Karumuthu Thiagarajan Chettiar and Another vs E. M. Muthappa Chettiar

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 375 of 1956

Decision Date: 27 February, 1961

Coram: K.N. Wanchoo, P.B. Gajendragadkar

In this matter, the Supreme Court recorded that the petition was filed by Karumuthu Thiagarajan Chettiar and another individual against E. M. Muthappa Chettiar, with the judgment delivered on 27 February 1961. The opinion was authored by Justice K. N. Wanchoo, who was joined on the bench by Justice P. B. Gajendragadkar. The case is cited as 1961 AIR 1225 and 1961 SCR (3) 998. The dispute concerned the interpretation of a written partnership agreement that governed the managing‑agency business of two mills. The agreement stipulated that the management of the mills would be carried out in rotation, changing every four years, with the appellant managing during the first four‑year period, the respondent managing during the next four‑year period, and the pattern continuing thereafter. Moreover, the agreement provided that the partners, their heirs and those acquiring their rights would continue the rotational management. After the partnership was formed, disagreements arose between the partners, and the appellant issued a notice of termination, treating the partnership as one that could be dissolved at will. In response, the directors of the mills terminated the managing‑agency arrangement, asserting that the ongoing quarrel between the partners was harmful to the efficient administration of the mills. The respondent subsequently instituted suit against both the appellant and the mills, seeking dissolution of the partnership firm and damages, alleging that the appellant’s notice of dissolution was fraudulent and that the mills had colluded with the appellant. The trial court held that the partnership was indeed at will, that the termination of the managing agency was lawful, and therefore dismissed the claim for damages. On appeal, the Madras High Court reversed that view, finding that the partnership was not at will and could not be terminated by notice, and also holding that the termination of the managing agency was illegal. The appellant then appealed to this Court, accompanied by a certificate of the High Court’s judgment. The Supreme Court observed that the provision for rotational management every four years, together with the inclusion of the partners’ heirs in the continuation of the business, demonstrated a clear intention to create a partnership of a definite, albeit not expressly stated, duration. The Court noted that while the duration of a partnership may be specified expressly in the contract, it may also be implied from the terms of the agreement, and that a partnership will not be deemed at will where such an implied duration exists. The Court relied on the precedent set in Grawshay v. Manley, Swans 495; 36 E.R. 479, which affirms that a partnership’s duration can be inferred from the contract’s terms. Applying this principle, the Court concluded that the agreement in the present case disclosed a partnership whose duration was implied, specifically the period until the termination of the managing agency. Consequently, under section 7 of the Partnership Act 1932, the partnership could not be classified as at will and therefore could not be terminated solely by the appellant’s notice.

The Court observed that the managing agency could not be terminated by the notice issued by the appellant, because such termination was not lawful. The Court noted that the relationship between the partners had become strained, which provided sufficient reason for the mill to end the managing agency. Accordingly, the resolution passed by the board of directors to terminate the managing agency agreement, and subsequently ratified by the shareholders’ general meeting, effected the termination of the managing agency. The Court found that there was no fraud or collusion on the part of the mill in relation to the appellant. In support of this finding, the Court referred to the authorities Morarji Gokuldas and Co. v. Sholapur Spinning and Weaving Co. Ltd. and Others, A.I.R. 1944 P.C. 17 and Commissioners of Inland Revenue v. Sansom, [1921] K.B. 492. The Court concluded that the partnership in the present case should be regarded as having come to an end on the date when the board’s resolution terminating the managing agency was passed. The Court further held that sections 10 and 13(f) of the Partnership Act did not apply to the facts of this case.

