P L D 1955 Sind 21 (PLP)

VELLANI, J.--‑This is an appeal against the order dated 4th August of Muhammad Bakhsh, J. appointing a Receiver of Eros Cinema in a suit filed by respondent 1 for accounts of an alleged partnership said to have been dissolved on 1st December, 1953, upon the death of M. C. Parekh, or in the alternative, for payment of Rs. 77,084‑1‑7 being the principle sums paid for the benefit of the partnership of the appellant. with Parekh and interest thereon. It is common ground that appellant 1 and Parekh took Haji Rehmatullah and his two brothers as partners in May 1949 but on disagreement, the latter filed suits Nos. 162 of 1951 and 18 of 1952 in which they obtained consent decrees for the aggregate amount of Rs: 2,21,000 payable by monthly instalments of Rs. 7000. Appellant 1 and Parekh then tool: appellants 2, 3 and 4 as partners from 1st April, 1956, the shares of the former being 6 annas each and of the latter 1 anna each, the partnership being evidence by a deed dated 6th October, 1952. On 26th May, 1953, Parekh purporting to act for himself and his partners, executed a document addressed to respondent which reads as follows :‑ This is to confirm the understanding arrived at between you and ourselves, with regard to the proposed partnership in the cinema business. It was agreed that we would jointly with you form a partnership to run the cinema business at the Eros Cinema which belongs to us. I explained to you that we have to pay one Mr. Haji Rehmatullah and others a sum of Rs. 2,20,000 in respect of two decrees of the Chief Court, Karachi. We have already paid Rs. 72,000 and interest towards the above amount up till now. It was agreed that you would be taken as our partner on the following terms : That you shall invest in the partnership business Rs. 2,20,000 which will be paid by you as follows: (a) you will pay the instalments due against us on the 10th of every month in the Court in respect of‑the above two decrees. (b) The amount which we have paid up till now in the Court will be paid by you in instalments to us. In additional to the above amount, you will pay interest on the amount that may be due from us against the above decrees till such time as the entire amount is paid up. This interest will be borne by you alone. (2) In consideration of the above, we undertake to give you five annas share in the net profit of our cinema business. After the payment of Rs. 2,20,000 has been completed by you, the charge on the property that now remains with Haji Rehmatullah and others will be transferred to you for the said sum of Rs. 2,20,000 on the same terms and conditions, i.e., the first lien of Rs. 75,000 on the property is that of Mr Sitlani from whom it was purchased. (3) We have already received from you Rs. 35,000 in cash for which a‑ separate receipt has been issued in your favour. This amount will be adjusted against the payment of Rs. 72,000 that has been made by us. We have paid in all approximately Rs. 96,

000. This money was raised by loan from various parties and we wish to make payment, for the same. In order to curtail our liabilities, it ‑ is agreed that the balance of Rs. 37,000 from Rs. 7.2,000 will be paid by you in two or three instalments to us. (4) The net profits of the running business will be divided among ourselves every alternate month. (5) A proper agreement will be drafted embodying the above mentioned terms by the lawyers' of the parties and will be executed in due course. The above understanding will come into operation from the 1st of June, 1953. The same day Parekh executed a receipt acknowledging Rs. 35, 000 paid up to that date "in connection with the cinema business". From June to October, 1953, Parekh signed five receipts for the amounts of instalments paid by respondent

1. In November, 1953, respondent 1 made no payment on 1st December, 1953, Parekh died. The appellants denied that respondent 1 was a partner. With the plaint respondent 1 filed an application for the appointing of a receiver and an application for attachment before judgment both supported by his own affidavit, upon which Munshi, J. ordered notice to issue. On 18th June, 1954, respondent 1 filed another application supported by his own affidavit for the appointment o a receiver, upon which Inamullah, J. appointed the official assignee as receiver only to collect the daily income of the cinema. On 22nd June, 1954, appellant 1 filed a counter affidavit for himself and appellants 2, 3 and

4. On 3rd August, 1954, respondent 1 filed an affidavit in repply and on 4th August, 1954, appellant 1 filed an affidavit in rejoinder. Respondent 1 has relied upon the document dated 26th May, 1953, and the payments made by him to Parekh in pursu ance of it. It is not denied that the payments made in respect of the instalments due on the decrees were paid by Parekh to discharge them. As to the remaining payments the appellants do not admit their application' by Parekh towards the discharge of partnership debts. There is nothing to show whether any of those payments went into the bank account of the partner ship. The circumstances that the venture was in need of money and that twice before, partners had been taken to meet it, have been stressed for respondent

