1. These appeals arise out of an appellate decision of the Civil Judge (Senior Division) with appellate powers at Dhulia by which he disposed of two appeal, namely, Appeals Nos. 144 and 145 of 1943, which had arisen out of suits Nos. 82 and 63 respectively of 1942. In Appeal No, 144 of 1943 the learned Judge of the lower appellate Court set aside the judgment and decree of the trial Court and granted a declaration that the partnership firm known by the name of the Dhulia-Amalner Motor Owners' Union had not been dissolved but had merely changed its name to the Dhulia-Amalner Motor Transport, Limited. He allowed an option to the plaintiff and his colleagues, the minority members of the partnership fir, of paying a share capital of Rs. 800 each with interest at 6 per cent. from February 21, 1942, onward and 'participating in the income and profits obtained by the Dhulia-Amalner Motor Transport, Limited, up to the date of the decree.' On the plaintiff failing to make the option, the appellate decree directed the accounts of the Dhulia-Amalner Motor, Transport, Limited, to be made on the basis of the said company 'making such profits as may be attributable to the use of the permit, furniture, goodwill, etc., of the Union.' The learned Judge went on to say : 'for either sort of accounts a preliminary decree for taking accounts by a Commissioner is passed.'
2. In the other appeal (No. 145 of 1943) which arose out of Suit No. 63 of 1942 the learned Judge directed a preliminary decree to be drawn up for taking accounts of the plaintiff's share in the Dhulia-Amalner Motors Owners' Union from July 22, 1941, up to the date of the suit. The plaintiff in the said suit (defendant No. 13 of the other suit no. 82 of 1942) was also given an option to become a shareholder of the limited company on payment of Rs. 800 together with interest at 6 per cent. per annum from February 21, 1942, onward.
3. Now, the facts from which these appeals have arisen may briefly be stated : Originally individual bus owners used to ply their buses on hire on the Dhulia-Amalner route and the Amalner-Marwad route. That used to be done under the superintendence of the District Superintendent of Police. In due course the Regional Transport Authorities were established for the various regions and the control and supervision over the buses plying on hire in the various regions passed to the respective Regional Transport Authorities. The two routes in question - the Dhulia-Amalner route and the Amalner-Marwad route - were situated within the jurisdiction of the Regional Transport Authority, Nasik. A certain amount of correspondence ensued between the Regional Transport Authority, Nasik, and the manager of the motor service which used to ply buses of the individual bus owners on the above mentioned routes. Exhibits 148, 149 and 146 are amongst some of the letters which passed between the two. The Regional Transport Authority strongly recommended the formation of collective bodies in preference to individual enterprise for carrying on the passenger transport by roads. Ultimately on November 8, 1940, a partnership firm consisting of 17 partners and known by the name of the Dhulia-Amalner Motor Owners' Union was formed. It was registered on November 11, 1940. The partnership deed is Exhibit 167. In the words of the learned trial Judge the terms of the said partnership were :
'It was one of the fundamental terms of the partnership agreement (Exhibit 167) that the dispute between the partners inter se were to be decided by a two-third majority, with a right to appeal to an independent tribunal of three persons to be appointed by the Union from time to time. The individual owners of the buses were to remain the owners and were liable to spend for any repairs to their busies, or for such spare parts and accessories as were necessary to maintain their buses in a roadworthy condition. Such was in brief the constitution of the union .......... The Union had decided to run ten buses at a time. After every one of the ten buses had made one trip and a touring car had completed two return trips on these roads, 'a circle' was said to become complete and after 4 or 5 such circles, accounts were made and the income distributed among the partners. Out of the earnings a Reserve Fund at the rate of one anna per rupee was set apart and out of this collection one-half was to remain as the Reserve Dund for the Union and the other half was to go towards the payment by way of remuneration. Two owners of cars were to attend for duty at the Dhulia and the Amalner stands .....'
