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TMI Blog1934 (10) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... rtgage deed was executed, but there is a finding that it had been in existence for a number of years. The defence inter alia was that, there was no legal necessity for the loan. Both the Courts below have decreed the claim. 2. The second appeal came up for hearing before, a Division Bench of this Court, which has referred two questions to the Full Bench for consideration. These may be formulated as follows : (1) Whether where the business to finance which money has been borrowed is a family business and the loan is for the benefit of the family, the sons are liable for the repayment of the loan contracted by the father; and (2) whether the payment of ₹ 3,000 should be considered, to be repayment partly of the debt incurred for the benefit of the ancestral property and partly of the debt for advancing the Delhi business and appropriated accordingly. 3. In earlier cases of this Court a wider meaning was attached to the expression "benefit to the estate." For instance in Tula Ram v. Tulshi Ram 1920 All. 11, Sir Promoda Charan Banerji, an eminent Judge of this Court, in delivering the judgment held that the mortgage debt was binding because it was for the benefit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not for the benefit of an estate then the manager should have no power either of mortgage or sale of that estate in order to meet such a debt, yet an exception has been made to cover the case of mortgage or sale by the father in consideration of the an antecedent debt. 7. It was held by the Full Bench that the benefit to the estate was something distinct and different from pressing necessity. 8. After this pronouncement, in many cases of this Court it was held that even where pressure of legal necessity is not established, a transaction may be upheld on the ground, that it was for the benefit of the estate and the family which an ordinary prudent manager would enter into, e.g., Raj Kumar v. Mohan Lal 1931 All. 253 and Mahesh Prasad v. Jagannath Chowbe 1931 All. 743. 9. In Benares Bank Ltd. v. Har Narain 1932 P.C. 182, their Lordships of the Privy Council then made it perfectly clear that money borrowed by the father as manager of a joint Hindu family for the purpose of a business which was not ancestral was not borrowed for legal necessity and a mortgage granted as security for such a loan was not binding on the minor members of the joint family, as it was invalid. In that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, their Lordships ruling did not overrule the decision of the Full Bench of Jagat Narain v. Mathura Das 1928 All. 451 It was accordingly held that where the transaction was not speculative but was in the best interests of the family and for its benefit which an ordinary prudent manager would have made, it would be open to a Court to hold that the transaction is binding on the other members of the family though the loan was secured by an alienation of the family property. It was pointed out in that case that in Benares Bank Ltd. v. Har Narain 1932 P.C. 182 it had never been suggested on behalf of the bank that the business had been started for the benefit of the family or that it had been necessary for its support and maintenance or was necessary to save the family from starvation or ruin, and that accordingly their Lordships pronouncement did not necessarily imply that such considerations were altogether irrelevant. The question as to whether that particular transaction was necessary for the family or was for the benefit of the family or the family estate was a question of fact depending on evidence and could not be pressed in appeal, if it had not been raised at the trial. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessity or for the benefit of the estate in the family is a somewhat distinct question. Where the new business is the separate property of individual members of a joint family, it is quite obvious that money required for its purposes can never be for the benefit of the family or of the family estate at all. In such an event an alienation of the, family property would be wholly unjustified. On the other hand, if the business, though not ancestral, had previously become the joint family business, then there may be circumstances under which money required for such business may either be for legal necessity or for the benefit of the family and the family estate. 14. The interest of the members of the family in a business is property just as the rights in any other kind of property. It has been laid down by their Lordships of the Privy Council in many cases that separate property of a member of a family can by blending become joint family property and that for such an effect to be produced it is not necessary that the consent of all the other members of the family, some of whom may be minors and therefore incapable of giving consent, must be obtained as a condition precedent. See : La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is almost invariably raised. 19. Although the alienation of joint family property merely for the purposes of a newly started business is not justifiable, there is really no prohibition against a manager of a joint family in respect of starting a new business. Indeed, it is the commonest thing in this Province to start such new businesses. It may be started with the joint family funds or with separate funds and may possibly at the outset be the separate property of the manager, but if other kinds of properties can, by the conduct of the parties and by the blending of their in come with the income from the joint properties, become joint property, there seems to be no good reason for holding that the interest of a particular member of a family in a business or a mill or a factory can never become joint property by being thrown into the common stock. A business started by a father might have been run for decades and the members of the family may in fact be taking part in its conduct and the family may even be maintained solely with its income, and joint funds might have been utilised for its purposes from time to time. In such an event it may be impossible to hold that the business st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cases has not been to follow the words literally and give to a junior member any such authority. The expression "for the sake of the family" occurring in this text has been judicially interpreted to have a wider meaning than mere pressure of necessity. Taken literally it is more comprehensive than even "benefit to the estate." The