This suit relates to a claim by a surviving partner against a Bank for damages for wrongfully withholding the amounts of two fixed deposits belonging to a partnership firm, and arises in the following circumstances.
2. The plaintiff Khawaja Abdul Rashid and his elder brother, Khawaja Abdul Shakoor were carrying on business in partnership under the name of Messrs Continental Cycle & Motor Co., at Karachi. The firm had a current account with the Bank of Tokyo Ltd., the defendant in suit (herein--after referred to as the "Bank"), which was operated by either of the partners. The Bank had issued two Fixed Deposit Receipts in the name of the firm, Continental Cycle & Motor Co., one for Rs. 1,01,250 (F. D.
Receipt No. 36) and the other for Rs. 1,00,000 (F. D. Receipt No. 37). Each of the F. D. Receipts were on time deposit of 6 months bearing interest at the rate of 21 per annum. The deposits were due to mature on 12th April 1957 and 21st May 1957, respectively and interest was to cease thereafter.
3. Khawaja Abdul Shakoor died on 16th January 1957 leaving as his heirs, two married daughters, the sister and two brothers, including the plain--tiff, as the surviving partner of the firm.
Disputes arose between the heirs of the deceased partner, and the plaintiff with regard to the deceased's share in the assets of the partnership business which were referred to the arbitration of three arbitrators. The arbitrators made their award on 23-12-1957, awarding to the heirs sums of money representing the value of the deceased's share in the assets of the firm. The heirs were also to receive shares in certain other deposits lying in his name in the Banks. The award also declared that from that date the plaintiff was to be the sole proprietor of the firm.
Soon after the award was made, the heirs of the deceased partner through their Advocate, put the Bank on notice that they intended to take out a succession certificate in respect of his estate and requested information from the Bank as to what amounts were held by the Batik in the name of the deceased in his personal name or as a partner in the firm. Similar letters were addressed to the Bank by another Advocate of the two daughters of the deceased requesting the said information.
On 3-4-1968 the plaintiff addressed a hand-written letter (Exh. 71) marked "most urgent" instructing the Bank to renew the F. D. Receipt No. 36 up to April 1958 and to encash F. D. Receipt No. 37 to enable him to operate his current account to meet his "future commitment". He signed the letter as proprietor of Continental Cycle & Motor Co. The Bank declined to act on the instructions and requested the plaintiff to obtain a succession certificate from the Court, observing in its letter dated 15-4-1968 that "we have to safeguard the interests of Messrs Continental Cycle and Motor Co., in whose favour the above fixed deposits were issued". The F. D. Receipts were therefore returned to the plaintiff. On receiving the Bank's reply, the plaintiff sent a photo--copy of the award to the Bank, in which it was declared (as stated earlier) that the plaintiff was to be the sole proprietor of the firm, inviting the Bank to accept his exclusive title to the two F. D. Receipts. The award, however, made no specific mention of the two F. D. Receipts and therefore, the Bank wanted to know whether the award had been filed in Court and if so, whether judgment had been pronounced thereon. No reply was sent to the Bank's enquiry and the matter lay dormant for more than two years because, when the award was filed in the High Court in Suit No. 100/58 the heirs filed objections to it on 26-11-1960 (Exh. 61). The plaintiff attempted to re-activate his claim to encash the amounts of the two F. D. Receipts, as the surviving partner of the firm, to which the Bank replied that at no time did it ever refuse payment but the Bank con--sidered it necessary for the plaintiff to produce release documents before making payment to him. Further correspondence was exchanged but to no purpose.