The judgment was delivered in the Civil Appellate Jurisdiction of the Supreme Court in Civil Appeal No. 375 of 1956, which arose from the judgment and decree dated 27 July 1953 of the Madras High Court in A. S. No. 623 of 1949. Counsel for the appellants consisted of a senior advocate and a junior advocate, while counsel for the respondent included the Attorney‑General for India and two additional advocates. The judgment was pronounced on 27 February 1961 by Justice Wanchoo. The Court set out the factual background as follows: the respondent, Muthappa Chettiar, instituted the suit against the appellant, K. Thiagarajan Chettiar, and Saroja Mills Ltd. In 1939 the two individuals contemplated a joint venture by obtaining managing agencies of certain mills, and they entered into negotiations with Rajendra Mills Limited of Salem and Saroja Mills Limited of Coimbatore, collectively referred to as the Mills. The managing agency of the Mills was originally held by the Cotton Corporation Limited, which on 4 October 1939 transferred and assigned its rights to the appellant and the respondent under the name of Muthappa and Co. On 15 November 1939 the shareholders of the Mills, meeting in an extraordinary general session, accepted Muthappa and Co. as the managing agents and amended the Articles of Association accordingly. Subsequently the appellant and the respondent also secured the managing agency of Rajendra Mills Limited, Salem, whose previous agents were Salem Balasubramaniam and Co. Ltd. Muthappa and Co. acquired all the shares of Salem Balasubramaniam and Co. and thereafter operated the managing agency of that mill under the name Salem Balasubramaniam and Co. Ltd. In November 1940 the appellant and the respondent executed a written partnership agreement governing the managing‑agency business of the two mills. The Court indicated that the terms of that agreement would be examined later, but at this stage it was sufficient to note that the agreement designated alternating periods for the appellant and the respondent to oversee the actual management of the two mills, with the appellant’s turn being the first, thereby placing him in actual control of the mills.

In this matter the partnership agreement assigned the first turn of management of the two mills to the appellant, thereby placing the appellant in actual control of both mills. Shortly after this arrangement was implemented, disagreements emerged between the appellant and the respondent concerning the managing agency of Rajendra Mills Limited, and these disagreements gave rise to a series of lawsuits between the partners, which are referenced later in the judgment. On 4 March 1943 the appellant served a notice on the respondent terminating the partnership, characterising it as a partnership at will. Following this notice the directors of the mills resolved to terminate the managing agency of Muthappa and Co. on two grounds: that the firm had ceased to exist and that the disputes between the partners were detrimental to the proper management of the mills. The directors communicated this termination to the respondent on 22 March 1943. The directors’ action received formal approval at a shareholders’ meeting held on 29 September 1943, at which the Articles of Association were again amended to reflect the decision.

In the interim, on 17 April 1943 the respondent instituted a suit seeking a declaration that Muthappa and Co. should continue as the managing agents of the mills, that he should be granted possession of the managing‑agents’ office either alone or together with the appellant, and that a permanent injunction should restrain the mills from appointing any other managing agents. The trial court dismissed the suit on the basis that it was not maintainable under section 69 of the Indian Partnership Act, No. IX of 1932, although the court also made findings on other matters. The respondent appealed this decision to the Madras High Court. On 8 July 1948 the High Court dismissed the appeal, affirming the subordinate judge’s conclusion that the suit was not maintainable under section 69. The High Court expressly stated that it was not expressing any view on the correctness of the other findings made by the lower judge. While this appeal was pending, the respondent filed the present suit on 28 February 1946. In that suit he prayed for the dissolution of the firm Muthappa and Co., for the accounting of the partnership, and for damages against both the appellant and the mills. The respondent’s principal allegation was that the alleged dissolution of the partnership by the appellant and the removal of Muthappa and Co. from the managing agency of the mills were components of a fraudulent scheme devised by the appellant and actively supported by the mills, intended to deprive the respondent of his lawful dues and his right to continue acting as managing agent of the mills. He claimed damages amounting to five lakh rupees, to be recovered from both the appellant and the mills jointly or from either of them.

The respondent asserted that even if the removal of Muthappa and Co. from the managing agency on 29 September 1943 had been legally valid, he was still entitled to demand an account from the appellant covering the period from 15 November 1939 to 29 September 1943. Both the appellant and the Mills opposed the suit. Their defence was that the partnership was a partnership at will and therefore the appellant had lawfully terminated it by serving notice. They further contended that, irrespective of the partnership’s nature, the Mills were entitled to terminate the managing agency of Muthappa and Co. because the firm had effectively ceased to exist amid endless disputes among the partners. They denied any fraud or collusion and claimed that it was the respondent’s own conduct that forced the appellant to give notice of termination and compelled the Mills to end the managing agency. Additionally, the Mills pleaded that, as far as they were concerned, the suit was barred by section 69 of the Act.

