Holding

Partners who were members of the partnership at the time of borrowing are jointly and severally liable for the loan, and the plaintiff may obtain attachment before judgment under Order XXXVIII Rule 5 CPC; the appeal is dismissed.

Summary

The plaintiff obtained a loan of Rs 70.30 lakh, secured by a cheque drawn in the name of a partnership firm, and filed a suit for recovery along with an application for attachment before judgment under Order XXXVIII Rule 5 CPC. The High Court rejected the attachment, holding that the loan was not for the benefit of the firm and that some defendants were not partners. On appeal, the Supreme Court examined the partnership deed and the timing of the loan, finding that the defendants were partners at the relevant time and that the cheque indicated a transaction on behalf of the firm. Consequently, the plaintiff was entitled to enforce the claim against both the firm and its partners, and the attachment application was proper. The Court also held that the appellants were not seriously prejudiced by furnishing security, and therefore the appeal under Article 136 was dismissed.

Issues considered

Whether partners who were members of the partnership at the time of borrowing are liable for a loan taken in the name of the firm.
Whether an order of attachment before judgment can be granted under Order XXXVIII Rule 5 of the CPC when the loan is alleged to be for the partnership’s benefit.
Whether the Supreme Court should entertain the appeal under Article 136 of the Constitution given the absence of serious prejudice to the appellants.

Legislation cited

Code of Civil Procedure, 1908s. Order XXXVIII Rule 5
Constitution of Indias. Article 136
Indian Partnership Act, 1932s. Section 18, s. Section 19, s. Section 22, s. Section 28, s. Section 2(a)

Subjects

attachment before judgmentpartnership liabilityloan recoveryOrder XXXVIII Rule 5 CPCPartnership Act 1932Article 136Supreme Court appeal

Judgment

-+- [2008] 2 S.C.R. 209

~
{ RAJENDRAN AND OTHERS A·
v.

... I
SHANKAR SUNDARAM AND OTHERS
(Civil Appeal No. 802 of 2008)
JANUARY 30, 2008
B

. r
'
[S.8. SINHA AND HARJIT SINGH BEDI, JJ.]

Code of Civil Procedure, 1908 - 0. 38 r. 5 - Attachment
before judgment -Application for, against partnership firm and
its partners - Challenge to, on the ground that borrower was c
not a partner and borrowal of money was not for the benefit of
the firm - Held: All of them were partners at the relevant time -
Plaintiff could enforce his claim against the firm as a/so its
partners - Lender filed application for attachment to protect
his interest in the event suit is decreed - Cburt was to form
D
prima facie opinion at that stage without going into the
correctness of the contentions raised - On facts, partners would
' not be seriously prejudiced on furnishing security, thus,
"""'
interference under Article 136 not called for - Constitution of
India, 1950-Article 136 - Partnership Act, 1932.
E
. The appellant-defendant nos. 4 to 7 were partners of
the defendant no. 1 firm. Defendant no. 3 was also the
-1 partner. It is alleged that defendant no. 2, who was
described as the managing partner of the firm fraudulently
obtained loan from the plaintiff-respondent and also
~ F
furnished a personal guarantee. The cheque was issued
in the name of defendant No. 1. Defendant no. 3 executed
a pronote. Plaintiff-respondent filed suit for realisation of
the amount against all the defendants. It also filed
application under 0. 38 r. 5 CPC for attachment before
judgment. The High Court rejected the application since G,
~
' ~
the defendant no. 2 took the loan in connivance with
defendant no. 3 and 8 not for the benefit of partnership
firm. Aggrieved, plaintiff filed appeal which was allowed .
.Hence the present appeal.
209 H
210 SUPREME COURT REPORTS [2008) 2 S.C.R.
--+-
_,,;-
A Appellants-defendants contended that in obtaining
the loan from the plaintiff-respondent, defendant Nos. 2,
3 and 8 played a prime role; that a defendant No.2 was
stated to be the Managing Partner of the firm, which he
':
was not; that only defendant No.3-son of defendant No.2
8 was a partner; and that the purported loan was granted
by the plaintiff without even caring to ascertain as to who
are the partners of the said firm.
,
f
'\
Dismissing the appeal, the Court
HELD: 1.1 The firm would be bound only when a
c transaction is entered into by a partner of the firm subject
to the limitations contained in the Partnership Act, 1932.
[Para 9] (213-G]
1.2 The amount of loan was advanced by a cheque.
The said cheque was drawn in the name of the partnership
D
firm. Concededly again, the appellants were the partners
thereof at the relevant time, although an endeavour was
_;-
made before the Single Judge of High Court to show that ,,....
they ceased to be so .. Having regard to the fact that they '"
purported to have retired from the partnership firm in the
E year 2001 and the transaction between the parties are of
the year 2000, prima facie the liability of the appellants
could not have been ignored. [Para 11] (214-A, B, C]
1.3 The application for attachment before judgment
was filed by the plaintiff so as to protect his interest in the
F event the suit is decreed. In such a situation, the court ~-

exercises jurisdiction under Order XXXVlll Rule 5 CPC. It
need not go into the correctness or otherwise of all the
contention.s raised by the parties. Allegations against
defendant Nos. 2, 3 and 8 are required to be gone into at
G the hearing of the suit. The plaintiff is entitled to secure·
his interest keeping in view the amount involved in the
suit. A cheque had been issued in the name of the firm.
)-
...
'

