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Suit No.723 of 1986, decided on 1st September, 1987

‑‑‑ S. 19‑‑Borrowing of money by partner in the name of the firm is not prohibited under S.19(2)‑‑Partner in. a trading firm has an implied authority to borrow money for the purpose of business on the credit of firm and no duty is cast upon the person advancing money to make any further inquiry.

Bank of Australia v Braillet (1847) 6. Moore (PC) 152 and Okell v Eatoan (1874) 31 LT 330 ref.

Vol. V Common Pleas Division 109; A I R 1925 Cal. 29 and AIR1928 Lah. 722 distinguished.

‑‑‑S‑19‑‑Borrowing of money by partner in the name of firm‑‑same of person or firm to be charged upon in negotiable document should be clearly stated on the face or on the back of the document so that responsibility is made plain and can be instantly recognised.

A I R 1918 P C 146 ref.

‑‑‑S.6‑‑Partnership Act (IX of 1932), S.19‑Civil Procedure Code (V of 1908), O.XXXVII, R.3‑‑Borrowing of money by partner in the name of firm‑‑Transactions entered into by such partner were in the name and on behalf of the firm‑‑Firm and the partners of the firm, held, were liable for such transactions‑ ‑Remaining partners alleging that the partner who borrowed money has misappropriated or misapplied such funds can only seek remedy against him‑‑Mere fact that other partners had filed suit for damages against the Bank which advanced loan, would not disentitle Bank from obtaining a decree in recovery suit and for that reason alone leave to defend the suit cannot be granted.

Mansoorul Arfin for.Appellant.

Muhammad Akram Zubairi and G.R.Warsi for Respondents.

Date of hearing, 18th August, 1987.

This is a suit for the recovery of Rs.28,83,904.77. The brief facts of the case are that the Defendant No.1 is a partnership firm, while Defendants Nos.2 to 6 are its partners. Defendants Nos.3.and 4 are sons of Defendant No.2, while Defendants Nos.5 and 6 are brothers inter se and they are nephews of Defendant No.2. The partnership firm carries on business at Faisalabad, Hyderabad and Karachi. Defendants Nos.5 and 6 looked after the business of the firm at Karachi.

2. The plaintiffs at the request of the Defendants allowed the following facilities to Defendants:‑---------

"(a) Facility under part I of the Export Re‑finance Scheme of the State Bank of Pakistan;

(b) Facility under Part II of the Export Re‑finance Scheme of the State Bank of Pakistan;

(c) Facility under LAPC Account."

3. To secure the loans advanced against the said facilities, the Defendant No. 1 executed Promissory Note dated 30‑12‑1981, in the sum of Rs.5,32,040,14, Promissory Note dated 30‑12‑1985 for Rs.15,51,941.62, another promissory Note dated 6‑11‑1982 for Rs.5,00,000 and Promissory Note dated 30‑12‑1984 for Rs.5,67,922.81. Defendant No.1 also executed certain undertakings, photostat copies of which have been produced as Annexures‑P/7 to P/9. To further secure the loans, ‑the Defendant No.1 also created equitable mortgage over the property No. C/61‑and No.F/140. both in SITE, Karachi by depositing the Title Deeds of the same with the Plaintiffs and issued such letter of deposit of the Title‑Deeds dated 7‑11‑1983. The Defendants failed to clear the dues and hence this suit.

4. Defendants Nos.5 and 6 have not filed any application for leave to defend the suit. Their Advocate Mr. G.R. Waris made a statement in the‑ Court. That the Defendants Nos.5 and 6 admit the claim of the Plaintiffs.

5. However, Defendants Nos.1 to 4 have filed the application for leave to defend the suit. The main ground raised by the contesting defendants is that the Defendant No.6 without any authority may have raised some loans which he misappropriated and committed fraud upon the partnership firm and, therefore, they are not liable to pay the dues, if any. It is further contended that no document was signed by the contesting Defendants with regard to the loans in question. It is also contended that the Defendants had informed the plaintiffs about the undesirable activities of the Defendants Nos.5 And 6 vide their letter dated 28‑7‑1984. It is also contended that the partnership firm dissolved by a deed of settlement and further that the suit for dissolution of partnership 'had been filed by the Defendants. It is further contended that the contesting Defendants have filed the suit for damages against the Defendants Nos.5 and 6 as well as against the plaintiffs.

6. The fact that the Defendants Nos.2 to 6 were partners of Defendant No.1 is not disputed. It is not disputed that the partnership firm was carrying on business at Karachi which was looked after by .the defendants. Nos. 5 and 6. The fact that. the loans were advanced by the Plaintiffs is also not specifically disputed, but it is averred in Para 18 of the affidavit in support of the application that the alleged amounts were perhaps borrowed by the Defendants Nos.5 and 6 from the Plaintiffs without having any consent of the remaining partners and without any lawful authority to transact the alleged loans in terms of the Partnership‑ Deed or otherwise.

