Lakha and Others Standard Bank of South Africa Ltd (Appeal No. 38 of 1927) [1927] EACA 1 (1 January 1927)

## PRIVY COUNCIL APPEAL No. 38 of 1927.

Before THE LORD CHANCELLOR, LORDS BUCKMASTER, CARSON, DARLING, and WARRINGTON OF CLYFFE.

JAFFERALI BHALOO LAKHA & OTHERS (Appellants) (Original Defendants)

THE STANDARD BANK OF SOUTH AFRICA, LTD. (Respondents) (Original Plaintiffs).

$\boldsymbol{v}$ .

Hindu Law—application to a Khoja family—power of guardian to bind minor sons.

Khoja custom—right of widow to maintenance.

Contract Decree (Zanzibar), section $251$ —power of managing partner to execute a mortgage.

$Held:$ —That the guardian had power to bind minor sons and while<br>they could not before they come of age be made personally liable<br>for the obligations of the firm to the benefit of whose partnership<br>they had been admitted, y

Further held that by Khoja custom a widow is entitled to<br>maintenance out of the estate. She has, however, no specific<br>interest in any particular item of the family property and her<br>rights are subject to the general dealing those in charge.

Further held that the managing partner has power to execute a mortgage so as to bind the firm.

In the original suit (C. C. No. 1277 of 1922 of the High Court of Zanzibar), judgment was delivered by Sir Thomas Tom-Against that judgment the Defendants appealed to the linson. Court of Appeal for Eastern Africa (C. A. 7 of 1925).

Hasan for appellants.

Stephens for respondents.

SIR ALISON RUSSELL, C. J.-In this action the appellants (three of the original defendants) are Ismailia Khojas resident in Zanzibar, and the respondent (the original plaintiff) is the Standard Bank of South Africa, Ltd., carrying on business in Zanzibar.

For several years prior to 1st December, 1913, one Bhaloo Lakha an Ismailia Khoja had been carrying on a business in Zanzibar under the style of Lakha Velani and Company, of which business he was the sole proprietor.

On 1st December, 1913, Bhaloo Lakha executed a document which purported to be a deed of gift of all that he possessed to his six sons, two of whom are the first two appellants in this case. The third appellant is a widow of Bhaloo Lakha: her case will be considered -separately later on.

On 13th December, 1913, "Bhaloo Lokha made a will in which he declared that he had no property or estate. of any description, but appointed his ·eldest son Mohamed Ali to be the· guardian of his minor children. Both the deed of gift and the will were registered. Bhaloo Lakha died on the 6t-h October, 1916, and probate of his will was granted to Mohomed Ali. At that time the first and second appellants were minors. The first appellant was born in 1902 and the second appelJa·nt was born in 1905.

In 1917 the business of Lakha \'elani & Co. was being conducted by three sons Mohomed Ali, Fatehali and Husein, and in May of that year on account was opened at the plaintiff's bank in the name of Lakha Velani & Co. by Mohomed Ali who gave a specimen signature. At the same time he gave the names of himself and his five brothers as being the partners in the firm and subsequently bot-h Husein and Fatehali provided specim~n signatures and all three individually drew cheques on the account.

On 3rd Sepiiember, 1919, the title deed *ot* the house which is the subject matter of the mortgage sued upon in this case was deposited with the plaintiffs as security for certain banking facilities which the plaintiffs 1:1greed to allow to Laklrn Velani & Co., and the memorandum of deposit was signed: " For **Lakha** Velani & Co., H. B. \°elani, partner ". H. B. Velani is Husein.

Early in HJ:H the present manager of t-he plaintiff's bank realized . thnt an equitable mortgage was not enforceable in Zanzibar and sent for Mohomed Ali (who came from Dar es Salaam), Fatehali and Husein, and asked them to put their security in order, meaning of course that they should create an enforceable security either by registering the original memorandum, if this we·re possible, or by executing a fresh and legal mortgage. On the 6th February, 1921, the mortgage which is the subject of this suit was signed: " Lakita Velani & Co. by Husein Bhaloo Lakha ''.

