Perera v. Gunawardena (Samarakoon, C.J.)
Cyril Alfred Rodrigo
S.C. Appeal No. 54/81 -C. A. Appeal No. 75N/76-M.C. Colombo No. 71
Criminal Preach of Trust Penal Code section ,?<W A J1I ; – element of entrustmentessential in charge of Criminal Preach of Trust against a partner – Whois a partner ? Money received as an accountant or partner.
The accused respondent – was an accountant employed in the firm ofKolbcrg & Co. On 1.5.66 the accused respondent was admitted as apartner on the following terms (I) He would contribute no capital (2)He would receive an annual sum of Rs. 2000/- as his share of the profits(3) He -would not share in the losses (4) He would not be entitled tothe goodwill of the firm.
Sri Lanka Law Reports
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One of the partners, the complainant- Appellant filed a private complaintagainst the accused charging him with criminal breach of trust of Rs.59,000/- entrusted to him in his capacity of accountant. The Magistrateconvicted. the> -accused respondent for committing the offence of criminalbreach of trust simpliciter punishable under.section 389 of the Penal Code.
On appeal to iht Court of Appeal the conviction was quashed on the""grounds.-that the: accused was a partner with limited rights and that in• such:a case there must her.a special agreement showing entrustment.
On appeal to the Supreme Court
Held I. the accused respondent was a partner :
2. there was a doubt whether the accused respondent receivedthe money as an accountant, or as a partner.
APPEAL from Judgment of Court1of Appeal
Argued on:Decided on:
Wanasundera J., Wimalaratne J., &
A.C. deZoysa, SAALwithD.T.P. RajapaksaforComplainant-Appellant.
V.S. A. Pullenayagam with L. F. Ekanayake,
Miss M. Kanapathipillai &Miss D. Wijesunderafor Accused-Respondent.
1st March, 1982.
I / 1<
19th March 1982
Cur. adv. vidt.
The firm of Kolberg & Co. commenced business as dealers inpatent medicines, acids, chemicals, textiles and a host of other itemsin about April 1948. The original partners were Fredric WalterKolberg & Phyllis Edith Kolberg, husband and wife who were Germannationals. C.A. Rodrigo who is the Appellant became a partner inJanuary 1953. A.H.M. Nulair who is the accused respondent wasemployed by the firm as an accountant from 1.9.56. The threepartners by indenture P5 attested by a Notary Public agreed to takeNulair into the partnership from 1.5.66 to the extent and in themanner and upon the terms set out in P5 to which all r<-
SC 'Rodrigo v. Mohamed Nulair (Wintalarornc. J )
– r• I ."
were signatories. Theidimitations on the rights of the new partners;were briefly as follows:- -.
The new partner was not required to contribute any partt .of.the capital„iwhich was Rs. 24^ ,500/-. whereas,die other
si . three, .contributed Rs. 119,000/-. Rs. .108.500/- and. Rs,20.000/r,;iespectively..ini.
.i jiHj©;profits,;and losses we re, to by shared and borne by the
jithree^ original partners .in :tfiq,,.proportions of the capital
nii;,!,conteibuted:.by each. ,
.' ;,Nulair,> was .too cqntinue. tq draw his Salary as,il(cqoqqtaq|t.
.a-. and was also to, receive as, his share of the prpfits^i 514pi,
of Rs. 2000/- per year payable,, at the, end of each year…
•».. He was .to. have.no interest:in-the capiud asscfejand^An. t^ft- goodwill,.nor was he to be liabletqpon^Ti.biUte to fhfr^c.tt Iqsjses.,
: -Any two- partners jointly, were entitled. ,to operate the Bank
account of the. firm.
Clause 13 expressly provided that.Nulair “shall not have orexercise any of the. rights or powers of a.,partner in .thesaid :firm and shall not engage the credit;of. the said, firmor conduct or interfere in the managemenb.of the saidbusiness except under the direction of the .principal partnersor partner.”
The goodwill and the rights to the firm name were, to belongto Mr. & Mrs.. Kolberg or the survivor of them.
The Kolbergs left Sri Lanka, in 1970. On 15.8.73 C.A. Rodrigoinstituted a private prosecution in the. Magistrate's Court, chargingNulair with having between 1.1.72 and 31.12.72, while.being employedin the capacity of a servant, to wit Accountantn-Kolberg & Co.committed criminal breach of trust in respect of a sum of Rs. 59.000/-entrusted to him in his capacity as such servant, an offence punishableunder section 391 of the-.:PenaI Code.
• At the trial Rodrigo gave evidence .and called a representative ofthe firm of Alles, Martin & Co. to speak to the accounts of Kolberg& Co. for 1972. A letter PI dated 24.5.73. written by the accus'edto Rodrigo was aljso produced. It disclosed the fact that the .accusedhad taken for his own use money belonging to the firm. The defencewas that *the shortage of Rs. 59,0(X)/- was as a result of monies ofthe firm being handed over to a Mr. White to be remitted to Mr.
