TMI Blog1969 (12) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... lakh. The rights of both the parties would be equal and both the parties would have jointly and severally the rights of becoming manager, chairman, secretary, treasurer, etc. These rights would be exercised half and half by both the parties and they would be entitled to get the income in equal shares in respect of all the commissions, salary or any other kind of income. According to the terms of the memorandum and articles of association the rights of the chairman and managing director would jointly be exercised by Seth Guman Mal, proprietor of the firm Kamal Nayan Hamir Singh, and Kunwar Ram Swarup. After the registration of the memorandum and the articles of association in the first general meeting, Guman Mal, proprietor of the firm Kamal Nayan Hamir Singh, would discharge the duties of the chairman and would continue to do so for the full term of three years. During this period, Ram Swarup would continue to act as managing director. Thereafter, Seth Guman Mal would hold the office of the managing director and Ram Swarup would act as chairman and that procedure would be followed in future. The work and the rights of the secretary, treasurer and agent would be joint and would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 75 lays down that Seth Guman Mal and Ram Swarup or their heirs, executors, etc., would be the chairman and managing director of the company and would not be required to vacate the office until they resigned of their own accord. They would get Rs. 250 per month from the date of the commencement of the business till the date the machinery started working. Thereafter, they would get 16% on the net profits of the company as their commission. The defendant No. 1 company's business was carried on in the manner as set out above and both Seth Guman Mal and Ram Swarup obtained commission at the rate of 16% on the net profits of the company. The commission was credited in the name of the firm, Kamal Nayan Hamir Singh and Champalal Ram Swarup. Seth Guman Mal died on November 11, 1914. Thereafter, the members of the firm Kamal Nayan Hamir Singh nominated Seth Gadh Mal Lodha as their representative and by their letter, dated May 4, 1915, they informed the directors of the company accordingly. The company by its extraordinary general meeting held on July 23, 1915, passed a special resolution which was confirmed in the next meeting, held on August 16, 1916, appointing Seth Gadh Mal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing as managing agent, chairman and director, but that application was disallowed on May 8, 1942. On May 15, 1942, the Judicial Commissioner, Ajmer, granted an interim stay of the order of the district judge and further directed that the resolution of the extraordinary general meeting, dated February 8, 1942, electing Seth Motilal, was to be acted upon until further orders. On June 3, 1942, that order was made absolute and since then Motilal, defendant No. 2, acted as the managing director, etc., of the company. Seth Kanmal, one of the proprietors of the firm, Kamal Nayan Hamir Singh and father of the plaintiffs Nos. 8 and 9, filed Suit No. 867A/1934 for partition of the joint family property in the Calcutta High Court. By an order dated April 1, 1935, Seth Gadh Mal was appointed a receiver of the estate and joint properties including the joint business with power to carry on the existing joint business. On his death Seth Sobhag Mal, plaintiff No. 1, was appointed in his place by an order, dated January 16, 1942. Thereafter, Seth Sobhag Mal Lodha filed the present suit with the leave of the Calcutta High Court. The plaintiffs Nos. 2 to 9 and the defendants Nos. 4 to 6 are the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner on May 15, 1942, and June 3, 1942, were without jurisdiction, null and void and were not binding upon the plaintiffs and the defendants Nos. 3 to 6. On April 1, 1942, the adult members of the firm, Kamal Nayan Hamir Singh, sent a letter to the directors of the company, informing them that they had nominated Seth Sobhag Mal as their representative in place of Seth Gadh Mal with the same rights and privileges. The board of directors in a meeting held on April 18, 1942, passed a resolution appointing Seth Sobhag Mal Lodha as secretary, treasurer, agent, managing director, etc., of the Edward Mills Company Ltd., Beawar. Despite the above resolution, defendant No. 2, Motilal, was wrongfully in the sole management and possession of the said company, and was not permitting the plaintiff's representatives to participate in the management of the company. The firm, Kamal Nayan Hamir Singh, received payment of half the commission from defendant No. 1 up to December 13, 1939, and the plaintiffs and the defendants Nos. 3 to 6 were entitled to Rs. 23,061, as their share in the commission for the years 1940 and 1941. They are further entitled to commission from January 1, 1941, up to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs of the 1st defendant-company to Seth Sobhag Mal Lodha on behalf of the plaintiffs' said family firm in accordance with the memorandum and articles of association of the defendant-company. ( e )That the defendants or such of them as may be held liable may be ordered to pay to the plaintiffs and defendants Nos. 3 and 4 Rs. 3,73,061, the commission on net profits up to the date of the suit. ( f )That in the alternative the defendant-company may be ordered to pay to the plaintiffs on behalf of the plaintiffs' said family firm damages to the tune of Rs. 5 lakhs for wrongful dismissal and exclusion of the plaintiffs' nominee from the management and control of the 1st defendant. ( g )That the defendants Nos. 1 and 2 or one or more of them