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The New Mofussil Company Limited Vs. Rustomji Dhanjisha Mewawala - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case Number O.C.J. Suit No. 1559 of 1931
Judge
Reported in(1936)38BOMLR408
AppellantThe New Mofussil Company Limited
RespondentRustomji Dhanjisha Mewawala
Excerpt:
indian companies act (vii of 1913), section 4(2d) - pool agreement-partnership- association-'for any business,' interpretation of-business, meaning of.;to attract the application of section 4 of the indian companies act, 1913, it is necessity, in the first place, that there should be either a company, association or partnership consisting of more than twenty persons. secondly, such company, association or partnership must be formed for the purpose of carrying on business other than the business of banking. thirdly, that business must have for its object acquisition of gain either to the company, association or partnership, or to the individual members thereof. the words ' any other business ' in section 4 (2) show that what the legislature contemplated is something which must be business.....rangnekar, j.1. [his lordship after narrating the facts went on :] at an early stage of the hearing, mr, munshi, on behalf of the defendant, gave up the issue as to jurisdiction. in the course of the further hearing he gave up his contention as regards the new mahaloo ginning factory not being a party to the new pool, and finally he stated that he did not dispute the figures as to the amount claimed.2. before dealing with the issues it is necessary to know what the agreement between the parties is, its nature, and the constitution of the pool. this can be found from the correspondence between the parties and from the agreement in question. it is common ground that there was a pooling agreement for the cotton season of 1929-30 and it formally came to an end in september, 1930, though.....
Judgment:

Rangnekar, J.

1. [His Lordship after narrating the facts went on :] At an early stage of the hearing, Mr, Munshi, on behalf of the defendant, gave up the issue as to jurisdiction. In the course of the further hearing he gave up his contention as regards the New Mahaloo Ginning Factory not being a party to the new pool, and finally he stated that he did not dispute the figures as to the amount claimed.

2. Before dealing with the issues it is necessary to know what the agreement between the parties is, its nature, and the constitution of the pool. This can be found from the correspondence between the parties and from the agreement in question. It is common ground that there was a pooling agreement for the cotton season of 1929-30 and it formally came to an end in September, 1930, though virtually in about July, 1930. It is also common ground that cotton season begins from October 17 or 19 and lasts up to the following July. The pooling agreement is spoken of in the correspondence sometimes as a combination, sometimes as a joint, and sometimes as a joint association.

3. On July 11, 1930, the defendant wrote to the trustees of the Dhulia Ginning Joint Association to the effect that he had come to know that the combination was going to be terminated on account of the default in payment of himself and Chaturbhuj Sojpal. He stated that he was willing to have an award made and a decree passed in terms of the award in respect of the amounts due by himself and Chaturbhuj. He suggested that separate bills for the moneys due at such rate as the trustees or the parties may fix should be made out by him and Chaturbhuj, and the amount thereof be paid by him and Chaturbhuj within four days to the trustees of the new combination, and he therefore requested that the new factory owners may be admitted, and either the old joint which had not been formally dissolved should be continued or a new pool should be formed. On July 15, the plaintiffs issued a circular to the members of the factory owners at Dhulia, who were also members of the old pool, and the circular stated that a meeting had been held on March 25, 1930, of the gin owners and it was resolved that steps should be taken against the parties in default, and intimated that suits against them were about to be filed. The formal consent of the gin owners was requested by the circular. This circular was also sent amongst others to the defendant. On July 27, the defendant reminded the plaintiffs of his letter of July 11. This, I have no doubt, he did after coming to know that suits were about to be filed against him and the other defaulters. In the meanwhile the old pool was terminated, which appears from exhibit F, and also appears from circular No. 14, exhibit E., dated August 14, 1930, issued by the plaintiffs. This circular amongst others is signed by the defendant. In this it was stated that some parties had approached the plaintiffs with a request to form a new combination and to make some arrangement by which moneys due from the defaulters could be recovered. The circular mentioned the amounts due from the defaulters. It further stated that the defendant and Chaturbhuj Sojpal had seen the plaintiffs and were very anxious for a new combination, and had agreed to certain terms, according to which the plaintiffs thought they would be able to recover the arrears due by them. The plaintiffs therefore proposed that a meeting of the parties should be held on August 19, 1930, Accordingly, a meeting was held on that day and certain terms for forming a new pool were agreed to by all the parties including the defendant. This appears from circular No. 18, exhibit G, which is a very important document and on which the plaintiffs' claim is partly based. The circular makes it clear that the terms which are set out therein were accepted by all the parties, including the defendant. It further shows that it was resolved to form a new combination or a new pool of the Dhulia ginning factories. Clause 2 states the rate agreed upon. Ginning rate was to be Rs. 8-4-6 per Boja (which is a measure of about 392 Ibs.), the amount for expenses to be retained by the working parties was to be Rs. 5-8-6 per Boja, and Rs. 2-12-0 per Boja were to be paid by each party into the pool. Clause 3 sets out the shares of the parties according to which distributions were to be made. It is common ground that these shares are generally fixed and were fixed in accordance with the number of gins in each factory. Clause 4 lays down the method of calculating and recovering the ginning charges from the members. Under this each party had to prepare daily bills for ginning charges for all cotton ginned and hand over the bills to the custodians, and no cotton was to be allowed to be removed from the factory or the compound till the full bill was paid by the constituent or the factory to the custodians; and on this being done, the latter were to issue a certificate in writing allowing the cotton to be removed. The pool accounts were to be made every week on Monday in respect of the work done in the previous week, and the amount in the hands of the custodians after deduction of certain expenses was to be distributed in accordance with the shares fixed amongst the members, except in the case of certain parties. The terms further authorised the custodians to call upon any party guilty of default to close his factory for the season, and on failure to do so the custodians had the power of taking the necessary legal steps for that purpose. Under Clause 5 the plaintiffs were to be the custodians. Clause 6 stated who the defaulters were and the amounts which were due by them, and included the defendant, and the amount shown against him was Rs. 15,816-10-0. Clause 6 has further sub-clauses, under one of which the door was left open for the New Jamshed Factory, the owners of which had become insolvents, to come into the pool. Under another it was agreed that steps were to be taken against the New Mahaloo Ginning Factory who had not joined this pool. As to the defendant and Chaturbhuj, sub-cl, (c) of this clause runs as follows :

As regands Messrs. Rustomji Dhanjishaw (defendant) and Chaturbhuj Sojpal, the owners of these two factories have agreed to retain with the custodians the full amount of their pool shares and not to receive anything from the pool till their arrears including costs that have been incurred in litigation against them are wiped off and the full amount due by them for the previous seasons including the said costs has been recovered from their shares in the pool thus retained. Both these parties will have to get the consent of the mortgagees of their respective factories to this arrangement.

