S. Satheesh v. State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE T.R.RAVI** **WEDNESDAY, THE 7[TH] DAY OF JULY 2021 / 16TH ASHADHA, 1943** ## **WP(C) NO. 9932 OF 2015** ## **PETITIONER:** S.SATHEESH AGED 42 YEARS S/O. LATE K.N. SATHYAPALAN, MANAGING PARTNER, K.N. SATHYAPALAN & CO. EDAKKIDOM P.O., EZHUKONE, KOLLAM 691 505 BY ADVS. SRI.S.SREEKUMAR (SR.) SRI.P.MARTIN JOSE SRI.P.PRIJITH SRI.THOMAS P.KURUVILLA ## **RESPONDENTS:** 1 THE STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY, SECRETARIAT, THIRUVANANTHAPURAM 695001 2 SUPERINTENDING ENGINEER, PROJECT CIRCLE PIRAVOM 686664 3 THE EXECUTIVE ENGINEER IIP DIVISION NO.1, ANGAMALY, ERNAKULAM 683573 4 ASSISTAT EXECUTIVE ENGINEEER IIP DIVISION NO.1, ANGAMALY, ERNAKULAM 683573 BY SR. GOVERNMENT PLEADER SMT.DEEPA NARAYANAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 22.6.2021, THE COURT ON 07.07.2021 DELIVERED THE FOLLOWING: W.P.(C)No.9932 of 2015 2 **“CR”** ## **T.R. RAVI, J.** **-----------------------------------------------W.P.(C)No.9932 of 2015 --------------------------------------------------** ## **Dated this the 7[th] day of July, 2021** ## **JUDGMENT** Pious obligation, a doctrine/principle of pristine Hindu law, which obliged a son to settle the debts incurred by his father, appears to be still haunting the Irrigation Department, in undertanding the rights of the parties to a written contract. The petitioner, who is the Managing Partner of a partnership firm, which has executed certain works on the basis of agreements entered into with the respondents, are faced with a situation where the amounts due to them are being withheld for the reason that certain amounts are due from the mother of the Managing partner of the firm to the department, for having abandoned a work which was undertaken by her. One wonders whether the basic principles of the laws relating to partnerships and contracts will not apply when one of the contracting parties is the State !!! 2. Heard Sri S.Sreekumar, Senior Advocate, instructed by Sri P.Martin Jose, on behalf of the petitioner and Smt.Deepa W.P.(C)No.9932 of 2015 3 Narayanan, Senior Government Pleader, on behalf of the respondents. 3. One Sri Sathyapalan had been undertaking civil works entrusted by the State, both in his individual capacity as well as through a partnership firm, which had been reconstituted on several instances from 1979. He had undertaken a work on 16.6.2000, which was designated as "IIP – Constructing Lower-level canal from CH.9000m to 9455m, including Construction of pressure siphon, flume and aqueduct". The work was entrusted to him in his personal capacity as can be seen from Ext.P8 letter dated 13.4.2000. Soon after the execution of the agreement relating to the work, he died on 7.7.2001, leaving behind his wife and two sons. In the agreement executed, Sri Sathyapalan had named his wife Smt.P.Syamala as his nominee, and it can be seen Ext.P8, which contains the nomination, that the nomination is for the purpose of receiving all or any sums due to her husband, under the terms of the agreement dated 16.6.2000. After the death of Sri Sathyapalan, his legal heirs wrote Ext.R4(a) letter to the Superintending Engineer on 10.7.2001, stating that they are the only legal heirs and they are willing to continue the work through a partnership firm, that they acknowledge the nomination of Smt.P.Syamala and further W.P.(C)No.9932 of 2015 4 requesting that the nominee may be permitted to complete the balance work. The respondents thereafter executed Exhibit P6 supplementary agreement with the nominee on 03.08.2001, whereby it was agreed that the nominee shall execute the work as per the original schedule of the work, at the rate specified in that schedule and that the nominee shall not claim any enhanced rate of compensation, whatsoever. It can be seen from Exhibit P6 that the respondents in their wisdom thought it fit to entrust the work to the nominee in her personal capacity, without any reference to the partnership firm constituted by the legal heirs, even though at that point of time, Smt.P.Syamala was also a partner of the said firm. 4. It is contended that the nominee did not complete the work in the prescribed time owing to the failure of the respondents to supply materials for the work as agreed in the agreement. The respondents extended the time for completion of the work on several occasions but did not supply materials. The validity of the original agreement expired on 13.07.2002. The nominee requested the 2[nd] respondent to foreclose the contract and relieve her from the obligation of continuing the work and she refused to grant revised rates for completing the work. The request has been produced as Exhibit P1. The dispute regarding the said work went up to the W.P.