1971 Supreme(Mad) 765

Madras High Court
PALANISWAMI
P.V.Gandhi - Appellant
Versus
Gitanjali - Respondent
Decided On : 12/01/1971

A retired partner is not liable for the acts of insolvency committed by the managing partner, if the creditor dealt with the firm without knowing that the retired person was a partner.

Headnote:

INSOLVENCY - ACTS OF INSOLVENCY - TRANSFER OF PROPERTY WITH INTENT TO DEFEAT AND DELAY CREDITORS - RETIREMENT OF PARTNER - LIABILITY OF RETIRED PARTNER FOR ACTS OF INSOLVENCY COMMITTED BY MANAGING PARTNER.

Fact of the Case:

The petitioner, a creditor, filed a petition under Sections 9 (b) and 9 (d) (ii) and (iii) and 10 to 13 of the Presidency Towns Insolvency Act, 1909, to adjudge respondents 1 to 4 as insolvents. The 1st respondent Messrs. Gitanjali is a registered partnership, of which the partners were respondents 2 to 4. The petitioner claims to have advanced a sum of Rs. 5,000/- on a promissory note dated 8th June 1971 executed by the second respondent on behalf of the firm. It is alleged in the petition that on 7-8-1971 the debtors issued a cheque for Rs. 5,000/- towards the principal, that the cheque when presented, was returned dishonoured, and that the debtors failed and neglected to pay the amount. It is also alleged that on 7-8-1971 the debtors transferred the entire business in favour of the fifth respondent, who put up his name board at the place of business premises, that the transfer was fraudulent that in spite of the efforts taken to contact the second respondent at his residence and also at his other place of business in No. 3/39, Godown Street, he could not be traced, that the said business place of the second respondent was also locked and closed from 10-8-1971 and that the second respondent secluded himself with a view to deprive his creditors of the means of communicating with him and also departed from his dwelling house and the usual place of business. It is further alleged that the transfer of the entire business in favour of the fifth respondent was made with a view to defeat and delay the creditors and that thereby the debtors committed acts of insolvency falling under Sections 9 (b) and 9 (d) (ii) and (iii) of the Act.

Finding of the Court:

The Court found that the transfer of the business of the first respondent firm, which business was the only property of the firm, had been made with intent to defeat and delay the creditors of the firm and that the transferee, the fifth respondent, was fully aware of the circumstances under which the transfer was being made. The Court also found that the second respondent, the managing partner of the firm, committed two more acts of insolvency; (1) that he departed from his dwelling house and the usual place of business and absented himself and (2) that he secluded himself so as to deprive his creditors of the means of communicating with him. The Court further found that the third respondent, who had retired from the partnership on 31-3-1970, was not liable for the acts of insolvency committed by the second respondent, as the petitioner dealt with the firm without knowing that the third respondent was a partner.

Issues: 1. Whether the transfer of the business of the first respondent firm was made with intent to defeat and delay the creditors of the firm? 2. Whether the second respondent, the managing partner of the firm, committed acts of insolvency by departing from his dwelling house and the usual place of business and absenting himself and by secluding himself so as to deprive his creditors of the means of communicating with him? 3. Whether the third respondent, who had retired from the partnership on 31-3-1970, was liable for the acts of insolvency committed by the second respondent?

Ratio Decidendi: 1. The Court held that the transfer of the business of the first respondent firm was made with intent to defeat and delay the creditors of the firm, as it was made for a consideration that was substantially less than the value of the business and the transferee was aware of the heavy indebtedness of the firm. 2. The Court held that the second respondent, the managing partner of the firm, committed acts of insolvency by departing from his dwelling house and the usual place of business and absenting himself and by secluding himself so as to deprive his creditors of the means of communicating with him, as these acts were done with the intention of avoiding his creditors. 3. The Court held that the third respondent, who had retired from the partnership on 31-3-1970, was not liable for the acts of insolvency committed by the second respondent, as the petitioner dealt with the firm without knowing that the third respondent was a partner.

Final Decision: The petition was allowed in part adjudging respondents 1, 2 and 4 as insolvents, and the petition was dismissed so far as the third respondent was concerned. The petitioner was entitled to his costs from respondents 1, 2, 4 and 5. In the circumstances of the case, the Court made no order as to costs in favour of the third respondent. The Official Assignee was appointed Receiver. Time for discharge six months.