Dear Mr. Daksh, besides your posting about a judgement of Hon'ble Punjab & Haryana High Court which amply clears that both Sections i.e 420 and 406 cannot go together, I have found anothre classic case of Kolkata High Court by Hon'ble Chief. Judge Harries, C.J. that clears Sec 406 IPC can not be applied aginst a partner by another partner of a firm and another Judgement by Hon'ble Justice P S Datta vide case " Naba Kumar Banerjee vs State Of West Bengal And Anr. on 10/1/2008" . So I think these judjements also apply in the concerned case, "Remedy for an accused u/s 420/406 and another u/s 138 NI Act" ...............
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Equivalent citations: (2008) 1 CALLT 361 HC, 2008 CriLJ 1180
Bench: P S Datta
Naba Kumar Banerjee vs State Of West Bengal And Anr. on 10/1/2008
ORDER
Partha Sakha Datta, J.
1. By this application dated 29-1-2007 under Article 227 of the Constitution of India, the order dated 5-1-2007 passed by learned Additional Sessions Judge, Barrackpore in Criminal Revision No. 194 of 2006 affirming thereby the order dated 16-6-2006 passed by learned Judicial Magistrates, 3rd Court, Barrackpore in case No. C-851 of 2003 under Section 420/406 of the IPC whereby the learned Magistrate rejected the prayer of the petitioner under Section 245(1) of the Cr.P.C. is under challenge. The O.P. No. 2 herein as complainant lodged a complaint with the learned CJM, Barasat being case No. C-851 of 2000 alleging that the petitioner-accused proposed to him for a partnership business which he agreed to, as a result of which a partnership agreement was drawn up between them on 5-12-2002 and the petitioner-accused received Rs. 2 lac from the complainant for carrying on partnership business in the name and style of M/s. Banerjee Chemicals Industries Estate. The accused kept the money in his own personal account in Oriental Bank of Commerce. The complainant came to be involved in partnership business for some time but owing to personal difficulties he informed the accused-petitioner through letter dated 28-3-2000, in reply to which the accused expressed his readiness to repay the money by instalments. Apart from the letter in reply dated 30-4-2000 the accused also reiterated his assurance of returning the money through another letter dated 20-5-2000. Money was not repaid despite reminders followed by advocate's letter dated 30-5-2000. When the complainant confronted the accused on 25-6-2000 the latter refused to make repayment of the money.
2. After examination of P.W. 1 before charge the accused-petitioner filed a petition before the learned Magistrate under Section 245(1) of the Cr.P.C. praying for discharge on the ground that no case was made out against him. The order of rejection by the learned Judicial Magistrate, 3rd Court, Barasat dated 16-6-2006 was affirmed in criminal revision No. 194 of 2006 by the learned Additional Sessions Judge, Barrackpore in his order dated 5-1 -2007 and it is against this order of the learned Judge in the Court below that this revisional application has been preferred on the grounds inter alia that the learned Judge in the Court of revision failed to appreciate that non-compliance with the terms of partnership agreement amounted to civil dispute and no case of criminal breach of trust or of cheating was maintainable. I have heard Mr. M. Goswami, learned advocate for the petitioner and Mr. Swapan Kumar Mallick, learned advocate for the State of West Bengal. The O.P. No. 2 who is the de facto-complainant did not turn up. Affidavit of service shall be kept with the record. The learned Magistrate observed that on perusal of the evidence before charge sufficient materials were available to frame charge under Section 420/406 of the IPC and the learned Additional Sessions Judge reasoned that since the trial Court observed that there were sufficient materials to frame charge against the accused it could not be said that there has been improper use of jurisdiction. The learned Judge succinctly recorded evidence of the complainant before charge and referred to partnership agreement and the correspondences between the parties. The complainant-O.P No. 2 stated in his evidence that he had entrusted Rs. 2 lac to the present petitioner who did not deposit the amount in the bank as per the agreement and thus according to the learned Judge there was no reason to disturb the finding of the learned trial Court.
3. During hearing the point that has been canvassed is whether on the facts pleaded in the petition of complaint which was referred to in the partnership agreement it can be said that the petitioner, a co-partner has misappropriated the property, i.e. a sum of Rs. 2 lac, as allegedly given by the complainant to the petitioner in connection with running of the partnership business. Though normally annexures to the petition of complaint which in the instant case is a partnership agreement should not be looked into in the revisional forum as it is a material banked upon by the defence to be tested only at the trial here is an opportunity to look at the agreement in view of the said agreement having been referred to in the petition of complaint itself and has been admitted in evidence before the learned Magistrate as exhibits and also relied on by the learned Additional Sessions Judge. The agreement for partnership dated 5-2-2002 executed by and between the parties constitutes a partnership business whereby the complainant who is a second party has contributed Rs. 2 lac and the first party who is the present petitioner offered the space of the partnership firm for running the partnership business. In terms of the agreement profit and loss of the firm would be debited or credited in accordance with their respective share to capital and current account. A bank account of the firm was to be opened with a nationalized bank as would be mutually determined by the partners and the partners would Jointly operate the account. There were other terms which all may not be narrated here as they are not necessary. Thus in terms of the petition of complaint as also of the partnership agreement a sum of Rs. 2 lac was invested in the partnership business and the money was supplied by complainant - O.P. No. 2. The allegation in the petition of complaint is that the accused/ petitioner kept the money in his own personal account and as some time after the business had been run the complainant was unable to carry on with the partnership business or be involved in the business any more he asked the accused to return the money but in vain. On behalf of the State it has been submitted that in view of the provision of Section 397(3) of the Cr.P.C. this revisional application which is against the order of the learned Sessions Judge dismissing the revision of the present petitioner is not maintainable. It is further submitted that when the learned Additional Sessions Judge after elaborately considering the matter found the revision before him not maintainable it is not open to the High Court to exercise inherent power under Section 482 of the Cr.P.C. particularly when there was no miscarriage of Justice. Reference in this connection has been made to Kailash Verma v. Punjab State Civil Supplies Corporation and Anr. . A Full Bench decision of Patna High Court in Surendra Singh and Ors. v. State of Bihar and Ors. 1991 CriLJ 3040 has already been referred to. Their Lordships of the High Court observed that where a person has already invoked revisional jurisdiction of the Sessions Judge under Section 397 of the Cr.P.C. and where second revisional application is barred under Section 397(3) of the Cr.P.C. it would indeed require very exceptional circumstances to warrant interference under Article 227 of the Constitution of India because the power of superintendence is not meant to circumvent the statutory bar and where revision, appeals or applications under Section 482 of the Cr.P.C. are maintainable for setting aside any order of the inferior Courts there is no question of exercise of power under Article 227 of the Constitution although Judicial orders passed by the criminal Courts are amenable to the jurisdiction of the High Court under Article 227 of the Constitution. Accordingly, it is submitted that where the learned Additional Sessions Judge was of the view that no wrong was committed by the learned Magistrate this Court upon an application under Article 227 of the Constitution of India must not interfere with the order impugned and since application before this Court has not been made under Section 482 of the Cr.P.C. the question of exercise of jurisdiction under Article 227 of the Constitution of India does not arise. In reply to the submissions it has been stated by the learned advocate for the petitioner that the nomenclature used in the cause title of the petition is immaterial, the material question being whether there is justification for exercise of inherent jurisdiction of the High Court if substantial question of law not traversed by the learned Judge in the Court below is shown at the threshold. A decision of the Supreme Court in Jitender Kumar Jain v. State of Delhi and Ors. 1999 SCC (Cri) 77 has been referred to by the learned advocate for the petitioner to argue that it was improper for the High Court to dismiss an application under Section 482 of the Cr.P.C. only on the ground that an earlier revisional application before the Sessions Court under Section 397 of the Cr.P.C. was dismissed. It was observed that High Court's power under Section 482 of the Cr.P.C. and the power of revision under Section 397 of the Cr.P.C. are separate and even though a second revision does not lie before the High Court when one is dismissed by the Court of Session the proceedings of the Court of Session are still open to scrutiny by the High Court in exercise of the power under Section 482 of the Cr.P.C. The decision in Biswanath Mondal v. Shyamapada Mondal 1989 C Cr LR (Cal) 37 : 1989 Cri LJ (NOC) 114 has already been referred to where the Hon'ble Judge observed that where the application is not directed against the order of the Magistrate but is against the order of the Sessions Judge bar of Sub-section (3) of Section 397 of the Cr.P.C. does not operate.
