enter into any new transactions but to make the necessary collections and disbursements for winding up the firm. The plaintiff addressed Ex. L on 16th March, 1919 to the 6th defendant. Ex. D(l) was sent as an enclosure with this letter. Ex. G was a letter by the 3rd defendant to the 1st defendant in which he acknowledges the receipt of Ex. F. Meanwhile the 3rd defendant’s son raised a dispute about the validity of the assignment by the 3rd defendant and he issued through his vakil the notice Ex. I contesting the validity of the assignment. He also issued a similar letter to the 4th defendant–Ex. VI. Ex. II is a letter addressed by the plaintiff to the 1st defendant in which he requests that he should be taken as a partner in the firm and that the firm should not stop business merely because the 3rd defendant’s share was transferred to him. In September 1919 a new firm was formed by defendants 1 and 6 and Ex. N is the power-of-attorney executed by the 1st defendant in favour of the 6th defendant. Ex. J is a registered deed of assignment confirming Ex. C which was not registered. In March 1920 the plaintiff’s agent in the Federated Malay States got his solicitors, Messrs. Gibb and Hope to issue the notice Ex. III to the 6th defendant demanding him to render an account of the profits of the firm. Ex. III-A is the reply to Ex. III by Messrs. Donaldson and Burkinshaw, Solicitors of the 6th defendant. In this letter they refer the plaintiff’s solicitors to the 1st defendant on the ground that the 6th defendant was only accountable to him. They also refer to the fact that the 3rd defendant’s son raised a dispute as to the assignment. On this ground they refused to recognise the plaintiff’s right to demand an account. Ex. IV is the reply to Ex. III-A in which Messrs. Gibb and Hope say that they had also written to the 1st defendant. They also intimate their intention of filing a plaint and request the addressees to make arrangements for accepting service at Perak. Ex. IV-A is the reply to Ex. IV. It says that Veerappa Chetty (the 1st defendant) does not admit that the plaintiff has any rights. It is dated 31st March 1920. There is no further correspondence up to December. On 6th December Messrs. Donaldson and Burkinshaw addressed the letter Ex. V to the plaintiff and the 3rd defendant and to his son. In this letter they say : “The firm has now been wound up and the accounts are ready. Veerappa Chetty, the managing partner, desires to close the matter and pay out the sums due”. They then refer to the fact of receipt of notice of assignment from the plaintiff and notice of objection from the 3rd defendant’s son. They also say that unless the disputes are settled by agreement or otherwise payments cannot be made. The present suit was filed on 20th January, 1922. Meanwhile the 3rd defendant’s son himself filed a suit O.S. No. 42 of 1919. That suit was finally settled by reference to arbitrators and their award in August 1922. Under this award the 3rd defendant’s right to assign was recognised by his son. In the written statement of the defendants they plead that there was a settlement of the accounts of the partnership on or about 29th March, 1920. On the basis of this settlement a certain sum of money was allotted to the 3rd defendant and the basis of the settlement was also accepted by defendants 2 and 5. The Subordinate Judge finding that the settlement is not binding on the plaintiff, has gone into the accounts himself and found that in addition to the assets found according to the settlement certain other sums under various headings were due to the partnership and the plaintiff’s share in such additional sum was found to be 1,380 dollars. The first item of dispute between the parties is whether the plaintiff is entitled to this additional sum.

3. Another question in the case is, what is the rate of conversion of dollars into the British Indian currency. As the exchange was varying between January 1919 and April, 1925, the date of the final decree, this question turns upon the date when the conversion into British Indian currency should be made. The dollar reached its lowest value on 11th March, 1920 when 100 dollars were equivalent to Rs. 95 and on 29th March, 1920 it was Rs. 99-8-0. The Subordinate Judge held that the date of the final decree should be adopted as the date of conversion. These two questions are the subject of Appeal No. 204. The appellants (defendants) contend that the settlement of 29th March 1920 should be held to be binding on the plaintiff and that the same date ought to be adopted as the date of conversion into British Indian currency.