5. The award was upheld by the Court, but the heirs filed a Letters Patent Appeal No. 22/61. On 24- 4-1961, Messrs Syed Sharifuddin & Co., acting as Advocates for the two daughters of the deceased partner, addressed a letter to the Bank (Exh. 50) advising the Bank that an appeal had been filed and that their clients have recently come to know that various fixed deposits were lying with the Bank in the name of Messrs Continental Cycle & Motor Co., wherein their clients are entitled to proportionate share. The Bank was asked to note that the said amounts are not covered by the award and the Bank was warned not to pay the amounts to the plaintiff or to any other person, otherwise their clients would hold the Bank responsible for any un-authorised payment. The Advocates also applied to amend the memorandum of appeal by adding a further groundthat the plaintiff obtained the award by fraud and suppression of the F. D. Receipts from the arbitrators. This plea of fraud, however, was rejected by the Letters Patent Bench on 30-9-1961 which held that the account books of the firm did contain entries relating to these two F. Ds. And the L. P. A. Was dismissed. Thereafter, the plaintiff forwarded the certified copy of the judgment in appeal to the Bank and requested payment but the Bank's Advocate declined again on the ground that there was no mention of these two F. D. Receipts in the award itself and that the amount would be paid on the plaintiff obtaining a succession certificate empowering him to recover payment. Further correspondence was exchanged and the plaintiff's Advocate finally suggested in his letter dated 28-4-1964 (Exh. 35) that the Bank should give notice to the heirs of the deceased partner that the payment of the deposits would be made to the plaintiff unless they obtained a restraining order from the Court by a particular date. The Bank's Advocate accordingly addressed a notice to the two daughters of the deceased by registered post on 30-4-1962. No reply to it was received and, therefore, the Bank after obtaining the two F. D. Receipts from the plaintiff duly discharged, transferred the proceeds of the deposits to the current account of the plaintiff on 24-5-1962.
However, the Bank gave interest only at the rate of 2--% up to the date of maturity. The plaintiff demanded interest at 2--% for the full period during which the F. C. Receipts were withheld, but the Bank declined on the ground that upon the maturity of the deposits, the amounts were held under the Head "demand liability" and hence no interest was payable. However, the Bank agreed without pre--judice to pay interest at --% for the period of the detention. The plaintiff was dissatisfied with this offer and accordingly he filed the present suit on 22-5-1965 claiming 9% interest on the two amounts by way of damages for non-payment for the period from 16-5-1957 to 25-5-1962, amounting to Rs. 90,562.50.
6. The bank filed a written statement pleading that the plaintiff was not exclusively entitled to receive the amounts of the F. D. Receipts without the consent of the heirs of the deceased partner and or without producing power documents for discharging the bank, in the absence of any agreement or instructions to the Bank that the amount of the F. D. Receipts were to be paid to the partners jointly or to the survivor of them. Therefore, it submitted that the plaintiff had no cause of action and prayed for dismissal of the suit.
7. On these pleadings the following issues were framed:
(1) Whether the plaintiff became entitled exclusively to receive the amounts covered by the fixed deposit receipts on the dissolution of the partnership firm Messrs Continental Cycle & Motor Company?
(2) Whether the defendant was bound to pay the amounts covered by fixed deposit receipts Nos.
36 and 37 to the plaintiff without his pro--ducing the proper release documents and/or permissions from the heirs of late Khawaja Abdul Shakoor?
(3) Whether there was no agreement between the plaintiff's late partner--ship firm, Messrs Continental Cycle & Motor Company and defen--dant for payment of the amounts covered by the fixed deposit receipts to the partners jointly or to the survivor of them? If so, to what effect?
(4) Whether the defendant unlawfully and without justification refused to pay to the plaintiff the amount of fixed deposit receipts Nos. 36 and 37?
(5) Whether the plaintiff has suffered any loss?
(6) Whether the plaintiff is entitled to any damages? If so at what rate ?
8. The plaintiff alone was examined in the case. No one was examined on behalf of the Bank but the correspondence exchanged between the parties was exhibited by consent.
9. Issues Nos. 1, 2 and 4.-These issues may be conveniently discussed together. Mr. Mohsin Tayyab A.I, learned counsel for the plaintiff, submitted that upon the dissolution of the partnership by the death of Khawaja Abdul Shakoor, the plaintiff was exclusively entitled to receive the amount of the F. D. Receipt and the Bank was bound to pay the same to the plaintiff without demanding succession certificate and/or permission from the heirs of the deceased partner. He relied on section 47 of the Partnership Act, 1932 the first part of which reads as follows: "After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution so, far as may be necessary to wind up the affairs of the firm and to complete transac--tions begun but unfinished at the time of the dissolution, but not otherwise."
His submissions are that the plaintiff, as surviving partner, continued to have the authority to recover debts due to the partnership firm from third parties, notwithstanding the dissolution of the partnership by the death of his partner in so far as it is necessary to wind up the affairs of the firm.
That, the instructions of the plaintiff issued to the Bank in his letter dated 3-4-1958 (Exh. 71) to encash one F. D. Receipt and renew the other, was a transaction necessary for the purposes of the winding up of the partnership business. That, in fact, it is not only the right but also the duty of a surviving partner to realise the assets for the purpose of winding up the affairs of the partner--ship.
