1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO. 1690 OF 2007 IN SUIT NO. 1283 OF 2007 Sarabjit Singh Harbansingh Sethi ....Plaintiff V/s. Khamanchand Bherulalji Jain & Ors. ....Defendants Mr.D.H. Mehta with Mr.Chirag Balsara, Mr.Aftab Diamondwalla and Ms.Amrita Ghone i/b Divya Shah & Associates for the plaintiff. Mr.Umesh Shetty with Ms.Shaila D’Souza & Mr.Mitesh Naik i/b M/s.Umesh Shetty & Co. for defendant nos.1 to 5 and 7 to 10. Mr.F.E. DeVitre, Senior Counsel with Mr.Shyam Mehta, Mr.Gautam Ankhad and Mr.C.Rashmikant i/b Federal & Rashmikant for defendant no. 11. CORAM : S.J.VAZIFDAR J. DATE : 23RD SEPTEMBER 2009. ORAL JUDGEMENT: 1. The suit is filed for a declaration that a Memorandum of Understanding and a Power of Attorney both dated 20th September 2004 and a Development Agreement and a Power of Attorney both dated 22nd January 2007 are illegal, null and void and for orders for the delivery up and cancellation thereof. The plaintiff has also sought a declaration that an alleged resolution dated 10th January 2007 is illegal, null and void. By the notice of motion the plaintiff has sought the appointment of a Court Receiver and an injunction restraining the defendants inter-alia 2 from acting pursuant to the said documents. 2. The plaintiff and defendant nos. 1 to 10 are admittedly partners of a firm M/s Samata Industrial Developers constituted under a deed of partnership dated 3rd August 2002. The plaintiff has a 10% share in the profits and losses of the said firm. After the suit was filed defendant no. 6 expired and his heirs had been brought on record as defendant nos. 6 A to E. The deed of partnership admittedly does not confer power on any particular partner or partners to sell and transfer the immovable properties of the firm. It is also admitted that the firm owns the suit land which admeasures about 15,777.30 sq mtrs. It is important to note that it is the plaintiffs clear and categorical case that the partnership firm was constituted with the sole object and purpose of construction and development of industrial, commercial and residential premises on the said immovable property and for no other purposes. (Paragraph 8 of the plaint). This is important while considering the questions of balance of convenience and irreparable injury. 3. The case in a nutshell is this. Defendant nos. 1 to 10 entered into a MOU and a development with defendant no. 11. According to the plaintiff he was not only not a signatory to the said documents but had opposed the same throughout. It was submitted on behalf of the plaintiff that the MOU and the development agreement not having been signed by the plaintiff are null and void in view of section 19 (2) (g) of the Indian Partnership Act 1932. The defendants however contend that the plaintiff was aware of the execution of the said documents, had consented to and in any event 3 not objected to and had acquiesced in the same. They further contend that defendant nos. 1 to 10 constitute a majority of the partners in the firm and were entitled therefore to enter into the said agreements on the basis of the rule of majority recognized in section 12. 4. I have come to the conclusion that the balance of convenience is clearly in favour of the defendants. I am equally clear that the grant of interlocutory reliefs would cause enormous, if not irreparable harm, injury and prejudice to the defendants but on the other hand the refusal thereof in the terms sought in the above notice of motion would cause of the plaintiff absolutely no prejudice. Despite the same I have moulded the reliefs and protected the plaintiffs 10% share in the firm on the basis that the agreements challenged in the suit may be set aside. I have done so as a question of law has been raised on behalf of the plaintiff based on section 19 of the said Act which does not admit of a simple solution without evidence. I say so despite the very persuasive arguments on behalf of the defendants supported by a very strong judgement of the Calcutta High Court. If the agreements are not set aside the plaintiff would have an interest to the extent of 8% in the realization of the sale proceeds coming to the share of the firm thereunder. If the agreements are set aside the plaintiff would have an interest to the maximum extent of 8% in the realization of the sale proceeds coming to the share of defendant no. 11 as well. I have ordered the defendants to deposit 6% of the gross sale proceeds on all the sales i.e. including the sales from out of the share of defendant no 11. I have arrived at the figure of 6% in view of the fact that 4 the plaintiff will not be contributing anything towards the development of the property and in view of the fact that there would have to be certain obvious deductions towards the cost of construction, taxes, fees and other expenses. It would not therefore be proper to call upon the defendants to deposit of the gross sale proceeds. Upto the extent of about 3% there could be no objection on the part of the defendants for that would represent approximately at least the admitted share or interest of the plaintiff even if the agreements are upheld. The only grievance as far as the defendants are concerned is in respect of the additional 3%. This additional 3% however would not in the ultimate analysis prejudice the defendants as the money would be secure having been deposited in this court with a suitable investment order. 5. The following facts are necessary while determining the rival contentions on the question as to whether the plaintiff had agreed to the transactions embodied in the said Memorandum of Understanding and the said Development Agreement. 