TMI Blog1985 (9) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... se have been fully set out in the judgment of the Trial Court and also in the judgment of the High Court. We shall briefly indicate the facts material for the purpose of disposal of these two appeals. As the High Court disposed of both the appeals by one common judgment and the two appeals which have been preferred against the same judgment have been heard together, this judgment will dispose of both the appeals. 5. One Pandarinath Martand Sulakhe died leaving behind him his sons Viswanath, Gopal, Govind and Bhagwant and considerable properties. The properties left by him included agricultural lands, a number of houses in Barshi and three shops. Of the three shops one was a Sharafi shop at Barshi, another cloth shop at Barshi and the other a commission Agency and Sarafi shop at Bombay. Business in all these three shops was carried on in the name of P.N. Sulakhe. Of the four sons Vishwanath died in 1910 leaving behind him his son Dattatraya who happens to be the second defendant in the suit. Govind, one of the brothers who constituted a joint family after the death of their father Pandarinath Sulakhe separated from the joint family in 1914 taking his share of the family propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disputes arose between the parties soon after the commencement of the second world war. The plaintiff Bhagwant by his letter dated 15th July, 1941 addressed to the defendant No. 2 Dattatraya informed him that the remuneration received by him as the managing agent of the company on the basis of the managing agency agreement, fees received by him as the director of the company and his income from his profession as lawyer were his personal income and should be treated as such. By this letter, he made it clear that he was not prepared to throw any of these incomes into the joint family hotch-pot and he asked the defendant No. 2 Dattatraya that all these amounts should be shown as his separate income for the purposes of income tax and should be credited to his personal Khata in Sarafi shop account. Disputes and differences between the parties became more acute and the plaintiff on 8.12.1941 intimated to the defendant No. 2 Dattatraya his intention to cause severance of the joint family status. Thereafter attempts were made to divide the properties amicably between the parties without success. The plaintiff Bhagwant claimed that the remunerations paid to him by the company as managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, mainly however on the ground that the plaintiff had asked for partition only of some of the joint family properties without including in the suit various other joint family properties, particularly the shares and interest of the joint family in the, company. The defendants contended that the plaintiff was bound to include in the suit all the joint family properties which also comprised all the interests of the joint family in the company and various other immovable properties in the possession of the plaintiff. It may be noted that defendant No. 1 Gopal and the defendant No. 2 Dattatraya filed two suits in the Court of Civil Judge against the company and the plaintiff for payment of the sum of money credited to the joint family in the books of the company in accordance with the respective shares of the parties. In the suits various proceedings were taken and various orders including the appointment of the Court receiver for all the properties of the joint family were passed from time to time. It does not become necessary for us to refer to these proceedings at any length as in the present appeals these questions are no longer germane. It appears that as a result of the various p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income received by the plaintiff as managing agent and as Managing director of the company could not be considered to be the personal property of the plaintiff and they belonged to the joint family and the High Court has reversed the decision of the trial Judge on this question. On various other questions also, the High Court has held in favour of the defendants reversing the decision of the Trial Court. The correctness of the High Court judgment Is questioned by the plaintiff in the appeals. 7. The principal controversy between the parties relates to the question whether the remuneration paid to the plaintiff Bhagwant by the company as the Managing Agent and also as the Managing Director is his personal property or whether the same forms as part of the joint family property. The contention of the plaintiff-appellant Bhagwant is that the remuneration received by him for acting as Managing Agent and also as Managing Director of the company is his personal income and cannot be considered to belong to the joint family, whereas it is the case of the defendant No. 2 Dattatraya and the heirs of the Defendant No. 1 Gopal and that all such remuneration received by the plaintiff must bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have agreed to, between us all as the promoters agents of the Mills. 1. The agency firm should be named as 'Sulakhe Co.' and the agreement of this firm are Co be in force and existence for the period of 35 years from the date of registration of the said company. 