1. On a difference of opinion between Khosla and Kapur JJ.. in three connected appeals (Regular First Appeals Nos. 13, 14 and 15 of 1953) the following points have been referred to me for decision under Section 98, Civil P. C.
1. Is the restriction imposed by Clause 3 of the partnership agreement enforceable in law?
2. Is the plaintiff entitled to the relief of injunction as claimed by him? -
3. Is the plaintiff entitled to the relief in respect of accounts?
4. Is the suit within limitation?
2. Although the facts of the case have been set out at some length in the judgments of the two learned Judges who have disagreed, I find it necessary to give at least my own brief version of them. The British India Corporation Ltd. is the owner of a number of enterprises including the Kanpur Cotton Mills Co., and by an agreement in the form of a letter dated 20-3-1937, P. 2, the Corporation appointed the firm Messrs. L. N, Gadodia and Co., of which Laxmi Narain Gadodia, the plaintiff, is the proprietor, as selling agents for the sale of ell yarn and cloth produced by the Kanpur Cotton Mills up to 31-12-1937.
A few days later, 29-3-1937, Laxmi Narain Gadodia entered into a partnership agreement with Deva Sharma one of the defendants in the suit, the sole business of the partnership being the said selling agency and the partnership agreement was to continue in force as long as the selling agency business continued. According to the terms of this agreement L. N. Gadodia was to receive -/12/-in the rupee out of the profits of the agency and Deva Sharma the remaining -/4/-. Clause 3 of the partnership agreement, which is one of the most contentious points in the case, reads:
'3. That on the termination of the selling agency business neither of the parties to this agreement shall take up the said selling agency from the mills,'
It is not in dispute that L. N. Gadodia was to be the financing partner and that Deva Sharma wasthe man who was mainly to be responsible for the running of the business and the fact that Deva Sharma was 'persona grata' with the Corporation is clear from the inclusion in para 17 of the Corporations' letter, P. 2, of the sentence.
'The services of D. Sharma will not be dispensed with by your Company without the prior sanction of the Kanpur Cotton Mills.'
3. The selling agency was renewed in favour of the -partnership by the agreement, P. 3, dated 1-3-1938 for a period of one year from 1-1-1938, but Clause 18 in the agreement provided
'that on the expiry of the agreement by the efflux of time unless any new agreement is then entered into by the parties hereto, this agreement shall be regarded as a continuing agreement and shall be subject to the conditions detailed herein'.
The position of Deva Sharma in the partnership running the selling agency was again assured by Clause 17, which was to the effect that his services should not be dispensed with by the agents without the prior sanction of the Company.
4. It seems that about the beginning of 1939 L. N. Gadodia made some efforts to introduce his son Bam Gopal into the work of the selling agency, but this was resented by Deva Sharma and the Corporation with the result that the letter C. D. 16 dated 28-1-1939 was sent to L. N. Gadodia in the following terms:
'We have to inform you that we do not desire Mr. Ram Gopal to attend this office. So far as we are concerned, under the terms of your agreement there are but two principals connected with the agency, i.e. Messrs, L. N. Gadodia ana D. Sharma, as we have no wish to be encumbered with additional representatives nor is it our wish that other persons not covered by the agreement should interfere in matters which are the sole concern of the agency'.
In spite of this the plaintiff sent the letter, C.D. 13. dated 24-5-1939 to the Corporation in which the following passage occurs:
'This is to inform you that my son Ram Gopal Gadodia, who attained majority five months ago, has also been looking after the business and I give below his specimen signatures.'
This drew, from the Corporation the letter C. D. 12, dated 27-5-1939 in which the following passage occurs:
'We observe from your letter of the 24th May that your son, Mr. Ram Gopal Gadodia, has attained his majority and you have sent us a specimen of his signature as proprietor of your firm. We presume we are to infer from this that on his attaining his majority you have admitted him to partnership in the firm.
