Sham Sunder vs Hari Dev Bansal and Others

Swatanter Kumar, J.—The scope and extent of liability of a defendant on the plea that he was not a partner of the partnership concern, in a suit for recovery is the precise and pertinent question that falls for determination in the present case.

In order to examine the merits of the respective contentions raised by learned counsel for the parties in support or against the above proposition, reference to basic facts would be necessary. Shri Hari Dev Bansal filed a suit for recovery against M/s Lal Chand Roshan Lal and others for a sum of Rs. 38,929.15 for the supply of printed containers as per the agreed rate between the parties. Paragraphs 2 and 4 of the plaint read as under:-

"2. That the defendant firm is registered one and the business of the firm is looked after by Shri Sham Lal its one of the partner, therefore, the suit is filed against the firm through him."

"4. That the plaintiff is dealing with the defendant firm for the last several years for the supply of printed tin containers to the defendant firm and the defendant firm used to pay in part payments towards the bills of the plaintiff, thus there is current account with the plaintiff firm of the defendant firm."

The suit was contested by the defendants. Defendants No. 1, 2 and 6 filed a joint written statement in reply to the plaint. In paragraph No. 5 of the written statement it was specifically admitted that the defendant firm purchased the tin container from the plaintiff on cash basis. However, the liability to pay any amount or balance amount was disputed. While taking various preliminary objections including locus-standi to file the suit, defendant No. 2 being not a partner of defendant No. 1, this suit being bad for misjoinder of parties, being time barred and also with regard to territorial jurisdiction of the Court were taken. However, reply to paragraph 2 and 4 of the plaint makes an interesting reading:-

"2. That para No. 2 of the plaint is wrong and is denied. There is no partner of the defendant No. 1 firm whose name is Sham Lal. Therefore, it has been wrongly stated that the business of the firm is looked after by Sham Lal, its partner. The suit is filed against the firm through him. Thus the suit has been wrongly filed against the firm through a wrong person, as such the suit is liable to be dismissed."

"4. That para 4 of the plaint as stated is denied. The defendant firm purchased the Tin Containers from the plaintiff on cash basis. It is absolutely wrong that the defendant firm made part payments to the plaintiff for the price of the tin containers purchased by it."

The facts pleaded in the written statement were" denied and it was reiterated in the replication by the plaintiff that the said defendant No. 2 was partner of the partnership concern.

On the pleadings of the parties, the learned trial Court framed as many as seven issues to settle the controversy between the parties. The learned trial Court answered all the material issues in favour of the plaintiff and against the defendants. Vide judgment and decree dated 22.11.1995 the learned Trial Court decreed the suit of the plaintiff for recovery of Rs. 27,029.25 with interest at the rate of 12% pendente lite and at the rate of 6% per annum for future interest till realisation. The partnership concern and other defendants did not prefer any appeal against the judgment and decree passed by the learned trial Court. However, defendant No. 2 Sham Sunder filed an appeal. In the grounds of appeal before the learned first Appellate Court case at variance with pleadings was argued in relation to the basic facts that he was manager and attorney of the defendant firm and as such he was not liable for any liability of the partnership. The District Judge, Bhatinda vide order dated 17.12.1997 dismissed the appeal with costs maintaining the judgment and decree passed by the learned trial Court giving rise to this Regular Second Appeal.

The thrust of the arguments raised on behalf of the appellant is that though the decree against partnership and its other partners had already become final still no decree could be passed against defendant No. 2 Sham Sunder who was not a registered partner of the partnership concern. It is contended that he was only a manager of the firm and an attorney on behalf of the partners. On the other hand, it was contended by learned counsel appearing for the respondent that Sham Sunder was looking after the business of the partnership concern.

It is a settled principle of law and the CPC specifically provides that parties are bound by their pleadings and their entire suit is regulated and controlled by their pleadings. At the very outset, it must be noticed that a joint written statement was filed by defendant No. 2 alongwith other admitted partner of the partnership concern Mr. Roshan Lal and the partnership concern itself. As is clear from paragraphs No. 2 and 4 of the written statement, no case was pleaded that defendant No. 2 was manager of defendant No. 1 and attorney of other partners. The evidence led by the defendants, thus, must be construed and read within the purview and scope of the pleadings pleaded on record. There was specific averment in the plaint that defendant No. 2 was carrying on business on behalf of defendant No. 1 and he had made payments towards the bills. The only controversy raised by defendant No. 2 was with regard to misjoinder of parties vis-a-vis him and issue was claimed in that regard and both the Courts below have answered the said issue against defendant No. 2.

