Law Web: Whether retiring partner will continue to be liable as partner to third parties for any act done by any other partners if notice of retirement is not published official Gazette?

This section provides that a retiring partner will continue to be liable as a partner to third parties for any act done by any other partners which would have been an act of the firm if done before the retirement till public notice is given for the retirement. Section 72 of the Indian Partnership Act prescribes the mode of giving public notice under the Act. Under this Section, notice of the retirement has to bo given to the Registrar of Firms under Section 63 and publication has to be made in the Official Gazette and at least in any vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business. In this case, it may be noticed, that notice of retirement is published in three dailies one in English and two in Telugu, circulating in the district to which the place of business of the 11th defendant-firm belongs. Notice is also given under Section 63 of the Act to the Registrar of Firms; but admittedly, the publication was not made in the Official Gazette. Therefore it is dear that the requirement of Section 32, Clause (3) read with Section 72, Clause (a) of the Act is not satisfied in this case. The learned counsel for the appellants argues that Section 72 indicates only one mode of giving public notice and does not exclude any other mode of giving public notice under Section 32, Clause (3). We find it difficult to accept this contention.

Andhra High Court

Thummala Rama Rao And Ors. vs Chodagam Venkateswara Rao And ... on 14 July, 1961

Equivalent citations: AIR 1963 AP 154

Bench: Seshachelapathi, C Sastry

1. This is an appeal by the defendants 6, 7, 8 and 10 against the decree in O. S. No. 28 of 1955 on the file of the Subordinate Judge's Court, Guntur. The suit was filed by the three plaintiffs, who are the respondents in this appeal to recover a sum of Rs. 18,173-12-2 being the amount of principal and interest due on three promissory notes for Rs. 10,000/- each. There are 11 defendants in this suit. The 11th defendant is Gokul Krishna Film Distributing Company, Vijayawada. It is alleged in the plaint that the defendants 1 to 10 are the partners of the 11th defendant firm. One promissory note was executed by the 5th defendant in favour of the 1st plaintiff for Rs. 10,000/- on 17-12-1951. Another promissory note was executed by the 1st defendant in favour of the 2nd plaintiff for another sum of Rs. 10,000/- on 9-9-1951. The third promissory note was executed also by the 1st defendant for another sum of Rs. 10,000/- in favour of the third plaintiff on 9-9-1951. The three promissory notes are marked as Exs. A-1 to A-3 in the suit.

According to the allegations in the plaint, the 1st defendant has been the managing partner of the 11th defendant-firm and the 5th defendant was assisting him in the management. Subsequently, an arrangement was entered into between the plaintiffs and the defendants whereunder the distribution rights of a film "Perantalu" which the defendants had at the time were transferred to the plaintiffs and under which the plaintiffs were given the right to credit 85% of the collections towards the suit promissory notes till the amounts due under them were discharged. As per this arrangement, a document, Ex. A-4 was executed on 30-5-1952 by the 1st defendant, who was the managing partner. After deducting the amounts which the plaintiffs received in pursuance of this arrangement the suit was held for thee Balance due viz., Rs. 18,173-12-2. It is stated in the plaint that as the original borrowing was for the purpose of the partnership, all tile defendants are jointly and severally liable to discharge the suit debts. Defendants 1 to 4 and 11 were absent during the trial of the suit though they filed written statements. The 5th defendant filed a written statement admitting his executing the promissory note dated 17-12-1951 in favour of the 1st plaintiff on behalf of the 11th defendant-firm. But, he contended that he ceased to be a partner of the firm on 4-6-1952 and therefore he was not liable for the suit debt. The further plea taken by him was that the arrangement entered into on 30-5-1952 operates as Novatio and that the suit is not maintainable on the suit promissory notes. The maintainability of one suit by all the three plaintiffs was also objected to.

2. The 6th defendant contended that he ceased to be a partner of the 11th defendant-firm on and from 6-6-1951 having sold away his Rs. 0-2-6 share to defendants 1 to 5 and that his retirement from the partnership was duly published in the newspapers in September, 1951 and was also communicated to the Registrar of Firms and that the plaintiffs were aware of his retirement prior to 9-9-1951 i.e., even before the execution of the suit promissory notes and the borrowings thereunder. Therefore, he is not liable for the suit claim. He also denied the truth of the suit debts and execution of the promissory notes and their binding nature on the partnership and their alleged acknowledgement under Ex. A.4.

