RAJENDRAN AND OTHERS versus SHANKAR SUNDARAM AND OTHERS

[2008] 2 S.C.R. 209

RAJENDRAN AND OTHERS v.

SHANKAR SUNDARAM AND OTHERS (Civil Appeal No. 802 of 2008) JANUARY 30, 2008

[S.8. SINHA AND HARJIT SINGH BEDI, JJ.]

Code of Civil Procedure, 1908 - 0. 38 r. 5 - Attachment before judgment -Application for, against partnership firm and its partners - Challenge to, on the ground that borrower was not partner and borrowal of money was not for the benefit of the firm - Held: All of them were partners at the relevant time -Plaintiff could enforce his claim against the firm as a/so its -partners Lender filed application for attachment to protect his interest in the event suit is decreed - Cburt was to form prima facie opinion at that stage without going into the correctness of the contentions raised - On facts, partners would not be seriously prejudiced on furnishing security, thus, interference under Article 136 not called for - Constitution of India, 1950-Article 136 - Partnership Act, 1932.

. The appellant-defendant nos. 4 to 7 were partners of

the defendant no. 1 firm. Defendant no. 3 was also the partner. It is alleged that defendant no. 2, who was described as the managing partner of the firm fraudulently obtained loan from the plaintiff-respondent and also furnished personal guarantee. The cheque was issued in the name of defendant No. 1. Defendant no. 3 executed pronote. Plaintiff-respondent filed suit for realisation of the amount against all the defendants. It also filed application under 0. 38 r. 5 CPC for attachment before judgment. The High Court rejected the application since G, the defendant no. 2 took the loan in connivance with defendant no. 3 and 8 not for the benefit of partnership firm. Aggrieved, plaintiff filed appeal which was allowed . . Hence the present appeal.

Appellants-defendants contended that in obtaining the loan from the plaintiff-respondent, defendant Nos. 2, 3 and 8 played prime role; that defendant No.2 was stated to be the Managing Partner of the firm, which he was not; that only defendant No.3-son of defendant No.2 8 [was partner; and that the purported loan was granted ]by the plaintiff without even caring to ascertain as to who are the partners of the said firm.

Dismissing the appeal, the Court

HELD: 1.1 The firm would be bound only when transaction is entered into by partner of the firm subject to the limitations contained in the Partnership Act, 1932. [Para 9] (213-G]

1.2 The amount of loan was advanced by cheque.

[The said cheque was drawn in the name ][of ][the partnership ]firm. Concededly again, the appellants were the partners thereof at the relevant time, although an endeavour was made before the Single Judge of High Court to show that they ceased to be so .. Having regard to the fact that they purported to have retired from the partnership firm in the year 2001 and the transaction between the parties are of the year 2000, prima facie the liability of the appellants could not have been ignored. [Para 11] (214-A, B, C]

1.3 The application for attachment before judgment

was filed by the plaintiff so as to protect his interest in the event the suit is decreed. In such situation, the court exercises jurisdiction under Order XXXVlll Rule 5 CPC. It need not go into the correctness or otherwise of all the contention.s raised by the parties. Allegations against defendant Nos. 2, 3 and 8 are required to be gone into at the hearing of the suit. The plaintiff is entitled to secure· his interest keeping in view the amount involved in the suit. cheque had been issued in the name of the firm. The appellants are partners thereof. pronote had been executed by partner of the firm. Thus, even under the [Partnership ][Act ][prima facie the plaintiff could enforce ][his ]

claim not only as against the firm but also as against its partners. [Paras 12, 13 and 14] [214-D, F, G, H; 215-A]

1.4 In any view of the matter as the appellants are not seriously prejudiced if they furnish the security, this, is not fit case where this Court should exercise its jurisdiction under Article 136 of the Constitution of India. [B ][Para 15] [215-8]

CIVILAPPELLATE JURISDICTION: Civil Appeal No. 802 of 2008.

From the Judgment and Order dated 27.2.2004 of the High

Court of Judicature at Madras in O.S.A. No.108/2003.

K. Ramamurthy, Kawaljit Kochar, Rishi Dewan and Kusum

Chaudhary for the Appellants.

Amit Sharma and B.V. Anupam Lal Das for the Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. 1. Leave granted.

2. Appellants herein were defendant Nos. 4 to 7 in the suit.

Plaintiff-respondent No.1 filed the suit against them and four others. They are admittedly partners of defendant No.1 firm, M/ s. AR. AS & P.V.PV, registered under the Partnership Act, 1932. Defendant No.3 P. Shankar (Respondent No.4 herein) was also partner in the said firm.

3. Allegedly, Defendant No.2, P.V. Purushothaman

(Respondent No.3 herein), who has been described as the Managing Partner of the said firm, fraudulently obtained an advance from the plaintiff wherefor personal guarantee was furnished by the defendant No.2. Indisputably cheque for sum of Rs. 50 lakhs was issued in the name of the defendant No.1.

4. Plaintiff-Respondent filed the aforementioned suit for

realisation of sum of Rs. 70,30,000/- with interest@ 20% per annum inter alia alleging that all the defendants were jointly and severally liable therefor. An application under Order XXXVlll Rule 5 of the Code of Civil Procedure was filed by the plaintiff.

[2008] 2 S.C.R.

