9911796707
TMI Blog1955 (5) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... he plaintiff, is the proprietor, as selling agents for the sale of ell yarn and cloth produced by the Kanpur Cotton Mills up to 31-12-1937. A few days later, 29-3-1937, Laxmi Narain Gadodia entered into a partnership agreement with Deva Sharma one of the defendants in the suit, the sole business of the partnership being the said selling agency and the partnership agreement was to continue in force as long as the selling agency business continued. According to the terms of this agreement L. N. Gadodia was to receive -/12/-in the rupee out of the profits of the agency and Deva Sharma the remaining -/4/-. Clause 3 of the partnership agreement, which is one of the most contentious points in the case, reads: 3. That on the termination of the selling agency business neither of the parties to this agreement shall take up the said selling agency from the mills, It is not in dispute that L. N. Gadodia was to be the financing partner and that Deva Sharma was the man who was mainly to be responsible for the running of the business and the fact that Deva Sharma was 'persona grata' with the Corporation is clear from the inclusion in para 17 of the Corporations' letter, P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... your Kanpur Office (with copy) to your Head Office in Delhi for information No. T/399 of 28th January last wherein the Kanpur Cotton Mills informed you that they did not desire your son to attend their office. That letter also pointed out that so far as the Kanpur Cotton Mills were concerned under the terms of the agreement between you, there could only be two principals connected with the agency Messrs. L. N. Gadodia and D. Sharma--and they had no wish to be encumbered with additional representatives nor was it their wish that other persons not covered by the agreement should interfere in matters which are the sole concern of the agency. We have also in this connection to remind you that it is specifically laid down in the agreement between us that Mr. Sharma would attend daily or as required at the office of the Kanpur Cotton Mills and further that in the agreement which exists between you and Mr. Sharma it is stipulated in Clause 8 that Mr. Sharma shall be responsible for the work of the Kanpur Cotton Mills' Agency business and its efficiency. That being so, we trust that the admission of Mr. Ram Gopal Gadodia as a partner in your firm will in no way effect the handli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give you notice under the terms of the said contract that we desire to terminate this agreement as on 31-12-1945. In this connection we would refer you to Clause 14 of the said agreement. We shall be glad to have your acknowledgement of this communication. 6. The next letter, D.I.A, dated 3-12-1945, which is from the plaintiff to Deva Sharma, reads: Received your letter of the 1st instant along: with a letter of the British India Corporation Ltd. For your information I am enclosing herewith a copy of my letter of the 7th ultimo. If, however, this does not suit the mills it can be treated as withdrawn. I hope you will be able to persuade the mills to withdraw their notice as well. 7. In reply to this Deva Sharma sent the letter D. 54, dated 6-12-1945 as follows: Your letter of the 2nd instant along with a copy of your letter of 7th ultimo to the Mills have been received. I am very sorry you should have written as you did to the Mills without first having a discussion with me when I last saw you in Delhi on the 24th ultimo regarding the revision of our agreement. You promised to come to Kan-pur within a week to settle the matters, but you failed to do so and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and dontinue to keep the same cordial relations in mutual interests. You can write to me your wishes for revision of agreement with a clear heart . 9. The plaintiff followed this with, D. 52 dated the 8th of December, also written to Deva Sharma as follows: In continuation of my yesterday's letter It strikes me and I think it proper also to assure you with a clean breast that my letter of the 7th ultimo to the Mills was not actuated with any other motive behind it than explained in the letter referred to above and I shall, therefore, thank you to withdraw that letter and arrange with the Mills, to withdraw their notice as well. 10. He also sent the letter C. D. 19 dated 15-12-1945 to the Corporation as follows: We are in receipt of your letter of the 29th ultimo duly forwarded by our Kanpur office. We are surprised to note how you consider that the terms of our letter of 7-11-1945 go behind the terms of contract. Leaving aside other aspects of that letter it is obvious that it was a mere request, acceptance or rejection of which was optional with your Kanpur Cotton Mills Branch. The undersigned has been entrusting much of the work to the supervision of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned along with yourself selling agency of the Kanpur Cotton Mills, Co., which business was carried on under the name, style and firm of Messrs. L. N. Gadodia and Co., Kanpur Cotton Mills Selling-Agency Department on terms and conditions mentioned in the partnership deed therefor dated 29-3-1937. One of the terms of the said partnership provides that on termination of the said selling agency business neither of the parties should take up the said selling agency from the said Mills. My client had a twelve-anna share and you had