3. Defendants 7, 8 and 10 filed a written statement contending that they ceased to be the partners of the firm from 6-6-1951 & that an agreement dated 14-9-1951 was executed between them and the remaining partners, defendants 1 to 5, that due publication was made regarding their retirement both in the newspapers and by giving notice to the Registrar of Firms. They also denied the truth, validity and binding nature of the suit debts on the firm or its partners. According to them, the suit promissory notes were not executed and the suit debts were not incurred on behalf of the firm and the 1st defendant or the 5th defendant had no authority to borrow on behalf of the firm. They also pleaded that this 1st defendant had no authority to execute the agreement dated 30-5-1952 which is marked as Ex. A-4 on which the plaintiff rely as an acknowledgment of liability to save limitation as it cannot hind them. It is also pleaded that the suit is bad for misjoinder of parties and causes of action and that all the three plaintiffs cannot file one suit.

4. For the purpose of the disposal of this appeal, the following are the material issues framed by the lower Court:

"(1) Whether the suit is barred by time?

(2) Whether suit promissory notes arc true, valid and binding on the 11th defendant firm and its partners other than the executants?

(3) Who are the partners of the firm of the 11th defendant at the time of the execution of the suit document?

(4) Whether the agreement dated 30-5-1952 is not binding on the 11th defendant firm and in particular defendants 4, 6, 7, 8, 9 and 10?" The questions raised by the other issues are not argued before us. The lower Court held that the suit promissory notes arc true, valid and binding on the 11th defendant-firm and all its partners, though it did not give a clear finding whether or not the appellants i.e., defendants 6, 7, 8 and 10 ceased to be the partners on the dales of the execution of the three promissory notes. But it held that since public notice under Section 32 Clause (3) of the Indian Partnership Act was not given in the manner prescribed in Section 72 of the said Act, these defendants also were liable under the suit promissory notes. It also held that Ex. A-4, the agreement dated 30-5-1952 is binding on the 11th defendant-firm and also on the appellants and that, therefore, it amounts to an acknowledgment of the liability incurred under the three suit promissory notes and that hence the suit is in time. In the result, the suit was decreed for the suit amount minus RS. 1500/-which was paid by the 4th defendant to the plaintiffs under the compromise entered into with them. As stated above, the defendants 6, 7, 8 and 10 filed the above appeal against the decree contending that they cannot be made liable for the suit claim.

5. The first question argued-by Sri K. Suryanarayana, learned counsel for the appellants, is that the suit promissory notes were not executed on behalf of the defendant-firm by the 1st defendant and the 5th defendant respectively and that, therefore, the firm or its other partners cannot be made liable under the suit promissory notes. He also contended that even if the suit is to be treated as one for the recovery of the debts evidenced by the suit promissory notes these debts were not incurred by the 1st defendant or the 5th defendant on behalf of the firm in the firm name or expressing or implying an intention to bind the firm. Therefore, the partners other than the defendants 1 and 5 cannot be made liable for the suit debts. Ex. A-1 one of the three promissory notes was executed by the 1st defendant for Rs. 10,000/- in favour of the 2nd plaintiff. In the preamble, it is not described that the 1st defendant was executing this promissory note as the managing partner of the 11th defendant firm. He did not describe himself even as a partner of the firm. He did not also sign the promissory note as a partner of the firm or on behalf of the firm. In the body of the promissory note it is recited that the amount was borrowed for his business i.e., for films and not for the business of the firm.