In May, 1922, this suit was instituted by the plaintiffs and all the six brothers, or their representatives, and the widow, were made defendants.

The written statement of the sixth and seventh defendants (the first and second appellants), who were minors at the time of t.he mortgage, sets up that they never were members of the

firm of Lakha V el-ani & Co. and that Husein had no authority · to sign on their behalf. They allege that the deed of gift was 'invalid;' that they derive. their interest in their late father's estate by succession on his death; and that the property referred to in the mortgage belonged to Bhaloo Lakha separately from and independently of the business.

The learned judge has decided that, although there is no authority whic:h deals with the position of a Khoja family on . the death of the owner of a business, yet their position should be treated as analogous to that of a Hindu joint family partnership. He describes it as being a peculiar partnership, not such as is provided for either in the English Law or by t.lie Contract Act, and states that it is not possible to ascertain its incidents by reference to that. law. He further states that the terms of the partnership are no doubt determined by custom which may be gathered both from the action of the parties and analogy with the Hindu Law. Basing himself on that analogy he held that the shares of the first and second appellants in the mortgaged premises were bound by the mort,gage.

The judge held that the instrument of gift was ineffective, as there was no real or actual delivery. In the view which I take it is unnecessary to decide upon this question.

Khojas in matters of simple succession and inheritance are governed by Hindu Law, within certain st.rict limits ,vhich are not to be extended.

The business of the deceased was not an ancestral family business. And that being so, Hindu rules governing an ancestral famiiy business cannot be applied. It appears to me that the· six sons each became entitled to a sixth share of the business. either under the document of gift or by succession. It was in no sense an ancestral family business in which t,hey already had rights which were simply increased by the death of a coparcener.

· The business was carried on under the name of the original firm by Mohomed Ali, Fatehali and Husein, three of the sons. It was carried on in the premises in which t,he deceased ha.d. carried it on for many years. Under the Contract Decree, section 247, an infant may share in a partnership, and in my judgment the infants, the first and second appellants, must be deemed to. have shared in the partnership, since Mohomed Ali, who was. their guardian, expressly st,ated that they were partners, nnd they derived benefit from the part,nership funds. The shares of the minors in the property of the firm are liable for the obligations of the firm.

Upon obtaining majority, a minor may, by public notice. within a reasonable time, repudiate the partnership, section 248.

On the 1st June, 1922, the first and second appellants put the following advertisement in the Zanzibar Gazette : -

" We, the undersigned Jafferalli Bhaloo Lakha Velani and \Vallimahomed Bhaloo Lakha Velani, sons of the late Bhaloo Lakha Velani, do hereby notify that we are not in any way responsible for any liabilities for debts due by the. firm of Lakha V elani & Co.

Zanzibar,

15th June, 1922.

JAFFER VELANI. \VALLI VELANI ".

This was a · very equivocal declaration. It refrains from repudiating the partnership, and, in my judgment, it is not sufficient notice to comply with the terms of section 248.

The question arises whether the premises in question were · assets of the partnership.

On this question there is singularly little eYidencc on t,he file; but I om not prepared to differ from the judgment of the learned judge, who has had long experience in Zanzibar, that it was part of the partnership ass.ets. The business has been carried **on** since 1907 in those premises and they seem to have been used for the purposes of securing current loans. And the premises arc specifically sworn to by Fatehali as being a business property in Zanzibar in which each partner has a sixth share. (Affidav.it of Fatehali, 15th August, 1922, 'para. 13).

Accordingly, I hold that the first and second appellants were minor partners in the firm of Lakha Velani & Co. ; \_that they have not given public notice of their repudiation of the partnership; and that the mortgaged. premises, the. subject of this action, were partnership assets and as such liable for the debts of the part\1ership. ·

As regards the question of the validity of the mortgage. The document of mortgage is signed: '· Lakha "'l elani & Co., by Husein Bhaloo Lakha " and is attestl:)d by two witnesses as required by the Transfer of Property Decree, and registered under th!:) provisions of the Registration of Documents Decree.

