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by Admin
06 December 2025 9:59 PM
“Receipt Ex.P3 was executed by defendant No.2 in his personal capacity – no implied authority or evidence shown to bind the firm or other partners under Section 19 of the Indian Partnership Act” - In a significant ruling Punjab and Haryana High Court, refused to extend liability in a loan recovery suit to a partnership firm and its other partners merely on the basis of a receipt executed by one partner, and dismissed the second appeal filed by the plaintiff.
Justice Nidhi Gupta held that the loan receipt (Ex.P3), although written on the firm’s letterhead, was not sufficient proof that the loan was borrowed by or for the partnership, particularly when no evidence of benefit to the firm, no partnership deed, and no implied authority was proved by the appellant. The Court confirmed that the decree for ₹2,33,800 with 12% interest was rightly confined to defendant No.2 alone, who executed the document.
“Forgery of Partner’s Signature Proved by Expert – Loan Not Binding on Legal Heirs of Deceased Partner”
The plaintiff had claimed that the loan of ₹2,33,800 was advanced on 05.12.1998 to the partnership firm through its two partners, Dalbir Singh (defendant No.2) and Avtar Singh (now deceased), and supported this claim with a loan receipt allegedly signed by both partners.
However, this claim collapsed when the handwriting expert (DW2) testified that the signature of Avtar Singh on the receipt was forged. The Court accepted this expert testimony, observing:
“DW2 Forensic Document Expert had opined that signature Mark Q2 on the Receipt is a freehand and forged signature… No contrary evidence was led by the plaintiff to disprove this expert opinion.” [Para 11]
The Court also noted that the plaintiff’s attempt to introduce his own expert at a later stage was rightly rejected since the plaintiff had already cross-examined the defendant’s expert and had failed to file any such evidence during the trial.
With the signature of Avtar Singh proved to be forged, and no proof of his involvement in the transaction, the Court concluded that the loan could not be fastened upon him or his legal heirs (defendants 4 to 8).
“Foreign Loan Not Proven – Plaintiff NRI Did Not Enter Witness Box or Prove Transmission or Legality of Funds”
A crucial flaw in the plaintiff’s case was the absence of primary testimony and documentary proof regarding the alleged loan. The plaintiff, an NRI residing in the USA, did not appear as a witness. Instead, he led evidence through his attorney/son-in-law, who admitted to having no personal knowledge of the transaction:
“PW1 Bharat Bhushan was admittedly not present at the time of the transaction and had no personal knowledge… The plaintiff never stepped into the witness box.” [Para 13]
Further, there was no proof of the source, manner, or legality of the transfer of funds from the USA to India. The Court highlighted:
“There is no record showing how and in what manner the amount was transmitted by the plaintiff… No permissions under FEMA or RBI norms were produced.” [Para 13]
This raised serious doubts about the authenticity and legality of the loan transaction, especially in the context of alleged foreign remittance.
“Mere Execution on Letterhead and Partner’s Description Not Enough to Bind Firm under Section 19 of Partnership Act”
The High Court categorically rejected the appellant’s argument that the firm was liable simply because the receipt was drawn on its letterhead and signed by a partner described as such. Citing Section 19 of the Indian Partnership Act, 1932, the Court held that no implied authority was established, and no evidence was led to show that the firm benefitted from the loan or authorized the transaction.
“Mere use of the firm’s letterhead or mention of the signatory as a partner is not sufficient to bind the firm or other partners… No partnership deed in force on 05.12.1998 was proved, nor was any evidence led to show that the loan was for business purposes.” [Para 14]
The Court further observed that no income tax records, account books, or firm resolutions were produced to link the funds with the business of the firm. It was therefore held:
“Liability of all partners including Avtar Singh and firm could not be fastened on the basis of Ex.P3 on account of the principle of implied authority.” [Para 14]
“Second Appeal Cannot Reopen Factual Findings – No Substantial Question of Law Made Out”
Justice Nidhi Gupta emphasized that Section 100 CPC restricts second appeal to cases involving substantial questions of law. The Trial Court had, after examining the evidence, decreed the suit only against defendant No.2, and the First Appellate Court had affirmed those findings. The High Court refused to interfere with the concurrent findings of fact:
“Plaintiff failed to prove that the loan was advanced to or for the benefit of the firm… There is no perversity or illegality in the lower courts’ findings.” [Para 16–17]
Accordingly, the second appeal was dismissed as no legal error or question of law arose from the concurrent factual determinations.
Firm and Co-Partners Not Liable Where Plaintiff Fails to Prove Authority, Execution or Benefit – Recovery Confined to Individual Signatory
Summing up its findings, the Punjab and Haryana High Court reiterated that:
“Execution of a receipt on firm letterhead by one partner, without evidence of benefit to the firm, authority to borrow, or valid signatures of other partners, is not sufficient to fix liability on the firm under the Partnership Act.”
The judgment reinforces critical legal principles:
A forged signature, once proven by expert testimony and not rebutted, invalidates the claim against the alleged signatory.
A plaintiff must enter the witness box to prove personal transactions, especially where the transaction involves foreign remittance.
The burden to prove implied authority under Section 19 of the Partnership Act lies on the plaintiff, particularly when he seeks to bind the firm or other partners.
Second appeals cannot reopen questions of fact already adjudicated unless there is a demonstrable legal error.
Date of Decision: October 15, 2025
