Case Note & Summary
The dispute arose from a partnership between the appellant and one Jamnadas Ghelabhai, later continued with Bai Itcha, widow of the deceased partner. After Bai Itcha's death, the appellant filed a suit for enforcement of an oral agreement allegedly settling partnership accounts. The respondents, heirs of Bai Itcha, denied the agreement and made a counter-claim in their written statement for winding up and accounts, paying court fee. The trial court dismissed both the suit and counter-claim, rejecting a prayer to treat the counter-claim as a plaint in a cross-suit. The first appellate court dismissed the appeal, but the High Court of Gujarat allowed the appeal, set aside the dismissal of the counter-claim, directed it be treated as a plaint in a cross-suit, and remanded the case. The appellant appealed to the Supreme Court by special leave.
Before the Supreme Court, the appellant contended that a counter-claim cannot be treated as a plaint in a cross-suit, that the conversion would be barred by limitation, and that Section 37 of the Partnership Act stood in the way. The respondents argued that the counter-claim was in substance a plaint and that the High Court's order was proper.
The majority, per Ayyangar J. (with Das J. concurring), held that if what is really a plaint is made part of a written statement as a counter-claim, there is no legal objection to treating it as a plaint. The crucial date for limitation was held to be the date of filing the written statement containing the counter-claim, not the date of conversion. The court also held that Section 37 of the Partnership Act did not bar the conversion and that goodwill was part of the firm's assets. The High Court was justified in interfering with the lower courts' discretion because they acted on untenable grounds. The appeal was dismissed. Sarkar J. delivered a separate judgment concurring in the result but dissenting on the limitation date, holding that the plaint in cross-suit should be deemed filed on the date the court ordered conversion.
Headnote
A) Civil Procedure - Amendment of Pleadings - Counter-claim as plaint in cross-suit - Code of Civil Procedure, 1908, Order 8 Rule 6 - The High Court directed a counter-claim in a written statement to be treated as a plaint in a cross-suit; the Supreme Court held that if what is really a plaint is made part of a written statement as a counter-claim, there is no legal objection to treating it as a plaint, provided no substantial variation in allegations or relief. Held that the High Court order was correct.
B) Limitation - Amendment and Limitation - Date of filing of cross-suit - Code of Civil Procedure, 1908, Order 6 Rule 17 - Majority held that the crucial date for determining when the plaint in cross-suit should be treated as filed is the date of filing the written statement containing the counter-claim, not the date of the conversion order. This preserved the claim from limitation bar.
C) Partnership - Liability of Surviving Partner - Section 37 Partnership Act, 1932 - Section 37 does not bar conversion of counter-claim into plaint; it lays substantive law on liability of surviving partner who continues business without settlement.
D) Partnership - Goodwill as Asset - Settlement of Accounts - The goodwill of a firm is part of assets and must be sold like other assets before accounts can be settled and partnership wound up.
E) Appellate Jurisdiction - Interference with Discretion - High Court's power - The trial court and first appellate court exercised discretion in refusing conversion on grounds not legally tenable; High Court was justified in ignoring that discretion.
Issue of Consideration
Whether a counter-claim made in a written statement can be treated as a plaint in a cross-suit, and if so, what is the relevant date for limitation purposes; whether the High Court was justified in remanding the case for trial on that basis
Final Decision
The Supreme Court dismissed the appeal and upheld the High Court order. The majority held that a counter-claim in a written statement could be treated as a plaint in a cross-suit if it was in substance a plaint. The crucial date for limitation was the date of filing the written statement containing the counter-claim, not the date of conversion. The court allowed the appellant to file a fresh written statement and the respondents to file a fresh plaint without substantial variation. Sarkar J. concurred in the result but dissented on the limitation date, holding that the plaint should be deemed filed on the date of the conversion order.
Law Points
- Counter-claim in written statement can be treated as plaint in cross-suit if in substance a plaint
- crucial date for limitation is date of filing written statement containing counter-claim
- amendment to clarify existing pleading not barred by limitation
- Section 37 Partnership Act does not bar conversion
- goodwill is part of assets and must be sold
- High Court can interfere with discretionary order if discretion exercised on untenable grounds
Case Details
1963 LawText (SC) (03) 26
Civil Appeal No. 759 of 1962
N. Rajagopala Ayyangar, Sudhi Ranjan Das, A.K. Sarkar
1964 AIR 11, 1964 SCR (2) 567
S.T. Desai, A.G. Ratnaparkhi, M.H. Chhatrapati, J.B. Dadachanji, O.C. Mathur, Ravinder Narain
Laxmidas Dahyabhai Kabarwala
Nanabhai Chunilal Kabarwala and Ors.