That, as the mutual rights and obligations of the partners continue not with sanding the dissolution, a partner has the right and the implied authority under section 19 of the Partnership Act to recover a debt owed to the firm and payment by the debtor to any one of the partners discharges the debter. Therefore, the submission is that had the Bank complied with his instructions, the plaintiff could have given a good discharge to the Bank. He referred to Lindley "On the Law of Partnership, 12th Edition (1962), page 260. The learned Author, while commenting on the corresponding identical section 38 of the English Partnership Act, 1890, observed: "Notwithstanding a dissolution each partner can pay, or receive payment of, a partnership debt; for it is clearly settled that payment by one of several joint debts, or one of several joint creditors, extinguishes the debt irrespectively of any question of partnership. So again, it has been held that a continuing or surviving partner . . . . Can withdraw a deposit or sell the partner--ship assets, or pledge them for the purpose of completing a transaction already commenced, or of securing a debt already incurred or the overdraft on the partnership current account at the bank".
The authority to withdraw a deposit referred to by Lindley, underlined in the above cited passage, is based on a decision in Dickson v. National Bank of Scotland ((1917) SC (H L) 50). This case has also been referred to, as an authority on the point by Halsbury's Laws of England, 3rd Edition, Volume 28, Art. 1122, p. 574 which states "and any person may, it seems, after dissolution, withdraw money on deposit with a bank, or receive a debt and give a release ------------.". The learned counsel also referred to In re: Bourne ((1906) 2 Ch. 427) a decision of the Court of Appeal. In that case, a surviving partner carried on the business in the partnership name and continued the partnership banking account which was overdrawn at the death of the deceased partner and remained so withdrawn until the final winding up of the business. After paying certain moneys into this account and drawing certain moneys out, he deposited with the bank the title deeds of certain partnership property to secure the overdraft. It was held that in the absence of evidence to the contrary the bank was entitled to assume that the dealings with the account were for the purposes of winding up the partnership and its mortgage was a valid security and took priority over the lien of the executors of the deceased partner on the surplus assets for his share in the partnership. He also referred to Motilal Chimanram and another v. Sarup Chand Prithiraj and others (AIR 1937 Bom. 81).
In that case, the question was whether a partner of dissolved firm can transfer a debt owing to a firm to another person. It was held that it is not a necessary act in the winding up of a dissolved firm for a partner to create a `novation' in respect of a debt owing to the firm, because that is not recovering a debt, but really continuing it through somebody else as the debtor. With regard to the continuing authority of a partner for purposes of winding up, it was observed that although the dissolution of a firm causes a dissolution of the partner A ship between the partners, the partnership still subsists, but merely for the purpose of winding up its business and adjusting the rights of the partners inter se and, for this purpose, the authority of the partners to bind the firm and all their other mutual rights and obligations continue notwithstanding the dissolution. Wadia, J.
Observed: "It has been held that if a debt is owing to a firm, payment by the debtor to any one of the partners extinguishes the claim of all the partners and discharges the debtor, even though a particular partner or a third person is appointed to collect the debts owing to the firm, and whether the debtor is aware of such appointment or not. Any partner of a dissolved firm can therefore recover payment of a debt due to the firm. He can effectually release the debtor and also give a valid receipt for the debt. But neither the release nor the receipt will be binding on his co-partners if the receipt is given, or the releasing partner acts in fraud of his co-partners and in collusion with the debtor.-Farrar v. Hutchinson (1839) 9 Ad. & E 641, Henderson 8r Smith v. Wild (1811) 2 Camp 561 and Palaniappa Chet-- liar v. Veerappa Chettiar AIR 1918 Mad. 238."
10. On the other hand, Mr. Mansoorul Arfin submitted that although the principle of law above enunciated by the plaintiff's counsel cannot be questioned, the short question in this case is, whether in the circumstances of the case, the plaintiff was really asking for withdrawal of the amounts of the F. D. Receipts for the purposes of the winding up of the affairs of the partnerships.
He submitted that the evidence is to the contrary and the correspondence shows that the withdrawal of the moneys was sought not for winding up but for his own sole proprietary use.
11. I have considered the respective submissions of counsel and the documentary evidence and I am of the opinion that the Bank had, in the circumstances of this case, reasonable grounds to assume that the plaintiff's request for payment of the F. D. Receipts was not for the purposes of winding up of the partnership, but was for his own sole proprietary use.
