# LOON KARAN SETHIA ETC v. IV AN E. JOHN & ORS. ETC. October 20. 1976

- **Citation:** [1977] 1 S.C.R. 853
- **Court:** Supreme Court of India
- **Decided:** 1977
- **Case number:** Civil Appeal Nos. 416 of 1973
- **Bench:** A. N. Ray, M. H. Beg, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/loon-karan-sethia-etc-v-iv-an-e-john-ors-etc-october-20-1976-6986
- **Pages:** 19

## Headnote

Indian Partnership Act 1932-Sec. 69-Whetlzer mandatory--Whether s11it
.can be filed by unregistered firm-Dissolution of firm-Suit by a partner of erst_
while unref?istered firm-If other partners of erstwhile firm necessary partiesMaterial alterations inf a document-Effect of-Suit for specific and ascertained
amo11nt-Whether court can make out new case and grant partial relief on an-
.other basis,
Messl!S, John & Co. were in financial difficulties and, therefore, entered into a
financial agreement with Sethia & Co. a partnership firm of the plaintiff and Seth
Sugan Chand. On 6th July, 1948 Messrs. John & Co. obtained another financial
accommodition from Sethia & Co.
Messrs. Tejkaran Sidhkaran had also given
some advances to Messrs, John & Co. The liability to the firm of Messrs. Tej-
.karan Sidhkaran was transferred to Sethia & Co.
Seth Loonkaran Sethia filed a suit against John & Co. and his partners (defendants first set) as well as Messrs. John, Jain, Mehra & Co. and its partners
(Clefendants second set) for recovery of Rs. 21,11,500/- with costs and future in-
·terest and for a declaration that the plaintiff had a prior and floating charge on
all the business assets of Messrs.
John & Co. It was alleged by the plaintiff
that the defendants (second set) entered into partnership with the defendants (first
set) under the nameJ and style of Messrs. John Jain, Mehra & Co and maliciously
induced them to commit breach of the agreement dated 6-7-1948 by forcibly
turning out his representatives whd used to remain in charge of the stocks, stores.
coal, waste, etc., of the mills and making them enter into a financial agreement
contrary to the terms of the agreement with his firm.
The plaintiff also alleged
that accounts were again settled on 4-4-1949 and a sum of Rs. 47,23,738/- was
found due to him from the defendants.
The defendants
(first set) contended that there was no
settlement of accounts; that the accounts were tainted with fraud and obvious mistakes and that
on a true and correct accounting a large sum of money would be found due to
them; that the plaintiff and said Sugan: Chand obtained various documents, agreements, vouchers, receipts etc., and that the same were of no legal value as they
were secured by the former by practising undue influence, fraud, coercion and
misrepresentation; that the plaintiff had illegally and contrary to the agreement
dated 6-7-1948 debited them with huge amounts which were not really due to
them; that the cotton supplied by the plaintiff was of inferior aualitv and that the
·rates charged were exorbitant. It was also denied that the plaintiff had floating
or prior charge on any of their stocks, stores, etc; that the suit was barred by the
provisions of sectio~ 69 of the Partnership Act and that the agreement dated 6-71948 which was insufficiently stamped could not form the basis of the suit. The
defendants (second set) also denied the claim of the plaintiff.
The Trial Court held that the suit was maintainable; that the firm of Messrs.
'Sethia & Co. was dissolved before the institution of the suit; that the suit bcinl(
one for the recovery of the assets due to a dissolved partnership firm from a third
party, was not barred 'wy section 69 of the Partnershi~ Act: that Seth Sugan Chand
was not a necessary party to the suit; that the agreement dated 6-7-1948 was duly
stamped and that no undue influence etc., was exercised bv the plaintiff on the
defendants; that there was no accounting on 4-4-1949 as alleged bv the plaintiff
and that both the plaintiff and the defendants (first set) committed a breach of
the agreement dated 6-7-1948.
The Trial Court also held that a charge was
created in favour of the plaintiff in respect of the entire business assets and that
·the defendants (second set) wer() liable to satisfy the plaintiff's claim. The Tri~!
Court decreed the plaintiff's suit to the extent of Rs. 18.00, 152 but re.1ected his
claim for specific performance .and injunction. The Trial c;our~ accordi

## Text

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853
LOON KARAN SETHIA ETC.
v.
IV AN E. JOHN & ORS. ETC.
October 20. 1976
[A. N. RAY, C.J., M. H. BEG AND JASWANT SINGH, JJ.]
Indian Partnership Act 1932-Sec. 69-Whetlzer mandatory--Whether s11it
.can be filed by unregistered firm-Dissolution of firm-Suit by a partner of erst_
while unref?istered firm-If other partners of erstwhile firm necessary partiesMaterial alterations inf a document-Effect of-Suit for specific and ascertained
amo11nt-Whether court can make out new case and grant partial relief on an-
.other basis,
Messl!S, John & Co. were in financial difficulties and, therefore, entered into a
financial agreement with Sethia & Co. a partnership firm of the plaintiff and Seth
Sugan Chand. On 6th July, 1948 Messrs. John & Co. obtained another financial
accommodition from Sethia & Co.