In the case of *Asan Kani v. Soma\_rs·undarmn* (1908) 31 Madras 206, it was held that one partner can effect *a* legal mortgage of partnership property. This case is cited as an authority in Pollock and Mulla on. the Indian Contract Act, 4th Edition, page 803, upon section 251 of the Indian Contract Act,, which is the same as section 251 of the Contract Decree. I follow the decision in that case.

Fatehali, · one of the partners, appears to have refused to sign the document of mortgage. But he says that he was not conducting the business, which was being conducted by his

brothers Husein and Mohamed Ali; that he could not\_ help himself; that Mr. Park ,,,anted a legal mortgage; that Husein was the moving spirit in t.l1e firm; and that no one would list.en t.o him. In my judgment, this reluctance actually to sign the document of mortgage does not amount to a restriction plac:ed upon the powers of the partner who was in charge of the business. ·

Accordingly, I hold that Husein had power to mortgage the partnership pl"Operty in question and to bind the partners, and that the mortgage document is valid and effectual.

As regards the claim niade by the widow, the third appellant. In the case of a trading firm the debts of the firm t,ake precedence over the widow's claim for maintenance. (Gour, Hindu Code, 2nd Edition, page 492.)

In my opinion t.he appeal should be dismissed with costs.

Sm JACOB BARTH, C. J.-1 h:n·e had the advantage ofre;ding my brother llussell's judgment to which I do not think I can usefully add anything. I am of. the same opinion for t.lic same reasons.

The appeal should be dismissed with costs.

HEED, J.-It is admitted that Bhaloo Lakha was an Ismailia Khoja and owned as his own and separa.te estate the busine~s of Lakha Y elani and Company, some shambas, and the house in question in this case. I£ therefore his gift in his lifetime of his business and all his property t.o his six sons ·was invalid, as the appellants contend, then his property passed to them on his death, and the question arises how did they own it: as members of a joint family or .each of them one-sixth as their separate property?

I£ Bhaloo Lakha had been u Hindu, then as he held his property not as a member of a joint Hindu family but as his separate property, on his death t\ic property would have passed to his sons, not by survivorship which occurs only in t.lrn case of a joint family property, but by inheritance, and each son would have owned ·his share as his seprii;ate property\_ (Mayne's Hindu Law pp. 724 and 782); and although the property of each son might be joint as regards his issue, yet as regards each other son it would be separate (Mayne, p. 361).

I£ this is so in the \_case of a Hindu, much more must it be so in the case of an Ismailia Khoja, who. is a Mahomedan and . to whom the Hindu -Law of joint family property only ·partly applies; and as there was -no '·evidence that the six sons. ever united into a joint family (and it is doubtful if they could do so as in their lifetime they are governed by the Mahomedan. law, to which the idea of a Hindu joint family is unknown), each of them therefore owned one-sixth of his father's estate as his separate property.

Although by section XI of the Zanzibar Contract Decree, 1917, a minor cannot contract and so cannot become a partner by contract, yet he may be admitted to the benefits of a partnership (section 247); and it seems clear that if the first and second appellants, who were minors when their father died, were not so admitted in their father's lifetime after his gift, yet they were anyhow so on his death, and it is therefore unnecessary to consider whether the gift was valid, as the result is the same. namely that the first and second appellants were admitted to the benefits of the partnership at all times material to this case: and therefore by section 248 of the Zanzibar Contract Decree, 1917, on attaining majority, they were liable for all obligations of the partnership since they were admitted, which includes this debt to the Standard Bank, unless within a reasonable time they publicly repudiated the partnership.