a four-anna share in the said business. Under the said deed of partnership you were to be a working partner. I leave the terms of the partnership to speak for themselves I am instructed to state that you have got the said selling agency business to be terminated by the Mills authorities and you have taken up the same under the name of Messrs. Sharma and Co. My client further says that you, taking advantage of your position, have got the said Mills to terminate the agency with a view to oust my client and to benefit yours..... (torn) ..... to the detriment, of my client's interest. My client maintains that you have no right to take or otherwise dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thank himself for that. My client is under no obligation whatsoever to render to your client any accounts or to give your client any kind of undertaking as suggested by you. If in view of the facts mentioned above your client takes any action against my client he shall do so entirely at his own risk and responsibility. Now that the agency has been terminated and the partnership dissolved my client demands from your client the rendition of all accounts pertaining to the agency and paying my client his dues without any further loss of time. All the account books said papers in connection with the agency are in possession of your client. My client expects and hopes that the settlement of the accounts will be done immediately and thus all sort of trouble avoided. 13. In the meantime the Corporation had entered into the agreement C. D. 8 dated 22-1-1946 with a -firm named Messrs. Sharma and Co., for the selling agency of the yarn and cloth produced by the Kanpur Cotton Mills. This agreement was signed on behalf of the firm by Shiv Nath Sharma, who is one of the defendants in the suit and is apparently the brother of Deva Sharma. 14. It seems that after receiving the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of defendant No. 1's ownership and interest in the business of Messrs. Sharma and Co., by fraud on the part of defendant No. 1. If so, with what effect? 9. Is the plaintiff entitled to the injunction prayed for against the defendants? 10. Whether the plaint does not disclose any cause of action so far as the grant of permanent injunction is concerned? It appears from a note of the learned Sub-Judge recorded immediately below the above issues that the defendants' counsel suggested that an issue should be framed on the plea of the plaintiff contained in para 5 of the plaint to the effect that the selling agency had been terminated by collusion between the British India Corporation and Deva Sharma, but the plaintiff's counsel said that he did not wish to join issue on the matters contain ed in that paragraph. No reason was given for this, but the reason appears to be fairly obvious, namely that if the plaintiff based any claim to relief on an allegation of any wrongful actions on the part of the British India Corporation, he would also have been forced to implead the Corporation as a defendant in the suit. The plaintiff thus preferred to claim whatever relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its new agents, and for this purpose as early as 29-12-1945 Mr. Herbert Jackson who has appeared as D. W. 5, and was a Director of the Corporation and General Manager of the Kanpur Cotton Mills, wrote a letter to Mr. E. Royston, the Provincial Textile Controller at Kanpur, It appears from this letter, C. P. 9 that Mr. Jackson was on sufficiently familiar terms with the Textile Controller to address him fay his Christian name although the letter was 011 official business. The letter reads: My dear Eric, One of the two partners L. N. Gadodia in fact is dropping out of our cloth and yarn agents business as from the end of the current month. The other partner will continue to assist in the same capacity as heretofore and thus preserve continuity, but the agency proper will be in favour of his brother S. N. Sharma. In support of the change I am sending herewith the required application for licences (together with Treasury Challans covering the respective fees). Will you be good enough to substitute these applications for those previously submitted in the name of Messrs. L. N. Gadodia and Co. and return the latter to me with authority to claim a refund of the amounts paid in fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... become prosperous enough to undertake the financing side of the partnership as well as the active side and he certainly seems to have been afraid of a conspiracy between the Corporation and Deva Sharma to oust him. How well these apprehensions were founded appears to be borne out by what happened in the end of 1945, when, the moment L. N. Gadodia raised the suggestion that he was getting beyond the age at which he could carry on the business properly himself and that his son might be permitted to take an active part in the business, the Corporation seized this as a ground for terminating the selling agency in favour of Gadodia and Co. The way in which the licenses for the new agency were applied for certainly suggests that the Corporation was glad to let Deva Sharma carry on the agency business, and to give him every possible assistance with a view to evading Clause 3 of the partnership agreement by getting the licenses in the name of his brother as the proprietor of a new firm. 20. It is, however, a point which will require the most careful consideration to what extent the latter part of these conclusions can form the basis of the decision on the points of law which have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners may, upon or in anticipation of the dissolution of the form, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits; and notwithstanding anything contained in Section 27, Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.' There can be no doubt that the disputed clause is one in restraint of business and the learned counsel for the appellants has strenuously attacked the finding that it is enforceable under Section 54 on three grounds-- (1) that it relates to the same business and not a similar business, (2) it specifies neither local limits nor any period of time, and (3) that it is not reasonable. 