Messrs. Tejkaran Sidhkaran had also given
some advances to Messrs, John & Co. The liability to the firm of Messrs. Tej-
.karan Sidhkaran was transferred to Sethia & Co.
Seth Loonkaran Sethia filed a suit against John & Co. and his partners (defendants first set) as well as Messrs. John, Jain, Mehra & Co. and its partners
(Clefendants second set) for recovery of Rs. 21,11,500/- with costs and future in-
·terest and for a declaration that the plaintiff had a prior and floating charge on
all the business assets of Messrs.
John & Co. It was alleged by the plaintiff
that the defendants (second set) entered into partnership with the defendants (first
set) under the nameJ and style of Messrs. John Jain, Mehra & Co and maliciously
induced them to commit breach of the agreement dated 6-7-1948 by forcibly
turning out his representatives whd used to remain in charge of the stocks, stores.
coal, waste, etc., of the mills and making them enter into a financial agreement
contrary to the terms of the agreement with his firm.
The plaintiff also alleged
that accounts were again settled on 4-4-1949 and a sum of Rs. 47,23,738/- was
found due to him from the defendants.
The defendants
(first set) contended that there was no
settlement of accounts; that the accounts were tainted with fraud and obvious mistakes and that
on a true and correct accounting a large sum of money would be found due to
them; that the plaintiff and said Sugan: Chand obtained various documents, agreements, vouchers, receipts etc., and that the same were of no legal value as they
were secured by the former by practising undue influence, fraud, coercion and
misrepresentation; that the plaintiff had illegally and contrary to the agreement
dated 6-7-1948 debited them with huge amounts which were not really due to
them; that the cotton supplied by the plaintiff was of inferior aualitv and that the
·rates charged were exorbitant. It was also denied that the plaintiff had floating
or prior charge on any of their stocks, stores, etc; that the suit was barred by the
provisions of sectio~ 69 of the Partnership Act and that the agreement dated 6-71948 which was insufficiently stamped could not form the basis of the suit. The
defendants (second set) also denied the claim of the plaintiff.
The Trial Court held that the suit was maintainable; that the firm of Messrs.
'Sethia & Co. was dissolved before the institution of the suit; that the suit bcinl(
one for the recovery of the assets due to a dissolved partnership firm from a third
party, was not barred 'wy section 69 of the Partnershi~ Act: that Seth Sugan Chand
was not a necessary party to the suit; that the agreement dated 6-7-1948 was duly
stamped and that no undue influence etc., was exercised bv the plaintiff on the
defendants; that there was no accounting on 4-4-1949 as alleged bv the plaintiff
and that both the plaintiff and the defendants (first set) committed a breach of
the agreement dated 6-7-1948.
The Trial Court also held that a charge was
created in favour of the plaintiff in respect of the entire business assets and that
·the defendants (second set) wer() liable to satisfy the plaintiff's claim. The Tri~!
Court decreed the plaintiff's suit to the extent of Rs. 18.00, 152 but re.1ected his
claim for specific performance .and injunction. The Trial c;our~ accordingly nasse?
·a preliminary decree against both the sets of defendants directmg them to deposit
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the said amount in the court within the prescrib d f
d ·
plaintiff a right to apply for a final decree for thee sX~eol~n It~ed~fa~lt gave the
goods, stocks, stores, etc. The decree also gave a right to the
lai~~
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·?t~s asse\s,
for a personal decree against the defendants for the balance of his cl~i ~ app Y.
t
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he neth~ale
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l'.roceeds of the property of the firm were found insufficie~t ~o c;i1sse
c mrge
1s c aim.
" -
. The plaintiff filed an appeal in the _High Court of Allahabad and the defendants also filed an appeal against the 1udgment of the Trial Court
Tl ff h
Cour~ allowed. both the al'.peals, partially holding that no fraud, und.ue in
1
~ued~e
c~ercwn or m1srepresentat10~ was practised by the plaintiff; that the agreement
dated 6-7-1948 wa~ ne1t~er insufficiently stam:r.ed nor did it require registration;
that the deed of d1ssolut1?n dat~d 22-7-1948 was prepared for the pu1:pose of the
case but ther~ was sufficient evidence on the record to indicate that said Sugan
Chand. had withdrawn from the partnership carried on in the name of Sethia &
Co. with ~fiect from 30-6-1948; tha~ Seth Sugan Chand was not a necessary party
to the smt; th~t th~ smt was not barred by section 69 of the Partnership Act;
that the _alteratwns in the deed .dated 6-7-1948 were not material al~rations and
did _not 1 ender the agreement v01d; that. the plaintiff had a floating charge over the
b~s!n~ss assets of fohn & Co.; that 1t was defendants (first set) and not the
pl.11nt1ff who .committed breach of the agreement.
The High Court, therefore,
pas~ed a preliminary decree for Rs. 11,33,668 /- in favour of the plaintiff and
against the defendants (first set) but dismissed the suit with costs as against the
defendants (second set). The High Court granted certificate under Article 133
in both the appeals.
