Ouseph v. Porinchu — 1977 DIGILAW 318 (KER)

JUDGMENT George Abraham Vadakkel, J. 1. The material facts are: Kunjaram, widow of Ouseph, hypothecating the share Ouseph had in the firm, St.. Joseph's Tile Works, borrowed Rs. 1,750 from her husband's brother's four sons and executed Ext. 46 hypothecation deed dated 8th December 1951. This was when she was in pressing need for money to avert court sale of that share in execution of the decree in O.S. 60 of 1113 on the file of the Trichur District Court a decree charged on that share. At that time, this suit for dissolution of the firm, from proceedings where in this appeal arises was pending. It was provided therein, (Ext. 46), as follows: x x x A rough translation would be:- "However, since for dissolution of the above said tile works, a suit is pending, for safeguarding your rights under this hypothecation deed, you have right to get yourself impleaded in that suit, and to recover all amounts and costs realized in that suit". Two of the hypothecatees got themselves impleaded in this suit as defendant numbers 55 and 56. These entitled to the hypothecated share Ouseph's heirs were represented in this suit by the 53rd defendant. (He was the 1st respondent In this appeal; he died and his legal representatives are additional respondents 25 to 28.) A preliminary decree was passed in this case on 14th July 1958. Ouseph's heirs were declared as entitled to 1/2 /18 share in the assets of the firm. It was provided therein 'that the 1/2 share belonging to the heirs of Ouseph, son of Akkara Ouseph, Ouseph will be subject to the mortgage, Ext. 46 in favour of defendants 55 and 56. The tile works were sold in final decree proceedings and the proceeds are in deposit in the South Indian Bank Limited. Final decree has not yet been passed. By LA. 252 of 1972 defendants 55 and 56 claimed the amount mentioned therein from out of the deposit, which, according to them, is due to them under Ext. 46 hypothecation deed. The 53rd defendant contended that Ext. Final decree has not yet been passed. By LA. 252 of 1972 defendants 55 and 56 claimed the amount mentioned therein from out of the deposit, which, according to them, is due to them under Ext. 46 hypothecation deed. The 53rd defendant contended that Ext. 46 mortgage is unsupported by consideration, that on the said mortgage the hypothecatees filed two suits, they were dismissed and therefore, the claim is barred by those decisions, that the claim is also barred by limitations and that the debt, if recoverable, is liable to be discharged under the provisions of Kerala Agriculturists Debt Relief Act, 1970. The Trial Court overruled these contentions holding that Ext. 46 deed enables defendants 55 and 56 to realise the debt from funds realised in this suit, and the preliminary decree provides for the same. The Trial Court noticed that the 53rd defendant in his written statement admitted the liability and recognised their right to recover the debt from funds realised in this suit. However, the contention based on the decisions in two suits brought on the mortgage was not adverted to by that court, though the 53rd defendant had produced the copies of the plaint and judgment in one of them, O.S. No. 22 of 1965 on the file of the Munsiff's Court, Trichur. The court also did not consider the 53rd defendant's claim for benefits under the Agriculturists' Debt Relief Act, 1970. On appeal by the 53rd defendant the lower appellate court held that the claim in I. A. 252 of 1972 is barred by reason of the decision in O.S. 22 of 1965. Hence this appeal. 2. It is contended that the order on I. A. 252 of 1972 is not an appealable order and therefore, the lower appellate court had no jurisdiction to deal with that order. This appears to be so. I am not satisfied that this order is an order under S.47 C.P.C. The preliminary decree is not executable and no execution was levied. Final decree has not been passed yet. The lower appellate court was not therefore competent to sit in appeal over that order, and consent would not cure that defect, I therefore set aside the lower appellate court's judgment in A. S. No. 246 of 1973 which is under appeal in this case before as mistakenly renumbered as C.S.A. 12 of 1975. The lower appellate court was not therefore competent to sit in appeal over that order, and consent would not cure that defect, I therefore set aside the lower appellate court's judgment in A. S. No. 246 of 1973 which is under appeal in this case before as mistakenly renumbered as C.S.A. 12 of 1975. I direct the office to restore the number originally assigned to the case when it was registered S.A. 102 of 1975. 