Union Bank Of India vs Sonywell Electronics And Others
2001 Latest Caselaw 691 Del

ORDER

A.K. Sikri, J.

1. Plaintiff is a statutory banking company constituted under Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. This suit is filed for recovery of Rs.5,69,670.32 against five defendants. the defendant No.1 is a partnership firm of which defendants No.1 is a partnership. Defendants 4 and 5 are stated to be the guarantors. The suit is being contested by the defendant No.2 only. It already stands decreed against defendants 1 and 3 to 5. In fact suit was filed by the plaintiff bank under the provisions of Order xxxvII of Code of Civil Procedure. Only defendant No. 2 had filed application for leave to defend. There was no appearance entered on behalf of defendants 1 and 3 to 5 and for this reason suit was decreed against defendants 1 and 3 to 5 by judgment and decree dated December 5,1988. On an application for leave to defined filed by defendant No.2 order dated April 3,1991 was passed granting limited leave to defend. This was an agreed order which reads as under:

"This is an application seeking leave to defend on behalf of defendant No.2. Against other defendants, the suit already stands decreed .Counsel for defendant No.2 has sought leave to defend on the short ground that the suit against defendant No.2 stands barred by limitation and the acknowledgment made by the partner after disputes had arisen inter so between the partners, of which intimation was given to the plaintiff, does not bind the defendant No.2.

It is agreed that leave to defend be granted limited to this defense of defendant No.2. I allow this application and grant the leave limited to this defense. IA is disposed of."

2. In view of the aforesaid order as defendant No.2 was granted limited leave to defend after the pleadings the following issues were framed on 26.8.1997:

1. Whether the alleged balance confirmation dated July 1,1981 is not binding on defendant No.2 as alleged in para 2 of the preliminary objections to the written statement?

2. Relief.

3. Thus, the question to be decided is as to whether balance confirmation dated July 1,1981 is not binding on defendant No.2? If it is so held, necessary consequences would be that the suit against defendant No.2 would be barred by limitation and plaintiff, in the eventuality would not be entitled any relief against defendant No.2 in the suit.

4. When the matter was fixed for evidence of the plaintiff, after taking few dates for this purpose, statement was made by learned counsel for the plaintiff on 26th November, 1998 to the effect that he did not want to produce any witness. Plaintiff's evidence was accordingly closed. Defendant examined himself as DW 1 and the matter was listed for arguments in the category of 'Finals'. On 17th April, 2001 when this case came up for arguments in its turn there was no appearance on behalf of the plaintiff. Consequently arguments of counsel for defendant No.2 were heard. However, while reserving the judgment it was mentioned that the plaintiff may, if so desire, file written submissions within one week. However, as no written submissions are filed either even after the lapse of 3 weeks, I proceed to give this judgment.

5. Defendant No.1 was granted certain banking facilities by the plaintiff in the form of Cash credit hypothecation limit; Cash credit pledge limit and Loan against trust receipts limit. Various documents were executed by defendant No.1. Admittedly defendants 2 and 3 were partners in the defendant No.1 firm at the relevant time and therefore the plaintiff filed the suit impleading them as well and praying decree against them on the ground that being partners decree against them on the ground that being partners of the defendant No.1, they would also be liable. Admittedly the defendant No.2 was partner of defendant No.1 firm at the time when theses facilities were availed of. Therefore, normally she would be liable for payment of dues in respect of partnership firm. However, the case of defendant No.2 is that the partnership firm continued up to March,1981. Thereafter there had been disputes between the partners and the defendant No.2 had intimated the plaintiff Bank about these disputes. Thus, when the bank knew about the disputes between defendants 2 and defendant No.3 any acknowledgement of the debt by other partners namely defendant No.2 after March, 1981, would not be binding upon the defendant No. 2 and if this acknowledgement is not taken into consideration suit against her would be time barred.

6. As this stage it may be mentioned that the present suit was filed on 9th July, 1984. The suit is filed beyond a period of 3 years which is the limitation period prescribed for the suit. However the suit is sought to be brought within limitation on the basis of debit balance confirmation dated 1.7.1981 in respect of each of the accounts wherein debit balance is confirmed. In para 14 of the plaint it is stated as under:

"That the cause of action to file the present suit accrued to the plaintiffs on various dates amongst others when the defendants executed documents as stated in paras 4 and 7 above; and also on the dates when the defendants availed of the banking facilities granted to them, it also accrued on 1.7.1981, when the defendants had signed executed and delivered the balance confirmation letters, acknowledging their liability towards the BANK. This Hon'ble Court was closed for summer vacations from 4th June, 1984 to 8th July, 1984; and the present suit has been filed on 9.7.1984. The suit of the plaintiff is therefore within the period of limitation and is not time barred."