23. As I have said all the leading English cases regarding agreement in restraint of trade and business have been cited and discussed by the learned Judges, each of whom has derived from them, and sometimes from the same case, material in support of his own conclusion. It seems to me that the main difficulty arises out of the fact that in none of these cases was there under consideration an agreement of the nature of that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean 'in similar circumstances' and in the case 'Ashby v. Wilson', (1900) 1 Ch. 66(A), the meaning of the phrase 'same business' has been interpreted as meaning 'selling similar goods'. This was in the interpretation of a contract in which a landlord owning six houses had let one of them to a tenant for the purpose of carrying on a certain business. In the contract he undertook not to let any of the other five houses for the purposes of 'the same business'. 25. The present agreement, however, is not one in which any ambiguity at all can be said to exist as regards the identity of the business from carrying on which the partners agreed to restrain each other. It is in fact the sale of goods manufactured by a third party, and the agreement it-self uses the words 'the said selling agency', i. e. the very same business, and not a similar business such as selling goods of the same character but manufactured by another company, and under the heading 'similar' in the same Judicial Dictionary I do not find a single instance of 'similar' being used in the strict sense of 'same', and it is perhaps significant to find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpetition when the good- will of the firm is sold, Section 54 must be held clearly to cover agreements between the partners strictly 'inter se' that, as the section stands, it permits all the partners to enter into an agreement that none of them will carry on a business similar to that of the partnership within specified temporal or local limits. In other words it contemplates an agreement the result of which would be that the partnership business would cease altogether and that none of the partners would be permitted to start a similar business either for a fixed period of time or within so many miles of the place where the partnership business had been carried on. I must concede that the words of the section are capable of this interpretation, but I very much doubt whether either any same persons could possibly enter into such an agreement, or whether, if they did so, the restrictions embodied in the agreement could possibly be regarded by any Court as reasonable, since nobody could possibly be benefited by such an agreement, neither the public nor any of the partners. In any case such an agreement would not be like the present one since obviously the Kanpur Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es have discussed it thoroughly in coming to their opposite conclusions, the learned Attorney General has not attempted to argue before me that, assuming that Clause 3 of the partnership agreement is enforceable, the appropriate remedy is not an injunction, or that the plaintiff has lost his right to be granted an injunction by his laches for any other reason. I therefore answer the second of the questions by saying that if Clause 3 of the partnership agreement is enforceable in law there is no reason why the plaintiff should not be granted an injunction restraining the defendants from carrying on the selling agency business. 31. I may also add that no attempt was made to argue before me that the suit was nub within time and I therefore answer the fourth question in the affirmative. 32. There thus remains only the third question: Is the plaintiff entitled to the relief in respect of accounts? Although Section 88, Indian Trusts Act was not specifically pleaded by the plaintiff, it is clear that it was this provision of law on which he relied at the time of the arguments in the lower Court. The section reads: 88. Where a trustee, executor, partner, agent, directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h India. Corporation had itself terminated the selling agency agreement, and was well aware that along with the agreement the partnership would also be terminated, and the Corporation entered into dealings with Deva Sharma and his nominees with full, knowledge of the facts. 