Kerala High Court
S.Satheesh vs The State Of Kerala on 7 July, 2021
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE T.R.RAVI
WEDNESDAY, THE 7TH DAY OF JULY 2021 / 16TH ASHADHA, 1943
WP(C) NO. 9932 OF 2015
PETITIONER:
S.SATHEESH
AGED 42 YEARS
S/O. LATE K.N. SATHYAPALAN, MANAGING PARTNER,
K.N. SATHYAPALAN & CO. EDAKKIDOM P.O.,
EZHUKONE, KOLLAM 691 505
BY ADVS.
SRI.S.SREEKUMAR (SR.)
SRI.P.MARTIN JOSE
SRI.P.PRIJITH
SRI.THOMAS P.KURUVILLA
RESPONDENTS:
1 THE STATE OF KERALA
REPRESENTED BY THE CHIEF SECRETARY, SECRETARIAT,
THIRUVANANTHAPURAM 695001
2 SUPERINTENDING ENGINEER, PROJECT CIRCLE
PIRAVOM 686664
3 THE EXECUTIVE ENGINEER
IIP DIVISION NO.1, ANGAMALY,
ERNAKULAM 683573
4 ASSISTAT EXECUTIVE ENGINEEER
IIP DIVISION NO.1, ANGAMALY,
ERNAKULAM 683573
BY SR. GOVERNMENT PLEADER SMT.DEEPA NARAYANAN
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON
22.6.2021, THE COURT ON 07.07.2021 DELIVERED THE FOLLOWING:
W.P.(C)No.9932 of 2015 2
"CR"
T.R. RAVI, J.
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W.P.(C)No.9932 of 2015
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Dated this the 7th day of July, 2021
JUDGMENT
Pious obligation, a doctrine/principle of pristine Hindu law,
which obliged a son to settle the debts incurred by his father,
appears to be still haunting the Irrigation Department, in
undertanding the rights of the parties to a written contract. The
petitioner, who is the Managing Partner of a partnership firm, which
has executed certain works on the basis of agreements entered into
with the respondents, are faced with a situation where the amounts
due to them are being withheld for the reason that certain amounts
are due from the mother of the Managing partner of the firm to the
department, for having abandoned a work which was undertaken by
her. One wonders whether the basic principles of the laws relating to
partnerships and contracts will not apply when one of the
contracting parties is the State !!!
2. Heard Sri S.Sreekumar, Senior Advocate, instructed by
Sri P.Martin Jose, on behalf of the petitioner and Smt.Deepa
Narayanan, Senior Government Pleader, on behalf of the
respondents.
3. One Sri Sathyapalan had been undertaking civil works
entrusted by the State, both in his individual capacity as well as
through a partnership firm, which had been reconstituted on several
instances from 1979. He had undertaken a work on 16.6.2000,
which was designated as "IIP - Constructing Lower-level canal from
CH.9000m to 9455m, including Construction of pressure siphon,
flume and aqueduct". The work was entrusted to him in his personal
capacity as can be seen from Ext.P8 letter dated 13.4.2000. Soon
after the execution of the agreement relating to the work, he died
on 7.7.2001, leaving behind his wife and two sons. In the
agreement executed, Sri Sathyapalan had named his wife
Smt.P.Syamala as his nominee, and it can be seen Ext.P8, which
contains the nomination, that the nomination is for the purpose of
receiving all or any sums due to her husband, under the terms of
the agreement dated 16.6.2000. After the death of Sri Sathyapalan,
his legal heirs wrote Ext.R4(a) letter to the Superintending Engineer
on 10.7.2001, stating that they are the only legal heirs and they are
willing to continue the work through a partnership firm, that they
acknowledge the nomination of Smt.P.Syamala and further
requesting that the nominee may be permitted to complete the
balance work. The respondents thereafter executed Exhibit P6
supplementary agreement with the nominee on 03.08.2001,
whereby it was agreed that the nominee shall execute the work as
per the original schedule of the work, at the rate specified in that
schedule and that the nominee shall not claim any enhanced rate of
compensation, whatsoever. It can be seen from Exhibit P6 that the
respondents in their wisdom thought it fit to entrust the work to the
nominee in her personal capacity, without any reference to the
partnership firm constituted by the legal heirs, even though at that
point of time, Smt.P.Syamala was also a partner of the said firm.