6. As stated above, the deed of partnership was executed on 3rd August 2002. In paragraph 8 of the plaint the plaintiffs specific case is that the partnership firm was constituted with the sole object and the purpose of construction and development of industrial, commercial and residential premises on the said specific immovable property and for no other purposes. It is further averred that this was the only business and object and purpose for which the partnership was formed. This indeed appears to be so. 7. At a meeting of all the partners held on 19th July 2003 it was 5 unanimously decided to negotiate with the builder or developer on the terms and conditions recorded in the minutes of the meeting which were signed by all the partners. The terms and conditions mentioned therein are not relevant. What is relevant is the fact that all the partners including the plaintiff unanimously decided to negotiate with a builder or developer the terms and conditions for the development of the said property. The importance of this is that it belies the plaintiff's case in the correspondence as well as during the arguments before me that the plaintiff was never interested in and had always opposed the development of this property being undertaken by any third party. It was submitted that the development and commercial exploitation of the property was the sole business contemplated for the firm and that it was always understood that the firm would undertake the development of the property through the partners and not through a third party. The minutes of this meeting which were not disputed, belie this contention. 8. The Memorandum of Understanding was executed on 20th September 2004 by defendant no. 11 and by defendant nos. 1 to 10. The MOU contains the usual terms in a development agreement. Defendant nos. 1 to 10 also executed a Power of Attorney dated 20 of September 2004 in favour of defendant no. 11 pursuant to the said MOU and for the purposes of the implementation of the MOU. 9. Mr. Balsara submitted that these documents in effect amount to a sale and transfer of the said property by defendant nos. 1 to 10 to defendant no. 11. I have for the purpose of this judgement proceeded on this basis although the defendants contended to the contrary. 6 10. According to the defendants the plaintiff was fully aware of the proposed execution of the MOU. The plaintiff was furnished a copy of the MOU for his signature. He however on 22nd September 2004 informed the defendants that he had made certain pencil corrections thereon and that he would personally discuss the same with defendant no. 11 and thereafter sign the documents. However as the plaintiff did not do so, after about twenty days the documents were taken back from him by some of the partners of the firm. According to the defendants the corrections on the copy furnished to the plaintiff are in the handwriting of the plaintiff's father. The plaintiff has denied the same. The plaintiff has however not denied the averment in the affidavit in reply that his father on several earlier occasions had been authorized by the plaintiff to attend the meetings of the partners. 11. The defendants relied upon a resolution at a meeting of all the partners including the plaintiff held on 20thDecember 2004. The resolution states that a copy of the MOU had been given to all the partners at the said meeting; that at the said meeting there were discussions regarding the proposed registration of the development agreement based upon the MOU and that all the partners had been briefed about the court cases pending in various courts. The resolution was signed by all the partners except the plaintiff. 12. It is important to note two things about what transpired at the meeting held on 20th December 2004. Firstly it is established that the plaintiff attended the meeting. This is evident from the fact that the firm subsequently forwarded a copy of the MOU and the Power of Attorney to all the partners under cover of a 7 note which stated:- "As Decided in the meeting of partners held on 21st Dec 04 a Xerox copy of MOU and power of Attorney is provided to you. Please receive and acknowledge." The receipt thereof was acknowledged on behalf of the plaintiff on 22nd December 2004 with the endorsement on the covering letter: "Contents not checked." Secondly, as contended by defendant nos. 1 to 10, although the plaintiff did not sign the MOU he did not raise any objection to the MOU. This is evident from what transpired later including the fact that after the receipt of the MOU the plaintiff raised no objection to the same in writing for three months. 13(A). The plaintiff after about three months by his letter dated 21st March 2005 addressed to defendant nos.1 to 10 stated that the said MOU was initialed by some of the partners without his knowledge and consent and that he did not consent to the same. Defendant nos. 1 to 10 were called upon to cancel the MOU and to inform defendant no. 11 accordingly. The plaintiff called upon defendant nos. 1 to 11 to confirm within seven days that they had communicated the decision of the firm of not entering into any agreement with a third party for the development of the said plot. Failure to do so, it was stated, would result in the plaintiff taking steps for the dissolution of the firm and seeking interim relief to protect the property of the firm. (B). The plaintiff by his advocates letter dated 19th April 2005 addressed to defendant no. 11 reiterated the above including that he had not signed the MOU on