Nawaneetdas Lakhmidas v. Gordhandas Lakhmidas — 1953 DIGILAW 94 (MP)

JUDGEMENT : SHINDE, J. This is plaintiff's second appeal directed against the judgment and decree of the single bench of this Court. 2. Nawaneetdas filed a suit against Gordhandas and Chhaganlal for rendition of accounts. He alleges that there was a partnership firm in the name and style of "Gordhandas Lakhmidas" in Indore; that the plaintiff and Gordhandas and Chhaganlal defendants are partners in the firm; that the partnership deed Ex. P/1 was drawn on 15-4-1920 by which shares of all the three partners are fixed as five annas in a rupee and one anna is reserved for charity; and on 18-2-1939 the plaintiff was expelled from the firm and a notice to that effect was published on 25-2-1939 in the newspaper of Bombay called 'Bombay Samachar'; that the plaintiff is entitled to the rendition of accounts as the partnership was dissolved on 25-2-1939. A preliminary decree was passed on 20-10-1942 and Mr. S.A. Bhopatkar was appointed commissioner and receiver of the partnership estate. Against this decree Gordhandas and legal representatives of Mathuradas filed an appeal. The decree was partially amended and it was held that the legal representatives of Mathuradas were not necessary parties. After this a final decree was passed on 28-7-1947 which declared that the plaintiff Nawaneetdas was liable to pay his share of losses amounting to Rs.9,763-9-0. Against this decree an appeal was preferred by both Nawaneetdas and Gordhandas before a single bench of this Court. The learned Judge partially accepted the appeal of Nawaneetdas and dismissed the appeal of Gordhandas. As a result of this decree, the partnership was held liable to pay to Lakhmidas Tikamdas a sum of Rs.105560-14-6. The fund amounting to Rs.55,462-8-6 lying with the commissioner was to be applied in payment of the said debt. It was also found that the sum of Rs.50,098-6-0 represented losses caused in the partnership and the liability of the partners was apportioned as follows: Plaintiff NawaneetdasRs.720-3-7 GordhandasRs.44648-14-10 and ChhaganlalRs.4729-4-1 Against this decree Nawaneetdas has filed this appeal, and Gordhandas has filed cross-objections. 3. Before proceeding to determine the contentions raised by both the parties it is necessary to give a few relevant facts so that the contentions raised by the parties may be easily comprehended. There is a joint Hindu family residing in Burhanpur which carries on trade in the name and style of "Lakhmidas Tikamdas" and "Tikamdas Haridas". 3. Before proceeding to determine the contentions raised by both the parties it is necessary to give a few relevant facts so that the contentions raised by the parties may be easily comprehended. There is a joint Hindu family residing in Burhanpur which carries on trade in the name and style of "Lakhmidas Tikamdas" and "Tikamdas Haridas". The shop in dispute was originally started at Indore about the year 1902 in the partnership of Gordhandas who is a member of the Joint Hindu family at Burhanpur and Chhaganlal who is the brother-in-law of Gordhandas. The capital was provided by the two family shops, namely, Lakhmidas Tikamdas and Tikamdas Haridas. Chhaganlal contributed no capital to the business. In the year 1920 plaintiff Nawaneetdas alias Babulal was made a partner in this shop and a new partnership deed was executed on 15-4-1920. According to this partnership deed Ex. P/1 shares of all the three partners were fixed at five annas in a rupee and one anna was reserved for charity. Capital was to be supplied entirely by the two joint Hindu family firms. When the new partnership was formed, Rs.61779-1-3 were due to the firm Lakhmidas Tikamdas and Rs.16209-3-0 were due to the firm Tikamdas Haridas. According to the partnership deed these sums were to form the capital of the new partnership firm. It was also provided by the deed that if further money was required, the money was to be taken from die said shops only and the interest was to be paid at the rate of 6 p.c. per annum. It was also stipulated that if any advice be necessary regarding the shop, that advice was to be taken from Mathuradas of Burhanpur who was the manager of the joint Hindu family. Another important stipulation in the partnership deed was that the interest on sums to the credit of the firms Lakhmidas Tikamdas and Tikamdas Haridas was to be paid every year and Rs. 2000/- were also to be paid every year towards the principal. In S.Y. 1988 the parties sat together at Burhanpur and settled accounts for the period ending S.Y. 1985. After this no more settlement of accounts took place. It appears that after 1933 there was a steady decline in the business of the shop. Mathuradas died some years later. 2000/- were also to be paid every year towards the principal. In S.Y. 1988 the parties sat together at Burhanpur and settled accounts for the period ending S.Y. 1985. After this no more settlement of accounts took place. It appears that after 1933 there was a steady decline in the business of the shop. Mathuradas died some years later. In the end matters came to a head and on 18-2-39 plaintiffs was expelled from the partnership and a notice was published in the Bombay news-paper on 25-2-39 that the partnership was dissolved and that the plaintiff had severed his connection with the firm. It is out of these facts that the present second appeal arises. 