Case Study: Nanchand Gangaram v. Malappa Mahalingappa

By Mohd. Sahil Khan 9 Minutes Read

“Hindu Joint Family Excluded from Section 45 of the Partnership Act: Supreme Court Reiterates Distinction Between Contractual Partnerships and Familial Obligations.”

Citation: AIR 1976 SC 835

Date of Judgment: 30^th January, 1976

Court: Supreme Court of India

Bench: R.S. Sarkaria (J), S. Murtaza Fazal Ali (J)

Facts

• The respondents were Hindus governed by the Mitakshara School of Hindu Law. Mohalingappa, the head of the family, passed away in 1922, leaving behind three sons: Mallappa (Defendant No.1), Appasaheb (Defendant No.2), and Neelkanth, the eldest son.
• During Mohalingappa’s lifetime, the family, which included him and his sons, operated as a joint Hindu family engaged in the tobacco trade. After his death, the surviving members remained as a joint family, with Neelkanth managing the family business as the Karta until November 1945.
• The appellant had business and financial dealings with the defendants’ joint family. It was contended that even if the joint family status ended in November 1945, based on Section 45 of the Partnership Act, the acknowledgment of a debt of Rs. 75,000/- made by Mallappa and Appa-saheb in 1952 regarding the amount owed to the appellant would still bind all former members of the joint family, in the absence of general notice to traders or specific notice to the plaintiff.

Judgment of the trial court

The trial court dismissed the plaintiff’s suit against Defendants 3 and 4, finding that the joint family had been disrupted in 1945, and Defendants 1 and 2 acknowledged the debt. In this case, defendant 3 and Defendant 4 are Neelkanth’s wife and minor son. Additionally, Defendant 3 had repudiated his liability as a partner upon reaching adulthood. However, the court upheld the plaintiff’s claim against Defendants 1 and 2, awarding them the full amount owed plus 12% interest due to the destruction of the old accounts.

Judgment of the High Court

The High Court affirmed the trial court’s decision that the joint Hindu family of the defendants had been disrupted in 1945. This finding was based on strong documentary evidence, including a partnership deed, arbitration award, decree, and admissions from the defendants. The court also concluded that the acknowledgments of debt made by Defendants 1 and 2 did not extend the statute of limitations against Defendant 3, who had repudiated his liability upon reaching adulthood. Consequently, the plaintiff’s claim was valid only against Defendants 1 and 2.

Judgment of the Supreme Court

The Supreme Court ruled that Section 45 of the Partnership Act does not apply to Hindu Joint Families because it requires a contractual relationship, which does not exist in a joint Hindu family. Additionally, an acknowledgment made by the head of a dissolved Hindu joint family cannot extend the statute of limitations for all former family members. The court stated that only the manager of a still-existing joint Hindu family can make such an acknowledgment. The creditor is responsible for verifying the joint family’s ongoing status before relying on an acknowledgment made by someone claiming to be its manager.

Key legal issues discussed

1. Whether Section 45 of the Partnership Act is applicable to the Hindu Joint Family?

No

The court observed that the legislature has explicitly excluded the Hindu Joint Family from the ambit of Section 45 of the Partnership Act. The court interpreted Section 4 of the Partnership Act and defined the concept of partnership. As per the apex court, the partnership is based on two concepts: firstly, the intention to share profits of the business, and secondly, the concept of mutual agency (where all partners or any of them are acting for all.)

The court observed that in a Hindu Joint Family, the right of a person arises from status and not from contract; that is, in a Joint Hindu Family, the person has a birthright over ancestral property. In the formation of a partnership, it is essential that there be a contractual relationship between the partners. The court placed reliance upon Section 5 of the Partnership Act, which clearly provides that the Partnership Act governs only those relationships of partnerships that arise from a contract and not from status. Therefore, the court held that Section 45 of the Partnership Act is not applicable to the Hindu Joint Family.

Furthermore, the court distinguished between the roles of a Karta in a Hindu Joint Family and a partner in a partnership firm. It emphasized that while the Karta manages the family business on behalf of all coparceners, his actions are rooted in his fiduciary position and not in the contractual obligations that bind partners in a partnership. The court highlighted that unlike a partnership, where mutual consent and agreement are fundamental, the Karta does not require the consent of other family members to act on their behalf. This absence of a contractual element further reinforced the court’s stance that a Hindu Joint Family could not be treated as a partnership under the framework of the Partnership Act.

2. Does an acknowledgment by the head of a dissolved Hindu joint family affect the statute of limitations for all former family members?

Yes

The court interpreted Section 21 of the Limitation Act, which elucidates upon the acknowledgment made by the Karta or the manager of the family, which is deemed to be made on behalf of the whole family. The court, in the 42^nd para of the judgment remarked “The key words in this clause are ‘the manager of the family for time being’. The words unerringly indicate that at the time when acknowledgement is made and signed, the person making and signing it, must be the manager of a subsisting joint Hindu family. If at relevant time the joint Hindu family as such was no longer in existence because of division or disruption of its joint status, any acknowledgement made by the erstwhile karta of such family cannot keep the debt alive and extend limitation as against all the members of the family, representative character as karta being coterminus with the joint status of the family.”

It was also determined that the creditor has the responsibility to verify, through proper investigation, whether the individual acknowledging the debt continues to act in the capacity of the family Karta. The law does not impose any obligation on other family members, who are not mentioned in the document acknowledging the debt, to notify the creditor of any dissolution within the family. If the creditor neglects to inquire and confirm the representative capacity of the person making the acknowledgment at that time, they do so at their own risk.

Mohd. Sahil Khan