VANKATAPPAYYA Vs. RAMANJANEYULU

JUDGEMENT

(1.) In view of the important question raised in this case, I think the decision reported in Nagappa v. Bkagavanji Rasaji has to be carefully considered. Its effects also will have to be examined. As there is no authority of thit 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 above said order, this Second Appeal coming on for hearing before this Bench, the Court delivered the following.

(2.) Our learned brother Gopalrao Ekbote, J has referred this Second Appeal to a Bench as in his view the decision in Nagappa v. Bhaganji Rasaji requires careful consideration, and the matter is one of importance. The question that requires consideration in this second appeal is whether the endorsment 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. Satsanarayana, and (4)KodaIi Venkata Subbarao constituted a partnership firm on 29-11-1940 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 15-7-53 on which date the defendant Venkataramanjaneyulu retired and the other three constituted a new firm.

(3.) 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 on his signature. Consequently, the partners executed an indemnity letter (Ex, B-3) by and under which any liability which the defendant may have to incur on behalf of the firm will be indemnified by the firm and the individual partners. The appellant, however, does not admit that the defendant was a partner in any sense of the terra. It was only because he was a burety 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 15-7-53. It is however, not disputed that when the accounts were gone into on that date, the defendant was found owing to the partnership firm a sum of Rs, 6,800/-of which Rs. 4,800/-was paid by the defendant and for the balance of Rs. 2,000/- he executed a promissory note (Ex. A-1) in favour of the partnership firm viz., Kodali, Venkata Subba Rao being the managing partner. It is again not in dispute that several suits were filed against the partnership firm in which the defendant was made a partner in the new firm constituted after the defendant had ceased to be a partner on 15-7-53. and that decrees also were obtained in those suits by and under which the defendant became liable for the debts of the partnership firm, and which according to the defendant 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 17-4-58 for accounts, of dissolved firm. When this suit was pending, the erstwhile managing partner, Kodali Venkata Subba Rao purported to transfer Ex. A-l by an endorsement (Ex. A-2) for a consideration of Rs. 2000/-in favour of the appellant on 2-8-58. The appellant on 22-6-59 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 for the transfer of 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. 2000/ together with interest and costs.