P.V. Gandhi vs Gitanjali and Others

Palaniswami, J.—Petition under Sections 9(b) and 9(d)(ii) and (iii) and 10 to 13 of the Presidency Towns Insolvency Act. 1909, to adjudge

respondents 1 to 4 as insolvents. The 1st respondent Messrs. Gitanjali is a registered partnership, of which the partners were respondents 2 to 4.

The petitioner claims to have advanced a sum of Rs. 5,000/- on a promissory note dated 8th June 1971 executed by the second respondent on

behalf of the firm. It is alleged in the petition that on 7-8-1971 the debtors issued a cheque for Rs. 5,000/- towards the principal, that the cheque

when presented, was returned dishonored, and that debtors failed and neglected to pay the amount. It is also alleged that on 7-8-1971 the debtors

transferred the entire business in favor of the fifth respondent who put up his name board at the place of business premises, that the transfer was

fraudulent that in spite of the efforts taken to contract the second respondent at his residence and also at his other place of business in No. 3/39,

Godown Street, he could not be traced, that the said business place of the second respondent was also locked and closed from 10-8-1971 and

that the second respondent secluded himself with a view to deprive his creditors of the means of communicating with him and also departed from

his dwelling house and the usual place of business. It is further alleged that the transfer of the entire business in favor of the fifth respondent was

made with a view to defeat and delay the creditors and that thereby the debtors committed acts of insolvency falling under Sections 9(b) and 9(d)

(ii) and (iii) of the Act.

Respondents 1, 3 and 4 appear by a counsel and contend that on 31-3-1970 the third respondent retired from the partnership, and that from 1-

4-1970 the firm consisted of only two partners, namely, respondents 2 and 4. Their case is that even on the date of the loan itself, namely, 8-6-

1971, the financial broker Mishnilal Dharwal took a post-dated cheque for Rs. 5,000/- dated 7-8-1971 and also took interest for two months by

cheque. Though the broker was informed that the cheque should be presented only after arrangements had been made for its encashment, the

cheque was presented contrary to the understanding. The allegation that the business was transferred with a view to defeat and delay the creditors

is denied. Their case is that the transfer was effected bona fide for valuable consideration in pursuance of an arrangement which the second

respondent had entered into with the Bank of India who had given overdraft facilities to the firm on the guarantee of the fifth respondent for a sum

of Rs. 1 lakh. It is alleged that out of the sum of Rs. 1,12,000/- for which the transfer was made a sum of Rs. 1 lakh was retained by the fifth

respondent for payment towards overdraft account and the balance of Rs. 12,000/- was paid in order to enable the second respondent to pay

arrears of rent to the landlord of the premises 3/39, Godown Street and also for the purpose of improving his wholesale business which he was

conducting in the said premises. The allegations that the second respondent made himself scarce and secluded himself so as to deprive his creditors

of the means of communicating with him or that he departed from his dwelling house and the place of business are denied as false. It is further

alleged that no act of insolvency, as alleged by the petitioner, is committed.

The third respondent alleged in his counter affidavit that on the date of the loan, he was not a partner of the firm, he having retired from

partnership even on 31-3-1970, that, as such he cannot be deemed to have been benefited by the loan and that he is not concerned with the

alleged acts of insolvency attributed against the second respondent. The case of the fifth respondent is that he purchased the business in discharge

of a liability of the firm to the bank in respect of the overdraft account for which he had given guarantee and that the transfer was a bona fide

transaction and is not liable to be impugned.

The first question that arises for consideration is whether any of the acts of the insolvency alleged in the petition is true. The first act of insolvency

alleged is that the debtors made the transfer of the entire property belonging to the first respondent firm with intent to defeat and delay the

creditors. It is not in controversy that the first respondent firm had only one property, namely, the business that was being conducted in textile

goods in the name of Gitanjali. That business was transferred in favor of the fifth respondents on 7th August 1971 vide Ex. R-7. That purports to

be an agreement between the firm represented by the managing partner on the one hand, being the seller, and the fifth respondent, the purchaser on

the other. Under this document, the entire business including all the stock in trade, furniture''s, fittings and goodwill was conveyed as a going