The appellants are partners thereof. A pronote had been
executed by a partner of the firm. Thus, even under the
H Partnership Act prima facie the plaintiff could enforce his
-+ RAJENDRAN AND OTHERS v. SHANKAR SUNDARAM 211
AND OTHERS [S.B. SINHA, J.]

claim not only as against the firm but also as against its A
partners. [Paras 12, 13 and 14] [214-D, F, G, H; 215-A]
1.4 In any view of the matter as the appellants are
not seriously prejudiced if they furnish the security, this,
is not a fit case where this Court should exercise its
jurisdiction under Article 136 of the Constitution of India. B
....,
.
[Para 15] [215-8]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 802
of 2008.
From the Judgment and Order dated 27.2.2004 of the High c
Court of Judicature at Madras in O.S.A. No.108/2003.
K. Ramamurthy, Kawaljit Kochar, Rishi Dewan and Kusum
Chaudhary for the Appellants.
Amit Sharma and B.V. Anupam Lal Das for the Respondents. D
The Judgment of the Court was delivered by
">"" S.B. SINHA, J. 1. Leave granted.
2. Appellants herein were defendant Nos. 4 to 7 in the suit.
Plaintiff-respondent No.1 filed the suit against them and four E
others. They are admittedly partners of defendant No.1 firm, M/
s. AR. AS & P.V.PV, registered under the Partnership Act, 1932.
Defendant No.3 P. Shankar (Respondent No.4 herein) was also
a partner in the said firm.

-~ 3. Allegedly, Defendant No.2, P.V. Purushothaman F
(Respondent No.3 herein), who has been described as the
Managing Partner of the said firm, fraudulently obtained an
advance from the plaintiff wherefor a personal guarantee was
furnished by the defendant No.2. Indisputably a cheque for a sum
of Rs. 50 lakhs was issued in the name of the defendant No.1. G
- """ 4. Plaintiff-Respondent filed the aforementioned suit for
realisation of a sum of Rs. 70,30,000/- with interest@ 20% per
annum inter alia alleging that all the defendants were jointly and
severally liable therefor. An application under Order XXXVlll Rule
5 of the Code of Civil Procedure was filed by the plaintiff. H
212 SUPREME COURT REPORTS [2008] 2 S.C.R.
+-
-('""
A 5. Appellants in their written statement inter alia raised a
contention that since the amount of Rs. 50 lakhs purported to
have been taken in advance by defendant No.2 in connivance
with defendant Nos. 3 & 8 had not been used for the benefit of.
the partnership.firm, no order of attachment could be issued as
B against the appellants .herein. The said contention of the.
appellants was accepted by a learned Single Judge of the High
Court by his order dated 1oth December, 2002 opining :-
,.
-"'*

"The copy of the partnership deed date 01-4-1996 has
been filed by the contesting defendants in the typed set.
c A perusal of the same clearly disclosed that the 2nd
Defendant was not a partner in the 1st defendant firm.
Moreover, the plaintiff had also not filed any record to
show that the 2nd defendant was already in a partner (sic)
in the 1st defendant firm and the borrowal was also made
D only for the firm. Unless and until, it is established by the
plaintiff, I am of the view that the plaintiff is not entitled to
seek any interim order calling upon the defendants .to -.;:--f I

execute a security."
6. An intra court appeal was preferred thereagainst wherein
E a Division Bench of the _High Court by reason of the impugned
judgment opined :-
"The Learned Judge has not appreciated that the 3rd
Defendant who is the partner of the firm as per the
partnership deed dated 1-4-1996 executed the promissory ,A·
F notes and clause 10 of the partnership firm gives power
to a partner to borrow monies (sic) from the 3rd parties for
the purpose of business. The 2nd Defendant gave a letter
which is only for personal guarantee.· So, the reasonings
given by the Leaned Judge that since the 2nd defendant is
G not a partner, the borrowal of money is i:iot for the benefit ~ ,.,,
of the partnership cannot be countenanced. When the
cheque was given in the name of the firm by the Plaintiff,
prima facie, it has to be taken that it is borrowed on behalf
of the partnership firm. When the payment of the money by
H the Plaintiff in the firm is not in dispute and in the absence
'
-~
RAJENDRAN AND OTHERS v. SHANKAR SUNDARAM 213
AND OTHERS [S.B. SINHA, J.]