4. Taking up the first question as to the binding nature of the settlement of 29th March, 1920, I may observe that the settlement itself is somewhat suspicious. I have already referred to the replies, Exs. III-A and IV-A of’ Messrs. Donaldson and Burkirishaw to the letters of Messrs. Gibb and Hope (Exs. III and IV) demanding settlement of accounts. In Ex. III-A the solicitors simply denied the plaintiff’s right to certain amounts and did not invite the plaintiff to be present at any intended settlement, so that at least the settlement may be binding on him and so that he may not claim more than the amount ascertained if it turned out that the assignment is valid. In Ex. IV-A it was not said that any accounts were Settled. The letter merely denied the plaintiff’s right. The account book, Ex. VII, contains entries under the date 29th March. At the time of the settlement defendants 1, 4 and 6 were present. There were also present four panchayatdars and one of these panchayatdars is now examined as D.W. 1, the 1st defendant is examined as D.W. 2 and the 3rd defendant was examined on commission and his deposition is filed as that of D.W. 3. It does not appear that the 3rd defendant ever raised any objection to the settlement of accounts now relied on by the 1st defendant. D.Ws. 1 and 2 were not asked as to when the settlement was actually made. Below the signatures of the panchayatdars and of defendants 1 and 6 there is the signature of the 2nd defendant and this signature bears the date 12th May 1922. This only shows that the 2nd defendant approved of the settlement on 12th May 1922. That the accounts were ready and that the 1st defendant desired to close the matter was communicated for the first time to the plaintiff in December 1920 by Ex. V. These facts above mentioned are all consistent with the entries being made at any time between 24th March, 1920 and 8th December, 1920. There is nothing to show that the entries must have been made on 29th March, 1920. Whenever the entries were actually made they were made as on the date of 29th March, 1920. If they were really made earlier than December 1920 the fact was certainly not communicated to the plaintiff and from the point of view of the plaintiff it cannot be said that any settlement of accounts came into existence before 6th December 1920. It is true that in Ex. F the 1st defendant informed the 3rd defendant that he instructed his agent the 6th defendant to proceed with the termination of the then agency and as the agency began on 25th April 1917 and as the practice of the Chetti firms is to carry on any particular agency for three years, one might infer that the 1st defendant’s intention was to close the account by 25th April 1920; but beyond this intention to close the account by 25th April 1920 there was nothing else to show that the account was actually closed on any particular date until we come to Ex. V. We must therefore hold that the plaintiff had the first notice of the closing of accounts on 6th December 1920 and he was not bound to recognise any such closing prior to that date. Assuming that there was some such Settlement, the next question–is it binding on the plaintiff? Mr. Varadachari relied on Chidambaram Chetty v. Karuthan Chetty (1916) 4 L.W. 10 It was observed in this decision that the principle of Section 31 of the English Partnership Act may be recognised as the principle to be adopted in India. So far as the first clause of the section is concerned it gives the assignee no right to interfere in the affairs of the partnership and all bona fide actions during the continuance of the partnership will be binding on him. Under Clause 2, the assignee is entitled to an account as from the dissolution. In the present case the other partners were not willing to take the plaintiff as a partner and they all agreed to dissolve the partnership. This could have only been by March 1919. But the pleadings in the case show that all the parties recognised 25th January, 1919 as the date of dissolution. In the decision in Chidambaram Chetty v. Karuthan Chatty (1916) 4 L.W. 10 Clause 2 of Section 31 was also referred to and it was observed that it may be taken as the law in India. In Dhanaji Jhelaji v. Gulabchand Pana (1924) 87 I.C. 812 it was observed that the Common Law with regard to the position of an assignee of a partner was codified by Section 31 of the Partnership Act and Section 31 (2) was also recognised as having codified the Common Law. In Hugh Stevenson and Sons v. Aktiengesellschaft fur Cartonnagen Industrie (1918) A.C. 239 Lord Atkinson referred to the decision of Grant, M.R., in Featherstonhaugh v. Fenwick (1810) 17 Ves. 298 and pointed out that at Common Law the assignee of a partner was not bound by any settlement behind his back. He also referred to the approval of the rule by Lord Selborne and Lord Blackburn in Cassels v. Stewart (1881) 6 A.C. 64. He also pointed out that the relation of surviving partners and the representative or assignee of the outgoing partner is a fiduciary relation. So it must be taken that Section 31(2) of the Partnership Act only codified the Common Law. If so, a settlement behind the back of the assignee cannot be binding as a settlement. Lord Lindley states the rule at page 450 thus:

His rights are not affected by any sale of or agreement for valuing and dealing with the assignor’s share which may have been entered into between the partners subsequently to the assignment and with notice of it

and Watts v. Driscoll (1901) 1 Ch. 294 is cited in support of the statement of law. Mr. Varadachariar while recognising the force of these authorities relies on Section 263 of the Contract Act for the proposition that the rights and obligations of the partners continue in all things necessary for winding up the business. He therefore contends that the 1st defendant who was the managing-partner has a right to make collections and put up to sale items of the assets belonging to the partnership and realise them in the shape of money and deal with the claims of the servants of the partnership. This is true; but in the present case the two very important items of the assets of the partnership are : (1) the inams or the amounts due from various constituents of the firm to the firm on money-lending transactions, and (2) the house belonging to the partnership. According to the settlement of accounts the inams were taken up by the new firm at the value of the principal amounts, the interest being remitted. Similarly a certain valuation was put upon the house and it was taken up by the new firm. This is different from putting up these items to a public sale in open market after due notice to the public. Here they were taken over by another firm consisting of two of the partners of the dissolved firm. It cannot be said that such a transaction should not be scrutinised and must be taken to be prima facie binding on the assignee unless it is shown to be mala fide. On the other hand such a transaction is prima facie not binding. The Court is therefore entitled to look into the matter itself. The Lower Court has given certain valuations of the inams and the house on the evidence on record and we are not prepared to differ from its conclusions. Some of the items in the inams were disallowed and others were allowed. As to the other items of assets, one of them is item 6 in Ex. O. It related to the salary of Arunachalam and under this head the Subordinate Judge disallowed 1,138 dollars out of the figure mentioned in the settlement on the ground that the agent Arunachalam was also attending to the new firm. But he was engaged for a term of three years and the work of winding up was going on certainly during these years. The fresh business was started on 25th January, 1919. Anyhow, the partnership has no right to stop his salary during the term ordinarily agreed upon which among Chetties is admitted to be three years. We think this item must be allowed, that is, the figure allowed by the Subordinate ‘Judge must be diminished by the plaintiff’s share of this item, namely 215 dollars. As to the other items we are not prepared to differ from the Subordinate Judge. The first item (which is a very large item) is described as samans, i.e., presents allowed to agents among Chetties. In the present case the agent is a brother-in-law of the 1st defendant who was a partner of the old firm. He is also a partner of the new firm. It was said that the amount of the samans was really drawn by the agent some time before and the parties were only settling the claim in 1920. This is true, but it is not clear how much of the amount was drawn before January, 1919 and how much after January, 1919. In these circumstances we are not prepared to interfere with the conclusions of the Subordinate Judge. Similar remarks apply to the other items, particuarly to the third item which related to the samans of an earlier agent Avadayappa Chetty. The result is that the Subordinate Judge’s conclusion on the first question must be confirmed subject to the diminution of the amount awarded to the plaintiff by 215 dollars.