1. In his affidavit in reply respondent 1 alleged that appel lant 1 had consented to enter into partnership along with others and that he had gone to respondent 1 several times, while negotiations for the partnership were going on. Appel lant 1 has denied this in his affidavit in rejoinder, but has admitted that he knew that Parekh had borrowed some money from respondent No. 1 and was contemplating a partnership with him, but had stated that from the end of May; 1953, the appellants were dissatisfied with Parekh's management and refused to allow him to continue operating on the firm's bank account alone and in June, 1953, a fresh account was opened in the Central Bank of India wfiich could be operated only jointly by Parekh and appellants 1 and 2.. They were also insisting on Parekh accounting to them properly for his management and had refused to sign the accounts on which Parekh ha prepared an income‑tax return two or three days before his death. This is the evidence on the question whether the appellants consented to the introduction of respondent 1 as a partner with themselves and Parekh. It is common ground that Parekh was not entitled under his subsisting partnership with the appellants to introduce any one as a partner. Section.31 (i) of the Partnership. Act IX of 7932 says, subject to contract between the partners and to the provisions of section 30 (which relates to the admission of minors to the benefits of a partnership), no person shall' be introduced as a partner into a firm without the consent of all the existing partners. This provision corresponds to section 24 (7) of the English Partnership Act.1890 which says that no person may be introduced as a partner without the consent of all existing partners. As to the reason for this rule, Lindley on Partnership, 11th Edition; 1950 at page 447 says :‑ "When persons enter into a contract of partnership, their intention ordinarily is that a partnership shall exist between themselves and themselves alone. The mutual confidence reposed by each in the other is one of the main elements in the contract, and it is obvious that persons may be willing enough to trust each other, and yet be unwilling to place the same trust in any one else. Hence it is one of the fundamental principles of partnership law, expressly recognized by the Partnership Act, 1890, that no person may be introduced as a partner without the consent of all existing partners. The evidence shows appellant I's knowledge at least that respondent 1 had paid to Parekh the instalments due on the decrees from June to October, 1953, and that Parekh was contemplating a partnership with him. On the other hand, at the time of each of these five payments the need to obtain the individual consent and signature of appellants 1 to 4 to the 8 document dated 26th May, 1953, clearly arose and payments could have been declined without them. Further, respondent 1 made no payment in November towards the instalment ‑payable under the decrees and no division of profits ever took place although under Clause 4 of the document such a division C should have taken place every alternate month. These con siderations put the consent of the appellants without which respondent No. 1, cannot be a partner, very much in doubt. No estoppel correctly arises on this evidence. In Canada and Dominion Sugar Company Limited v. Canadian National (West Indies) Steamship, Ltd. (A I R 1947, P C 40 at p. 43.) Lord Wright observed :‑ " Estoppel is a complex legal notion, involving a combi nation o f several essential elements, the statement to be acted upon, action on the faith of it, resulting detriment to the actor. Estoppel is often described as a rule of evidence, as indeed it may be so described, but .the whole concept is more correctly viewed as a substantive rule of law. The purchaser or other transferee must have acted upon it to his detriment; as for instance he did in this case when he took up the documents and paid for them. It is also true that he cannot be said to rely on the statement if he knew that it was false ; he must reasonably believe it to be true and 6heiefore act upon it. Estoppel is different from contract both in its nature and ‑consequences: But the relationship between the parties must also be such that the imputed truth of the statement is a necessary step in the constitution of the cause of action. But the whole case of estoppel fails if the statement is not sufficiently clear and unqualified." In Mercantile Bank of India, Ltd., v. Central Bank of India, Ltd., (1) Lord Wright observed, "There, is, However, a mc, general answer to any argument based upon the respondent's failure to stamp. It is not suggested that it was a usual practice, so that failure to adopt it could be charged against .the respondents, but, even if it were, it would still be of no avail to the appellants, because there was no duty as between the appellants, and the respondents to adopt any such practice. As already pointed out, the existence of a duty is essential, and this is peculiarly so in the case of an omission. This is so even if the case were put on representation or holding out." There now falls for consideration'‑'& law and practice of the Courts in appointing a receiver in a case where the existence of partnerhip is denied. Lindley