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Judgment
Mullick, J.—This appeal arises out of a suit for dissolution of partnership and for accounts in respect of a business carried on under the name and style of the Fatka Coal Company. It is now admitted that the shares of the various partners were as follows:
Plaintiffs Man Gobinda Chandra and Indra Narain Chandra ... 4 annas. Defendant No. 1 ... 2 annas. Defendant No. 2 ... 2 annas. Defendant No. 3 ... 2 annas. Defendant No. 4 ... 1 anna 8 gandas and 2 karas. Defendant No. 5 ... 1 anna 8 gandas and 2 karas. Defendant No. 6 ... 18 gandas 3 karas. Defendant Nos.7 to 10 ... 18 gandas 3 karas. Defendant No 11 ... 1 anna 2 gandas 3 karas. Defendant No.13 Fulkumari ... 3 gandas 3 karas.
It is also now admitted that the business began in 1905.
The suit was instituted on the 19th of July 1911. A preliminary decree was made on the 9th of July 1912 and on the 20th of July 1912 Babu Amaresh Chandra Mukherji was appointed Receiver. The Receiver submitted his report on the 29th of May 1916 and the final decree was made on the 4th of August of that year. The Court found that defendants Nos. 1, 4 and 5 were jointly liable to pay Rs. 4,025-14-6 to the plaintiff, Rs. 2,196-5 9 to defendant No. 2, Rs. 2,459-14-0 to defendant No. 3, Rs. 156 4 3 to defendant No. 6, Rs. 1,050 7 0 to defendants Nos. 1 to 10, Rs 1,331-4 6 to dafendant No. 11 and Rs. 221-14-3 to defendant No. 13.
The individual liabilities of defendants Nos. 1, 4 and 5 were ascertained to be respectively as follows:
Defendant No. 1 ... Rs. 6 38-1-9. Defendant No. 4 ... Rs. 2,348 2 9. Defendant No. 5 ... Rs. 2,712-11-9.
Against this decree the present appeal is preferred by defendants Nos. 1, 3, 4 and 5. 6. The plaintiffs allege that the managing partners of the business from its inception in 1905 to March 1910 were defendants Nos. 1 and 4, and from April 1910 to August 1912 when the Receiver took possession the managing partner was the defendant No. 3. They charge these defendants with negligence and claim contribution in respect of a large number of items.
The first question is whether defendants Nos. 1, 3 and 4 were managing partners at all. Now it is said that the managing partners are named in the partnership deed, but that deed is not forthcoming. The defendants say that plaintiff Man Gobinda was managing partner from 1905 till July 1907 and that the defendants Nos. 1 and 4 managed from August 1907 to April 1910, after which defendant No. 3 took charge and managed the business till the Receiver was appointed.
It appears, however, from the written statements printed at pages 4, 5, 7, 9, and 10 of the paper-book that defendants Nos. 1 and 4 were the managing partners from the commencement till March 1910 and defendant No. 3 from April 1910 till August 1912. The allegation that the plaintiff Man Gobinda was the managing partner at any time has not been made out. But it is clear that he, from December 1905 down to about the middle of 1906, took a very active interest in the management of the colliery. He was actually living at the colliery and in constant communication with defendant No. 4 about various matters connected with its management. This is proved by the letters dated 22nd December 1905 (page 42 of the paper-book), 28th December 1905 (page 43), 14th January 1905 (page 44), 29th Magh 1312 (page 41), 3rd March 1906 (page 36), 11th March 1908 (page 45), 14th March 1906 (page 41). This is also dear from the letter written on the 25th of February 1911 by A, K. Bhar, the manager of defendants Nos. 1 and 4, in answer to Man Gobinda''s request for a list of the debts which were about to become barred. He sent him the list printed at page 110 of the paper-book and asked him either to institute a suit jointly with the other partners or to execute the necessary power-of-attorney in favour of some one. Therefore Man Gobinda''s present allegation that he was entirely ignorant of what was going on cannot for a moment be accepted, and it has been established he was taking a very keen interest in the management of the colliery during the period when defendants Nos. 1, 3 and 4 were the actual managing partners. So much so that on the 2nd of November 1906 (see letter Exhibit 6, page 113, of the paper-book) defendant No. 4 was obliged to write to Man Gobinda and complain of his general interference in the management of the business, and in particular of his entering into correspondent with the firm of M. L. Laik and Banerji regarding the price at which coal was to be sold to them by the Fatka Coal Company. I think, therefore, that the Subordinate Judge was right in accepting the finding of the Commissioner in regard to this part of the case.