The second promissory note is Ex. A-2 of the same date. This was also executed by the 1st defendant in favour of the 3rd plaintiff for Rs. 10,000/-by the 1st defendant in his individual capacity. Neither in the preamble to the promissory note nor when signing it the 1st defendant described himself as a partner of the 11th defendant firm or that he was executing it on behalf of the firm. In this promissory note also, the recital was that the borrowing was for the purpose of "his film business", and not for the purpose of the business carried on by the 11th defendant-firm. The third promissory note is Ex. A-3 dated 17-12-1951 for Rs. 10,000/-in favour of the 1st plaintiff. This was executed by the 5th defendant, who admittedly was not toe managing partner. No doubt, in this promissory note, the 5th defendant described himself as a partner in the firm of Gokul Krishna Film Distributing Company; but he did not sign the promissory note as a partner of the firm, but he signed it only in his individual capacity. The recital in the promissory note is that the amount was borrowed for "his business" and not for the business of the firm.

It is clear from this that the suit promissory notes were not executed on behalf of the firm and there is nothing in these three documents to show that, when these promissory notes were executed, the firm was sought to be made liable. It is now well settled that "it is of the utmost importance that the name of a person or firm to be charged upon a negotiable document should be clearly stated on the face or on the back of the document so that the responsibility is made plain, and can be instantly recognised as the document passes from hand to hand and that in action on a bill of exchange or promissory note against a person whose name properly appears as party to the instrument, it is not open either by way of claim or defence to show that the signatory was, in reality acting for an undisclosed principal."

(Vide Sadasuk Junki Das v. Kishan Pershad, ILR 46 Cal 663: (AIR 1918 PC 146)). In the present case, the three promissory notes were not executed on behalf of the firm and on a fair interpretation of the promissory notes, it cannot be inferred that the real person liable under these promissory notes was the 11th defendant-firm. Hence, we hold that the appellants in this appeal, who were not the executants of the three promissory notes, cannot be made liable upon them.

6. The lower Court accepted the contention on behalf of the plaintiffs that the suit was based upon the debts evidenced by the suit promissory notes and not on the promissory notes themselves and that therefore all the partners including the appellants were liable. Section 22 of the Indian Partnership Act is as follows:

"In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm."

7. It is clear from this section that a debt has to be incurred by a partner on behalf of a firm expressly or necessarily implying an intention to bind the firm, if the firm or the other partners are sought to be made liable for the debts. It is the appellants' case in the lower Court and before us that the 1st defendant, who was the managing partner of the firm was producing a picture called "Priyuralu" and it was for that purpose, the defendants 1 and 5 borrowed from the plaintiffs under the three promissory notes. The 10th defendant examined as D. W. 1 has deposed that in 1951, the 1st defendant was producing a picture under the banner of Bharata Lakshmi Productions and that by that time, he and the other appellants ceased to be partners of the 11th defendant-firm. Similarly, the 6th defendant examined as D. W. 4 stated that the 1st defendant was thinking of producing the picture "Priyuralu" independently by himself after he joined as a partner and that that was another reason why he retired from the partnership for tear that the 1st defendant might utilise the firm's money for that film and he also stated that the 1st defendant started "Bharata Lakshmi Productions and that the 11th defendant-firm had no connection with it.

P. W. 1 Chodagam Veeraraghavaiab, is the elder brother of the 1st plaintiff, the 2nd plaintiff is his wife and the 3rd plaintiff is his daughter. He admitted that the film "Priyuralu" was released in February 1952; but he claimed that it was produced by the 11th defendant-firm. There is no evidence as regards this claim that the picture "Priyuralu" was produced by the 11th defendant-firm, Further the business of the 11th defendant firm was only one of distributing films produced by others. He admitted that the 5th defendant was not the managing partner. In view of the fact that the suit promissory notes were executed by the defendants 1 and 5 in their individual capacity respectively and not on behalf of the firm, we are of the opinion that, when the amounts were borrowed under Exs. A-1 to A-3 by the defendants 1 and 5, they were not acting on behalf of the firm and there was no intention on their part expressed or implied at the time to bind the firm and that the three plaintiffs did not intend at the time to make the firm liable. Reliance is placed by the learned counsel for the plaintiffs on Ex. A-4, the agreement subsequently entered into. It is clear from a perusal of Ex. A-4 that it does) hot create any fresh liability and there is under it no undertaking to pay the suit debts. We are of the opinion that the appellants cannot be made liable for the suit claim and that the decree passed against them by the lower Court has to be set aside.