2. Messers. Dattatraya, Vishwanath Sulakhe and Bhagwant Pandharinath Sulakhe should jointly contribute towards the purchase of shares of the value of Rs. 40,625(forty thousand six hundred and twenty five). Mr. Moolchand Jotiram should purchase in his name shares of a value of Rs. 25,000(twenty five thousand), Nemchand Shivram should purchase in his name shares of the value of Rs. 9375 (nine thousand three hundred seventy five) and Ganoba Andoba Gavane should purchase in his name shares of the value of Rs. 25,000(twenty five thousand) and Ramchandra Moreshwar Sane should purchase in his name share of the value of Rs. 3000(Rupees three thousand). The above named persons, or in case of their death, or if they become incapable on account of some illness or if they have been unable to purchase the said shares or have been unable to pay further installments after purchase of the said shares on account of some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir respective shares. 6. All the responsibility of all work of whatever kind to be performed by the managing agents firm such as, raising of capital of the said mill running of the mill, keeping of accounts, purchase of land, purchase of machinery, appointing and removing of servants, solicitors, auditors, banker, agents, brokers, and underwriters to keep accounts and prepare the reports of the company and do all such other as the managing agents are required to do shall be on the managing agent Mr. D.V. Sulakhe or his family. His family means the joint family of three persons viz: D.V. Sulakhe, B.P. Sulakhe and Gopal Pandharinath Sulakhe. The other partners have nothing to do with the above work and they have no right of Interfere with the power of the managing agents. The company will hold only the managing agent responsible for his faults and the other partners are not to be responsible to the company. 7. The preliminary expenses of the mill will be about Rs. 8000 (eight thousand). This amount is to be paid to the managing agent Mr. D.V. Sulakhe, by all the partners except Mr. Sane, in proportion to their respective shares. The managing agent is to return this amount of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the said amount of Rs. 400. 12. The rights of the partners in the agency firm are to pass to their respective lineal descendants or to their respective assignees after the expiration of the period of 5 years allotment. The right of a partner shall go to other persons by partition among his family or by heirship and if such persons to whom the rights of a partner in the agency firm are to pass, are more than one, they shall unanimously elect some one from among themselves for the purpose. If there is disagreement between them the board of directors shall choose some such person from among them and the person so chosen shall take interest in the agency firm. The company or the managing agents shall not take cognizance of the other sub-partners. The terms of agreement between us all are as above, and for that this agreement (in writing), is prepared and is signed by us all and a copy of this agreement i.e. a counter pare of it is delivered to each of us all. This agreement made and signed on the 3rd of the month of January in the year of 1923, and it is in the handwriting of Sarbootam Annaji Madhekar, a resident of Barshi. Sd/- Datartraya Vishwanath Sulakhe Sd/- Bhagwan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first obtaining the approval in writing of the Corporation to such transfer or assignment nor shall the Company appoint any other person or persons or firm or Company to be the Managing Agents of the company during the continuance of the said security without first obtaining the approval in writing of the Corporation to such appointment. (Amended as per Special resolution No. 2 in Extraordinary general meeting held on 18.3.1951) 2. A Commission at the rate of 10% per annum on the annual net profits of the said company after making all allowance and deductions from revenue for interest on loans and deposits and working expenses chargeable against profits without making any deductions for or in respect of interest on debentures Income Tax, Super Tax or any other tax based on profits or of any amount carried to insurance, reserve, depreciation or sinking fund or to any other special fund or in respect of any expenditure on capital amount or on the wages or remuneration which shall be payable to Bankers Auditor, Solicitors, Mukadams, Clerks, Brokers, Underwriters or any other officers or employees who may be employed by the said firm for or on behalf of the Company or for carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endent and unconnected with the firm of the Agency. 