4. It is contended that the nominee did not complete the
work in the prescribed time owing to the failure of the respondents
to supply materials for the work as agreed in the agreement. The
respondents extended the time for completion of the work on
several occasions but did not supply materials. The validity of the
original agreement expired on 13.07.2002. The nominee requested
the 2nd respondent to foreclose the contract and relieve her from the
obligation of continuing the work and she refused to grant revised
rates for completing the work. The request has been produced as
Exhibit P1. The dispute regarding the said work went up to the
Hon'ble Supreme Court in Civil Appeal Nos.1961-1962 of 2013,
which was disposed of by Exhibit P2 judgment dated 26.2.2013,
with an observation that the nominee shall be free to file a civil
action for damages/compensation. It is stated that the nominee has
filed O.S.No.48 of 2014 thereafter, which is pending before the Sub
Court, Muvattupuzha. In short, whether Smt.P.Shyamala is liable to
pay any amount to the respondents under the "risk and cost"
clause, for withdrawing from the work undertaken by her, is pending
consideration of a civil court.
5. After the death of Sri Sathyapalan, the petitioner, his
brother and their mother, together constituted a partnership firm,
which started conducting business, with the petitioner as the
Managing Partner. The mother retired from the firm with effect from
31.03.2013. The firm had undertaken the work IIP-Constructing
main canal from Ch-24442m to 25000m, including CD works, which
had nothing to do with the work which had originally been
undertaken by late Sathyapalan and later by the petitioner's mother
in her individual capacity. By Exhibit P3 letter dated 4.8.2014, the
petitioner was informed that the final bill towards the above work
amounting to Rs.30,01,268/-, has been withheld to realise the risk
and cost liability of Rs.93,03,057/- allegedly incurred by their
mother towards the work she had undertaken as the nominee of
their deceased father. Exhibit P3 letter has apparently been issued
on a wrong notion that the mother was still a partner of the firm.
The petitioner has produced Exhibit P4 Deed of Reconstitution of the
partnership firm after the retirement of his mother, which shows
that no further amount is due to her from the partnership firm. It is
the contention of the petitioner that the respondents can proceed
against the firm only with respect to amounts that are owed by the
firm to his mother. It is further submitted that even in cases where a
partner of the firm is to be proceeded against for amounts due from
him in his individual capacity, the firm in which he is a partner can
be proceeded against only to the extent of his share in the profits or
such amounts outstanding to him from the firm. The petitioner
points out that he has availed a loan for the works undertaken, from
the Federal Bank, Kottarakara and that the credits withheld by the
respondents are actually amounts that have to be credited into the
loan account. It is submitted that the bank has already initiated
steps under the SARFAESI Act for realising the amounts due. The
writ petition is hence filed, praying to quash Exhibit P3 and for a
direction to the respondents to release the credit received in favour
of the firm for payment of CC 8 and final bill amounting to Rs.
30,01,268/-, which has been withheld by the 3 rd respondent,
immediately.
6. The petitioner contends that as regards the work
undertaken by his mother, there is no privity of contract between
the respondents and the petitioner and the respondent had
absolutely no right to withhold amounts legally due to the petitioner,
and adjust it towards amounts allegedly due from his mother.
Admittedly, the liability of the mother is one of the issues to be
decided in the civil suit pending before the parties. The only
justification sought to be offered by the respondents for withholding
the amounts due to the petitioner is on the basis of Ext.R4(a) letter.
The attempt of the Senior Government Pleader is to establish that
Ext.R4(a) letter amounts to an admission that the work that was
undertaken by the nominee after the death of her husband was in
fact on behalf of the partnership firm and that the intention of the
parties was that the partnership firm is the awardee of the contract.
7. The contention of the respondents suffers from several
infirmities. It can be seen from Ext.P8 that the nomination in favour
of Smt.Syamala was for the purpose of receiving any amount that
had become payable to deceased Sathyapalan. The nomination does
not have any other implication either in terms of the document or in
terms of law. Ext.R4(a) is an acknowledgment of the above
nomination by the other legal heirs of Sathyapalan and nothing
more. Even though in Ext.R4(a), the other legal heirs had expressed
their willingness to carry on the work through the partnership firm
and they had also expressed their consent to the respondents
permitting the nominee to carry on the balance work involved, it can
be seen from Ext.P6 supplemental agreement executed between the
nominee Smt.P.Syamala and the Superintending Engineer that the
work was entrusted only to the nominee and not to the partnership
firm. When there is a written agreement existing between the
parties, the respondents cannot gainsay that the work was
undertaken by the firm.
