@JUDGMENTTAG-ORDER
Lakshmanan, J.@mdashThe above Insolvency Petition has been filed by the petitioning creditors under S. 9(d)(ii) & (iii), 9(g) , 10, 11, 12 of the Presidency Towns Insolvency Act, hereinafter referred to as the Act, against the respondents. The first respondent firm is represented by its Managing partner, the second respondent herein. According to the petitioners, the third respondent is also a partner of the first respondent firm. The second respondent floated a private limited company, under the name and style of Guardian Chit Funds (Private) Limited in 1956 at No. 9, General Patters Road, Madras-2 and has been its Managing Director ever since. Subsequently, the second respondent started three partnership firms under the names and style of (1) The Fellowship Trading Corporation, (2) Guardian Finances and (3) Guardian Financiers (Madras) respectively at the same premises as that of the private limited company mentioned above. It is slated that the Official Liquidator has been appointed as provisional liquidator by this Court and that the Official Liquidator has now sealed the office premises of the Company at No. 9, General Patters Road, Madras. It is also stated that the records of the three partnership firms mentioned above are also at the said premises
2. According to the petitioning creditors, the first respondent firm collected large deposits from various parties and the second respondent as the Managing partner deliberately diverted the funds of the first respondent firm with the fraudulent intention of cheating the depositors and has purchased properties in the names of his children and relatives. The second respondent and other partners have been misusing the funds of the said firm for their personal purposes and they have also advanced huge sums of money to parties, without obtaining sufficient security. The first petitioner deposited with the first respondent firm a sum of Rs. 5000/- under Deposit Receipt No. 447, dated 7.8.1986. The deposit has already matured on 7.8.1989. The total sum due thereon towards principal and interest from 1.2.1990 till the date of this petition was Rs. 5,175/-. Likewise, the second petitioner deposited with the first respondent firm a sum of Rs. 5,000/- under Deposit Receipt No. 446, dated 9.8.1986 at interest at 18 per cent per annum, the date of maturity being 7.8.1989. Though the said deposits have matured for payment, the respondents have failed and neglected to pay the same. It is also stated by the petitioners that the respondents are heavily indebted to several depositors, amounting to several cores of rupees and are in insolvent circumstances. The depositors of the first respondent firm formed an association under the name and style of Consumers Protection Social and Welfare Association, which has been registered under the Societies Registration Act with a view to protect the interests of the depositors. Mr. T.O. Jacob was appointed as the President of the Association Mr. T.O. Jacob as the President, Mr. P.E. Chacko, as the Vice President of the said Association and the committee members as representing the general body of creditors were invited to attend a meeting at the residence of Mr. P.C. Kurian, Advocate on 3.3.1990 and the President , Vice President and other office bearers of the Association took part in the discussion. The Second respondent informed the said representatives of that Association that the first respondent firm has suspended payments to all its creditors and that they were in difficulty. On 13.3.1990, another meeting of the creditors'' representatives held at the residence of Thiru P.C. Kurian, Advocate and at the said meeting, Thiru T.O. Jacob, the President of the Association and Thiru P.E. Chacko, the Vice President of the Association were present as representing the creditors. The second respondent, the Managing Partner of the first respondent firm who was present again informed them that the firm had suspended payment to the creditors, as they were facing financial difficulty. The second respondent offered to hand over management of the firm at Karadiputhur to the Association and agreed to furnish a complete list of depositors of all the three partnership firms within a week. This however has not been done till date and it was found that he had already sold the year''s produce. Therefore it was submitted that the respondents committed an act of Insolvency under S. 9(g) of the Act, when the second respondent as Managing Partner of the first respondent firm informed the representatives of the creditors at the meeting held on 3.3.1990 and 13.3.1990 that they had suspended payment to their creditors. It is also stated that the business premises of the first respondent firm is closed as on from 6.2.1990 and is under the seal of the Official Liquidator. There is no forwarding address mentioned anywhere on the premises. The first petitioner, P.E. Chacko and K.S. Varkey, visited the residence of the respondents 2 and 3 on 8.3.1990, 15.3.1990, 21.3.1990 and 22.3.1990, but they were not available on each of the occasions. It was therefore submitted that each of the respondents 2 and 3 here with intent to defeat and delay their creditors departed from their dwelling house and their usual place of business and secluded themselves, so as to deprive their creditors of the means of communicating with them. The respondents therefore have committed acts of Insolvency within the meaning of S. 9(d)(ii) and (iii) of the Act. Therefore, the petitioners have prayed to adjudicate the respondents 1 to 4 as insolvents and for costs of this petition to come out of the estate of the insolvents.