Clause 7 fixed the period for the continuance of the pool at three years commencing from October 1, 1930, unless notice to terminate it was given in the manner laid down in that clause. Clause 8 is important, and shows that in addition to these terms all the other terms contained in the usual pool agreements were agreed upon and were to be incorporated in the agreement to be drawn up forming the new pool. The usual terms, it is common ground, are those contained in exhibit A, which was the agreement in regard to the old pool.

4. Some correspondence passed after this between the plaintiffs and the defendant regarding some of the parties not joining the new pool. It appears that the defendant was anxious to form the pool and to set it going as soon as possible, and had undertaken to obtain signatures of some of the parties to this circular and to obtain also the consent of his own mortgagees to the agreement. On October 23, 1930, the defendant informed the plaintiffs that he and his mortgagees agreed to sign the agreement, but Chaturbhuj Sojpal had turned round and that was the reason why the defendant could not go to Bombay to sign the agreement. On October 24, the plaintiffs wrote peremptorily to the defendant that matters could not be completed unless he came to Bombay and signed the agreement, and that therefore they would wait till the following Monday, and that if he failed to come and execute the agreement, no combination would be formed. That was followed by a telegram asking the defendant to come to Bombay at once. In the meanwhile, it seems that Chaturbhuj signed the Dhulia agreement, and the plaintiffs sent a telegram to the defendant informing him of it and asking him to come to Bombay at once to sign the same. The defendant came to Bombay and signed the agreement, which is exhibit M, on which the plaintiffs' claim is partly based.

5. This agreement is made between the plaintiffs, who are referred to therein as custodians, on the one hand, and the defendant and Chaturbhuj Sojpal on the other. The recital shows that the parties to this agreement had' decided to join the new pool, that the defendant and Chaturbhuj were indebted in the sum of Rs. 15,816-10-0 and Rs. 12,611-1-3 respectively in respect of the past seasons, that the defendant was also indebted in respect of the costs of some litigation, that a new pool was about to be formed and that the defendant and Chaturbhuj had agreed to join it, and that they had further agreed to pay the arrears due by them in the manner laid down in this agreement. By Clause 1 of the agreement the rates are fixed which are the same as those in exhibit G. Clause 2 is important and runs as follows :

2. The parties of the second and third parts shall out of the ginning charges on the work done by them pay to the custodians the full amount payable by each of the parties of the second and third parts to the pool on all ginning work done by the said parties in their respective factories regularly as per circular No. eighteen dated August 25, 1930, (exhibit G) confirmed (amongst other parties) by the said parties of the second and third parts without making any deductions whatsoever in; respect of the shares of each of the parties of the second and third parts until the arrears due by each of them to the pool including the costs of litigation that have been incurred against the said party of the second part are paid off and the full amount due by each of the said parties for the previous seasons (including the costs referred to above) has been recovered from the shares of each of the said parties.

The rest of the clauses are not important. This agreement was binding on the parties thereto, and their respective heirs, executors, administrators and assigns.

6. Up to this time no agreement in terms of exhibit G and incorporating the terms of exhibit A was formally signed by the parties. But there is no doubt on the evidence that the new pool was formed and the parties commenced to work their factories as members of the new pool from about October 19, 1930. The defendant himself commenced to work his factory from October 23, though up to November 8, he did not gin much cotton. It is in evidence that thirteen factories never worked at all during the season. It is also in evidence,-and the point has also been given up-that the name of the New Mahaloo Ginning Factory was struck off from the list of members within three or four days after exhibit G came into existence.

8. On November 9, 1930, a meeting was called by some of the members and signatories to exhibit G at Dhulia. That was not called by the trustees, nor does it appear to have been held on behalf of the new pool as such. It appears from the resolution (exhibit N) passed at that meeting that the original arrangement fixed by Clause 4 of exhibit G for calculating charges from the factory owners was not acted upon or carried out by any party up to that day, The signatories to this resolution, including the defendant, stated that they would conform to that arrangement strictly as from November 15, 1930, and that the charges for cotton ginned and taken away until November 7, 1930, should be paid on November 10, 1930. The resolution further stated that as to the cotton ginned and taken away up to November 14, 1930, the charges at the rate of Rs. 2-12-0 per Boja should be paid up at once. On November 20, 1930, the plaintiffs issued a circular which shows that the New Jamshed Ginning Factory or the new owners of that factory, namely, the Bharat Ginning Factory, had joined the pool. This circular is signed by the defendant.

9. It appears that defendant never carried out the term as to payment of charges and was not regular in making payments to the custodians, and on the other hand was putting forward what appears to me to be false and frivolous excuses. And so on November 21, 1930, the plaintiffs complained about this in their letter to him, part of exhibit L. They further stated that the original arrangement for calculating bills in accordance with Clause 12 of exhibit G was found unworkable, and the parties to the pool were putting into the pool regularly the amount payable by them at the rate of Rs. 2-12-0 per Boja. They, therefore, requested the defendands to act in the same way, i.e. to pay Rs. 2-12-0 per Boja every day, and told him frankly that if he did not agree to this, the pool would be terminated. This was replied to by the defendant on November 22. Although he purports to reply to the plaintiffs' letters of November 20 and 21, it seems to me to be pretty obvious that his letter was written as a counterblast to the resolution, exhibit P, passed by the members of the pool on that day. The burden of the song in this letter is that resolutions were being changed by the plaintiffs at their sweet will and that the parties were not conforming to the original resolution and that therefore he himself was not paying what was due by him into the pool. The resolution of November 22, exhibit P, stated that the original arrangement in Clause 4 of exhibit G was found unworkable as merchants did not pay their bills regularly; the plaintiffs therefore proposed that it should be done away with and that instead all the factories should arrange to pay the pool the amount of Rs. 2-12-0 per Boja themselves. The resolution was circulated amongst all the members and they were asked to confirm this resolution by signing against their names. It is clear that it was accepted by all, including the defendant, but he however made an endorsement on the circular against his name in these words: 'Cannot give daily but will after every fifteen days.' To say the least, it seems to me to be absurd for the defendant to complain that this new arrangement was to his disadvantage and to say he would pay Rs. 2-12-0 per Boja fortnightly when the original arrangement required him to pay Rs. 8-4-6 per Boja. It is clear on the evidence that he was not paying regularly either at the rate of Rs. 8-4-6 or at the rate of Rs. 2-12-0, even though most of the signatories to exhibit N were doing so. It is proved that repeated demands were made on him and his reply was as usual that he would pay if the other parties paid. A letter dated November 23, 1930, part of exhibit L, written by some of the members makes it clear that the defendant and Chaturbhuj were refusing to pay in accordance with Clause 4 of exhibit G and also in accordance with exhibit N, and that they were doing large business at the same time and taking full advantage of the new pool, and therefore in the opinion of the signatories to that letter it was not worth while to continue the pool. They, therefore, called upon the plaintiffs to take immediate legal proceedings in the matter. It may be stated that this letter has been put in by consent of counsel on both sides.