Ex.D.85 which has been tendered on record firstly is beyond the scope of the pleadings raised by the defendants. Secondly this only substantiates the case of the plaintiff further that in fact on behalf of all the other partners, defendant No. 2 Sham Sunder was acting and carrying on the business with the various customers. The learned Trial Court while answering the said issue against the defendants and particularly defendant No. 2 relied upon admission of Shiv Charan, the other admitted partner of the partnership concern. It recorded the following findings:-

"But it has come on record, that Sham Sunder used to deal with the plaintiff on behalf of the defendants firm and DW1 Shiv Charan Dass has admitted that Sham Sunder was the manager of the firm. Even if Sham Sunder was not the partner of the defendant No. 1, but he used to deal with the plaintiff though in the capacity as a manager was admitted by DW1."

The above findings alongwith other conclusions arrived at by the learned trial Court on the basis of appreciation of evidence on record were affirmed by the learned First Appellate Court. This finding in the facts and circumstances of the case can neither be termed as perverse nor so illogical so as to call for the interference by this Court.

Another factor which was pointed out by the counsel for the respondent from the array of parties of appeal and the judgments of the Courts below is that defendant No. 1, partnership concern is titled as Lal Chand Roshan Lal. Sham Sunder is son of Lal Chand while defendant No. 6 Wazir Chand is son of Roshan Lal. Defendants No. 3 to 5 are also sons of Roshan Lal. In other words any person dealing with the partnership concern in normal course of things is bound to get an impression that Mr. Sham Sunder was acting as a partner of the concern and specially in face of admission of DW1. Internal management of the partnership concern is primarily intended to regulate the partnership concern and outsider is not required to minutely verify such facts. If a person is transacting and actually carrying on the business of the partnership and is dealing with other persons for years together, the Court would be fully justified in holding that such person would be liable for the liability of the partnership as partner on the principle of holding out. It will be more so where no definite pleadings are taken by the contesting defendants to show and prove that the said defendant has no concern with the partnership i.e. it was a simple case of employee and employer''s relationship.

The burden of three issues including misjoinder of parties and the suit disclosing no cause of action was upon the defendants. The defendants produced no evidence in support of their case. Whatever little evidence led it was beyond the pleadings and in any case was of no effect and consequence when Ex.D.85 is read in conjunction with the admission of DW1 and the case of the plaintiff. At this stage it will be appropriate to refer to the provisions of the Indian Partnership Act, 1932, hereinafter referred to as the Act. Section 22 of the Act provides for the mode of doing act to bind the firm while Section 28 relates to the doctrine of holding out as applicable to partnership concern. The provisions read as under:-

"22. 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."

"28. (1) Any one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.

(2) Where after a partner''s death the business is continued in the old firm name, the continued use of that name or of the deceased partner''s name as a part thereof shall not be itself make his legal representative or his estate liable for any act of the firm done after his death."

The cumulative effect of the bare reading of these two provisions is that a firm is bound by act of a partner or other person on behalf of the firm. While any one who by words spoken or written by conduct represents himself to be a partner of the firm is liable as a partner in that firm.

Whether a defendant has or has not held himself out to the plaintiff as a partner, would normally be a question of fact or in some cases a mixed question of law and facts. In both the cases there has to be a clear defence to the averment that a particular defendant acted as a partner. The onus of raising a specific plea is on the parties, but there is a heavy onus on the defendant once it is an admitted fact that he was looking after the business of a partnership for a considerable lung period and was dealing with people at large. This question of fact, thus, must be pleaded and proved in accordance with law. Defendant No. 2 has completely failed to discharge his onus and to raise appropriate pleadings in face of an admission of one of the defendants and a joint written statement being filed by the defendants.

Defendant No. 2 had actually been dealing with the plaintiff and he is bound by the facts stated in the written statement. If his acts and commissions would bind the partnership then mere fact that he does not have share in the partnership by itself would not absolve him of the liability accruing upon him by application of the principle of holding out. Lindley on Partnership Fifteenth Edition at page 114 discusses this concept as under:-

"It is, therefore, wholly immaterial whether the person holding himself out as a partner does or does not share the profits or losses. More than this, even if it be known that he does not share either, still he may be liable. For although a person who lends his name may stipulate for an indemnity from those who use it, by no means follows that he ought not to be liable to third parties merely because they are aware of such stipulation."

