1961 (2) TMI 52 - SC - Companies Law

Whether the partnership in this case is a partnership at will and it is necessary to refer to the terms of the partnership agreement to determine this question? Whether the managing agency has been terminated legally; for if that is so the partnership would also be determined? When the managing agency can be said to have been terminated, i.e., whether on March 22, 1943, or on September 29, 1943? Held that - In the circumstances the partnership was not at will and it was pointed out that only when all the partners except one retired that the partnership would come to an end because there could not be a partnership with only one partner. We are, therefore, in agreement with the High Court that the contract in this case disclosed a partnership the determination of which is implied, namely, the termination of the managing agency and, therefore, under section 7 of the Act it is not a partnership at will. In the circumstances it is unnecessary to consider whether the case will also come under section 8 of the Act. The resolution of the board of directors terminating the managing agency agreement, confirmed by the general meeting of the shareholders, did legally terminate the managing agency between the mills and Muthappa and Company. It is true that in these resolutions a second reason was given for the termination, viz., that Muthappa and Company had come to an end because of the notice of March 4. That legal position is in our view incorrect; but that apart there were otherwise sufficient reasons for the mills to terminate the managing agency in the circumstances with which it was faced. There was an implied term in the contract of partnership that it will determine when the managing agency agreement with the mills terminates, the partnership in the present case must under the contract be deemed to have determined on March 22, 1943. Therefore, the respondent will be entitled to an account only from November 15, 1939, to March 22, 1943.

Issues Involved:
1. Nature of the partnership (whether it was a partnership at will).
2. Legality of the termination of the managing agency.
3. Entitlement to accounts and damages.
4. Costs and legal expenses.

Issue-wise Detailed Analysis:

1. Nature of the Partnership:
The primary issue was whether the partnership between the parties was a partnership at will. The court examined the terms of the partnership agreement, which included provisions for managing the mills in rotation every four years and that the management would continue even with the heirs of the partners. The court concluded that the partnership was not at will because the agreement implied a duration tied to the managing agency's continuity. The court cited Section 7 of the Indian Partnership Act, which states that a partnership is not at will if there is an implied or express term for its duration or determination. The court also referenced legal precedents such as Halsbury's Laws of England and Crawshay v. Maule to support the notion that an implied duration can be inferred from the partnership agreement.

2. Legality of the Termination of the Managing Agency:
The next issue was whether the managing agency was terminated legally. The appellant had given notice to terminate the partnership, which was followed by the mills' directors terminating the managing agency, citing disputes between the partners and the cessation of Muthappa and Co. The High Court had found the termination fraudulent, influenced by the appellant's controlling interest in the mills. However, the Supreme Court disagreed, stating that the appellant's actions as a major shareholder were legitimate and aimed at protecting the mills' interests. The court referenced Morarji Goculdas and Co. v. Sholapur Spinning and Weaving Co. Ltd., which justified termination if partners' disputes impaired their capacity to manage. The court concluded that the termination was legal and in the mills' best interest.

3. Entitlement to Accounts and Damages:
The respondent sought accounts and damages, alleging fraud and collusion. The trial court dismissed the fraud claim, and the Supreme Court upheld this finding. The court determined that the partnership had legally terminated on March 22, 1943, when the managing agency was ended. Consequently, the respondent was entitled to an account from November 15, 1939, to March 22, 1943. The court rejected the respondent's claims under Sections 9, 10, and 13(f) of the Indian Partnership Act, which pertain to indemnification for losses caused by fraud or wilful neglect, noting that such claims were not substantiated in the plaint.

4. Costs and Legal Expenses:
Regarding costs, the Supreme Court ruled that Saroja Mills Limited were entitled to their costs throughout, as their action in terminating the managing agency was deemed legal. For the appellant and the respondent, the court upheld the subordinate judge's decision that each party should bear their own costs. The final order was that accounts be taken from November 15, 1939, to March 22, 1943, between the appellant and the respondent, with the respondent paying the costs of Saroja Mills Limited, and both partners bearing their own costs.

Conclusion:
The appeal was allowed in part, with the court ordering that accounts be taken for the specified period. The respondent was directed to bear the costs of Saroja Mills Limited, while both partners were to bear their own costs throughout the proceedings.

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