# joslu v. Shimpi Subba Ilao ] . I96I February :i7

- **Citation:** [1961] 3 S.C.R. 998
- **Court:** Supreme Court of India
- **Decided:** 1960-04-16
- **Case number:** Civil Appeal No. 375of1956
- **Bench:** P. B. Gajendragadkar, K. N. WANcnoo
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/joslu-v-shimpi-subba-ilao-i96i-february-i7-1961
- **Pages:** 17

## Headnote

Part1'ership-Duration not expressly provided-When can be
implied~Terminatien of partnership by notice-Partnership Act,
I9J2 (IX of 1932). ss. 7, IO, r3(g).
The appellant and the respondent entered into a written
partnership with respect to the managing agency business of two
mills, the terms of which were, inter alia, that the management
shall be carried on 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,
l
)
3 S.C.R.
SUPREME COURT REPORTS
It further provided that the partners and their heirs and those
getting their rights shall carry on the management in rotation.
Soon after disputes arose between the partners and the appellant
gave notice to the respondent terminating the partnership treating it as a partnership at will, and the directors of the mills in
1961
Karuniutku
Thiagarajan
CheUiar
their turn terminated the managing agency on the ground that >
v.
.
the quarrels between the partners were detrimental to the good' futhappa Chell•••
management of the mills. Thereafter the respondent brought a
suit against the appellant and the mills for dissolution of the
partnership firm and damages alleging that dissolution of the
partnership by the appellant by notice was fraudulent and connived at by the mills.
The trial court held that the partnership
was at will and the termination of the managing agency was legal
and disallowed damages. On appeal by the respondent the High
Court held that the partnership was not a partnership at will and
could not be dissolve~. by notice by the appellant. The termination of the managing agency was also held to be illegal. On
appeal by the appellant with a certificate of the High Court:
Held, that considering the provision that the management
would be carried on in rotation between the partners in four
yearly periods and that the heirs of the partners would also carry
a·n the business in rotation the intention was obviously to have a
partnership of some duration, though the duration was not
expressly fixed in the agreement. The duration of a partnership
may be expressly provided for in the contract but even when
there is no express provision, courts have held that the partnership will not be at will if the duration can be implied.
Grawshay v. Manie, l Swans 495; 36 E.R. 479, followed.
The contract in this case disclosed a partnership the determination of which was implied, namely, the termination of the
managing agency and, therefore, under s. 7 of the Partnership
Act it was not a partnership at will and was not legally terminable
by the notice given by the appellant.
In view of the strained atmosphere between the partners
there was sufficient reason for the mill to terminate the managing
agency and the resolution of the board of directors terminating
the managing agency agreement confirmed by the general meeting of the shareholders, did terminate the managing agency.
There was neither any fraud nor collusion by the mills with the
appellant.
M orarji Gokuldas and Co. v. Sholapur Spinning and Weaving
Co. Ltd. and Others, A.LR. 1944 P.C. 17 and Commissioners of
Inland Revenue v. Sansom, [1921] K.B. 492, referred to.
The partnership in the present case must be deemed to have
determined on the date of the passing of the resolution by the
board of directors terminating the managing agency.
Sections ro and 13(1) of the Partnership'Act have no application to the facts of the case.
196I
Karumuthu
1000
SUPREME COURT REPORTS
[1961]

## Text

joslu
v.
Shimpi
Subba Ilao ] .
I96I
February :i7.
998
SUPREME COURT REPORTS
[1961]
The High Court sentenced the accused to undergo
rigorous imprisonment for two months and also to
pay a fine of Rs. 250/-. We agree with the High
Court that the offence committed by the appellant is
a serious one and that ordinarily the punishment
should be deterrent. In mqst of the cases of this kind
imprisonment would certainly be a suitable sentence.
But in this case, there was a conflict of view even in
the Bombay High Court as regards the question whether butter made from curd would be butter within
the meaning of the rule. Indeed, it was brought to
our notice that on April 16, 1960, the Central Government made another rule amending rule {\-11.05 by
inserting the word " curd " in the definition of butter
and the amended definition reads, " butter means the
product prepared exclusively from milk, cream or
curd of cow or buffalo ......... " This must have been
made to clarify the position in view of the conflicting
decisions: In the circumstances, we think that a
sentence of fine would meet the ends of justice in the
present case. We, therefore, set aside ·the sentence of
two months' rigorous imprisonment and a fine of
Rs. 250/- and instead sentence the appellant to pay a
fine of Rs. 500/·.