4. It is to be remembered that it was a partnership at will. Within a short time difficulties were experienced in the working of the partnership business and, on July 23, 1941, what Mr. Kotwal for the appellant calls a kararnama was passed. That document is Exhibit 166. It describes itself as a kararnama but in fact is a letter which was written by 13 partners of the firm to the manager of the firm.
5. Therein, amongst other things, it was suggested in this kararnama that in future the partnership firm should not be carried on in accordance with the partnership deed, that the said partnership deed should be cancelled and that a private limited company should be formed. Thereafter a notice, Exhibit 136 dated August 19, 1941, was sent out to the members of the Union for convening a general meeting. On August 24, 1941, the general meeting was held. It was attended by ten out of the seventeen partners of the firm and an important resolution which was unanimously passed by the members present was resolution No. 4 which stated amongst others :
In that as a kararnama signed by the majority of the partners of the firm had been received by the manager of the firm suggesting dissolution of the partnership, enquiries should be made and information collected on the subject of the formation of a private limited company, whereafter the necessary permission of the Regional Transport Officer should be obtained and steps should be taken to form a private limited company as quickly as possible. It is to be noted at this stage that if we turn to the resolution there is nothing to show that the plaintiff and his colleagues who constituted a minority of the members of the partnership attended this general meeting. If we turn to the notice Exhibit 136 by which this meeting was convened, we find again the signatures thereon of those who had received the notice in token of the receipt. A curious circumstance in this connection is that whereas the signatures of all the members who constituted the majority in the Union were written in ink, only the alleged signatures of the plaintiff and his colleagues are to be found in pencil. Whereas all the other signatures are to be found at the foot of the notice, itself, the five alleged signatures of the plaintiff and his colleagues are to be found on the reverse of the notice. The least that may be said about these features is that the circumstances of these five signatures only being in pencil and appearing on the reverse is a suspicious circumstance. It is categorically alleged by the plaintiff that this notice was never received by him.
6. On a careful consideration of the above mentioned circumstances I am not really satisfied that the plaintiff and his colleagues who were in a minority in the partnership firm on the question of its dissolution did really know that a general meeting was to be convened on August 24, 1941, and I think it was therefore that they could not attend that meeting. This aspect of the case will have an important bearing when we shall proceed to the consideration of the question whether the resolution passed at the meeting of August 24, 1941, could amount to a statutory notice within the meaning of Section 43 of the Indian Partnership Act. The next general meeting of the partnership firm was held on December 25, 1941, and the pertinent resolution was resolution No. 1 which stated that immediate steps should be taken for making a valuation of the buses and for taking possession of the buses. The next general meeting of the Union was held on January 5, 1942, and it is contended for the appellant that it was an important meeting. My attention was drawn to resolution No. 1 which was passed then and which stated : that a company was to be formed, the buses were to be handed over to the company after making the valuation and shares were to be issued on the basis of the said valuation. It may be noted that this meeting was attended by all the partners of the firm. Eleven persons were in favour of the resolution and five remained neutral. Those who remained neutral of the Union, which was referred to in the arguments in these appeals, was held on January 31, 1942, and resolution No. 3 which was passed then is said to be an important one. It stated that the reserve fund should be distributed amongst the partners of the firm and account of the business of the firm should be made up to January 31, 1942, and the amounts should be distributed to the partners according to their shares. On these facts regard being had to the kararnama Exhibit 166 dated July 23, 1941, the notice Exhibit 136 dated August 19, 1941, and the resolutions passed at the general meetings dated August 24, 1941, December 25, 1941, January 5, 1942, and January 31, 1942, it is contended by Mr. Kotwal for the appellant that the partnership firm had ceased to do its business from January 31, 1942, onward, i.e., the firm was dissolved from that date and the private limited company had begun its business from February 1, 1942.