12. In the first place the plaintiff did not indicate in his letter dated 3-4-1958 (Exh. 71) that the withdrawals of the amounts of the F. D. Receipts were required by him for the purposes of the winding up. The letter was signed by the plaintiff as proprietor of the firm and he asked to encash one amount in order to operate on his now sole proprietary account for meeting all his future commitments", and by asking the Bank to renew the other F. D. Receipt, he was not realising it for the purpose of winding up but was continuing the Bank as his own debtor. In fact, the original stand of the plaintiff in his correspondence was that he was sole owner of the two amounts of the F. D.
Receipts and was entitled to draw the amounts by making endorsements on them. He sent a photo--copy of the award to the Bank, in which it was declared that he was the sole proprietor of the firm and he called upon the Bank to accept his exclusive title to the receipts as sole proprietor of the firm, so declared in the -award. He admitted in cross-examination: "In my letter dated 3-4-1958 I did not give the reason to my bank that I have to pay-off the legal representatives of my deceased brother and therefore the amounts of the two receipts be paid to me. In fact I did not give the reason in any of the letters addres--sed to them."
It is only after the Bank had pointed out that as there was no special mention of the two F. D.
Receipts in the award, it could not accept his exclusive title to them, that for the first time, in his letter dated 8-11-1960 (Exh. 59) he put forward the ground that under section 47 of the Partnership Act he was entitled to the amounts of the deposits as sole surviving partner to wind up the affairs of the firm and that the bank bad no concern with the award. The award dated 23-12-1957 took into account the assets and liabilities of the firm and, in effect, wound up the affairs of the partnership a few months before the plaintiff wrote his letter dated 3-4-1958 (Exh. 71). Therefore the statement of the plaintiff in evidence: "I made this request dated 3-4-1958 (Exh. 71) as the surviving partner of the firm to enable me to wind up the business and to pay off the legal representatives of my deceased brother" cannot be true. The request was not for the purposes of the winding up but for meeting his own personal liabilities to pay off the heirs under the award. The basis of his claim in suit is that he (and not the firm) had suffered loss and he stated in his evidence: "I have suffered losses in the actual sum claimed by me due to lack of funds" which again shows that the amounts were not required for winding up.
13. The Bank's difficulties were further increased because disputes had arisen between the heirs of the deceased partner who put the Bank on notice even before the plaintiff had requested for encashment of the amounts of the F. D. Receipts. The Bank received several notices from he Advocates of the heirs asking for information with regard to the moneys held by the deceased in the firm name. Exhs. 74, 72, 67, and 66 are four such notices. The award made no specific mention of the two F. D. Receipts and it was objected to by the heirs in the Court as well as in appeal, wherein a new ground was sought to be introduced in the memorandum of appeal to the effect that the amounts of the fixed deposits in question were fraudulently suppressed from the arbitrators by the plaintiff. Specifically, a notice dated 24-4-1961 (Exh.50) was received from Messrs Syed Sharifuddin & Co., Advocates acting on behalf of the two daughters of the deceased objecting to payment of the amount of the fixed deposits to the plaintiff and threat--ening the Bank with liability for unauthorized payment. The Bank was therefore asking for protection from the plaintiff by producing a succession ertificate, which protection the plaintiff declined to give. There-- fore in my opinion the Bank was justified in asking the plaintiff to obtain a succession certificate for its protection before making payment, or permission letter from the heirs of the deceased partner.
My findings therefore, on each of the three issues are in the negative.
14. Issue No. 3.-The plaintiff has proved no agreement between the partners of the firm Messrs Continental Cycle & Motor Co. And the Bank that the amount of the F. D. Receipt which stood in the name of the firm, were payable to the partners jointly or to the survivor of them upon the death of the one of them. Therefore, issue No. 3 is decided in the negative.
15. Issue No. 5.-No evidence of loss has been given.
16. Issue No. 6.-The plaintiff is not entitled to the damages claimed in suit. In paragraph 9 of the plaint the plaintiff has claimed interest at 9 on the amount of the deposits by way of damages for non-payment during the period 16-5-1967 to 25-5-1962. In Bengal-Nagpur Railway Co. Ltd.) v.
Ruttanji Ramji and others (AIR 1938 P C 67), it was held that interest by way of damages is not payable under section 73, Contract Act fort withholding moneys due and illustration (n) to that section clearly bars the claim.
17. For the foregoing reasons and in view of my findings above, I would dismiss the suit with costs.
K. B. A.