8. In view of the evidence already referred to in the above paragraph, we are also of the opinion that the amounts were borrowed under Exs. A-1 to A-3 by the defendants 1 and 5 for the separate business of the 1st defendant viz., producing films such as "Priyuralu" etc. and were not in fact borrowed for the business carried on by the 11th defendant-firm.

9. It is also contended on behalf of the appellants that, even assuming that the amounts borrowed under the three promissory notes were utilised for the business of the 11th defendant-firm, still, the appellants cannot be made liable for the debts so incurred for the reason that, when the amounts were borrowed, neither the 1st defendant nor the 5th defendant was acting on behalf of the 11th defendant-firm or in any other manner expressing or implying an intention to bind firm. In support of this, reliance is placed upon the decision in Ramchandra v. Kascm Khan, AIR 1925 Cal 29 wherein it was held that "the partnership is not liable for the loan incurred by a partner upon his credit by giving his own promissory note where the partner uses the money in the partnership concern of his own free will and without any contract with the lender to do so. The fact that the partnership obtained the benefit of the loan is only a piece of evidence to show that he entered into the transaction by a member of the firm, and not further because it is not the ultimate use by the firm of money borrowed as above that makes the firm liable."

We are in respectful agreement with the view as ex-pressed in this decision and hold that the appellants cannot be made liable for this reason also.

10. It is also argued by the learned counsel for the appellants that the defendants 7, 8 and 10 retired from the partnership on 6-6-1951, that the 6th defendant retired on 4-5-52 and that the retirements were duly published as required by law and that, therefore, in any view, the defendants 7, 8 and 10 cannot be made liable, for ,any part of the suit claim, though the 6th defendant might be liable. It is clear from Ex. B-11 the extract of registration of firms maintained under Section 59 of the Indian Partner-ship Act that the defendants 7, 8 and 10 retired from the partnership on 6-6-51 and that the 6th defendant retired on 4-5-52. It is also clear from Exs. B-8 to B-10 that the notice of such retirement was published in the "Hindu", "Andhra Prabaa" and "Andhra Patrika", the first being an English daily and the other two being .Telugu dailies which have very wide circulation in the then State of Madras. Therefore, it is argued that the plaintiffs knew in fact that the defendants 7, 8 and 10 were no longer partners of the 11th defendant firm when the amounts were lent under Exs. A-1 to A-3. Under Section 32, Clause (3) of the Indian Partnership Act:

"Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement."

Under Section 32, Clause (3) a retiring partner continues to be liable under that section until public notice is given of his retirement and what the public notice is under the Act is specified by Section 72. Therefore, on a plain reading of Section 32, Clause (3) and Section 72, in appears to us that a retiring partner will continue to be liable for any subsequent act of any other partners which would bind the firm until the public notice as prescribed by Section 72 is given. If a retiring partner, who has not given notice in the mode specined under Section 72, wants to escape liability for any subsequent acts on behalf of the firm it can only be on the basis of some other rule of law and not on the ground that public notice was given in a manner different from that prescribed by Section 72. The learned counsel for the appellants contends that the plaintiffs in fact knew the fact of retirement of the appellants which was published in the Hindu, Andhra Prabha and Andhra Patrika and the notice to the Registrar of Firms and that, therefore, they are estopped from contending that the appellants continue to be liable under Section 32 of the Indian Partnership Act notwithstanding their retirement on 6-6-51 and 4-5-52. In support of this contention, reliance is placed upon the decision in Abdul Karim v. Narayana Murthy, 1958 Andh LT 98. The question in that case related to the dissolution of a firm and the necessity to give a public notice of such dissolution under Section 45 of the Act, which declares that:

"Notwithstanding the dissolution of the firm the partners continue to be liable as such to thire parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution."