(3) Mr. Purshottam for the respondents who constitute a minority section in the partnership firm has strenuously contended that the partnership firm has not been dissolved but is still continuing, that the requisite procedure for the dissolution of a partnership as prescribed by Section 40 and 43 of the Indian Partnership Act was not followed, that the business which was done by the private limited company was the same business which was done by the private limited company was the same business which was done by the Union and that the company was really the same entity as the Union but under a different name. Relying on Section 37 of the Indian Partnership Act Mr. Purshottam has contended that the majority section of the partnership firm are using the artificial creation of the company as their agent for doing the business with the property of the partnership firm and are therefore liable to render to the minority section an account of the profits made by them and attributable to the use of the shares of the minority section in the property of the firm which is used by them (majority section). In the alternative Mr. Purshottam has relied on Section 67 of the Indian Trusts Act and has contended that as the majority section of the members of the partnership firm who have promoted the private limited company were trustees of the partnership property and as they had wrongfully employed the said trust property in doing a business of their own under the name of the artificially created company, they were liable to render accounts to the minority section of the profits made by them in the business done under the name of the company.
7. HIS LORDSHIP agreed with the view of the learned Judge of the lower appellate court that the Union (partnership firm) was continuing to exist and was never dissolved. Although on the question of the alleged dissolution of the Union which goes by the name of the Dhulia-Amalner Motor Owners' Union my decision is thus against the appellant, it is impossible to confirm the decree of the lower appellate court which is based on a complete ignorance of the legal appellate court which is based on a complete ignorance of the legal position. It is ignorance of law embodied in the statute - the Indian Companies Act - to say that the difference between the Union and the private limited company in this case lay merely in the change of name from 'the Dhulia-Amalner Motor Owners' Union' to 'the Dhulia-Amalner Motor Transport Limited.' The fundamental basis, which was a wrong basis of the decree passed by the lower appellate court was as though the business done by the Union; or else the decree for accounts which has been passed would be a manifestly absurd decree. Now, it is to be noted that the limited company, in substance and in form, was 'not' the same entity as the Union with merely a changed name. The company has a distinct entity of its own, quite different from the entity of the Union and the entities of the shareholders, and the business which was done by it was not the same business as was done by the Union, now was it a continuation of the same business. It was not the business of its shareholders either. What happened in this case was this : After the partnership firm worked its way for sometime, some of the partners, i.e., defendants nos, 1 to 12 and defendant No. 15, formed a private limited company, which they could do under the law even while the partnership continued to be a running concern. Such of the partners of the Union, who formed a limited company, sold be the company their buses which were therefore being used by the Union.
8. Under the terms of the partnership deed (vide Clause 6 of Exhibit 167) it was perfectly competent to a partner to sell to a third person his bus or buses which he had given to the Union. The company was the said third person to whom defendants Nos. 1 to 12 and defendant No. 15 who were partners in the Union, sold their buses after withdrawing them from the Union. Now, if two parties fall out, how can of them call upon the other to render to it the accounts of a business done by a third party The buses, with which the company was doing its business, were the property of its own. They were not the property of the Union. They were never the property of the Union. The Union had only the use of them. The proprietary interest in them had always belonged to such partners as were the owners thereof before the Union was formed. The said buses had become the property of the company by purchase from defendant No. 15, to whom it was open under the partnership agreement to sell their buses to any person they liked after withdrawing their use from the partnership firm. Therefore it is a crux of the matter to remember (1) that the buses which the company was plying were not the property of the partnership firm, nor the property of any of the partners of the firm, nor the property of the shareholders, but the property of the company itself; (2) that the business of the company was not the business of the Union; and (3) that the company was a corporate body whose entity was entirely different from the entities of is shareholders or the entitles of the Union and its members. Such being the position in law which the learned judge of the lower appellate Court failed completely to appreciate, how can one set of partners to render accounts of a business done by a third person altogether, and yet that is what in substance and effect has been done by the decree of the lower appellate Court.
9. Now, it is a well settled principle of law that a limited company has a distinct entity of its own, which is created by the statute, in this case the Indian Companies Act. If we turn to the Indian Companies Act, Section 23 thereof lays down :
'(1) On the registration of the memorandum of a company, the registrar shall certify under his hand that the company is incorporated, and in the case of the limited company that the company is limited.