7. As already mentioned above, plaintiff has not led any evidence. On the other hand DW-1 in her statement has proved on record the intimation given to the plaintiff Bank by the defendant No.2 relating to the disputes vide two letters both dated 6-4-1981 (Ex. P-1) and (Ex. P-2). In fact the plaintiff Bank has admitted in para 9 of the plaint itself about disputes between defendants No.2 and 3 and writing of these letters. Para 9 of the plaint reads as under:

"That on 6.4.1981, the defendant No.2 wrote THE BANK that no fresh cheque book of any account should be issued to any of the partners before taking her prior permission. On 6.4.1984 she further wrote to the BANK that they had closed the office premises as well as factory due to her differences with Shri Madan Mohan defendant No. 3. On 7.4.1981 Shri. G.K. Thairani the then Manager of Paharganj Branch of THE BANK went to the premises of the defendants to persuade them to get their accounts regularised and settled but without success. However, during the said visit, the defendants requested Shri G.K. Thairani to permit them to keep the pledged and Hypothecated goods at one place. Accordingly, the defendants collected and placed their goods in one room, one main and one built in almirah of one of the rooms in their premises which were then locked by Shri G.K.Thairani in their presence. On 10.4.1981, the defendant No.2 called upon the bank to open the room to enable her to remove her fridge, there from, Shri G.K.Thairani again went to the premises and opened the room in which the fridge was stated to be lying. She, however, did not remove the fridge and she also did not permit Shri Thairani to relock the room. It then became apparent that the demand made by defendant No.2 for opening the room was only a pre-conceived design to get possession of the room."

8. The aforesaid facts would show that there is no dispute that Bank to know about the disputes between defendant No.2 and 3 namely the partners of defendant No. 1 in April, 1981 itself. The Plaintiff Bank had also received request from the defendant No. 2 that no fresh cheque Book of any account be issued to any of the partners before taking her prior permission.

9. It is in the light of the aforesaid facts that legal question is to be exaimed as to whether the acknowledgment dated 1.7.1981 given by defendant No.3 defendant No.2.

10. In support of his contention that such an acknowledgment, given by defendant no.3 after the disputes between the parties has arisen, would not bind the defendant No. 2, the learned counsel relied upon the judgment of Calcutta High Court in the case of Kilburn & Co. vs. Pure Searsole Collieries reported in 1971 CWN, 642 and in the case of Gands singh Vs. Bhag Singh-Bhagwan Singh and another AIR 1926 Lahore 616.

11. Section 19 of the Partnership Act deals with implied authority with a partner as agent of the firm. Sub-Section (1) thereof stipulates that subject to the provisions of Section 22, the act of a partner which is done to carry on , in the usual way, business of the kind carried on by the firm binds the firm. This authority of the partner to bind of firm is called "Implied Authority". It cannot be disputed that in an ongoing partnership firm, if one of the partners gives an acknowledgement, it would bind the firm as partner had implied authority to sign such an acknowledgment as an agent of the firm which is done to carry on the carry on the business of the firm in the usual away. A promise by one partner to pay debt owed by the firm undoubtedly binds the firm ( Annon v. Layfiled Holt KB 534: Lacy v. Mc Neil, (1824) 4 Dow & Ry 7). Similarly in Firm of Sarabhai Hathising and another Vs. Shah Ratilal Nathalal, Share Broker and others it was held that where the partner of the firm acknowledges the debt on behalf of the firm, such acknowledgement was valid as the partner had an authority to acknowledge the debt. This is the position of an on going partnership firm.

12. Let us now deal with the cases of such acknowledgements made by a partner after the dissolution of the firm. (This aspect of law is examined in view of the nature of cross-examination of DW1 by the plaintiff's counsel). In Babu Vs. Dayambai and others the Bombay High Court took the view that acknowledgement made by a partner even after the dissolution of firm would bind other partners where creditors had no notice of the dissolution. While holding so, Court took into consideration provisions of Section 264 of the Contract Act which reads as under:

"Persons dealing with a firm will not be affected by a dissolution of which no public notice has been given, unless they themselves had notice of such dissolution".

13. Section 264 now stands repealed after the enactment of the Indian partnership Act, 1932. However, corresponding provision in the Partnership act is to be found in Section 45 his reads as under:

Section 45. Liability for acts of partners done after dissolution.-(1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any to them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution:

Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done after the date on which he ceases to be a partner.

(2) Notices under sub-section (1)may be given by any partner".