4. The first contention raised by Mr. Chitale the learned counsel for the appellant is that where a dispute arises regarding an item being payable on the ground of limitation the court has no jurisdiction to decide the question as the creditor is not party to these proceedings. This objection was raised even before Mr. Justice Sanghi who heard the first appeal. The objection was disallowed by him and I think with respect, quite rightly. Section 48, Indian Partnership Act clearly gives power to the Court to decide these questions. Section 48 reads as follows: "In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed: (a) .................... (b) The assets of the firm, including any stuns contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: (i) in paying the debts of the firm to third partners; etc..........." From these provisions it is clear that the Court has power to decide whether the debts to third parties are payable or not. Without possessing such power it would be well-nigh impossible for the Court to apply assets of the firm in paying the debts of the firm to third parties. As Sanghi J. rightly remarked, if the presence of the creditor be necessary the Court has power to add him as a party under O.1, R.10(2), Civil P.C. Besides, if he is not impleaded as a party and he is aggrieved, he can't file a regular suit against all the partners. As Sanghi J. rightly remarked, if the presence of the creditor be necessary the Court has power to add him as a party under O.1, R.10(2), Civil P.C. Besides, if he is not impleaded as a party and he is aggrieved, he can't file a regular suit against all the partners. The proviso to O.30, R.3 runs as follows: "Provided that, in the case of a partnership which has been dissolved to the knowledge of the plaintiff before the institution of the suit, the summons shall be served upon every person within (the State) whom it is sought to make liable." This proviso clearly contemplates a suit by a creditor against the firm after the dissolution of the partnership. In my judgment, therefore, the Court has jurisdiction to decide the question of limitation regarding the debts payable to third parties. To say that the Court has no power to decide these questions is to render the provisions of S.48 nugatory. To settle the accounts after the dissolution of partnership it is necessary for the Court to determine what debts are payable to third parties. 5. Mr. Chitale further contends that the expression "subject to agreement by the partners" indicates that the rules laid down in S.48 are to be followed only if all the partners agree. I do not think that the construction put upon the words by the learned counsel is correct. What the section states is that the rules laid down are to be followed provided there is no different stipulation in the deed of partnership. In commenting on S.48 Pollock and Mulla state as follows: "Sub-section (a): The terms of this clause are plain, but as to losses of capital it is to be observed that whatever is contributed by an individual partner is, at that stage, a loan to the firm and will be dealt with as such under sub-cl. (3), ranking, however, after specific advances not being contributions to capital; and the other partners may be called on to contribute to it as a partnership loss in the proportions above named (the proportions of their shares in the capital are material only if there is a special agreement to that effect)". Again with regard to Cl. (3), ranking, however, after specific advances not being contributions to capital; and the other partners may be called on to contribute to it as a partnership loss in the proportions above named (the proportions of their shares in the capital are material only if there is a special agreement to that effect)". Again with regard to Cl. (b)(iv) the same learned authors state as follows: "Generally it must be remembered that a partner's share of assets is only what remains after payment of the firm's debts and partners cannot by any agreement among themselves escape the necessity of this being done before they divide profits or even repay advances as between themselves. Subject to this governing principle the rules laid down in the present section express only the usual course of business, and are subject to variation if it appears that in the particular case the partners intended, as between themselves, to vary them." (Vide Pollock and Mulla on the Indian Sale of Goods and the Indian Partnership Acts, 2nd Edn., 1950 at pages 407 and 408). Desai on the same subject states as follows: "Prima facie accounts between the partners are to be settled in the manner provided for by the partnership agreement. The rules stated in the section apply subject to any agreement between the partners." (Vide Desai on the Law of Partnership in British India, 1940 Edn., p.247). Pollock on the same subject comments as follows: "The rules given in this section are only rules of administration founded on the usual course of business and expressing what is fairly presumed to be the intention of the partners, but if any different intention is shown in a particular case by the terms of the partnership articles or otherwise, that intention so shown must prevail" (vide p.121). The contention put forward by the learned counsel, therefore, that unless all the partners agree, rules laid down in S.48 cannot apply, cannot be sustained. 