Dismissing the plaintiff's appeal and allowing the appeal of the defendants
(first set) held :
(1) Section 69 of the Partnership Act is mandatory in character and its
effect is to render a suit by a plaintiff in respect of a right vested in him or
acquired by him under a contract which he entered into as a partner of arr
unregistered firm, whether existing o~ dissolved, void. [869 A]
(2) A partner of an erstwhile unregistered partnership firm cannot bring a
suit to enforce a right arising out of a contract falling within the ambit of secticn 69 of the Partnership Act. The suit out of which the appeals arise was for
enforcement of the agreement entered into by the plaintiff as partner of Sethia
& Co. It was never pleaded by the plaintiff not even in his replication that he
was suing to recover the outstanding of a dissolved firm.
Thus the suit was
clearly hit by section 69 and was not maintainable. [869 B-C]
(3) A close scrutiny of the document and other evidence clearly negatives
the plaintiff's claim that the firm was dissolved with effect from 30th June 1948.
[865 CJ
(a)
partner
The agreement dated 6th July 1948 itself is signed by the plaintiff as a
and the, expression partner also appears in the body of the 2greement.
[865 DJ
(b) The alleged deed of dissolution dated 22nd July 1948 ~etwee:i the plaintiff and Seth Sugan Chand was prepared on a stamp paper prmted m the Government Press in November. 1948. The said Dissolution Deed was, therefore,
clearly fabricated by the plaintiff. The plaintiff signed 'l!arious cheques in July,
1948 as the partner of Sethia & Co. [865 F-H; 866 A-C; 867 Fl
(c) No service by post or advertisement in the newspaper about the dissolution was given either by the plaintiff or by Seth Sugan Chand. [867 Fl
( 4) Seth Sugan Chand was a necessary party to. the .suit and in spite of the
objections raised on behalf of the defendants the plam!Iff did not care to 1mplead
H
Seth Sugan Chand. The suit was bound to fail on that ground ;ilso. [869 D-E]
(5) A material alteration in a document without the consent of a party toil has the effect of cancelling the deed. [870 A]
Volume 12 of Ha/sh11ry's l.aivs of England (Fourth Edition) referred to.
LOON KARAN v. IVAN E. JOHN (Jaswant Singh, J.)
855
Nathu Lal & Ors. v. Musammat Gomti & Ors. (A.LR.
1940 P.C.
160)
relied on.
In the present case there were many material alterations of the document.
The material alterations, therefore have the effect of cancelling the deed
in
queJtion. [870 B-D]
(6) The plaintiff's suit was for a specific and ascertained sum of money on
A
the basis of settled account.
The Courts below found concurrently that there
B
was no settlement of account as alleged by the plaintiff on 4th April 1949. After
that it was not open to the courts below to make out a new case for the plaintiff
which he never pleaded. The courts below could have either dismissed the suit
or passed°" preliminary decree for accounts directing that the books of account
be examined item by item and an opportunity allowed to defendants to impeach
and falsify the accounts. [871 A-Cl
•
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 416 of 1973
and 572 of 1974.
(From the Judgment and Decree dated 22-12-1972 of the Allahabad High Court in F.A. No. 465/54 connected with P.A. 65/55).
c
A. K. Kirty, Yogeshwar Prasad, S. K. Bagga,
Mrs. S. Bagga &
Miss Rani Arora for the Appellant (in CA. No. 416fi73 and ResponD
<lent No. 1 in CA. No. 572/74).
G. B. Pai, R. K. Mehta, Pramod Swarup and Miss Uma
Mehta
'\
for the Appellants (in CA 572/74 and Respondents 1-3 in CA. No.
416/73).
B. Sen, S. M. Jain, Indra Makwana and Sushi! Kumar Jain for
E
Respondents 5/2, 5/3 and 6 (in CA. No. 416/73).
S. T. Desai, Rajinder Singh and S. K. Dhingra for Respondents
7 & 8 (in CA. No. 416/73).
.
The Judgment of the Court was delivered by
JASWANT SINGH, J.
These two appeals by certificates granted
under Article 133 of the Constitution which are directed against the
common judgment and decree dated December 22, 1972 of the High
Court at Allahabad in two connected Civil First Appeals Nos. 465
of 1954 and 65 of 1955 preferred against the judgment and preliminary decree of the S°econd Additional Civil & Sessions Judge, Agra,
dated April 5, 1954, in suit No. 76 of 1949 shall be disposed of by
this judgment.
The facts material for the purpose of these appeals
are :
The
appellant in Appeal No. 416 of 1973 and respondent No. 1 in appeal
No. 572 of 1974, Seth Loonkaran Sethiya, (hereinafter Jeferred
to
for convenience as 'the plaintiff') is a financier Jiving and carrying on
business in Agra.
Respondents Nos. 1 to 3 in the first appeal and
appellants Nos. 1 to 3 in the second appeal viz. Ivan E. John, Maurice
L. John and Doris Marzano, grandsons and grand-daughter of one
A John, are partners of the registered firm called 'John & Co.'. There
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SUPREME COURT REPORTS
[1977] 1 S.C.R.
are. three spinning I?ills and one flour mill at J eoni Mandi, Agra,
which are compend1ously described as 'John Mills'.
Originally, the
members of the John family were the exclusive owners of all these
mills which have been in. existence since the beginning of the current
century.
In. course of time, some strangers acquired interest therein
and .b~ the time the present lis commenced, the following became
the iomt owners thereof to the extent noted against their names :-
1. Ivan E. John, Maurice L.
John and
Doris Marzano, appellants Nos. 1 to 3 in
Appeal No. 572 of 1974 and respondents Nos. 1 to 3 in Appeal No. 416 of
1973-Partners of the firm
'John
&
Co.', appellant No. 4 in Appeal
No.
572 of 1974 and respondent No. 4 in
Appeal No. 416 of 1973 :
2. Seth Munilal Mehrs (respondent No. 6
in appeal No. 416 of 1973 and respondent No. 9 in Appeal No. 572 of 1974)
and Hiralal Patni
(respondent No. 5
in Appeal No. 416 of 1973, deceased
and now represented
by respondents
Nos. 5/1 to 5/7 i'.1 the said appeal and
represented by respondents Nos. 2 to
8 in Appeal No. 572 of 1974) :
3. Gambhirmal Pandya (P)
Ltd.-partner in M/s. John Jain Mehra & Co. :
4. Ivan E. John:
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11I40th share
19 I 40th share
8/40th share
2/ 40th share
Having run into financial difficulties, M/s John & Co. were driven
to tap various sources for raising loans for their business and other
requirements. By virtue of the deed of agreement (Exh. 1321) dated
F
June 14, 1947, they entered into a financial agreement with Sethiya &
Co., a partnership firm of the plaintiff and Seth Suganchand.
Under
this agreement which was originally meant to last for five months but
which was allowed to remain in force even after the expiry of that
period Sethiya & Co. undertook to advance to M/s John & Co. funds
to the extent of Rs. 8,00,000/- on the security of yarn and to act
as sole selling agents of the latter.
On January 29, 1948,
the
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Colledor, Agra, attached moveable and immoveable properties of
the mills pursuant to a certificate issued for
realization of income
tax dues for the years 1943 to 1945 outstanding against M/s John
& Co. which exceeded Rs. 20 lakhs.
On February 5, 1948, th•
Collector,
Agra,
appointed Ivan E. John, Maurice L. John and
Doris Marzano as custodians for running the mills.
On February
9, 1948, the aforesaid agreement (Exh. 1321) dated June 14, 1947,
H
with Sethiya & Co. which continued to remain in operation beyond
its original term was renewed upto the end of April, 1948, by agreement (Exh. 1320). This agreement gave an option to the partners
of Sethiya & Co. to allow it to continue in force until their dues were
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LOON KARAN v. IVAN E. JOHN (Jaswant Singh, J.)
857
paid in full by M/s John & Co.
These financial agreements ~ith
Sethiya & Co. did not prove adequate to n:eet the monetary r~qurre
ments of M/s John & Co.
Accordingly on the same day i.e. on
February 9, 1948, they entered into another agreement (Exh. 1319)
with the proprietory concern of the plaintiff carrying on
business
under the name and style of 'M/s. Tejkaran Sidkaran' whereby the
latter agreed to advance certain amounts t.o the~ agains~ mor~gage of
cotton, \l;s products and bye-prod1:1cts which might be m therr stoc~
from time to time during the contmuance of the agreement.
By this
agreement, M/s John & Co. also undertook to pay to M/s Tejkaran
Sidkaran a sum of Rs. 2,09,245-9-10 which, on going into the accounts, was found to be due to the la~ter in respect of the supply of
cotton. Nearly five months thereafter 1.e. on July 6, 1948 the aforesaid partners of M/s. John & Co. succeeded in obtaining another
financial accommodation from Sethiya & Co. vide agreement Exhibit
168 : Exhibit A-1.
By this deed,
the financierJ
agreed, for the
efficient working of the mills, to advance loan, as and when required,
upto the limit of Rs. 25! lakhs to the partners of M/s John & Co. on
condition that they i. e. the financiens would have a floating and prior
charge for all monies due to them for the time being including the
amount due to them on the date of the agreement and all monies
which they might choose to advance under the agreement, on all
business assets including stores, coal, oil process etc. of the aforesaid
three spinning mills.
Describing himself as the sole proprietor of the firm 'Sethiya & Co.'
and 'M/s. Tejkaran Sidkaran'. Seth Loonkaran Sethiya filed in the
Court of the Civil Judge, Agra on April 18, 1949 an original suit, being suit No. 76 of 1949 against M/s. John & Co. and its aforesaid partners (hereinafter referred to as 'the defendants first set') as also against
Munnilal Mehra, Hiralal Patni and Gambhirmal Pandya and M/s
John. Jain Mehra & Co., (hereinafter referred to as 'the defendants second set') for recovery of Rs. 21,11,500/- with costs and pendente lite
and future intere5t by sale of the assets of M/s John & Co. and for
permanent injunction restraining the defendants first set from committing any branch of the aforesaid agreement dated July 6, 1948
as also for declaration that he had a prior and floating charge on all
the business assets of M/s John. & Co.
The suit was later on amended by the plaintifi with the permission of the trial Court.
By hii;
amended petition of plaint, the plaintiff sought a decree against the
defendants first set as also against the defendants secoJiid set.
