Case: Karumuthu Thiagarajan Chettiarand Another Vs. E. M. Muthappa Chettiar

The present suit was brought by Multhappa Chettiar (hereinafter referred to as the respondent) against K. Thaiagarajan Chettiar (hereinafter called the appellant) and the Saroj Mills Ltd. In 1939 these two persons thought of doing business jointly by securing managing agencies of some mills. In that connection they carried on negotiations with two mills, namely, Rajendra Mills Limited, Salem and the Saroja Mills Limited, Coimbatore (hereinafter called the Mills). The managing agency of the Mills was with the Cotton Corporation 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 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 Ltd., Salem. The managing agents of this mill were Salem Balasubramanian 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 appellants 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 respondent with respect to the managing agency of the Rajendra Mills Ltd., 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 again made in the Articles of Association. In between on April 17, 1943, the respondent had filed a suit for a declaration that Muthappa and Co. continued to be the managing agents of the Mills and for obtaining possession of the office of managing agents for himself or along with the appellants 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 suit was not maintainable under S. 69 of the Act was correctness or otherwise of the other findings recorded by the subordinate judge.2. While this appeal was pending the respondent brought the present suit on February 28, 1946. In this suit he prayed for dissolving the firm Muthappa and Co., for accounts and for damages against the 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 managing 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 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 respondents 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.3. The trial court held that the firm of Muthappa and Co. was a partnership at will and therefore was legally dissolved by the appellant by giving notice dated March 4, 1943. If further held that no case of fraud had been proved and that the termination of the managing agency was legal. As to the Mills the trial court held that the suit against them was barred under S. 69 of the Act. In consequence the suit against the Mills was dismissed in toto and the prayer for damages was also rejected. The trial court however directed the appellant to account for the profits earned from the inception of the partnership business till March 4, 1943, when the partnership was terminated by the appellant by notice.4. Thereupon the respondent went up in appeal to the High Court. The High Court held that the suit against the Mills was barred under 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 that the Mills were guilty of fraud. As to the case against the appellant, the High Court held that the partnership was not a partnership at will and therefore it could not be dissolved by notice by the appellant. It further held that the appellant fraudulently and in collusion with the Mills purported to dissolve the partnership by issuing an illegal notice and to have the managing agency terminated by the Mills, and in consequence the termination of the managing 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. Consequently it modified the decree of the trial court and passed a preliminary decree for accounts against the appellant in respect of the firm Muthappa and Co. from November 15, 1939, to March 10, 1949, and added that the respondent could also recover any amount found due to him on taking accounts against the partnership assets, if any, in the hands of the Mills. The appellant then applied for a certificate to appeal to this Court which was granted; and that is how the matter has come up before us.

Court's reasoning:
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 not expressly fixed in the agreement. Now S. 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 that is no express provision, courts have held that the partnership will not be at will if the duration can besame principle in our opinion applies to a case of determination. The contract may expressly contain that the partnership will determined 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 theis 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 further term that these turns will go on even in the case of their heirs in our opinion clearly suggest that the duration of the partnership would be the same as the duration of the managing agency. We cannot agree that this means that the partnership would become permanent. In any case even if there is some doubt that the terms do imply a determination of the partnership when the managing agency agreement comes to an end. It is clear that the partnership was for the sole business of carrying 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 contract 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 in which there is a term as to its determination is not a partnership atare, 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 theare unable to agree with this view of the High Court. It is, therefore, necessary to examine the circumstances in which the termination camecan 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 majoron 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 theremarks 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 anybody of shareholders interested in a company would act in the manner in which the board of directors and the shareholders of the Mills acted in the present case. We cannot therefore agree with the High Court that this is a case where the board of directors and the shareholders acted fraudulently in collusion with the appellant, for we cannot forget that the appellant as a major shareholder of the Mills could legitimately act to protect them and the action taken was such as any board of directors and anybody of shareholders would bona fide take.In the circumstances we are of opinion that the resolution of the board of directors terminating the managing agency agreement, confirmed by the general meeting of the shareholders, did legally terminate the managing agency between the Mills and Muthappa and Company. It is true that in these resolutions a second reasons was given for the termination, viz., that Muthappa and Co. had come to an end because of the notice of March 4. That legal position is in our view incorrect; but that apart there were otherwise sufficient reasons for the Mills to terminate the managing agency in the circumstances with which it wasprovision 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 and came into effect from March 22, 1943.Therefore, the managing agency agreement in this case was validly terminated on March 22, 1943. As we have 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,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.12. 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.