4. Though the present application has been styled as one under Article 227 of the Constitution of India it cannot be argued that the Court is precluded from exercising its inherent power under Section 482 of the Cr.P.C. if it would appear that exercise of such power is necessary either to give effect to any order under the Code or to prevent abuse of the process of the any Court or otherwise to secure the ends of Justice. The guidelines laid down in State of Haryana v. Bhajanlal (1992) Suppl. (1) SCC 335 : 1992 Cri LJ 527 are that quashing of a criminal proceeding is permissible only when the petition of complaint or the FIR fails to disclose any prima facie cognizable offence, or where evidence of legal character is not available or where the complaint or the FIR is ex facie mala fide intended to harass the accused or where taking cognizance of offence is legally barred. The decision in R.B. Kapoor v. State of Punjab AIR 1960 SC 866 can also be referred to here. Therefore, even though the application has been styled as one under Article 227 of the Constitution of India exercise of the power under Section 482 of the Cr.P.C. by this Court having criminal determination is not legally impermissible if exercise of such power does really appear to be necessary consistent with the norms laid down in State of Haryana v. Bhajanlal (supra).
5. The sole point that has been canvassed strenuously is whether a partner can be prosecuted by another partner with the charge of Section 406 of the IPC on the ground that the money invested by one partner was misappropriated by the other partner and it was not being repaid to the copartner investing such money. Herein in the instant case the petition of complaint began with the averment that on 5-12-2002 a partnership agreement was entered into by and between the parties, that in terms of the agreement the O.P. No. 2/complainant invested Rs. 2 lacs, that for sometime the complainant came to be involved in the partnership business and that when subsequently the complainant wanted not to be further associated with the business he asked for return of the money the accused turned a deaf ear and it appeared that the money was deposited in the personal ac-count of the accused partner. My attention has been drawn to five Judge Bench of this Court in Bhuban Mohan Das v. Surendra Mohan Das AIR 1951 Cal 69 wherein a Full Bench of this Court shaped the question "can a charge under Section 406, Penal Code be framed against a person who, according to the complainant, is a partner with him and is accused of the offence in respect of property belonging to both of them as partners?" The answer to the question was 'No'. It was observed that where a partner receives money or an asset belonging to a partnership or holds moneys or assets of a partnership he does not hold that money in a fiduciary capacity and the only remedy of a co-partner is taking of an account. It was further observed that a partner cannot be prosecuted by another partner for criminal breach of trust in respect of partnership property on two folds grounds i.e. the nature, character and incidence of partnership property are such that during the subsistence of the partnership there cannot be except by such agreement any entrustment or dominion and secondly partnership property is not a specific and ascertainable property and is of so equivocal and problematic in nature that until dissolution and accounts, that it is not susceptible to be used in a manner which can bring into operation under Section 405 of the IPC. In the instant case there is obviously no special agreement between the parties and the money arranged for by the complainant was in terms of the partnership agreement for investment in the partnership business and, therefore, neither of the partners can be said to be having dominion over the property nor can be said to have entrusted the other with the property. This legal point was not advanced before the learned Additional Sessions Judge nor before the learned Magistrate and in the context of this point of law having arisen here it is but fit and proper to exercise the jurisdiction under Section 482 of the Cr.P.C. In view of the decision vis-a-vis the petition of complaint and the partnership agreement as above it has to be held that charge under Section 406 or Section 420 of the IPC is not maintainable.
I allow the revisional application and quash the criminal proceedings. The order of the learned Additional Sessions Judge and that of the learned Magistrate are set aside. The petitioner shall be deemed to have been discharged from bail bonds.
6. Copy of the judgment shall be sent to the learned Judicial Magistrate, 3rd Court, Barrackpore.
Urgent xerox certified copies, if applied for, be supplied to the parties as expeditiously as possible.
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Kolkata High Court
Equivalent citations: AIR 1951 Cal 69, 55 CWN 541
Bench: Harries, Das, Banerjee, Dasgupta, P Mukharji
Bhuban Mohan Das vs Surendra Mohan Das on 26/2/1951
JUDGMENT
Harries, C.J.
1. This is a Reference to a F. B. made by a Bench of this Court in a criminal matter.
2. A petn. in revn. was heard by the Bench which has referred this case in which the petnr. prayed that certain proceedings instituted against him under Section 406, Penal Code, and which were then pending in the Court of a Magistrate at Howrah should be quashed.
3. The petnr. and the opposite party who preferred the complaint were partners and it is said that they carried on business at a shop situate at No. 34 Bellillios Road, Howrah. The business was a business of selling ghee, butter and stationery articles. On 12-2-1950 communal disturbances took place in Howrah and according to the complainant the petnr. proposed to him that all the articles in the shop should be removed to the petnr.'s house at 29/2 Beniatolla Lane, Calcutta which was outside the danger zone. The complainant stated that he agreed whereupon the petnr. procured a taxi cab and loaded it with articles which were in the shop. The communal disturbances passed off and according to the complainant he went to the petnr.'s house on 1-3-1950 to collect the articles and bring them back to the shop. The petnr., it is said, told the complainant that he would return the articles in two or three days' time, but this he did not do. On 15-3-1950 the complainant stated that he again went to the petnr.'s house to obtain the articles and he was then told by the petnr. that he had no knowledge of the articles at all.