may be ordered to pay the plaintiffs costs of the suit. ( h )That such further and other reliefs as the circumstances of the case may require may be granted to such of the plaintiffs and in such capacity as may be found to be entitled thereto against such of the defendants as may be held liable. The defendants Nos. 1 to 3 contested the suit. Defence of the defendants Nos. 1 and 2 are substantially the same. According to them, Seth Guman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not operate in law to create any agreement or contract between the company and the persons named therein and was, therefore, not binding upon the company. There was no privity of contract between the plaintiffs and the defendants Nos. 3 to 6 on the one hand and defendant-company on the other and, therefore, the suit for appointment of plaintiff No. 1 as also for the recovery of the damages was not maintainable. The suit was barred by section 69 of the Indian Partnership Act, 1932, as the firm, Kamal Nayan Hamir Singh, was a partnership firm and not a joint Hindu family firm and it could not have filed a suit without registration. Defendant No. 2 also pleaded that the plaintiffs had not come with clean hands as they themselves were guilty of repeated breaches of the contract. On more than one occasion they transferred shares to others in contravention of term No. 5 of the agreement dated July 6, 1906. Seth Gadh Mal on the annulment of the attachment order did not take the answering defendant No. 2 in the joint management of the company in contravention of the clause 1 of the agreement and deprived him of his due shares of the managing agency commission for the years 1937 and 1938 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Guman Mal was accepted by the resolution, dated July 3, 1915, and July 23, 1915. Though half the commission was credited to the firm, Kamal Nayan Hamir Singh, it would not amount to any implied agreement entitling the firm to take part in the management of the company. 5.That there was no rowdyism or disorder in the general meeting of the company, held on February 8, 1942, so as to result in a breach of the peace and that the shareholders were entitled to elect the chairman. Seth Sobhag Mal was not justified in asserting his right to preside over the meeting as he himself was a candidate for the office of the chairman, etc. The meeting of the shareholders, dated February 8, 1942, therefore, was proper and justified, appointing defendant No. 2 as chairman and managing director. 6.That the plaintiffs are not entitled to be associated with defendant No. 2 as agents, etc. 7.That with the institution of the suit for partition in the Calcutta High Court by Seth Kan Mal the status of the joint family, even if it was joint, was changed and thereafter as the business was carried on jointly, the firm became an ordinary partnership concern subject to the Indian Partner ship Act. As the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove of the appointment of defendant No. 2. (2)That section 69 of the Partnership Act, 1932, does not apply to the case and that even if it is applicable, the plaintiffs' case fell within the exception provided by sub-section (3). (3)That there was an implied agreement between the plaintiff and the defendant-company, as the latter ratified or acted upon the terms of the agreement, dated July 6, 1906, arrived at between the nominees of the two firms, Kamal Nayan Hamir Singh of Ajmer and Champalal Ram Swarup of Beawar. (4)That the plaintiffs-appellants and the defendants Nos. 3 to 6 are entitled for the years 1940 and 1941 to the moiety of commission of a sum of Rs. 23,061 having not been contested by the defendants Nos. 1 and 2 and having been wrongly rejected by the trial court. We may now take up the first point pressed on behalf of the appellants. Learned counsel for the appellants has argued that by virtue of the agreement of July 6, 1906, Seth Guman Mal was appointed as chairman. After his death on November 11, 1914, Gadh Mal was appointed to the office on July 23, 1915, and that appointment was duly confirmed by the company in its extraordinary general meeting, held o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the parties as remuneration for their services from the date of commencement of the business up to the date of the actual starting of the work. Thereafter they were to get 16% of the net profits of the earnings of the company as their commission. This commission was divisible between the two parties half and half. Guman Mal and Ram Swarup took over the management after the company began to function. Guman Mal died on November 11, 1914 (vide paragraph 9 of the plaint). After his death, a letter was written on May 4, 1915, by the family members of the firm, Kamal Nayan Hamir Singh of Ajmer, nominating Gadh Mal in place of the deceased. This communication was put up before the meeting of the company. The company made the appointment of Gadh Mal on July 23, 1915. That appointment was confirmed by the company at its extraordinary general meeting held on August 16, 1915 (vide paragraph 11 of the plaint). Thus, after the death of Guman Mal, Gadh Mal stepped into the shoes of the original promoter and the company clothed him with all the rights and the powers as contained in clause VI of the memorandum of association and articles 60 and 75 of the articles of association. Ram Swarup die ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manently appointed chairman of the company was also to be the chairman in the meetings of the board of directors and in his absence the managing director would preside. In the absence of both of them, the directors present would elect a chairman from amongst themselves for the said meeting. Article 49 provides