The learned Judge noticed that the words "unless they themselves had notice of such dissolution" occurring in Section 264 of the Contract Act have been omitted m Section 45 of the Indian Partnership Act and then considered the effect of that omission. The learned Judge pointed out that public notice is now sufficient in all cases without any distinction between old and new customers and also that a literal reading of Section 45 would, no doubt, suggest that such a public notice as prescribed by Section 72 is necessary; but in the view of the learned Judge, the principle of the section is that when a firm is dissolved and no notice is given of such dissolution, people who continue to trade with it should not be affected by the dissolution. Therefore, the learned Judge held that persons who had in fact notice of such dissolution are not adversely affected by reason of the absence of a public notice and that individual notice affords higher protection than public notice and that, when a person sought to be affected, had knowledge that the firm was dissolved, it creates a form of estoppel and it is not open to him to plead that there was no public notice. The learned Judge referred with approval to two earlier decisions in Bichhia Lal v. Munshi Ram, AIR 1922 Lah 466 and Nanna Mal Banarsi Das v. Bal Mokand, AIR 1933 Lah 591. It was also pointed out that the same view has been expressed in Mulla's commentary on the Partnership Act. It was finally held by the learned Judge that, though there was no public notice as required by Section 45 read with Section 72 of the Indian Partnership Act notice of any kind is good and sufficient if proved.

The same considerations will apply to questions arising under Section 32 Clause (3) also. The rule that makes a retiring partner liable for acts done on behalf of the firm after retirement is one based on estoppel, because the persons deal with it in the belief that all the partners of the firm still continue; but in our view, when the third par-tics in fact knew that certain of the partners have in fact retired from the partnership, there is no scope for the application of the rule of estoppel to make the partners who had already retired liable for the subsequent acts on behalf of the firm.

We are in respectful agreement with the view expressed by Satyanarayana Raju, J. in 1958 Andh LT 98. But it is not necessary to pursue this matter further in the view we have taken that the debts were not contracted by the defendants 1 and 5 acting on behalf of the firm, but were contracted by them only in their respective individual capacities.

11. We have to refer to one other contention urged by the learned counsel for the appellants. He argued that the plaintiffs did not at all know that the appellants were the partners of the 11th defendant-firm when, monies were lent under Exs. A-1 to A-3 and that, therefore, defendants 7, 8 and 10 cannot be made liable for the suit debts which were incurred after they retired from the partnership. He relied upon the proviso to Section 32, Clause (3) which provides that a retiring partner is not liable to any third party, who deals with the firm without knowing that he is a partner. P. W. 1 admitted that he did not see the partnership deed. P. W. 1 who attested Exs. A-1 and A-2 admitted that he did not know who the partners of the 11th defendant firm are. The 10th defendant as D. W. 1 stated that he did not know P. W. 1 and denied that he went to P. W. 2 at any time. P. W. 1 stated that the defendants 1, 5 and 10 were present when Exs. A-1 to A-3 were executed. If this were so, there is no reason why the defendants 5 and 10 also were not made to execute or attest Exs. A-1 and A-2 or why the defendants, 1 and 10 were not made to execute or attest Ex. A-3. In our view, the evidence and the circumstances of the case indicate that when the plaintiffs 1 to 3 lent the amounts under Exs, A-1 to A-3 they did not know that the defendants 7, 8 and 10 were partners if the 11th defendant firm and that, therefore these defendants cannot be made liable for the debts contracted after their retirement, though public notice was not given by them as required by Section 32, Clause (3) of the partnership Act.

12. The suit was filed on 9-4-1955 i.e., more than three years after Exs. A-1 to A-3 were executed. But the plaintiffs relied upon Ex. A-4 dated 30-5-52, the agreement executed by the 1st defendant on behalf of the firm as an acknowledgment. It is contended on behalf of the appellants that Ex. A-4 which was executed after the appellants retired from the partnership does not bind them and therefore does not save limitation as against them. In the view we have taken that the debts were not incurred on behalf of the firm or for the business of the firm, it is not necessary for us to express our opinion on this point

13. In the result, the appeal is allowed with costs and the suit is dismissed against the defendants, 6, 7, 8 and 10 with costs. The decree passed by the lower Court against the other defendants, will stand as they did not appeal and as they are not even parties to this appeal.

C. M. P. No. 10239 of 1957 is ordered.

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Sunday 7 June 2015

Whether retiring partner will continue to be liable as partner to third parties for any act done by any other partners if notice of retirement is not published official Gazette?

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