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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 ..... igned its rights to the appellant and the respondent under the name of Muthappa and Co. On November 15, 1939, the mills at an extraordinary general meeting of the shareholders accepted Muthappa and Co. as the managing agents and made the necessary changes in the articles of association. Later the appellant and the respondent obtained the managing agency of the Rajendra Mills Limited, Salem. The managing agents of this mill were Salem Balasubramaniam and Co. Ltd. Muthappa and Co. purchased all the shares of the Salem Balasubramaniam and Co. and thereafter carried on the business of the managing agency of this mill in the name of Salem Balasubramaniam and Co. Ltd. In November, 1940, the appellant and the respondent entered into a written partnership agreement with respect to the managing agency business of the two mills. We shall consider the terms of this agreement later and all that we need say at this stage is that turns were fixed for the appellant and the respondent to look after the actual management of the two mills and the appellant's turn was the first and he therefore came into actual control of the two mills. Soon after however disputes arose between the appellant and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the respondent of his legitimate dues and his right to continue and act as the managing agent of the mills. The damages claimed were estimated at the figure of five lakhs of rupees to be recovered from both the appellant and the mills or from either of them. In the alternative the respondent claimed that even if Muthappa and Co. had been removed validly from the managing agency on September 29, 1943, he was entitled to an account from the appellant from November 15, 1939. to September 29, 1943. The suit was resisted by both the appellant and the mills and their case was that the partnership was one at will and therefore was validly terminated by the appellant by notice. It was further contended that in any case the mills were within their rights in terminating the managing agency of Muthappa and Co., as that firm had ceased to exist and there were interminable disputes between the partners. Fraud and collusion were denied and it was alleged that it was the respondent's conduct which compelled the appellant to give notice of termination of partnership and the mills to terminate the managing agency. The mills took a further plea, namely, that so far as they were concerned, the suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal to this court which was granted ; and that is how the matter has come up before us. The first question therefore that arises for our determination is 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. After reciting that the management of the mills was being carried on in the name and style of Muthappa and Company and of the Rajendra Mills Limited in the name and style of Salem Balasubramaniam and Co. Limited, the partnership agreement goes on to say that the partners shall get in equal shares the salary, commission, profit, etc., that may be realised from the aforesaid managing agencies. It provides for carrying on the management in rotation once in four years, the appellant to manage for the first four years and thereafter the respondent to manage for the next four years and in the same way thereafter. It further provides that the partners and their heirs and those getting their rights shall carry on the management in rotation. The accounts were to be made once in every year after the closing of the yearly accounts of the two mills. There were then provisions as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate a partnership at will. The partners contemplated that the management would be carried on in rotation between them in four yearly periods. It was also contemplated that the heirs of the partners would also carry on the management in rotation. Considering this provision as well as the nature of the business of partnership it could not be contemplated that the partnership could be brought to an end by notice by either partner. The intention obviously was to have a partnership of some duration, though the duration was not expressly fixed in the agreement. Now section 7 contemplates two exceptions to a partnership at will. The first exception is where there is a provision in the contract for the duration of partnership; the second exception is where there is provision for the determination of the partnership. In either of these cases the partnership is not at will. The duration of a partnership may be expressly provided for in the contract; but even where there is no express provision, courts have held that the partnership will not be at will if the duration can be implied. See Halsbury's Laws of England, third edition, volume 28, page 502, paragraph 964, where it is said that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at will as section 7 of the Act makes it clear that a partnership in which there is a terra as to its determination is not a partnership at will. Our attention was drawn in this connection to a term in the contract which lays down that either partner may withdraw from the partnership by relinquishing his right of management to the other partner. That however does not make the partnership a partnership at will, for the essence of a partnership at will is that it is open to either partner to dissolve the partnership by giving notice. Relinquishment of one partner's interest in favour of the other, which is provided in this contract, is a very different matter. It is true that in this particular case there were only two partners and the partnership will come to an end as soon as one partner relinquishes his right in favour of the other. That however is a fortuitous circumstance ; for, if (for example) there had been four partners in this case and one of them relinquished his right in favour of the other partners, the partnership would not come to an end. That clearly shows that a term as to relinquishment of a partner's interest in favour of another would not make the partnership one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aging agency company and for further reliefs. There is no doubt, therefore, that the relations between the partners were very strained in 1942. The respondent admitted in his statement that from the end of 1941 there was enmity between him and the appellant and there were vital differences between them and litigation was going on, though he said that in spite of the enmity he was willing to co-operate with the appellant if the amount of which he had been defrauded were paid to him on accounting. So far as the litigation with respect to the Rajendra Mills Limited was concerned the respondent lost and it was held that he had withdrawn from the partnership of the managing agency company with respect to that mill. As to the suit on debentures, the money was deposited in court and the dispute was only about costs. That matter also went up to the High Court and finally the High Court refused to allow costs to the respondent. It was in this strained atmosphere between the partners that the appellant gave notice dated March 4, 1943, terminating the partnership with respect to the mills considering it as a partnership at will. We have however held that the partnership was not a partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e affairs of the mills subject to the control and direction of the board of directors till such time as suitable managing agents were appointed. This action of the board of directors was confirmed at a general meeting of the shareholders on September 29, 1943. The High Court thought that as the appellant had acquired a controlling interest in the mills he was behind the resolution of the directors of March 22, 1943, and the resolution of the general meeting of the shareholders of September 29, 1943. It may be that the appellant having acquired a controlling interest in the mills had a good deal to do with the resolution; but that in our opinion would not necessarily make his conduct fraudulent and the termination of the managing agency agreement illegal. It is not in dispute that there was no agreement between the partners that either of them would not purchase shares of the mills in open market. We do not therefore see anything improper in the conduct of the appellant when he purchased the shares of the mills in open market and managed to acquire the controlling interest therein. The appellant obviously had two capacities: in one capacity he was a partner of the respondent in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty to the mills as managing agents and to affect the interests of the mills prejudicially. Therefore, if the directors of the mills came to that conclusion it is in our opinion not correct to say that that conclusion was arrived at fraudulently, simply because a major shareholder happened to be the appellant. We may in this connection refer to the observations of Younger L.J. in Commissioners of Inland Revenue v. Sansom [1921] 2 KB 492, 514: "No doubt there are amongst such companies, as amongst any other kind of association, black sheep; but in my judgment such terms of reproach as I have alluded to should be strictly reserved for those of them and their directors who are shown to deserve condemnation, and I am quite satisfied that the indiscriminate use of such terms has, not infrequently, led to results which were unfortunate and unjust, and in my judgment this is no case for their use." These remarks are in our opinion apposite in the present context. It is true that the appellant had a hand as a major shareholder in the two resolutions and this was never hidden ; but it is equally true that in the circumstances then existing any prudent board of directors and any body of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave already held that 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. The learned Attorney-General, however, referred us to sections 9, 10 and 13(f) of the Act and his contention was that the appellant must account for all the profits made by him out of the managing agency business, even after March 22, 1943. Under section 10 every partner has to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm and under section 13(f) a partner has to indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the business of the firm. In the first place, such a case was not made out in the plaint by the respondent; in the second place we are of opinion that sections 10 and 13(f) have no application to the facts of the present case. We therefore reject this contention. That leaves the question of costs. So far as Saroja ..... X X X X Extracts X X X X X X X X Extracts X X X X
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