4. On behalf of the petnr. it was contended before the Bench that no proceedings under Section 406, Penal Code could lie in this case as the parties were partners. The point appears to have been taken before the learned Magistrate, but he had overruled the objection and framed a charge.
5. The Bench found that the authorities of this Court on this matter were in conflict and being unable to resolve the conflict the case was referred to a F. B. The points formulated for decision by the F. B. were as follows :
(1) Can a charge under Section 406, Penal Code be framed against a person who, according to the complainant, is a partner with him and is accused of the offence in respect of property belonging to both of them as partners ?
(2) Are Queen v. Okhoy Coomar, 13 Beng. L. R. 307 : (21 W. B. Cr. 59 F. B.) & Alia Rakha v. Liakat Hossein, , correctly decided ?
6. The reference first came before a F. B. of three Judges. But as the correctness of the earlier F. B. case of Queen v. Okhoy Coomar, 13 Beng. L. B. 307 : (21 W. B. Cr. 59 F. B.) had to be considered the matter was adjourned & has now come before this F. B. of five Judges.
7. Section 406, Penal Code, provides :
"Whoever commits criminal breach of trust shall be punished with imprisonment of either descripttion for a term which may extend to 3 years, or with fine or with both."
8. The phrase "criminal breach of trust" is defined in Section 405, Penal Code, in these terms :
"Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own USB that property or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust or wilfully suffers any other person so to do commits 'criminal breach of trust'."
9. It seems clear that before criminal breach of trust is established it must be shown that the person charged has been entrusted with property or with dominion over property & that he has been guilty of 'breach of trust' using that latter phrase loosely. There must be entrustment & therefore the person accused must be shown to have held the property in a fiduciary capacity.
10. On behalf of the petnr. it has been argued that a patnr. does not in the ordinary course hold partnership property in a fiduciary capacity. The partnership property belongs to the patnrs. & one patnr. apart from any special agreement, has as much right to the property as any other patnr. A patnr. who holds partnership property, it is said, holds it in his own right & it cannot possibly be said that he holds it in a fiduciary capacity.
11. The question whether a patnr. received or held partnership property in a fiduciary capacity was considered by the English Cts. in the case of Piddocke v. Burt, (1894) 1 Ch. 343 : (63 L. J. Ch. 246) where it was held that one patnr. receiving assets of the partnership on account of himself & his co-ptnrs. is not liable to imprisonment under Section 4(3). Debtors Act, 1869 as a person acting in a, fiduciary capacity.
12. The point which had to be considered in that case was whether a patnr. who had retained certain of the partnership assets could be said to have acted in a fiduciary capacity. At p. 346 Chitty J. observed :
"The case of a patnr. is quite different from these cases, because he receives money belonging to the firm on behalf of himself & his co-paters. & it appears to me that I should be straining the law if I were to hold that a patnr. receiving money on account of the partnership -- that is, on behalf of himself & his co-patnrs. -- received it in a fiduciary capacity towards the other patnrs. The law allows one patnr. one of several joint creditors--to receive the whole debt on account of the firm to whom it ia due, & I am unable to recognise any such distinction, as was endeavoured to be made by Mr. Church, between the case of a partner receiving money of the firm & not accounting for it, & that of a patnr. overdrawing the partnership account ; because if this distinction were true, it would apply to every case where one patnr. wrongly overdraws the partnership account."
13. The learned Judge having held that a patnr. who received payment of a debt due to the partnership firm did not hold the money in a fiduciary capacity, held that no offence had been committed under the Debtors Act.
14. If a patnr. who receives money on behalf of the partnership does not receive it in a fiduciary capacity then it appears to me that he could not be charged with fraudulent breach of trust by reason of his failing to account for that money. Similarly, if a patnr. is holding property belonging to the partnership, he is holding it as one of the patnrs. entitled to hold it &, therefore, I think it could not be said that he was holding it in a fiduciary capacity, that is, as a kind of trustee for himself & his other patnrs. If he could not be said to be holding the property in a fiduciary capacity then it is difficult, & indeed impossible, to hold that he could be said to have been entrusted with that property.
15. It is quite clear that at common law in England a patnr. could not be charged with larceny of partnership property, neither could he be charged with embezzlement of such property. As agent of the firm a patnr. could be said to have received property on behalf of the firm & if he did not account for it, it could be said that he as an agent or servant of the firm had embezzled the money. Nevertheless at common law he could not be prosecuted for embezzlement. To meet the difficulty a special section was enacted in the Larceny Act & thereafter a patnr. could be prosecuted for larceny or embezzlement of partnership property. Under the old common law it was impossible to charge a patnr. with larceny because the property alleged to have been stolen was as much the accused's property as the property of the other patnrs. Similarly, the money said to have been embezzled was as much the accused's property as that of his co-patnr. The difficulty was realised in English law & was met by the enactment of a special provision. But there is no such special provision in the Indian law.
16. The rights of patnrs. in partnership property is dealt with by Lord Lindley in his book on Partnership, Edn. 10 at p. 415 in these words:
"In the absence of a special agreement to that effect, all the members of an ordinary partnership are interested in the whole of the partnership property, but it is not quite clear whether they are interested therein as tenants-in-common, or as joint tenants without benefit of survivorship, if indeed there is any difference between the two. It follows from this community of interest, that no patnr. has a right to take any portion of the partnership property & to say that it is his exclusively. No patnr. has any such right, either during the existence of the partnership or after it has been dissolved. What is meant by the share of a patnr. is his proportion of the partnership assets after they have been all realised & converted into money, & all the partnership debts & liabilities have been paid & discharged. This it is, & this only, which on the death of a patnr. passes to his representatives, or to a legatee of his share."
Again at p. 419 Lord Lindley observed :
"From the principle that a share of a patnr. is nothing more than his proportion of the partnership assets after they have been turned into & applied in liquidation of the partnership debts, it necessarily follows that, in equity, a share in a partnership, whether its property consists of land or not, must, as between the real & personal representatives of a deceased patnr., be deemed to be personal & not real estate."