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[19821 I S.L.R
Kolberg who was abroad. He explained that he wrote PI as a resultof being compelled to do so by Rodrigo. The learned Magistrateconvicted the accused of having committed the offence of criminalbreach of trust simpliciter. punishable under 389 of the Penal Codeand sentenced him to a term of 18 months R.I. and a fine of Rs. 1,500/-
The Court of Appeal set aside that conviction and sentence forthe reason that when a person is in the position of a partner acharge of criminal breach of trust cannot succeed against him unlesson the basis of some special agreement showing entrustment. TheCourt has taken the view that the accused was a partner with limitedrights, principally because in P5 the other three partners had recognisedhim as a partner and also because the Business Names Register P4gave his name as a partner. Another factor which had influencedthe Court was that the Magistrate had not convicted the accused onthe basis that he was a servant, but that- he was guilty of criminalbreach of trust simpliciter. In coming to this conclusion the Court ofAppeal has been guided by a judgment of the Supreme Court ofIndia, in the case of Patel Vs. The State of Maharashtra (1965) 2Cr. L.J. 431 in terms of which where a partner is authorised torecover dues of the partnership and spend monies in the businessof the partnership he cannot be guilty of criminal breach of trusteven in respect of the monies realised by him, because the offenceof criminal breach of trust rests principally on the element ofentrustment, but a partner has dominium over the partnership propertyby law and not by entrustment.
The correctness of the principle in Patel’s case is not challengedby learned counsel for the complainant-appellant. His contention isthat on a true appreciation of the documentary evidence, especiallyP5, and the conduct of the parties, Nulair was never considered apartner by the other three partners. He was only a paid accountant,and the partnership property was entrusted -to him in that capacity.Learned Counsel for the accused respondent referred specifically tothe designation of the accused as a partner in P5 and the otherdocuments, and to the fact that the accused was entitled to sharein the profits.' although the amount was limited to a fixed sum ofRs. 2,000/- per year. He also relied on the- principle that a partnercannot be employed by his firm, for a man cannot be his ownemployer — Lindley on Partnership (13th Ed) 26.
Rodrigo v. Mohamed Nidair (Winudiirainc, J.i
It is significant that Rodrigo did not produce P5 until it was shownto him towards the end of his cross examination. He presented hiswhole case on the footing that the accused's relationship with thefirm was only that of an accountant. When confronted with P5 headmitted that the accused was considered as a partner by the others,and that after the Kolbcrgs left Sri l.anka in 1970 cheques were‘signed by himself and the accused. That is to say clause II of theagreement was acted upon. The evidence of Rodrigo also establishedthe fact that the accused was actively engaged in the business of thefirm: that could have only been possible if he was given directionsby one of the other partners in terms of clause 13.
Our law of Partnership is the English Law. Under the EnglishPartnership’ Act of 1890 a partnership is the relation which subsistsbetween pefsons carrying on a business in common with a view toprofit. A partner would then be a person who has entered into thisrelation of partnership. The rights and obligations of partners interse, are generally regulated, to a certain extent, by special agreement,the true meaning of which is to be ascertained from the contents ofthe written instrument. The conduct of the parties is also relevant,besides the written agreement, in order to ascertain the relationshipbetween the parties. Now, the ordinary principles applicable to theproof of criminal charges would be applicable where a charge ofbreach of trust is brought against a partner or employee. The burdenis on the prosecution to establish beyond reasonable doubt that theaccused was an employee and not a partner and that he receivedthe money in the capacity of an employee and not in the capacityof a partner. The benefit of any doubt on any of these matters hasto be resolved in favour of the accused.
Contribution towards the capital of a business is not essential tomake a person a partner. He may instead contribute his skill andexperience. In this case the accused did not contribute towards thecapital. But the evidence disclosed his activity in the managementof the business.
Section 24(5) of the Partnership Act declares that every partnermay take part in the management of the business. But it is competentfor the parties to agree that the management of the partnershipaffairs be conferred on one or more of their numbers. The inclusionof clause 13 in P5 is therefore a recognition by other partners ofNulair also as a partner.
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There is the fact that the accused’s share of the profits was a fixedsum, namely Rs. 2,000/- per year, and not in proportion to theprofits of the business. In this connection, Lindley says, under thesub head “Salaried" partner, “In the case of junior partners, it isnot unusual to express their share of the profits in the form of afixed salary" (page 437).
A consideration of all the terms of the written agreement 1*5 aswell as the evidence relating to the conduct of the parties creates adoubt as to whether the accused received the money he is allegedto have misappropriated in his capacity as accountant or as a partnerwith limited rights. The Court of Appeal was therefore right inacquitting the accused. This Appeal is dismissed, but without costs.
Wanasundera J: — 1 agree.
Victor Perera J: — I agree.