expression is wide in scope, and even if it has been too widely interpreted, there are many other matters in the Hindu law wherein a long course of decisions have established propositions perhaps not in strict accordance with the Hindu texts if taken literally. For instance, a distinction has been drawn between a voluntary alienation by the father which may be impugned on the ground of want of necessity and an involuntary auction sale to a third party which can be impugned only on the ground of the debt being tainted with illegality or immorality; or again, the non-liability of Hindu sons for the payment of their father's debts which are incurred after separation; as also alienation in lieu of an antecedent debt. Reliance is next placed on the commentary on this text by the author of the Mitakshara and it is urged that the illust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dships in P.K.P.S. Pichappa Chettiar v. Chokalingam Pillai 1934 P.C. 192. While considering the argument that the defendant's liability to the extent to which the family benefited, their Lordships did not simply reject the contention, but thought it fit to examine the evidence and came to the conclusion that the evidence was very meagre and that there was no evidence as to the extent of such benefit. It seems to follow that the question whether the particular transaction in dispute was for legal necessity or was for the benefit of the estate and the joint family, is something more than the mere question whether the money borrowed was required for the purposes of a new business. The fact that it was required for a new business would not be any justification. If in addition thereto, it could be shown that there was either a pressure of necessity to continue that business, as it was the mainstay of the family or that the particular transaction was at the time beneficial to the family and the family estate, the transaction would be supported but, of course, on the latter ground. The question whether the transaction was for such benefit or not is a question of fact depending on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debtor has omitted to give an intimation and where there are no other circumstances. It seems to me that the creditor need not exercise this right at once, but he can at his discretion exercise it even later. There is nothing in the section particularly as a past perfect tense "has omitted" has been used, to indicate that the creditor loses this right if he does not exercise it at the very time when the payment is received. In many cases it may be impossible to make the appropriation there and then, for instance, when the payment is made at a time when the amounts due under the various beads are not known and the account books are not easily accessible. Now, when neither the debtor nor the creditor has made any appropriation, then under Section 61 it is a duty of the Court to apply the payment in discharge of the debts in order of time, and if the debts are of equal standing, in discharge of each proportionately. 27. It is contended on behalf of the defendants that Section 61 in terms cannot apply to this case because here there are not more than one debt, but there was one debt only. But although the loan was one, the purposes for which the amounts were taken were diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re would be any presumption as to the way in which the mortgagee should be deemed to have made the appropriation in the eye of the law. On the principle underlying the provisions of Section 61 it seems that the Court should in the absence of any appropriation by either the debtor or the creditor, direct that the payment should be applied in discharge of the debts in order of time if there be such, and if they are all of the same date, in discharge of each of such debts proportionately. 30. The learned Counsel for the defendants-appellants has relied strongly on Buaha Mal v. Bhagwan Das (1891) 18 Cal. 302. But in that case no question of appropriation really arose, the main question being whether there should be a deduction on account of the fact that part of the rents of the estate had been received by the agent of the plaintiff. Apparently there was along with the mortgage another transaction of lease and the plaintiff's principal man of business had received on account of the arrears of rent a sum of ₹ 10,000. Their Lordships held that this sum should be deducted from the amount claimed by the mortgagee on account of the payment of the Government revenue and maintenanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his country it must often be absolutely necessary in the interests of the joint Hindu family and for the purpose of conserving the estate of that family not only to discontinue an old ancestral business but to embark upon a new business, and for that purpose to negotiate loans. 35. I agree that the sum of ₹ 3,000 repaid should be in this case appropriated proportionately to the discharge of the secured and the unsecured debt. The point raised in this branch of the case is not in terms covered by Section 61, Contract Act, but in my judgment the principle underlying that section should be applied. Learned Counsel for the plaintiffs has not contended, as in my view he could reasonably have contended, that the sum repaid by the borrower should be applied in the first instance to the discharge of the unsecured debt. He has contented himself with the claim that the sum of ₹ 3,000 should be applied proportionately to the discharge of both the secured and unsecured debt. We therefore do not decide the general question as to whether where no appropriation is made either by the borrower or the lender sums repaid should be applied in the first instance to the discharge of that pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case came to the conclusion that the appellants had failed to prove that they had made reasonable enquiries as to the character of the business. 40. These are the only three points decided by their Lordships of the Privy Council. I am clearly of opinion that the question, as to whether or not the transaction was for the benefit of the family, was never decided in Benares Bank Ltd. v. Har Narain 1932 P.C. 182. As remarked by King, J., in Amraj Singh v. Shambhu Singh 1932 All. 632, (at p. 908), in Benares Bank Ltd. v. Har Narain 1932 P.C. 182 : It was not even argued and presumably therefore it was not even arguable upon the facts that it was a prudent transaction, or for the benefit of the estate. 