3. The above insolvency petition was resisted by the third respondent, Mr. Shanna Thiruchelvam by filing her counter statement, dated ''nil'', The place ear marked for signature of the counsel for the respondent has also been left blank and only the month ''September, 1990'' alone has been mentioned in the counter affidavit. No counter affidavit was filed on behalf of the first and second respondents. According to the third respondent, she was only a dormant partner and was in no manner connected with the affairs of the firm, nor she did conduct any part of the business at any time and therefore by a deed of declaration dated 19th October, 1987, it was agreed that the assets and liabilities of the partnership firm of the first respondent firm would vest with the continuing partner. She has further stated that her resignation from the partnership was accepted by the firm and a dissolution of the firm was effected from the midnight of 30.4.1987 and the terms of the dissolution was agreed and was incorporated in the deed of declaration. It was her case that she was not aware of any deposit or money received by the first respondent firm during the period when she was a partners and that it is absolutely false to suggest that the funds of the first respondent firm was utilised for purchasing properties in the name of the second respondent and his relatives. According, to the third respondent, she is possessed of sufficient means and will be in a position to meet any claim made against her. There can be no claim against the said respondent and that she is not at all liable for any of the acts done by the first respondent firm. According to the third respondent, the retirement from the partnership was given effect to as and from 30.4.1987 and in any event no act of insolvency can be attributed to her, as she had not been associated with the first respondent firm, during the three months prior to the date of presentation of the petition. Hence no act of Insolvency is committed by her so as to invoke any jurisdiction of this Court in insolvency.
4. The second respondent herein was already adjudged as an insolvent by order of this Court, dated 5.11.1990 along with the firm, Guardian Financiers (Madras) and other partners. The second respondent, in Insolvency Petition No. 39 of 1990 has not taken any steps to set aside the order of adjudication of this Court, dated 5.11.1990 and has allowed the said order to become final and conclusive. In Insolvency Petition No. 30 of 1990 also it is mentioned that the first respondent firm, Guardian Financiers (Madras) was started by the second respondent herein and that the said firm was functioning in the same premises at No., General Patters Road, Madras-2.
5. Likewise, the second respondent in the present petition as Managing Partner of the first respondent firm has also not filed any counter statement and contested the proceedings. On behalf of the petitioning creditors P.Ws. 1 to 3 were examined and on behalf of the respondents R.Ws. 1 to 3 were examined and Exs.P1 to P4 have been marked on behalf of the petitioning creditors and Ex. B1 deed of declaration executed on 19.10.1987 by K.C. Cherian, (second respondent) and Mrs. Shanna Thiruchelvam (third respondent) were marked on behalf of the contesting respondents. On behalf of the petitioning creditors, Mr. T. Ramakrishna appeared and reiterated the contentions raised by him in the main Insolvency Petition and on behalf of the third respondent, Mr. R. Krishnaswamy appeared and contested the proceedings, on the basis of the pleadings.
6. According to Mr. T. Ramakrishna, the respondents have committed an act of Insolvency under S. 9(g) and 9(d) of the Act. S. 9(g) of the Act says that a debtor commits an act of insolvency, if he departs with intention to defeat or delay his creditors, departs or remains out of the state, departs from his dwelling house or usual place of business or otherwise absents himself, or secludes himself so as to deprive his creditors of the means of communicating with him. S. 9(1)(g) of the Act speaks of a debtor commits an act of insolvency, if he gives notice to any of his creditors that he has suspended or he has about to suspend payment of his debts.
7. In the context of the facts mentioned above, from the pleadings and the evidence, the points that require consideration in the present petition are:
1. Whether the respondents have committed acts of Insolvency under S. 9(d)(i)(ii) and 9(g) of the Act?
2. Whether the third respondent, Shanna Thiruchelvam is not liable on the ground that she has retired from the first respondent firm as alleged by her in her counter statement with effect from 30.4.1987? and
3. Whether the acts of insolvency complained of are of the joint acts so that all of them are liable to be adjudicated as insolvents?