6. Another contention put forward by the appellant is that the commissioner has no power to determine the rights of the creditor. The contention put forward by the learned counsel, therefore, that unless all the partners agree, rules laid down in S.48 cannot apply, cannot be sustained. 6. Another contention put forward by the appellant is that the commissioner has no power to determine the rights of the creditor. A commissioner is appointed under O.26, R.11, Civil P.C. The function of the commissioner is to place himself as an assistant to the Court so as to enable the Court to understand and appreciate the accounts and come to a decision that is why when a report is submitted by a commissioner the Court invites objections from the parties and after disposing of the objections passes a final decree. Therefore, the question of determining the rights of the parties or rights of a third party by the commissioner does not arise at all. 7. The next contention raised by Mr. Chitale the learned counsel for the appellant is that the lower court has erred in law in holding that the amount due to the account of Lakhmidas Tikamdas was in the nature of a deposit and consequently was not time-barred. He urges that the test laid down by their Lordships of the Privy Council in - 'Mahomed Akbar Khan v. Attar Singh', AIR 1936 PC 171 (A) and - 'Suleman Haji v. Haji Abdulla', AIR 1940 PC 132 (B) if applied to the present case, clearly shows that it is a loan and not a deposit. He further contends that taking into consideration the facts that Mathuradas was given the power of supervision, interest was to be paid every year at the rate of 6 per cent. per annum. Rs.2000/-were to be paid every year towards the principal and need of the partnership, it is clear that the money advanced by Lakhmidas Tikamdas was in the nature of loan. Consequently Art.57, Indian Limitation Act applies and hence the amount due to Lakhmidas Tikamdas is now time-barred. Mr. Rege the learned counsel for Gordhandas contends, on the other hand, that the amount due to Lakhmidas Tikamdas is in the nature of capital brought in by Gordhandas. Alternatively, he urges that it is a deposit. Both the trial Court and the appellate Court held that it was a deposit. Mr. Rege the learned counsel for Gordhandas contends, on the other hand, that the amount due to Lakhmidas Tikamdas is in the nature of capital brought in by Gordhandas. Alternatively, he urges that it is a deposit. Both the trial Court and the appellate Court held that it was a deposit. The trial Court in its judgment stated as follows: "The above facts, nevertheless, show unmistakably that the business of the firm was undertaken and conducted to find an outlet and provide profitable investment for the monies of the family. It was for this reason that no demand came to be made even to this date for the return of the capital and that the plaintiff assured the defendant 1 (as the manager of the family) that the interest on the monies locked up was guaranteed. It is therefore, reasonable to conclude that the monies were given to this firm for an indefinite period primarily for the benefit of the family and obligation rested upon it to seek its repayment. In short, the monies were in the nature of deposit and not loan and not having been asked for are still recoverable." Mr. Justice Sanghi who heard the first appeal remarked as follows: "The partnership at Indore had a separate legal existence of its own, separate from the Burhanpur family business but the capital was all to be derived from the family shops. The partnership was in fact an outlet for the investment of the family's surplus funds. From the very nature of the make-up of the partnership it can with assurance be said that the money advanced was a deposit and not a loan. The debt is not barred by time and is a good liability of the firm." It may at once be stated that inferences of legal nature cannot be drawn from the probable intention of the parties. It is possible that as all the members of the partnership were relations (Chhaganlal was brother-in-law of Gordhandas and Nawaneetdas was the son of a sister of Gordhandas) the parties intended to borrow money only from the Burhanpur firm so that the joint family's surplus funds may be profitably employed. But the legal incidents have got to be determined in the light of the position occupied by the parties in law. It is well-settled that the relationship of partners arises from contract and not from status. But the legal incidents have got to be determined in the light of the position occupied by the parties in law. It is well-settled that the relationship of partners arises from contract and not from status. Section 5, Partnership Act makes it abundantly clear. The jural relationship, therefore, has