(2) From the date of incorporation mentioned in the certificate of incorporation, the subscribers of the memorandum, together with such other persons as may from time to time become members of the company, shall be a body corporate by the name contained in the memorandum, capable forthwith of exercising all the functions of an incorporated company, and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in this Act.'
10. It is thus clear that a limited company is a body corporate which has an entity of its own, with a perpetual succession and a seal of its own.
11. It is contended for the plaintiff Raychand Rupsi Dharmsi Shet that the private limited company's name 'the Dhulia-Amalner Motor Transport Limited' is merely an alias for 'the Dhulia-Amalner Motor Owner's Union', that in reality the company is no different concern and is not a different entity from the Union itself and that the business which was done by the company was the same as was done by the Union, and on that basis he was asked for certain declarations and injunctions and also for accounts of the business done by the company and for a share in the profits made by the company and attributable to the use, by the company, of the vehicles, etc., which, says the plaintiff, are the property of the Union which has not been dissolved. Now, in Salomon v. Salomon & Co. LORD HALSBURY, L.C., in his address to the House of Lords said (page 29) :
'My Lords, the important question in this case, I am not certain it is not the only question, is whether the respondent company was a company at all - whether in truth that artificial creation of the legislature had been validly constituted in this instance; and in order to determine that question it is necessary to look at what the statute itself has determined in that respect. I have no right to add to the requirements of the statute, nor to take from the requirements thus enacted. The sole guide must be the statute itself.
Now, that there were seven actual living persons who held shares in the company has not been doubted. As to the proportionate amounts held by each I will deal presently; but it is important to observe that this first condition of the statute is satisfied, and it follows as a consequence that it would not be competent to any one - and certainly not to these persons themselves - to deny that they were shareholders.
Still less is it possible to contend that the motive of becoming shareholders or of making them shareholders is a field of inquiry which the statute itself recognises as legitimate .....
I am simply here dealing with the provisions of the statute, and it seems to me to be essential to the artificial creation that the law should recognise only that artificial existence - quite apart from the motives or conduct of individual corporators. In saying this, I do not at all mean to suggest that if it could be established that this provision of the statute to which I am adverting had not been complied with, you could not go behind the certificate of incorporation to show that a fraud had been committed upon the officer entrusted with the duty of giving the certificate, and that by some proceeding in the nature of scire facias you could not prove the fact that the company had no real legal existence. But short of such proof it seems to me impossible to dispute that once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company, are absolutely irrelevant in discussing what those rights are liabilities are .... I can only find the true intent and meaning of the Act from the Act itself; and the Act appears to me to give a company a legal existence with, as I have said, rights and liabilities of its own, whatever may have been the ideas or schemes of those who brought it into existence.
Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon. If it was not, there was no person and no thing to be an agent at all; and it is impossible to say at the same time there is a company and there is not.'
12. Now, with great respect, these are very weightly observations which establish beyond any doubt the fact that the Dhulia-Amalner Motor Transport Limited (the private limited company) was an independent person in the eye of law, a legal entity, and the business of plying motor buses on Dhulia-Amalner route and Amalner-Marwad route belonged to it and not to its shareholders. Here also, the sole guide for determining whether the Union and the company are the same entity or different entities is the statute itself, namely, the Indian Companies Act, and all that we have got to see is whether the 'artificial creation of the legislature', i.e., the company, was validly constituted or not. Here also, it is not disputed that several actual living persons are holding shares in the company. We are not concerned with the proportionate amounts held by each, but the important point is that the first condition of the statute is satisfied, and it would be futile for any one to deny that some of the partners of the partnership firm are shareholders in the company. The plaintiff alleges dishonesty of motive against defendants Nos. 1 to 12 and defendant No. 15 who were responsible for promoting the company, but the motive for becoming shareholders is not a filed of inquiry which is recognised as legitimate by the Indian Companies Act. The law recognises the existence of the company, quite irrespective of the motives, intentions, schemes or conduct of the individual shareholders. There is no allegation whatever in this case that any fraud had been committed upon the officer who gave the certificate of registration of the company and therefore the following observations of LORD HALSBURY ar particularly appropriate (page 30) :
'....... But short of such proof (i.e., proof of fraud in getting the certificate of registration) it seems to me impossible to dispute that once the company is legally incorporated it must be treated like any other independent person with its rights and liabilities appropriate to itself, and that the motives of those who took part in the promotion of the company are absolutely irrelevant in discussing what those rights and liabilities are.'