10. On December 2, 1930, the plaintiffs wrote to the defendant protesting against the endorsement made by him against his name on circular No. 40, exhibit P, and insisted on his withdrawing the same and agreeing to pay in accordance with the circular which was accepted by all other parties. The plaintiffs insisted upon receiving a reply before December 6, and threatened to proceed further in the matter if the remark made by the defendant was not withdrawn. On December 4, the defendant replied to this letter, in which he repeated his old story about change of resolution, asserted that he was following the old resolution, and if the plaintiffs chose to change the resolution he was not responsible. There is an N.B. to the letter which is important. This is how it runs:

Please take note that the agreement in connection with the amount due for the last season was taken from me under the temptation of having joint pool and this will be considered as cancelled if you will break the joint and my former objection with regard thereto shall stand.

It seems to me that this was dishonest, as the evidence shows that he was neither paying at the rate of Rs. 8-4-6 nor at the rate of Rs. 2-12-0 regularly, and that he never objected to the arrears of the amount claimed from him. He admitted that he was liable to pay the same from the very beginning and was anxious that he should be admitted to the new pool and promised to pay it in the manner suggested by the other parties. No correspondence took place thereafter until March 18, 1931, on which day the plaintiffs wrote to him complaining that he had not paid his ginning bill dues in spite of several reminders, and calling upon him to make the payment immediately. It appears from the evidence that the last actual payment made by the defendant was on February 19, 1931.

11. On April 8, the plaintiffs issued a circular, exhibit Q. That was received by the defendant and signed by him. By this circular the plaintiffs called a meeting of the parties to consider what steps should be taken to enforce payment from the defaulters on the 17th instant. Against his name the defendant made a remark to the effect ' Cannot come to Bombay during the season.' Accordingly a meeting was held on the 17th, and what happened at the meeting appears from exhibit R. The resolution passed at the meeting authorised the custodians to make up the pool accounts from the beginning to the end of March and to call upon the defaulters to pay, and if they failed, to take legal steps to enforce payment.

12. It is in evidence that the defendant all this time went on working his factory and taking full advantage of the new pool. It is also in evidence that till April 24, 1931, he acted under the pool in submitting from time to time returns of the cotton ginned by him and other particulars as required by exhibit G. It seems to me that by that time the season was coming to an end and he started disputes on one ground or the other. From April 24, till the pool was terminated on July 17, the defendant and the New Mahaloo Ginning Factory were the only factories that were working, the rest of the factories being closed. It also appears from the evidence that by this time the question with regard to the old pool as to whether it was a legal or an illegal association prohibited by Section 4 of the Indian Companies Act had come before the Dhulia Court, which held that it was an illegal association, and the defendant had come to know of this decision.

13. On April 28, 1931, the defendant wrote a letter to the plaintiffs in which he stated (1) that the draft agreement required several alterations; (2) that the Dhulia Court had held that the previous association was illegal in law, and unless this legal defect was removed or got over, he could not go on making payments, and asked the plaintiffs to wait until a final judgment was given in that suit, by which he meant or seems to have meant the decision of the Appeal Court, and perhaps the decision of the High Court in second appeal. This letter has been rightly criticised by the learned counsel for the plaintiffs as dishonest. In the meanwhile, on April 30, the plaintiffs wrote to the defendant that as resolved at the meeting of April 17, accounts were made up and that he had to pay a sum of Rs. 9,442-13-5, a statement with regard to which was forwarded.

14. In reply to the defendant's letter of April 28, the plaintiffs wrote on May 22, stating that they were advised by their lawyers that no change in the agreement was necessary. The same day the plaintiffs wrote another letter threatening to take legal steps against the defendant in default of the payment of the moneys due by him. On May 30, the defendant replied to this letter, and this is what he says :

Further you write that I must act according to the terms of the agreement but where has the agreement been entered into. That is the main objection. Only the circulars for forming the pool have been signed.

Then he repeated his point about the illegality and also the contention that the draft agreement required alterations, and finally refused to make any payment to the plaintiffs. In my opinion, this letter is a complete repudiation of the agreement arrived at between the parties and a clear breach of it on the part of the defendant.

15. Nothing happened further after this till about the month of July when the season was practically over, and on June 25, 1931, some of the members wrote to the plaintiffs complaining that the defendant and Chaturbhuj were not paying moneys due by them and on the other hand securing large business and taking full advantage of the pool and were also breaking the contract by giving large rebates at random as they liked and therefore honest members were incurring heavy losses, and it was desirable that the joint could not be continued under those circumstances from July, 1931. Another member also wrote to the plaintiffs about that time saying that he proposed to withdraw from the pool. So on July 2, 1931, the plaintiffs issued a circular. along with these letters to the members and proposed to call a meeting of all the members on July 17, 1931, to consider the matter. That circular amongst others was sent to the defendant. On July 7 the defendant wrote to the plaintiffs in reply to another letter which they had written on July 2, in which he again adhered to his case that there was no agreement between the parties and that only circulars were issued, that he had not accepted the draft agreement which was got prepared by the plaintiffs, and that the pool was not registered under the Indian Companies Act and was therefore an illegal association, and denied all liability to make any payments to the plaintiffs. A meeting was held on July 17 as suggested by the plaintiffs, and it was resolved that Messrs. Little & Co. should be employed to take steps against the defendant, and that the combination should be treated as terminated as from that day. Messrs. Little & Co. thereafter sent a notice of demand to the defendant, and he replied repudiating and denying any liability to the plaintiffs.