concern, as also the right of the firm in the electricity account service connection deposit, telephone etc. Right was given to the fifth respondent to

continue the business either in the same name of Gitanjali or in any other name of his choice. An indemnity was also given in favor of the fifth

respondent as regards any liability that may be subsisting against the firm. The document reads as if the goods of the firm had been hypothecated

with the Bank of India for a sum of Rs. 1 lakh and that the fifth respondent had guaranteed repayment of the said loan. It is, however, admitted on

behalf of the respondents that the said statement about the hypothecation of goods is not correct. Neither the second respondent nor the fifth

respondent, who gave evidence as R. Ws. 1 and 3 respectively, gave any satisfactory explanation for making this incorrect statement in the

assignment deed. It is not as though such a statement is made inadvertently at one place. The document refers to the alleged hypothecation at

several places as if the Bank of India had a first charge over the goods of the firm by virtue of the alleged hypothecation.

Out of the consideration of Rs. 1,12,000/- the transfer deed Ex. R-7 recites that a sum of Rs. 1 lakh represented the amount payable to the

Bank of India which the fifth respondent agreed to discharge and the balance of Rs. 12,000/- is said to have been paid by the fifth respondent to

the second respondent for payment of arrears of rent, etc. It is not stated to whom arrears of rent were payable. One should normally think that

arrears of rent were payable to the owner of the premises in which the business of Gitanjali was being conducted. But what is sought to be made

out by the respondents is that the second respondent who was conducting his individual business in textile goods at No. 3/39, Godown Street, was

owing arrears of rent to the landlord of that premises and that the sum of Rupees 12,000/- was received to discharge those arrears and also for the

purpose of improving that business. No materials are placed to show whether any amount was in arrears to the landlord of the premises where the

first respondent''s business was conducted or whether any rent was due to the landlord of the premises where the second respondent was carrying

on his individual business. The document further reads that the value of the stock in trade was Rs. 98,000/-. The case of the petitioning-creditor is

that the transaction was fraudulent. As regards the value of the stock in trade at the time of the transfer, the unambiguous admission of the second

respondent in his evidence is that on the date of the transfer the listed price of the articles was Rs. 1,95,000/-. It is not his evidence that the listed

price was exaggerated and that the market price was something less. The fifth respondent has not given any useful evidence on this aspect. When

he was questioned as to the value of the stock in trade, he said that he did not know if the value was Rs. 1,25,000/-. When he was asked how, as

a businessman, without knowing the price of the materials, he purchased the business, he said that whatever the second respondent stated he

accepted. Thus, on the admission of the second respondent, it should be held that, on the date of the transfer, the value of the stock in trade was

Rs. 1,95,000/-. His further admission is that he had spend Rs. 32,000/- for making show cases and that the show cases were worth that amount

even at the time of the transfer. The fifth respondent pleads ignorance of knowledge on this aspect. Thus on the admission of the second

respondent, it would follow that including the value of the show cases, fixtures etc., the assets of the firm, apart from its leasehold right in the

premises, was Rs. 1,57,000/-.

The second respondent admits that for getting vacant possession of the premises, he had to pay Rs. 35,000/- and that he paid an advance of

Rs. 30,000/- to the landlord. The assignment deed, Ex. R-7, is silent about this advance, even though the subject-matter of the transfer was the

business as a going concern in the same premises. According to the second respondent, a sum of Rupees 23,100/- was due from the landlord out

of the advance rent on the date of the transfer of the business after adjusting rent during some months. In his cross-examination he says that the

transfer included this balance of advance also. But this version was changed subsequently and it was said that this amount was repaid to him by the

fifth respondent''s wife, who, according to the respondents, is said to have taken a lease of the premises. No doubt the pass-book Ex. R-11, that

stands in the name of the fifth respondent''s wife, shows that on 9th August 1970 there was a payment by cheque in favor of the 2nd respondent to

the tune of Rs. 23,166.70. There is no evidence to show as to how the 2nd respondent disposed of this amount in connection with matters relating

to the partnership business. But the amount is said to have been spent in connection with the private business of the 2nd respondent (Vide Ex. R-

9).