7. It is contended by Mr. Mansoorul Arfin, learned counsel for the plaintiffs that the Defendants have not specifically denied the entries in the Statement of Accounts produced by the Plaintiffs, nor they have denied its correctness. Rather they have impliedly admitted the advancing of the loans. It is further contended, that apart from the fact, that the case of the plaintiffs is supported by documentary evidence, their case gets support from the admission of the Defendants Nos.5 and 6, who have admitted the claim of the plaintiffs. It is further contended that the act of a partner would bind down the other partners as well as the firm. Under Section 18 of the Partnership Act a partner is the agent of the firm for the purpose of the business of the firm. Under section 19, subsection (1) of the said act under the implied authority of partner as agent of the firm the act of a partner, which is done to carry on, in the usual way, business of the Kind carried on by the firm, binds the firm. Under Section 21 of the said Act such act or instrument done or executed by a partner on behalf of the firm shall be done or executed in the firm‑name, or in any other manner expressing or implying an intention to bind the firm.

8. It. is contended that in the instant case all the documents have been signed by the Defendant No.6 as partner of the firm, thus the documents clearly show that they were executed on behalf of the firm. The learned counsel has produced the form of opening of account of the firm with the plaintiffs, wherein only Defendants Nos.2 and 6 are authorised to operate the account. It is contended that all, the loans/amounts were credited in the account of the firm and were drawn by the authorised partner of the firm and there was no intimation to the plaintiffs withdrawing such authority from the Defendant No.6 or with regard to the alleged dissolution of the partnership.

9. Mr. Mohammad Akram Zubair, learned counsel for the Defendants Nos. 1 to 4 could not produce any document to show that the authority of Defendant No.6 to operate the account was withdrawn under intimation to the plaintiffs. He could not show any document whereby the plaintiffs were informed about the dissolution of the partnership. The Deed of Settlement produced by the learned counsel does not bear the signature and the fact that the suit for dissolution of partnership was filed in 1986 clearly shows that the partnership was in existence till the filing of the suit.

10. It may be pointed that none of the Promissory Notes was executed in or after 1986. Reliance is placed on the letter of the defendants addressed to the plaintiffs dated 28‑2‑1984, which is produced as Annexure ID/11. Under this letter the plaintiffs were prohibited from advancing any loan against the property of the firm at Hyderabad.

Admittedly these loans have not been advanced against the property of the firm at Hyderabad, but certain property of the firm at Karachi has been mortaged for the security of this loan by way of equitable mortagage.

11. Subsection (2) of Section 19 of the Partnership Act enumerates the acts which the partner cannot perform in exercise of the implied authority under subsection (1) of the said Section. The borrowing of money in the name of the firm is not prohibited under this sub‑section.

12. The Privy Council case in Bank of Australia v. Braillet [(1847) 6 Moore (PC) 1521 is an authority for proposition that any partner in a trading firm has an implied authority to borrow money for the purpose of business on the credit of firm. In the case of Okell v. Eatoan [(1874) 31 LT‑ 3301 it has been observed by Block Burn J. that where a firm is a trading firm so that the partner can borrow money for the purpose of business on the credit of firm no duty is cast upon the person advancing money to make any further enquiry.

13. The learned counsel for the Defendants has relied upon the cases reported in Vol. . V Common Pleas Division 109, A I R 1925 Calcutta 29, A I R 1928 Lah. 722. All these cases are distinguishable from the instant case, as in the reported cases the partner took the loan in individual capacity and not as partner of the firm.

14. Reliance is also placed on A.I.R. 1918 Privy Council 146,1 wherein it is held "it is of the utmost importance that the name of a, person or firm to be charged upon in negotiable document should be clearly stated on the face or on the back of the document so that the responsibility is made plain and can be instantly recognised as the document passes from hand to hand.

In the instant case we have already seen that the promissory Notes as well as other documents are in the name of the firm and are signed by the Defendant No.6 as partner of the firm.

15. In view of the law discussed above, there appears to be no doubt that the transactions entered into by the Defendant No.6 with the Plaintiffs were in the name and 'on behalf of the firm and as such the firm and the partners of the firm were liable for these loans. If, however, the Defendants Nos.5 and 6 have in any way mis‑appropriated or mis‑applied this fund, the partners can seek remedy against them and in fact they have sought such remedy by filing the suit as pointed above. There appears to be no collusion between the Plaintiffs and Defendant Nos.6, as admittedly the Defendants No.2 to 4 had not, intimated the plaintiffs about 6e dissolution of the partnership nor had they withdrawn the authority of the Defendant No.6 to operate the accounts.

16. The mere fact that the Defendants Nos.2 to 4 have filed suit it for damages against the plaintiffs, would not disentitle the plaintiffs from obtaining a decree in this suit. Both the suits are to be disposed of on their own ‑merits and for that reason alone the leave to defend the suit cannot be granted.

In view of the aforesaid discussion, there appears to be no substance in the pleas raised by the contesting defendants. No triable issue is raised by them. As such the application under Order XXXVII, Rule 3, C.P.C., is dismissed and the suit of the Plaintiff is decreed with costs at the agreed rate of interest. They are also awarded preliminary decree for sale of mortgaged property.

M.B.A./15/M‑K Suit decreed

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