5. Appellants in their written statement inter alia raised contention that since the amount of Rs. 50 lakhs purported to have been taken in advance by defendant No.2 in connivance with defendant Nos. 3 & 8 had not been used for the benefit of. the partnership.firm, no order of attachment could be issued as [against ][the ][appellants ][.herein. ][The ][said ][contention ][of ][the. ]appellants was accepted by learned Single Judge of the High Court by his order dated 1 oth December, 2002 opining :-

"The copy of the partnership deed date 01-4-1996 has been filed by the contesting defendants in the typed set. perusal of the same clearly disclosed that the 2nd Defendant was not partner in the 1st defendant firm. Moreover, the plaintiff had also not filed any record to show that the 2nd defendant was already in partner (sic) in the 1st defendant firm and the borrowal was also made only for the firm. Unless and until, it is established by the plaintiff, I am of the view that the plaintiff is not entitled to seek any interim order calling upon the defendants .to execute security."

6. An intra court appeal was preferred thereagainst wherein

Division Bench of the _High Court by reason of the impugned judgment opined :-

"The Learned Judge has not appreciated that the 3rd

Defendant who is the partner of the firm as per the partnership deed dated 1-4-1996 executed the promissory notes and clause 10 of the partnership firm gives power to partner to borrow monies (sic) from the 3rd parties for the purpose of business. The 2nd Defendant gave letter which is only for personal guarantee.· So, the reasonings given by the Leaned Judge that since the 2nd defendant is not partner, the borrowal of money is i:iot for the benefit of the partnership cannot be countenanced. When the cheque was given in the name of the firm by the Plaintiff, prima facie, it has to be taken that it is borrowed on behalf of the partnership firm. When the payment of the money by the Plaintiff in the firm is not in dispute and in the absence

-"'* ,.

-.;:--f

of any specific allegation that the amount was paid personally to the defendants, 2, 3 and 8, though the cheque was issued in the name of the firma and the Plaintiff also colluded with them, the argument of the Learned Counsel regarding the alleged collusion cannot be accepted. Whether the amount is used for the firm or personally by 8 the defendants 2, 3 and 8 can be gone into only after adducing evidence. Prima facie, we find that since the amount was paid in the name of the firm and promissory notes were executed by the partners of the firm and no other partnership deed is produced before the Court other than that the partnership dated 1-4-1996, the learned Judge is not correct in rejecting the Application as if the plaintiff has no prima facie case. The learned Judge has not given any other finding as to the necessity for attachment, but rejected the application only on the ground that the 2nd defendant is not the partner of the firm."

On the said findings the appeal preferred by the plaintiff-respondent was allowed. Appellants are thus bef9re us.

7. Appellants are, thus, before us.

8. Mr. Ramamurthy, learned senior counsel appearing on [E ]

behalf of the appellants, would take us through the plaint as well as the written statement to contend that from perusal thereof it would appear that in obtaining the said purported loan from the plaintiff-respondent, defendant Nos. 2, 3 & 8 played prime role As defendant No.2 was stated to be the Managing Partner of the firm, which he was not, and in fact only his son (defendant No.3) was partner, the purported loan was granted by the plaintiff without even caring to ascertain as to who are the partners of the said firm.

9. Our attention was furthermore drawn to various [G ]

provisions of the Partnership Act and in particular, Section 2(a); Section 18; Section 19; Section 22 and Section 28 thereof for advancing the proposition that the firm would be bound only when transaction is entered into by partner of the firm and that too subject to the limitations contained in the aforementioned

provisions.

10. Mr. Amit Sharma, learned counsel appearing on behalf of the respondents, on the other hand supported the impugned judgment.

11. Concededly, the amount of loan was advanced by

cheque. The said cheque was drawn in the name of the partnership firm. Concededly again, the appellants were the partners thereof at the relevant time, although an endeavour was made before the learned Single Judge to show that they ceased [to be so. Having regard to the fact that they purported to have ]retired from the partnership firm in the year 2001 and the transaction herein between the parties are of the year 2000, prima facie the liability of the appellants could not have been ignored.

12. The application for attachment before judgment was

filed by the plaintiff so as to protect his interest in the event the suit is decreed. The court exercises, in such situation, jurisdiction under Order XXXVlll Rule 5 of the Code of Civil Procedure. The Division Bench of the High Court merely [directed the appellants herein to furnish security within the time ]specified thereunder. It was directed that only on their failure to do so, an order of attachment of the 2nd item on the schedule to the petition shall be issued.

13. Appellants, in our opinion, are not seriously prejudiced

[thereby. The court while exercising' its jurisdiction under Order ]XXXVlll Rule 5 of the Code of Civil Procedure is required to form prima facie opinion at that stage. It need not go into the correctness or otherwise of all the contentions raised by the parties. cheque had been issued in the name of the firm. The [appellants are partners thereof. pronote had been executed ]by partner of the firm. Thus even under the Partnership Act prima facie the plaintiff could enforce his claim not only as against the firm but also as against its partners.

14. Sections 2(a) ; 18 ; 19 ; 22 and 28 to which our

[attention has been drawn, instead ][of ][assisting the appellants, ]

,. ....

AND OTHERS [S.B. SINHA, J.]

prima facie assist the plaintiff-respondent. Allegations against defendant Nos. 2, 3 and 8 are required to be gone into at the hearing of the suit. The Court at this stage is required only to form prima facie opinion. The plaintiff is entitled to secure his interest keeping in view the amount involved in the suit. For the said purpose detailed discussion in regard to the question as s to whether defendant No.2 was partner or not is not of much relevance.

15. In any view of the matter as the appellants are not

seriously prejudiced if they furnish the security, this, in our opinion, is not fit case where this Court should exercise its jurisdiction · under Article 136 of the Constitution of India.

16. For the reasons abovementioned this appeal fails and

is dismissed. No order as to costs.

Appeal dismissed.