With this modification, the appeal is dismissed.
A.JYPeal di81nissed.
KARUMUTHU THIAGARAJAN CHETTIAR
AND ANOTHER
v.
E. M. MUTHAPP A CHETTIAR.
(P. B. GAJENDRAGADKAR and K. N. WANcnoo, JJ.)
Part1'ership-Duration not expressly provided-When can be
implied~Terminatien of partnership by notice-Partnership Act,
I9J2 (IX of 1932). ss. 7, IO, r3(g).
The appellant and the respondent entered into a written
partnership with respect to the managing agency business of two
mills, the terms of which were, inter alia, that the management
shall be carried on 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,
l
)
3 S.C.R.
SUPREME COURT REPORTS
It further provided that the partners and their heirs and those
getting their rights shall carry on the management in rotation.
Soon after disputes arose between the partners and the appellant
gave notice to the respondent terminating the partnership treating it as a partnership at will, and the directors of the mills in
1961
Karuniutku
Thiagarajan
CheUiar
their turn terminated the managing agency on the ground that >
v.
.
the quarrels between the partners were detrimental to the good' futhappa Chell•••
management of the mills. Thereafter the respondent brought a
suit against the appellant and the mills for dissolution of the
partnership firm and damages alleging that dissolution of the
partnership by the appellant by notice was fraudulent and connived at by the mills.
The trial court held that the partnership
was at will and the termination of the managing agency was legal
and disallowed damages. On appeal by the respondent the High
Court held that the partnership was not a partnership at will and
could not be dissolve~. by notice by the appellant. The termination of the managing agency was also held to be illegal. On
appeal by the appellant with a certificate of the High Court:
Held, that considering the provision that the management
would be carried on in rotation between the partners in four
yearly periods and that the heirs of the partners would also carry
a·n the business in rotation the intention was obviously to have a
partnership of some duration, though the duration was not
expressly fixed in the agreement. The duration of a partnership
may be expressly provided for in the contract but even when
there is no express provision, courts have held that the partnership will not be at will if the duration can be implied.
Grawshay v. Manie, l Swans 495; 36 E.R. 479, followed.
The contract in this case disclosed a partnership the determination of which was implied, namely, the termination of the
managing agency and, therefore, under s. 7 of the Partnership
Act it was not a partnership at will and was not legally terminable
by the notice given by the appellant.
In view of the strained atmosphere between the partners
there was sufficient reason for the mill to terminate the managing
agency and the resolution of the board of directors terminating
the managing agency agreement confirmed by the general meeting of the shareholders, did terminate the managing agency.
There was neither any fraud nor collusion by the mills with the
appellant.
M orarji Gokuldas and Co. v. Sholapur Spinning and Weaving
Co. Ltd. and Others, A.LR. 1944 P.C. 17 and Commissioners of
Inland Revenue v. Sansom, [1921] K.B. 492, referred to.
The partnership in the present case must be deemed to have
determined on the date of the passing of the resolution by the
board of directors terminating the managing agency.
Sections ro and 13(1) of the Partnership'Act have no application to the facts of the case.
196I
Karumuthu
1000
SUPREME COURT REPORTS
[1961]
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
375of1956.
Thiagarajan
Appeal from the judgment and decree dated
Chettiar
July 27, 1953, of the Madras High Court, in A. S. No.
Muthapp:· Chettiar 623 of 1949.
A. V. Viswanatha Sastri and S. Venkata Krishnan,
for the appellants.
M. C. Setalvad, Attarney.General for India, R. Gana·
pathy Iyer and G. Gopalakrishnan, for the respondent.
1961. Februa~y 27. The Judgment of the Court was
delivered by
Wanchoo J.
WANCHOO, J.-This is an appeal on a certificate
granted by the Madras High Court. The brief facts
necessary for present purposes are these : The present
suit was brought by Muthappa Chettiar (hereinafter
referred to as the respondent) against K. Thiagarajan
Chettiar (hereinafter called the appellant) and the
Saroja Mills Ltd. In 1939 these two persons thought
· of ·doing business jointly by
securing ma.naging
agencies of some ·mills. In that connection they carried
on negotiations with two mills, namely, Rajendra
Mills Limited, Salem and the Saroja Mills Limite~,
Coimbatore (hereinafter called the Mills). The ma.nag.
ing agency of the MillA was with the Cotton . Corpora.
tion Limited. On October 4, 1939, the said Corporation
transferred and assigned its rights to the· appellant
and the respondent under the name of Muthappa and
Co. On November 15, 1939, the Mills at an extra.
ordinary 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. Mnthappa and Co.
purchased all the shares of th$ 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
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..