It is next necessary to consider to what extent the defendants Nos. 1, 3 and 4 are liable to contribute for losses.
The learned Vakil for the appellants relies upon Clause 2 of Section 25A of the Indian Contract Act, which enacts that all partners are entitled to share equally in the profits of the partnership business and must contribute equally towards losses sustained by the partnership business. The learned Vakil for the respondents, on the other hand, relies upon the proposition that the managing partners were trustees and as such are liable for every loss that has been incurred during their management. The learned Vakil also relies upon Rowe v. Wood (1822) 2 J. & W. 553 : 22 R. R. 208, 37 E. R. 740. (1822) 2 J. & W. 553 : 22 R. R. 208, 37 E. R. 740., but that case does not carry him very far, because it merely decides that one partner cannot exclude another from an equal management of the concern, that it is the duty of each to keep precise accounts, to have them always ready for inspection and to keep good faith towards the other. It is said, however, that the defendants as trustees departed from the strict line of their duty and are, therefore, liable. If this could be shown they would, in my opinion, be liable whether as partners or as trustees, but, in my opinion, the evidence falls far short of this. If again it is sought to make them liable on the ground of negligence, then the law is different for trustees and partners. A trustee is bound to use the prudence and skill which an ordinary person would take of his own similar affairs. On the other hand, the rule of diligence, in the absence of any specific agreement on the point among partners, has been laid down in the civil law as follows partners are not always obliged to use that middle kind of diligence which prudent men employ in their own affairs, they are secure if they act, in the partnership affair as they would do in their own; so that if a partner fall into error in the management from want of a larger share of prudence and skill than he was truly master of, he is not liable for the consequences, for the partners are themselves to blame in not making choice of an associate of greater abilities, and can recover only for the consequences of gross faults" (Digest 17, 2, 52,). Good faith is required in a partner as well as diligence and if a partner is guilty of gross negligence, unskilfulness, fraud, or wanton misconduct in the course of the partnership business, he is ordinarily responsible to the other partners for all losses and damages sustained thereby [Law V. Law (1905) 1 Ch. 140 : 74 L. J. Ch. 169 : 92 L. T. 1, 53 W. R. 227 : 21 T. L. R. 102.] The rule is really apart of the law of agency and is, therefore reproduced under that head in Section 212 of the Indian Contract Act.
If, therefore, it can be shown that the defendants used such skill and judgment as they possessed, they are not liable to indemnify the plaintiffs for the losses; and I quote below a passage from Cragg v. Ford (1862) 1 Y. & Coll. C. C. 280 : 62 E. R. 889 : 57 R. R. 820., which seems to me to put the law very dearly. In that case the question was whether the defendant was to be charged with the loss which had arisen from delaying the sale of some cotton belonging to the partnership. The defendant was the managing partner and was found to have been the person principally entrusted with the charge of management of the business and the winding up of its affairs. The Vice Chancellor, Sir J. L. Knight Bruce, observed as follows: "The plaintiff was, I think, entitled to have the cotton sold sooner than it was and sold at a time when the loss would have been wholly or to a great extent obviated. Under the circumstances if it had been established and proved that the defendant had acted fraudulently or had beyond merely refusing to sell so acted as to prevent the plaintiff from selling, it is very possible that I might have acceded to the plaintiff''s demand seeking to charge the defendant with the loss; but fraud is out of the question. The defendant, whether wisely or unwisely, yet, as it must, I think, be taken, in the honest exercise of his judgment, considered that the sale, which was a matter in which he was interested as well as the plaintiff, ought to be delayed; the plaintiff, for anything that appears, might himself have sold the cotton or have taken measures for its sale or have himself possessed of it."
Baaring these observations in view, I now proceed to take up each item in regard to which the learned Vakil for the appellants has addressed us.
The finding of the trial Court in respect of the other items of the Commissioner''s report has not been challenged or if challenged at the beginning of the learned Vakil''s address, was eventually accepted on the ground that the items were small and that it was not worth while reopening the finding in this Court.
As regards defendant No. 1,---item No. 2). This is a sum of Rs. 722-11-6 charged against defendant No. 1 alone, for coal sold by the Fatka Colliery to the Dhadka Colliery of which defendant No. 1 was a partner. It is said that the debt has become barred owing to the negligence of defendant No. 1, who being a partner in the Dhadka Colliery profited by that negligence. No reason has been given why a suit was not brought in time to recover this debt.
