TMI Blog1958 (10) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment to I appellant will, thus, include the interest of the other non-appealing defendants also. The relevant facts of this case, upon which the appeal depends, may shortly be stated as follows: The contesting parties used to carry on the business of salt manufacture in accordance with the rules laid down by the Government under the Madras Salt Act (Mad. 4 of 1889) (which will, hereinafter, be referred to as the Act). It is not permissible to manufacture salt otherwise than tinder the provisions of the Act. The land and the factory where salt used to be manufactured by the parties, are Government property. It appears that the first plaintiff, the father of plaintiffs 2 to 4, plaintiff 5, the first defendant and the deceased father of defendants 2 to 7, had made bids for the lease of the land and the factory, and the highest bid of the defendants aforesaid, was accepted; and in pursuance thereof, a lease for 17 years from January 1926, to December, 1942, was granted by the Government in favour of the first defendant and the father of defendants 2 to 7. By a deed of partnership dated March 18, 1926, the first plaintiff with a two-anna share, the father of plaintiffs 2 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at the end of the month, the partners should settle their accounts, and make arrangements for the disposal of the unsold stock of 82102 maunds of salt. The reply to the notice was given on December 28, 1942, through an advocate, alleging inter alia that the application for the renewal of the lease for a period of 25 years had been made on behalf and with the consent of all the partners, and that, thus, the partnership business was agreed to be continued even after the expiry of the term of the previous partnership. The answer further attributed fraud and evil intention to the other party. The answer also called upon the defendants to pay a penalty of ₹ 2,500 per head, and to hand over the entire partnership lease property to the plaintiffs party. Thus, the exchange of the notices aforesaid was a prelude to the institution of the suit on January 5, 1943, that is to say, even before the fresh lease had been executed by the Government in favour of the contesting defendants 1 to 7. The suit was instituted on the footing that the original partnership continued even after December, 1942, inasmuch as the fresh lease had been obtained in pursuance of a unanimous resolution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name, which(, could be said to have any tangible goodwill, and that the defendants could not be restrained from carrying on the business in their own names as they had been doing in the past. After expressing a doubt as to whether there was any goodwill of a particular firm name, the court directed that the Commissioner is authorized to sell the goodwill of the old firm for what it is worth by way of realization of the assets of the dissolved firm as amongst the partners. In effect, therefore, the trial court decided that the plaintiffs were not entitled to the benefit of the new lease. On appeal to the High Court, the learned Chief Justice, delivering the judgment of the Division Bench, came to the conclusion that the plaintiffs case that the fresh lease had been obtained as a result of the resolution of the partners to carry on the business after the lapse of the specific period of the partnership which came to an end in December 1942, had not been made out. But on the alternative plea of the plaintiffs, the Court, after an elaborate discussion of English and Indian Law on the subject, held that the plaintiffs were entitled to treat the new lease as an asset of the dissolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that the renewal of a lease which formed the subject matter of a partnership, will enure for the benefit of the partners, but he contended that in the circumstances of this case, such a presumption could not arise, and even if it did, it was rebutted by the following facts. The term of the original partnership was a fixed one, terminating with the term of the lease and of the licence to manufacture salt, which came to an end with the year 1942; the partnership-deed did not contemplate that this business would be extended beyond the fixed term in the event of a fresh lease being obtained from the Government. It was highly significant that the term of the partnership to carry on the salt business was deliberately fixed as conterminous with the terms of the lease and the licence. The plaintiffs never took any steps to obtain a renewal of the lease, nor was there any evidence that they asked the defendants to take a renewal for the benefit of all the partners. On the other hand, when the defendants applied on their own behalf for a fresh lease for 25 years, the plaintiffs put in a petition of protest, and prayed to the Government for being included in the category of lessees in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he defendants were constructive trustees, had not been rebutted. Before dealing with the arguments advanced on be. half of the parties, it is convenient to set out, in brief outline, the system of working salt factories under the Act (Mad. 4 of 1889), which was enacted to consolidate and amend the law relating to the salt revenue in the Presidency . Under the Act, a salt factory includes any place used or intended to be used for the manufacture of salt or for the storage or keeping of the same, as defined from time to time by the Collector of salt revenue. Licensee , under the Act, means a person to whom a licence to manufacture salt or saltpeter, is issued, and includes any person registered as the transferee of such licence under the provisions of the Act. Under s. 8, only licensees or public servants under the Central Government, are authorized to manufacture salt. Section 9 of the Act, authorizes the Collector of saltrevenue to grant licences for the manufacture of salt in respect of specified salt works, containing such particulars and conditions as the Central Government may prescribe from time to time. Such a licence may be for the manufacture of salt for sale t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e