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TMI Blog1961 (2) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... solution 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. - 375 OF 1956 A.S. NO. 623 OF 1949 - - - Dated:- 27-2-1961 - P.B. GAJENDRAGADKAR AND KN WANCHOO, JJ. A.V. Viswanatha Sastri and S. Venkatakrishnan for the Appellant. M.C. Setalvad, R. Ganapathy Iyer and G. Gopalakrishnan for the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat company had ceased to exist and also on the ground that quarrels between the partners of the firm were not conducive to good management of the mills. This was notified to the respondent on March 22, 1943. This action of the directors was approved in a meeting of the shareholders of the mills on September 29, 1943, and necessary modifications were again made in the articles of association. In between, on April 17, 1943, the respondent had filed a suit for a declaration that Muthappa and Co. continued to be the managing agents of the mills and for obtaining possession of the office of managing agents for himself or along with the appellant and also for a permanent injunction restraining the mills from appointing any other managing agents. This suit was dismissed by the trial court on the ground that it was not maintainable under section 69 of the Indian Partnership Act (IX of 1932) (hereinafter called the Act), though the trial court gave findings on other issues also. The respondent went up in appeal to the Madras High Court against the decree in that suit. This appeal was dismissed on July 8, 1948, as the High Court held that the finding of the subordinate judge that the suit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n consequence the suit against the mills was dismissed in toto and the prayer for damages was also rejected. The trial court however directed the appellant to account for the profits earned from the inception of the partnership business till March 4, 1943, when the partnership was terminated by the appellant by notice. Thereupon the respondent went up in appeal to the High Court. The High Court held that the suit against the mills was barred under section 69 of the Act, though it was made clear that if there were assets of the partnership firm in possession of the mills the respondent would be entitled to recover them. The High Court however ordered the mills to bear their own costs in both the courts on the ground that the mills were guilty of fraud. As to the case against the appellant, the High Court held that the partnership was not a partnership at will and therefore it could not be dissolved by notice by the appellant. It further held that the appellant fraudulently and in collusion with the mills purported to dissolve the partnership by issuing an illegal notice and to have the managing agency terminated by the mills, and in consequence the termination of the managing agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eby shall be divided year after year and the partners and their heirs shall get the same in equal shares and thus carry on the partnership; management. The contention on behalf of the appellant is that as this partnership does not fall under section 8 of the Act and is not within the two exceptions under section 7, it is a partnership at will. Section 7 provides that where no provision is made by contract between the partners for the duration of the partnership, or for the determination of the partnership, the partnership is partnership at will. Section 8 provides that a person may become a partner with another person in particular adventures or undertakings. Section 43 provides that where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. On the other hand if the partnership is not at will, section 42 applies and is in these terms : "Subject to contract between the partners a firm is dissolved ( a )if constituted for a fixed term, by the expiry of that term; ( b )if constituted to carry out one or more adventures or under takings, by the completion thereof; ( c )b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be terminated at a moment's notice by either party ..........Without doubt, in the absence of express, there may be an implied, contract as to the duration of a partnership." The same principle in our opinion applies to a case of determination. The contract may expressly contain that the partnership will determine in certain circumstances ; but even if there is no such express term, an implied term as to when the partnership will determine may be found in the contract. What we have therefore to see is whether in the present case it is possible to infer from the contract of partnership whether there was an implied term as to its duration or at any rate an implied term as to when it will determine. It is clear from the terms of the contract of partnership that it was entered into for the purpose of carrying on managing agency business. Further the term relating to turns of the two partners in the actual management and the further term that these turns will go on even in the case of their heirs in our opinion clearly suggest that the duration of the partnership would be the same as the duration of the managing agency. We cannot agree that this means that the partnership would becom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. That next question that arises is whether the managing agency has been terminated legally; for if that is so the partnership would also be determined. This takes us to the history of the relations between the partners after the partnership came into existence. It seems that disputes arose between the partners sometime in 1941 in connection with the Rajendra Mills Limited which was one of the mills included in the managing agency business. The respondent filed a suit on March 4, 1942, against the appellant and Salem Balasubramaniam and Co. Limited with respect to the allotment of shares in the managing agency company. On March 11, 1942, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has come to the conclusion that the appellant fraudulently and collusively with the mills got the managing agency terminated and, therefore, the termination of the managing agency was illegal. We are unable to agree with this view of the High Court. It is, therefore, necessary to examine the circumstances in which the termination came about. The appellant sent a copy of his notice dated March 4, 1943, terminating the partnership to the mills also. The respondent sent a reply to this notice in which he claimed that the partnership was not at will and the appellant was not entitled to terminate it, and a copy of this reply was also sent to the mills on March 16, 1943. On March 22, 1943, the directors of the mills held a meeting. In that meeting the directors decided that as the partners of Muthappa and Company were unable to get on in harmony with each other and were involved in litigation and several suits were going on between them and on account of their differences the work of the mills was suffering and was likely to suffer and also because Muthappa and Company had ceased to exist and had lost its right of management and was no longer in a position to manage the mills, it be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faced in the present case. There can in our opinion be no doubt that any company when faced with a situation in which the mills was in this case, and finding that the two partners of its managing agency firm were fighting tooth and nail and there was no love lost between them and also finding that the interest of the mills was suffering and was likely to suffer because of the bad blood between the two partners of the managing agency, was bound to take steps to protect its own interests. The fact that the major shareholder in the mills also happened to be a partner in the managing agency would not disentitle him from acting in the interest of the mills as a major shareholder. We may in this connection refer to Morarji Goculdas and Co. v. Sholapur Spinning and Weaving Co. Ltd. [1944] 14 Comp. Cas. 59 (PC). In that case a question arose whether the termination of the managing agency agreement was illegal on the ground of misconduct. In was found in that case that there were quarrels between the partners of the managing agency firm of such a nature and duration as to impair seriously their capacity to discharge their duty to the company as managing agents and to affect prejudiciall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the mills could legitimately act to protect them and the action taken was such as any board of directors and any body of shareholders would bona fide take. In the circumstances we are of opinion that 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. The next question that arises is as to when the managing agency can be said to have been terminated, i.e., whether on March 22, 1943, or on September 29, 1943. Now under section 87B( f ) of the Indian Companies Act, No. VII of 1913, which was then in force, the appointment of a managing agent, the removal of a managing agent and any variation of a managing agent's contract of management shall not b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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