9911796707
TMI Blog2004 (2) TMI 362X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm consisted of manufacture and sale of various aluminum and steel products, and the factory is located in the premises at 83/258A, Juhi Khurd, Kanpur. True copy of the partnership deed is at page 46 of the paper book in this case being Annexure 1 to the affidavit in support of the stay application. Clause 18 of the partnership deed states: "That all disputes and questions in connection with the partnership or interpretation of this deed arising between the partners or between any one of them and the legal representative of the other or between their respective legal representatives and whether during the continuation of or after the termination of this partnership shall be referred to sole arbitrator Sri Dataram Parolia, 44, Burtolla Street, Calcutta according to the provisions of the Arbitration Act in force and his decision shall be binding on all concerned." The partnership was initially constituted in 1965 and it was reconstituted thrice but the present three partners were partners of the firm throughout. The last reconstitution of the firm was in the year 1982 with only the present three partners. Thus it is evident that the firm has been functioning for almost 40 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed itself contemplates that the partners may agree that any one of them can alone operate the firm's bank account. At any event it is evident from the application dated 17-11-2003 in F.A.F.O. No. 1059 of 2003 and paragraph 10 of the counter affidavit in this case that clause 11 of the partnership deed was impliedly varied by the consent of the partners at least for the last 18 years and this was quite valid as an agreement can be varied by a course of dealing. Section 11 of the Partnership Act 1932 states: "Such contract may be varied by consent of all the partners, and such consent may be expressed or may be implied by a course of dealing. [Emphasis supplied] 6. In the present case it appears to us that variation has been done by implication as well as by the course of dealing between the parties, and the partners had by their conduct agreed that appellant No. 2 alone will operate the bank account. This variation has not been re-varied and is existing till today. 7. In this connection it has been alleged in paragraph 12 of the affidavit in support of the stay application in this appeal that at all points of time all cheques have been deposited and drawn in the aforesaid S.B.I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keep the account since April 2003 in abeyance pending negotiations for purchase of their shares by appellant No. 2. 8. Subsequently on 22/23-9-2003 the respondent No. 2 alongwith one Chandra Kishore Thakur, clerk in the firm, on the excuse of Durga Pooja without any information or permission of appellant No. 2 and behind his back attempted to hold a public meeting within the factory premises and for that purpose purported to seek permission for this purpose. True copy of the application of Chandra Kishore Thakur dated 22-9-2004 to the Addl. City Magistrate, Kanpur Nagar seeking permission to hold a public meeting on the occasion of Durga Pooja in the factory premises and true copy of the application of respondents No. 1 to the same effect is Annexure 3 to the affidavit in support of the stay application. It is alleged in paragraph 16 of the affidavit in support of the stay application in this appeal that this was done behind the back of the appellant No. 2 and had never been done in the 40 years of the firm's existence. The whole intention of the respondents appeared to be to oust the appellant No. 2 and grab the premises with the help of anti-social elements. It may be mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idavit that the aforementioned unilateral action of the respondents 1 and 2 to send the said letter to the bank and asking the bank to stop payment of the firm's bank account was an act of extreme high-handedness and in breach of trust and mala fide. It betrays irresponsible and reckless behaviour on the part of respondents 1 and 2 and was in breach of the terms of the conditions of the partnership deed and the Partnership Act. This act was extremely prejudicial and virtually fatal to the business of the firm because without operation of the bank account no business can run. As already stated, on 6-10-2003 the appellant No. 2 received a letter dated 1-10-2003 from the respondent through an Advocate making allegation that appellant No. 2 had not furnished the statement of accounts and stocks since April 2003 and suggesting that manufacturing activities in the factory should be kept in abeyance so that they may be able to take the accounts. For this they also demanded that their husbands be allowed to stay at the factory premises, Maruti Zen car No. 5699 be provided to them and one Chandra Kishore Thakur whom they described as Chief Administrative Officer of the firm (who was really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indifferent to the welfare of the business and exhibited total disregard for the losses that may be caused to the firm. 14. Learned counsel for the appellant, Sri S.P. Gupta, submitted that the agreement and business among the partners as per the partnership deed was continuing intact and therefore all the partners both contractually and legally stood mutually bound to each other and committed to the welfare of the partnership firm vide section 9 of the Partnership Act which states: "General duties of partners.