17. From these observations, it is clear that the share of a patnr. in the partnership assets cannot be predicated until an account has been taken & all the debts have been discharged. Until that has been done, it cannot be said that a partnership asset belongs to any particular patnr. or that any particular share of it belongs to any particular patnr. That being so, if one patnr. retains a partnership asset can it be said that property belonging to somebody else has been entrusted to him, or at least the share of his co-patnr. has been entrusted to him? It may be that two persons each own a half share in a partnership & at first sight it might appear as if each would own a half of every asset of the partnership. However, that by no means follows, because if at any given moment the partnership account was taken & the debts discharged, it might be that the assets belonged wholly to one of the patnrs., or indeed after payment of debts there might be no assets at all for any of them. It is, therefore, impossible to say at any given moment before accounts have been taken, what share, if any, a patnr. has in the property. Until dissolution & accounts each patnr. must be regarded as having a right to the property & he does not hold it in a fiduciary capacity.
18. It seems to me that if a patnr. is to be charged under Section 406, Penal Code, it must be held that property belonging to somebody else was entrusted to him. A partnership firm has no existence apart from the patnrs. & is not an entity like a limited company which can own property. If a patnr. holds partnership property it cannot be said that he has been entrusted with his own share in the property if he had any share in it. But can it be said that the patnr. has been entrusted with the other patnr.'s share? The question immediately arises what is the other patnr.'s share, & as pointed out by Lord Lindley, he has no definite share until the accounts have been taken & the debts discharged & the assets divided according to the partnership agreement. That being so, it appears to me that it cannot be said that a patnr. who received partnership property is entrusted with his co-patnr.'s share of that property to bring the case within Section 406, Penal Code.
19. The rights of a patnr. in any particular asset was considered by their Lordships of the P. C. in the case of Gopala Chetty v. Vijayaraghavachariar, (1922) 1 A. C. 488 : (A. I. R. (9) 1922 P. C. 115) in which it was held that if a partnership had been dissolved but no account had been taken, the proper remedy of a patnr. in respect of an asset received by another patnr. was to have an account taken & if his right to sue for an account was barred by limitation he could not sue the patnr. who had received the asset for a share of it. Their Lordships of the P. C. in other words held that even after a partnership had been dissolved a patnr. cannot sue another for a definite share in an asset because it is not known whether he has a share & if he has, what the extent is unless an account has been taken & the debts have all been paid. If even after dissolution, a patnr. could not sue another patnr. for his share of an asset then it seems to me quite impossible to suggest that the patnr. who retained that asset was holding at least a share of that asset in a fiduciary capacity on behalf of his co-patnr. Unless the relationship of partnership imposes on one patnr. holding property fiduciary obligations, then it appears to me that it cannot be said that that patnr., if he holds property of the partnership with the consent of the others, has been entrusted with it, & that he is guilty of a fraud on his trust in not accounting to his co-partners for the property.
20. This matter has been considered by this Ct. in a number of cases. The first case is the case of Lall Chand Roy, 9 W. R. (Cr.) 37. There the accused was convicted of criminal breach of trust in respect of the value of goods which had been entrusted to him to sell. It was urged before the H. C. that the conviction could not be sustained, as the accused was a patnr. with the prosecutor. It was held by Kemp & Mitter JJ. that being a patnr. he could not be prosecuted. Jackson J. took a different view, but not upon the law. He held that it had not been shown that the accused was a patnr. This case was considered by a F. B. of this Ct. in the case of The Queen v. Okhoy Coomar, 13 Beng. L. R. 307 : (21 W. R. (Cr.) 59 F. B.). In that case a Mag. relying upon the decision in the petn. of Lall Chand Roy, 9 W. R. (Cr.) 37 to which I have just made reference discharged the accused on the ground that they could not be prosecuted for an offence under Section 405, Penal Code. A revn. petn. from the order of the Mag. came before a Bench of this Ct. which thought that the decision in Lall Chand Roy's case, (9 W. R. (Cr.) 37) needed consideration & referred the following question to a F. B. :
"Whether, if a patnr. dishonestly misappropriates or converts to his own use, or dishonestly uses or disposes of any of the partnership property which he is entrusted with, or has dominion over, he is guilty of an offence punishable under the Penal Code?"
21. A F. B. consisting of five Judges came to the conclusion that the case of Lall Chand Roy, (9 W. R. (Cr.) 37) could not be supported & directed that the order of discharge of the learned Mag. should be set aside & that he should enquire into the merits & decide whether or not an offence had been committed. The question submitted to the F. B. was answered in the affirmative. But it is by no means clear in what circumstances the F. B. were of opinion that an offence would be established. They observed at p. 311:
"If it be made out by the evidence, that one patnr. was entrusted by his co-patnrs. with property or with a dominion over it, & that he had dishonestly misappropriated it, or dishonestly used it in violation of the mode in which his trust was to be discharged, or of the agreement between the parties as to the use he was to make of the property, he ought to be tried for that offence."
22. Of course if it could be made out that one patnr. had been entrusted with property or with dominion over it no difficulty would arise. But the question WE have to consider is whether or not a patnr. who receives partnership property without any special agreement can be said to have been entrusted with that property or with dominion over it. A patnr. who receives partnership property hag dominion over that property quite apart from any arrangement with his other patnrs. The fact that he is a patnr, gives him dominion over the property & if the English view be right he does not hold that property in a fiduciary capacity. It may be that by special arrangement between the parties One patnr. could be regarded as being entrusted with property. But apart from such special arrangement, it cannot be said that a patnr. who receives partnership property on behalf of his patnrs. has been given dominion over that property by his co-patnrs. or has been given dominion over the share of his co-patnrs. by the latter. This F. B. case is certainly authority for the proposition that in some circumstances a patnr. can be charged under Section 406, Penal Code. But it is not very helpful, with great respect, to a Ct. which is called upon to decide whether a patnr. receiving a partnership asset in his capacity as a patnr. is guilty of fraudulent breach of trust if he did not account for it.
23. The F. B. never seems to have considered that there is really no patnr's share in the property until an account & it may well be that a patnr. who retains an asset, is entitled not only to his share according to the partnership agreement in that asset but on taking an account it may be found that he is entitled to the whole of the asset & considerably more. In such a case how can it be said that he has been guilty of a breach of trust & has acted dishonestly towards his co-patnrs., if an account would show that he was entitled to everything which he had retained ?
24. This F. B. decision has been considered in a number of Bench decisions. In the case of Debi Prasad v. Nagar Mull, 35 Cal. 1108 : (9 Cr. L. J. 74) it was held that a patnr. was entitled to be called upon for an account of the expenditure of the money which he had received & it was open to him to spend the money received by him & to account for it in dealing with the partnership. Where it was not satisfactorily made out that this was not done, & could not be made out in the absence of a proper demand for accounts, it was held that there was no dishonest conversion which would justify his conviction under Section 406, Penal Code. At p. 1110 the learned Judges observed :
"But considering that there was a partnership existing at this time, the accused was plainly entitled to be called upon for an account of the expenditure of the money, which he had received, for, as the contract was one of partnership & not of bailment, it was open to the accused to spend the money he had received & to account for it in dealing with the partnership."