16. The correspondence, which I have summarised, and the oral evidence led on behalf of the plaintiffs, which I accept, show (1) that the defendant was anxious that a new pool should be formed at Dhulia for the season 1930-31, and acknowledged his liability in respect of the arrears due to the old pool and promised to pay the same. (2) Accordingly a new pool was formed in August, 1930. (3) That the terms of agreement between the parties were as in exhibits G, M and A. (4) That the term in Clause 4 of exhibit G as to collection of bills and payment to the plaintiffs was not acted upon and was abandoned from the very outset and a new arrangement agreed upon under which the parties had to pay Rs. 2-12-0 per Boja daily to the custodians. The circular, exhibit P, containing the new arrangement was signed by twenty-one parties. Five of the parties did not sign it, but these were among those who were not working their factories throughout the season. Letters to these parties with regard to this circular were sent, and they never raised any objection to exhibit P. In accordance with the original term in Clause 4 of exhibit G only two or three parties paid at the rate of Rs. 8-4-6 and that too on one occasion between November 1 and 7, 1930, and the amount paid was very small. After exhibit N was passed no one paid at the rate of Rs. 8-4-6. Payments were made to the custodians at the rate of Rs. 2-12-0 as appears from exhibit N, and all the parties including the defendant paid at that rate, some regularly and others irregularly. (5)' At no time did the defendant carry out regularly either the old arrangement under Clause 4 of exhibit G or the new agreement under exhibit P. (6). The defendant took full advantage of the pool right up to June and accepted/the new pool and acted under it so as to benefit himself by charging higher rates than he would have been able to obtain at Dhulia right up to April 24S, and even after April 24 he continued to gin cotton and ginned about 1000 Bojas right up to the end of the season. In all he ginned 9,200 Bojas throughout this period. He continued to send the returns of the cotton ginned by have and other particulars under the agreements, exhibits G and A, to the custodians up to April 24, 1931, and refused to do so thereafter. (7) That the outstandings which were to be collected from the defaulters were to be distributed amongst 'the members of the old pool 1928-29 and 1929-30. (8) When complaints were made towards the end of the season about the defendant's conduct and his default, he began to put forward false and frivolous excuses. He next set up the question of illegality of the association, having come to know of the decision of the Dhulia Court, and finally repudiated the agreements, exhibits G and A, and also exhibit M on or about April 30, 1931. (9) When the pool was terminated only seven parties were in arrears, demands were made on behalf of the plaintiffs against all the parties, some paid the moneys due by them after such demands, but the defendant paid nothing. (10) The draft agreement was circulated about February, 1931. Fourteen parties signed the draft agreement, and it was being further circulated when the disputes arose. It was sent to all the parties and not objected to by any except the defendant. When the defendant was asked to execute the same, he stated that certain terms required alterations and that after consulting other members he would sign the same. (11) The defendant from the very beginning knew that the New Mahaloo Ginning Factory was not a member of the association and the name of that factory was omitted from the members' list, and yet he put forward his complaint right up to the hearing that all the parties to the old pool were not parties to the new pool, and only gave it up about the time when the evidence in the case was concluded.

17. The first important question is whether the pool agreement falls within the prohibition of Section 4 of the Indian Companies Act. The same question came before Mr. Justice Macleod (as he then was) in an unreported case, In the matter of the Indian Arbitration Act, 1899, and In the matter of the Ginning Pool at Sheogaon1, in which the pool agreement was practically on the same terms as in the present case and which was decided by the learned Judge on June 21, 1915. The learned Judge held that the agreement between the parties before him was not an agreement of partnership, and further if it was an association, whether a partnership, or an association, it did not fall within the prohibition of Section 4 of the Indian Companies Act. The case went in appeal, and was decided quite entirely on a different point : Hardatrai Rampratab V. The New Mofusil Co. Ltd. (1915) O.C.J. Appeals Nos. 30 and 31 f 1915, decided by Scott C.J. and Davar J., on October 7, 1915. Therefore, the judgment of Mr. Justice Macleod stands unchallenged till to-day, and according to the rule laid down by the Appeal Court in Tyabji Dayabhai & Co. v. Jetha Devji & Co? the decision of Mr. Justice Macleod is binding on me, and I must therefore hold that the pool agreement in this case, exhibit G and exhibit A, is not an agreement of partnership, and even if it is an association, as I think it is, it does not fall within the prohibition of Section 4 of the Indian Companies Act. Mr. Munshi on behalf of the defendant says that the question whether the combination in that case was an association or not and whether as such association it was legal or illegal did not arise before the learned Judge. I am unable to accept the argument. It seems to me, that Mr, Justice Macleod definitely held that in his opinion the parties to the pool did not form a combination, association or partnership such as is prohibited by Section 4 of the Indian Companies Act. I have had a very interesting argument on the question and have formed a definite opinion upon it, which, I think, is right, and which I should express, as the case is likely to go further and I may say at once that I respectfully agree with the judgment of Mr. Justice Macleod.

18. Before dealing with the question it is necessary to consider what really is the nature of the agreement between the parties. I have already discussed the terms of exhibit G, and I have pointed out that it refers to and incorporates the terms of exhibit A, and it is necessary to see what these terms are. It may be stated in the first place that the object of the association is to stifle competition amongst the owners of the ginning factories at Dhulia. This is what the plaintiffs have stated in the plaint, and this is not denied by the points of defence, and I do not think it can be denied by any one. But for this agreement the factory owners at Dhulia would be cutting each other's throats by reducing the rates of ginning, and there is some evidence before me which shows that some people used to gin cotton at the rate of Rs. 2-8-0 per Boja, whereas by reason of the pool agreement every factory owner was bound at least to charge Rs. 8-4-6 per Boja. The recital of exhibit A states that it had been arranged between the parties to it for their mutual benefit to pay a certain portion of their earning in the factories to the general pool or common(sic) referred to in the agreement as the said ' pool', and to again distribute the same in certain shares. Clause 1 makes it clear that in spite of the agreement each of the parties to the pool remained the absolute owner of his ginning factory, had absolute management and control of his factory, had to pay his own staff and servants and all his expenses, all repairs were to be done by him at his expense, and the pool or the other members of the pool were not in any manner responsible for the liability incurred by any member in connection with his factory. Clause 2 fixed the period; Clause 3, the rates. Under Clause 5 a certain amount had to be paid by every member to the trustees of the pool, who then were the Penker Manufacturing Co., for distribution amongst other parties. Clause 6 lays down that a Boja shall not contain more than 392 Ibs. Clause 7 fixed the shares which of course are varied by exhibit G. Clause 8 requires the parties to submit daily statements. Clause 9 authorised and required the trustees to make up accounts and to send a copy of this statement to every party by the fifth day of each month showing the amount due by him. Parties were then bound to pay within sixty days the amounts due by them in accordance with the statements. The trustees then forthwith were to distribute the amount so collected amongst the parties. Then Clause 9 stated that if any party made default, he had to pay interest on it, and further it was to be distributed amongst those who had not committed any default. Clause 10 empowered the trustees to file suits and take any necessary legal steps against the defaulters. Clause 12 authorised the trustees to deduct all out-of-pocket expenses and costs, etc. By Clause 14 each of the parties was responsible for the collection of the ginning charges due to him or his factory by any of his constituent or constituents. He himself continued liable to pay the amount of such charges under the agreement to the pool even if the constituent failed or became insolvent or the money was otherwise lost. Then by Clause 15 each of the parties was bound to keep his factory under good repairs and condition, but liberty was given to any of the parties to close their factories, and as I have stated, thirteen of the members were not working their factories in this case, but none the less they were entitled to share in the distribution. Under Clause 19 every factory owner had full power to sell or mortgage his factory irrespective of any authority from the pool, only the agreement was not to be terminated by reason of any such transfer or even by reason of the death of the factory owner or the dissolution of a firm. Clause 23 lays down the procedure for holding meetings, and states that a resolution in writing signed by the parties or by majority thereof where a majority is only required shall be as effectual and valid as a resolution passed at a meeting. It may be stated that there is no clause or term in the agreement stating in what cases a valid resolution could be passed by a majority; and that being so, I think unless a resolution goes to the very foundation of the pool, any resolution passed by a majority would be binding on the members of the pool. Clause 25 provides for arbitration of disputes; and Clause 26, employment of staff which is to be paid out of the general fund, and the amount so paid is to be recovered from the parties in proportion to their charges. Exhibit G is practically the same as exhibit A except Clause 4 as to the method of collection, the shares, the rates and the period; and contains an additional term as regards payment of arrears by the defendant and Chaturbhuj. Exhibit M, which I have referred to, contains an acknowledgement by the defendant of the moneys due by him and a binding promise on his part to pay it in the manner laid down.