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Nature of Litigation
Civil appeal by special leave against a High Court order directing a counter-claim to be treated as a plaint in a cross-suit and remanding the case for trial.
Remedy Sought
Appellant sought reversal of the High Court order; respondents sought to have their counter-claim treated as a plaint in a cross-suit and to obtain an accounting and winding up of the partnership.
Filing Reason
Dispute arose from partnership dissolution and an alleged oral settlement agreement; appellant filed suit for enforcement; respondents filed a counter-claim in their written statement seeking winding up and accounts.
Previous Decisions
Trial court (Civil Judge at Broach) dismissed the suit and counter-claim on November 30, 1954, and refused to treat the counter-claim as a plaint in a cross-suit. First appellate court dismissed the appeal. High Court of Gujarat allowed the appeal, set aside dismissal of counter-claim, directed it be treated as a plaint in a cross-suit, and remanded.
Issues
Whether a counter-claim made in a written statement can be treated as a plaint in a cross-suit
What is the relevant date for limitation purposes when a counter-claim is converted into a plaint in a cross-suit
Whether the amendment should be refused because it would take away a legal right accrued by lapse of time
Whether Section 37 of the Partnership Act bars the conversion
Whether goodwill of a firm is part of the assets and must be sold before settlement of accounts
Whether the High Court was justified in interfering with the discretionary orders of the lower courts
Submissions/Arguments
Appellant argued that a counter-claim cannot be treated as a plaint in a cross-suit in the absence of statutory provision
Appellant contended that the conversion would be barred by limitation because the fresh plaint would be filed after the limitation period
Appellant relied on Section 37 of the Partnership Act to argue that the surviving partner's liability is only as per that section
Respondents argued that the counter-claim was in substance a plaint and the court had power to treat it as such
Respondents submitted that the amendment merely clarified existing pleading and did not add new allegations, so limitation should not apply
Respondents contended that the High Court was correct in setting aside the lower courts' discretion because it was exercised on untenable grounds
Ratio Decidendi
A counter-claim made in a written statement can be treated as a plaint in a cross-suit if it is in substance a plaint, even though described as a counter-claim. The date for limitation purposes when such conversion is ordered is the date on which the written statement containing the counter-claim was filed. An amendment which merely clarifies an existing pleading and does not add new allegations or reliefs is not barred by limitation. Section 37 of the Partnership Act does not prevent the conversion. Goodwill is part of the firm's assets and must be sold before accounts are settled. The High Court can interfere with a discretionary order if the discretion was exercised on legally untenable grounds.
Judgment Excerpts
If what is really a plaint in a cross-suit is made a part of a written statement either by being made an annexure to it or as part and parcel thereof, though described as a counter-claim, there could be no legal objection to the court treating the same as a plaint and granting such relief to the defendant as would have been open if the pleading had taken the form of a plaint.
Save in exceptional cases, leave to amend under Or. 6, R. 17 of the Code of Civil Procedure will ordinarily be refused when the effect of the amendment would be to take away from a party a legal right which had accrued to him by lapse of time.
Section 37 of the Partnership Act lays down the substantive law relating to the liability of a surviving partner who without a settlement of account with the legal representatives of a deceased partner, utilises the assets of the partnership for continuing the business as his own.
Procedural History
The appellant filed a suit in the Court of the Civil Judge at Broach for enforcement of an oral agreement regarding settlement of partnership accounts. The respondents filed a written statement denying the agreement and making a counter-claim for winding up and rendition of accounts, paying court fee. The trial court dismissed both the suit and counter-claim on November 30, 1954, and rejected the prayer to treat the counter-claim as a plaint in a cross-suit. The respondents appealed; the first appellate court dismissed the appeal. The High Court of Gujarat allowed the appeal, set aside the dismissal of the counter-claim, directed that it be treated as a plaint in a cross-suit, and remanded the case for trial. The appellant then appealed to the Supreme Court by special leave.
Acts & Sections
- Code of Civil Procedure, 1908: Order 6 Rule 17, Order 8 Rule 6
- Partnership Act, 1932: Section 37
- Constitution of India: Article 136