record as ex. P-16 at pp. 101 to 105, is an indenture between the Secretary of State for India in Council as the lessor, and the first defendant and the father of defendants 2 to 7, as the lessees. The consideration for -the lease is the sum of ₹ 25,000/-. The lease is for a period of 17 years from January 1, 1926, subject to either party having the right to determine the lease by a notice in writing at the close of the salt manufacturing season. It provides that on the expiry of the lease or its sooner determination as aforesaid by notice on either side, the lessees shall leave the demised premises which had been leased out exclusively for the manufacture, storage and sale of salt and for the works connected therewith, without any right to erect any dwelling houses, etc. It also provides that the lessees shall be granted a modified excise licence in Form E-1(d). It also contains the condition that the lessees shall not, except with the written consent of the lessor, first had and obtained, assign, underlet, or part with the possession of the leased land or any portion thereof. The lessees may take a partner or partners, who may be approved by the Collector in the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations may have arisen. It could then have justly been said that the managing partner owed a duty to the other partners to obtain a renewal of the previous lease. It is, therefore, not without significance that in para. 12 of the plaint, the plaintiffs specifically alleged that it had been unanimously resolved by the partners that a renewal of the lease should be obtained for a further period for the benefit of the partnership, and that as a matter of fact, the renewal was obtained in pursuance of that resolution and by using the goodwill of the partnership. This specific case has failed in both the courts below, but the High Court, in disagreement with the trial court, has accepted the alternative case as made out, in para. 17 of the plaint, that the renewal of the lease should be treated as an asset of the partnership in ,settling the accounts and dividing the assets of the dissolved partnership. But even in para. 17, there is no specific case made out under s. 88 of the Indian Trusts Act (II of 1882). It is not alleged, in terms, that the contesting defendants filled a fiduciary character, and were, thus, bound to protect the interest.% of all the partners in obtaining the rene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... highest bidder irrespective of any other considerations as to whether any one of the bidders war, a previous lessee. The renewal of the lease without payment of any premium, was the result of the changed policy of the Government, according to which the personal conduct of the lessees, and not the amount of premium, was the determining factor in the grant of a fresh lease. Because the contesting defendants bad managed the factory well and to the satisfaction of the Revenue Authorities, they were able to obtain the fresh lease, and it cannot be said that they had availed themselves of their character as partners in obtaining the renewal of the lease. The plaintiffs allegation that the goodwill of the firm had been utilized for obtaining the renewal, has also not been found by the courts below to be true, because the basic allegation that there was a partnership firm with a goodwill, had not been established as a fact. In our opinion, therefore, the plaintiffs have failed to bring the case within the first part of s. 88. We shall now examine the position whether the plaintiffs have made out a case in terms of the second part of the section. In order to do so, it bad to be shown t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confidence between them. The had already started quarreling and attributing unworthy motives. There is, therefore, hardly any room for importing the idea of such confidence amongst partners as would render the contesting(, defendants occupying a fiduciary position, apart from the fact that they were partners. As already indicated, the partnership stood automatically terminated at the end of the year 1942. The actual grant of the lease in question was made in April 1943, and the permanent licence to manufacture and sell salt, was granted only in 1945. Hence, strictly speaking, when the suit was instituted in January, 1943, legally, there was no lease in existence, nor could the business of manufacture and sale of salt be effectively carried on until the grant of the permanent licence. The plaintiffs could have a cause of action in respect of the renewed lease if their substantive case of continuing partnership had been established. But that case having failed, it is a little difficult to appreciate how they could claim any interest in the renewed lease as an asset of the partnership business. The fiduciary character as between the partners had ceased on the termination of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On a close examination of the English precedents aforesaid, it will be found that there is no absolute rule of law or equity that a renewal of a lease by one partner, must necessarily enure for the benefit of all the partners. There is a presumption of fact, as distinguished from a presumption of law, that there is an equity in favour of the renewal of the lease enuring for the benefit of all the partners. But such a presumption being one of fact, is rebuttable, and must, therefore, depend upon the facts and circumstances of each case. The Indian Legislature has substantially adopted the English law quoted above, while enacting the rules laid down in the Indian Trusts Act, particularly, ss. 88 and 90 of the Trusts Act. In the instant case, the facts that. the parties deliberately chose to fix the term of the partnership as conterminous with the term of the lease and licence ending with the year 1942; that they did not, in express terms, or by necessary implication, make any provision for extending the period of the partnership or for obtaining renewal of the lease and the necessary licence; that there was no averment or proof of any clandestine acts on the part of the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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