3. However, it is necessary to deal with the case on hand on merits, for it appears to me that justice required that acceding to the request of the learned Counsel for the additional respondents, I should in exercise of my revisions jurisdiction examine the Trial Court's order on I.A. No. 252 of 1972 -- note that the appellant did not raise the question of want of jurisdiction before the lower appellate court. 4. Since the main objection is that LA. No. 252 of 1972 is barred by the decision in O.S. No. 22 of 1965 by consent, I mark the plaint and the judgment in that case (produced before the Trial Court) Exts. B1 and B2. The submission is that applying the rule that when there have been two adjudications between the same parties in respect of the same right the later decision governs them, the preliminary decree in this case, making Ouseph's heirs 1/2/18 share in the firm subject to Ext. 46 mortgage, cannot be of any avail to defendants 55 and 56 to claim any amount from the amounts realised in this suit. 5. Ext. 46 is a composite deed in that Kunjaram by that deed hypothecated Ouseph's share as security for the debt, and also conferred power on the executees who advanced the amount to get themselves impleaded in this suit and pay themselves the debt due to them by collecting all amounts and costs that are realised in this suit, obviously meaning, the share of assets of the firm realised in this suit. It is not disputed that a partner can transfer his interest in the firm, either absolute or by mortgage. S.29 of the Indian Partnership Act, 1932, provides so. That such interest is a beneficial interest in movable property not in the possession of the partner and therefore, an actionable claim or chose in action also could not be, and was not disputed. S.29 of the Indian Partnership Act, 1932, provides so. That such interest is a beneficial interest in movable property not in the possession of the partner and therefore, an actionable claim or chose in action also could not be, and was not disputed. In re Beinbridge v. Ex parte Fletcher 1878 (8) Ch. 218 Bacon G. J. said that mortgage of a partner's 'share and interest in the partnership was a charge upon a chose in action'. The mortgage of the share and Interest of a partner in a firm has two different rights, one, under the mortgage, to enforce it against the mortgagor, and to realise the debt from him by suing him, as in any case of mortgage, and the other, on the chose in action assigned by the mortgage against the person or persons obliged to the mortgagor in relation to and in respect of the said share and interest. The assignee's latter mentioned right, i.e., the right on the chose in action, is, while the firm is continuing 'only to receive the share of profits of the transferring partner' accepting 'the account of profits agreed to by the partners', S.29(1), and, to 'receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of dissolution', on the dissolution of the firm [S.29 (2)]. This aspect of the partnership law is lucidly brought out by Eves, J. in the following passage from his decision in Public Trustee v. Elder 1926 (1) Ch. 266. "I conceive the following to be a correct summary of the legal relations of partners in a dissolved partnership. Where assess are collected and got in, no partner has any definite share or interest there in his right is merely to have the assets so collected applied in discharging the liabilities of the partnership firm and to receive his share of any surplus there may be when the liquidation has been completed and further, there can be no relationship of debtor and creditor between partners unless and until the accounts have been finally taken and a balance has been ascertained to be due from each one to the others. Nor is any partner entitled to an account from his copartners except upon the footing that, in accordance with the implied obligation arising under the contract of partnership, he will himself account and submit to be charged with any balance found to be due from him, Such being the legal position of the parties the defendant, subject to the determination of certain other defences with which I do not propose to deal, would not resist indeed, having regard to the fact that his interest in the whole matter is that of a trustee only, would welcome an order for the usual partnership decree on the terms that the plaintiff is willing to submit to be charged with all sums properly chargeable against his assigners, or, alternatively to amend the record by adding the German partners as coplaintiffs". The Trustee mentioned in the above quoted passage is the Public Trustee in whom on account of war and consequential dissolution of the firm vested the right of three German Partners, and the action was by the Public Trustee against the remaining English partners for account with the object of winding up the firm. This decision was affirmed by the court of Appeal in Public Trustee v. Elder 1976 (1) Ch. 776 where Sergeant L.J. said:- "And the position and rights of a partner as towards the other partners are recognised by the law as being so personal and individual that, under S.3, sub-s.