The case of the plaintiff was that Mr. Ivan E. John Mr. Maurice
L. John and Doris Marzano who were part owners of the aforesaid
three spinning mills and a flour mill as also certain other properties
and had been carrying on their business and running the mills under
the name and style of John & Co. being heavily indebted and in urgent
need of money to pay arrears of income tax as well as other dues and
to carry on day to day business of the mills appoached 'him time and
again for finances, loans etc. for the aforesaid purposes, that he lent
considerable sums of money under various agreements executed by
the defendants first set in his favour and in favour of the firm 'M/li
Tejkaran Sidkaran of which he was the 5ole owner and in that of
Sethiya & Co.; that on or about July 6, 1948 all accounts between his
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firm 'Sethiya & Co.' and defendants first set were gone into and after
a full scrutiny thereof, a settled amount of Rs. 12,72,000/- was found
to be due to Sethla & Co. from the defendants first set upto June 30,
1948; that this amount a~ admitted and accepted by the defendants
first set and was as such debited in their account books and was also
acknowledged by them in the subsequent agreement entered into by
lihem with him; that the1
aforesaid
settlement,
the
ddcndants
13
first set solicited further financial help Irom him to run the mills and
to meet their pressing liabilities which was acceded to by him on the
terms and conditions set out in the agreement dated July ~' 1948
( Exh. 168); that by this agreement, he agreed inter alia to ad .a nee
requisite funds to the defendants :firist set (for carrying on the business
of the mills and payment of the claims of Raja Ram Bhaw«ni Das
and to meet other liabilities) up to the limit of Rs. 20 lakhs inclusive
C
of the aforesaid amount admittedly found due to him from the defendants first set on the date of the agreement and to make a further
advance of a sum of Rs. 5,50,000/- on the security of business assets
and stocks other than bales of yarn and cotton; that it was also stipulated that he would have a floating and prior charge for the entire
amount due to him on the date of the agreement on all the business
assets including stores, coal, oil process etc. of all the three spinning
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mills of the defendants first set and that he would be paid interest
at the rate 6 per cent per annum from date of including liability in
respect of each individual item besides commission at the rate of 1 per
cent on all sales of products of the three spinning mills whether sold
directly or otherwise during the currency of the
agreement
and a
futher commission at the rate of 12 per cent on value of all the purchases of cotton required for consumption of the three spinning mills
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and godown rent as might be agreed.
The plaintiff further avened
that it was specifically agreed between him and the defendants first
set that the agreement would be in operation for the minimum period
of one year and would also continue to be in force thereafter until
the entire amount due to him from the defendants first set was fully
paid up.
The plaintiff further averred that the accounts of
business done by him under the name of M/s Tejkaran Sidkaran
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with the defendants first set were gone into and finally the
defendants first set admitted that a sum of Rs. 17,79, 100/- was due
from them to his firm 'M/s Tejkaran Sidkaran' and that under their
written authority, he transferred the above liability to his firm 'Sethiya
& Co.' and thus all accounts of the defendants first set with him were
amalgamated in one acco.unt i.e. of Scthiya & €0. and the
account
of his fitm 'M/s Tejkaran Sidkaran' with the defendants first set was
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squared up ,.,.nd closed.
The plaintiff further averred that the defendants second set including Hiralal Patni, the ex-financier of the John
Mills who had not despite best efforts succeeded in securing possession of the mills as co-proprietor thereof entered into part11c~ship with
the defendants first set under the name and style of M/s John Jain
Mehra & Co. and maliciouslv induced them to commit breaches of
the agreement dated July 6, 1948 by forcibly turning out his represenH
tativcs who used to remain incharge of the stocks, stores, coal, was'.e
etc. of the mills qnd making them enter into a finance agn:~mcnt contrary to t!1e terms of the al!feement with his firm.
Tre nbint'ff Llho
alleged that the defend;int~ first set had at the imtigatkm of !h( defendants second set unjustifiably closed the business of John & Co.
x
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LOON KARAN v. IVAN E. JOHN (Jaswant Singh, J.)
859
and were colluding with the latter who were guilty of misappropriation
and conversion of the goods over which he had a prior and floating
charge.
The plaintiff also averred that on April 4, 1949, accounts
were again gone intQ between him and the defendants first set and a
sum of Rs. 47,23,738/4/9 were found due to him from them; that
agreement dated July 6, 1948 between him and the defendants first
set still subsisted and would continue to subsist till July 6, 1949 and
thereafter at his option till all his dues were paid up; and that a sum
of Rs. 21,11,500/- was due to him from the defendants first set as
per Schedule A of the plaint which both sets of the defendants were
liable to ray.
The statement of account as contained in Schedule A annexed to
the plaint 'ias as follows :
Rs.
a.
"1. Settled balance on 4th April, 1949 according to
accounts books of the defendants. (The accounts
upto 4th April, 1949 were fully gone through and
settled by both the parties and confirmed by the
defendants by making necessary entries in their
books
45,74,980
10
2. Plaintiff's charges of commission, interest, godown,
rent etc., according to the terms of the agreement
and duly checked by the defendant's accountant and
chief Account officer as detailed below:-
From 13th October to 31st October, 1948 .
From !st November to 12th December
From 13th December to 12th January 1949
From 13th January to 12th February, 1949
From 13th February to 12th March, 1949
Total
9th April, 1949 paid to Mahalaxmi Oil Mills through
Kirpa Narayan advocate and others .
10th April 1949 paid to Bishambar Nath & Co. (for
Cotton supplied to John & ?'·)
Charges from 13th Marek to 12th April, 1949
14,516
33,783
34,100
38,716
27,632
1,48,749
8,708
1,57,005
62,804
Total
49,52,248
9th April, 1949 :
Proceeds by sale of 5731 bales of yarn sold by defendants as per their authorities
28,40,748
Balance .
21,11,500
Twenty one lacs, eleven thousand five hundred only.
5 -1338SCI/76
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[1977] 1 S.C.R.
The suit was contested by both sets of defendants
on various
grounds.
Defendants first set inter alia pleaded that there was no
settlement of accounts between them and the plaintiff as alleged by
the latter; that the accounts were liable to be reopened as they were
tainted with fraud, obvious mistakes etc., and that on a true and correct accounting a large sum of money would be found due to them;
that though the plaintiff and Seth Sugan Chand (who owned Indra
Spinning and Weaving .Mills and had a covetous eye on John Mills)
had _obtained various documents, agreements, vouchers, receipts etc.
at various times from them, the same were of no legal value as they
were secured by the former by practising undue influence, fraud, coercion and misrepresentation. It was further pleaded by•the defendants that the plaintiff had illegally and contrary to the agreement
dated July 6, 1948 debited them with huge amounts which were not
really due to them. It was further pleaded by the saicf' defendants
that the cotton supplied to them by the aforesaid financiers was
of
inferior quality and the amounts charged by them in respect thereof
were exorbitant and far in excess of the prevailing market rates. The
said defendants further pleaded that though under the terms of the
agreement dated February 9, 1948 no commission on sales and purchases had been agreed to be paid by them to the financiers
still
they had been debited with huge amounts on that account and likewise though simple interest had been stipulated in the iSaid agreement
compound interest with monthly rests had been
debited
to their
account which was not at all justified. !The said
defendants
also
disputed their liability to pay certain items of expenditure like demurrage, wharfage etc. which had been debited to their 1account. It
was also pleaded by the said defendants that the plaintiff
had no
floating or prior charge on any of their stocks, stores etc. nor could
any such charge be claimed by him in law; that the suit w~s barred
by the provisions of Section 69 of the IPartnership Act and that the
agreement dated July 6, 1948 which was insufficiently stamped could
not form the basis of the suit.
In the written statement filed by them the defendants second set
denied the allegations and insinuations made against them by the
plaintiff and raised a number of technical and other pleas. They also
pleaded that the plaintiff alone was not entitled ~o file the suit concerning the firm M/s. Sethiya as it did not belong to his joint Hindu
family but was a partnership firm.
The trial court framed as many asi 21 issues and on a consideration of the evidence adduced by the parties it held inter alia that the
suit as brought by the plaintiff was maintairrable; that though
the
plaintiff had failed to prove that the dissolution of the partnership
between hlm and Seth Sugan Chand took place on June 30, 1948, and
no alternate date of dissolution subsequent to June, 30, 1948, had
been set up by him, it was evident from the relcord that the dissolution took place some time after July 30, 1948, and before the institution of the suit; that the suit being one for recovery of the assets due
to a dissolved partnership firm from a lthird party was not barred by
Section 69 of the Partnership Act; that Seth Sugan Chand was not
a nec,essary party to the suit; that agreement dated July 6, 1948, was
duly stamped and that no undue influence etc. was exercised by the
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LOON KARAN v. IVAN E. JOHN (Jaswant Singh, !.)
861
plaintiff on the defendants first set in relation to the execution of the
agreements between Sethiya & Company and the defendants first set.
The trial court also held that there was ;no accounting op. April 4,
1949, as alleged by the plaintiff and that both the plaintiff and the
defendants first set committed a breach of agreement dated July 6,
1948. The breach committed by the defendants first set according
to the trial court lay in their unjustifiably handing over possession
to M/s. John Jain Mehra & Co. 'of the goods on whi'ch the plaintiff
held a charge thereby furnishing him with a cause of action against
both sets of defendants.
The trial court also held that under clause
13 o1 the agreement dated July 6, 1948, a charge in favour of
the
plaintiff was created in respect of the entire business assets including
stock-in-trade, stores, coal, oil etc.
lying inside the three spinning
mills \Wlich were being run by John & Company; that defendants first
set utilised consumed and otherwise dealt with the goods which were
burdened with the floating charge from July 6, 1948, to April 13, 1949,
when John & Co. ceased to be a going concern and there was a final
rupture between the plaintiff and the defendants 1st set and the plaintiff's floating charge got fixed or crystalised.
It also found that
defendants second set were not entitled to prior charge on the properties of John & Co. existing on April 13, 1948, and were liable to satisfy the plaintiff's claim as despite notice of his floating cl1arge they
consumed, converted and misappropriated stocks and stores and other
business assets of the defendants first set.
Finally, the trial court
held the plaintiff to be· entitled to a decree for Rs. 18,00,152/- against
both sets of defendants but rejected his claim for specific performance
and injunction.