This view clearly supports the petnr. in the present case. If a patnr. could be said to have been entrusted with the money it would not have been open to him to spend the money which he had received & to account for it in the accounts of the partnership. A person who receives property in a fiduciary capacity must deal with the property according to the terms of the arrangement or trust. He cannot dispose of the property as he likes & claim to account for it at some later stage.
25. The matter again came before the Ct. in the case of Bhupendranath v. Giridharilal, in which it was held that when a
patnr. was proved in fact to have been entrusted with the partnership property or with dominion over it, & had dishonestly misappropriated it or converted it to his own use, he could be convicted of an offence under Section 405 or rather 406, Penal Code. But the Bench added that it was difficult, however, to conceive how such a situation could arise. It was further held that each patnr. was co-owner of the whole of the common stock, though he received or paid a share only in profits & losses arising therefrom, & it was difficult to conceive how he could be entrusted with, or with dominion over his own property or how he could dishonestly misappropriate it or convert it to his own use.
26. This case followed the F. B. in that it held that there were circumstances in which a patnr. might be guilty of an offence under Section 406, Penal Code. But the view of the Bench is clear that in ordinary cases where a patnr. receives money or property of a partnership or holds property or money of a partnership, he does not receive or hold that property in a fiduciary capacity & if he spends it he cannot be guilty of the crime of fraudulent breach of trust. The remedy is an account & in that account the patnr. who has retained the money or property must account for it in ascertaining what his share of the partnership assets will be.
27. In a later case, Alia Rakha v. Liakat Hossain, a Bench of this Ct. took a somewhat different view from that taken in Bhupendranath Singha's case . The Bench held that it was not the law that in no case can charges under Sections 403 to 409, Penal Code, be framed against a person who is a patnr. & is accused of offences under those sections in respect of partnership property. The learned Judges observed :
"The words of Section 405 are large enough to include the case of a patnr. if it be proved that he was in fact entrusted with the partnership property or with dominion over it & has dishonestly misappropriated it or converted it to his own use."
The learned Judges, however, do not state whether in their view a patnr. who receives partnership property or money on behalf of the partnership can be said to have been entrusted with it & therefore guilty of fraudulent breach of trust if he does not dispose of it in accordance with the trust or arrangement. It seems that in the case of Alia Rakha, v. Liakat Hossain, the Bench were not inclined to follow the view expressed in Bhupendranath Singha's case .
28. In the case of Man Mohan Das v. Mohendra Bhowal, 52 C. W. N. 441 : (A. I. R. (35) 1948 Cal. 292 : 49 Cr. L. J. 543), a Bench of this Ct. held that a patnr. who received money on behalf of the partnership did not receive it in a fiduciary capacity. Consequently, when one patnr. was alleged to have withheld the share of the profits of the partnership business said to be due to another patnr. he could not be prosecuted for an offence under Section 406, Penal Code.
29. This case was somewhat different from the others The patnr. prosecuted was alleged to have withheld the complainant's share of the partnership profits. But it is clear that partnership profits are not ascertainable until an account has been taken & it cannot be said until such an account that any patnr. has any share in such profits. I think this later case is clearly right because it could not possibly be said that a patnr. or patnrs had been entrusted with another patnr's share of the partnership profits before it could be said whether any profits existed or not & such could not be said until an account had been taken. The last case is the case of Rahaman v. R. D. Khambatta, 50 Cr. L. J. 154 : (A. I. R. (36) 1949 Cal. 89) in which the view was taken that in ordinary circumstances a patnr. could not be prosecuted under Section 406, Penal Code, for fraudulent breach of trust in not accounting for partnership property.
30. Bombay has taken a view that a patnr. may be prosecuted under Section 408, Penal Code, for failure to account for partnership moneys or assets. In Emperor v. Jagannath Ragkunathdas, 33 Bom. L. R. 1518 : (A. I. R. (19) 1982 Bom 57 : 33 Cr. L. J. 317), a Bench held that the words of Section 405, Penal Code, were wide enough to cover the case of a patnr. Where one patnr. was given authority by the other patnrs. to collect moneys or property of the firm, he was entrusted with dominion over that property; and if he dishonestly misappropriated it he came within the section. The Bench, however, added that the Ct. should be very careful in dealing with charges against patnrs. of criminal breach of trust. It was impossible to say in many cases what the share of the accused might be, whether the accused was indebted to the firm or whether the firm was indebted to him. If the firm was indebted to him there might be no dishonest intent in his withdrawing money from the firm. If there was any doubt upon the matter, the accused must always have the benefit of the doubt.
31. The Bench of the Bombay H. C. realised that whether or not there was a dishonest intent would depend upon a partnership account & the criminal Cts. which appear to be singularly inappropriate for taking partnership accounts were warned to be very careful. The Bombay case, however, does not consider the English authorities & does not consider whether or not a patnr. who receives money from a creditor of the firm holds that money in a fiduciary capacity. It seems to have been assumed by the learned Judges that the patnr. did, whereas as I have pointed out the English view was that the patnr. did not hold the money in a fiduciary capacity & it appears to me that the English view is correct & has been followed by a number of Benches of this Ct.
32. A view similar to the Bombay view has been taken by the Madras H. C. in the case of Satyanarayanamurthi v. Kotha Manikyala Rao, & by the Patna H. C. in the case of Bhudhar Mal v.
Ramchander, 55 I.C. 674 : (A.I.R. (7) 1920 Pat. 112 : 21 Cr. L. J. 338). These cases do not advance the matter any further because the Benches merely purported to follow the F. B. case of this Ct. in Queen v. Okhoy Coomar, (13 Beng. L. R. 307 : 21 W. R. (Cr.) 59 F. B.)
33. Whether or not a patnr. can be said to have been entrusted with property must depend upon whether there is any special agreement between the parties. If there is no special agreement he does not receive property in a fiduciary capacity. It might be that if there was a special arrangement between the patnrs. then it could be said that a patnr. was entrusted with property or with dominion over it. For example, if by the terms of the partnership agreement one patnr. was given the sole right to possession of the partnership assets or to receive moneys on behalf of the partnership then such a patnr. might, though it is unnecessary to hold it, be said to have entrusted another patnr. with money if he gave such other patnr. money for a specific purpose. It is unnecessary in this case to decide in what circumstances there can be entrustment. But all we need say is that by special agreement between the parties entrustment might be possible, & if entrustment was possible then a breach of conditions or arrangement might render the person accused guilty of fraudulent breach of trust. However I am satisfied that in oridnary cases where a patnr. receives moneys or an asset belonging to a partnership, or holds moneys or assets of a partnership, he does not hold that money in a fiduciary capacity. He cannot even be sued for a share in the moneys or assets by his co-patnr.