13. As his Lordship put it tersely (page 31) :
'Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon. If it was not, there was no person and no thing to be an agent at all; and it is impossible to say at the same time that there is a company and there is not.'
14. There is thus no substance in the argument urged for the plaintiff that those who promoted an artificial creation in the shape of this company did so to employ the said creation as an agent for their own business. There is also no force in the plaintiff's contention that there is a company in the sense that the majority section of the partners of the partnership firm are employing it as an agent to do their own business and that there is no company in the sense that the entity of the Union and the company is the same with only a change in the name. As Lord Halsbury said, you cannot say at the same time that there is a company and there is not.
15. In Ramkanai Singh v. Mathewson, a patni lease actually granted was challenged and one of the grounds of the challenge was that the transaction which was sanctioned was a transaction of a grant of a patni lease to Robert Watson & Co., in other words, to a firm of individual men, and not to Robert Watson & Co., Limited, i.e., a different and incorporated persona. In considering that objection to the grant of the patni lease their Lordships of the Privy Council observed (page 101) :
'This demands careful consideration. There is this to be said for the objection, that the person in the latter case (i.e., in the case of Robert Watson & Co., Limited) is different from the persona in the former (i.e., in the case of Robert Watson & Co.,) and that a change in the lessee or patnidar ought to be treated as a change in essentials.'
16. On the authority of this decision also, there would be no difficulty in holding that the persona of the company is different from the persona of the partnership firm (Union), in other words the company is a persona altogether different from the partners in the firm or from the shareholders who promoted the company. It is a third person.
17. In E. B. M. Company Ltd. v. Dominion Bank, also it was held :
'The distinction should be clearly marked, observed and maintained between an incorporated company's legal entity and its actions, assets, right and liabilities on the one hand, and the individual shareholders and their actions, assets, rights and liabilities on the other hand.'
18. It is thus clear that the legal entity, actions, assets, rights and liabilities of the company are quite different from those of the individual shareholders. The business of plying motor buses on the routes in question and the assets of the said business (buses, etc.) belongs thus to the company and not to the shareholders. That being so, on the two sets of partners in the Union falling out on any question one set cannot call upon the other set, who may have promoted a limited company, to render accounts of the business, which is neither the business of the first set of partners nor the business of the second set of them, but is the business of the company, a third person altogether.
19. Mr. Purshottam for the plaintiff has referred the court to Section 37 of the Indian Partnership Act, Section 67 of the Indian Trusts Act, certain observations at pages 444 and 448 of Aggarwala's Indian Trusts Act and decisions in Ahmed Musaji Saleji v. Hashim Ebrahim Saleji, and Ramlal Thakursidas v. Lakhmichand Muniram. In my opinion, however, the references to the above sections and authorities are altogether beside the point. Section 37 of the Partnership Act can obviously not apply to the facts of this case for the simple reason that the business of the company is not the business of the shareholders who are partners in the partnership firm and are also the promoters of the company. It is impossible to say in this case that the business which is done by the company is the business which certain of the partners of the partnership firm are doing with the property of the firm or that the profits which accrue from the business are the profits of the above-mentioned partners or the firm attributable to the use, by them, of the property of the firm. Section 67 of the Indian Trusts Act also has no relevance here, since there is no question at all of any trust or fiduciary relationship between the company and the minority section of the partners in the firm (plaintiff and his colleagues defendants Nos. 13, 14 and 16) and no question at all of any breach of trust by the company.