that the chairman would preside over every general meeting and in his absence the managing director would preside. In the absence of both of them one of the directors present would be elected as the chairman for the time being and in the absence of the directors or if the director present declined to preside over the meeting, the shareholders present would choose one of their own members as the chairman of the meeting. According to these provisions the only person who had a right to preside was the permanent chairman and in his absence the managing director. From a perusal of the notice referred to above, it is clear that Sobhag Mal was not the permanent chairman. He had, therefore, no right to preside over the meeting. The right to appoint the chairman vested in the shareholders. Sobhag Mal Lodha, by virtue of his temporary appointment, insisted that he had the sole righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the chairman adjourns a meeting contrary to the wishes of the members present and thereby interrupts or leaves unfinished the business for which the meeting was summoned, the remaining members can lawfully continue the business; and in the absence of their proper chairman it is open to them to elect another chairman to act as his substitute and continue the business and any business which was duly notified in the notice for the meeting could be transacted to completion, and if it is so transacted it would be valid." Similar views were expressed in Stoughton v. Reynolds [1736] 2 Stragge 1044, in Nation Dwelling Society v. Sykes [1894] 3 Ch. 159 (Ch. D.) and in Catesby v. Burnett quoted supra. In the last case there was much opposition in the meeting. There was considerable uproar when the chairman declared the auditors elected and he declared the business to be closed and left the chair and the hall. The remaining members continued the business and elected Catesby to the chair and some new directors were also elected. The question arose, whether the proceedings after the chairman had vacated the chair and dissolved the meeting were valid. It was held that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meeting. He also does not recollect the agenda of the meeting held on February 8, 1942. He cannot recall the names of those who were participating in the discussion on behalf of the Beawar firm. The other witness on the point is Narain Das Mohta, P.W. 5. He says that the supporters of Motilal began to say in the meeting that Seth Sobhag Mal should not occupy the chair and that the meeting should elect its own chairman. He further says that it was not possible to continue the meeting. In the cross-examination he admits that Sobhag Mal's sister's daughter was married to his son. The witness in the cross-examination admits that he was sitting at a distance of 5 or 6 feet from Seth Sobhag Mal and that the members appeared to be gentlemen. He then says that he inferred that there might be violence. He also admits that he did not sit in the meeting continuously and that he came out of the meeting after 5 or 7 minutes. From the nature of the above evidence, given by the plaintiff's witnesses, it is not made out satisfactorily that the meeting was rough and that the rowdy elements continuously interrupted it. Defendant's witness, Shirdhar Lal, says that no shareholder obstructed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case the notice, annexure "D", dated January 22, 1942, contained that the directors appointed Seth Sobhag Mal Lodha in place of late Rai Bahadur Seth Gadh Mal Lodha till such time the appointment was duly made. It further incorporated that an extraordinary general meeting would be held at the registered office of the company at Beawar, on February 8, 1942, for making the above appointment. The notice suggested that the meeting was called for the appointment of the chairman, managing director, etc. The directors could not have bound the company to appoint only the person nominated by the directors and fettered its discretion. It was within the discretion of the shareholders to make appointment of a person of their choice for the above post. In substance, the notice was for the appointment of chairman, managing director, etc., and the shareholders considered the suggestion of the directors and made an appointment of defendant No. 2, Moti Lal. Under the circumstances, it cannot be said that the shareholders travelled beyond the agenda fixed for holding the meeting. There was nothing wrong if the shareholders reduced the emoluments of the managing directors, etc., while making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firm. Paragraph 34 of the plaint provides that Seth Sobhag Mal is competent to file the suit on behalf of the firm, Kamal Nayan Hamir Singh, and that with a view to avoid all future disputes and complications all the members of the firm have been impleaded as parties to the suit. It is also stated in paragraph 33 of the plaint that Kan Mal Lodha, father of the plaintiffs Nos. 8 and 9, filed a suit No. 867A of 1934 for partition in the Calcutta High Court and the late Seth Gadh Mal Lodha was appointed receiver of the assets and business of the said firm by an order dated February 20, 1935. On his death, the plaintiff, Sobhag Mal, was appointed receiver in his place by the High Court, vide its order dated January 13, 1942, a copy of which is marked exhibit 1. The agreement, dated July 6, 1906, incorporates that Seth Guman Mal, proprietor of the firm, Kamal Nayan Hamir Singh, Ajmer, and Ram Swarup of the firm Rai Bahadur Seth Champalal Ram Swarup of Beawar, representing the two firms, agreed to start a mill at Beawar. Clause VI of the memorandum of association provides that Seth Guman Mal, proprietor of the firm, Kamal Nayan Hamir