01 April 1964
Supreme Court


Case number: Appeal (civil) 46 of 1961






DATE OF JUDGMENT: 01/04/1964


CITATION:  1965 AIR  139            1964 SCR  (7) 564

ACT: 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.

HEADNOTE: 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  claim  totally. 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 Jiwanji,  I.L.R. 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.

JUDGMENT: 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 1952. Sarjoo Prasad and D. N. Mukherjee, for the appellant. 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  privity 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  partner. 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 respondent. 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  firm. 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 transaction. 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. Appeal dismissed. (1)6 BLR 1106.                 (2) 34 BLR 1137. (3)AIR 1939 P.C. 14.          (4) ILR 19 Pat. 433 at 459. 569