8. The manner in which acts done by a partner can bind a
partnership firm are statutorily laid down in sections 19 and 22 of
the Partnership Act, which read as follows:-
"19. Implied authority of the partner as agent of the
firm.--(1) 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.
The authority of a partner to bind the firm conferred by
this section is called his "implied authority".
(2) In the absence of any usage or custom of trade to the
contrary, the implied authority of a partner does not
empower him to--
(a) submit a dispute relating to the business of
the firm to arbitration,
(b) open a banking account on behalf of the firm
in his own name,
(c) compromise or relinquish any claim or
portion of a claim by the firm,
(d) withdraw a suit or proceeding filed on behalf
of the firm,
(e) admit any liability in a suit or proceeding
against the firm,
(f) acquire immovable property on behalf of the
firm,
(g) transfer immovable property belonging to the
firm, or
(h) enter into partnership on behalf of the firm.
xxxxx xxxxx xxxxx
22. Mode of doing act to bind firm.--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."
9. It can be seen from the above that the provisions of
Section 19 are subject to Section 22. Section 22 lays down the
manner in which the action of a partner or a document executed by
a partner or other person on behalf of the firm binds the firm.
Legally, the respondents could have withheld the amounts due to
the firm only if they are able to establish that the liability that was
allegedly incurred by Smt.P.Syamala, was relatable to an action
done by her as a partner and that too on behalf of the firm or was
as a result of a document executed by her as a partner and on
behalf of the firm, expressing or implying an intention to bind the
firm.
10. A question similar to the one on hand was considered by
the Hon'ble Supreme Court in Devji v. Magan Lal R. Atharana
reported in [(1964) 7 SCR 564 : AIR 1965 SC 139]. That was a case
where one of the partners of a firm had taken a colliery on sub-lease and
the lessor had filed a suit for recovery of amounts due on the sub-lease
against all the partners of the firm. The courts below had found that the
sub-lease was taken by one of the partners in his name and that the same
was not on behalf of the firm and that the other partners cannot be held
liable. The Hon'ble Supreme Court confirmed the said finding. Paragraph 6
of the judgment is extracted below:
"6. In view of the fact that both the courts below have
found concurrently that the sub-lease in question was taken
by respondent 4 alone, the only point urged by Mr Sarjoo
Prasad in support of the appeal is that respondent 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 4 on behalf of all the
respondents. In other words his case was that respondent 4
was a benamidar for the partnership firm. It is only 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, Section 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 4 in obtaining the
lease, did not act on behalf of the firm. This in substance
means that in obtaining the sub-lease, the parties to it did
not intend to bind the firm by that transaction."
11. The effect of Sections 19 and 22 of the Partnership Act
has been considered by this Hon'ble Court in several cases, but
mostly in relation to negotiable instruments executed by partners.
In the decision in M.Rajagopal v. K.S.Imam Ali reported in [1980
SCC OnLine Ker 251 : AIR 1981 Ker 36], a Division Bench of this
Court after referring to several earlier decisions, held in paragraph
15 as follows:
"15. The consistent view taken in the above decisions is
therefore to hold that when liability is sought to be fastened
on an undisclosed principal on the strength of a negotiable
instrument, it is not enough if the principal's name is
disclosed in some way, but it must be disclosed in such a
way that by any fair interpretation of the instrument it
should be possible to hold that the undisclosed principal is
the real person liable for the debt. When there is a conflict
between Sections 19 and 22 of the Partnership Act on the
one hand and Sections 26, 27 and 28 of the Negotiable
Instruments Act, the latter Act should prevails. A claim
against a firm based on a written contract by one partner in
the course of business with authority to act will be held to
be binding on the firm. But when such a claim is made on
the strength of a promissory note or a bill of exchange,
court will have to be satisfied that the negotiable
instrument discloses the liability of the firm clearly."