Ex. P-2 is a cheque issued by the 2nd respondent in favor of the petitioner on 7-8-1971 for a sum of Rupees 5,000/-, by which the debt

evidenced by the promissory note Ex. P-1 was proposed to be discharged. But the cheque, when presented, was returned dishonored as there

was no sufficient balance in the bank account. It may be noted in this connection that the cheque Ex. P-2 is of the same date as the date of the

transfer of the business itself, namely, 7-8-1971. The case of the 2nd respondent is that this cheque was issued even on the date of the promissory

note, namely, 8th June, 1971, that the cheque was post-dated with instructions to the broker not to present the cheque until sufficient fund was

provided in the bank and that notwithstanding such instructions, the cheque was presented with consequent dishonor. The petitioner (P. W. 1) and

the broker Mishnilal Dharwai (P. W. 3), who admittedly brought about the transaction, deny that the cheque Ex. P-2 was post-dated. According

to them, the cheque was given only on the date it bears, namely, 7-8-1971. To support his version, the second respondent produced his

counterfoil cheque book Ex. R-8. It no doubt shows that the subsequent counterfoils bear earlier dates. A perusal of the several counterfoils shows

that there has been no sequence in the dates, either that the cheques were issued by ante-dating or by post-dating. No reliance can be placed upon

the counterfoils. There is nothing in writing to show that the second respondent gave instructions as to the date of presentation of the cheque. Even

if it is conceded for the sake of argument that the cheque was post-dated the fact remains that the cheque was dishonored when it was presented

for payment on 9-8-1971. The fact of dishonor was communicated to the petitioner on 10-8-1971 (Vide Ex. P-3).

The admission of the second respondent in his evidence is that on the date of the transfer of the business in favor of the 5th respondent, the firm

owed approximately Rs. 4 lakhs. Admittedly, no arrangement was made for the discharge of this amount except the Bank loan of Rs. one lakh.

The 5th respondent, who is no other than the father of the third respondent who was admittedly a partner till 31-3-1970, when questioned as to

the extent of the liability of the firm when he obtained the transfer, at first said that he did not ask the 2nd respondent as to whether there were

other creditors, but prevaricated and stated that the 2nd respondent told him that about Rs. 30,000/- or Rs. 40,000/- was due and that the 2nd

respondent would discharge that debt. The assignment deed Ex. R-7 expressly stipulates indemnity in favor of the 5th respondent as regards the

debts that may be due from the firm. From that recital, it is reasonable to infer that the parties to the transaction had applied their mind to the

liability of the firm and the persons who are to be liable therefore .A look at the books of the company would have convinced the 5th respondent

the extent of the debts of the firm. Curiously, he says that the 2nd respondent took away whatever belonged to him including the account books. It

is important to remember in this connection that what was transferred was the business as a going concern with the entire stock in trade, fixtures,

furniture etc. In those circumstances, it is unbelievable that any ordinary and prudent purchaser, like the 5th respondent, would have allowed the

books to be taken away, which would be very material for the future conduct of the business. Having regard to the relationship between the fifth

respondent and the third respondent, who was admittedly a partner till 31-3-1970, and having regard to the foregoing circumstances, I am unable

to accept the plea of the counsel for the fifth respondent that he was not aware of the extent of the debts of the firm. It is reasonable to infer that he

was fully aware of the heavy indebtedness of the firm at the time when the transfer was made in his favor in respect of the only property that

belonged to the firm. As an ordinary and prudent person, he should have known that except the debt due to the Bank of India, for which he had

given personal guarantee, no other provision was made for the discharge of the other debts of the firm. The fifth respondent is a business-man

having extensive dealings. It is unlikely that he did not apply his mind to the question as regards the debts of the firm, when he knew fully well that

he was taking the only property belonging to the firm. The reasonable inference is that the 2nd respondent wanted to defeat and delay the other

creditors and that the fifth respondent accepted the transfer knowing fully well that that would be the result.

From the foregoing discussion, the following facts emerge:

(i) The firm was heavily indebted to the extent of Rs. 4 lakhs;

(ii) The only property that belonged to the firm was the business as a going concern with fixtures, furniture etc.;

(iii) The entire business including the stock-in-trade, furniture, fittings, etc., though they were worth admittedly on the date of the transfer. Rs.