Their only possible repudiation of it is by their notice in the Zanzibar Official Gazette of 12th June, 1922, but in this they only state they are not in any way responsible for any liabilities due by the firm. They do not repudiate the partnership, but only their liability for the firm's debts, which is a very different thing, and merely a statement of the effect of section 247 of the Contract Decree, 1917, on them as minors.

As they came of age when they were 18 (the Majority Decree, Cap. 57 of the Zanzibar Revised Laws), and as the first appellant is now 23, and the second appellant 20, I am of opinion that they have not repudiated the partnership within a reasonable time of their coming of age, and so are now liable for the partnership's debt to the Standard Bank.

I agree with the lower Court that the house in which the business was carried on, and which was mortgaged to the plaintiffs was an asset of the partnership, and was treated by every one concerned as such at all material times, and is therefore liable for the debt due to the plaintiff. It does not, however, follow that its mortgage to the Standard Bank by one partner was valid and can be enforced in this action on the mortgage, so that the Bank stands on a more favourable footing than other creditors, and has not to make the house available for payment of their debt by suing for this and attaching the house in execution.

By English law a partner cannot execute a legal mortgage of partnership real estate without the concurrence of all the partners, although an equitable mortgage by deposit of deeds is valid by a partner who has an implied power to borrow on the credit of the firm (Lindley on Partnership, 8th Edition, p. 177).

This distinction, however, seems to be due to the technical rule of English law that an agent cannot execute a deed on behalf of his principal unless authorized by deed;' and I do not think this rule can be applied with the same strictness in Zanzibar where the English distinctions between realty and personalty do not exist.

• The law in Zanzibar as to a partner's power to bind copartners is contained in section 251 of the Contract Decree, 1917, which is the same as section 251 of the Indian Contract Act, 1872. ;By it each partner who does *any act necessary for, or usuaUy done in, carrying on the business* of such a partnership as that of. which he is a member, binds his co-partner to the sarne extent as if he: were their agent appoiI\ted for that purpose.

The business of Lakha Velani & Co. was that of buying and selling cloves, which is a very speculative business; and although the evidence on this point· is meagre, I think raising money by mortgaging any of the partnership assets is an act usually done in such a business. I need not ·decide this, as in my opinion it is beyond doubt that in this case it was an act absolutely necessary for carrying on. the business. If the mortgage had not been effected the Bank would have sued the partnership and seized every possible asset, and thus made it impossible for the firm to carry on such a busines!,.

I am of opinion· therefore that this mortgage by • one of the partners of a partnership property was valid and binding on the other par.tners.

As regard the appeal by the third appellant the widow, it is clear that her claim for maintenance is in no way a charge on the estate, and that the debts of a trading firm like Lakha Velani & Co. have precedence over her claim. (Gour, Hindu Code, 2nd edition, p. 472.)

I am of opinion therefore that the appeal should be dismissed with costs.

The appellants appealed, *in forrna pau7ieris,* to the Privy Council, and the following judgment was delivered by the Lord Chancellor on 7th November, 1927: - . ·

T1rn LoRD CHANCELLOR.-This is an appeal by three of the defendants in this suit from a judgment of the Court of Appeal for Eastern Africa, affirming the judgment of Mr. Justice Tomlinson of His Majesty's Court at Zanzibar in favour of the present respondents, who were plaintiffs in the suit.

The facts may be quite shortly stated. One Bhaloo Lakha, who was a member of the Khoja community, carried on business as a clove merchant at Zanzibar .under the style of Lakha Velani and Co. In the year 1908 he acquired as his separate property