19. It will be seen from these facts that with the object of stifling competition parties agreed that they should levy a certain fixed rate for ginning cotton, pool together their income, and that income was to be distributed by the trustees, or custodians, as they are called in exhibit G. The only work, therefore, which the association or the combination had to do or the custodians on their behalf had to do was to collect the dues from the members and distribute them in accordance with the fixed shares. It is difficult to see how this comes within the prohibition of Section 4 of the Indian Companies Act. Section 4 (1) lays down that no company, association or partnership consisting of more than ten persons shall be formed for the purpose of carrying on the business of banking unless it is registered as a company under the Act, etc. Under Sub-section (2) of Section 4, no company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under the Act, etc. Now reading the two sub-sections together, it is necessary that, in the first place, there should be either a company, association or partnership consisting of more than twenty persons. Secondly, such company, association or partnership must be formed for the purpose of carrying on business other than the business of banking. Thirdly, that business must have for its object the acquisition of gain either to the company, association or partnership, or to the individual members thereof. The important words in the section appear to me to be ' shall be formed for the purpose of carrying on any other business ', that is to say, business other than banking. These words, therefore, show that what the legislature contemplated is something which must be business in the same sense in which banking is, although impliedly described as business. This, I think, follows from an application of the ordinary rules of construction to the section as a whole, although, strictly speaking, as has been said, banking is not a business. As pointed out by Lord Justice Cotton in Smith v. Anderson (1880) L.R. 15 Ch. D. 247 that is the meaning of the words ' any other business ' in Sub-section (2). Dealing with this question the learned Lord Justice observed as follows (p. 281) :-

As sect. 4 has been fully discussed, I will not repeat its terms, but in order to arrive at the construction of the particular portion of the section upon which the question turns it is material to observe that it begins with a restriction as to companies carrying on a well-known business, the business of banking. Then comes a clause upon which the question turns, which is to apply to companies other than banking companies, with certain exceptions. We have in the first part, without any reference to gain or anything else, a description of the business which companies in the first part of it are formed to carry on. Then in the second part we have a reference to companies carrying on any other business, with this qualification, that the business must be one for the acquisition of gain by the company, association, or partnership, or by its members.

The same distinction is emphasised by Lord Justice James in the same case at p. 273, and further pointed out in Crowther V. Thorley (1884) 50 L. T. N. S. 43.

20. The word ' business ' is undoubtedly a word of a very large import, and if some of the meanings given to it in the dictionaries referred, to by counsel at the bar are adopted, it would result in reducing the section to a mere farce. The word, therefore, must be considered in a reasonable manner so as to effectuate the intention of the legislature. What that intention is has been pointed out by Lord Justice James in Smith V, Anderson dealing with the very point which has arisen before me with reference to Section 4 of the English Companies Act of 1862, which is in terms similar to Section 4 of the Indian Companies Act. The learned Lord Justice observes (p. 273) :-

The Act was intended, as it appears to me, to prevent the mischief arising from large trading undertakings being carried on by large fluctuating bodies, so that persons dealing with them did not know with whom they were contracting, and so might be put to great difficulty and expense, which was a public mischief to be repressed.

Then in another place the learned Lord Justice remarked that they, that is to say the trustees, did not carry on the business in any sense which any man of business would use that word. The facts in that case were that shares in a number of telegraph companies of a very large value were purchased by subscription and vested in trustees. Each subscriber received for every 90 subscribed a certificate for the nominal amount of 100, and a deferred coupon for one 4200th part of the funds, the number of certificates being 4200. The trustees were to apply the income of the shares in payment of interest at six per cent, on the nominal amount of .the certificates. They had also the power to sell the shares and re-invest them in other securities. It' was held that the certificate holders did not form an association within the meaning of the Act and that what the trustees were authorised to do did not amount to carrying on a business within the meaning of Section 4 of the Act.

21. The word ' business ' is construed in the same way by Mr. Justice Grove in Wig-field v. Potter (1881) 45 L. T. N. S. 612 In that case the facts were that an association of more than twenty persons was constituted by a deed. The object of the society was to purchase land and estate, subdivide it into allotments, and divide the allotments amongst the members in accordance with certain rules. The society was managed by a committee. The allotments were offered by auction to the members. It was held that such an association was not an illegal association, At p. 615 the learned Judge observes :-

Now, the sole question here is whether this society is an association for the purpose of carrying on a business that has for its object the acquisition of gain, and I am of opinion that it is not such an association. I read the word business in the usual sense in which we use it when speaking in an ordinary way as trafficking, and having for an object the acquisition of gain by buying and selling; and I think it was so used by the learned judges in the case of Smith v. Anderson.

22. In Dominion Iron and Steel Co., Ltd. v. Baron Invernairn [1927] W. N. 277 it was observed at p. 278 as follows :-

He (Ashbury J.) was also clear that if that association was formed for the purpose of carrying on business, the object of that business was gain. But he was not clear that the association was formed for the purpose of carrying on business. It was idle, of course, to say that it was not formed with a view of obtaining the ultimate profit to arise from the proposed amalgamation. But his Lordship did not, as at present advised, think it was formed for the purpose of carrying on any business within the meaning of Section 1, Sub-section 2 (corresponding to our Sub-section (2) of Section 4). Taking full account of the view expressed in Smith v Anderson...and Crowther v. Thorley..., his Lordship thought that the requirement of shares with the object of pooling them and promoting an amalgamation with another company was not carrying on a business, although the shares might have to be held a long time and many meetings be necessary.