41. It appears to me that there is no justification for the contention that the Full Bench case Jagat Narain v. Mathura Das 1928 All. 451, has been overruled by implication as a result of the decision of their Lordships in Benares Bank Ltd. v. Har Narain 1932 P.C. 182 . 42. In my opinion, the real question actually decided by their Lordships in Benares Bank Ltd. v. Har Narain 1932 P.C. 182 is that a Hindu father, acting as a manager of the joint family, cannot make an. alienation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B.H.C.R. App. 51 : The general benefit of the undivided family is considered by Hindu law to be paramount to any individual interest and the recognition of a trade, as inheritable property, renders it necessary for the general benefit of the family that the protection, which the Hindu law generally extends to the interest of a minor, should be so far trenched upon as to bind him by acts of the family manager necessary for the carrying on and consequent preservation of that family property; but that infringement is not to be carried beyond the actual necessity of the case. 45. The next case to which I wish to refer is Raghunathji Tarachand v. Bank of Bombay (1910) 34 Bom. 72, Chandavarkar, J., in his judgment expressed the following opinion: The rule of Hindu law that debts contracted by a managing member of a joint family are binding on the other member only when they are for a family purpose is subject to at least one important exception. Where a family carries on a business or profession and maintains itself by means of it, the member who manages, it for the family has an implied authority to contract debts for its purposes, and the creditor is not bound to inquire into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral trading business is a party and transactions made by the manager of a joint Hindu family which is doing ancestral trade business. The reason is obvious. When a creditor lends money to or accepts an alienation made by a member of a joint Hindu family, he is aware or ought to be aware that the manager is dealing with the property owned by several coparceners. He is supposed to know that under the Hindu Law, the karta of the family can borrow money or make alienations only where there is a family necessity or where money is required for the benefit of the estate. If he lends money to the karta of the family without satisfying himself whether there is a necessity for the loan, he does so at his own risk. If it is found that the loan taken by the karta of the joint family was not for the benefit of the joint family or for family necessity, then, he must lose. But different considerations will prevail when the manager of an ancestral joint family business, acting as manager of the business, enters into a transaction with a third party. Here, the income of the trade is the only source which maintains the joint family. When the joint family carries on an ancestral business it gives out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more money to put into the business, or to close it down, and a lender or purchaser was not bound to enquire into or prove the reasonableness or soundness of the manager's decision and action. Another case on the point is Ramakrishana Muraji v. Ratan Chand 1931 P.C. 136. A very recent case on the point is reported in Abdul Majid Khan v. Sharaswati Bai 1934 P.C. 4. On a consideration of all the cases cited above, it will appear that a manager of an ancestral joint family trading business has full authority to take loans and make alienations to raise money for the purpose of that business. Such a transaction will be binding on the entire joint family including the minor members. The creditor is not bound to enquire into the finances of the business so long as the business forms the purpose of the debit. All that is necessary for him to see is that the money is really required for the proper purpose of the business and there is no element of speculation or gambling in the transaction. 52. In the case before us, it appears that the joint family carried on two businesses. One at Muttra and the other at Delhi. It has been found that the Muttra business was ancestral. If the creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere-liable for the debt to the extent of their interest in the joint family property. On the other hand, it was contended that the business was the personal business of Jagannath and the family had no interest in it. Their Lordships have examined the evidence, and they consider that the business was started by Jagannath and Raghunath as managers of the family. The business therefore cannot be said to be ancestral so as to render the minors interest in the joint family, property liable for the debts. 54. It was on the strength of these observations that it was contended that this was a rule of universal application; to the effect that a new business started by a manager of a joint Hindu family can never become ancestral property of the joint family. As I have already stated I find myself unable to agree with this contention. The above observations of their Lordships only mean this that there can be no presumption that a business started by a manager of the joint Hindu family becomes ancestral property. This proposition of law is well settled. There can be no presumption that a business started by a manager or a coparcener is to be treated as ancestral property. This is a point whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on an ancestral trading business is a new business which can never be : ancestral. There are in this country any number of trading families who have an ancestral business which has branches at various places. Take the following example: A joint family is carrying on an ancestral trading business at Allahabad. Its members decide to open a branch at Nainital, because they consider that if a branch is j opened at Nainital, it will yield good profits. Stocks for the Nainital branch are purchased out of the assets held by the joint family business at Allahabad. Can it be said that the business started at Nainital is not ancestral family business? think not. 57. The real test for deciding whether a business is a new business wholly unconnected with the joint family ancestral business, or is an extension of that business is to determine the source which suppled the money with which the new business was started. If the assets or income of the joint family ancestral funds are utilized for opening a new branch, then, the new branch will form part of the old business. On the other hand, if the business is started by a manager without any aid from the an, cestral family assets, then, it wil ..... 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