Karumuthu Thiagarajan Chettiar and Anr. v. E.M. Muthappa Chettiar

Karumuthu Thiagarajan Chettiar and Anr. v. E.M. Muthappa Chettiar

1961 SCR (3) 998

[partnership at will, section 7]

Facts

Muthappa Chettiar (MC)[1] and K. Thiagarajan Chettiar (TC)[2] entered into a written partnership agreement for the managing agency business of the two mills (Rajendra & Saroja) wherein they fixed turns to manage the mills and the TC’s turn was first. Disputes arose between them w.r.t the managing agency of Rajendra mills, resulting in various suits being filed between them. TC gave notice to MC terminating the partnership. Later, the directors of Saroja Mills terminated the managing agency of MC. MC claimed for accounts and damages against TC and the Mills.

Contentions

Respondent (MC)

Fraud was involved as TC had been purchasing shares of the Mills in the market and had acquired a controlling interest therein. Also, TC’s son was nominated to administer the affairs of the Mills.

Appellants (TC)

1. No Fraud and collusion; it was MC’s conduct which compelled TC to give notice of termination of partnership and the Mills to terminate the managing agency.(TC)
2. As the partnership does not fall under s. 8  and nor within the two exceptions under s. 7, it is a partnership at will.
3. Suit was barred under s. 69 of the Act (Saroja Mills).

Judgement

Trial Court (favoured TC)

(1)  The firm was a partnership at will and therefore was legally dissolved by TC.

(2)  No case of fraud, proved; termination of the managing agency legal.

(3)  The suit against the Saroja mills was barred under s. 69 of the Act.

(4)  Directed TC to account for the profits earned from the inception to termination of the partnership to MC.

High Court (Accepted point 3 & 4, Rejected point 1 &2, of the trial Court, favoured MC)

Supreme Court

Issues:

1. Is this partnership a partnership at will?
2. Has the managing agency been terminated legally?
3. Was there any fraud on the part of TC?

Held (WANCHOO, J.)

1. (w.r.t 1^st issue and TC’s 2^nd contention) As per the terms of the partnership agreement the management rotated once in four years. From the agreement it was evident that the intention could not be to create a partnership at will. The intention was to have a partnership of some duration, though the duration was not expressly fixed in the agreement. The contract disclosed a partnership, the determination of which was implied, namely, the termination of the managing agency and, therefore, under s. 7 of the Act it is not a partnership at will. Therefore Partnership could not be brought to an end by notice by either partner. 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.
2. 2.     (w.r.t 2^nd issue)The relations between the partners were very sour and strained owing to countless litigation between them. The work of the Mills was also suffering and was likely to suffer in future. The firm had come to an end and had lost its right of management. In such circumstances any prudent person or company would have acted in the same way. Therefore the managing agency had been terminated legally.
3. (w.r.t 1^st contention of MC&TC and 3^rd issue) There was no agreement between the partners that either of them would not purchase shares of the Mills in open market. The appellant had two capacities: one, as a partner and two, as a large shareholder of the Mills, and so it was his interest to see that the Mills didn’t suffer. 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.

• Allowed TC’s appeal in part with MC paying the costs of Saroja Mills throughout.