I have already referred to Crowther V, Thorley. These are four cases, which, in my opinion, are much stronger than the present case, and I am, therefore, unable to hold that when the members of this pool agreed that each one of them should contribute his earning to the common pool for the purpose of stifling competition and distribute the same in certain shares among them, considering the fact that each one of the members was allowed to carry on his business in an unrestricted manner and was responsible to the pool whether his constituent paid or not, that the association was formed for the purpose of carrying on any business, within the meaning of Section 4 of the Indian Companies Act. This seems to me to be a mere scheme for collecting the earnings of all the members for the purpose of distribution among them.

23. The next point is that an association, as is contemplated within the meaning of Section 4 of the Companies Act, carries and can only carry on business either by a trustee or by an agent or officers or directors. This is pointed out by Cotton L, J. in the case to which I have referred, and there is no such thing in the present case. Here, as I have pointed out, the business was to be carried on by each of the members, as if there was no pool, entirely in an independent manner. I, therefore, respectively agree with the judgment of Mr, Justice Macleod and with the reasons given by him in that judgment,

24. Mr. Munshi says that the test of business is continuity and repetition of acts, and has referred to some cases which have laid down that test, I agree, but at the same time whether a repetition of acts amounts to business or not must depend upon the nature of the acts, and the act itself, if done singly, must be such as to be called business, and if that is so, and if more than twenty persons carry on similar acts, there is no doubt that the association would be illegal if not registered. But if the act when done singly cannot amount to business, then merely because twenty persons or more than twenty persons are repeating the same act, it can hardly be said that they are carrying on business. If twenty persons agree that they will hop on one leg in the Esplanade Maidan every day for three years, it can hardly be said that they are an association formed for the purpose of carrying on business. If one person lends money at interest and that is his profession, and goes on lending money, then undoubtedly that single act of lending would amount to business, and if twenty persons do the same in the same manner they can be said to be carrying on money lending business. Numerous authorities were referred to at the bar on this question. In my opinion, it would be profitless to enter into a discussion of these cases, as they are all decided on different facts. Some of these cases it is difficult to reconcile with each other, and I do not propose to discuss them. But I must refer to one case which certainly seems to be a strong authority in favour of Mr. Munshi's contention. That is the case of Akola Gin Combination V. Northcote Ginning Factory (1914) 26 I.C. 613 decided by the Judicial Commissioner's Court at Nagpur. The agreement in that case seems on the whole to be similar to that in the case before me, though it must be pointed out that there is no clause therein similar to Clause 1 of exhibit A. The learned Additional Judicial Commissioner starts his judgment with a proposition which I am unable to follow. Says he (p. 613) :-

The object of the association was to work the ginning factories of its members jointly for the benefit of all so as to prevent competition between them.

If an association itself undertook to work the factories of its members either by its agents or directors or officers, etc., then of course it would be difficult to contend that the association is not carrying on business. Then at p. 616 the learned Additional Judicial Commissioner observes as follows : ' Next I have to decide whether this combination was one which worked for gain.' As far as I can see, the only point taken before the learned Additional Judicial Commissioner was that the object of the association was not an acquisition of gain, but a mere distribution amongst the subscribers of money subscribed by them to a pool, and the whole judgment, as far as I can see, seems to be based upon this point. Now it cannot be denied that the object of an association like this is an acquisition of gain by its members. This, however, as has been pointed out in Crowlher V, Thorley, is a subsidiary gain. But assuming that the object of the association, or rather of the members of the association, is gain, the real question is whether the association is formed to carry on business. If an association is not formed for carrying on. business but as the result of the combination or agreement between the members there is gain either to the association or to its members, I do* not think that the case can fall within the purview of Section 4 of the Indian Companies Act, and as far as I can see, this point of view has, with respect to the learned Additional Judicial Commissioner, been lost sight of. The question whether the association was formed for carrying on business or whether what it did or had to do can be said to be business is not discussed. The learned Additional Judicial Commissioner refers to a number of cases, which, however, are not discussed. With utmost respect to the learned Additional Judicial Commissioner, I am, therefore, unable to agree with him. It seems to me that the association in the case before me was really a trade association, formed, no doubt, with the ultimate object of gain to its members; but it is difficult to see how it can be said that the association was formed for the purpose of carrying on business.

25. The next point is whether this was a partnership or an association. Mr. Munshi says that there is here a combination of labour and skill, and a share of profits. He says that under Clause 4 of exhibit G, the owners have nothing to do with the ginning charges and they are to be collected by the custodians, and after collection they are to be distributed in accordance with fixed shares between the members. Then he refers to certain clauses in exhibit A as to interest and liquidated damages. Now, as I have pointed out, Clause 1 of exhibit A makes it clear that in spite of the agreement every member continued to be the full owner of his factory, and if, for instance, any factory was destroyed by fire, the loss would fall not on the pool or other members but only on the owner of that particular factory. Those factories which did not work at all were entitled to a share in the distribution. Mr. Munshi relied upon Clause 4 of exhibit G. This, as I have held, was never acted upon. But even if it was acted upon, I do not think it makes any difference, because it merely prescribes a method of calculating and collecting charges insisted upon by the parties for securing their position in the interests of all the parties except the defaulters. And if one method is changed and another substituted, I do not think that that would alter the position or enlarge the rights of the members of the association. Now although in one way it may be stated that the profits were to be distributed and shared by the members, I am unable to see that there was any business which can be said to be a common business, common to all the members, and so called partnership; and unless there is this community of business, merely because there is a provision for sharing the profits, the relationship between the sharers would not be that between partners. It is difficult to hold that, when people who did not work their factories and were nevertheless entitled to share in the profits that there was any common business, common to them and to others who worked their factories.