(C)No.9932 of 2015 5 Hon'ble Supreme Court in Civil Appeal Nos.1961–1962 of 2013, which was disposed of by Exhibit P2 judgment dated 26.2.2013, with an observation that the nominee shall be free to file a civil action for damages/compensation. It is stated that the nominee has filed O.S.No.48 of 2014 thereafter, which is pending before the Sub Court, Muvattupuzha. In short, whether Smt.P.Shyamala is liable to pay any amount to the respondents under the "risk and cost" clause, for withdrawing from the work undertaken by her, is pending consideration of a civil court. 5. After the death of Sri Sathyapalan, the petitioner, his brother and their mother, together constituted a partnership firm, which started conducting business, with the petitioner as the Managing Partner. The mother retired from the firm with effect from 31.03.2013. The firm had undertaken the work IIP–Constructing main canal from Ch–24442m to 25000m, including CD works, which had nothing to do with the work which had originally been undertaken by late Sathyapalan and later by the petitioner's mother in her individual capacity. By Exhibit P3 letter dated 4.8.2014, the petitioner was informed that the final bill towards the above work amounting to Rs.30,01,268/-, has been withheld to realise the risk and cost liability of Rs.93,03,057/- allegedly incurred by their W.P.(C)No.9932 of 2015 6 mother towards the work she had undertaken as the nominee of their deceased father. Exhibit P3 letter has apparently been issued on a wrong notion that the mother was still a partner of the firm. The petitioner has produced Exhibit P4 Deed of Reconstitution of the partnership firm after the retirement of his mother, which shows that no further amount is due to her from the partnership firm. It is the contention of the petitioner that the respondents can proceed against the firm only with respect to amounts that are owed by the firm to his mother. It is further submitted that even in cases where a partner of the firm is to be proceeded against for amounts due from him in his individual capacity, the firm in which he is a partner can be proceeded against only to the extent of his share in the profits or such amounts outstanding to him from the firm. The petitioner points out that he has availed a loan for the works undertaken, from the Federal Bank, Kottarakara and that the credits withheld by the respondents are actually amounts that have to be credited into the loan account. It is submitted that the bank has already initiated steps under the SARFAESI Act for realising the amounts due. The writ petition is hence filed, praying to quash Exhibit P3 and for a direction to the respondents to release the credit received in favour of the firm for payment of CC 8 and final bill amounting to Rs. W.P.(C)No.9932 of 2015 7 30,01,268/-, which has been withheld by the 3[rd] respondent, immediately. 6. The petitioner contends that as regards the work undertaken by his mother, there is no privity of contract between the respondents and the petitioner and the respondent had absolutely no right to withhold amounts legally due to the petitioner, and adjust it towards amounts allegedly due from his mother. Admittedly, the liability of the mother is one of the issues to be decided in the civil suit pending before the parties. The only justification sought to be offered by the respondents for withholding the amounts due to the petitioner is on the basis of Ext.R4(a) letter. The attempt of the Senior Government Pleader is to establish that Ext.R4(a) letter amounts to an admission that the work that was undertaken by the nominee after the death of her husband was in fact on behalf of the partnership firm and that the intention of the parties was that the partnership firm is the awardee of the contract. 7. The contention of the respondents suffers from several infirmities. It can be seen from Ext.P8 that the nomination in favour of Smt.Syamala was for the purpose of receiving any amount that had become payable to deceased Sathyapalan. The nomination does not have any other implication either in terms of the document or in W.P.(C)No.9932 of 2015 8 terms of law. Ext.R4(a) is an acknowledgment of the above nomination by the other legal heirs of Sathyapalan and nothing more. Even though in Ext.R4(a), the other legal heirs had expressed their willingness to carry on the work through the partnership firm and they had also expressed their consent to the respondents permitting the nominee to carry on the balance work involved, it can be seen from Ext.P6 supplemental agreement executed between the nominee Smt.P.Syamala and the Superintending Engineer that the work was entrusted only to the nominee and not to the partnership firm. When there is a written agreement existing between the parties, the respondents cannot gainsay that the work was undertaken by the firm. 8. The manner in which acts done by a partner can bind a partnership firm are statutorily laid down in sections 19 and 22 of the Partnership Act, which read as follows:- "19. **Implied authority of the partner as agent of the firm** .