1,57,000/-, was transferred in favor of the fifth respondent only for a sum of Rs. 1,12,000/-. A sum of Rs. 1 lakh was retained by the fifth

respondent for payment towards the bank debt and the balance is said to have been paid to the second respondent for payment of arrears of rent

etc.;

(iv) No part of the balance of the consideration, namely, Rs. 12,000/- was admittedly taken or used for any purpose connected with the business

of the first respondent firm; and

(v) The transferee, the fifth respondent, had reasonable grounds to know the heavy indebtedness of the firm and was a party to the transfer which

inevitably shows that the claims of the other creditors would be defeated.

Having regard to the foregoing facts, the position has to be examined whether the said act constitutes an act of insolvency. Section 9(b) says

that a debtor commits an act of insolvency if he makes a transfer of his property or any part thereof with intent to defeat or delay his creditors. It is

contended on behalf of the respondents that inasmuch as the second respondent received the balance of Rs. 12,000/- for the purpose of paying off

arrears of rent and for improving his personal business, it cannot be said that the transfer would constitute an act of insolvency. In support of this

contention, reliance was placed upon the decision of the Privy Council in Administrator General of Jamaica v. Lascelles, De Mercade & Co.,

1894 AC 135. In that case an assignment of the whole of the debtor''s property, in consideration of a contemporaneous advance, and promise of

further assistance, in order to enable the debtor to carry on his business had been made. It was held that in those circumstances the assignment was

not an act of bankruptcy. The facts, on the basis of which that principle was enunciated, are not similar to those of the present case. In the instant

case, there was not promise of further advance or a contemporaneous advance for the purpose of enabling the transfer to carry on his business.

The recital in the document, if given effect to, would only show that the balance of Rs. 12,000/- was received for payment of arrears of rent. There

is no whisper of any part of the amount being utilized for the conduct of any business, much less the business of the firm. I have already pointed out

that there is no evidence at all to show that any part of the consideration was utilized even for the private business of the second respondent. The

question whether the assignment of the whole of the debtor''s property in discharge of an existing debt would constitute an act of insolvency has to

be determined with regard to the bona fides of the transaction and the surrounding circumstances. If the transfer is made for the purpose of

enabling the debtor to continue the business, it would not constitute an act of insolvency, even though the whole of the debtor''s property is

alienated. But, if the transfer is just a cloak to defeat the other creditors, it would constitute an act of bankruptcy. In dealing with this question, the

Court of Appeal in Ex parte Johnson In re Chapman, (1884) 26 Ch D 338 observed that the true test is, was the fresh advance made by the

lender with the intention of enabling the borrower to continue his business and had he reasonable grounds for believing that the advance would

enable the borrower to do so? If these questions can be answered in the affirmative, the execution of the deed, even if it comprises of the whole of

the debtor''s property, would not be an act of insolvency. The validity of a mortgage by a trading partnership of all its assets arose for

consideration before the Privy Council in Khoo Kwat Shew v. Wooi Taik Hwat, I.L.R.(1892)Cal 223. It is pointed out that if a trader assigns all

his property, except on some substantial contemporaneous payment, or substantial undertaking to make a subsequent payment, that would be an

act of insolvency and it would be void against the creditors on his insolvency for the reason that nothing would be left to carry on the business. That

principle is applicable on all fours to the facts of the instant case. In considering whether a present advance will suffice to prevent the assignment

from constituting an act of bankruptcy, the motive for obtaining the advance is material but the amount of the advance may not be material. In Ex.

P. Ellis, (1876) 2 Ch D 797 Mellish, L. J., thus summarized the position.

The result of the authorities is, that where a debtor assigns his whole property as security for a past debt only, it is an act of bankruptcy, whether

the motives of the parties may have been. If there is also a further advance, it is not a question whether the amount of the advance is great or small,

but whether there was a bona fide intention of carrying on the business"".