The trial court held that the firm of Muthappa and Co. was indeed a partnership at will and that it had been lawfully dissolved when the appellant gave notice dated 4 March 1943. The court found no evidence of fraud and concluded that the termination of the managing agency was lawful. Regarding the Mills, the trial court applied section 69 of the Act and held that the suit against them was barred. Consequently, the suit against the Mills was dismissed in its entirety and the claim for damages was rejected. Nevertheless, the court directed the appellant to render an account of the profits earned from the commencement of the partnership business up to 4 March 1943, the date on which the partnership had been terminated by notice.

The respondent appealed the trial‑court decision to the High Court. The High Court affirmed that the suit against the Mills was barred by section 69 of the Act, but clarified that if any partnership assets were in the Mills’ possession, the respondent would be entitled to recover them. The High Court also ordered the Mills to bear their own costs in both the trial court and the High Court on the ground that the Mills had been guilty of fraud. Concerning the appellant’s case, the High Court held that the partnership was not a partnership at will and therefore could not be dissolved by the appellant’s notice. It further found that the appellant, in collusion with the Mills, had fraudulently attempted to dissolve the partnership by issuing an illegal notice and had caused the managing agency to be terminated by the Mills, making that termination illegal. On the basis that both the partnership and the managing agency continued to exist, and after reviewing the surrounding circumstances, the High Court concluded that the case was suitable for the dissolution of the partnership. Accordingly, it fixed 10 March 1949—the date of the trial‑court decree—as the effective date for dissolving the partnership.

The Court noted that the decree of the trial court was altered to specify the date on which the partnership would be dissolved, namely March 10, 1949. Accordingly, the Court modified the trial‑court decree and issued a preliminary decree for accounts against the appellant with respect to the firm Muthappa and Co. covering the period from 15 November 1939 to 10 March 1949. The Court further directed that the respondent might recover any sum found payable to him after accounts were taken of the partnership assets, if any, that were in the possession of the Mills. The appellant then applied for a certificate of appeal to the Supreme Court, which was granted, and thus the matter came before this Court for consideration.

The first issue for determination, as identified by the Court, was whether the partnership in question constituted a partnership at will, a question that required examination of the terms of the partnership agreement. The Court recited that the management of the Mills was conducted under the names Muthappa and Company and Rajendra Mills Limited, the latter operating under the style of Salem Balasubramaniam and Co. Limited. The partnership agreement stipulated that the partners were to share equally the salary, commission, profit and any other amounts realised from the said managing agencies. The agreement also provided for a rotating system of management every four years, with the appellant designated to manage for the first four‑year term and the respondent to manage for the subsequent four‑year term, and so on thereafter.

Further, the agreement stipulated that the partners, their heirs and those entitled to their rights were to continue the management in rotation. It required that accounts be prepared annually after the closure of each year’s accounts of the two mills. Provisions concerning borrowing were also included, but those were not material to the present dispute. The agreement expressly provided that if either partner wished to relinquish his right of management, such right could be surrendered only to the other partner and could not be transferred or sold to any third party. Finally, the agreement affirmed that the two partners would conduct the affairs of the firm by rotation every four years, that the income thus realised would be divided year by year, and that the partners and their heirs would receive equal shares of such income, thereby maintaining the partnership management.

The appellant contended that the partnership did not fall within section 8 of the Indian Partnership Act and was not covered by the two exceptions in section 7, and therefore it should be treated as a partnership at will. Section 7 provides that when a contract between partners makes no provision for the duration of the partnership or for its determination, the partnership is deemed to be at will. Section 8 provides that a partnership may be formed for particular adventures or undertakings. Section 43 states that where a partnership is at will, any partner may dissolve the firm by giving written notice of his intention to the other partners.