8A. From the language of the provision, it is clear that the act of insolvency is taken as committed only whether a person departs from his dwelling house or usual place of business or otherwise absents himself with intent to defeat or delay his creditors. On page 35 of Mulla''s law of insolvency in India (III) Edition), it is stated in para 105 as follows:
If a trader shuts up his shop during business hours, or departs from his dwelling house without leaving instructions where he is to be found if creditors call, or without making arrangements for carrying on his business, he must be presumed to have left to avoid his creditors.
Again at page 86, it is stated in the said paragraph as follows:
Absenting oneself is not an act of insolvency unless it be with intent to defeat or delay creditors. Whether the intention exists or not is a question of fact. If a trader shuts up his shop during business hours or departs from the dwelling house without leaving instructions where he is to be found if creditors call or without making arrangement for running his business he must be presumed to have left to avoid his creditors; but the absence may be satisfactorily accounted for and the presumption may be rebutted. No such presumption however arises where the debtor has left a representative behind.
8. In the present, case, therefore it is necessary to see whether the contesting respondents 2 and 3, who are admittedly the Managing Partners of the first respondent firm at the relevant point of time had left the place with intent to defeat or delay the creditors. The onus of proving that the debtor remained out of his house with the instant to defeat or delay the creditors rests on the petitioning creditors. The evidence of P.Ws. 1 to 3 is very clear on this aspect. According to P.W. 1 K.S. Varkey, he visited the respondents 2 and 3, who are the partners of the first respondent firm on many times. In fact, in cross examination, he said that in January, 1990, he met the third respondent on almost all the days and that before closing the business, he was looking after the same. He further stated that he met her at No. 1 General Patters Road, Madras. He also said that he authorised the Consumers Protection and Social Welfare Association to represent him in any of the meetings with regard to the recovery of the amounts. He also said that he went to the recovery of the amounts. He also said that he went to the residence of Mr. K.C. Cherian on three or four occasions in March, 1990 and also visited his residence both before and after the meeting. He further deposed that on 8.3.1990, 15.3.1990, 21st and 22nd March, 1990 he visited the residence. According to him, during the period between 8.3.1990 and 15.3.1990 there was a meeting on 13.3.1990 at Mr. Kurian''s residence. P.W. 2 P.E. Chacko, who accompanied P.W. I also said in his evidence that Mr. K.C. Cherian told him that he has suspended payment to all the creditors. The witnesses, R.Ws. 1 and 2 have denied the depositions of P.Ws. 1 and 2 and said that the respondents 2 and 3 were available in their houses on the dates mentioned by P.W. 1, that they have no absented themselves and that they have also not committed any act of insolvency. R.W. 1 is the third respondent in the main Insolvency Petition and R.W. 2 is her husband. R.W. 2 has admitted that Mr. P.C. Kurian rang up to his father-in-law and asked him to go over to his house to discuss problems and when he went there with his father-in-law, Mr. Cherian, he saw T.O. Jacob and some others at the residence of Mr. P.C. Kurian. In march, 1990 R.W. 2 again admitted the meeting held in January, 1990 and at that time, Mr. P.C. Kurian, T.O. Jacob and some other persons, who are not familiar to him were there. He further admitted that there was one meeting in January and subsequently one more meeting in March, 1990. The evidence of R.W. 2 confirms the evidence of P.Ws. 1 and 2 with regard to the meetings held with Mr. P.C. Kurian, Advocate. It is also seen from the counter affidavit filed by R.W. 1 as respondent 3 that she had not slated that she was present on 8.3.1990, 16.3.1990 and 21.3.1990. She had also not stated in the counter that she was present in Harsha Apartments on those days.