the house in which the business was carried on. In the year 1913 he executed a deed of gift of all that he possessed in favour of his six sons. Later on in the same year he made a will in which he declared that he had no property or estate of any description, and appointed his eldest son, Mahomedali, to be the guardian of his minor children. He died on the 6th October, 1916, leaving living all his six sons, of whom two, the first and second appellants, were then minors under the age of 18, and also leaving surviving him his widow, the third appellant. The business was, in fact, carried on under the management of three of the adult On the 3rd September, 1919, an equitable mortgage of sons. the house and other property was executed in favour of the respondents, the Standard Bank of South Africa, Ltd.; but it was afterwards realized that an equitable mortgage was not effective, and, on the demand of the Bank, a mortgage deed dated 26th February, 1921, was executed in the name of the firm by Hussein Bhaloo Lakha, one of the three sons who were managing the business. By that deed the firm purported to mortgage to the Bank the house in question, with other property. Afterwards the business got into difficulties, and in the year 1922 this suit was commenced by the Bank against the firm, the official assignee of one son who was insolvent, and the other five sons, together with the widow. The claim was to enforce the mortgage, and a decree to that effect was made by the Courtin Zanzibar, and was affirmed by the Court of Appeal for Eastern The two sons, who were minors at the date of the Africa. death of Bhaloo Lakha, and his widow, bring this appeal.

On these facts three questions in effect arise. The first question is whether the two sons who are appellants, became before or on their father's death partners in the business. $\mathbf{It}$ has been found by both Courts that they did so become partners. In that connexion the deed of gift has been referred to, and the question has been raised whether that deed was valid or not. That question has now become immaterial, for it is plain that, whether the deed of gift was valid or not, the business and the business assets of Bhaloo Lakha were, or on his death became, vested in his six sons, subject to the widow's right of maintenance; and the real question is whether after his death there-. was a valid arrangement under which the business was carried on for the benefit of the six sons, but under the management of the three managing partners. On that point it is of vital importance that, immediately after the death of Bhaloo Lakha, a request was signed to the Bank to open an account in the name of the firm, 'and that request contained a statement by Mahomedali, the guardian of the two minors, that all the six sons were partners in the business. If the guardian had power to bind the minor sons, then that request is decisive; and it appears to their Lordships that, both on the law as stated in Mr. Tyabbii's book, and on the terms of the will appointing

him guardian, Mahomedali had that power. He had to decide how the business and the business assets, in which the minors were interested, could best be dealt with for their benefit; in other words, he had to say whether the business should be wound up or whether it should for a time be carried on. $He$ decided in favour of the latter view; and the profits of the business were divided among all the six sons. The effect was that, in accordance with section 247 of the Contract Decree, which is applicable in Zanzibar, the two sons who were minors were admitted to the benefit of the partnership; and as the result of that admission, while they could not before they came of age be made personally liable for the obligations of the firm yet their shares in the partnership property were liable to the obligations of the firm. The document signed by the appellants on the 12th June, 1922, in no way affected that liability.

Then arises a second question: Was this house part of the partnership assets? It has been found by both Courts that it was part of the business assets and of the partnership assets, and that concurrent finding of the two Courts cannot now be disturbed. Where partners are jointly entitled to property, and the question arises whether that property has been thrown into the assets of a partnership, that is a pure question of fact. In the present case that question of fact has been decided, and, as far as can be seen, correctly decided, in favour of the respondents.

A third question has been raised, namely, whether one of the partners (Hussein) had power to mortgage the property to the That question is really not Bank, so as to bind the firm. material to the appellants; for even if the mortgage was ineffective, the house, being part of the business assets, would be available for the general body of creditors, and no share in it would come to the appellants. But it appears to their Lordships that upon the terms of Article 251 of the Decree the managing partner had power to execute the mortgage.

The result is that the appeal fails as regards the two sons who are appellants. As to the widow's claim to maintenance, the answer is given in the judgment of Mr. Justice Tomlinson, when he says:-

"With regard to the widow, as I understand it, she is entitled by Khoja custom to maintenance out of the estate. She has, however, no specific interest in any particular item of the family property, and her rights are subject to the general dealings with the estate by those in charge."

The result is that this appeal fails, and their Lordships will humbly advise His Majesty accordingly; but. as the appellants have come here in forma pauperis, there will be no order as to costs.