-'Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.'" Learned counsel for the appellants submitted that the respondents 1 and 2 committed breach of the partnership deed, by their high-handed action of getting the payments from the firm's bank account stopped. The said act of the respondents 1 and 2 amounts to stabbing the appellant No. 2 in the back inasmuch as the appellant No. 2 is the managing partner and is accountable to all the purchasers, labour, workmen and gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se dues were again required to be paid for November 2003 and thereafter. 18. Under the labour laws the wages have to be paid by 7th and 22nd of every month. During the month of October 2003 the payment of wages was arranged and made by appellant No. 2 from his personal resources but once again during November 2003 wages fell due on 7th November and needed to be paid by the firm. True copy of the wage sheet is Annexure 13. 19. Similarly, electricity dues have to be paid every month as stated in paragraph 32 of the affidavit. The appellant No. 2 paid electricity bill for consumption of September 2003 from his personal resources and account only to prevent disconnection of electricity and total paralysis of the business. However, for consumption of electricity in October 2003 a bill dated 4-11-2003 was received from the Kanpur Electricity Supply Company Limited and fresh bills thereafter have also been received vide Annexure 14. Similarly, telephone bills have to be paid, copy of which is Annexure 15. For manufacturing process for products to be supplied to the Defence Forces, various raw materials have to be purchased and for this immediate funds are required otherwise if the suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 151 C.P.C. for interim relief. This appeal was disposed off by this Court by order dated 13-11-2003 vide Annexure 20 to the affidavit. On 13-11-2003 the High Court granted some relief but relegated the parties to the District Judge for final disposal of the application under section 9 of the Arbitration Act and pre-poned the date of hearing before the District Judge from 13-1-2004 to 20-12-2004. It may be mentioned that the arbitrator mentioned in the arbitration clause, Sri Data Ram Parolia, had died and hence the appellant No. 2 on 9-11-2003 sent a notice to the respondents 1 and 2 and to the advocates for appointment of another arbitrator vide Annexure 19 to the affidavit. Respondents 1 and 2 did not reply to this letter also. 21. On 17-11-2003 Sri B.N. Parolia, husband of respondent No. 2, withdrew the long standing security from the bank as a result of which the bank cash credit (overdraft) facility of the firm was terminated. True copy of the letter of Sri B.N. Parolia dated 17-11-2003 and the bank's letter dated 18-11-2003 are Annexure 21 to the affidavit. On 22-11-2003 the appellant No. 2 received a telegram from respondent No. 2 purporting to withdraw the General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may mention that the view of the learned District Judge is only on the aforesaid preliminary objection filed by the respondents 1 and 2. The respondents did not file any reply to the application under section 9 on merits. On the due date viz. 20-12-2002 the respondents did not even appear nor did their counsel appear although they were fully aware of the date. 27. The appellant No. 2 was heard through his counsel by the District Judge on 20-12-2003 and on 22-12-2003 the impugned order was passed. From the facts it is evident that the whole game of the respondents 1 and 2 was to create a problem for the firm. Their whole object obviously was to extract an exaggerated price for their shares in the firm by putting pressure and resorting to obstructionist and arm twisting tactics which to our mind almost amounted to black-mail. Respondents 1 and 2 were residing in Calcutta and were not contributing anything to the operations of the firm. As already stated above, they appear only to be like absentee landlords desirous of extracting as much money as possible from the firm, without contributing anything to it. They hardly appeared to be interested in the welfare of the firm since they w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2) and actually behind his back. It is hence ex facie in the teeth of the legal and statutory duty of every partner under section 9 to be 'just and faithful' to the other partner and under section 12(c) of the Partnership Act to allow the other partner to 'exercise his right to express his opinion before the matter is decided.' (b)Such action was taken in a wholly reckless and irresponsible manner resulting in ruination of the running business of the firm and its susceptibility to huge losses, penalties, damages etc. It was ex facie in the teeth of the legal and statutory duty of every partner under section 9 of the Partnership Act to act only to the 'greatest common advantage' of the firm and all its partners and not to their detriment. (c)Such action is contrary to the consensually conferred rights of appellant No. 2 to act as the Managing Partner and operate singly by himself the bank account of the firm, which right remained unaltered and protected under section 11 of the Partnership Act. (d)Above all, such action was destructive of the relations and contracts entered into by appellant No. 2, Managing Partner, as an agent of the firm with third parties which are binding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court below has unduly got carried away even in the absence of any case on merits being put before it by the respondents. In our opinion the court below has failed to exercise its discretion reasonably and legally by not granting interim relief against the respondents. It has failed to appreciate that while, on the one hand, the agreement and business among the partners as per the partnership deed is continuing intact and, therefore, all partners, both contractually and legally, stand