".......and although, in the case supposed, he cannot be believed to be a partner, the lending of his name does justify the belief that he is willing to be responsible to those who may be induced to trust him for payment."

Allowing oneself to be represented as a partner in a particular case, by leading others to believe that one is a partner. The present case is not one of a mere passive assent but is a case of active involvement of defendant No. 2 in the conduct of business of defendant No. 1 and representing to believe that he had full authority to bind the firm. In a family concern the principle of acquiescence can be applied with greater emphasis and more easily. While dealing with a partnership concern, a third party is not expected to verify the records of the partnership or from other concerned authorities as to who are the partners of partnership concern in the normal course of events.

Pollock & Mulla by on the Indian Partnership Act Fifth Edition by R.K. Abichandani illustrates the application of this principle as under:-

".....When persons are shown to have acted as partners, the burden of proof is on those who say they were not partners. This is not estoppel, but a matter of common-sense inference. The question whether the defendant has or has not held himself out to the plaintiff as a partner would seem to be a mixed question both of law and fact(s)."

The doctrine of holding out is primarily based on the principles of estoppel where a representation is made and other party acts upon it. In the present case admittedly the defendant No. 2 had been dealing with the plaintiff for supply of material for a considerable period and bills were being made by him and it was on his dealing with the plaintiff that resulted in the supply of goods giving cause of action to the plaintiff to claim money from the defendant firm. The required voluntary act on the part of the defendant is complete on the basis of the pleadings and admission of the defendants themselves. To add to this situation the plaintiff has come out with a positive case in that regard. All they were required to show was, that plaintiff had held himself out as a partner or a person authorised to bind the partnership firm as a partner, in contra-diction to establishing actual relationship of partnership between the defendants No. 1 and 2.

It was never pleaded in the written statement by the defendant that he was not a partner but a manager and attorney of which the plaintiff had a knowledge. In other words, plaintiff was never put at notice of the status of defendant No. 2 which could save him of the liability as an exception to the rule of holding out. At this stage, it may be appropriate to refer to the case of Cf. Jacobs v. Morris, (1902)1 Ch. 816.

In P.A.R. Ramaswami Chettiai v. Srinivasa Ayyar and Ors., AIR 1936 MD 94, the Court held as under:-

"The liability in such a case is analogous to that of a partner and arises from the conduct of the coparcener, who is estopped from denying the character he has assumed and on the faith of which third parties may be presumed to have acted. There being a partnership from the point of view of the general public, it follows that the persons dealing with it will not be affected by a dissolution of which no notice has been given."

"Of Course, if a member of a family takes an active part in the business and by his conduct induces the belief that he is a partner, the principles of partnership law may be applied to him so far as is necessary to do justice."

In Oriental Bank of Commerce, New Delhi Vs. M/s. S.R. Kishore and Co. and others, , the Court held as under: -

"It is crystal clear from the relevant provisions of law cited above that any person who by his words spoken, written or by his conduct represents himself or allows others to represent him as partner in a firm is liable as partner of that firm., to any one who has on the basis of any such representation given credit to the firm. Admittedly, the defendant No. 4 in the present case represented himself to be a partner by his conduct."

"In any case he is responsible for bringing about a particular situation hence he cannot now turn around and say that he is not bound by the said situation. I thus conclude that even otherwise, the defendant No. 4 is liable to the plaintiff on the basis of principle of holding out. Issue No. 5 is decided in favour of the plaintiff and against the defendants."

Applying the above well enunciated principles of law to the facts of the present case I have no hesitation in coming to the conclusion that the suit against defendant No. 2 has been correctly decreed on the application of the principle of holding out and on the basis of the other evidence on record. Evasive and uncertain pleas raised by the defendant not supported by any cogent or definite evidence, seen in the light of the admission of the defendants themselves, the defendant No. 2 was dealing with the parties, fairly supports and substantiates the plea of the plaintiff.

For the reasons afore-stated I find no merit in this Regular Second Appeal and the same is hereby dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs.