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HIGH COURT OF CALCUTTA
K. C. Das Gupta, U. C. Law
GOURI SANKAR SHEROFF - Appellant
Versus
CENTRAL HINDUSTHAN BANK LTD. - Respondent
A. F. A. D. 643 Of 1952
Decided On : MARCH 06, 1958
PARTNERSHIP - CHANGE IN CONSTITUTION - LIABILITY OF NEW FIRM FOR DEBTS OF OLD FIRM - ASSETS OF OLD FIRM IN HANDS OF NEW FIRM - WHETHER LIABLE TO ATTACHMENT AND SALE IN EXECUTION OF DECREE AGAINST OLD FIRM - FRAUDULENT CONVEYANCE - WHETHER ASSETS CAN BE FOLLOWED INTO HANDS OF TRANSFEREE.
Fact of the Case:
A partnership firm, Asia Electric Works, underwent several changes in its constitution. Initially, it consisted of two partners, Hrishikesh Mondal and Dasurathi Mondal. Later, three additional partners, Gouri Sankar Sheroff, Baidyanath Sarkar, and Atul Chandra Banerjee, were admitted. Subsequently, Hrishikesh and Dasurathi retired, leaving the three continuing partners to carry on the business. A limited company, Asia Mechanical and Electrical Works, Ltd., was incorporated, and the continuing partners transferred the business to the company, excluding the stock-in-trade and furniture. A creditor, Ranjit Kumar Bose, obtained a decree against Asia Electric Works and sought to execute the decree by attaching electrical goods belonging to the limited company. The company claimed the goods under Order 21, Rule 58 of the Code of Civil Procedure, asserting that it had an interest in and possession of the goods at the time of attachment. The trial court held that the company had an interest in the goods and ordered their release from attachment. Ranjit Kumar Bose filed a suit to set aside the order and declare the goods liable to attachment and sale in execution of his decree.
Finding of the Court:
The High Court held that the decree obtained by Ranjit Kumar Bose was against the old firm constituted by Hrishikesh Mondal and Dasurathi Mondal, and not against the newly constituted firm. However, the court found that the assets of the old firm which continued in the hands of the newly constituted partnership could be followed by the decree-holder in execution of the decree, though the newly added partners would not be personally liable for the debts. The court also held that the conveyance of assets by the continuing partners to the limited company was a fraudulent transaction intended to defeat the creditors of the old firm, and therefore the decree-holder could disregard the conveyance and follow the assets of the old firm in the hands of the limited company.
Issues: 1. Whether the decree obtained by Ranjit Kumar Bose was against the old firm or the newly constituted firm? 2. Whether the assets of the old firm which continued in the hands of the newly constituted partnership could be followed by the decree-holder in execution of the decree? 3. Whether the conveyance of assets by the continuing partners to the limited company was a fraudulent transaction?
Ratio Decidendi: 1. The court held that the decree obtained by Ranjit Kumar Bose was against the old firm constituted by Hrishikesh Mondal and Dasurathi Mondal, based on the evidence and the fact that the Hundi on which the decree was based was executed on behalf of the old firm. 2. The court held that the assets of the old firm which continued in the hands of the newly constituted partnership could not be followed by the decree-holder in execution of the decree because there was no evidence that the electrical goods mentioned in the schedule to the plaint ever formed part of the assets of the old firm. The court reasoned that a change in the constitution of a firm by the addition of new members results in a break in the identity of the firm, and property that was formerly the property of the old firm ceases to be its property after the formation of the new firm. 3. The court held that the conveyance of assets by the continuing partners to the limited company was a fraudulent transaction intended to defeat the creditors of the old firm, based on the evidence and the fact that the conveyance was made shortly before the decree-holder obtained a certificate of non-satisfaction from the High Court.
Final Decision: The High Court allowed the appeal in Second Appeal No. 643 of 1952, set aside the judgment and decree of the court below, and ordered that the suit be dismissed. In Second Appeal No. 642 of 1952, the court allowed the appeal and ordered that the suit be decreed against the first three defendants, namely, Asia Electric Works, Hrishikesh Mondal, and Dasurathi Mondal.
( 1 ) THESE two appeals have been heard together as they raise several common questions of law and fact. Second Appeal No. 643 of 1952 arises out of a suit brought by the respondent Ranjit Kumar Bose for a declaration that certain electrical goods that were attached in an execution case in execution of a money decree obtained by him against Asia Electric Works are in law liable to attachment and sale in execution of that decree and for setting aside the order passed by the executing Court in an application under Order 21, Rule 58 of the Code of Civil Procedure by the Asia Mechanical and Electrical Works Ltd.
( 2 ) IT appears that two persons, Hrishikesh Mondal and Dasurathi Mondal, carried on business as partners in a firm in the name and style of Asia Electric Works. On 18-1-1947 three other persons, Gouri Sankar Sheroff, Baidyanath Sarkar and Atul Chandra Banerjee, were taken as additional partners and the firm as newly constituted continued business till the 31st day of October, 1947 on which date the two partners Hrishikesh and Dasurathi retired under a deed registered on that date. The three continuing partners, Atul Chandra Banerjee, Baidyanath Sarkar and Gouri Sankar Sheroff, however, continued business as partners under the same firm name Asia Electric Works. The Asia Mechanical and Electrical Works, Ltd. was incorporated as a public company limited by shares on 18-10-1947 Baidyanath, Gouri Shankar and Atul being among the directors and shareholders of this new concern. On 6-12-1947 the Asia Electrical Works as constituted by these persons transferred by deed the entire business of the firm except the stock-in-trade and furniture which, it was mentioned in this very doucment, had already been sold on that very date as per cash memo, dated 6-12-1947. The plaintiff Ranjit Kumar Bose having obtained a decree on the Original Side of this Court against "asia Electric Works" for the balance of the principal and interest said to be due on a Hundi dated 18-1-1947 applied for execution of the same in the Court of the Munsif of Howrah, after the necessary certificate of non-satisfaction had been obtained from the High Court. Process was issued by the Munsif for the attachment of the movables belonging to the judgment-debtor, Asia Electric Works. In execution of this, it is said, the electric goods mentioned in the schedule to the plaint of the title suit brought by Ranjit Kumar Boss (out of which S. A. No. 643 of 1952 has arisen) were attached. A claim under Order 21, Rule 58 of the Code of Civil Procedure having been put in by the limited company, Asia Mechanical and Electrical Works, Ltd. , the learned Munsif on a consideration of the evidence before him held that the petitioner, the Asia Mechanical and Electrical Works, Ltd. , had interest and possession in the articles attached at the date of their attachment and directed them to be released from attachment. In the present suit Ranjit Kumar Bose prays that this decision may be set aside and it may be declared that these articles were liable to attachment and sale in execution of his decree.
( 3 ) THE defence of the Asia Mechanical and Electrical Works, Ltd. was that under the terms of the assignment the limited company was liable only for certain liabilities of the partnership firm and the present plaintiif's dues were not one of them and the goods which were their property were not in any way liable to attachment and sale in execution of the plaintiff's decree.
( 4 ) AS has already been noticed, three different firms continued business in the common firm name of Asia Electric Works. At first there were Hrishikesh Mondal and Dasurathi Mondal who carried on business with this firm name; from 18-1-1947 up to 31-10-1947 the five persons, Hrishikesh, Dasurathi, Gouri Sankar, Baidyanath and Atul continued business as partners with this firm name; and from the 31st of October, 1947 till apparently 6-12-1947 three persons, Gouri Sankar, Baidyanath and Atul c
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