34. The only remedy of a co-patnr. is an account & until such an account is taken it cannot be said whether the co-patnr. has any interest at all in the asset or money. As pointed out in the case of Gopala Chetty v. Vijayaraghavachariar, (1922-1 A. C. 488: A.I.R. (9) 1922 P. C. 115), decided by their Lordships of the P. C., even after dissolution a co-patnr. has no right to sue for his share of an asset. It appears to me that if a co-patnr. has no right to sue to recover his share it cannot possibly be said that his co-patnr. is holding that share in trust for him. If the patnr. holds partnership property in a fiduciary capacity he would be holding it in trust for his co-patnrs. & his co-patnrs. could sue. But it has been laid down beyond all question that the co-patnrs. cannot sue & that their only remedy is an account & to recover only what is ultimately found due on taking the account. It appears to me that in those circumstances it cannot be said that a patnr. who receives or holds property of a partnership is entrusted with the property or dominion over it, & that being so it appears to me that the answer to question 1 must be in the negative.
35. The answer to question 2 must be that these cases cannot be regarded as correctly decided if they lay down any general rules applicable to prosecutions of patnrs. for offences under Section 406, Penal Code, in respect of property received or held by such patnrs. on behalf of the partnership in the ordinary course of partnership dealings. However, the cases may be regarded as rightly decided, if they are confined to cases where under special agreements made between the parties entrustment of the property or dominion over it could be given to any particular patnr.
36. Under the rules of this Ct. the F. B. must not only answer the questions, but must decide the petn. It appears to me that the petn. must be allowed & the proceedings before the learned Mag. quashed because no entrustment could be established in the circumstances of this particular case.
37. In the result the petn. is allowed & the proceedings now pending in the Ct. of the learned Mag. at Howrah are quashed. The rule is accordingly made absolute.
Das, J.
38. I agree with my Lord the Chief Justice.
Banerjee, J.
39. I agree. (See separate judgment.)
Das Gupta, J.
40. I entirely agree with my Lord the Chief Justice.
P. B. Mukharji, J.
41. I agree with the conclusions & the reasonings given in the judgments of my Lord the Chief Justice & of my Lord Banerjee J. I would only wish to add a few more reasons to support the same conclusion.
42. The point for decision before the Ct. is can a patnr. be prosecuted under Section 406, Penal Code, for criminal breach of trust in respect of partnership assets. Sir Richard Couch C. J. delivering judgment for a F. B. of the Calcutta H. C. in the matter of Nrigendra Lall, 21 W. R. (Cr.) 59: (13 Beng. L. R. 307 F. B.) observed :
"We think the words in Section 405, Penal Code are large enough to include the case of a patnr. if it be proved that he was in fact entrusted with the partnership property or with a dominion over it & has dishonestly misappropriated it or converted it to his own use. There is no reason that the case of a patnr. should be excepted from the operation of this section. Indeed there is every reason that it should be included in it. It is a question of fact whether there has been an entrusting of the property or giving a dominion over it sufficient to come within what is required."
43. This decision was rendered in 1874 & has caused considerable anxiety for more than 70 years. On two main grounds the soundness of this decision has been questioned more than once. First the decision is said to be verbal & academic & its practical import is difficult to find. This decision gives no indication to show how it & under what circumstances a patnr. can at all be said to be entrusted with partnership property or with dominion over it or to have misappropriated & it is difficult, if not impossible, to conceive how such a situation can arise. This criticism is put on the ground of the law of partnership. In Piddocke v. Burt, (1894) 1 Ch. 343: (63 L. J. Ch. 246), it is held that a patnr. who receives money belonging to the partnership on account of himself & his co-patnr. does not do so in a fiduciary capacity. At Common Law in England no criminal prosecution can be maintained by one patnr. against another for stealing or embezzling by false pretexts or misappropriating property of the firm. Patnrs. are regarded in law as joint owners or co-owners of the partnership property. Secondly, Sections 403 to 409, Penal Code occur under "offences against property'' in chap. 17 of that Code, under the sub-heading "Criminal misappropriation of property." This group of sections deals with many classes of persons who are specially & specifically mentioned but they make no reference to a patnr. Section 407 Penal Code, deals with criminal breach of trust by carrier wharfinger or warehouse keeper. Section 408, Penal Code, refers to criminal breach of trust by clerk or servant. Section 409, Penal Code, refers to criminal breach of trust by a public servant or by Banker, merchant or agent. The case of a patnr. is not mentioned in any of these sections or even in the numerous statutory illustrations given thereunder. The statutory illustrations indicate persons entrusted absolutely with the property of another & not property which belongs either partly or wholly to the accused. If illustrations are any indication then these sections of the Penal Code are not intended to be applied to patnrs. Illustration (c) of Section 403, Penal Code, which refers to joint owners of a horse & says that one of the joint owners can take the horse out of the possession of the other is of no assistance in this case because unlike the illustration the partnership account is a general account & is not confined to a specified item of property as the horse in the illustration. Then again in this connection a reference to Section 424, Penal Code, will show that there can be dishonest or fraudulent removal or concealment of one's own property because of the specific language used in that section namely "property of himself or any other person."
44. Some of these criticisms will be found in the judgment of Lort-Williams J. in Bhupendra Nath v. Giridharilal, . Harries C. J. in Monmokan Das v. Mohendra Bhawal, 52 C.W.N. 441 : (A. I. R. (35) 1948 Cal 292 : 49 Cr. L. J. 543) refers to this decision of Lort-William J. while holding that a patnr, who receives the money on behalf of the partnership does not receive it in a fiduciary capacity. The Bombay H. C. adopted the view of the Calcutta F. B. & Beaumont C. J. in Emperor v. Jagannath Raghunathdas, 33 Bom. L. R. 1518 : (A. I. R. (19) 1932 Bom. 57 : 33 Cr. L. J. 317) overruled the argument advanced on the basis of statutory illustrations of the Penal Code 4 come to the conclusion that the words of the section are wide enough to cover the case of a patnr. at pp. 1520 & 1521.
45. An analysis & survey of the various sections of the Partnership Act are necessary to discover the true nature, character & incident of partnership property. Section 19, Partnership Act discloses the implied authority of a patnr. to deal with partnership property to bind the firm. Section 24 of the same Act contemplates notice to the patnr. as notice to the firm except in the case of fraud on the firm committed by or with the consent of that patnr. But the sections relating to the property of the firm lay down the rules what such partnership property is & how is that to be applied. Section 15, Partnership Act, provides that subject to contract between the patnrs., the property of the firm shall be held & used by the patnrs. exclusively for the purposes of the business. Section 9, Partnership Act, enjoins each patnr. to be just & faithful to each other. Section 10, Partnership Act, requires that every patnr. shall indemnify the firm for any loss caused to the firm by his fraud in the conduct of the business while Section 13 of the same Act requires a patnr. to indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the business.