The liability to contribute would prima facie fall upon defendants Nos. 1 and 4, The Subordinate Judge appears, however, to have fixed the whole liability upon defendant No. 1 on the ground that he was a proprietor in the Dhadka Colliery and, therefore, stood to profit more than defendant No. 4. He also seems to have been influenced by the consideration that the defendant No. 1 was jointly and severally liable for the whole debt with his co partners in the Dhadka Colliery. The learned Vakil for the respondents supports this view of the case by referring to Section 249 of the Indian Contract Act. The answer, however, is that there is no reliable evidence that defendant No. 1 was in fact a proprietor in the Dhadka Colliery at the time that the debt was incurred. On the contrary the evidence of Debendra Nath Chatterjee at page 56 of the paper book shows definitely that defendant No. 1 was not a partner then. There is also no evidence to show that the debt was incurred by the Dhadka Colliery for the purpose of the partnership business. Therefore Section 249 of the Contract Act will not assist the plaintiffs. But on the charge of negligence I think the plaintiffs ought to succeed. It has not been shown to us that the plaintiffs had any notice of this debt. It was contended by the defendants before the Subordinate Judge that notice was given to the Receiver, but of this there is no evidence before us. There being a complete absence of evidence that defendants Nos. 1 and 4 exercised their usual skill and prudence, we must hold that defendants Nos. 1 and 4 are liable equally.
Items charged against defendants Nos. 1 and 5: No. 34, a sum of Rs. 8,345-2-3, and No. 43, a sum of Rs 588-100. The former sum represents money recoverable from the firm of J. L. Banerji and Co., which was subsequently amalgamated with the firm of M. L. Laik and Banerji, and the latter sum represents money due from the firm of M. L. Laik and Banerji. The firm of M. L. Laik and Banerji has gone into liquidation since the amalgamation, and the Fatka Coal Company being creditors should have proved their debt in insolvency. This apparently was not done and defendants Nos. 1 and 5 have been made liable, firstly, because there was negligence on their part in recovering the debts, and secondly, because they are two of the partners of the insolvent firm.
From a petition dated the 4th of September 1913 in the High Court of Calcutta printed at page 114 of the paper book, it would seem that the insolvents showed a part of the debt in their schedule. After the institution of the present suit the defendants pleaded that the Official Assignee who was representing the insolvent firm should have been made a party and that contention was appointed on the 5th March 1912. It will be remembered that the Receiver was appointed in July of that year, and it was open to the plaintiffs to obtain an order from the Court directing the Receiver to prove the debts before the Official Assignee. It is idle for the plaintiffs to say that they had no responsibility in the matter. The Receiver deposes that he does not remember receiving any notice of the debt, but it is quite dear that the Official Assignee was made a party because he was a debtor and the plaintiffs had full knowledge of his liability.
Let us next see whether there was gross negligence on the part of defendants Nos. 1 and 5. Defendant No. 5 certainly was never a managing partner and as for defendant No. 1, although he was a managing partner at a time when a part of these debts was incurred, there is no finding that ha did not act in the ordinary course of business and with all the prudence and skill which he possessed.
But it is said that it was the duty of defendant No. 1 to sue J. L. Banerji and Co. and M. L. Laik and Co. before the insolvency. That again depends on evidence. In the present case it has not been shown that defendant No. I had notice of the pending insolvency of M. L. Laik and Banerji. The evidence is that the purchasers were old customers, and I am satisfied that defendant No. 1 exercised his usual prudence in giving credit to them. That there was bona fides on his part is dear from the following circumstance.
On the 25th of February 1911 his manager submitted a list of debts about to become barred to plaintiff Man Gobinda. The debt of J. L. Banerji and Co. is item No. 15 in this list. The last transaction with J. L. Banerji and Co. appears from this list to have taken place in June 1909. It was open, therefore, to the plaintiff to bring a suit for its realisation.
I may also notice that on the 10th of October 1909 the plaintiff Company held a meeting at which the assets and liabilities up to the month of June were examined and the manager was directed to take steps for the realisation of the dues and to inform the partners of the final result, and the plaintiff Man Gobinda''s son Kunja was directed to sign the Daily Cash Bonk. The manager, as has already been seen, pressed for the institution of suits but no action was taken by the partners.
In these circumstances neither defendant No. 1 nor defendant No. 5 can be held liable on the ground of negligence.