Singh of Ajmer, and Ram Swarup, son of Rai Bahadur Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the register of firms as a partner in the firm. (2)No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the register of firms as partners in the firm. (3)The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a con tract, but shall not affect, ( a )the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the pro perty of a dissolved firm, or ( b )the powers of an official assignee, receiver or court under the Presidency Towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner. (4)This section shall not apply ( a )to firms or to partners in firms which have no place of business in the (State) or whose places of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the court, observed that partition may ordinarily be effected by institution of a suit, by submitting the dispute as to the division of the properties to arbitrators, by a demand for a share in the properties or by conduct which evidences an intention to sever the joint family ; it may also be effected by agreement to divide the property. His Lordship has further pointed out that merely because one member of the family severs his relation, there is no presumption that there is severance between the other members. In Baij Nath Prasad v. Ram Gopal Lachhmi Narayan AIR 1939 Cal. 92, a Division Bench of the Calcutta High Court comprising Costello, Actg. C.J. and McNair J., considered the point in issue and observed that the institution of a suit for partition by a member of the joint family is an unequivocal intimation of his intention to separate and that there is consequently a severance of his joint status from the date when the suit is instituted. A decree may be necessary for working out the results of the severance and for allotting definite shares, but the status of the plaintiff as separate in estate is brought about by assertion of his right to separate, whether he obtains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arvodaya Mills Co. Ltd. v. Mohatta Bros. AIR 1969 Guj. 178 , wherein it has been held that section 69 bars a suit against a third party if it is for enforcing a right arising from a contract. Two mandatory requirements must be fulfilled before such a suit can be instituted to enforce contractual rights of the firm or on behalf of the firm. They are: (1) that the firm must be a registered firm, and (2) that the persons suing are or have been shown in the register of firms as partners of the firm. The requisite conditions will have to be treated as mandatory conditions. Unless these two conditions are fulfilled, there would be a fatal bar to the entire suit and it would be wholly incompetent in a court of law. From the above authorities it is clear that where, as here, severance of the joint family took place by the filing of a partition suit and when the family business continued to be conducted as before, a contractual partnership based upon an implied agreement came into existence and when such a partnership was formed, section 69 of the Indian Partnership Act, 1932, would govern the case and no suit could have been instituted by or on behalf of the firm without registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incorporation. It can, of course, enter into a new contract upon the same terms. In this connection a reference is made to In re Northumberland Avenue Hotel Company [1886] 33 Ch. D. 16 (CA). In that case an agreement was entered into between W on the one part and D on the other for an intended company to be incorporated. The company was registered on the following day. The memorandum of association provided that the company should carry the agreement into effect. No fresh agreement with W was signed or sealed with the company. The company took possession of the land, expended money on the building and acted on the agreement, which they considered to be binding on them. The company failed to complete the building. W took out a summons to be allowed to prove for damages against the company for the breach of the agreement. It was held that the agreement having been entered into before the company was in existence, was incapable of confirmation and that the acts of the company, having evidently been done under the erroneous belief that the agreement between W and D was binding on the company, was not evidence of a fresh agreement having been entered into between W and the company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the side opposite contended that this amount was not admitted by the defendants in their written statement, and as the plaintiffs-firm is not registered, they are not entitled to obtain a decree for the item in question. Paragraph 31 of the plaint runs as follows: "31. That the firm of Kamal Nayan Hamir Singh has received payment of the one-half of the commission from defendant No. 1 up to December 31, 1939. The plaintiffs and defendants Nos. 3 and 4 are now entitled to Rs. 23,061 on account of their moiety of the commission for the years 1940 and 1941." Paragraph 21 of the written statement filed by the defendant No. 1, Edward Mills Co. Ltd., Beawar, is in the terms set out below : "21. That paragraph 31 of the plaint is not admitted. The claim advanced is vague particularly as to how the plaintiffs and defendants Nos. 3 and 4 claimed to be entitled to any amount that may be payable to the deceased, R.B. Seth Gadh Mal Lodha. The plaintiffs have not stated as to how Rs. 23,061 claimed are made up." Paragraph 22 of the written statement filed by Motilal is as under : "22. That paragraph 31 of the plaint is not admitted. The claim advanced is vague particularly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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