IN RE: R K ABDUL RAHIMAN SAHIB AND CO; MADRASA HASANATHA ZARIA GIRLS? SCHOOL BY ITS SECRETARY K HAJEE ABDUR LATHIEF SAHIB Vs. OFFICIAL ASSIGNEE OF MADRAS

JUDGEMENT

(1.) This motion raises a question of great importance and interest because I have to consider the status of the classes of persons who are connected with the firms each as the insolvent firm here, Labbai firm or what is sometimes known as an " Ejman partnership," My task has not been rendered any the easier by reason of the fact that though these Labbai firms are numeroits in the Presidency and have been carried on for many years there has been no reported case in this Court which even considers the status of those persons who are connected with those firms merely by a deposit of money in the firm's business. That is the position of the petitioner here, He is a trustee of the Madrassa Girls School at Ambur. The school was started in 1913 and K. Abdul Rahiman took a leading part in its foundation. Sums of money were set apart in the firm's books which became the school funds and an account was opened headed "Account of the Madrassa at Ambur." Into these accounts there were brought sums of money by the insolvent firm and the firm as it was then known and at every settling day sums of money were set apart from that school, In addition to the insolvent's firm setting apart sums of money for the school, other sums were collected from outside people and credited to the account of the "Madrassa" in the firm's books.

(2.) There were three classes of persons connected with the firm, the ejmans, the kutalis and the muthalalis. It is in the latter class that the Madrassa School is. At each settlement the net profits of the business were divided up amongst these three classes of persons. To the muthalalis was apportioned one-third share and to the kutalis and ejmans two-thirds share, ejmans are clearly partners. Kutalis are persons who, while contributing labour, do not contribute any money to the business. The muthalalis are persons who do not contribute labour to the business but contribute money. It is common ground that some of those persons who are ejmans are also muthalalis; that is to say, they contribute not only labour but money to the business and they not only receive money out of the one-third share but also out of the two-thirds share. With regard to the kutalis and ejmans definite proportions of the two thirds shares are given to them. It is contender by the petitioners that this, though a fixed share, was liable to alteration at the times when the different settlements were arrived at and I think that that is so, subject to this limitation that, if one of those kutalis or ejmans retired or died, the share of that parson in the two-thirds share might be added to those who remained thereby increasing their share or a fresh ejman or kutali could be brought in to take over the share of the deceased or retiring kutali or ejman as the case might be. But whatever alteration there might be in the fixed share of these persons it was all within the limits of the two-thirds share of the net profits set apart for the kutalis and ejmans. There is this further observation to make with regard to the muthalalis. They have no voice in the management of the business whatsoever and are not present at the statements. They seem to be persons who have merely deposited money in the business receiving their share of the net profits within the limits of the one-third share of those.

(3.) This motion comes before me under the following circumstances. The Madrassa claimed as a creditor of the insolvent's firm, which was adjudicated insolvent on the 5 December, 1922. By his order in July, 1921, the Official Assignee postponed this creditor for the reason that he thought that the trade creditors were to be preferred to all other unsecured creditors. In making that order the Official Assignee was clearly in error because although under the English Bankruptcy Law trade creditors are preferred to other secured creditors there is no provision for such preference under the Indian Law. When this mistake was brought to his notice he made a further report and disputed the claim of this creditor on the ground that this creditor was not a creditor but was a partner in the insolvent firm, and he has treated the money standing in the name of the Madrassa School as capital contributed to the business. Mr. K.S. Krishnaswami Iyengar argues that this deposit was nothing more than an investment or a loan to the business and argues that because, according to Muhammadan Law and custom Muhammadans are not allowed to pay or receive interest on loans the fiction has been restored to by these Muhammadan firms of apportioning a share of the net profits to those who have deposited money in the business instead of paying interest to them in the ordinary way on their loans. No doubt, there is a great deal to be said for that contention; but that Muhammadan Law or custom is not so rigid as is contended for, is within the experience of most of the Judges who have sat on the Original Side of this High Court; because it is within our experience that Muhammadans do in certain cases both pay and receive interest. I do not propose to examine in detail the various settlements arrived at by this firm. The first settlement was on the 10 February, 1914, the second on the 29 October, 1917, the third on the 21 May, 1918, the fourth on the 31 March, 1919, and the fifth on the 31 March, 1920. A statement was put in with regard to the 1914 settlement which I think gives a very fair indication of the practice of this firm. That, as I say, I do not propose to examine in detail. It shows the sharers of the ejmans and kutalis and it also shows the amounts standing to the credit of the muthalalis and what the latter are entitled to as their one-third share of the net profits.