7. The commission due to the Agency shall be payable yearly immediately when the accounts are made up. 8. After deducting the amount from the commission for public purposes as stated above the remaining amount will be received by Mr. D.V. Sulakhe and his successors and divided among the members of the firm as agreed upon between them. 9. The Directors are authorised to increase the amount of remuneration or the percentage of commission on profits or to allow any bonus if they think that the profits of the concern are encouraging enough to grant an increase. Clause 9. The said clause shall remain modified to the extent that so long as any moneys due to the Corporation under the Indenture of Mortgage dated 29th day of December 1950 remain unpaid, no payments whatsoever under this clause shall be made to the Managing Agent without first obtaining the approval in writing of the Corporation to such payment. (Amended as per Special Resolution No. 2 in Extraordinary general meeting held on 18.3.1951) 10. The remuneration of the Agents' firm shall be Rs. 600 per month from the date of allotment and Rs. 1000 per mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family for acting as a Managing Agent on behalf of the firm. There will be no interference or obstruction from any other member of the Agency Firm who will have neither any voice nor control of any kind over the matters of management of the business of the company such as those enumerated above. All the responsibility with regard to such work lies solely and entirely on the said D.V. Sulakhe and his successor or successors as aforesaid. 14. The other partners of the Agency firm who have no right to take any part in the management of the Agency business or no right to interfere with such management will not be liable in any way whatsoever to the Company for any acts of commission or omission, misfeasance, malfeasance fraud, misappropriation or any other act or acts of the said D.V. Sulakhe and his successors. The company will look to and hold responsible the said D.V. Sulakhe and his successors aforesaid in respect of the management of the Agency business in all branches and in all its aspects. 15. Either D.V. Sulakhe or B.P. Sulakhe may act as Ex-officio Director and after them some person from the Sulakhe family shall be entitled to act as Ex-officio Director and he will not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors and the Board is hereby authorised to execute the said agreement on behalf of the company. 11. It has to be borne in mind that at the time when the company was incorporated and its articles were adopted and also at the time when the company entered into the managing agency agreement with Sulakhe Co. and when the deed of partnership of the firm of Sulakhe Co. was executed, the plaintiff Bhagwant and the defendant No. 2 Dattatraya were admittedly the members of the joint family and no disputed of any kind had arisen amongst the members of the joint family. It is not in dispute that 325 shares which were initially purchased in the company - 200 in the name of the defendant No. 2 Dattatraya and 125 in the name of the plaintiff Bhagwant - were paid for by the joint family out of the joint, family funds. It is also an admitted position that the entire amount of remuneration which was received, by the defendant No. 2 Dattatraya and plaintiff Bhagwant not only on account of their shares of commission under the managing agency agreement on the basis of the partnership deed but also on account of the Directors' fees paid to them and also on account of the salary paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt family assets and whatever income was earned either by the plaintiff Bhagwant or by the defendant No. 2 Dattatraya on the basis of the managing agency agreement belongs to the joint family and formed part of the joint family property. As the entire income coming in the hands of the plaintiff Bhagwant or defendant No. 2 Dattatraya on the basis of the partnership agreement and the managing agency agreement, whether on account of commission or by way of directors' fees or remuneration for acting as the managing agent, belonged to the joint family and formed part of the joint family property, the same position must necessarily continue in the eye of law so long as the partnership agreement and the managing agency agreement continued. The plaintiff by seeking to bring about a severance in the status of the joint family, cannot deprive the joint family of this property and the income derived on the basis of the managing agency agreement continues to remain the property of the joint family, so long as this joint family asset is not partitioned and otherwise continues to remain in existence. We have, therefore, no hesitation in holding that the remuneration received by the plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The position of the Managing Director is entirely different from the position of the Managing Agent on the basis of the Managing Agency Agreement between the firm of Sulakhe Co. and the company and the position of the Managing Director stands entirely on a different footing. At the time the plaintiff was appointed the Managing Director of the company on 19.10.1957 with effect from 16th January, 1957, there was complete disruption of the joint family and there was no joint family in existence. In fact at that point of time litigation between the parties was going on. By virtue of the incorporation of S. 87A in the Indian Companies Act by amendment in 1937 the duration of any Managing Agency Agreement was limited to a period of 20 years only at a time though on the expiry of the period of 20 years the Managing Agency Agreement could be renewed by virtue of the provisions contained in Sub-Section (2) of Section 87A of the Act. In view of the change brought about with regard to the duration of the Managing Agency Agreement at a time the Managing agency Agreement automatically came to an end on the expiry of the period of 20 years and though there was the provision with regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excepting Kalu Babu's case makes reference to the observations of Lord