5. On the second point the Subordinate Judge relied on the decision in Manners v. Pearson & Son (1898) 1 Ch. 581. In this case Lindley, M.R. and Rigby, L.J., held that the date of the ascertainment by the Court must be the date of conversion. The defendant pleaded that the amount due was found to be a certain amount on the 31st August 1896 but offered to convert it into English money only on 13th November, 1897. The plaintiff insisted on 31st August 1896 or certain earlier dates as the proper dates of conversion. The Court ascertained the amount on 4th November 1897 and held that that date was the date to be adopted for conversion. Vaughan Williams, L.J., dissented. He thought that 31st August 1896, the date on which a certain sum of money was found due to the plaintiff should be the proper date. In Di Ferdinando v. Simon (1920) 2 K.B. 704 Roche, J. held that the conversion should be made not on the date when the Court ascertained the amount but on the date when it was properly due to the plaintiff, that is, in that case the date when the breach was committed. In the case of a partnership which is wound up the date of the termination of the winding up would be the proper date. Roche, J., distinguishing an earlier decision of his own apparently deciding a different principle. This decision was confirmed by the Court of Appeal in Di Ferdinando v. Simon, Smits and Co. (1920) 3 K.B. 409. Bankes, L.J., followed the dissenting judgment of Vaughan Williams, L.J. A similar rule was applied by Bailhache, J., in Barry v. Van Den Hurk (1920) 2 K.B. 709 and this decision though it did not go to the Court of Appeal was approved by Bankes and Scrutton, L.JJ., in Di Ferdinando v. Simon, Smits and Co. (1920) 3 K.B. 409 already mentioned. So also the same rule was applied by McCardie, J., in Lebeaupin v. Richard Crispin and Company (1920) 2 K.B. 714. This was also approved by the same Judges in the Court of Appeal. Finally in S. S. Celia v. S. S. Volturno (1921) 2 A.C. 544 Lord Buckmaster approved the view of Vaughan Williams, L.J. and was not prepared to accept the view of Lindley, M.R. and Rigby, L.J. He also approved of the case in Di Ferdinando., v. Simon (1920) 2 K.B. 704. I think the decision in Manners v. Pearson and Son (1898) 1 Ch. 581 has practically ceased to be the law and it seems to me that we have nothing to do with the date of the determination of the amount by the Court. The plaintiff’s share was certainly ascertainable by 6th December 1920 when the winding up was completed and the accounts were ready according to the 1st defendant’s own statement and if the plaintiff was willing to accept the amount he could have taken the amount that might be ascertained as the proper amount due on that date. It is true that this need not be the amount which the defendants were willing to offer. But still the assets of the partnership may be held to have crystallised on that date and the only question remaining for the Court would be to decide the difference between the parties. It is impossible to accept any date earlier than 6th December 1920 because the winding up was not completed and not until after the partnership assets are all realised and converted into money can the share of a partner be settled–vide- Lindley, J., p. 427. On the 6th December 1920 the rate was Rs. 154-8-0. The appellant gains only Rs. 1-8-0 by our view. To this extent the judgment of the Lower Court is modified.

6. The memorandum of objections in Appeal No. 204 of 1925 relates to the value of the house. We have already held that there is no reason to disturb the finding of the Subordinate Judge in this matter. Another item in the memorandum of objections is a claim for the rent of the house up to the date of suit. But if the plaintiff has got his share of the value of the house in December, 1920, the house being sold some time in 1920, there is no question of any claim for rent. Another ground in the memorandum of objections is that the date of the preliminary decree ought to be adopted as the date of conversion. This question has already been dealt with in the judgment in the main appeal.

7. In Appeal No. 340 the only point is the rate of interest that should be allowed to the plaintiff. Some of the inams of the suit firm were taken over by the new K.R.V.R. firm. In such a case it is now conceded to be the law that the assignee is entitled at his option either to the profits of the new firm or interest. In the present case he elected to take interest. The Subordinate Judge held that the reasonable rate of interest to be given to the plaintiff is .9 per cent. The plaintiff wants this to be increased and the defendant in the memorandum of objections wants it to be reduced to 6 per cent. We think the rate allowed by the Subordinate Judge is the reasonable rate and we decline to interfere with his discretion. This is the course followed by the Privy Council in Ahmed Musaji Saleji v. Hashim Ebrahim Saleji (1915) L.R. 42 I.A. 91 : I.L.R. 42 C. 914 : 29 M.L.J. 70 (P.C.)

8. The result is Appeal No. 340 of 1924 and its memorandum of objections are dismissed with costs. Appeal No. 204 is modified as indicated above. The memorandum of objections is dismissed with costs. In Appeal No. 204 the parties will give and take proportionate costs.

Jackson, J.

9. I agree.

Appeal No. 340 of 1924 and Memo of Objections dismissed.

Decree of Lower Court modified in Appeal No. 204 of 1924.

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