principle as he did not agree to the grant of development rights to any third party for the development of the said plot. 8 This contention however is belied by the minutes of the meeting dated 19th July 2003 referred to earlier. The plaintiff also called upon defendant no. 11 to refrain from doing various things in pursuance of the said MOU or to act upon or on the basis of the Power of Attorney and to return the MOU and the Power of Attorney within 15 days of the receipt of the letter contending that the same had not been executed by all the necessary parties and was therefore not enforceable in law. 14. Defendant nos. 1 to 10 by their advocates letter dated 23rd April 2005 replied to the plaintiffs advocates letter dated 21st March 2005. The letter stated that the plaintiff was aware of the MOU when it came to be signed on 20th September 2004 and that he kept quiet till about 21st March 2005 when he addressed the said letter. It is important to note paragraph 7 of the letter which reads thus :- "My clients state that copy of the MOU was circulated to all the partners including your client (i.e. plaintiff) in the meeting held on 20/12/2004 when your client was present in the meeting when he did not raise any objection." (Emphasis supplied) The rest of the letter contends essentially that the decision to enter into the MOU was taken by the majority of 10 out of 11 partners in good faith and in the best interest of the firm. It was essentially contented as a matter of law that under the deed of partnership the plaintiff had no right to disown or refuse to agree to the MOU which had been arrived at by a majority of the partners. In other words these defendants invoked the majority principle which was also argued before me. 15. It is of considerable importance to note that the plaintiff replied to this letter only after two years by his letter dated 16th April 2007. Had the 9 facts stated in the letter dated 23rd April 2005 not been true, the plaintiff would surely not have denied the same only after two years. Even in this letter the plaintiff did not dispute the fact that he attended the meeting held on 20th December 2004. In paragraph 8 of his letter dated 16th April 2007, he in fact admitted that he did. He stated that in the said meeting he requested the other partners for support of the objects of the partnership firm. It is useful to reiterate that for three months after the receipt of a copy of the MOU on 22nd December 2004 the plaintiff did nothing in a matter. He addressed the letter dated 21st March 2005 after about three months. This also lends force to the statement in the letter dated the 23rd April 2005 that the plaintiff did not raise any objection to the MOU at the meeting held on 20th December 2004. If indeed the plaintiff had objected to the MOU at the meeting held on 20th December 2004 he would have addressed some communication in protest to the other partners immediately if not in fact taken action by filing proceedings in that regard. What is stated in paragraph 8 of the letter dated 16th April 2007 is that the plaintiff at the said meeting requested all the partners to support the objects of the partnership firm. The plaintiff reiterated his contention that it is the partnership firm and not any third-party that should carry out the development of the property. As stated above this contention is belied by the minutes of the meeting held on 19th July 2003. The assertion in paragraph 8 that the plaintiff even after the letter dated 23rd April 2007 sought to persuade the other partners not to sign the development rights to a third party does not inspire confidence. In the said letters dated 21st March 2005 and 19th April 2005 the plaintiff had fixed a period of 7 days and 15 days respectively for the 10 other partners and defendant no. 11 respectively to respond by cancelling the MOU failing which he threatened legal action. Despite the same after receipt of the letter dated 23rd April 2005 the plaintiff did nothing in the matter for two years. Surely if the allegations in the letter dated 16th April 2007 were correct the plaintiff would have responded immediately to the letter dated 23rd April 2005 addressed on the half of the other partners. 16. In the meantime at a meeting of the partners of the said firm held on 10th January 2007 whereat the plaintiff was absent, resolutions were passed inter-alia for the execution of a development agreement by the firm with defendant no. 11 in terms of the draft development agreement and to authorize certain partners named therein to execute the development agreement and to lodge the same for registration and to execute a power of attorney in favour of defendant no. 11. According to the plaintiff he had no notice of the said meeting. Pursuant to the said resolution the development agreement was executed purportedly on behalf of the said firm and defendant no. 11 dated 22nd January 2007. A power of attorney was also executed on 22 January 2007 purportedly on behalf of the firm in favour of defendant no. 11 in accordance with the development agreement. Admittedly neither the development agreement nor the Power of Attorney were executed by the plaintiff. Nor is there any separate document by which the plaintiff authorized the other partners to execute the development agreement or the power of attorney by or on his behalf. 