The advance need not be proportionate to the property charged, nor equal to the existing debt. if it is made bona fide for the purpose of enabling

the debtor to continue business and if the lender intended by the advance to enable the borrower to continue his business and reasonably believed

that it would do so, the assignment would not constitute an act of insolvency. But if the effect of the assignment would, notwithstanding the

advance, be to stop the debtor''s trade the Court would be justified in inferring an intention to defeat and delay the creditors and the assignment

would constitute an act of insolvency. Where a debtor transfers whole of his property in discharge of a pre-existing debt leaving only a trivial

portion of the consideration, the intention to defeat and delay the other creditors can be easily inferred. The reason is that such a transfer has the

effect of withdrawing all the debtor''s property from the legal process which his creditors have a right to enforce against him. It necessarily defeats

or delays the other creditors of the debtor by preventing them from issuing execution. As pointed out in In re Cranston Ex parte Cranston, (1892)

9 Morr 160

................. a bankrupt by so doing takes away from his creditors all potentiality of carrying on his business or paying his debts. It is the shutting

up of shop in the fullest sense, and it is a giving up that which in truth belongs to the creditors, and that to which they have a right to look for the

payment of their debts"".

For these reasons, I have no doubt incoming to the conclusion that the transfer of the business of the first respondent firm, which business was the

only property of the firm, had been made with intent to defeat and delay the creditors of the firm and that the transferee, the fifth respondent was

fully aware of the circumstances under which the transfer was being made.

In addition to the above act of insolvency, the petitioner alleges that the second respondent the managing partner of the firm, committed two

more acts of insolvency; (1) that he departed from his dwelling house and the usual place of business and absented himself and (2) that he secluded

himself so as to deprive his creditors of the means of communicating with him. The cheque Ex. P-2 was returned to the petitioner dishonored on

10-8-1971. The evidence of the petitioner shows that on the 10th, on coming to know of the dishonor of the cheque, he immediately went to the

business premises of the second respondent in Godown Street, that finding him absent there he went to the house of the second respondent, but

could not see him there also and that when he went to the business premises of the first respondent firm he found the name of ""Gitanjali"" removed

and the name of Bherumal the fifth respondent, written. His evidence shows that he made several attempts to contact the second respondent at the

aforesaid places but without success. His evidence on this aspect is corroborated substantially by the broker P. W. 2. The business was

transferred on 7-8-1971 and admittedly the fifth respondent took possession of the premises on that date. The admission of the second respondent

is that another creditor of his forcibly took away some of the goods from his private business in No. 3/39. Godown Street, and that from that time

onwards that shop also was kept closed. Therefore, it is clear that nobody could have seen the second respondent either in the business premises

of the first respondent firm or in his individual business premises after 10th August 1971. As regards the alleged forcible taking away of a portion

of his goods from his private business, we have only the interested version of the second respondent. If the alleged unlawful act is true, there is no

reason why he did not take any action. This explanation seems to have been invented for the purpose of meeting the petitioner''s charge that he (the

second respondent) secluded himself from being communicated with by his creditors. Having regard to the circumstances in which he found

himself, it is likely that he made himself scarce from the reach of the petitioner even from his house. Therefore, I do not see any reason to doubt the

truth of the evidence of the petitioner and P. W. 2 when they say that in spite of their repeated efforts they could not contact the second

respondent even in his residence. Taking into consideration the circumstances in which the second respondent was placed, namely, dishonoring of

the cheque issued in favor of the petitioner, sale of the only property of the first respondent firm under which no substantial benefit was derived to

discharge the substantial portion of the debts of the firm, and closing down of the private business not being able to meet the demands of the

creditors, it is reasonable to infer that the second respondent made himself scarce and secluded himself so as to deprive his creditor of the means

of communicating with him by departing away from his dwelling house and his usual place of business. On the materials. I am satisfied that the

petitioner has established the acts of insolvency based on this account.