9. I have carefully noticed the evidence of P.Ws. and R.Ws. It is an admitted fact that the contesting respondents 3, was a partner of the first respondent firm. I have no reason to disbelieve or discredit the evidence of P.Ws. It is also an admitted fact by the contesting respondents that the first respondent is a partnership firm and the second respondent is its Managing Partner. It is also admitted by R.W. 1 (respondent-3) that the said partnership firm was functioning at No. 9. General Palters Road, Madras and that the second respondent, K.C. Cherian was managing the affairs of the firm and was in complete control of the said business. She further said that the continued as a partner of the said firm upto 30.4.1987 and that she was not connected in any manner with the affairs of the said firm and that her resignation from the partnership was accepted by the firm and the dissolution of the firm was affected from the midnight of 30.4.1987. It is her evidence that she was not aware of any deposit or money received by the first respondent firm during the period, when she was a partner and that she is not at all liable for any acts done by the first respondent firm. She has further stated that she has not suspended any payment nor withdrawn any money from her usual place of business to show that she retired from the partnership firm. Ex. R1 deed has been marked in these proceedings, which is a deed of declaration executed at Madras on 19th October, 1987. Though according to the third respondent that she retired from the partnership with effect from the midnight of 30.4.1987 no explanation is forthcoming that why the need of declaration was executed after several months, after her alleged retirement from the partnership. The document was signed by Mr. K.C. Cherian, the second respondent and Mrs. Shanna Thiruchelvam the third respondent in the present proceedings. Ex. R1 deed was attested by Mr. T.N.C. Sivasubramanian, Advocate and Notary Public, Madras-1. The third respondent (R.W.1) also stated in her evidence that she never involved herself as a partner in the affairs of the firm during the continuance of the partnership firm and that she was not aware of any of the transactions with regard to the lending or borrowing of the first respondent firm. According to her, even though she admitted that she gave her letter of resignation in January 1987, the document (Ex. R1) was executed only in October, 1987 and that she can produce the said letter of her resignation given to the firm. However, the said letter of resignation stated to have been written and sent by the third respondent (R.W.1) to the firm was not at all produced before this Court. In my opinion, the document (Ex. R1) should have been fabricated purposely to show that she has retired from the firm. There is no proof to show that the Registrar of firm was intimated with regard to the change in the constitution of the firm and no document was produced before this Court to show that any intimation was given to the Registrar of firms or no proof was shown to establish that the said document was filed before the Registrar of firms. As rightly contended by Mr. T. Ramakrishna, Learned Counsel for the petitioning creditors, Ex. R.1 has been fabricated only to suit the case of the third respondent.
10. Mr. T. Ramakrishna, Learned Counsel for the petitioning creditor cited the decision reported in Structeemech India v. Bharathkumar AIR 1982 Madras 51:94 L.W. 529 in support of his contention. The learned Judges of the Division Bench held that the act of one partner of the firm can well be construed as an act on behalf of all the partners if the circumstances warrant such a conclusion. It is also an admitted fact that the second respondent was in complete authority and control and administration of the firm. He was adjudicated as an insolvent as stated above on 5.11.1990 by orders of this Court, but no steps were taken on his behalf to set aside the said order of adjudication, which has became final and conclusive. The totality of the circumstances mentioned above by me would go to show that the conduct of the second respondent as Managing Partner should be taken as an act done on behalf of all the partners. The consequences that follow should have application to all the partners and not only to the second respondent since it is the specific case of the petitioning creditor that the second respondent as Managing Partner told the petitioning creditor that he has suspended all the payments. The second respondent is not before this Court to controvert the said categorical statement made by the petitioning creditor in cross examination. It was argued by Mr. R. Krishnaswamy, Learned Counsel appearing on behalf of the third respondent that the act of the second respondent is not binding on her since she has not participated in the conduct of the partnership business though she was also a partner till 30.4.1987. I am unable to countenance the said contention of the Learned Counsel. It is settled law not only by this Court, but also by the Highest court of the land that an order of adjudication can also be made against a firm if there was an act of insolvency by an agent of a firm which was considered as most necessarily to be amputated to the firm. The question whether an act of insolvency of one or more partners can be regarded as an act of all the partners is a question of fact to be determined on the facts and circumstances of each particular case. As held by the Division Bench of this Court (referred to above) in AIR 1982 Madras 51:94 Law Weekly 529, the act of one partner of the firm can well be construed as an act on behalf of all the partners if the circumstances warrant such a conclusion. It is not absolutely necessary for the petitioning creditor to prove the express authority given by each one of the partners to the particular partner, who had been in charge of the management. If the totality of the circumstances go to show that the expression contained in the letter should be taken as an act done on behalf of all the partners, then the consequences that follow should have application to all the partners. The decision reported in Kustoor Chand Rai Bahadur v. Dunput Singh Rai Bahadur 1895 (VI.V)MLJ 269 (P.C.), it is held that stoppage of payment when a trader who trades by a Gumasta could be adjudicated as insolvent, if the Gumasta committed an act of insolvency, provided the Gumasta represented the business so entirely that the beneficial owners have no practical control over it and are quite unknown to customers and it is a question in each case whether the Gumasta occupies such a position that the owner must stand or fall by his acts so that his fraud or his flight, shall by imputation be the fraud or flight of the owner or multitude of owners, for the purpose of bringing their case within the statute of insolvency. The above decision of the Privy Council of the year 1895 is still holding the field and has been followed in very many subsequent Judgments of this Court. In the instant case, it is proved clearly that the second respondent is the Managing partner of the first respondent firm and that he represents the business as Managing Partner entirely on behalf of the other partners and with their knowledge. He has committed an act of insolvency with the knowledge of the other partners and has suspended payments and moved away from the place of business and his residence which is not at all controverted by him in this Court by filing any counter statement or by letting in any oral or documentary evidence. Thus, it is clear that the second respondent was carrying on the business as an agent of other partners and by their authority, consent and knowledge and hence the act of insolvency committed by the second respondent will automatically bind the other partners.