The other ground on which it is sought to make defendants Nos. 1 and 5 liable is Section 249 of the Indian Contract Act. That Section would, no doubt, be applicable if it could be shown that the debts were incurred in the usual course of business by or on behalf of the partnership. There is a complete absence of evidence on this point and, therefore, Section 249 would not apply.
Therefore the result I arrive at is that the judgment of the Subordinate Judge in regard to items Nos. 34 and 43 must be set aside.
Debts charged against defendants Nos. 1 and 4, item No. 28, a sum of Rs. 5,599-12 0 remaining due from one Hari Lal Nagar on account of the price of coal sold to him, and item No. 51, a sum of Rs. 2,00 8 C due from R. N. Biswas for the same reason.
It is alleged that the defendants Nos. 1 and 4 have by their negligence allowed these debts to become barred. It appears that the last transaction with Hari Lai Nagar was in February 1909 and the last transaction with Biswas in June 1909, so that the debts did not become barred till after the suit was instituted. The case of the plaintiffs is that there was collusion between defendants Nos. 1 and 4 and Hari Lal Nagar, that Biswas was a fictitious person and that the sums alleged to be due from both have been really misappropriated by the defendants. The case of the defendants is that Hari Lal Nagar and Biswas were both old customers and it would have been folly to bring a suit against them till the last moment. 27. With regard to Hari Lai Nagar, it is said that he was a man from Rajputana and that he absconded because owing to a sudden drop in the price of coal his business failed, and that the defendants after due enquiry were totally unable to ascertain his whereabouts between 1909 and 1911. With regard to Biswas they deny that he is a fictitious person.
Now the evidence upon which it is argued that Biswas was a fictitious person consists of the testimony of Debendra Nath Chattopadhya, witness No. 2 for the defendants, but that testimony is of the vaguest description. I am not at all satisfied that there is any substance whatever in the allegation that Biswas was not an old and reliable customer to whom the defendants were justified in giving credit.
With regard to Hari Lal Nagar it is established that he was an old customer, but it is said that the defendants should have brought a suit against him and made substituted service under Order I, Rule 8, Civil Procedure Code.
It is also contended as regards both Hari Lal Nagar and Biswas that it was the duty of the defendant to bring a suit between 1909 and 1911. I find no evidence of dishonesty or fraud. At most there was an error of judgment and the defendants are, in, my opinion, exempted from liability upon the principle enunciated in Cragg v. Ford (1862) 1 Y. & Coll. C. C. 280 : 62 E. R. 889 : 57 R. R. 820. It is also to be observed that in the list of debts about to become barred at page 130 of the paper book both these debts appear; also that in the proceedings of the Company of October 1909 the accounts up to June 1909 (presumably including these debts) were passed by the Company. In my opinion the judgment of the learned Subordinate Judge as regards both these items must be set aside.
Item No. 52. This was a small sum of Rs. 173-7-3 representing the price of coal purchased by Sachindra Nath Bose, a clerk employed by the Company. This clerk fell ill, took leave and died during his leave. The defendants plead that the clerk bad due to him some pay and as he was an employee, the net balance due from him was treated as an advance of salary. The managing partners bad implied authority to make an advance of this kind, which, in my opinion, was for the benefit of the business. The finding of the Subordinate Judge is, therefore, in my opinion, erroneous and must be set aside.
The result, therefore, is that defendant No. 1 succeeds as to half of item No. 20 (involving a sum of Rs. 361), half of items Nos. 34 and 43 (involving respectively Rs. 4,172 and Rs, 299), half of items Nos. 28 and 51 (involving respectively Rs. 2,799 and Rs. 1,002). Defendant No. 4 succeeds as regards half of items Nos. 28 and 51. Defendant No. 5 succeeds as regards half of items Nos. 34 and 43. The appeal is accordingly decreed to this extent in favour of defendants Nos. 1, 4 and 5 respectively.
In regard to the rest of the items covered by the appeal which is valued at a total of Rs. 19,171, the appeal fails. The successes of defendants Nos. 1, 4 and 5 amount to Rs 16,698, and they will jointly get costs in proportion to this sum and will pay costs in proportion in respect of the balance to the respondents. The costs awarded to defendants Nos, 1, 4 and 5 will be shared by them equally.
As regards the lower Court we decline to interfere with the calculation of the costs awarded by that Court.
The necessary corrections should, there-fore, be made in column 4 of the statement submitted by the Receiver and printed at page 105 of the paper-book and a decree prepared accordingly.
Jwala Prasad, J.
I entirely agree.