That the second respondent was the managing partner of the first respondent firm is not in controversy. On account of the foregoing acts of

insolvency committed by the second respondent in his capacity as the managing partner the firm is liable to be adjudged as insolvent as also the

partners. The question is who were the partners at the time when these acts of insolvency were committed. That respondents 2 and 4 were

partners at that time is not disputed. The only question is whether the third respondent was also a partner at that time. His case is that he ceased to

be a partner on 31-3-1970 by retiring from the partnership. He relies upon Ex. R-5. It is termed as a release deed dated 31-3-1970 executed

between the third respondent on the one hand and the other partners namely, respondents 2 and 4 on the other. This document inter alia declares

that the third respondent having given notice of his intention to retire from the partnership had no longer any interest in the partnership business, that

he relinquished all his rights and that he was no longer liable for any loss due by the firm to third parties. The case of the respondents is that from

31-3-1970 the third respondent was not a partner. The petitioner challenges this contention on two grounds: (1) that the alleged retirements is in

fact not true and (2) that even if the alleged retirement is true, it is not valid in law. As regards the factum of retirement, I see no reason to suspect

the genuineness of Ex. R-5, Alleging that he was no longer a partner the third respondent addressed the letter Ex. R-13 on 20-4-1970 to the Bank

of India stating that he had retired from the partnership and that he had no more interest in the fixed deposits of the firm. This letter was produced

into Court by Krishnamurthi, (R. W. 4), an Officer of the Bank of India. Ex. R-13 does not bear the seal of the Bank. R. W. 4 appeared before

the Court and gave evidence without summons from Court. Mr. V. P. Raman, Counsel appearing for the third respondent appears to have written

to the bank asking the bank to produce the letter. Acting on that letter R. W. 4 appeared and gave evidence. No doubt these circumstances would

show some sort of interestedness, the reason for the interestedness being that the fifth respondent, father of the third respondent, is an important

and long standing constituent of the bank. But on that account, I am not inclined to reject Ex. R-13. In accordance with the intimation given by the

third respondent, the third respondent, the bank closed the account of ""Gitanjali"" upto 20-4-1970, upto which date the third respondent was one

of the partners of the firm, and opened a new account in the name of the two surviving partners from 21-4-1970 (vide Ex. R-14 and Ex. R-15,

which are extracts from the respective accounts). It is true that even after the account was closed upto 20-4-70 and a fresh account was started

from 21-4-1970, a cheque issued prior to 20-4-1970 was honored by the bank in the accounts opened subsequent to 20-4-1970. Evidently this

is a mistake. The mistake appears to be due to the fact that the firm''s name continued to be the same and the concerned bank officials appear to

have overlooked the facts that a cheque issued against the old firm could not be brought into the account of the new firm, though the same name

continued. Notwithstanding this lacuna, the fact is that the bank, acting upon Ex. R-13, opened a new account.

Mr. V. S. Subramaniam, appearing for the petitioner, contended that under the terms of the partnership deed, Ex. R-3, dated 19-4-1968 it

was not open to any of the partners to retire as it was agreed that the partnership should continue for the duration of the agency of one Messrs

Ambika Silk Mills Company Limited, Bombay. In support of this position reliance was placed upon paragraph 17 of Ex. R-3, which reads:

It is distinctly understood that his partnership shall not be dissolved under any circumstances whatsoever unless the Ambika Silk Mills Company

Limited, Bombay, agency expires by efflux of time or cancelled by the said Ambika Silk Mills Company Limited, Bombay. This partnership shall

continue for the duration of the said retail shop agency of Messrs Ambika Silk Mills Company Limited, Bombay"".

In this connection, reference has to be made to paragraph 16 also, which reads:

In the event of the dissolution of the partnership the leasehold right of No. 60. Rattan Bazaar, Madras, shall belong exclusively to the

managing partner and the second partner shall not be entitled to any share. Likewise the agency of Ambika Silk Mills Company Ltd., Bombay, will

exclusively belong to managing partner and the second partner will not be entitled to any manner of right in the agency in the event of his retiring

from partnership on any account"".

Thus, reading paragraphs 16 and 17, it is seen that though the parties stipulated that the partnership should continue during the period of agency of

Messrs Ambika Silk Mills Ltd. (which was admittedly continuing at the date of retirement of 3rd respondent) but still the parties contemplated

retirement by a partner, in which case it was stipulated that the second partner mentioned therein will not be entitled to any manner of right in the

agency in the event of his retiring from partnership on any account. Therefore, notwithstanding the inconsistency in the partnership deed there was

nothing in law to prevent the third respondent from retiring from the partnership. Taking all the circumstances into consideration. I am satisfied, as a

question of fact, that the third respondent retired from the partnership on 31-3-1970.

