TMI Blog1951 (2) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... les which were in the shop. The communal disturbances passed off and according to the complainant he went to the petnr.'s house on 1-3-1950 to collect the articles and bring them back to the shop. The petnr., it is said, told the complainant that he would return the articles in two or three days' time, but this he did not do. On 15-3-1950 the complainant stated that he again went to the petnr.'s house to obtain the articles and he was then told by the petnr. that he had no knowledge of the articles at all. 4. On behalf of the petnr. it was contended before the Bench that no proceedings under Section 406, Penal Code could lie in this case as the parties were partners. The point appears to have been taken before the learned Magistrate, but he had overruled the objection and framed a charge. 5. The Bench found that the authorities of this Court on this matter were in conflict and being unable to resolve the conflict the case was referred to a F. B. The points formulated for decision by the F. B. were as follows : (1) Can a charge under Section 406, Penal Code be framed against a person who, according to the complainant, is a partner with him and is accused of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership on account of himself his co-ptnrs. is not liable to imprisonment under Section 4(3). Debtors Act, 1869 as a person acting in a, fiduciary capacity. 12. The point which had to be considered in that case was whether a patnr. who had retained certain of the partnership assets could be said to have acted in a fiduciary capacity. At p. 346 Chitty J. observed : The case of a patnr. is quite different from these cases, because he receives money belonging to the firm on behalf of himself his co-paters. it appears to me that I should be straining the law if I were to hold that a patnr. receiving money on account of the partnership -- that is, on behalf of himself his co-patnrs. -- received it in a fiduciary capacity towards the other patnrs. The law allows one patnr. one of several joint creditors--to receive the whole debt on account of the firm to whom it ia due, I am unable to recognise any such distinction, as was endeavoured to be made by Mr. Church, between the case of a partner receiving money of the firm not accounting for it, that of a patnr. overdrawing the partnership account ; because if this distinction were true, it would apply to every case where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but it is not quite clear whether they are interested therein as tenants-in-common, or as joint tenants without benefit of survivorship, if indeed there is any difference between the two. It follows from this community of interest, that no patnr. has a right to take any portion of the partnership property to say that it is his exclusively. No patnr. has any such right, either during the existence of the partnership or after it has been dissolved. What is meant by the share of a patnr. is his proportion of the partnership assets after they have been all realised converted into money, all the partnership debts liabilities have been paid discharged. This it is, this only, which on the death of a patnr. passes to his representatives, or to a legatee of his share. Again at p. 419 Lord Lindley observed : From the principle that a share of a patnr. is nothing more than his proportion of the partnership assets after they have been turned into applied in liquidation of the partnership debts, it necessarily follows that, in equity, a share in a partnership, whether its property consists of land or not, must, as between the real personal representatives of a deceased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dships of the P. C. in the case of Gopala Chetty v. Vijayaraghavachariar, (1922) 1 A. C. 488 : (A. I. R. (9) 1922 P. C. 115) in which it was held that if a partnership had been dissolved but no account had been taken, the proper remedy of a patnr. in respect of an asset received by another patnr. was to have an account taken if his right to sue for an account was barred by limitation he could not sue the patnr. who had received the asset for a share of it. Their Lordships of the P. C. in other words held that even after a partnership had been dissolved a patnr. cannot sue another for a definite share in an asset because it is not known whether he has a share if he has, what the extent is unless an account has been taken the debts have all been paid. If even after dissolution, a patnr. could not sue another patnr. for his share of an asset then it seems to me quite impossible to suggest that the patnr. who retained that asset was holding at least a share of that asset in a fiduciary capacity on behalf of his co-patnr. Unless the relationship of partnership imposes on one patnr. holding property fiduciary obligations, then it appears to me that it cannot be said that that patnr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mode in which his trust was to be discharged, or of the agreement between the parties as to the use he was to make of the property, he ought to be tried for that offence. 22. Of course if it could be made out that one patnr. had been entrusted with property or with dominion over it no difficulty would arise. But the question WE have to consider is whether or not a patnr. who receives partnership property without any special agreement can be said to have been entrusted with that property or with dominion over it. A patnr. who receives partnership property hag dominion over that property quite apart from any arrangement with his other patnrs. The fact that he is a patnr, gives him dominion over the property if the English view be right he does not hold that property in a fiduciary capacity. It may be that by special arrangement between the parties One patnr. could be regarded as being entrusted with property. But apart from such special arrangement, it cannot be said that a patnr. who receives partnership property on behalf of his patnrs. has been given dominion over that property by his co-patnrs. or has been given dominion over the share of his co-patnrs. by the latter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust. He cannot dispose of the property as he likes claim to account for it at some later stage. 