(1), of the Partnership Act, 1890, an assignment by a partner of his share in a partnership does not entitle the assignee to interfere in the partnership or to require accounts or to inspect the books but entitles him solely to receive the share of the profits as ascertained by the partners to which the assigning partners would otherwise be entitled. It would hardly be possible to express more clearly the essential non assignability in a subsisting partnership of the position and rights of one partner in relation to the other partners. On the dissolution of a partnership, however, there is no occasion to limit quite so strictly the right of an assignee as regards transactions occurring after the dissolution. It would hardly be possible to express more clearly the essential non assignability in a subsisting partnership of the position and rights of one partner in relation to the other partners. On the dissolution of a partnership, however, there is no occasion to limit quite so strictly the right of an assignee as regards transactions occurring after the dissolution. And accordingly under sub-s.(2) of S.31 it is provided that the assignee is not only entitled to receive the share of the partnership assets to which the assigning partner is entitled as between himself and the other partners, but is also entitled for the purpose of ascertaining that share to an account as from the date of dissolution. The result seems to be that down to the date of dissolution the accounts have to be agreed to personally by the partners and the assignee is bound to accept the accounts as so agreed; and that the sole account the assignee is entitled to have taken in his presence or to question is an account from the date of dissolution". Therefore, the mortgagee's suit against the mortgagor to realise the debt in enforcement of the mortgage of the share in a firm is one in respect of a right quite different from the right of the mortgagee of the partners share in a firm to participate in the profits accepting in the account of profits agreed to by the partner while the firm is a going concern, and to receive the share of assets of the firm, the transferring partner is entitled to on its dissolution. That the right of a mortgagee of a chose in action to sue the mortgagor on the mortgage, and his right to sue on the chose in action are different rights has been succinctly stated in an early decision of the Cochin Chief Court, Chakoru and others v. Devassi and others 20 CLR 90. 1 he chose in action that was mortgaged in that case was the right of a kuri subscriber. The mortgagee sued on the mortgage and obtained a decree, but allowed it to be barred. He then sued the starter of the kuri who pleaded the earlier decision on mortgage in bar of that suit. It was held :-- "That a mortgagee of a chose in action Is a transferee of the same cannot be and was not disputed. The mortgagee sued on the mortgage and obtained a decree, but allowed it to be barred. He then sued the starter of the kuri who pleaded the earlier decision on mortgage in bar of that suit. It was held :-- "That a mortgagee of a chose in action Is a transferee of the same cannot be and was not disputed. That such a transferee of a chose in action can maintain a suit on the chose in action cannot be and was not also disputed. (ILR XXXVIII Mad. 297). The question is whether the fact that the mortgagee obtained a decree on the mortgage and allowed it to be barred took away the right of suit he had on the chose in action mortgaged to him. No direct authority in support of the view of the lower courts was brought to our notice nor were we able to find any. The decisions in ILR XLVI Mad. 852 XV CLR 53 and X CLR 351 relied on by the District Judge do not touch the point under consideration. The rulings in LVII C. 146 and ILR XXXVIII Mad. 297, though not directly in point support the position contended for by the petitioner. It was held in those cases that the mortgagee of a chose in action is liable to account for his failure, if owing to his default he failed to recover the money due under the chose in action. It follows that a mortgagee of a chose in action has not merely a right but also a duty to recover the amount of the chose in action. The claims enforced in a