got to be determined in the light of the contract of partnership. Partnership deed Ex. P/1 clearly states that Gordhandas, Chhaganlal and Nawaneetdas are the partners of the firm and the capital is to be borrowed from the joint family shops at Burhanpur. This indicates that the Burhanpur shops were to be the financiers but were not the members of the firm. For these reasons it cannot be held that the partnership firm was a joint family concern. The partnership had a separate legal existence from the joint family firms at Burhanpur. The inference that the partnership firm was intended to employ the surplus funds of the joint family is also not borne out by the facts. The partnership started with Rs.77988-4-3 which were advanced to the previous partnership firm. Throughout the existence of the partnership firm in question, no more money was advanced by the joint family firms at Burhanpur. It cannot be denied that Gordhandas, Chhaganlal and Nawaneetdas entered into a partnership in their individual capacity. The partnership agreement Ex. P/1 testifies to this fact. Desai in his Law of Partnership in British India states as follows: "The joint family as a jural unit may enter into an agreement of partnership with a person or persons outside the family either through its managing member or by the consensus of the members constituting the joint family. Likewise a member of the joint family may enter into such a contract in an individual capacity. The nature and incidents of the partnership in each of these cases have to be determined by a consideration of the evidence produced in the particular case. Where a person, who is a member of a joint Hindu family, enters into a partnership contract he is one of the persons constituting the total number of partners. The nature and incidents of the partnership in each of these cases have to be determined by a consideration of the evidence produced in the particular case. Where a person, who is a member of a joint Hindu family, enters into a partnership contract he is one of the persons constituting the total number of partners. Behind his back there may be a joint Hindu family or he may be acting in his personal capacity; but as partnership arises only from contract, in either case it is only the member who makes the contract of partnership with the strangers that can be considered to be a partner, and the relation between the outsiders and the member of the joint family who has joined them in business would be that of partners." (Vide Law of Partnership in British India by Sunderlal Trikamlal Desai, 1940 Edn., p.32). It is clear from this exposition of law that even if the joint Hindu family be behind the back of a member of the joint Hindu family his relationship is governed by the contract of partnership. The partnership deed clearly shows that Gordhandas, Chhaganlal and Nawaneetdas entered into a contract of partnership in their individual capacity. Consequently their relationship will be governed by the law of partnership. 8. It is urged by Mr. Rege that Gordhandas as a member of the partnership brought in the capital which was supplied by Lakhmidas Tikamdas. This plea was never raised before the commissioner or the trial Court. In - 'Krishna Reddiar v. Ramanuja Reddiar', AIR 1929 Mad 492 (C) a division Bench of the Madras High Court held: "When a party does not object to the commissioner's report in the lower Court, he is not entitled to come up to this Court and object to the recommendations made by the commissioner." Similarly in - 'Seths Gugmull, Jethmull v. Mt. Shahee Kowar', 2 Ind App 34 (PC) (D), their Lordships of the Privy Council held as follows: "Where a report, or supplemental report, has been made by commissioners, to whom accounts have been referred for investigation, the Privy Council will not entertain any objections thereto which have neither been brought to the notice of the first court nor made in any of the grounds of appeal in the courts in India." Gordhandas took the plea before the commissioner that the money was held by the partnership shop in deposit or in the alternative in trust. But this objection was never raised that the money advanced by Lakhmidas Tikamdas was the capital brought in by Gordhandas as a member of the partnership firm. Consequently this plea cannot be allowed to be taken at this stage. 9. Besides even on the merits, this plea cannot be sustained. The partnership deed clearly states that the entire capital in this shop has been supplied by Tikamdas Haridas and Lakhmidas Tikamdas. The deed further states that whatever capital may be needed shall be taken from Tikamdas Haridas and Lakhmidas Tikamdas. If capital had been brought in by Gordhandas it would have been mentioned in the deed itself. But the deed makes no mention of this fact. Consequently the plea that the advance made by Lakhmidas Tikamdas was in the nature of capital brought in by Gordhandas is not supported by the deed of partnership. This plea is further disproved by the fact that in the books of the partnership firm three separate accounts were maintained; one in the name of defendant Gordhandas, one in the name of Lakhmidas Tikamdas and one in the name of Tikamdas Haridas. If the money had been brought in by Gordhandas as capital, it should have been credited to his account. There was no need to open separate accounts in the name of Lakhmidas Tikamdas and Tikamdas Haridas. This plea, therefore, cannot be accepted. 