46. It does not appear to my mind that sections of the Partnership Act, relating to indemnification for the loss either for the fraud or wilful neglect of the patnr. nor even the section where one patnr. is required to be just & faithful to the other can lead to the conclusion that one patnr. can commit the offence for criminal breach of trust as against the other patnr. in respect of partnership property. The question here is of much broader application & of a more fundamental nature. Its fundamental nature is this that the very conception of partnership precludes possibility of entrustment or dominion of the partnership property by one patnr. as against the other & therefore, precludes any possible operation of the crime under Section 406, Penal Code, of criminal breach of trust by one patnr. against the other in respect of the partnership property.
47. In England the same difficulty arose & the disability was partially removed first by 31 & 32 vict. chap. 116 & now replaced by Section 40 (4), Larceny Act, 1916 but no similar legislation has been enacted in India. Section 40 (4), Larceny Act of 1916 (6 & 7 Geo. V chap. 50) provides as follows:
"If any person, who is a member of any co-partnership or is one of two or more beneficial owners of any property, steals or embezzles any such property of or belonging to such co-partnership or to such beneficial owners he shall be liable to be dealt with, tried, & punished as if he had not been or was not a member of such co-partnership or one of such beneficial owners."
Further inroads on the Common Law in England were made by such Statutes as Section 24, Forgery Act 1861 (24 & 25 vict. Chap. 98) under which Act it was forgery to endorse a bill by procuration under a false & fraudulent assumption of authority so to endorse it. Under that section now repealed it was held in R. v. Holden, (1912) 1 K. B. 483: (81 L. J. K. B. 327) that a patnr. who with intent to defraud & without lawful excuse or authority accepted a bill in the partnership name had accepted it in the name of another person within the meaning of that Statute & the distinction was sometimes a very fine one as will be seen from the decision of the English Ct. of Appeal in Morison v. London County & Westminster Bank Ltd., (1914) 3 K. B. 356 at p. 381: (83 L. J. K. B. 1202). On behalf of the resp. reliance was placed on the decision of R. v. Warburton, (1870) L. R. 1 C. C. 274: (40 L. J. M. C. 22). As will be apparent from the judgment of Cockburn C. J. in that case the ratio of the decision is that it is a criminal offence to deprive a patnr. of his interest in some of the partnership property by false entries & false documents. That is quite understandable because by falsifying entries a patnr's. interest in the partnership property is affected forthwith irrespective of dissolution or general accounts & this case, therefore, is no authority for the proposition that a patnr. can be convicted of criminal breach of trust by another patnr. in respect of partnership property. Besides it was a case of conspiracy to cheat & defraud & it was immaterial whether the act agreed to be done was itself not criminal, so long as it was illegal. It is so also for criminal conspiracy under Section 120A, Penal Code. Incidentally it may be pointed out here that although at Common Law in England it was not a criminal offence for one co-owner of goods fraudulently to deprive the other co-owners of them, such co-owner being lawfully in possession (1 Hale P. C. 513) it was nonetheless possible that if he took them from a person who was a bailee for all the co-owners he could be convicted of larceny even though the bailee was himself one of the co-owners; R. v. Bramely, (1822) Russ. & By. 478 : (168 E. R. 907) & R. v. Webster, (1861) Le. & ca. 77: (169 E. R. 1311) & that apparently is still the law in any case which cannot be brought within the Larceny Act of 1916. But these in my opinion cannot alter the position of the patnrs' interest in respect of partnership property so as to make one patnr. liable for the offence of criminal breach of trust in respect of partnership property at the instance of another patnr.
48. The question before the Cts. in India can be dealt with in my view on the basis of the language used in Section 405, Penal Code, dealing with the offence of the criminal breach of trust. In this respect the matter if largely, if not wholly, one of construction. The generality & the amplitude of the expression "whoever" in Section 405, Penal Code, prima facie would include a patnr. within the operation of this section. If there is any exclusion of the case of a patnr. from the operation of this section then such exclusion has to follow from other expressions used in that particular section. Such other expressions which are relevant in this context & from which such exclusion can be deduced are:
(i) "In any manner entrusted with property."
(ii) "Any dominion over property."
(iii) "To his own use."
(iv) "In violation of any direction of law prescribing the mode in which such trust is to be discharged."
(v) "Or of any legal contract expressed or implied."
49. The first question, therefore, for consideration is can a patnr. be said to be in any. manner entrusted with partnership property as against the other patnr. or patnrs. In my view normally not. Section 15, Partnership Act, proviles subject to any contract that the property of the firm shall be held & used by the patnrs. exclusively for the purposes of the business. That in my view means all the patnrs. as between themselves jointly hold & use the partnership property for the purposes of the business & no one patnr. can be said to be entrusted with the partnership property as against the other patnr. or patnrs. under the Ordinary incidents of partnership law under the Partnership Act.
49a. The second question is can a patnr. be said to have dominion over the partnership property as against the other patnr. or patnrs ? The same Section 15, Partnership Act, in my judgment precludes such idea. In the case of a partnership it is joint dominion by all the patnrs. over the partnership property.
50. These are the two primary conditions one of which must be satisfied before other elements of the offence under Section 405, Penal Code, need be considered. As in my view these two primary conditions cannot be satisfied in the case of a patnr. under the ordinary incidents of partnership law under the Partnership Act, no patnr. can prosecute his co-patnr. for criminal breach of trust in respect of partnership property.
51. The other expressions mentioned in what I have itemised above as (iii), (iv) & (v) may be applicable in the case of a patnr. against the co-patnrs. in respect of partnership property under the Partnership Act but they are of no avail when any of the first two basic conditions of the offence cannot under such law be satisfied.
52. It is quite true that Section 15, Partnership Act, as well as many other sections thereof are subject to any special contract between the patners. Great liberty is given to patners. to form their own contract of partnership & the terms of contract vary between one partnership & another. If therefore there is any special contract of partnership by the very terms of which either an entrustment is made of any specific property to another patnr. or any exclusive dominion given in respect of the same to one particular patnr. as against the others then such a case may in appropriate circumstances come within the operation of Section 405, Penal Code; except such kind of special contract therefore there cannot be criminal breach of trust by one patnr. as against the other in respect of partnership property.