It accordingly passed a preliminary decree against
both the sets of defendants on April 5, 1954 directing them to deposit
the said amount in Court within the prescribed time and in default,
gave the plaintiff a right to apply for a final decree for the saie ojj all
the business assets, goods, stocks, stores etc. of the three spinning
mills as mentioned in the operative portion of its . judgment.
The
decree also gave a right to the plaintiff to apply for a personal decree
against the defendants first set and the defendant~ second set for the
balance of his claim in case the net sale proceeds of the said property
were found insufficient to discharge his claim.
Aggrieved by
the
said judgment and decree of the trial court, the plaintiff preferred an
appeal, being first appeal No. 465 of 1954, before the High Court at
Allahabad claiming the following reliefs :-
"(a) A decree for a further sum of Rs. 64,082/3/5 by
which· amount his claim was reduced by the
trial
court.
(b) Such rate of interest as he might be entitled to on
the aforesaid sum of Rs. 64,082/3 /5 under the agreement dated July 6, 1948;
( c) Interest on the sum already decreed at the rate agreed
to under the agreement dated July 6, 1948;
(d) Injunction in terms of para 47(b) of the plaint and
specific performance of the agreement dated July
6, 1948;
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SUPREME COURT REPORTS
[1977] 1 S.C.R.
( e) Costs of the appeal and costs which the lower court
wrongly disallowed or deducted and also interest on
the costs already awarded;
(f) A decree for sale of the
shares of the defendants
in the machinery over which he had a charge."
M/s John Jain Mehra & Co., of which the defendants first set too
were partners, also preferred an appeal against the aforesaid judgment
and decree of the trial court, bdng first appeal No. 65 of 1955, praying that the decree passed by the trial court in favour of the pl~intiff
be set aside and the suit dismissed with costs throughout.
The High Court allowed both the appeals No. 465 of 1954 and
No. 65 of 1955 partially by its aforesaid judgment dated D~ember
22, 1972, holding inter alia that no fraud, undue influence, coercion
or misrepresentation was practised by the plaintiff on the defendants
first set in connection with the execution of agreement dated February
9, 1948, or agreement dated July 6, 1948 (which is the basis of the
suit); that the agreement dated July 6, 1948, was neither insufficiently
stamped nor did it require registration; that though it appeared that
the deed of dissolution dated July 22, 19.48, was prepared for
the
purpose of the case, there was sufficient evidence on the record to
indicate that Seth Suganchand had withdrawn from the partnership
carried on under the name of Sethiya & Co. with effect from June 30,
1948, and had nothing to do with the transaction evidenced by the
agreement dated July 6, 1948, which w:;ts entered into by the plaintiff as the sole proprietor of Sethiya & Co., that the entire
rights and
liabilities flowing from the agreement dated July 6, 1948 having become the rights and liabilities of the plaintiff alone and the suit not
being one for recovery of dues of a dissolved partnership firm arising
out of a cause of action which accrued before the dissolution of the
firm, neither Seth Suganchand was a necessary party to the suit, nor
was the suit barred under section 69 of the Partnership Act; that the
alterations in the deed of agreement dated July 6, 1948 pointed out
by the defendants were not material alterations and did not render
the agreement void; that the plaintiff had a floating charge over the
business assets of John & Co., that it was the defendants first set and
not the plaintiff who committed breach of the agreement by wrongfully
delivering possession of the charged goods on or after April 13, 1949
i.e. after ceasing to be a going concern to M/s. John Jain Mehra &
Co.-a partnership firm of which the defendants first set became a
constituent part by virtue of agreement dated April 11, 1949-that
despite the knowledge of the aforesaid prior charge, M/s John Jain
Mefilra & Co. illegally intermeddled with the charge goods and used
them for their own business; that the plaintiff's floating charge on the
assets of the defendants first set valuing Rs.
13,25,000/-
became
crystallised on April 13, 1949' when on default of the defendants first
set, he intervened by bringing the suit to recover all his outstandings
by sale of the charged properties; that the charge of the plaintiff having become crystallised, as indicated above, the defendants first and
second set held the properties as trustees and were liable to make them
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LOON KARAN v. IVAN E. JOHN (Jaswant Singh, !.)
863
available to the plaintiff for recovery of his. dues; that keeping in view
A
the legal position as well as the nature of the transactions involved,
the practice of courts and the fact that the litigation between the parties
had been' sufficiently protracted, it would be reasonable to award pen-
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dente lite as well as future simple interest from the date of the decree
1
to the date of actual payment or realization at the rate of 4 per cent
per annum on the principal sum adjudged; that though keeping in
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view the facts that no balance was struck on April 4, 1949 in the
Rokar (Exh. 179) of Sethiya & Co. and the auditor's report which
showed that no specific figure was mutually agreed upon on accounting
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on thM date, it could not be said that accounts were finally settled
between the parties on April 4, 1949, the defendants first set· had
failed to point out which entry in the charts (Exh. 6103 to 6112)
produce•d by the plaintiff was wrong; that Rs. 49,35,925/5/7 were c
advanced by Sethiya & Co. to the defendants first set under the agreement dated July 6, 1948, from the date of its execution to the date
of the suit; that a sum of Rs. 11,17,000/- was due to old Sethiya &
Co. from the defendants first set upto June 30, 1948 under the agreements dated June 14, 1947 and February 9, 1948; that Rs. 1,55,000/-
were advanced by Sethiya & Co. on July 3, 1948 to the defendants
first set for purchase of the share of Beni Madho; that in accordance
D
with the obligation undertaken by it under para 1 (8) of the agreement
dated July 6, 1948, Sethiya & Co. paid, on the basis of transfer voucher
(Exh. 3039) dated February 28, 1949, drawn by the defendants first
"'
set, a sum of Rs, 17,79,100/- to Tejkaran Sidkaran in fllll satisfaction
of the amount due to the latter under the agreement dated February
9, 1948; that whereas the aggregate of the debit items came to
Rs.
