BELLAPU VENKATAPPAYYA Vs. ADUSUMILLI VENKATARAMANJANEYULU

JUDGEMENT

(1.) In view of the important question raised in this case I think the decision reported in Nagappa v. Bhagawanji Rasaji, (1936)71 M.L.J.378 : I.L.R. (1936)59 Mad. 1936 : A.I.R. 1936 Mad.593 has to be carefully considered. Its effect also will have to he examined. As there is no authority of the Court and the decision cited above is likely to effect the transactions of the trading firms, I think it is advisable to refer the case to a Bench for an authoritative decision. In pursuance of the abovesaid order, this second appeal came on for hearing before the Bench. C. Seetharamayya for G. Venkatarama Sastry, for Appellant. K. Suryanarayana and Y. S. Tatarao, for Respondent. The Judgment of the Court was delivered by Jaganmohan Reddy, C.J.-Our learned brother Gopal Rao Ekbote, J., has referred this second appeal to a Bench as in his view the decision in Nagappa v. Bhagawanji Rasaji, requires careful consideration, and the matter is one of importance. The question that requires consideration in this second appeal is whether the endorsement of a promissory note made by one of the partners of a dissolved firm without consideration in favour of the appellant is a valid one entitling the appellant to sue and recover the sum as a holder of the promissory note. It appears, and the facts are not in dispute, that four persons viz., (1) Venkataramanjaneyulu (defendant), (2) Dhananjayudu, (3) M. Satyanarayana, and (4) Kodali Venkata Sub bar ao constituted a partnership firm on 29th November, 1949 of which the last named person was the managing partner. In the year 1953, M. Satyanarayana retired and in his place Venkataramiah was taken as partner and this partnership continued till 15th July, 1953 on which date the defendant Venkataramanjaneyulu retired and the other three constituted a new firm.

(2.) It is contended by the defendant that though he was not to share the profits and losses in the partnership firm, nonetheless he was made a partner as the banks were insisting op his signature. Consequently, the partners executed an indemnity letter (Exhibit B-3) by and under which any liability which the defendant may have to incur on behalf ol the firm will be indemnified by the firm and the individual partners. The appellant, however, does not admit tnat the defendant was a partner in any sense of the term. It was only because he was a surety that the indemnity bond was given. To all intents and purposes according to the appellant, the defendant was a stranger to the partnership after the dissolution and re-constitution of the firm on 15th July, 1953. It is, however, not disputed that when the accounts were gone into on tnat date, the delendant was found owing to the partnership firm a sum of Rs. 6,800 ol which Rs. 4,800 was paid by the delendant and for the balance of Rs. 2,000 he executed a promissory note (Exhibit A-1) in lavour of the partnership firm viz.. Kodali Venkata Subba Rao being tne managing partner. It is again not in dispute that several suits were filed against the partnership firm in which the delendant was made a partner in the new firm constituted alter the defendant had ceased to be a partner on 15th July, 1953, and that decrees also were obtained in those suits by and under which tlie delendant became liable for the debts of the partnership firm, and which according to the delendant the partners of the firm were liable to pay under the indemnity bond. Since the partnership firm had huge losses it was dissolved and there was also a suit filed by Dhananjayudu, one of the partners, on 17th April, 1958 lor accounts ol dissolved firm. When this suit was pending, the erstwhile managing partner, Kodali Venkata Subba Rao purported to transfer Exhibit A-l by an endorsement (Exhibit A-2) for a consideration of Rs. 2,000 in iavour of the appellant on 2nd August, 1958. The appellant on 22nd June, 1959 filed a suit on the basis of the promissory note in the District Munsif's Court, Gudivada, against the defendant stating that on payment of Rs. 2,000, Kodali Venkata Subba Rao had transferred the promissory note in his favour as managing partner of the firm. The defendant inter alia denied that any consideration passed lor the transfer ol the promissory note or that K.Subba Rao had any authority to transfer the same. On the pleadings one of the issues framed was whether the plaintiff was a holder in due course. The learned Munsif held that the plaintiff had paid consideration and, therefore, was a holder in due course and on the basis of this finding, he gave a decree for Rs. 2,000 together with interest and costs.

(3.) The defendant appealed and the appellate Court held that no consideration passed from the appellant to Kodali Venkata Subba Rao and that the endorsement was not supported by any consideration. In this view, it dismissed the suit. It is contended by Mr. Sitaramaiah that though he is not a holder in due course since he has given value he is a holder for value, and that even otherwise, he is a holder within the meaning of section 8 of the Negotiable Instruments Act and entitled to a decree. Mr. K. Suryanarayana, on the other hand, submits that both under section 19 (2) (c) as well as under section 47 of the Partnership Act, none of the partners of a firm whether dissolved or otherwise have any authority to transfer or deal with the assets of a firm without consideration; consequently, the endorsement is invalid. Mr. Sitaramiah counters this argument by his submission that the defendant being a third party cannot object to the validity of the endorsement. Any defect in the endorsement, according to him, could be cured by a ratification by the partners, and consequently the appellant is entitled to succeed because once it is held that he is a holder and that there is consideration for the making of the note as admitted by the respondent, there is no further necessity for the sppellant to establish consideration for the endorsement. On a perusal of Exhibit B-3, we do not find any justification lor the contention of the respondent that the respondent continued to be a partner of the firm though on the terms stated by him namely that ne was not to share either in the profits or losses of the firm. Apart from the question that no such partnership can come into existence under section 4 of the Partnership Act, one ol the requisites to constitute a partner is that there must be an agreement to share in the profits without which no partnership can be brought into existence, a perusal ol Exhibit B-3, as we have said earlier, does not show that he was to be a partner. All that Exhibit B-3 says is that any liabilities which the defendant may incur by reason ol his undertaking to the banks will be indemnified by the partners. But it is far irom saying that he is a partner.