The provision for dissolution of a partnership at will requires a partner to serve a written notice of his intention to dissolve the firm on all the other partners. Conversely, when a partnership is not at will, Section 42 becomes applicable and provides that, subject to any contract between the partners, a firm is dissolved in the following circumstances: (a) if it was formed for a fixed term, then by the expiry of that term; (b) if it was formed to carry out one or more specific adventures or undertakings, then by the completion of those ventures; (c) by the death of a partner; and (d) by the adjudication of a partner as an insolvent. In addition, Section 44 allows the court to order dissolution. The High Court examined the terms of the partnership and concluded that the arrangement could not be characterised as a partnership at will. Accordingly, the High Court held that under Section 7 the partnership fell within the category where both the duration and the manner of determination were fixed by the agreement. The High Court also opined that Section 8 applied because the evidence demonstrated that the partners had entered into the partnership for the purpose of managing the agency of the two mills, which constituted a specific undertaking.

Upon reading the agreement, the Court found that the parties clearly did not intend to create a partnership at will. The agreement provided that the partners would rotate management duties every four years, and that this rotational scheme would continue to involve the heirs of the partners. Considering this provision together with the nature of the business, the Court reasoned that the partnership could not be terminated merely by notice from either partner. The intention was evidently to create a partnership of some enduring duration, even though the agreement did not expressly state a fixed term. Section 7 contains two exceptions to a partnership at will: the first is where the contract specifies a duration for the partnership, and the second is where the contract provides a mechanism for its determination. In either situation, the partnership is not at will. While a contract may expressly stipulate a duration, courts have also recognized that a partnership may not be at will where the duration can be implied from the surrounding circumstances. This principle is reflected in Halsbury’s Laws of England, Third Edition, Volume 28, page 502, paragraph 964, which observes that in the absence of an express agreement to continue a partnership for a definite period, an implied agreement to do so may exist. The same principle was affirmed in Crawshay v. Maule, where the court stated that when no explicit term limits the duration, and nothing in the contract fixes it, the partnership may nevertheless be deemed to have an implied term of continuity.

In the absence of any express provision, the partnership may be terminated at a moment’s notice by either party, but the Court recognised that even where no explicit term exists, the contract may contain an implied term concerning the duration of the partnership. The same reasoning, in the Court’s view, also applies to the determination of the partnership. Thus, while the contract could expressly state the circumstances under which the partnership will be determined, an implied term as to the time of determination may also be inferred from the agreement.

The Court therefore examined whether, on the facts of the present case, the partnership agreement allowed an inference of an implied term either as to its duration or, at the very least, as to the moment of its determination. The agreement was clearly entered into for the purpose of carrying on a managing‑agency business. Moreover, the clauses relating to the rotation of the two partners in actual management, and the provision that these rotations would continue even in the event of the partners’ heirs assuming the business, suggested that the partnership’s length would correspond to the length of the managing‑agency arrangement.

The Court declined to accept that this meant the partnership would become permanent, as noted in the cited authority ([1818] 36 E.R. 479. 483.). Even if there remained any doubt as to whether the contract implied a specific duration, the Court was confident that the contract unquestionably implied a termination of the partnership when the managing‑agency agreement itself came to an end. Since the partnership was confined solely to the business of the managing agency, it necessarily followed, by implication, that the partnership would cease when the agency ceased.

Accordingly, on the terms of the contract, even if uncertainty persisted regarding an implied duration, there was no doubt that the contract implied that the partnership would terminate upon the termination of the managing‑agency arrangement. Under section 7 of the Act, a partnership that contains a term specifying its determination is not a partnership at will. The Court also noted a clause in the agreement allowing either partner to withdraw from the partnership by relinquishing his right of management to the other partner. However, this clause did not render the partnership a partnership at will, because the essence of a partnership at will is the ability of either partner to dissolve the partnership simply by giving notice. The relinquishment of one partner’s interest in favour of the other, as provided in the contract, was a distinctly different mechanism. It is true that in the specific factual setting of this case there were only two partners, and the partnership would terminate as soon as