-') of any specific allegation that the amount was paid A
personally to the defendants, 2, 3 and 8, though the cheque
was issued in the name of the firma and the Plaintiff also
colluded with them, the argument of the Learned Counsel
regarding the alleged collusion cannot be accepted.
Whether the amount is used for the firm or personally by 8
'
the defendants 2, 3 and 8 can be gone into only after
adducing evidence. Prima facie, we find that since the
,,
...,._
amount was paid in the name of the firm and promissory
notes were executed by the partners of the firm and no
other partnership deed is produced before the Court other
than that the partnership dated 1-4-1996, the learned Judge
c
is not correct in rejecting the Application as if the plaintiff
has no prima facie case. The learned Judge has not given
any other finding as to the necessity for attachment, but
rejected the application only on the ground that the 2nd
defendant is not the partner of the firm." D

On the said findings the appeal preferred by the plaintiff-
respondent was allowed. Appellants are thus bef9re us.
'r '"'(

7. Appellants are, thus, before us.
8. Mr. Ramamurthy, learned senior counsel appearing on E
behalf of the appellants, would take us through the plaint as well
as the written statement to contend that from a perusal thereof it
would appear that in obtaining the said purported loan from the
plaintiff-respondent, defendant Nos. 2, 3 & 8 played a prime
role As defendant No.2 was stated to be the Managing Partner F
A ... of the firm, which he was not, and in fact only his son (defendant
No.3) was a partner, the purported loan was granted by the
plaintiff without even caring to ascertain as to who are the
partners of the said firm.
9. Our attention was furthermore drawn to various G

.. "(
provisions of the Partnership Act and in particular, Section 2(a);
Section 18; Section 19; Section 22 and Section 28 thereof for
advancing the proposition that the firm would be bound only when
a transaction is entered into by a partner of the firm and that too
subject to the limitations contained in the aforementioned H
214 SUPREME COURT REPORTS [2008] 2 S.C.R.
-+-.
I

A provisions. -r- .
10. Mr. Amit Sharma, learned counsel appearing on behalf
of the respondents, on the other hand supported the impugned
judgment.

B 11. Concededly, the amount of loan was advanced by a
cheque. The said cheque was drawn in the name of the
partnership firm. Concededly again, the appellants were the ,....
partners thereof at the relevant time, although an endeavour was
made before the learned Single Judge to show that they ceased
to be so. Having regard to the fact that they purported to have
c retired from the partnership firm in the year 2001 and the
transaction herein between the parties are of the year 2000,
prima facie the liability of the appellants could not have been
ignored.

D 12. The application for attachment before judgment was
filed by the plaintiff so as to protect his interest in the event the
suit is decreed. The court exercises, in such a situation,
jurisdiction under Order XXXVlll Rule 5 of the Code of Civil ... ~ I
J
Procedure. The Division Bench of the High Court merely
l
E directed the appellants herein to furnish security within the time
specified thereunder. It was directed that only on their failure to
do so, an order of attachment of the 2nd item on the schedule to
the petition shall be issued.
13. Appellants, in our opinion, are not seriously prejudiced
F thereby. The court while exercising' its jurisdiction under Order
XXXVlll Rule 5 of the Code of Civil Procedure is required to I-·
form a prima facie opinion at that stage. It need not go into the
correctness or otherwise of all the contentions raised by the
parties. A cheque had been issued in the name of the firm. The f-
appellants are partners thereof. A pronote had been executed
G
by a partner of the firm. Thus even under the Partnership Act
prima facie the plaintiff could enforce his claim not only as against
,. ....
the firm but also as against its partners.
14. Sections 2(a) ; 18 ; 19 ; 22 and 28 to which our
~
H attention has been drawn, instead of assisting the appellants,
RAJENDRAN AND OTHERS v. SHANKAR SUNDARAM 215'
AND OTHERS [S.B. SINHA, J.]

~ prima facie assist the plaintiff-respondent. Allegations against A
defendant Nos. 2, 3 and 8 are required to be gone into at the
hearing of the suit. The Court at this stage is required only to
form a prima facie opinion. The plaintiff is entitled to secure his
interest keeping in view the amount involved in the suit. For the
said purpose a detailed discussion in regard to the question as s
to whether defendant No.2 was a partner or not is not of much
~ relevance.
' 15. In any view of the matter as the appellants are not
seriously prejudiced if they furnish the security, this, in our opinion,
is not a fit case where this Court should exercise its jurisdiction · C
under Article 136 of the Constitution of India.
16. For the reasons abovementioned this appeal fails and
is dismissed. No order as to costs.
N.J. Appeal dismissed. D