17. The above facts lead to two important conclusions. (A). Firstly the plaintiff did not object to the MOU at the meeting 11 held on 20th December 2004. (B). Secondly it is clear, whatever be the position in law on the construction of sections 12 and 19 of the Indian Partnership Act, 1932 which I will deal with shortly, the plaintiff appears to have accepted, upon receipt of the letter dated 23rd April 2005 that he must abide by the decision of the majority. Whether he was bound to do so or not as a matter of law is another point altogether. The absence of a reply for two years indicates that the plaintiff being under that impression, permitted the other partners to proceed on the basis that being in majority they were entitled to enter into the said agreements. In effect therefore the plaintiff led the other partners to proceed further in the matter on that basis. The least that must be said on an analysis of the above correspondence and the conduct of the parties is that despite any reservation that the plaintiff may have had with regard to the agreement with defendant no. 11 he led the other partners to believe that they were entitled to proceed with the same as they were in a majority and to act accordingly. There is no other explanation for the plaintiff’s silence for three months after the meeting held on 20th December 2004 and for his total inaction for two years after the receipt of the letter dated 23rd April 2005. This, at the cost of repetition, was despite the fact that in the letters dated the 21st March 2005 and 19th April 2005 the plaintiff had threatened to take legal action in the event of their not cancelling the MOU. In the result therefore I am of the view that though the plaintiff did not after 21st March 2005, expressly agree to the execution of the MOU or the development agreement he proceeded on the basis that defendant nos. 1 to 10 being in a majority were entitled to do so. Hence his silence for a 12 period of two years after the receipt of the letter dated 23rd April 2005. 18. Having said that however, at least after the letter addressed by the advocates of the other partners dated 23rd April 2005 I do not think that the other partners were under an impression that the plaintiff had expressly consented to either the MOU or to the execution of the development agreement subsequently. Had the other partners been of the view that the plaintiff had consented to the execution of the development agreement they would surely have at least called upon him to join in the execution thereof. They admittedly did not do so. They proceeded to execute the development agreement themselves obviously on the basis that being in majority they were entitled to do so and also on the basis that the plaintiff despite his personal reservation to the agreement with defendant no. 11 accepted that their being in a majority they were entitled to do so. 19. The plaintiff filed the suit on 26th April 2007. The plaintiffs application for ad-interim reliefs was disposed of by an order dated 3rd May 2007 recording the statement on behalf of defendant no. 11 that it would not create any third-party rights in the property during the pendency of the notice of motion. 20. Thereafter the plaintiff by a letter dated the 16th June 2007 addressed to defendant no. 11 terminated the development agreement. Defendant no. 11 replied to the said letter dated by its letter dated 20th June 2007. Neither of these letters carries the matter further. A resolution dated 5th July 2007 passed by the partners of the firm except the plaintiff confirming the development agreement and deciding to resist the suit is not relevant for the present purpose either. 13 21. The development agreement was pursuant to and in accordance with the said MOU. Mr. Balsara relied upon clauses 15, 16, 19, 21, 60 and 72 in support of his submission that the said clauses constituted a sale of the said property or at least a part thereof in favour of defendant no. 11. 22. As I stated earlier, I have proceeded for the purpose of this judgement, on the basis that the MOU and the development agreement in effect transfer the property or a part thereof to and in favour of defendant no. 11. I have done so for the simple reason that even if the documents themselves do not constitute a transfer of the said property or any interest in the said property by the partnership firm to defendant no. 11 it at least authorizes defendant no. 11 to transfer the property to and in favour of third parties. If the partnership firm was prohibited from selling the property to any third party without the consent of any of its partners they correspondingly could not authorize a third party to do so on their behalf. It seems only logical that what some of the partners were not entitled to do on their own they could not do through another. 23. Mr. Balsara submitted that the MOU and the development agreement are void and liable to be struck down in view of the provisions of section 19 (2) (g) of the Indian Partnership Act, 1932. Apart from construing section 19 differently Mr. Shetty and Mr. DeVitre placed strong reliance upon section 12 of the said Act. Sections 12 and 19 of the said Act read as under : - 12. The conduct of the business.—Subject to contract between the partners— (a) every partner has a right to take part in the 14 conduct of the business; (b) every partner is bound to attend diligently to his duties in the conduct of the business; (c) any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partner shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; and (d) every partner has a right to have access to and to inspect and copy any of the books of the firm. 19. Implied authority of the partner as agent of the firm.— (1) Subject to the provisions of Section 22, the act of a partner which is done to carry on, in the