26. I now turn to the next point of Mr. Munshi as to whether the plaintiffs alone can sue, and, secondly, whether the suit as framed can lie; Mr. Munshi says that if this is an association, as I have held it to be, the right to sue lies with all the members of the association, particularly as the association is now terminated; and he says further that the suit must be one for winding, ''up and accounts as in the case of a dissolved partnership. Undoubtedly some of the authorities to which he refers show that if an association is dissolved and a member wants to recover his share, then the accounts of the association must be taken as a whole, and for that purpose, the suit must ' be one for winding up and for accounts, &c.; But that is not the position here. There is no question of any accounts being taken as between other members of the association' on the one hand and the defendant on the other. And the cases to which Mr. Munshi refers seem to me to be really cases applicable to clubs and such other bodies. Now as to the question whether the plaintiffs can sue the matter stands in this way. Exhibit G refers to and incorporates exhibit A. Clause 10 of exhibit A, which is not superseded, gives the trustees power to file suits to recover arrears from the defaulters, so that even apart from exhibit M, which is an express agreement between the plaintiffs and the defendant, I think it could have been open to the plaintiffs as trustees and custodians to file a suit against the defendant in respect of the present claim. Exhibit M, however, is a complete answer to the point made by Mr. Munshi. That, as I have pointed out, contains an acknowledgment of debts as regards the arrears by the defendant and a promise to pay. It is true that payment is to be made in a particular way, i.e. out of the profits made by the defendant. But this necessarily implies the continued existence of the association. If the association comes to an end, as it did in the present case, it is difficult to see why the promise based on a personal covenant cannot be enforced by the other party to the agreement. As long as the pool was in existence, it may be that the defendant might have met the claim by saying that the debt can only be recovered out of his profits. But supposing the pool did not come into existence, or supposing none of the parties paid anything after the pool came into existence, or sup-' posing any of the parties died or separated, or the pool was by mutual consent dissolved, it is difficult to see why the debt cannot be enforced against the defendant. In my opinion Clause 4 of exhibit G or Clause 2 of exhibit M are merely methods by which payment was to be made, and each method was dependent upon the continued existence of the pool. When the pool was terminated on account of the defendant's breach and repudiation of the agreement, the plaintiffs became entitled to recover the amount admittedly due by the defendants.

27. The next point is that the plaintiffs as agents cannot maintain the suit. Exhibit M is a short answer to that contention. If my construction of exhibit M is correct, although the agreement was entered into with the plaintiffs as custodians as described therein, it was a personal covenant by the defendant to pay the amount to the plaintiffs, their executors, administrators, heirs and assigns, and binding on the defendant and his successors, executors, administrators and assigns. But supposing the plaintiffs were agents, the evidence shows that in this case there was an express authority given to them to file the suit. That is derived not only from Clause 10 of exhibit A, but also from the resolutions' to which I have referred. It is, however, difficult to see how the plaintiffs can be said to be agents, for in that case they would be agents for all parties who made default in payment. If, at all, they were agents not for the pool but for other members of the association. But the true position on the construction of the documents, and in the light of the evidence is that apart from the fact that they are described as trustees in exhibit A, once the moneys came into their hands they held the moneys in trust for the members for distributing amongst them, and their position seems to be that of trustees. They were liable to hold the moneys for the benefit of the members and liable to account to them. The contention must, therefore, be rejected.

28. Another point taken is based upon the distinction between the claim as to arrears and that as to current dues. Now the position here on the evidence is that the defendant was liable to pay in all on accounts which are not challenged something like Rs. 25,000. The arrears were about Rs. 15,000. Now about Rs. 10,000 were current dues. If he had paid these Rs. 15,000, he would have got about Rs. 6,000 by distribution as his share. This of course the plaintiffs were entitled to retain. As to that part of the claim which comes to about Rs. 10,000 in respect of the current dues, the plaintiffs would be entitled to enforce the claim and file a suit for that purpose whatever their character may be, whether trustees or agents, by reason of the express authority conferred upon them under Clause 10 of exhibit A. As to arrears they would be entitled to enforce payment clearly on the promise in exhibit M.

29. Mr. Munshi's next point is that the arrears were due to the old pool and there was no novatio. He bases this; on the allegation that all the members of the old pool were not parties to the new pool. But that allegation on the evidence seems to me to be unfounded. The position as appears from the evidence is that only two parties had not joined the new pool when it was formed, and they were the New Mahaloo Ginning Factory and the New Jamshed Ginning Factory. Now as to New Mahaloo Factory they never joined, and although their name was inserted, it was struck off three or four days after. Mr. Munshi has given up his contention on this point so far as the New Mahaloo Ginning Factory is concerned, and that for good reason. That factory was in default itself, and under Clause 9 of exhibit A, being in default, it was not entitled to share in any distribution. As to the New Jamshed Manufacturing Co., as I have pointed out, it had gone into liquidation, the owners had become insolvents, and it was acquired by the Bharat Co. and was admitted into the pool. That being the position, all the parties to the old pool were parties to the new pool, and the new pool had two before parties as members. Now, I am unable to see why on the facts of this case this is not a case of a clear novatio. The position here is that there is a debt due by the defendant to a body which I shall call A. There is an agreement between A and the defendant and another body B which consist of A and one or two other persons. The defendant agrees to pay the amount to B. That being the position, in law it would amount to a clear novatio. Therefore, there is no substance in this contention, and apart from the fact whether there was a novatio or not, the plaintiffs' right to sue is based upon exhibit M. In the view, therefore, which I take, it is not necessary to consider the cases relating to clubs and other similar bodies which are referred to by Mr. Munshi.

30. This brings me now to the last question as to whether the plaintiffs were guilty of breach of the contract or the defendant, as the plaintiffs say, repudiated the contract which led to the termination of the pool. Mr. Munshi says that the plaintiffs varied the contract from time to time in spite of the protest of the defendant. He further says that the draft agreement, exhibit No. 2, contained terms which were not contained either in exhibit G or in exhibit A. His next point is that the agreement was for three years, which, he says, was a condition precedent, and as the pool was terminated before that period, there was a breach on the part of the plaintiffs. Taking the last contention, there is nothing in exhibit G or even in exhibit A to show that the period of three years was a condition precedent in the sense that if the contract terminated before three years for a good valid reason, the rights of the parties came to an end, and even if there was any liability it could not be enforced. Now on the evidence it seems to me that this period of three years was fixed for the benefit of other parties and not for the benefit of the defendant at all, and that for this reason that unless the pool had lasted for three years, it would not have been possible for the other parties to recover their dues from the defendant in respect of their arrears in one year's cotton season, not even in two, but probably in three. This is clear from a letter which the plaintiffs have written to the defendant in reply to his letter, part of exhibit L. It appears that the defendant had put forward an excuse that his mortgagees consented to the pool agreement only if it was to last for one year. Referring to that the plaintiffs said in their letter of October 17, 1930, that if the period was restricted to one year, the last year's dues will not be recovered in one year, and therefore the plaintiffs will have to continue the procedure of recovering the dues for the next year also, and therefore they could not agree for one year. If, as I shall show presently, the defendant repudiated the agreement, I am unable to see why the other parties could not terminate the agreement after one year. It may be that the defendant may have a cause of action for damages for an alleged wrongful termination of the pool, but that is not his claim before me. There is no counter-claim and no damages are claimed, and in any case I am quite clear in my opinion that the period of three years was not a condition precedent.