suit on a mortgage and that on the chose in action are entirely distinct and the persons against whom they are enforced are also different. That being so, it is difficult to understand how a suit on the mortgage can be a bar to a suit on the chose in action". Therefore, the dismissal of Ext. B2 suit which was one against the mortgagor's legal representatives to enforce the mortgage would not preclude the mortgagees from claiming their rights under S.29(1) and (2) of the Partnership Act, 1932. Therefore, the dismissal of Ext. B2 suit which was one against the mortgagor's legal representatives to enforce the mortgage would not preclude the mortgagees from claiming their rights under S.29(1) and (2) of the Partnership Act, 1932. In respect of his right of participation in profits, the mortgagee can have virtually, no cause of action, for he has to accept the account of profits agreed to by the partners, and in respect of the other, receiving share of assets, he has to wait till dissolution of the firm, and in either case, his cause of action is against all the partners including the mortgagor partner. Therefore, from and after, 14th July 1958 when the preliminary decree in this case dissolving the firm from that date was passed, the mortgagees could have, despite Ext, B2 decision, sued the partners claiming the share of assets of the firm on the basis of Ext. 46 assignment by mortgage of Ouseph's 1/2/18 shares. The need for such a suit was obviated by the power conferred on them to get themselves impleaded in this suit for dissolution of the firm and to collect all amounts and costs. The mortgagees were constituted agents of those who owned the mortgaged share or interest in the partnership to receive the amounts and costs and to appropriate it in satisfaction of the debt due to them. The authority so given is Irrevocable during the subsistence of their interest in the matter of realisation of the debt due to them, that Is to say, till the debt is realized. "Where the authority of an agent is given by deed, or for valuable consideration, for the purpose of effectuating any security, or of protecting or securing any interest of the agent, it is irrevocable during the subsistence of such security or interest. But it is not irrevocable merely because he has an interest in the exercise of it, or has a special property in, or lien for advances upon, the subject matter thereof, the authority not being given expressly for the purpose of securing such interest or advances". (see Sewstend on Agency -- 12th Ed. P. 301 Art.137) This is the principle underlying S.202 of the Indian Contract Act, 1872. The power conferred on the mortgagee as per Ext. (see Sewstend on Agency -- 12th Ed. P. 301 Art.137) This is the principle underlying S.202 of the Indian Contract Act, 1872. The power conferred on the mortgagee as per Ext. 46, in my view, amounts to an equitable assignment of the share of surplus assets of the firm, if any, which the heirs of Ouseph as owners of 1/2/18 share in the firm would, on proper liquidation of the affairs of the firm, and ascertainment of the amounts divisible amongst the partners, be entitled to. On dissolution of the firm what remains is settlement of the accounts and division of assets of the firm amongst the partners, (See S.48 of the Partnership Act, 1932) and this can only be in terms of monies, for as stated by Bacon, C. J. in In re Saimbridge v. Ex Parte Fletcher 1878 (8) Ch. 218 already referred to, no partner is more the owner then the other and neither is sole owner of any article or property belonging to the firm. There is an agreement between the parties to Ext, 46 that the debt shall be paid out of the amounts and costs that the mortgagor would be entitled to in this suit for dissolution of the firm, and the mortgagees were authorised to collect them and pay themselves after getting themselves impleaded in this suit. This transaction comes squarely within what Lord Wrenbury said in Palmer v. Carey 1926 AC 703 at p. 706: "The law as to equitable assignment, as stated in Rodick v. Carudell, 1852 (1) De C.M. and C. 763, (777, 778) is this: The extent of the principle to be deduced is that an agreement between a debtor and a creditor that the debt owing shall be paid out of specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund, In other words, will operate as an equitable assignment of the debts or fund to which the order refers". The fund was earmarked and allocated; power was conferred to realize it. No doubt, the same had not been as ascertained and quantified, and on ascertainments perhaps, it might turn out that there might be no fund. The fund was earmarked and allocated; power was conferred