20. In Ahmed Musaji Saleji v. Kashim Ebrahim Saleji, on which Mr. Purshottam has relied, it was observed by their Lordships of the Privy Council (page 96) :
'...... It is well-settled that in certain cases, when on the dissolution of a firm one of the partners retains assets of the firm in his hands without any settlement of accounts and applies them in continuing the business for his own benefit, he may be ordered to account for these assets with interest thereon, and this apart from fraud or misconduct in the nature of fraud.'
21. These observations, weighty as they are with great respect, have no relevance in the present case. In the first place, this in not a case in which the dissolution of the firm has taken place. Secondly, this is not a case in which any of the partners of the Union are continuing the business, with the assets of that firm, for their own benefit. There is hardly any need to repeat that the business of the private limited company is its own and could not be called the business of any of the partners of the partnership firm. Clearly, therefore, the decision in Ahmed Musaji v. Hashim Ebrahim, has no application to the facts of this case.
22. The next case which was relied upon by Mr. Purshottam was the case of Ramlal Thakursidas v. Lakhmichand Muniram, and I fail to understand how this decision could possibly apply in the present instance. It was a case where the surviving partners of a firm, in the absence of a representative of a deceased partner, adjusted the partnership accounts and agreed to hand over a portion of the partnership property to one of the partners in compromise of his claim, and the partner whose claim was so agreed to be compromised prayed for a dissolution of the firm upon the basis of such compromise; it was held that a representative of the deceased partner was a necessary party to the suit, and it was further observed that surviving partners were treated as trustees of the partnership property for the benefit of the representative of a deceased partner; and an agreement entered into by such surviving partners in the absence of the representative of the deceased partner which was inconsistent with the nature of such trust - to deal with the partnership assets only by way of sale - would not be specifically enforced. There is no question in this case of defendants Nos. 1 to 12 and defendant No. 15 employing the company as their agent for doing business as trustees of the partnership property for the benefit of the remaining partners of the partnership firm. That being so the decision in Ramlal Thakursidas v. Lakhmichand Muniram, is beside the point for the purpose of these appeals.
23. At page 444 of Aggarwala's Indian Trusts Act we find that this is what is stated :
'If a trustee pay trust-money into a bank to the account of himself, not in any way earmarked with the trust, and also keep private money of his own to the same account, the Court will disentangle the account, and separate the trust from the private money, and award the former specifically to the cestui que trust. In the case of a person occupying a fiduciary position, although not an express trustee, as a factor or agent, the same rule is equally applicable'.
24. Here again it is to be noted that defendants Nos. 1 to 12 and defendant No. 15 as promoters of the company and shareholders thereof did not occupy any fiduciary position in relation to the plaintiff and defendants Nos. 13, 14 and 16 and therefore also the observations relied upon by Mr. Purshottam would not help him.
25. For the above-mentioned reasons, although I am in agreement with the conclusion of the learned Judge of the lower appellate Court that the partnership firm has not been dissolved in this case, I find myself unable to confirm the judgment and decree of the learned Judge.
26. The plaintiff has no legal right, and cannot sue, for accounts of the business done by the Dhulia-Amalner Motor Transport Limited. If he has any remedy at all, and I am expressing no opinion on that point, against any of the partners of the firm for breaches, if any, of the terms of the partnership agreement, that remedy is to sue in damages such partners as may have committed a breach of the terms of the agreement. But surely the remedy is not to sue an altogether third person, an independent person, namely, the company, for accounts of the business done by it, a business which does not belong to any of the members of the partnership firm and does not also belong to any of the shareholders of the company. In these circumstances, therefore, Appeal No. 805 of 1949 is allowed, although I hold, on a question of fact, that the partnership firm known as the Dhulia-Amalner Motor Owner's Union has not been dissolved. On the question of costs, I think it would be proper to make no order as to costs in this appeal, since on a point on which a very considerable amount of argument was advanced by both sides, namely, a point of alleged dissolution of the partnership firm, the appellant has lost.
27. Appeal allowed.