31. Now the evidence shows that practically with the exception of two or three people Clause 4 of exhibit G was not carried out and was abandoned from the beginning, and every one was really paying at the rate of Rs. 2-12-0 per Boja. The defendant himself did not carry it out, and if I am right in holding that it is a mere method of calculation, there is no reason why it should not be changed by the members themselves if it be found to be unworkable. In any case on the evidence it seems that the new method in exhibit P was never repudiated by the defendant, but on the other hand was accepted by him right up to April 24. All that he said in his endorsement was that he would not pay Rs. 2-12-0 daily but will pay fortnightly, and even after that he continued to be a member of the pool and to act under it. This question arose in the third week of November, 1930, and as I have shown, the defendant's conduct has been such that he continued to take full benefit of the pool and to act under it right up to April 24, 1931. In spite of this so called variation he went on ginning cotton and making payments under the agreement right up to practically the end of the season, and he cannot, in my opinion, now turn round and say that there was a variation and therefore he was not bound by the agreement.

32. Then as to the draft agreement it is true that in the correspondence he put forward the contention that certain terms in the draft were not contained in the original agreement, and this as to certain terms seems to be correct. But on the evidence there was a definite agreement arrived at when the resolution of August was passed. Similarly there was a definite agreement arrived at when exhibit M was signed by him. The suit is based on the terms of these agreements which are not disputed, and merely because the plaintiffs tendered to him a draft for signature which contained some terms which were not in the real agreement arrived at between the parties, he cannot say that the plaintiffs are not entitled to recover what he had definitely agreed to pay.

33. Then, as I have held, he finally repudiated the whole agreement and denied even its existence. In that view the contention that the draft tendered for execution was different from exhibit G or exhibit A seems to me to be irrelevant. The claim in the suit does not rest on any of the disputed terms and they have nothing to do with it. It is based in the first place on exhibit M independently of anything else. It further rests on exhibits G and A and on the admitted terms in those documents. Any discussion, therefore, about the draft being different from exhibit G or exhibit M is, in my opinion, irrelevant. But the draft was sent to him in February 1931, and as I have stated it was accepted by all the parties except the defendant; and in spite of the fact that he put forward this contention, he continued to act in accordance with and under exhibits A and G right up to April, and it was then that he repudiated the agreement. The defendant seems to think that the pool was terminated because he made default in paying the moneys due by him. That is not so. The evidence shows that it was terminated by all the parties- the defendant did not attend the meeting-because the agreement was repudiated by the defendant and he had committed a breach of it.

34. The figures on the merits are not disputed. Therefore, there will be a decree for the plaintiffs in terms of prayer (a) of the plaint, but subject to this variation that interest will be at nine per cent, from August 1, 1931. As to prayer (b), it appears from the evidence that the defendant ginned 1000 Bojas, There has been no cross-examination on this point, and apart from this that is supported by the statement put in on behalf of the plaintiffs. I may also say that the defendant himself has not ventured to come into the witness box and to give any evidence on the many contentions which he has raised. As to this 1000 Bojas he was liable to pay to the pool at the rate of Rs. 2-12-0. So that the total sum due by him in respect of the working of the factory from April 24 right up to July 17 would be Rs. 2,750. He would be entitled to get credit for 561104th of the amount for his share in the distribution, which comes to Rs. 148. Therefore, in regard to the claim in prayer (b), there will be a decree for the plaintiffs for Rs. 2,602 with interest thereon at nine per cent, from August 1, 1931, till judgment. Costs and interest on judgment at six per cent., costs to include costs of the chamber summons for directions.

1. The following judgment was delivered in that case by Macleod J. on June 21, 1915.

Macleod, J.

The petitioners pray that an award filed in this Court in the above 'matter may be removed from the file or set aside.

The petition was adjourned into Court. On June 11, 1913, the petitioners who are owners of a ginning Press at Sheogaon entered into an agreement with other companies and firms owning presses at Sheogaon whereby the parties agreed to pool their profits from December 19, 1913, to June 30, 1914.

The rate to be charged for ginning was fixed at Rs. 4-4-8 per bojah of 280 Ibs. which knight be raised or lowered from time to time by a majority of the parties.

Each party was to retain Rs. 2-8-8 per bojah for working expenses and contribute the balance of Rs. 1-12-0 to the pool. Payments were to be made monthly and the contents of the pool were to be distributed monthly amongst the parties according to the shares specified in Clause 11 of the agreement. Clause 17 of the agreement provided for the referring of all disputes and differences between the parties during the continuance of the agreement to arbitrators, one to be chosen by each disputant. The petitioners made a complaint that some of the parties were not complying with Clause 7 of the agreement, and when the other parties decided that the complaint was not well-founded, the petitioners withdrew from the pool and declined to supply the daily returns showing the cotton ginned at their factory. A notice was then issued under Section 9 of the Indian Arbitration Act to the petitioners by the other parties intimating that they had appointed Mr. A. W. Campbell their arbitrator to settle the dispute. The petitioners denied their right to make the reference and refused to appoint an arbitrator. The arbitrator proceeded with the reference ex parte and made his award which has been filed in this Court.

When the matter came on for hearing, Mr. Jinnah contended that the agreement of June 11, 1913, was an agreement of partnership and as it consisted of more than twenty persons arid had not been registered, it was illegal under Section 4 of the Indian Companies Act, 1882. He further contended that the Court had no jurisdiction to admit the award. There was little ground for the above contention as the agreement was signed by at least three parties in Bombay. So that the Court could with leave granted under Clause 12 of the Letters Patent have tried a suit between parties to the agreement.

As to the first point, it is difficult to see how the agreement of June 11, 1913, could be considered as an agreement of partnership. Each party worked his or their factory separately from the others. The contracts with constituents for ginning cotton were made separately by each party, and though the charge to be made to constituents for ginning was fixed by the agreement, each party had to look to his or their constituents for payment, while the obligation to put into the pool the fixed amount for each bojah ginned remained whether the constituent paid or not. A constituent of one factory if sued by the owner could not possibly have contended that all the other parties to the pool were necessary parties to the suit. Nor could it be said that each factory was jointly owned by all the parties to the pool, or that a person who supplied materials to one factory could sue the owners of the other factories. It may be suggested that the parties formed an association as distinct from a partnership. The corresponding Section 4 of the English Companies Act, 1862, was considered by the Court of Appeal in Smith v. Alderson. The word ' association' is not defined in the Act. But at p. 277 Brett L. J. said : ' if the association mentioned in sect. 4 is not, strictly speaking, a company or a partnership, it must be something of a similar kind. It must be a relation established between twenty persons or more ' for the purpose of carrying on business ' ', But in this case each party carried on business separately, only under the agreement he was bound to pay the proceeds of his business to the holder of the pool who distributed the contents of the pool according to the shares of the respective parties.

In my opinion the parties! to the pool did not form a company, association or partnership, and the petition must be dismissed with costs.


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