3 S.C.R.
SUPREME COURT REPORTS
1001
the managing agency business of the two mills. We
I96r
shall consider the terms of this agreement later and
Ka,umuthu
all thitt we need say at this stage is that turns were
Thiagarajan
fixed for the appellant and respondent to look after
Chettiar
the actual management of the two mills and the
v
appellant's turn was the first and he therefore came Muthappa Cl>ettiar
into actual control of the two mills. Soon after how-
---
H' anrhno ].
ever disputes arose between the appellant and the
respondent with respect to the managing agency of
the Rajendra Mills Limited, which resulted in various
suits being filed between the partners, to which we
shall refer later. Eventually on March 4, 1943, the
appellant gave notice to the respondent terminating
the partnership, considering it as a partnership at
will. This was followed by the directors of the Mills
terminating the managing agency of Muthappa and
Co. on the ground that that 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 a.gain 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 s. 69 of the Indian Partnership Act, No. 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 snit was
not maintainable under s. 69 of the Act was correct.
The High Court however made it clear that it was
1002
SUPHEME COURT REPORTS
[l\!61]
,96r
expressing no opinion on the correctness or otherwise
of the other findings recorded by the subordinate
f(arumuthu
d
Thiaga•ajan
ju ge.
c11, 11;a,·
While this appeal was pending the respondent
v.
brought the present suit on February 28, 1946. In
.Huthappa Chelliarthis suit he prayed for dissolving the firm Muthappa
. -
and Co., for accounts and for damages. against the
R awhao I
appellant and the Mills.
The main contention of the
respondent in the suit was that the alleged dissolution
of partnership by the appellant and the removal of
Muthappa and Co. from the managing agency of the
Mills were part of a scheme of fraud conceived by the
appellant which was actively connived at by the Mills
in order to defeat and defraud the respondent of his
legitimate dues and his right to continue and act as
the mana.~ing agent of the Mills.
The damages
claimed were estimated at the figure of five lacs of
rupees to be recovered from both the appellant and
the Mills or from either of them. In the alternative
the respondent claimed tha,t 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 oue :it 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
was barred under s. 69 of the Act.
The trial court held that the firm of l\iuthappa and
Co. was a partnership at will and therefore was legally
dissolved by the appellant by giving nut.ice dated
March 4, 1943. It further held that no case of fraud
..
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3 S.C.R.
SUPREME COURT REPORTS
1003
had been proved and that the termination of the
'96'
managing agency was legal. As to the Mills the trial
Ka,umuthu .
court h!lld that the smt against them was barred
Thiagarafan
under s. 69 of the Act. In consequence the suit against
Chetliar
the Mills was dismissed in toto aml the prayer for
v.
.
damages was also rejected. The trial court however.lfothappa Clldltuw
<lirected the appellant to account for the profits
Wanchoo 1.
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 uuder s. 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 thai, the
Mills were guilty of fraud.
As to the case against the
appellant, the :ijigh 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 t.he managing
agency terminated by the Milb, and in consequence
the termination of the managing agency was illegal.
On the view therefore that the partnership as well as
the managing agency continued and on a review of the
circumstances, the High Court held that this was a fit
case for dissolving the partnership and fixed March 10,
1949, which was the date of the decree of the trial
court as the date from which the partnership would be
dissolved. Coneequently it modified the decree of the
trial court and passed a preliminary decree for accounts
against the appellant in respect of the firm Mu happa
and Co. from November 15, 1939, to March 10, 1949.
and added that the respondent could also recover at}y
a.mount found due to him on taking accounts against
the part.nership assets, if any, in the hands of the
?dills.
Th~ appellant then applied for a certificate to
}:28
1004
SUPREME COURT REPORTS
[1961]
1961
appeal to this Court which was granted; and that is
how the matter has come up before us.
Karumuthu
Thiagarajan
The first question therefore that arises for our deter.
CheHiar
mina.tion is whether the partnership in this case is a
v.
partnership at w.ill and it is necessary to refer to the
Mutkappa Clieuiarterms of the partnership agreement to determine this
· question.
After reciting that the management of the
fVanchoo ].
M"ll
b .