25. The matter again came before the Ct. in the case of Bhupendranath v. Giridharilal, in which it was held that when a patnr. was proved in fact to have been entrusted with the partnership property or with dominion over it, had dishonestly misappropriated it or converted it to his own use, he could be convicted of an offence under Section 405 or rather 406, Penal Code. But the Bench added that it was difficult, however, to conceive how such a situation could arise. It was further held that each patnr. was co-owner of the whole of the common stock, though he received or paid a share only in profits losses arising therefrom, it was difficult to conceive how he could be entrusted with, or with dominion over his own property or how he could dishonestly misappropriate it or convert it to his own use. 26. This case followed the F. B. in that it held that there were circumstances in which a patnr. might be guilty of an offence under Section 406, Penal Code. But the view of the Bench is clear that in ordinary cases where a patnr. receives money or property of a partnership or hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a patnr. or patnrs had been entrusted with another patnr's share of the partnership profits before it could be said whether any profits existed or not such could not be said until an account had been taken. The last case is the case of Rahaman v. R. D. Khambatta, 50 Cr. L. J. 154 : (A. I. R. (36) 1949 Cal. 89) in which the view was taken that in ordinary circumstances a patnr. could not be prosecuted under Section 406, Penal Code, for fraudulent breach of trust in not accounting for partnership property. 30. Bombay has taken a view that a patnr. may be prosecuted under Section 408, Penal Code, for failure to account for partnership moneys or assets. In Emperor v. Jagannath Ragkunathdas, 33 Bom. L. R. 1518 : (A. I. R. (19) 1982 Bom 57 : 33 Cr. L. J. 317), a Bench held that the words of Section 405, Penal Code, were wide enough to cover the case of a patnr. Where one patnr. was given authority by the other patnrs. to collect moneys or property of the firm, he was entrusted with dominion over that property; and if he dishonestly misappropriated it he came within the section. The Bench, however, added that the Ct. should be very careful in dealing with charges against pat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case to decide in what circumstances there can be entrustment. But all we need say is that by special agreement between the parties entrustment might be possible, if entrustment was possible then a breach of conditions or arrangement might render the person accused guilty of fraudulent breach of trust. However I am satisfied that in oridnary cases where a patnr. receives moneys or an asset belonging to a partnership, or holds moneys or assets of a partnership, he does not hold that money in a fiduciary capacity. He cannot even be sued for a share in the moneys or assets by his co-patnr. 34. The only remedy of a co-patnr. is an account until such an account is taken it cannot be said whether the co-patnr. has any interest at all in the asset or money. As pointed out in the case of Gopala Chetty v. Vijayaraghavachariar, (1922-1 A. C. 488: A.I.R. (9) 1922 P. C. 115), decided by their Lordships of the P. C., even after dissolution a co-patnr. has no right to sue for his share of an asset. It appears to me that if a co-patnr. has no right to sue to recover his share it cannot possibly be said that his co-patnr. is holding that share in trust for him. If the patnr. holds part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Code are large enough to include the case of a patnr. if it be proved that he was in fact entrusted with the partnership property or with a dominion over it has dishonestly misappropriated it or converted it to his own use. There is no reason that the case of a patnr. should be excepted from the operation of this section. Indeed there is every reason that it should be included in it. It is a question of fact whether there has been an entrusting of the property or giving a dominion over it sufficient to come within what is required. 43. This decision was rendered in 1874 has caused considerable anxiety for more than 70 years. On two main grounds the soundness of this decision has been questioned more than once. First the decision is said to be verbal academic its practical import is difficult to find. This decision gives no indication to show how it under what circumstances a patnr. can at all be said to be entrusted with partnership property or with dominion over it or to have misappropriated it is difficult, if not impossible, to conceive how such a situation can arise. This criticism is put on the ground of the law of partnership. In Piddocke v. Burt, (1894) 1 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that a patnr, who receives the money on behalf of the partnership does not receive it in a fiduciary capacity. The Bombay H. C. adopted the view of the Calcutta F. B. Beaumont C. J. in Emperor v. Jagannath Raghunathdas, 33 Bom. L. R. 1518 : (A. I. R. (19) 1932 Bom. 57 : 33 Cr. L. J. 317) overruled the argument advanced on the basis of statutory illustrations of the Penal Code 4 come to the conclusion that the words of the section are wide enough to cover the case of a patnr. at pp. 1520 1521. 