34. The question whether the second part of the section would apply is perhaps more difficult. It is clear from the judgment of Khosla J. that his conclusions on this part of the case as a whole have been very greatly influenced by his finding on the facts that the British India Corporation and Deva Sharma were acting in collusion with each other, and that the British India Corporation seised on a flimsy pretext for terminating the selling agency agreement in favour of the partnership of Gadodia and Deva Sharma and then gave the agency to Deva Sharma and at the same time the Corporation helped Deva Sharma to evade Clause 3 of the partnership agreement by nominally giving the agency to a firm with which Deva Sharma had no ostensible connection and by helping to secure the necessary licenses in the name of Deva. Sharma's brother. My own summary of the position given earlier in this judgment is much the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. In coming to their respective conclusions regarding the applicability of Section 88 of the Trusts Act the learned Judges have chiefly considered four cases -- 'Siddavarapu Ramalinga Reddy v. Ramalingam Setty,' AIR 1938 Mad 929 (B), --Biss v. Biss, (1903) 2 Ch 40 (C), -- Benett v. Gaslight and Coke Co. of London,' (1882) 48 LT 156 (D), -- 'Sitharamamurthi Chetty v. Guruswami Chetti,' AIR 1949 Mad 860 (E). 36. In the first of these cases, which is a decision by Varadachariar and Horwill JJ., the facts were that a partnership had obtained a lease of certain land for a definite period for the purpose of carrying on the business of mica mining and the partnership agreement was for the period of the lease. Shortly before the lease was due to expire one of the partners obtained a fresh lease of the same land for himself. It was found that he did so openly and in competition with other persons. He then sent a notice to the other partners to appear and settle accounts up to the date on which the old lease was to expire, which was also the date of the expiry of the partnership agreement. Since after that date he was obstructed by the other partners from working t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it shewed that the right or hope of renewal had been determined by the lessor himself before the son intervened, so that the new lease could not be treated as an accretion to the estate of the deceased, and also that the son had in no way abused his position nor stood in any fiduciary relation towards nor owed any duty to the other persons interested in the estate, and that he was therefore entitled to retain the lease for his own benefit. 38. The facts in the third case (1882) 48 LT 156 (D), were that one W becoming insolvent assigned all his estate to four creditors, trustees, to carry on his business for the creditors' benefit. W's principal asset was a valuable agency for the defendants, also creditors. As part of the arrangement, W's agency contract was cancelled, and a fresh one, for about thirteen months, was entered into with the trustees for the creditors' benefit. Before the expiration of the fresh contract, and before the trust was wound up, B, one of the trustees, applied to the defendants to renew the agency to the trustees, and, on that being refused, obtained from the defendants a contract that his own firm should have the agency when that of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. and Somasundaram J. held that the new lease must be held by the partners who had obtained it for the benefit of the other members of the partnership, but since the lease itself was executed after the termination of the partnership, and it was not the case of the others that any one other than the partnership had ob- tained the lease on furnishing the consideration for it, the benefit of the renewal alone should be created as an asset of the partnership which had nded and a value placed on it. It was, however, observed during the course of the judgment that there may be cases when a partner during the continuance of the partnership can secure a new lease to himself without the new lease being held to be for the benefit of the partnership, and it would depend on the facts and circumstances in each case. 40. The views of the two learned Judges regarding these cases are in sharp conflict, since while Khosla J. thought that the first two were easily distinguishable from the present case, and that the third and fourth were in point, Kapur J. took a directly opposite view. The. view of Khosla J. appears to have been influenced by one finding of fact on which I do not agree wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cross, examination is true, that licenses could be granted to new dealers even after 1940 when they were the agents or nominees of manufacturers. I have already cited a letter from Mr. Jackson to the Textile Controller which appears to me to indicate that the British India Corporation or the Kanpur Cotton - Mills would have had no difficulty whatever in obtaining the necessary license for anyone to whom they gave their selling agency business. On the other hand it seems to me that the cases relied on by Kapur J. bear much more resemblance to the circumstances of the present case, and the principle which they seem to me to establish is that when it is clear that a particular benefit can no longer be secured on behalf of an estate or a partnership, the fiduciary relationship ends and an Individual partner or beneficiary of the estate is free to look after his own interests and secure the benefit for himself. 41. In my opinion once it is held that whatever was done in December, 1945 was done with the knowledge, and on the basis, that the selling agency agreement in favour of Gadodia and Company Limited and the partnership agreement between Gadodia and Deva Sharma were inevitab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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