. d
.
h
I
1 s was erng carne
on m t e 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 fonr 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 borrowing with which we are not concerned. The agreement further provides that in case
either partner thinks of relinquishing his right· of
management under the agreement it shall be surrendered to the other partner only but shall not be transferred or sold to any other person whatever. Finally
it is provided that the two partners shalt carry on the
affairs of the firm by rotation once in four years and
the income realised thereby shalt be divided year after
year and the partners and their heirs shall get the
same in equal shMeR and thus carry on the partnership
management.
The contention un he half of the appellant is that as
this partnership doPs not fall under s. 8 of the Act and
is not within the two excj3ptions under s. 7, it is a
partnership at will.
Sectiou 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. ~ection 8 provides that a person may
...
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•
•
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3 S.C.R. SUPREME COUl{T REPORTS
1005
become a partner with another person in particular
ad ventures or undertakings. :Section 43 provides that
I<a•umuthu
where the partnership is at will, the firm may be
Thiagai·ajan
dissolved by any partner giving notice in writing to
Chetti••
all the other partners of his intention to dissolve the
v.
firm.
On the other hand if the partner;;hip is not at Muthappa Chettiar
will, s. 42 applies and is in these terms:-
wanchoo ;.
"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 undertakings, by the completion
thereof;
(c) by the death of a partner; and
(d) by the adjudication of a partner as an
insul vent. "
Section 44 provides for dissolution by the court. The
High Court was of the view that looking to the terms
of the partnership it could not be held to be a partnership at will and that under s. 7 it will be a case of a
partnership the duration of which as well as the
determination of which were fixed.
The High Court·
was further of the view that s. 8 of the Act would also
apply to the partnership in question as the evidence
showed that the partners had entered into partnership
in order to carry on the business of managing agency
of the two mills and such business was an undertaking. As we read the terms of the agreement it
seems to us clear that the intention could not be to
create 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 nol expressly fixed in the agreement. Now s. 7
contemplates two exceptions to a partnership at will.
1006
SUPREME COURT REPORTS
[1961]
I96I
The first exception is where there is a. provision in the
Karumuthu
contract for the duration of partnership; the second
Thiaga.ajan
exception is where there 'is provision for the determiChettiar
nation of the partnership. In either of these cases
v.
. the partnership is not at will. The duration of a
Muthappa Chettiar partnership may be expressly provided for in the
Wanchoo .f.
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, Vol. 28, p. 502,
para. 964, where it is said that where there is no
express agreement to continue a partnership for a
definite period there may be an implied agreement to
do so. In Grawshay v. Maule(') the same principle
was laid down in these words at p. 483 :-
"The general rules of partnership are well-settled.
Where no term is expressly limited for its duration,
and there is nothing in the contract to fix it, the
partnership may 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
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3 s.c.R.
SUPREME COURT REPOR1'S
1007
would become permanent. In any case even if there i8
1961
some doubt as to whether the terms of this contract
Haruniuthu
implied any duration of the partnership, there can in
Thiagar•jan
our opinion be no doubt that the terms do imply a
Chettiar
determination of the partnership when the managing
v.
d
I .
J
h
Jluthappa Chettiar
agency agreement comes to an en .
t is c ear t at
__
the partnership was for the sole business of carrying
Wanclwa J.
on the managing agency and therefore by necessary
implication it must follow that the partnership would
determine when the managing agency determines.
Therefore on the terms of the contract in this case,
even if there is some doubt whether any duration is
implied, there can be no doubt that this contra.ct
implies that the partnership will determine when the
managing agency terminates.
In this view the
partnership will not be a partnership at will as s. 7 of
the Act makes it clear that a partnership i.n \\hi ch
there is a term 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 contra.ct, 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 favonr of the other. That however is a
fortuitons circumstance; for, if (for example) there
had been fonr 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 favonr of another would not make
the partnership one at will. We may in this connection refer to Abbott v. Abbott (' ).
That was a case
where there were more thn,n two partners and it was
(1) (1936J 3 All E.R. 8a3.
1008
SUPREME COURT REPORTS
[1961)
provided that the retirement of a partner would not
Karumu<ku
terminate the partnership and there was au option for
TM1Jgarajan
the pllrchase of the retiring partner's sh:tre by other
Che1uar
partners. It was held that in the cirrn1rn,tances the
Mull••PP:· Cheltiar partnership was not at will and it was poi1~t(d out that
only when all _the partners except one retired that the
wanchoo J.
partnership would come to an end beca1rno 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 s. 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 s. 8 of the Act.
