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1922 Supreme(SC) 16
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT HALDANE, LORD PHILLIMORE, AND MR. AMEER ALI.
GOPALA CHETTY - Appellant
Versus
VIJAYARAGHAVACHARIAR - Respondents
On Appeal from the High Court at Madras.
Decided On : March 9, 1922.
Solicitor for appellants:Douglas Grant. Solicitor for respondent: John Josselyn.
If a suit for a general partnership account is barred by limitation, a partner cannot maintain a separate action for a share of specific assets received after dissolution, unless the partnership had already been fully wound up and accounts finalized before the asset was received.
Headnote:(A) Indian Limitation Act, 1908 - Schedule I, Article 106 - Suit for accounts and share of profits of a dissolved partnership - Limitation period of three years - If a suit for a general account is barred by limitation, a partner cannot maintain a suit for a share of specific assets received after dissolution, as the right to such assets is contingent upon the taking of a general account.
(B) Indian Contract Act - Exhaustive nature - The Act forms a code of partnership law; the only right to recover partnership dealings is to have an account taken and surplus assets distributed.
(C) Partnership Law - Receipt of assets after dissolution - A fresh cause of action for a share of specific assets arises only if the partnership had been completely wound up and accounts squared, and a forgotten asset subsequently falls in. If no accounts were taken and the limitation period for a general account has expired, no claim for specific items can be maintained.
Facts of the case:
A partner filed a suit for partnership accounts which was dismissed as barred by the three-year limitation period from the date of dissolution. Subsequently, the same partner filed a second suit claiming a share of specific sums received by the other partners from debtors after the dissolution but before the first decree. The lower courts allowed the suit, holding that the receipt of assets after dissolution created a fresh cause of action.
Findings of Court:
The court found that the lower courts relied on a misinterpretation of precedents. It held that if the right to a general account is barred by limitation, a partner cannot claim a share of specific assets because the entitlement to such assets can only be determined through a general account.
Issues: Whether the receipt of partnership assets by a former partner after dissolution gives rise to a fresh cause of action for a share of those assets when a suit for a general account is barred by the statute of limitations.
Ratio Decidendi: The Indian Contract Act is an exhaustive code. The right to recover assets from a dissolved partnership is tied to the right to have an account taken. If the period for seeking a general account has expired, the partner cannot bypass this by suing for specific items, as the net balance of the partnership must be determined to establish entitlement. A separate cause of action for specific assets only arises if the partnership was already fully wound up and accounts were finalized.
Result: Appeal allowed and the suit dismissed.
Legal Category Hierarchy
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partnership law
-
dissolution of partnership
- winding up and accounts
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dissolution of partnership
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practice and procedure
- limitation
- res judicata
Judgement
Appeal (No. 128 of 1920) from a judgment and decree (November 19, 1918) of the High Court in its appellate jurisdiction, affirming an interim decree of that Court in its original civil jurisdiction.
The respondent as plaintiff in a former suit against the appellants had claimed an account of a partnership which had subsisted between them. By a decree made by a judge of the High Court on February 25, 1915, that suit was dismissed on the ground that the partnership had been dissolved in April, 1910, and that consequently the suit was barred by the Indian Limitation Act (XI. of 1908), Sch. L, art. 106. On April 30, 1915, the respondent brought the present suit in which he alleged that certain specific sums had been received by the appellants on the partnership account, and claimed his partnership share. The items were set out in the schedule to the plaint, and were stated to have been received at various dates all of which were before the date of the decree, and the majority before the previous suit was instituted.
The trial judge, Kumaraswami Sastriar J., made an interim decree declaring that the plaintiff was entitled to a fourth share in such items contained in the schedule as had been collected by the defendants, with interest, and referring the suit to chambers to take an account, with a direction that if on taking a general account of the dealings of the partnership any sum was due by the plaintiff it should be set off against his share of the sums so received.
An appeal was heard by Sir John Wallis C. J. and Napier J. and the decree of the trial judge was affirmed, subject to a slight variation as to the interest to be recovered. The learned judges said that they were not prepared to go behind the previous decisions of the Madras Court hereinafter mentioned. They said u the decisions would appear to proceed upon the view that the receipt of assets by a former partner after a dissolution gives rise to a fresh cause of action ; otherwise it would be quite impossible to distinguish Knox v. Gye . (( 1872) L. R. 5 H. L. 656.)"
1922. Jan. 31. Sir George Lowndes K.C. and A. M. Talbot for the surviving appellant. The suit is not maintainable. It would not have been maintainable even if no previous suit had been brought and dismissed. The only right which the Indian Contract Act gives to a partner to recover in respect of partnership dealings is that given by s. 265—namely, to have an account taken and the surplus assets, if any, distributed. That agrees with English law Richardson v. Bank of England (( 1838) 4 My. & C. 165, 171.) ; Marshall v. Maclure (( 1885) 10 App. Cas. 325, 334.); Lindley on Partnership, 8th ed.,
p. 402. The Indian Contract Act is exhaustive as to matters with which it deals Mohori v. Dhurmodas Ghose (( 1903) L. R. 30 I. A. 115, 125.) ; it forms a code of partnership law for India. In the present case the High Court followed its earlier decisions in Sokkanadha Vannimundar v. Sokkanadha Vannimundar (( 1905) I. L. R. 28 M. 344.); Thiruvengada v. Sadagopa (( 1910) I. L. R. 34 M. 112.); and China Kondian v. Narasappa . (( 1914) 26 Mad. L. J. 221.) Those decisions all followed Merwanji Hormusji v. Rustomji Burjorji (( 1882) LL.R.6 B. 628.), which was based upon an erroneous view of observations made in the House of Lords in Knox v. Gye . (L. R. 5
H. L. 656.) The true effect of those observations is merely that if an account has been taken and the partnership wound up, the executor of a deceased partner can recover from the surviving partner in respect of an asset which the latter has since got in. Apart from those dicta, which do not apply here, the decision is in the appellants favour. The decision in Merwanji Hormusji v. Rustomji Burjorji (( 1882) LL.R.6 B. 628.) was based upon the view taken of the above dicta by Green J. in Dayal Jairaj v. Khatav Ladha . (( 1875) 12 Bom. H. C. 107) In that case however it was expressly held that the transaction upon which the plaintiff founded his claim to contri