12. The undisclosed principal in the present case is the
partnership firm represented by the petitioner. In the light of the
agreement executed between the respondents and Smt.P.Syamala,
the respondents cannot contend that she had executed the
document with any intention to bind the firm or in her capacity as a
partner of the firm. This is all the more evident from the reading of
Ext.R4(a) which had preceded the agreement. Even though in
Ext.R4(a) the legal heirs of Late Sathyapalan had expressed the
willingness of the firm to carry out the work, the respondents chose
to execute the agreement with Smt.P.Syamala in her individual
capacity. As such, neither Smt.P.Syamala nor the respondents have
intended the agreement to bind the firm. It follows therefore that no
liability alleged to have been incurred as a result of Ext.P6
agreement can be fastened on the petitioner.
13. The next question that would arise is whether the
partnership assets can be made liable for a debt allegedly owed by a
partner. There can be no doubt that if a partner owes any money,
the creditor will be entitled to proceed against the profits that may
be earned by the debtor, in his capacity as a partner of a firm or
against the debtors' interest in the partnership firm. In the case on
hand, Smt.P.Syamala had retired from the partnership as can be
seen from Ext.P4 deed dated 31.03.2013, whereby the partnership
was reconstituted. There is nothing in the pleadings of the parties to
show that the retiring partner had any rights subsisting in the
partnership, on the date of issuance of Ext.P3 letter by the Assistant
Executing Engineer, proposing to withhold the amounts due to the
firm, towards the risk and cost liability of Smt.P.Syamala. Ext.P3
proceeds on the basis that Smt.P.Syamala is a partner of the firm,
which does not appear to be correct on the basis of Ext.P4 deed.
Since the question whether Smt.P.Syamala has any "cost and risk"
liability to the respondents is admittedly pending consideration of
the competent civil court, it is not necessary in these proceedings to
go into the question as to the modes of recovery that can be
resorted to by the respondents, if they are able to succeed in the
civil court.
In the result, the writ petition is allowed. The decision
contained in Ext.P3 to withhold the payment due to the petitioner's
firm is set aside. There will be a direction to the respondents to
release the credit received in favour of the petitioner's firm for
payment of CC8 and final bill amounting to Rs.30,01,268/-
immediately, at any rate within a period of one month from the date
of receipt of a certified copy of this judgment. It is made clear that
this Court is not expressing any opinion regarding the rights of the
respondents and that of Smt.P.Syamala in the civil suit O.S.No.48 of
2014, pending before the Sub Court, Muvattupuzha. The parties will
bear their respective costs.
Sd/--
T.R. RAVI
JUDGE
dsn
APPENDIX OF WP(C) 9932/2015
PETITIONER ANNEXURE
EXHIBIT P1: A COPY OF THE REQUEST DATED 12.12.2001 MADE
BY THE PETITIONER TO RELIEVE HER OF THE WORK
EXHIBIT P2: A COPY OF THE ORDER IN CIVIL APPEAL NO.1961-
1962 OF 2013 DATED 26.2.2013
EXHIBIT P3: TRUE COPY OF THE LETTER NO. A1-1155/2003
DATED 04.8.2014
EXHIBIT P4: A COPUY OF THE DEED OF RECONSTITUTION OF
PARTNERSHIP DATED 01.3.2013
EXHIBIT P5: A COPY OF THE COMPLAINT SUBMITTED TO THE 2ND
RESPONDENT DT.9.10.2014
EXHIBIT P6: A COPY OF SUPPLEMENTARY AGREEMENT ALLEGEDLY
USED BY THE RESPONDENTS TO MAKE THE PETITIONER
LIABLE FOR THE ALLEGED LIABILITY.
EXHIBIT P7: A COPY OF THE EXTRACT OF THE RELEVANT PORTION
OF THE MANUAL
EXTS.PRODUCED ALONG WITH I.A.17147/2017 BY THE PETITIONER.
EXHIBIT P6: TRUE COPY OF WORK ORDER DT.13.4.2020
EXHIBIT P7: TRUE COPY OF ORDER DT.2.8.2001.
EXHIBIT P8: TRUE COPY OF AGREEMENT DT.16.6.2000.
EXHIBIT P9: TRUE COPY OF AGREEMENT DT.13.5.2004.
RESPONDENTS' EXTS:
ANNEXURE R4(A): TRUE COPY OF LETTER DT.10.07.2001.