The 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 some
time 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
Balasu bramaniam and Co. Limited with respect to the
allotment of shares in the managing agency company.
On March 11, 1942, the respondent filed another suit,
this time on the basis of debentures which he held
against the Mills, praying for a decree against the
Mills with respect to t.he debenture amount. On
June 17, 1942, the respondent filed a third suit with
respect to the Rajendra Milfs Limited for a declaration
tha.t the respondent was a partner owning half share
in the managing agency of the Ra.jendra Mills Limited.
On ·the same day the respondent filed a fourth suit
against the appellant, his son and Salem Bala.subramaniam and Co. Limited with respect to certain
actions ta.ken by the managing agency company. On
July 15, 1942, the appellant filed a counter-suit against
the respondent and the managing agency company
relating to the
Rajendra
Mills
Limited for a
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1
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•
3 S.C.R.
SUPREME COURT REPORTS
lOO!l
declaration that the respondent had no interest in the
managing agency company and for further reliefs.
1;.,..,,,,.1hu
There is no don bt, therPforn, that the relations bet ween
lhiagurajan
the partners were very strained in 1942. The respondent
Ch•tliar
admitted in his statement that from the end of 1941
v.
h
.
b
h'
.I h
]J
d Muthappa Chettiar
t ere w~s enmity et.ween 1m am t e appe ant an
__
there were ,-ital differences between them and litigauanchoo J.
tion was going on, though he said that in spite of the
enmity he was willing to co-operate with the appellant
if 1.he <imount. of which he had been defrauded were
paid to him on accountiug. So far as the litigation
with respect to the Rajendra Mills Limited was concemed the respondent lost and it was held that he had
wii.hdrawn from the partuership 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. tlw appellant gave notice dated March 4,
1943, terminating t.he partnership with respect to the
Mills considering it a~ a partnership at will. We have
however held that. the partnership was not a partnership at will :rnd the notice given by the appellant could
not, therefore, terminate it legally.
But the question
still r8mains whether the managing agency of the
Mills was Lmninated legally ; for if that was so the
partnel'Ship would also come to an end on the date the
managing agency was terminated in view of what we
have held abO\'e.
The High Court haH examined the
circnmstances in this connection and lrns come to the
conclusion that the appellant fraudulently and collusively with the i.\lills got the managing agency terminated and, therefore, r.he termination of the managing
agency was illegal.
We are nnahle 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 h" claimed that the partnership w11.e
1010
SUPREME COURT REPORTS
[1961)
'96'
not at will and the appellant was not entitled to termin.
I<arumuth"
ate it, and a copy "of this reply was also sent to the
Thiagaraja11
Mills on March 16, 1943. On March 22, 1943, the
Chettiar
directors of the Mills held a meeting. In that meeting
v.
. the directors decided that as the partners of Muthappa
'lfuthappa Chee1iar and Company were unable to get on in harmrmy with
Wanchoo J.
each other and were involved in litigation arid 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 became necessary to appoint other managing agents. Thus by this· resolution the managing
agency of Muthappa and Company was terminated for
two reasons: (1) that there were differences between the
partners of the managing agency company n.nd the work
of the Mills was suffering and was likely to suffer, and
(2) that Muthappa and Company had come to an end
and, therefore, had lost its right of management. It
appears that before this resolution was passed the
appellant had been purchasing shares of the Mills in
the market and had acquired a controlling interest
thereiri. The High Court, therefore, thought that the
hidden hand of the appellant was visible behind this
resolution of the directors of the Mills, the more so as
the appellant's son was nominated by the same resolu·
tion to administer the whole affairs of the Mills subject
to the control and direction of the boa.rd of directors
till such time as suitable managing a.gents were
appointed. This action of the board of directors was
confirmed at a genera.I 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 genera.I meeting of the
shareholders of September 29, 1943. It may be that
the appellant having acquired a col)trolling interest in
the Mills had a good deal to do with the re,90lutions;
but. that in our opinion would not necessarily make bis
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3 S.C.R.
SUPREME COURT REPORTS
lOll
conduct fraudulent and the termination of the managr96r
ing agency agreement illegal. It is not in dispute that
I\arumuthu
there was no agreement between the partners that
Thiagarajan
either of them would not purchase .shares of the Mills
Chcttiar
in open market. We do not therefore see anything
v.
improper in the conduct of the appellant when he Mu1happa Chclli•r
purchased the shares of the Mills in open market and
wanc;;;o .J.