82,47,380/15/4, the aggregate of the credit items came to Rs. 71,13,
E
712/6/6 leaving a balance of Rs. 11,33,668 and paise 55
which
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the defendants first set were liable to pay to the. plaintiff; that since
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the receivers appointed by. the court at the instance of the plaintiff
after the institution of the suit were able to secure possession of the
charged properties that existed prior to April 11, 1949 and it had
not been established that there was a removal from the mills' premises
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of the said properties or dissipation thereof because of the aforesaid
conversion and detention, the plaintiff was not entitled to the decree
for money against the defendants second Si;\t; that the plaintiff could,
no doubt, proceed against the charged goods which were in the custody
of the receivers for ·recovery of his dues but as no property on which
he held a charge cir on which his floating charge crystallised had remained in the custody of the defendants second set after the appointG
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ment of the receivers, no liability for his dues could be fastened on
them nor could he obtain a decree for specific performance against
them.
In the result, in modification of the decree passed by the trial
Court, the High Court passed a preliminary decree for Rs. 11,33,668.55
with proportionate
costs and
pendente lite and future
interest
from the date of the decree to the date of the actual payment or realisation at the rate of 4 per cent per annum on the principal sum of Rs.
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10,87,674.05 in favour qf the plaintiff and against the defendants
first set but dismissed the suit with costs as against the defendants
second set.
The High Court made it obligatory for the defendants
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864
_SUPREME COURT REPORTS
[1977] 1 S.C.R.
first set to pay or deposit in Court the aforesaid sum of Rs. 11,33,668.55
together with interest within six months of the passing of the
decree failing which it held the plaintiff entitled to apply for a final
decree for sale of all the business assets, goods, movables, stocks,
stores etc. mentioned in the inventory of Shri P. N. Raina, Commissioner, and the receivers' inventories. The High Court further
directed that if the net sale proceeds of the said property were found
insufficient to satisfy the plaintiff's aforesaid amount, he would get a
personal decree against ciefendants 1 to 3 for the balance of his claim
remaining due after seale.
The High Court also directed that a sum
of Rs. 28, 662/9 I . ... the sale proceeds of cotton waste over •which
the plaintiff had charge and which was in deposit with the Bank in the
Court's account -- would also be utilised towards the satisfacJion of
the aforesaid amount decreed in the plaintiff's favour.
It is against
this judgment and preliminary decree that the present appeals
are
directed.
We have heard counsel for t4e parties at length and gone through
the entire record relevant for the purpose of the appeals before us.
As per contentions of the counsel, the following main questions arise
for our determination :-
(1) Whether the first 'Set!J_iya & Co.' (of which the plaintiff and Seth Suganchand were partners) was dissolved
with effect from June 30, 1948, as claimed by the
plaintiff ?
(2) Whether the agreement dated July 6, 1948, was -
entered into by the plaintiff with the defendants first
set as a sole proprietor of Sethiya & Co. or was it
entered into by his as a partner of Sethiya & Co.'?
(3) Whether the suit is barred by section 69
of
the
Partnership Act ?
(4) Whether Seth Suganchand was a necessary party to
the suit ? ·
(5) Whether any material alterations were made in the
aforesaid agreement dated July 6, 1948, which rendered it void ?
(6) Whether the suit which was based uppn
accounts
stated or settled could be dealt with in the manner in
which it has been dcme ?
(7) Whether in addition to the imposition of burden on
the charged business assets etc.
of John & Co. for
satisfcation of the decretal amount, the defendants
second set could be saddled with any liability in that
behalf?
We shall take up these question seriatim.
Questions Nos. 1 &
2 . : As these two questions are inextricably linked up, they have
to be dealt with together.
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LOON KARAN v. IVAN E. JOHN (Jaswant Singh, J.)
865
According to the plaintiff, the firm 'Sethiya & Co., which
was
formed by him in partnership with Seth Suganchand for the specific
purpose of providing money against pledge of goods to the defendants first set and to act as their sole selling agents and which consequently entered into financial agreements with the said defendants
vide exhibits 1321and1320 on June 14, 1947, and February 9, 1948,
respectively was dissolved with effect from June 30, 1948, and thereafter he alone carried on dealings with the said defendants in the name
of Sethiya & Co. and M/s Tejkaran Sidkaran as their sole proprietor
and as !uch, the agreement (Exh.