to realize it. No doubt, the same had not been as ascertained and quantified, and on ascertainments perhaps, it might turn out that there might be no fund. But, that this will not affect the question is clear from the following passage in the decision of the Supreme Court in Bharat Nidhi Ltd. v. Takhatmal 1969 (1) SCR 595 (598) = AIR 1969 SC 313 . "In the last case the Court held that there was no transfer of the decree, or of the claim which was the subject matter of the pending appeal as the borrower continued to be the owner and the lender was merely authorised to act as his agent. Nevertheless the Court held that the power of attorney amounted to a binding equitable assignment. An actionable claim may be transferred under S.130 of the Transfer of Property Act. Where a document does not amount to a transfer within S.130 it may apart from and independently of the section operate as an equitable assignment of the actionable claim. In the present case the power of attorney authorised the appellant to receive all monies due or to become due to Malhotra in respect of pending or future contracts with she Government authorities. Counsel argued that there was no engagement to pay out of specific fund and therefore there was no assignment. We find no substance in the contention. There can be .1 valid equitable assignment of future debts, see Tailby v. Official Receiver, 1888 (13) AC 523. As and when the debt comes into existence it passes to the assignee." Note that all monies due or to become due in respect of not only pending contracts but future contracts also ran be the subject matter of equitable assignment. The power of attorney construed there constituted 'the Bharat Bank Ltd., as our lawful attorneys in all matters relating to the receipt of all payments under the contract made or to be made hereafter; and one could not anticipate with any amount of certainty whether any amount would be payable under either the existing contract or future contract. The 'last case' in the above passage has reference to a case in the same volume, in Seth Joon Karan v. I. E. John 1969 (1) SCR 123 : AIR 1969 SC 73 . The 'last case' in the above passage has reference to a case in the same volume, in Seth Joon Karan v. I. E. John 1969 (1) SCR 123 : AIR 1969 SC 73 . The power construed there reads: "To withdrew any amount that may be deposited in the courts at Agra and / or Allahabad or any court of justice in the said decree and) or in the decree in the said appeal and / or other proceedings in connection with the execution of the said decree or any other order passed or made therein and / or in any Insolvency Court or from the Official Receiver concerning Insolvency of any of the defendants". The Supreme Court said: "It may be noted that on the day the power of attorney who executed the decree passed in favour of the appellant in Suit No. 76 of 1969 was under appeal. Subsequently in appeal the same was affirmed. Thereafter the bank levied execution of the decree in question on May 8, 1959." and held: "From the power of attorney it is clear that the amount under the decree was specifically earmarked for discharge of the debts due to the bank. It was constituted as a special fund for the said purpose. The power to realise that fund was made over to the Bank with the further authority to set off the amount realised towards the debts due to it". There is no merit in the objection founded on Ext. B2 decision, and I hold that the preliminary decree in this case is conclusive as regards the right of defendants 55 and 56 to recover Ext. 46 debt from out of the 1/2/18 share of assets of the firm the heirs of Ouseph represented in this suit by 53rd defendant are entitled to receive. Neither of the Courts below has adverted to the other objections, namely, as regards the correctness of the amount claimed, and the benefits claimed by the 53rd defendant under the Kerala Agriculturists Debt Relief Act, 1970. Additional respondents 25 to 28 claim also the benefits under the Kerala Debt Relief Act, 1977. Subject to the finding entered as above, I set aside the Trial Court's order on I. A. 252 of 1972, and direct that Court to decide the other objections referred to In this paragraph. Additional respondents 25 to 28 claim also the benefits under the Kerala Debt Relief Act, 1977. Subject to the finding entered as above, I set aside the Trial Court's order on I. A. 252 of 1972, and direct that Court to decide the other objections referred to In this paragraph. I make it clear that the remand is only for the limited purpose of determining these objections alone. This appeal is disposed of as Indicated herein above. The parties shall suffer their costs.