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
managing agency business, in the other capacity he
was a large shareholder of the Mills and as such shareholder it was certainly his interest to see that the
interest of the Mills did not suffer. The crucial question therefore is whether the action taken by the Mills
by the two resolutions is such as would be taken by
any prudent company when faced with the situation
with which the Mills was 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 Go. v. Sholapur Spinning
and Weaving Go. Ltd. and Others('). In that case a
question arose whether the termination of the managing agency agreement was illegal on the ground of
misconduct. It 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 prejudicially the interests of the company.
It was held
that:-
(1) A.LR. 1944 P.C. 17.
129
z96z
Karumuthu
Thiagarf1jan
Chettiar
v.
Muthappa Chettiai
Wan&hoo ].
1012
SUPREME COURT REPORTS
[1961]
"In each case the question must be whether the
misconduct proved, or reasonably apprehended, has
such a direct bearing on the employer's business or
on the discharge by the employee of that part of the
employer's business in which he is employed, as to
seriously affect or to threaten to seriously affect the
employer's business or the employee's efficient discharge of his duty to his employer."
If on the facts and circumstances of the case it was so,
the termination of the managing agency would be
justified. In the present case there can be no doubt
that the quarrels between the two partners of the
managing agency firm were so serious and of such
duration as to impair their capacity to discharge their
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('):-
"No doubt there are amongst such companies, as
amongst any other kind of association, blacksheep;
but in my judgment such terms of reproach as I
have alluded to should be Rtrictly reserved for those
of them and of their directors who a.re 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 existin~ any prudent board
of directors and any body of shareholders interested
in a company would act in the manner iR which the
boa.rd of directors and the shareholdets of the Mills
(I) [1921] 2 J\-B. 492, 5Ii-
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3 S.C.R.
SUPREME COURT REPORTS
1013
acted in the present case. We cannot therefore agree
r96r
wit.h the High Court that this is a. case where the
J<.,umuthu
boa.rd of directors and the shareholders acted
Thiagarajan
fraudulently in collusion with the appellant, for we
Ch•ttiar
oannot forget that the appellant as a major sharev.
holder of the Mills could legitimately act to protect Muthappa Chettiar
them and the action taken was such as any board of
Wanihoo ].
directors and any body ofsharehnlclers 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
termincfo the managing agency between the Mills and
Muthappa and Company. It is true that in these
resoultions a second reason was given for the termination, viz., that Muthappa and Co. had come to an end
b~cii.use 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 s. 87-B (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 be valid
unless approved by the company by a resolution at a
general meeting of the company.
This provision
clearly shows that a managing agent may be appointed and removed by the board of directors, though such
appointment and removal is subject to the approval
by the company by a resolution at a general meeting
of the company .. We agree with the High Court that
when the company at its general meeting approves of
an appointment or of a removal, the approval takes
effect from the date of the appointment or removal
by the board of directors. On this view therefore,
when the general meeting in this case approved the
action of the board of directors, the removal became
valid a.nd came into effect from March 2::, 1943.
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1014
SUPREME COURT REPORTS
[1961]
'96z
Therefore, the managing agency agreement in this
Ka.umuthu
case was validly terminated on March 22, 1943. As
Thiagar•ian
we have already held that .there was an implied term
Chettiar
in the contract of partnership that it will determine
v,
when the managing agency agreement with the Mills
Muthappa Chettiar terminates, the partnership in the present case must
under the contract be deemed to have determined on
Wanchoo],
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 ss. 9, 10 and 13(f) of the Act am! 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 s. 10 every piirtner
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 s. 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
ss. 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
Mills Limited are concerned, we are of opinion that
they are entitled to their costs throughout from the
respondent as their action in terminating the managing agency has been held by us to be legal and valid.
As to Thiagarajan Chettiar we are of opinion that in
the circumstances of this case, the order of the subordinate judge that Muthappa Chettiar (respondent)
and Thiagarajan Chettiar (appellant) should bear
their own costs is just and we order them to bear their
own costs throughout.
We. therefore allow the appeal in part and order
that accounts will be taken from November 15, 1939,
to March 22, 1943, as between Thiagarajan Chettiar
and Muthappa Chettiar. The respondent will pay
the costs of Saroja Mills Limited throughout ; but
Muthappa. Chettiar and Thiagarajan Chettiar will
bear their own costs throughout.
Apptal allowed in part.
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