11. Another Division Bench of this Court in Shanahalu Siva Reddi v. The Official Receiver of Bellary 71 MLJ 730 consisting of Mr. Justice Burn and Mr. Justice Lakshmana Rao held,
where in insolvency a partnership was proved to have existed among three brothers of a joint family and hence the acts of one of them in exclusive control of the business as agent were sufficient to implicate the other two in insolvency but it was contended that the act or acts of insolvency committed by one only one of them could not support the adjudication of the other two.
Held, that so far as the notice of suspension of payment to creditors by the brother who was in exclusive control of the business was one by which his partners should also stand or fall according to the meaning of the explanation to S. 6 of the Provincial Insolvency Act, the acts of that brother should be deemed to be the acts of the others also and their adjudication as insolvents was correct.
In the instant case, it is proved as stated above, that the second respondent was in exclusive control of the business as Managing Partner and that the other partners should also stand or fall by the acts of that Managing partner which should be deemed to be the acts of others also. Hence, the notice of suspension of payments given by the second respondent on behalf of the first respondent and on behalf of the other partners, who were in exclusive control of the business, admittedly in my opinion liable to be adjudicated as insolvents in the instant case.
12. A partnership was proved to have existed among all the respondents and hence the act of one of them namely, the second respondent in exclusive control of the business as an agent were sufficient to implicate the other partners in insolvency.
13. In regard to the second point whether the third respondent is not liable on the ground that she retired from the first respondent partnership with effect from 30.4.1987 my conclusions are as under: As mentioned above, the third respondent has categorically admitted that she is also a partner of the first respondent firm, but according to her she had retired from the partnership firm from 30.4.1987. Ex. R1 is the only document filed by the third respondent in this context. As stated above, the said document has been fabricated to suit the case of the third respondent that she has already retired from the partnership firm. Thai apart, there is no proof or material placed before this Court to show that she gave public notice under S. 72 of Indian Partnership Act, which is mandatory. It is settled law that until notice was given, the persons dealing with the firm will be entitled to hold the persons retiring also liable. This will be the case even when those who never had dealings with the firm and who knew of his existence only by repute. They could remain with the firm continue to exist until they give notice under S. 32(3) of the Indian Partnership Act. The retiring partner continues to be liable under that Section until public notice is given on his retirement and what the public notice is under the Act is specified by S.72. Therefore on a reading of both these sections that a retiring partner will continue to be liable for any subsequent act on behalf of the firm which would bind the firm until a public notice as prescribed by S. 72 is given. If a retiring partner who has not given notice in the mode specified under S. 72 wants to escape liability for any subsequent acts on behalf of the firm, it can only be on the basis of some other rule or law and not on the ground that public notice was given in a manner different from that prescribed by S.72. S.72 provides that public notice contemplated under S. 72 shall be given by notice to the registrar of firms under S. 63 and publication in the Official Gazettee and in atleast one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business. As stated above, not a scrap of paper has been produced before me to show that the retirement of giving public notice prescribed under S. 72 has been complied with. Thus, the third respondent has miserably failed to prove that she has retired from the partnership as alleged by her. Hence, she is also liable to be adjudicated as an insolvent for the acts of insolvency committed by her as stated above along with other partners, particularly, the respondents 1 and 2.
14. Per contra, Mr. R. Krishnaswamy, Learned Counsel appearing for the respondents 2 and 3 cited the decision reported in