14. As per this Section also even after the dissolution of a firm, partners continued to be liable as such to third parties for any act done by them which would have been an act of the firm if done before the dissolution until public notice is given of the dissolution. Thus till the time public notice of the dissolution is given, other partners will continue to remain liable for the act of one partner, as if, such an act was done in a continuing partnership. Thus the principle of presumed continuance of "mutual agency" underlines the rule which is subject to the exception provided in the proviso to Section 45. However , in case the creditor had notice of dissolution of the partnership or public notice had been given for dissolution the acknowledgment by one cannot bind the other partner. In case a partner is authorised to collect the outstanding and pay the debt of the partnership he can validly acknowledge debts due by the partnership (Malayandi v. Narayanan, 36 IC 225; Muthuswami v. Sankaralingam, 2LW 823, 1915 MWN 722; 30IC 675.

15. Whether it can be said that such an implied authority would still exits even when disputes have started between the partners? Or to put differently can it be said that after the disputes have arisen, the act of a partner acknowledging the liability on behalf of the firm is an act which is done to carry on, in the usual way, business of the kind carried on by the firm? The view of Calcutta High Court in the case of Kilburn & Aco. v. Pure Searsole Collieries (supra) is that the normal authority in a continued partnership business cannot be read into letters written by a partner when disputes between the partners were made known to the plaintiff.

16. The facts of this case were almost similar to facts of the present case. The plaintiff had relied upon certain letters written by defendant No.3 as partner of defendant No.1 and it was the contention of the plaintiff that by these letters the defendant No.3 as partner of the firm had acknowledged the liability and therefore the suit was within limitation. The other partners had contended that in view of disputes among the partners, the defendant No.3 was not authorised to acknowledge any liability on behalf of the partnership firm. The Court held that an acknowledgment to be valid and binding for the purpose of Section 19 and 20 of the Limitation Act should be made by a partner who is authorised to do so. The relevant discussion in this report appears in para 14 of the judgment which reads as under:

"14. Counsel for the contesting defendant relied on the Bench decision in (2) Azizur Rahman vs. Upendra Nath Samania reported in 42 B.K. Mukherjee, J., said that sub-section (2) of section of the old Limitation Act explained that a contractor partner, etcetera would not be implied agent of the co-contractors or co-partners for purpose of sections 19 and 20 of the Limitation Act and if it was sought to bind the latter by any act of acknowledgement or payment by the former, authorization must be proved. In other words, liability would not arise by reason only of a written acknowledgement. The acknowledgement is to be made by a partner who is authorised to do so. As to who is a person authorized will appear not merely from the provisions of the Partnership Act or the provisions contained in the Limitation Act in regard to making of acknowledgment but from the facts and circumstances of the case as to whether the person acknowledging the liability was really authorised to do so."

17. The principles which emerge from the aforesaid judgments can be summarised as under:

1. As per Section 19 of the Partnership Act, in a continuing partnership, a partner has, as an agent of the firm, implied authority to sign an acknowledgment of debt on behalf of the firm. A promise of one partner to pay debt owned by the firm would bind the firm and thereby the other partners.

2. Where there are disputes between the partners and the creditors had the notice of such disputes, implied authority as contained in Section 19 of the Partnership Act cases and the acknowledgment given by one partner will not bind the other partners. This is on the principle that the acknowledgment is to be made by a partner who is authorised to do so. Whether a partner is authorised would depend of facts and circumstances of the case. When there are disputes between the partners which are known to the creditor, it can safely be inferred that after such disputes there is no implied authority to do an act on behalf of the other partners. That is the ratio of the judgment in the case of Kilburn & Co. Vs. Pure Searsole Collieries 1971 CWN 642 I am in respectful agreement with the ratio laid down in that case.

3. If the firm has been dissolved but no notice to the creditors on public notice of such a dissolution is given, the act of a partner shall bind the other partners even after dissolution, as if, the act was done before the dissolution.

4. In case of dissolution, after the notice to the creditors or the public notice of the dissolution is given the acknowledgement given by one partner cannot bind the other partners.

18. It has already been noticed that the defendant No.2 had categorically informed the plaintiff bank about the disputes between the partners. Therefore, acknowledgment dated 1-7-19871 given by defendant No.3 after these disputes having been known to the plaintiff bank would not bind the defendant no.2. Once this acknowledgement is not taken into consideration, the suit filed by the plaintiff against defendant No.2 is clearly time barred. This issue is, therefore, decided against the plaintiff bank and in favor of defendant no.2. The result would be that the suit stands dismissed against defendant No.2.

19. Decree has already been passed against defendants 1 and 3 to 5. File be consigned to records.