10. Next question to consider is whether the advance made by Lakhmidas Tikamdas is in the nature of a deposit. In AIR 1936 PC 171 (A) their Lordships of the Privy Council observed as follows: "It should be remembered that the two terms (loan and deposit) are not mutually exclusive. A deposit of money is not confined to a bailment of specific currency to be returned in specie. In AIR 1936 PC 171 (A) their Lordships of the Privy Council observed as follows: "It should be remembered that the two terms (loan and deposit) are not mutually exclusive. A deposit of money is not confined to a bailment of specific currency to be returned in specie. As in the case of a deposit with a banker it does not necessarily involve the creation of a trust, but may involve only the creation of the relation of debtor and creditor, a loan under conditions. The distinction which is perhaps the most obvious is that the deposit not for a fixed term does not seem to impose an immediate obligation on the depositee to seek out the depositor and repay him. He is to keep the money till asked for it. A demand by the depositor would, therefore, seem to be a normal condition of the obligation of the depositee to repay." (Vide p.173). The same principle was affirmed by their Lordships of the Privy Council in AIR 1940 PC 132 (B). The test to be applied according to the decisions of the Privy Council is whether the depositee is obliged to seek out the depositor or not. It is true that no fixed period is mentioned for the repayment of the advance. But according to the deed of agreement the partnership firm was to pay Rs.2000/- every year. There was no stipulation in the agreement that the money was to be paid on demand by the depositor. Partnership deed no doubt was executed by Gordhandas, Chhaganlal and Nawaneetdas. But Mathuradas who was the manager of the joint Hindu family at Burhanpur must have had the knowledge of its contents. In fact it can safely be presumed that it was drawn at his instance. The provisions that the capital already invested was to form capital of the new firm and that further capital was to be borrowed from the joint Hindu family at Burhanpur and that Rs.2000/-were to be paid annually towards the principal and that Mathuradas was to tender necessary advice in the conduct of the business of the shop could not have been incorporated in the deed without the knowledge and concurrence of Mathuradas. If the advance was to be treated as deposit there was nothing to prevent Mathuradas from insisting on incorporating such a clause in the deed. If the advance was to be treated as deposit there was nothing to prevent Mathuradas from insisting on incorporating such a clause in the deed. Besides Gordhandas was a member of joint Hindu family of Burhanpur. To safeguard the interests of the joint Hindu family he would certainly have incorporated a clause to this effect. Not only that there is no such clause in the deed but the stipulation is to pay Rs.2000/- every year towards the principal. There is, therefore, no doubt in my mind that it is the partnership firm which had to seek out the depositor and pay the money. Mr. Rege relied upon the decision of the Nagpur High Court given in - 'Chandrabhagabai v. Tikubhai', AIR 1944 Nag 101 (E). But this decision does not support the plea of the respondent that it is a deposit. In that case the agreement was that the depositor was to take back from the depositee as much money as he might require from time to time. Under those circumstances it was held that there was no obligation on the depositee to seek out the plaintiff depositor. But the circumstances in the present case are quite different. Here the stipulation clearly is that die money advanced by the depositor was to be paid by an yearly instalment of Rs.2000/-. In these circumstances the advance made by Lakhmidas Tikamdas to the partnership firm was not in the nature of a deposit but was in the nature of a loan. Consequently Art.57 applies to the case and the amount is time-barred. 11. The next question relates to the sum of Rs.18,451-9-9 which both the lower Courts have held to be within time. It appears that on or after 18-2-1939 Gordhandas selected cases of ten persons to whom debts amounting to Rs.18,451-9-9 were due. In the books he debited amounts due to them and credited himself with those amounts. This amount will be time-barred if it is a debt. But it will be within time if it is a deposit. It is clear from the conditions of the partnership deed that money must be borrowed only from Lakhmidas Tikamdas and Tikamdas Haridas. Consequently this money which came from ten persons other than Lakhmidas Tikamdas and Tikamdas Haridas must be construed to be an amount of deposit. But it will be within time if it is a deposit. It is clear from the conditions of the partnership deed that money must be borrowed only from Lakhmidas Tikamdas and Tikamdas Haridas. Consequently this money