on Partnership, 11th Edition, 1950 at page 651 says :‑ . "Where a Partnership is alleged on the one side and denied on the other, and a motion is made for a receiver, the Court usually declines to appoint a receiver until that question is determined." In Peacock, v. Peacock (2) and Chapman v. Beach (3) an issue was first directed to determine the existence of part nership and in Fairburn v. Pearson (4) upon a motion to appoint a receiver of a partnership, an issue was directed to try the question‑ whether the partnership had been dissolved. Kerr on the Law and Practice as to Receivers; 12th Edition, 1952 page 77 says :‑ The Court will, in all cases, entertain an application for a receiver, if the object of the action is to wind up the partnership affairs, and the appointment of the receiver is sought with that view. If, however, it is doubtful, whether there is or is not an unexpired term, a receiver will not, be appointed, unless of course there is danger to the assets : so where a partner ship is alleged on one side and denied on the other, unless the person in possession of the assets consents." The allegation of dissipation of partnership property upon which Inamullah, J. made the interim order' dated 18th June, 195.4, was that since .the filing of the suit the appellants had withdrawn a huge amount from their bank account and were not depositing the income of the business into that account. The appellants' answer was that they had taken. Malik Muhammad Ishak as a partner, that in. order to operate the account he had to sign cheques jointly with appellants 1 and 2, that, the new partner fell seriously ill in Lahore and the signed blank cheques he had left behind were exhausted in May and that it was not' convenient to operate (1) (1938) All England Law Reports 52, 62 A ‑I R (1938) P. C. 52 (2) (1809) 33 English‑Reports 902 (3) (1820) 37 English Reports 494 (4) (1850) 86 Revised Reports149 That account. The last withdrawal from this account was of Rs. 10,670 on 29th May, 1954. There is no evidence that this sum was not applied to the partnership business. In this state of the record the appellants were willing to safeguard respondent 1's claim. They undertook to deposit in Court Rs. 77,084‑1‑7 less sums already in the receiver's hands, and not to transfer their respective interests in the cinema during the pendency of the suit. In Benoy Krishana Mukherjee v. Satish Chandra Giri ((1927) 55 Ind. App. 131.) the Privy Council dealt with ‑a case in which the District Judge of Hoogly had appointed a receiver in a suit under section 92 C. P. C. of properties, among others of those which the defendant mahant of a temple claimed to be not debuttar, but his own personal property, and the Calcutta High Court had discharged the appointment of the receiver of these properties. There were allegations supported to some extent by evidence that in various ways there was danger of loss or injury to these properties, in‑ that rents had not been paid when due and the non‑payment had exposed the land to gale and further that the defendant had entered into an impro per bargain by which claims against him were sought to be compromised. The Privy Council agreed with the High Court's conclusion that the discretion to appoint a receiver had not been properly exercised and said that the " trial judge had failed to observe points in the evidence which assisted the r4ahant and that generally he was disposed to take a more serious view of the mahant's past and present conduct and of the prospect that in future he might dissipate the property, than was warranted by the materials before him." We think this is what has happened in this case. A discussion of the evidence and the inferences which may correcty be drawn from it as also a close criticism of the inferences and observations of the trial judge is as undesir able here as the Privy Council found it in that case. At page 133 of the report, Lord Sumner said of an order appointing a receiver :‑ " Such an order is discretionary, and the discretion is, in the first instance, that of the Court in which the suit itself is pending. When, as in this case, the order of that Court is, altered on appeal it becomes necessary to consider whether the Court below had before it the evidence required to support such an order and considered it in accordance with the principles on which judicial discretion must be exercised. If the Court of review rightly concludes that proper discretion was not used below, it is free to exercise its own discretion in the matter." We find the order appointing the receiver not made in accordance with the principles on which judicial discretion must be exercised in such a case as this. We accept the two undertakings of the appellants above mentioned. The deposit will be made in Court within three weeks after the net amount in the receiver's hands has been reported and accepted by the Court in the suit, after notice to the parties. Breach or the undertaking not to transfer will be treated as a breach of injunction. We allow the appeal and set aside the order dated 4th August, 1954 appointing a‑receiver. The respondents, except respondent 7 who has supported the appellants, will bear the appellant's costs of the appeal and the two applications in the suit. A. H. Appeal allowed.