Sivasami v. Vinayagamoorthy
COURT OF APPEALDR. RANARAJA, J.
A. 448/94 (F).
C. MT. LAVINIA 40/91 (SPL.).
Partnership Ordinance, No. 22 of 1866 – Partnership at will – Need to specify thecapital of the partnership – Prevention of Frauds Ordinance, section 18.
The plaintiff-appellant instituted action praying for a decree dissolving an allegedpartnership at will. The defendant-respondent raised a preliminary issue, to wit -as set out in the plaint, after the expiry of the Agreement No. 210 of 21.12.90, canthe plaintiff have and maintain this action, since the parties have not entered intoa fresh partnership agreement? The District Court answered this issue in thenegative and dismissed the plaintiff-appellant's action. On appeal –
Ordinance No. 22 of 1866 enacted that the English Law is the Law ofPartnership in Ceylon.
Section 27(1) of the Partnership Act of 1890, provides that where apartnership entered into for a fixed term is continued after the term has expiredand without any express new Agreement, the rights and duties of the partnersremains the same as they were at the expiration of the term so far as is consistentwith the incidents of a partnership. However this provision of the Partnership Acthas to be read with section 18 of the Prevention of Frauds Ordinance, whichstates – for establishing a Partnership where the capital exceedsRs. 1000/-, the Agreement should be in writing and signed by the party makingsame.
It appears that the parties carried on the same business on the same terms andconditions without entering into a fresh Agreement in writing; the partnership istherefore in law and in fact a partnership at will from 1.1.1991.
The Agreement No. 210 makes no mention of the capital of the partnershipand therefore does not comply with the requirements of a partnership Agreement.The need to specify the capital of the partnership is of greater importance in viewof the provisions of the Prevention of Frauds Ordinance. As the AgreementNo. 210 is not in compliance with the Partnership Law, the plaintiff cannot pray
Sri Lanka Law Reports
 2 Sri LR.
for the dissolution of a purported partnership at will, which he claims is anextension of an invalid partnership agreement from its very inception.
The value of the action stated in the plaint is for the purpose of stamp duty. Itcannot be taken as the basis for concluding that the partnership capital exceedsRs. 1000/-.
APPEAL from the Judgment of the District Court of Mt. Lavinia.
D. Wickremanayake for appellant.
S. Mahenthiran for respondent.
Cur. adv. vult.
DR. RANARAJA, J.
The plaintiff instituted action against the defendants prayinginter alia, for a decree dissolving an alleged partnership at will, to
carry on the business called New Cheap Side from 01.01.91, andaccount. The defendants filed answer denying that a cause of actionhad arisen for the plaintiff to sue the defendants and praying for adismissal of the action. When the matter was taken up for trial on17.5.94, Court accepted a preliminary issue of law framed by thedefendants counsel, to wit;
“As set out in paragraph 4 of the plaint, after the expiry of theagreement No. 210 of 31.12.1990, can the plaintiff have andmaintain this action as presently constituted, since the partieshave not entered into a fresh partnership agreement."
The plaintiff’s counsel objected to the issue being framed in thatform. An application to revise the order accepting the issue made tothis Court is alleged to have been dismissed without costs, (vide para21(b) of the petition of appeal).
Both parties tendered written submissions on the said preliminaryissue. The learned District Judge by his Judgment dated 29.8.94,answered the issue in the negative and dismissed the plaintiff’saction without costs. This appeal is from that Judgment.
Sivasami v. Vinayagamoorthy (Dr. Ranaraja, J.)
The grounds of appeal stated in the petition inter alia, are, thelearned Judge was in error, (a) when he took into account the valueof the action given by the plaintiff as Rs. 100,000/- to determine thecapital of the partnership business, (b) when he delivered hisjudgment on 10.10.94, which was a date fixed for furthersubmissions.
At the commencement of proceedings on 17.5.94, the partiesadmitted that the plaintiff and the defendants entered intopartnership agreement No. 210 dated 7.7.87, valid for a period offour years, created in the partnership agreement No. 172 dated 4thDecember 1986, which was to expire on 31.12.90. This action wasfiled on 16.9.91, that is, after the expiry of the said agreement.
To be entitled to the main relief claimed, namely, the dissolution ofthe partnership, the plaintiff had to prove that there was in existencea valid partnership between the plaintiff and the defendants at thetime of instituting action.
The defendants have pleaded in their answer that after the expiryof agreement 210 on 31.12.90, the two defendants by agreement 762dated 28.3.91, commenced a new partnership business with effectfrom 01.04.91, at the same premises, No. 386, Galle Road, Colombo 6.They cannot now in appeal, deny the validity of agreement 210 onthe ground that it was a sham or intended to hide the true nature ofthe transaction.