which came from ten persons other than Lakhmidas Tikamdas and Tikamdas Haridas must be construed to be an amount of deposit. The fact that there was no fixed term for repayment and the sums have been lying with the firm for nearly 20 years further supports the conclusion that they were in the nature of a deposit. Both the lower Courts have taken the view that these sums are deposits and I see no reason to differ from it. 12. The respondent Gordhandas has filed cross-objections. His first objection is that the appellate Court was wrong in reducing the amount of Rs.1,39,088-2-9 to Rs.1,23,588-2-6 by applying the rule of Dam Duppat. In fact the court has not taken into consideration the fact that the amounts have been capitalized and as such the rule of Dam Duppat is inapplicable. The plea of capitalization was not raised in the first court. Nor was the plea taken in the first appellate Court. Consequently as already stated this objection cannot be raised for the first time in second appeal. Besides, even on the merits, the plea cannot be substantiated. The rule regarding capitalization is dealt with by Mulla in his Hindu Law as follows: "The rule of damdupat does not forbid the conversion, by subsequent agreement between the debtor and the creditor, of the interest in arrear into capital." (Vide Mulla's Hindu Law 1952 Edn., p.676). There is no evidence to show that there was any subsequent agreement between the creditor and the partnership firm that the interest in arrear should be converted into capital. In the absence of such evidence it cannot be held that there was any subsequent agreement between the firm of Lakhmidas Tikamdas and the partnership firm that the interest in arrear was to be converted into capital. The mere fact that Nawaneetdas sent accounts capitalizing interest is not enough to hold that there was subsequent agreement to capitalize the interest in arrear. If this objection had been taken in the first court Nawaneetdas would have had an opportunity to meet this objection and to explain why accounts were sent in that fashion. The mere fact that Nawaneetdas sent accounts capitalizing interest is not enough to hold that there was subsequent agreement to capitalize the interest in arrear. If this objection had been taken in the first court Nawaneetdas would have had an opportunity to meet this objection and to explain why accounts were sent in that fashion. Besides if accounts were sent capitalizing interest all the time the bar of damduppat cannot be avoided. Mulla in his commentary gives the following illustration: "But if A and B had agreed, when the original loan of Rs.500/- was made, that all interest in arrear should be capitalized and should carry interest on it as if it was a principal sum, the agreement could not affect the operation of the rule of damdupat and A would not be entided to more than Rs.500/- for interest." (Vide Mulla's Hindu Law 1952 Edn., p.676). The principle appears to be that a definite sum of interest in arrear can be capitalized by subsequent agreement between the parties. But interest accruing over an indefinite period cannot be converted into capital even by an agreement. In this case right from the beginning for some reason, which is not apparent on the record, interest used to be added to the balance every year. There is no evidence to show that any agreement had been entered into that the interest in arrear should be capitalized. In any case as the interest had been capitalized over an indefinite period, the operation of the rule of damdupat cannot be precluded. This objection, therefore, has no force. 13. The second objection raised by Gordhandas is that the appellate court is wrong in allowing 8 per cent. profit to be added to the 10 per cent. profit allowed by the first Court. In order to understand the full significance of this objection it is necessary to reproduce a few facts. The question before the commissioner was to determine the value of stock that should have been in the shop on 18-2-39 when the plaintiff was expelled from the partnership. In order to determine the value of stock on 18-2-39 the commissioner took the figure of the stock at the end of S.Y. 1994 which was entered in Jama Bahi No.1 of 1995. This stock was taken in the ordinary course of business and during the plaintiff's management. The value of this stock is Rs.1,04,365-15-3. In order to determine the value of stock on 18-2-39 the commissioner took the figure of the stock at the end of S.Y. 1994 which was entered in Jama Bahi No.1 of 1995. This stock was taken in the ordinary course of business and during the plaintiff's management. The value of this stock is Rs.1,04,365-15-3. The partnership continued for four months after this stock-taking. During this period fresh purchases were made. Consequently the commissioner added to the old stock the value of the cloth purchased during these four months and deducted from it the value of cloth sold during that period. The commissioner also discovered from the accounts of previous years that cloth was sold at a profit between 15 to 20 per cent. He, therefore, valued the stock as follows: Value of cloth as noted in Jama Bahi No. 1 on Kartik Sudi 1 of 1995 … Rs.1,04,365-15-3 Value of cloth purchased from Kartik Sudi 1/1995 upto 18-2-39… Rs.87,578-7-9 Value of cloth purchased from local market ... Rs.1,721-2-3 Total - Rs.1,93,665-9-3 Value of cloth sold during four months...Rs.66,907-6-3 Less profit at 18 per cent .... Rs.10,206-3-0 ... Rs.56,701-3-3 Deducting this from the value of the stock which is Rs.1,93,665-9-3 the value comes to.. Rs.1,36,964-6-0 To this the value of the cloth that was kept in Free Ganj shop was also added. The value of this cloth was Rs.6,526-9-3. This was 6,526-9-3 added to the stock and the total came to... Rs.1,43,490-15-3 As the calculation was approximate, he took round figure of Rs.1,45,000/- as the value of the cloth on 18-2-1939. 