The next question to be considered is whether the retirement is valid and whether the third respondent can escape from the consequences of

the acts of insolvency committed by the managing partner, Section 32 of the Partnership Act provides for retirement of a partner. A partner may

retire with the consent of all the other partners or in accordance with an express agreement by the partners, or where the partnership is at will, by

giving notice in writing to all the other partners of his intention to retire. A retiring partner may be discharged from any liability to any third party for

acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm, and such

agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

Sub-section (3) of S. 32, which is important, reads:

(3) Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done

by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement :

Provided that retired partner is not liable to any third party who deals with the firm without knowing that he was a partner"".

It would be seen from the foregoing provision that notwithstanding the retirement of a partner, he continues to be liable as a partner to third parties

for any act done by any of the partners, which would have been an act of the firm if done before the retirement, until public notice is given of the

retirement. In order to avoid liability of the retiring partner, public notice of retirement should be given. Inasmuch as in the instant case, the third

respondent did not give such public notice of retirement, it is contended on behalf of the petitioner that the third respondent continues to be liable

even if it is conceded for the sake of argument that the retirement is true. From the mere fact that public notice was not given it does not mean that

a partner even after retirement continues to be liable to third parties. The proviso to sub-section (3) shows that a retired partner is not liable to any

third party if the third party deals with the firm without knowing that the retired person was a partner. To get over the effect of this proviso, the

petitioner stated in his evidence that before he advanced the loan he enquired and came to know that respondents 2 to 4 were partners. On this

aspect, he is no doubt, supported by the broker P. W. 2. The question is whether their evidence is believable on this aspect. The promissory note

Ex. P-1 was executed only be the second respondent. There is no document to show that the third respondent was aware of this borrowing. Nor

has the petitioner let in any evidence to show that the fact of borrowing was brought to the notice of the third respondent at any time. If the

petitioner had taken care to investigate as to who were all the partners, one would expect him to have obtained a certificate from the Registrar of

Firms before he advanced the loan. Curiously, he obtained the certificate Ex. P-5 long after the loan, perhaps after the third respondent raised the

contest in this case saying that he was not a partner. It is not the evidence of the petitioner that he approached the third respondent and questioned

him and that after he learnt that the third respondent was a partner, he advanced the loan. His version is that he asked the broker, who is said to

have represented that there were three partners and that he informed the broker that he would himself enquire and subsequently lent money that he

asked two or three men and came to know that the third respondent was also a partner and that thereafter he went to the Registrar''s office and

came to know that the third respondent was also a partner. He says that he did all that before he gave the loan. If he had gone to the Registrar of

Firms to find out whether the third respondent was a partner, it is not likely that he would have omitted to obtain a certificate at that time. The fact

that he obtained the certificate long after the loan is a circumstances that weighs against his present version. The petitioner admits that he did not

see the details regarding the partners by verifying the partnership deed. Though the petitioner does not say that after the cheque Ex. P-2 was

dishonored he met the third respondent, the broker P. W. 2 improves the evidence of the petitioner and says that after the cheque was dishonored

he contacted the third respondent also. But no such suggestion was made to the third respondent in the course of the cross-examination. Inasmuch

as the second respondent was the managing partner and as nothing appears from the evidence to show that the third respondent took any part in

the management of the business, it is likely that the petitioner had no occasion to verify as to who the partners were and he had no reason to

examine the records in the Registrar''s Office before advancing the loan. On board probabilities of the case, I am of the view that the petitioner

dealt with the firm without knowing that third respondent was a partner. In this view, I find that even though the retirement is invalid for the reason

that public notice of the retirement was not given, still the third respondents is not liable for the acts of insolvency committed by the second

respondent, as the petitioner dealt with the firm without knowing that the third respondent was a partner. In this view, I find that the third

respondent is not liable to be adjudged as insolvent.

In the result, the petition is allowed in part adjudging respondents 1, 2 and 4 as insolvents, and the petition is dismissed so far as the third

respondent is concerned. The petitioner is entitled to his costs from respondents 1, 2, 4 and 5. In the circumstances of the case, I made no order

as to costs in favor of third respondent. The Official Assignee is appointed Receiver. Time for discharge six months.

Order accordingly.