CHIMANRAM MOTILAL Vs. JAYANTILAL CHHAGANLAL

JUDGEMENT

(1.) THIS is an appeal by the plaintiffs against a judgment of Mr. Justice Somjee. There are two plaintiffs, both of which are firms, which have been registered under the Indian Partnership Act, 1932. They financed defendants Nos. 1 and 2 in relation to the purchase of large quantities of corrugated iron sheets, and they sue for a sum of over nine lakhs of rupees alleged to be due from defendants Nos. 1 and 2 in respect of these transactions. Various defences were set up on the merits, all of which failed, but by an amendment the defendants alleged that in respect of these transactions for financing them the two plaintiff firms became partners ad hoc, and that that partnership was not registered under the Partnership Act, and, therefore, the plaintiffs' suit did not lie under Section 69 (2) of the Act. That defence prevailed with the learned Judge, who accordingly dismissed the plaintiffs' suit. The question, which we have to determine on this appeal, is whether the two plaintiff firms were partners in relation to their financial arrangements with defendants Nos. 1 and 2, or whether they were mere co-lenders.

(2.) THE agreement between the plaintiffs and the defendants with regard to the finance is exhibit Q, and there was also a later agreement in much the same terms providing for further finance, which is exhibit Rule In exhibit Q the two plaintiff firms are described as pledgees, which expression was to include, unless repugnant to the context, the partners for the time being in the two plaintiff firms, and the agreement provides that the pledgees will lend to the pledgors, that is the defendants, the sums therein mentioned against a pledge of corrugated iron sheets, and there were the usual provisions for securing due cover, and, if there was default by the pledgors, the pledgees were entitled in their discretion to sell the pledged goods. Exhibit Q is dated June 2, 1937, and on the same date the two plaintiff firms entered into an arrangement, which is exhibit A 5, specifying the terms on which as between themselves the finance to the defendants was to be provided, and that document is obviously of great importance in determining whether the relationship between the plaintiffs was that of partners. THE agreement is in the form of a letter written by plaintiffs No.2 to plaintiffs No.1, and it says that with reference to the agreement for pledge made in favour of yourselves and ourselves by the defendants, it has been agreed that in respect of the transactions or adventures mentioned in the agreement for pledge our shares are equal, and we are to share equally in the receipts from the defendants, the receipts being substantially interest on moneys advanced and commission which was to be paid under exhibit Q. THEn it is provided that if there are any losses, the same will be shared equally. THE losses would of course arise from failure of the debtors to pay the amounts due. So that what it really comes to is this, that the two plaintiffs were to share equally in the interest and commission, and were to bear equally the losses, and it seems to me that that agreement is entirely consistent with the two plaintiff firms being mere joint lenders.

(3.) IS obvious that in the ordinary popular acceptation of the term, the plaintiffs were not partners, and that no useful purpose would be served by their regIStering thIS alleged special partnership under the Partnership Act, because all the requISite particulars had already been regIStered by the two plaintiff firms, and some of the particulars required to be regIStered, for instance, the name of the firm and the place of business of the firm, could not be regIStered, because the alleged partnership had no firm name and no place of business. But, in spite of such considerations, the plaintiffs might well have constituted themselves partners in law, and, I think, thIS case illustrates a danger which financiers run. It must be very common, in a commercial city like Bombay, for two or more banks or two or more financial houses to undertake jointly to finance some undertaking, which requires more extensive help than one lender IS prepared to give, and it IS very unlikely that people, acting together to finance an undertaking, consider that they are becoming partners, and, therefore, liable to regISter themselves for the special purpose of that transaction under the Indian Partnership Act. But it may very well be, if they are not careful in the expression of the contract between them, or in their actions in relation to the transaction, that they have in fact constituted themselves partners as matter of law, and they may find that, when they sue to enforce their rights, they are met with the objection that their special partnership has not been regIStered, and that their suit does not lie. It may well happen also that by the time the defect in their title IS brought to their notice, limitation has run against them. ThIS seems to me a danger which Section 69 of the, Indian Partnership Act may place in the way of perfectly honest and bona fide lenders. However, in thIS case, in my opinion, it IS clear on the evidence that these two plaintiffs were not partners, but were no more than joint lenders.