Ordinance No. 22 of 1866 enacted that English Law is the Law ofPartnership in Ceylon. Section 32(a) of the Partnership Act of 1890provides;
"Subject to any agreement between partners, a partnership is
If entered into for a fixed term, by the expiration of that term.
If entered into for a single adventure or undertaking by the
termination of that adventure or undertaking."
Sri Lanka Law Reports
 2 Sri LR.
The duration of the partnership must always be stated in theagreement, if the creation of a partnership at will is to be avoided.
Section 27(1) of the Act provides;
“Where a partnership entered into for a fixed term is continuedafter the term has expired, and without any express newagreement, the rights and duties of the partners remain the sameas they were at the expiration of the term so far as is consistentwith the incidents of a partnership at will."
This provisions of the Partnership Act has however to be read withSection 18 of the Prevention of Frauds Ordinance which states;
“No promise, contract, bargain, or agreement, unless it be inwriting and signed by the party making the same, or by someperson thereto lawfully authorised by him or her, shall be of forceor avail in law for any of the following purposes:-
for establishing a partnership where the capital exceeds onethousand rupees.
Thus in the instant case, the plaintiff had to plead in his plaintbefore Court could proceed any further, that after the expiry of theagreement No. 210, (a) the partnership continued on the sameterms and conditions set out there, (b) that the share capital wasless than Rs. 1000/-.
In paragraph 3 of the plaint, the plaintiff has averred the saidpartnership business was accordingly carried on, on the termsand conditions of the said partnership agreement. Under the saidpartnership agreement a sum of Rs. 1500/- per mensem waspayable to the plaintiff”.
Sivasamiv. Vinayagamoorthy (Dr. Ranaraja.J.)
In paragraph 4 he states:
"After the expiration of the period provided in the said partnershipagreement on 31st December 1990, the plaintiff and defendantscarried on the same business on the same terms and conditionswithout entering into a fresh agreement in writing. The
partnership is therefore in Law and in fact a partnership at will from1st January 1991”.
'It is important that the agreement records the capital requiredto be contributed by each partner and the proportions in whichone's contribution is to be owned. The capital should beexpressed to be so much money; and if one of the partners is tocontribute lands or goods instead of money, such lands or goodsshould have a value set upon them and their value in moneyshould be considered as his contribution”.
“By capital of a partnership is meant the aggregate of the sumscontributed by its members for the purpose of commencing orcarrying on a partnership business and intended to be risked bythem in the business. The capital of a partnership is not thereforethe same as its property: The capital is a sum fixed by theagreement of the partners. The amount of each partners’ capitalought…always to be accurately stated, in order to avoid disputeson a final adjustment of account, and it is more important where■ the capitals of the partners are unequal, for if there is no evidenceas to the amounts contributed by them, the shares of the wholeassets will be treated as equal” – See Lindley and Banks onPartnership 16th Ed. Pg. 156-157, 422.
The agreement 210 makes no mention of the capital of thepartnership and therefore does not comply with the requirements of apartnership agreement. The need to specify the capital of thepartnership is of greater importance in this country, in view of theaforesaid provisions of the Prevention of Frauds Ordinance, whichhas been enacted to provide more effectually for the prevention offrauds and perjuries. The agreement 210 is not in compliance with
Sri Lanka Law Reports
 2 Sri L.R.
the partnership in Law. The plaintiff cannot therefore pray for thedissolution of a purported partnership at will, which he claims is anextension, of what is now clear, of an invalid partnership agreementfrom it’s very inception.
The plaintiff challenges the decision of the Judge to consider thevalue of the action stated in the plaint for the purpose of stamp dutyas the basis for concluding that the partnership capital exceededRs. 1000/-. The plaintiff cannot adduce such an argument, when theburden of proving that the alleged partnership at will was in fact valid,although not in writing, as the capital was less than Rs. 1000/-, lay onhim. Similarly, the plaintiff cannot claim that he had a right to anopportunity to lead oral evidence on the partnership capital, when thelaw requires the capital contributed by the partners to be recorded inthe partnership agreement on which he endeavours to base thepartnership at will. The plaintiff could not have surmounted this legalimpediment, even if was allowed to tender further written submissionson 10.10.94, because those submissions which are filed of record, donot in any event, make reference to the legal requirement that apartnership agreement must record the capital contributed by thepartners and the proportions, in which the contributed capital to beowned.
The Judgment of the learned District Judge is affirmed. The •appeal is dismissed without costs.