53. What is often forgotten in this context is that the Indian Partnership Act is not a complete code on the law of partnership. It is a Statute to define & amend the law relating to partnership. The Act does not profess to consolidate the entire law on the subject. Until dissolution of partnership & accounts no specific item of property belongs to any particular patnr. as against the other. That is the peculiar character & incident & nature of partnership property. Section 48 lays down that in settling account of a firm after dissolution losses shall first be paid out of profits, next out of capital & lastly by the patnrs. individually in proportions in which they are entitled to share profits. Then it is provided there that the assets of the firm should be applied first in paying debts of the firm to third parties, then in paying rateably what is due to a patnr. from the firm for advance as distinguished from capital, thirdly in paying to each patnr. rateably what is due to on account of capital & lastly the "residue' if any shall be divided among the patnrs. in the proportions in which they are entitled to share profits. The basic idea is ultimate participation in the partnership assets out of the ''residue" that is left & such "residue" cannot be determined until after dissolution & accounts & until after losses & assets of the firm have been attended to in the manner laid down in the section. The same idea operates also in Section 52, Partnership Act, where a contract creating partnership is rescinded on the ground of fraud or misrepresentation of any of the parties thereto. There again the party entitled to rescind has the right to a lien on or a right of retention if the "surplus" of the assets of the firm remaining after debts of the firm have been paid, for any sum paid by him for the purchase of a share in the firm & for any capital contributed by him. He is also entitled to rank as a creditor of the firm in respect of any payment made by him towards the debt of the firm & to be indemnified by the patnr. or patnrs. guilty of fraud or misrepresentation against all debts of the firm. From these various provisions, it is, therefore, clear that the property of patnrs. in the partnership assets is a residuary or surplus property which remains after satisfaction of other claims on the firm. It is, therefore, not a specific & ascertainable property, until then.
54. The reason, therefore, of holding that a patnr. cannot be prosecuted by another patnr. for criminal breach of trust in respect of partnership property under Section 406, Penal Code, is two-fold. The nature, character & incident of partnership property are such that during the subsistence of the partnership there cannot be, except by special agreement with which we are not concerned here, any entrustment or dominion & secondly partnership property is net a specific & ascertainable property & is of so equivocal & problematic a nature until dissolution & accounts, that it is not susceptible to be used in a manner which can bring into operation Section 405, Penal Code. It is only when such ordinary character & nature of the partnership property are varied by special contract of partnership so as to create entrustment of any specific property in favour of one patnr. as against the others or so as to give exclusive dominion of such property to one patnr. as against the other that there can be any scope of application of Section 405, Penal Code.
Banerjee J.
55. I agree. To constitute the offence of criminal breach of trust there must be entrustment of property in respect of which the breach of trust is charged. It closely resembles the offence of embezzlement under the English law. The section requires entrusting any person with property or with any dominion over property. It further requires dishonest misappropriation or conversion of that property by the person charged, to his own use, or dishonest disposal of it. The offence consists of any one of four positive acts namely, misappropriation, conversion, user, or disposal of property.
56. Dishonest intention is the gist of the offence. It follows, therefore, that if there is no 'property' which is the subject-matter of entrustment, there cannot be any criminal breach of trust. Likewise if there is no dishonest intention, there is no offence committed.
57. In the judgment of the learned Chief Justice, the nature of a patnr's property in the partnership assets has been discussed. That is the English law. That is also the Indian law. The substance of the English law has been enacted in Section 46, Partnership Act. Section 46 is as follows :
"On the dissolution of a firm every patnr. or his representative is entitled, as against all the other patnrs. or their representatives, to have the property of the firm applied in payment of the debts & liabilities of the firm, & to have the surplus distributed among the patnrs. or their representatives according to their rights."
This section is in substance Section 39 of the English Act, with verbal condensation. This section affirms the right of partners or their representatives to a share of the net assets of the firm after the firm is dissolved and the account is taken.
58. The right of a partner under this section is known as his general lien on the surplus of the assets of the firm and is commonly called partners' lien In re Bourne, (1906) 2 Ch. 427 : (75 L. J. Ch 779).
59. The principle of this section was stated in Darby v. Darby, (1856) 3 Drew. 495 at p. 503 : (25 L. J. Ch. 371) and by Lord Eldon in Crawshay v. Collins, (1808) 15 Ves. 218 : (10 R. R. 61) and by Sir William Grant in Featherstonhaugh v. Fenwick, (1810) 17 Ves. 298 : (11 R. R. 77). On the nature of the right given to a partner by this section, Pollock observes as follows (PP. 99, 100) :
"The right of each partner to control within certain limits the disposition of the partnership property is a rather peculiar one. It exists during the partnership, and when accounts are taken and the partners' shares ascertained from time to time, its existence is assumed, but it comes into full play only in the event of a dissolution. It belongs to a class of rights known as equitable liens, which have nothing to do with possession, and must therefore be carefully distinguished from the possessory liens which are familiar in several heads of the Common law. The possessory lien of an unpaid vendor, factor, or the like, is a mere right to hold the goods of another man until he makes a certain payment; it does not, as a role, carry with it the right of dealing with the goods in any way. Equitable lien, on the other hand, is nothing else than the right to have a specific portion of property dealt with in a particular way for the satisfaction of specific claims."
60. The Partnership Act contemplates complete liquidation of the assets of the partnership as a preliminary to the settlement of accounts between partners upon dissolution of the firm and unless there is an agreement to the contrary, the share of each partner means
"his proportion, of the partnership assets after they have been all realised and converted into money and all the partnership debts and liabilities have been paid and discharged." (See also Ajudhia Pershad v. Sham Sunder, I. L. R. (1947) Lah. 417 at pp. 438-488 : (A. I. R. (34) 1947 Lah. 13 F. B.).)
61. 'Partnership assets' mean everything to which the firm, or in other words all the partners composing it, can be considered to be entitled as such. The qualification 'as such' is important; for persons may be entitled jointly or in common to property, and the same persons may be partners, and yet that property may not be partnership property; e. g., if several persons are partners in trade, and land is devised or a legacy is bequeathed to them jointly or in common, it will not necessarily become partnership property and form part of the common stock in which they are interested as partners. Whether it does so or does not, depends upon the circumstances of each case. It is for the partners to determine by agreement amongst themselves what shall be the property of the firm, and what shall be the separate property of one or more of them. The true method of determining as between the partners themselves what belongs to the firm, & what not, is to ascertain what agreement has been come to upon the subject. Lindlay on Partnership, 9th Edn., pp. 409, 416.
62. It is quite clear, therefore, that unless there is an agreement between the partners that a particular property would be the separate property of a partner, there cannot be an entrustment of it to the other partner or partners. In the absence of such an agreement, each partner is interested in the whole of the partnership assets and there cannot be an entrustment of 'a partner's property' as such by one partner to another, because there is no 'property' which can be entrusted.
63. In the case before us there is no evidence that there was an agreement by which the partnership assets were converted into separate property of the partners. Therefore there cannot be a breach of trust, because nothing was or could be entrusted.