Summer in Gokal Chand's case that 'in considering whether gains are partial, there is no valid distinction between the direct use of the joint family funds and a sue which qualifies the member to make the gains by his own efforts.' We think that that principle is no more valid. The other tests enumerated are: (1) Whether the income received by a co-partner of a Hindu undivided family as remuneration had any real connection with the investment of the joint family funds; (2) Whether the income received was directly related to any utilization of family assets; (3) Whether the family had suffered any detriment in the process of realization of the income; and (4) Whether the income was received with the aid and assistance of the family funds; In our opinion form these subsidiary principles, the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime the plaintiff Bhagwant became the Managing Director of the Company, the joint family had completely disrupted and it cannot be said that the plaintiff was the member of any joint family of which the defendants were also members. In fact, litigation between the parties was going on. Though the defendant No. 2 Dattatraya was also a member of the managing agency firm Sulakhe and Co., it does not appear that he took, any steps for reappointment of the said firm as the managing agent. There were four outside partners Interested in the Managing Agency Agreement and it does not appear that the defendant Dattatraya or the other outside partners of the managing agency firm Sulakhe Co. had taken any steps against the company for not renewing the managing agency agreement. It is to be borne in mind that it was for the company to renew the managing agency agreement. For the purpose of appointing the plaintiff as the managing director, the articles of association of the company had to be amended and Article 146A had been incorporated in the Articles of Association by amendment. It does not appear that defendant No. 2 Dattatraya or the other outside partners of the managing agency firm Sul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Bhagwant as the Managing Director of the company. The facts and circumstances of the case go to indicate that the partners of the firm Sulakhe Go. which had been acting as the Managing Agent on the basis of the managing agency agreement with the company accepted the termination of the managing agency on the expiry of the term prescribed under the amended law without any protest and did not seek to enforce the right or renewal of the managing agency agreement or of any other provision of the agreement. As the managing agency agreement had ceased to exist at the time the plaintiff Bhagwant was appointed the Managing Director of the company and as at that time there was no joint family of the plaintiff Bhagwant and the defendants in existences, the plaintiff Bhagwant cannot be said to have been appointed as the Managing Director of the company either because of the Managing agency agreement or because of his being a member of the joint family. The facts and circumstances make it clear that the partnership agreement or the managing agency agreement had no relevance to the appointment of the plaintiff Bhagwant as the Managing Director of the Company. As we have earlier indicated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yet what must have weighed with the company is the kind of services rendered by hire to the company. The company was concerned with his services and not with the question whether he was rendering the services for and on behalf of the family. The plaintiff Bhagwant, was therefore appointed as the managing director for the services rendered by him and for services to be rendered by him. The remuneration which the company agreed to pay to the plaintiff Bhagwant for acting as the managing director was for the services to be rendered by him. This remuneration must, therefore, be the personal income of Bhagwant and does not belong to the joint family. The decisions of this Court and the principles enunciated by this Court which we have earlier noted clearly support the view we have taken. 17. In facts and circumstances of this case there can be no question of the plaintiff Bhagwant being a trustee or acting as the trustee for the benefit of the joint family in relation to his appointment as the managing director of the company. 18. It has to be borne in mind that it was the partnership firm of Sulakhe Co. which was appointed as the managing agent of the company and on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the joint family in the managing agency on the footing that two of the members of the joint family, namely, defendant No. 2 Dattatraya and plaintiff Bhagwant were as partners of the firm associated with the managing agency and were acting as the managing agent on the basis of the partnership agreement and the managing agency agreement also ceased. As we have earlier observed, the appointment of the plaintiff Bhagwant as managing director was not because of any special investment by the joint family in the company and the remuneration which was agreed to be paid by the company to the plaintiff Bhagwant for acting as the managing Director of the company was not by way of any return on the investment of the joint family in the company and the plaintiff Bhagwant became entitled in his individual capacity as the managing director of the