45. An analysis survey of the various sections of the Partnership Act are necessary to discover the true nature, character incident of partnership property. Section 19, Partnership Act discloses the implied authority of a patnr. to deal with partnership property to bind the firm. Section 24 of the same Act contemplates notice to the patnr. as notice to the firm except in the case of fraud on the firm committed by or with the consent of that patnr. But the sections relating to the property of the firm lay down the rules what such partnership property is how is that to be applied. Section 15, Partnership Act, provides that subject to contract between the patnrs., the proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 327) that a patnr. who with intent to defraud without lawful excuse or authority accepted a bill in the partnership name had accepted it in the name of another person within the meaning of that Statute the distinction was sometimes a very fine one as will be seen from the decision of the English Ct. of Appeal in Morison v. London County Westminster Bank Ltd., (1914) 3 K. B. 356 at p. 381: (83 L. J. K. B. 1202). On behalf of the resp. reliance was placed on the decision of R. v. Warburton, (1870) L. R. 1 C. C. 274: (40 L. J. M. C. 22). As will be apparent from the judgment of Cockburn C. J. in that case the ratio of the decision is that it is a criminal offence to deprive a patnr. of his interest in some of the partnership property by false entries false documents. That is quite understandable because by falsifying entries a patnr's. interest in the partnership property is affected forthwith irrespective of dissolution or general accounts this case, therefore, is no authority for the proposition that a patnr. can be convicted of criminal breach of trust by another patnr. in respect of partnership property. Besides it was a case of conspiracy to cheat defraud it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively for the purposes of the business. That in my view means all the patnrs. as between themselves jointly hold use the partnership property for the purposes of the business no one patnr. can be said to be entrusted with the partnership property as against the other patnr. or patnrs. under the Ordinary incidents of partnership law under the Partnership Act. 49a. The second question is can a patnr. be said to have dominion over the partnership property as against the other patnr. or patnrs ? The same Section 15, Partnership Act, in my judgment precludes such idea. In the case of a partnership it is joint dominion by all the patnrs. over the partnership property. 50. These are the two primary conditions one of which must be satisfied before other elements of the offence under Section 405, Penal Code, need be considered. As in my view these two primary conditions cannot be satisfied in the case of a patnr. under the ordinary incidents of partnership law under the Partnership Act, no patnr. can prosecute his co-patnr. for criminal breach of trust in respect of partnership property. 51. The other expressions mentioned in what I have itemised above as (iii), (iv) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... until after losses assets of the firm have been attended to in the manner laid down in the section. The same idea operates also in Section 52, Partnership Act, where a contract creating partnership is rescinded on the ground of fraud or misrepresentation of any of the parties thereto. There again the party entitled to rescind has the right to a lien on or a right of retention if the surplus of the assets of the firm remaining after debts of the firm have been paid, for any sum paid by him for the purchase of a share in the firm for any capital contributed by him. He is also entitled to rank as a creditor of the firm in respect of any payment made by him towards the debt of the firm to be indemnified by the patnr. or patnrs. guilty of fraud or misrepresentation against all debts of the firm. From these various provisions, it is, therefore, clear that the property of patnrs. in the partnership assets is a residuary or surplus property which remains after satisfaction of other claims on the firm. It is, therefore, not a specific ascertainable property, until then. 54. The reason, therefore, of holding that a patnr. cannot be prosecuted by another patnr. for criminal breac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibuted among the patnrs. or their representatives according to their rights. This section is in substance Section 39 of the English Act, with verbal condensation. This section affirms the right of partners or their representatives to a share of the net assets of the firm after the firm is dissolved and the account is taken. 58. The right of a partner under this section is known as his general lien on the surplus of the assets of the firm and is commonly called partners' lien In re Bourne, (1906) 2 Ch. 427 : (75 L. J. Ch 779). 59. The principle of this section was stated in Darby v. Darby, (1856) 3 Drew. 495 at p. 503 : (25 L. J. Ch. 371) and by Lord Eldon in Crawshay v. Collins, (1808) 15 Ves. 218 : (10 R. R. 61) and by Sir William Grant in Featherstonhaugh v. Fenwick, (1810) 17 Ves. 298 : (11 R. R. 77). On the nature of the right given to a partner by this section, Pollock observes as follows (PP. 99, 100) : The right of each partner to control within certain limits the disposition of the partnership property is a rather peculiar one. It exists during the partnership, and when accounts are taken and the partners' shares ascertained from time to time, its exis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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