The Court noted that a partnership would come to an end only when one partner relinquishes his right in favour of the other partner. It added that this situation is a fortuitous circumstance because, for example, if there had been four partners and one of them relinquished his right in favour of the remaining partners, the partnership would not terminate. That observation demonstrates that a clause allowing a partner to surrender his interest to another does not convert the partnership into a partnership at will. In support of this view the Court referred to Abbott v. Abbott (1) where the case involved more than two partners. The citation reads (1) [1936] 3 All E.R. 825. In Abbott the agreement provided that the retirement of a partner would not end the partnership and that the remaining partners had an option to purchase the retiring partner’s share. The court in that case held that the partnership was not at will and observed that only when all partners except one retired could the partnership cease, because a partnership cannot exist with a single partner. Accordingly, the Court agreed with the High Court that the contract in the present matter disclosed a partnership whose termination is implied by the termination of the managing agency, and therefore, under s. 7 of the Act, the partnership is not a partnership at will. In these circumstances the Court found it unnecessary to consider whether the case might also fall within s. 8 of the Act. The next issue before the Court was whether the managing agency had been lawfully terminated, because a lawful termination of the agency would also determine the partnership. To answer that question the Court examined the subsequent history of the relationship between the partners after the partnership was formed. It appeared that disputes arose in 1941 concerning Rajendra Mills Limited, one of the mills included in the managing‑agency business. The respondent instituted a suit on 4 March 1942 against the appellant and Salem Balasubramaniam and Co. Limited concerning the allotment of shares in the managing‑agency company. On 11 March 1942 the respondent filed a second suit, this time based on debentures he held against the mills, seeking a decree for the repayment of the debenture amount. On 17 June 1942 the respondent filed a third suit regarding Rajendra Mills Limited, seeking a declaration that he was a partner owning a half share in the managing‑agency of Rajendra Mills Limited. On the same day he filed a fourth suit against the appellant, the appellant’s son, and Salem Balasubramaniam and Co. Limited concerning certain actions taken by the managing‑agency company. Subsequently, on 15 July 1942 the appellant filed a counter‑suit against the respondent and the managing‑agency company relating to Rajendra Mills Limited, seeking a declaration that the respondent had no interest in the managing‑agency company and seeking further relief. The Court observed that there was no doubt that the relations between the partners had become highly strained.

In the year 1942 the relationship between the partners was described as being extremely strained. The respondent, in a statement he gave, acknowledged that from the end of 1941 there existed hostility between himself and the appellant. He further noted that there were serious differences between them and that litigation was already in progress. Nevertheless, the respondent expressed that, despite the hostility, he would be prepared to cooperate with the appellant provided that the sum he claimed to have been defrauded of was paid to him after an accounting of the amounts due.

Regarding the litigation concerning the Rajendra Mills Limited, the respondent suffered a loss. The court held that he had withdrawn from the partnership of the managing agency company that dealt with that mill. In the suit that involved debentures, the disputed money had been deposited with the court and the dispute centered only on the award of costs. That matter also reached the High Court, which ultimately refused to grant costs to the respondent.

It was within this atmosphere of tension that the appellant issued a notice dated 4 March 1943, purporting to terminate the partnership with respect to the mills on the ground that the partnership was one at will. The Court had previously determined that the partnership was not, in fact, a partnership at will, and therefore the appellant’s notice could not lawfully bring about termination. However, a further question remained: whether the managing agency of the mills had been lawfully terminated. If the managing agency had been properly ended, the partnership would also have ceased on the date of that termination, based on the earlier reasoning.

The High Court examined the surrounding circumstances and concluded that the appellant, in concert with the mills, had fraudulently and collusively caused the managing agency to be terminated, rendering that termination illegal. The present Court could not concur with that finding and therefore needed to review the facts surrounding the termination.

The appellant sent a copy of his 4 March 1943 notice of termination to the mills. The respondent replied to that notice, asserting that the partnership was not at will and that the appellant lacked authority to terminate it, and he also sent a copy of his reply to the mills on 16 March 1943. Subsequently, on 22 March 1943, the directors of the mills convened a meeting. In that meeting the directors resolved that, because the partners of Muthappa and Company were unable to work together harmoniously, were engaged in multiple lawsuits, and because their discord threatened the efficient operation of the mills, it was necessary to appoint new managing agents. The directors further observed that Muthappa and Company had effectively ceased to exist, had lost its right of management, and was no longer capable of managing the mills. Consequently, by this resolution the managing agency of Muthappa and Company was terminated.