—(1) Subject to the provisions of Section 22, 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. The authority of a partner to bind the firm conferred by this section is called his “implied authority”. (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to— W.P.(C)No.9932 of 2015 9 - (a) submit a dispute relating to the business of the firm to arbitration, - (b) open a banking account on behalf of the firm in his own name, - (c) compromise or relinquish any claim or portion of a claim by the firm, - (d) withdraw a suit or proceeding filed on behalf of the firm, - (e) admit any liability in a suit or proceeding against the firm, - (f) acquire immovable property on behalf of the firm, - (g) transfer immovable property belonging to the firm, or - (h) enter into partnership on behalf of the firm. xxxxx xxxxx xxxxx 22. **Mode of doing act to bind firm** .—In order to bind a firm, an act or instrument done or executed by a partner or other person 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." 9. It can be seen from the above that the provisions of Section 19 are subject to Section 22. Section 22 lays down the manner in which the action of a partner or a document executed by a partner or other person on behalf of the firm binds the firm. Legally, the respondents could have withheld the amounts due to the firm only if they are able to establish that the liability that was allegedly incurred by Smt.P.Syamala, was relatable to an action W.P.(C)No.9932 of 2015 10 done by her as a partner and that too on behalf of the firm or was as a result of a document executed by her as a partner and on behalf of the firm, expressing or implying an intention to bind the firm. 10. A question similar to the one on hand was considered by the Hon'ble Supreme Court in **Devji v. Magan Lal R. Atharana** reported in **[(1964) 7 SCR 564 : AIR 1965 SC 139].** That was a case where one of the partners of a firm had taken a colliery on sub-lease and the lessor had filed a suit for recovery of amounts due on the sub-lease against all the partners of the firm. The courts below had found that the sub-lease was taken by one of the partners in his name and that the same was not on behalf of the firm and that the other partners cannot be held liable. The Hon'ble Supreme Court confirmed the said finding. Paragraph 6 of the judgment is extracted below: **“6.** In view of the fact that both the courts below have found concurrently that the sub-lease in question was taken by respondent 4 alone, the only point urged by Mr Sarjoo Prasad in support of the appeal is that respondent 4 being a partner in the Saurashtra Coal Concern, all the partners of the firm are liable under the lease inasmuch as the firm admittedly came into possession of the demised colliery. He points out that even according to respondents 1 to 3, they came into possession of the demised colliery immediately after the execution of the sub-lease, and wants this Court to infer from this that the partnership had already come W.P.(C)No.9932 of 2015 11 into existence before the lease was obtained. This, however, has never been the case of the appellant in the courts below. The only case which he put forward was that the lease was taken by respondent 4 on behalf of all the respondents. In other words his case was that respondent 4 was a _benamidar_ for the partnership firm. It is only this case which the respondents had to meet, and in our judgment, it would not be proper to permit the appellant to make out an entirely new case at this stage. Apart from that, Section 22 of the Indian Partnership Act, 1932, clearly provides that in order to bind a firm by an act or an instrument executed by a partner on behalf of the firm, the act should be done or the instrument should be executed in the name of the firm, or in any other manner expressing or implying an intention to bind the firm. The sub-lease was not executed in the name of the firm, and it has been found by the courts below that respondent 4 in obtaining the lease, did not act on behalf of the firm. This in substance means that in obtaining the sub-lease, the parties to it did not intend to bind the firm by that transaction.” 11. The effect of Sections 19 and 22 of the Partnership Act has been considered by this Hon'ble Court in several cases, but mostly in relation to negotiable instruments executed by partners. In the decision in **M.Rajagopal v. K.S.Imam Ali** reported in [ **1980 SCC OnLine Ker 251 : AIR 1981 Ker 36],** a Division Bench of this Court after referring to several earlier decisions, held in paragraph 15 as follows: **“15.** The consistent view taken in the above decisions is W.P.