14. It appears that after the plaintiff was expelled from the partnership the defendants sold the partnership cloth to themselves at its cost price. The plaintiff objected to this transaction and claimed that 15 per cent. profit be added to the cost price. The commissioner taking into consideration the fact that the cloth market in those days was dull and some of the valuable articles were quite old, added 10 per cent. profit to the value of the cloth. He, therefore, added a sum of Rs.14,500/-to the value of the stock which he fixed at Rs.1,45,000/-. This calculation was accepted by the first court. When the case went in appeal before Sanghi J. he added another 8 per cent. to the cost price. profit to the value of the cloth. He, therefore, added a sum of Rs.14,500/-to the value of the stock which he fixed at Rs.1,45,000/-. This calculation was accepted by the first court. When the case went in appeal before Sanghi J. he added another 8 per cent. to the cost price. His argument was that as the cost price was arrived at by reducing the selling price by 18 per cent., there was no reason why profit should be allowed at 10 per cent. This argument, I am constrained to say, with respect, is not sound. Profit at 18 per cent. was reduced from the selling price of the cloth that was sold between Kartik Sudi 1, 1995 and 18-2-39. The defendants sold the partnership cloth to themselves at cost price some time after 18-2-1939. The principle to be followed, therefore, is the principle laid down in S.16, Partnership Act. Section 16(a) runs as follows: "Subject to contract between the partners: (a) if partner derives any profit for himself from any transaction of the firm or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm." In - 'Aas v. Benhan', 1891-2 Ch 244 (F), Lindley L.J. observed as follows: "It is clear law that every partner must account to the firm for every benefit derived by him without the consent of his co-partners from any transaction concerning the partnership or from any use by him of the partnership property, name or business connection." (Vide page 255). Desai in his Law of Partnership in British India writes as follows: "Cases, where it has been held that a partner cannot, without giving full information to his co-partners, purchase directly or indirectly any goods or property of the firm and keep to himself any profits so derived, are illustrative of the application of the same rule. In - 'Gordon v. Holland', (1913) 82 LJPC 81 (G), the rule was applied to the case of a partner who in violation of the terms of the partnership agreement and without the knowledge of his partner sold land which was property of the firm to a bona fide purchaser for value without notice and afterwards repurchased the land from him. It was field that a partner who derives benefit for himself in such a case by a subsequent repurchase is bound to account to the firm for all profits so made. If a partner takes any partnership property and credits in favour of the firm some price of his own fixing, that is behind the back of the other partners, the other partners are not bound by the transaction. They can avoid the transaction altogether or they may question the valuation and give him the option of taking it at a proper price." (Vide Law of Partnership in British India, by Desai, 1940 Edn., P.101). It is, therefore, clear that a partner, who derives benefit from the use of the property of the firm, has to account for the profit to the firm. Consequently what we have to determine in this case is the amount of profit derived by the defendants from the sale of the firm property at cost price, to themselves. No evidence has been adduced by the parties to show the market price of the cloth at the time when the defendants sold the firm property to themselves at cost price. The commissioner has given his reasons for charging profit at the rate of 10 per cent. He has clearly stated that the cloth market was dull and that some of the valuable articles being quite old could not have fetched much profit. Sanghi, J. has given no reasons to charge the profit at 18 per cent. Consequently I agree with the view of first Court that profit should be charged at 10 per cent. The contention put forward by the defendant Gordhandas, therefore, must be accepted. 15. In the result the appeal and the cross-objections are partially allowed. Parties to get proportionate costs. 16. MEHTA, J.: I agree. Appeal and cross-objections partly allowed.