The Court observed that the managing agency agreement with Muthappa and Company was terminated for two principal reasons. First, the partners of the managing agency were in disagreement, and this discord was causing, or was expected to cause, a deterioration in the performance of the Mills. Second, Muthappa and Company itself had ceased to exist as a viable entity and consequently had lost the legal right to continue managing the Mills. The record showed that, prior to the adoption of the resolution on 22 March 1943, the appellant had been acquiring shares of the Mills on the open market and had eventually secured a controlling shareholding. Because of this acquisition, the High Court regarded the appellant’s influence as evident behind the directors’ resolution. The High Court further noted that the same resolution appointed the appellant’s son to administer the entire affairs of the Mills, subject only to the direction of the board, pending the appointment of new managing agents. This administrative arrangement was subsequently ratified by a general meeting of shareholders held on 29 September 1943. The High Court therefore concluded that the appellant, having obtained a controlling interest, was effectively behind both the directors’ resolution of March 1943 and the shareholders’ resolution of September 1943.

While the Court acknowledged that the appellant’s share acquisition may have played a part in the passage of those resolutions, it held that such involvement did not automatically render the appellant’s conduct fraudulent or make the termination of the managing agency agreement illegal. There was no contractual provision preventing either partner from buying shares of the Mills on the open market, and consequently the appellant’s purchase of those shares was not improper. The appellant simultaneously occupied two roles: as a partner in the managing agency with the respondent, and as a major shareholder of the Mills with a legitimate interest in protecting the Mills’ welfare. The essential issue, therefore, was whether the actions taken by the Mills—namely the two resolutions—were those that a prudent company would adopt when faced with a situation like the present one. The Court found that any reasonable company, confronted with a managing agency whose partners were engaged in bitter conflict and whose dispute threatened the company’s interests, would be justified in taking protective steps. Moreover, the fact that the principal shareholder was also a partner in the managing agency did not disqualify him from acting in the best interests of the Mills as a shareholder.

The Court considered that the fact that the appellant was also a partner in the managing agency did not prevent him from acting in the interest of the Mills in his capacity as a major shareholder. The Court referred to the precedent set in Morarji Goculdas and Co. v. Sholapur Spinning and Weaving Co. Ltd. and Others (1). In that earlier case the issue was whether the termination of a managing agency agreement could be deemed illegal on the ground of misconduct. The earlier judgment found that the partners of the managing agency had been engaged in quarrels of such seriousness and of such prolonged duration that their ability to perform their duties as managing agents for the company was seriously impaired, and that the quarrels prejudicially affected the company’s interests. The earlier court held, quoting A.I.R. 1944 P.C. 17, that “in each case the question must be whether the misconduct proved, or reasonably apprehended, has such a direct bearing on the employer’s business or on the discharge by the employee of that part of the employer’s business in which he is employed, as to seriously affect or to threaten to seriously affect the employer’s business or the employee’s efficient discharge of his duty to his employer.” The Court explained that where the facts and circumstances show such a direct impact, the termination of the managing agency would be justified. Applying this principle to the present facts, the Court observed that the quarrels between the two partners of the managing agency were indeed so serious and of such length that they impaired the partners’ capacity to discharge their duties to the Mills as managing agents and prejudicially affected the interests of the Mills. Consequently, the Court said that it would be incorrect to describe the conclusion reached by the directors of the Mills as fraudulent merely because a major shareholder happened also to be the appellant. The Court also cited the observations of Younger L.J. in Commissioners of Inland Revenue v. Sansom (1), wherein it was stated that “no doubt there are amongst such companies, as amongst any other kind of association, black‑sheep; but in my judgment such terms of reproach as I have alluded to should be strictly reserved for those of them and of their directors who are shown to deserve condemnation, and I am quite satisfied that the indiscriminate use of such terms has, not infrequently, led to results which were unfortunate and unjust, and in my judgment this is no case for their use.” The Court found those remarks appropriate to the present situation. The Court acknowledged that the appellant, as a major shareholder, had participated in the two resolutions and that this participation was never concealed. However, the Court also held that, given the circumstances existing at the time, any prudent board of directors and any body of shareholders interested in the company would have acted in the same way as the board of directors and shareholders of the Mills did, as recorded in the earlier case citation [1921] 2 K.B. 492, 514. Accordingly, the Court could not agree with the High Court’s view that the actions of the board and shareholders were fraudulent.