still mutually bound to one another and committed to the welfare of the partnership concern, on the other hand, respondents 1 and 2 are continuing to commit breach of the partnership deed and agreement by their wholly reckless, irresponsible, high-handed and non-cooperative acts, including the act of getting the payments from the bank account stopped. In our opinion the said act of the respondents 1 and 2 amounts to stabbing the appellant No. 2 in the back inasmuch as he is the managing partner and is accountable to all the purchasers as well as labour and workmen and the different government departments for the due delivery of products and payments of salaries, dues, taxes, etc. Knowing this ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. For instance, if in a common partnership, the parties agree, that no one of them shall draw or accept a bill of exchange in his own name without the concurrence of all the others, yet if they afterwards slide into a habit of permitting one of them to draw or accept bills, without the concurrence of the others, this court will hold that they have varied the terms of the original agreement in that respect. So, in this case, if it can be shown that in the administration of this property the proprietors in general, after 1812, pursued a different course from that provided for by the deed of March, 1812, they must be taken to have altered the agreement and to have substituted the terms to which in their conduct they have adhered instead of the terms contained in the original agreement." [Emphasis supplied] The above decision of the house of Lords squarely applied to the facts of the present case, and we respectfully agree with the view taken thereon. From the above observation of the House of Lords it is evident that under the law of partnership the partners can vary the agreement by their conduct and course of dealing (which is also stated in section 11 of the Partnership Act). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has been followed in Abbott v. Treasury Solicitor [1969] 1 W.L.R. 1575. The aforesaid decision in Const's case (supra) has been cited with approval by Pollock & Mulla on the Indian Partnership Act (Sixth Edition). In the aforesaid book Pollock & Mulla said: "A majority cannot bind a minority without notice to them and without giving them the opportunity to express their opinion. If this were not so, it would practically put the entire management in the hands of a high-handed majority, and would set the rule at naught that every partner has a right to take part in the conduct of business." 35. This view has been followed in Highley v. Walker [1990] 26 T.L.R. 685. Pollock & Mulla have further stated that the majority decision must be made in good faith with a view to the common advantage of the whole body. In the present case the majority (respondents 1 and 2) does not appear to have made a decision in good faith for common advantage of the firm, rather it was highly detrimental to the interest of the firm. Hence in our opinion it was not binding on the firm or appellant No. 2. 36. In Lindley on Partnership 15th Edition the same view has been reiterated and it has been observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause their whole intention appears to be to extract an exaggerated price for their shares from appellant No. 2, totally oblivious to the damage they are doing to the firm. (3) They have not acted for the welfare of the firm but rather their acts have caused great damage to the firm. They have not bothered about how the wages of the labour is to paid, how electricity and telephone bills are to be paid, how taxes are to be paid, etc. They have not cared about how the contracts of the firm could be complied with and what damage there will be to the goodwill of the firm if such contracts are not fulfilled. They have not bothered to see that by their own reckless and irresponsible conduct the defence contracts obtained from the Government of India and others can be cancelled and the firm will not be able to furnish bank guarantees for keeping the contracts alive, and the consequence of cancellation of such orders would be penalties, damages etc. apart from the permanent damage to the goodwill of the firm. Their whole approach was mala fide, irresponsible and greedy. 40. It may be mentioned that section 12(c) of the Partnership Act states: "(c)Any difference arising as to ordinary m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate for the respondents 1 and 2 submitted that there was no arbitrable dispute between the parties. We do not agree. If there was no arbitrable dispute why did the respondents 1 and 2 get the operation of the firm's bank account stopped, which practically resulted in suspending the business? Why did the respondents by their further conduct obstruct the business? This argument of learned counsel for the respondents has only to be stated to be rejected. Not only did the respondents get the firm's bank account stopped, they further tried to get Dugra Puja started on the factory premises, their aim apparently being to grab the property with the help of anti-social elements. Their demand for accounts appears to be with an arm twisting and blackmailing design. In fact appellant No. 2 had explained the withdrawals from the account to the respondents. Shri Ravi Kant has relied on the decision of the Supreme Court in P.K. Ramaiah & Co. v. Chairman & Managing Director, National Thermal Power Corpn. 1994 Suppl. (3) SCC 126. In that case there was a voluntary and unconditional written acceptance of payment in full and final settlement of the contract. It was held that subsequent claim f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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