(C)No.9932 of 2015 12 therefore to hold that when liability is sought to be fastened on an undisclosed principal on the strength of a negotiable instrument, it is not enough if the principal's name is disclosed in some way, but it must be disclosed in such a way that by any fair interpretation of the instrument it should be possible to hold that the undisclosed principal is the real person liable for the debt. When there is a conflict between Sections 19 and 22 of the Partnership Act on the one hand and Sections 26, 27 and 28 of the Negotiable Instruments Act, the latter Act should prevails. A claim against a firm based on a written contract by one partner in the course of business with authority to act will be held to be binding on the firm. But when such a claim is made on the strength of a promissory note or a bill of exchange, court will have to be satisfied that the negotiable instrument discloses the liability of the firm clearly.” 12. The undisclosed principal in the present case is the partnership firm represented by the petitioner. In the light of the agreement executed between the respondents and Smt.P.Syamala, the respondents cannot contend that she had executed the document with any intention to bind the firm or in her capacity as a partner of the firm. This is all the more evident from the reading of Ext.R4(a) which had preceded the agreement. Even though in Ext.R4(a) the legal heirs of Late Sathyapalan had expressed the willingness of the firm to carry out the work, the respondents chose to execute the agreement with Smt.P.Syamala in her individual W.P.(C)No.9932 of 2015 13 capacity. As such, neither Smt.P.Syamala nor the respondents have intended the agreement to bind the firm. It follows therefore that no liability alleged to have been incurred as a result of Ext.P6 agreement can be fastened on the petitioner. 13. The next question that would arise is whether the partnership assets can be made liable for a debt allegedly owed by a partner. There can be no doubt that if a partner owes any money, the creditor will be entitled to proceed against the profits that may be earned by the debtor, in his capacity as a partner of a firm or against the debtors' interest in the partnership firm. In the case on hand, Smt.P.Syamala had retired from the partnership as can be seen from Ext.P4 deed dated 31.03.2013, whereby the partnership was reconstituted. There is nothing in the pleadings of the parties to show that the retiring partner had any rights subsisting in the partnership, on the date of issuance of Ext.P3 letter by the Assistant Executing Engineer, proposing to withhold the amounts due to the firm, towards the risk and cost liability of Smt.P.Syamala. Ext.P3 proceeds on the basis that Smt.P.Syamala is a partner of the firm, which does not appear to be correct on the basis of Ext.P4 deed. Since the question whether Smt.P.Syamala has any "cost and risk" liability to the respondents is admittedly pending consideration of W.P.(C)No.9932 of 2015 14 the competent civil court, it is not necessary in these proceedings to go into the question as to the modes of recovery that can be resorted to by the respondents, if they are able to succeed in the civil court. In the result, the writ petition is allowed. The decision contained in Ext.P3 to withhold the payment due to the petitioner's firm is set aside. There will be a direction to the respondents to release the credit received in favour of the petitioner's firm for payment of CC8 and final bill amounting to Rs.30,01,268/immediately, at any rate within a period of one month from the date of receipt of a certified copy of this judgment. It is made clear that this Court is not expressing any opinion regarding the rights of the respondents and that of Smt.P.Syamala in the civil suit O.S.No.48 of 2014, pending before the Sub Court, Muvattupuzha. The parties will bear their respective costs. Sd/-- **T.R. RAVI JUDGE** dsn W.P.(C)No.9932 of 2015 15 ## **APPENDIX OF WP(C) 9932/2015** ## PETITIONER ANNEXURE EXHIBIT P1: A COPY OF THE REQUEST DATED 12.12.2001 MADE BY THE PETITIONER TO RELIEVE HER OF THE WORK EXHIBIT P2: A COPY OF THE ORDER IN CIVIL APPEAL NO.19611962 OF 2013 DATED 26.2.2013 EXHIBIT P3: TRUE COPY OF THE LETTER NO. A1-1155/2003 DATED 04.8.2014 EXHIBIT P4: A COPUY OF THE DEED OF RECONSTITUTION OF PARTNERSHIP DATED 01.3.2013 EXHIBIT P5: A COPY OF THE COMPLAINT SUBMITTED TO THE 2ND RESPONDENT DT.9.10.2014 EXHIBIT P6: A COPY OF SUPPLEMENTARY AGREEMENT ALLEGEDLY USED BY THE RESPONDENTS TO MAKE THE PETITIONER LIABLE FOR THE ALLEGED LIABILITY. EXHIBIT P7: A COPY OF THE EXTRACT OF THE RELEVANT PORTION OF THE MANUAL ## **EXTS.PRODUCED ALONG WITH I.A.17147/2017 BY THE PETITIONER.** EXHIBIT P6: TRUE COPY OF WORK ORDER DT.13.4.2020 EXHIBIT P7: TRUE COPY OF ORDER DT.2.8.2001. EXHIBIT P8: TRUE COPY OF AGREEMENT DT.16.6.2000. EXHIBIT P9: TRUE COPY OF AGREEMENT DT.13.5.2004. ## **RESPONDENTS' EXTS:** ANNEXURE R4(A): TRUE COPY OF LETTER DT.10.07.2001.