The Court rejected the contention that the board of directors and the shareholders had acted fraudulently in collusion with the appellant. It noted that, as a major shareholder of the Mills, the appellant was entitled to act in order to protect his interests, and the steps taken were those that any prudent board of directors and any body of shareholders would honestly adopt. In the circumstances, the Court was of the opinion that the resolution of the board terminating the managing agency agreement, which was subsequently confirmed by the shareholders’ general meeting, legally ended the managing agency relationship between the Mills and Muthappa and Company. The Court acknowledged that the resolutions also cited a second reason for termination, namely that Muthappa and Co. had ceased because of the notice dated 4 March. While the Court considered that particular legal position to be incorrect, it held that there were nevertheless sufficient grounds for the Mills to terminate the managing agency under the facts faced. The next issue considered was the date on which the managing agency could be said to have been terminated—whether on 22 March 1943 or on 29 September 1943. The Court referred to section 87‑B(f) of the Indian Companies Act, No VII of 1913, which was then in force, and observed that the appointment, removal, or any variation of a managing agent’s contract would not be valid unless approved by a resolution of the company passed at a general meeting. This provision, the Court explained, shows that while a managing agent may be appointed or removed by the board of directors, such actions are subject to subsequent approval by the company through a general‑meeting resolution. Agreeing with the High Court, the Court held that when a company’s general meeting approves an appointment or removal, the approval takes effect from the date of the board’s appointment or removal. Accordingly, when the general meeting in this case approved the board’s action, the removal became valid and effective from 22 March 1943. The Court therefore concluded that the managing agency agreement was validly terminated on that date. Having previously found an implied term in the partnership contract determining the termination date of the managing agency with the Mills, the Court deemed the partnership to have terminated on 22 March 1943. Consequently, the respondent was entitled to an account only for the period from 15 November 1939 to 22 March 1943. The learned Attorney‑General, however, referred to sections 9, 10 and 13(f) of the Act and argued that the appellant should account for all profits derived from the managing agency business even after 22 March 1943. The Court noted that under section 10 every partner must indemnify the firm for any loss caused to it by the partner’s actions.

The Court noted that, according to section 13(f) of the governing Act, a partner was required to indemnify the firm for any loss that resulted from his willful neglect in conducting the firm’s business, and that a partner also had to indemnify the firm for any loss caused by his fraud in the conduct of the business. The Court then observed that the respondent had failed to set up such a case in the plaint; there was no allegation or evidence that the appellant had committed fraud or willful neglect that would trigger the indemnity provisions. Moreover, the Court expressed the view that sections 10 and 13(f) of the Act did not apply to the particular facts of the present dispute, because the circumstances did not fall within the scope of those statutory provisions. Consequently, the Court rejected the respondent’s contention that the appellant ought to indemnify the firm under those sections. The next issue before the Court concerned the allocation of costs. Regarding Saroja Mills Limited, the Court held that the company was entitled to recover its costs from the respondent throughout the proceedings, since the Court had previously affirmed that the termination of the managing agency by the respondent was lawful and valid. Turning to the matter of Thiagarajan Chettiar, the Court considered the order of the subordinate judge, which directed that both Muthappa Chettiar (the respondent) and Thiagarajan Chettiar (the appellant) should each bear their own costs. The Court found this order to be just in the circumstances of the case and therefore ordered that both parties bear their own costs in full. Accordingly, the Court allowed the appeal in part. It ordered that accounts be taken for the period from 15 November 1939 to 22 March 1943 between Thiagarajan Chettiar and Muthappa Chettiar. The respondent was directed to pay the costs of Saroja Mills Limited in full, while Muthappa Chettiar and Thiagarajan Chettiar were each to bear their own costs throughout. The appeal was therefore allowed in part.