company to the remuneration offered to him for the services to be rendered by him as such Managing Director. The plaintiff Bhagwant earned the remuneration in his personal capacity for services rendered by him. The argument advanced on behalf of the defendants that plaintiff Bhagwant was in the position of a trustee with regard to the remuneration re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to any such share. The plaintiff Bhagwant may In the facts and circumstances of this case be accountable to the joint family for the remuneration earned by him as Managing Agent, but he is not a trustee and the shares purchased by him will not belong to the joint family. We have already held that the plaintiff was not in the position of a trustee for the benefit of the joint family in his capacity as the managing director of the company and the remuneration which the plaintiff earned belonged to him and was his personal income. We, therefore, hold that 200 shares standing in the name of defendant No. 2, 125 shares standing in the name of the plaintiff Bhagwant, four shares standing in the name of defendant No. 1 and the 79 shares standing in the name of the plaintiff or his sons which were purchased out of the joint family funds belong to the joint family and each branch has equal 1/3 shares in these shares. 20. We now proceed to consider the question of cash money which was found in the Mahalaxmi room. The plaintiff claims that in the Mahalaxmi room there was about a Lac of Rupees belonging to the joint family which had been secreted by the defendants. When the receiver count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by him and to pay to the other two branches their share, namely, l/3rd to each of the other branches who happen to be the defendants in the suit. 2. The position of the defendant No. 2 Dattatraya who was the other person in the firm of Sulakhe Co. representing the joint family and who also acted as a managing agent is also the same. There is no question, however, of the defendant No. 2 Dattatraya rendering any account in respect of such sums received by him as all such sums received by him had been treated without any kind of dispute as joint family income and had been entered in the books of the joint family. The question of rendition of any account by the defendant No. 2 Dattatraya therefore, does not arise. 3. The remuneration received by the plaintiff as managing director of the company on his appointment as managing director of the company in 1957, belongs to the plaintiff personally and does not belong to the joint family. The entire remuneration received by the plaintiff after the termination of the managing agency agreement and after his appointment as managing director of the company is the personal income of the plaintiff and the joint family or any memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation between the parties has been going on for over four decades, it will be in the interest of justice and in the interest of parties that any kind of decree would not be passed which may have the effect of prolonging the litigation. In that view of the matter we are of the opinion that we should not pass any decree for accounts, as any reference for taking accounts will result *' in prolongation of litigation to the detriment of the interest of the parties. The learned Counsel appearing on behalf of the parties also submitted before us that we should pass a final decree to put an end to the litigation. To enable us to pass a final decree Without any directions for taking of accounts between the parties we directed all the parties to place before us the relevant facts and the necessary figures in respect of their claims on each head. On the basis of the directions given by us, the parties have furnished the Court with relevant facts and figures relating to their claims in respect of every item of claim and have also made their submissions before us on the basis thereof. We have carefully considered all the materials which have been placed before us by the parties and also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sulakhe son of the plaintiff Bhagwant who happens to be the present managing director of the company is hereby appointed Commissioner without any remuneration to divide the shares equally in the aforesaid three lots and to. have the same transferred and registered in the names of the parties on the basis of the division of the said shares to be effected in terms of the decree. The plaintiff will proceed to divide the said shares in the manner directed above within two months from date. All the parties will give necessary co-operation to the plaintiff in the matter of effecting division of the said 408 shares in the manner aforesaid. (7) If for any reason, the plaintiff in not able to divide the said shares within a period of two months from date of the decree any of the parties will have the liberty to apply before the Trial Judge for the appointment of a Commissioner of partition to divide the said 408 shares in three equal lots of 136 shares each in the manner directed by this decree. (8) It is declared that the amount which would have been payable to the plaintiff as his share out of cash money lying in the Mahalaxmi room, has been taken into consideration while passing t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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