This being so, we must invite your attention to our Kanpur Cotton Mills letter to your Kanpur Office (with copy) to your Head Office in Delhi for information No. T/399 of 28th January last wherein the Kanpur Cotton Mills informed you that they did not desire your son to attend their office.
That letter also pointed out that so far as the Kanpur Cotton Mills were concerned under the terms of the agreement between you, there could only be two principals connected with the agency Messrs. L. N. Gadodia and D. Sharma--and they had no wish to be encumbered with additional representatives nor was it their wish that other persons not covered by the agreement should interfere in matters which are the sole concern of the agency.
We have also in this connection to remind you that it is specifically laid down in the agreement between us that Mr. Sharma would attend daily or as required at the office of the Kanpur Cotton Mills and further that in the agreement which exists between you and Mr. Sharma it is stipulated in Clause 8 that Mr. Sharma shall be responsible for the work of the Kanpur Cotton Mills' Agency business and its efficiency. That being so, we trust that the admission of Mr. Ram Gopal Gadodia as a partner in your firm will in no way effect the handling of our agency.
We feel that a great deal of the friction, to which we have so frequently referred before, has been caused by those interested in your other business activities seeking to interfere in the activities of that branch of your firm which is responsible for the handling of our Kanpur Cotton Mills Agency and we must make it perfectly clear to you now that if such interference is repeated, then we shall have no alternative but to terminate the agency as we are definitely not prepared In any manner whatsoever to permit internal arrangements of your firm, which are not acceptable to us, to damage the sales of our Kanpur Cotton Mills Branch.'
5. This threat to terminate the agency apparently stopped any further efforts on the part of the plaintiff to introduce his son into the selling agency business for some time, and no further trouble occurred until the end of 1945 when the plaintiff sent the letter, C. D. 17, dated the 7th of November to the General Manager of the Kanpur Cotton Mills as follows:
'We take this opportunity of writing to you, that the undersigned is now leading almost a retired life and has not been able to visit Kanpur since long. In his place, his son, Ram Gopal Gadodia, pays short and occasional visits to Kanpur during the year and we trust that you will kindly make it convenient that he should meet you when he is there along with Mr. Sharma'.
This drew the following reply, C. D. 14, dated 29-11-1945 from the Corporation.
'We refer to a letter sent by your principal on the 7th instant to our Kanpur Cotton Mills Branch in which he advises that he is now leading almost a retired life and has been unable for many months to visit Kanpur.
The letter indicates that the writer's adopted, son, Mr. Ram Gopal Gadodia, will pay short and occasional visits to Kanpur during the year and asks our Kanpur Cotton Mills to make it convenient to meet the said adopted son when he is in Kanpur along with Mr. Sharma.
We also invite your attention to the agreement entered into between this Corporation and your company under the date 1-3-1938.
We consider that the terms of the letters received by our Kanpur Cotton Mills go behind the terms of the contract and it is, therefore, a suggestion not acceptable to this Corporation or to its Kanpur Cotton Mills Branch.
In the circumstances, we have therefore no alternative but to give you notice under the terms of the said contract that we desire to terminate this agreement as on 31-12-1945.
In this connection we would refer you to Clause 14 of the said agreement.
We shall be glad to have your acknowledgement of this communication.'
6. The next letter, D.I.A, dated 3-12-1945, which is from the plaintiff to Deva Sharma, reads:
'Received your letter of the 1st instant along: with a letter of the British India Corporation Ltd. For your information I am enclosing herewith a copy of my letter of the 7th ultimo. If, however, this does not suit the mills it can be treated as withdrawn. I hope you will be able to persuade the mills to withdraw their notice as well.'
7. In reply to this Deva Sharma sent the letter D. 54, dated 6-12-1945 as follows:
'Your letter of the 2nd instant along with a copy of your letter of 7th ultimo to the Mills have been received.
I am very sorry you should have written as you did to the Mills without first having a discussion with me when I last saw you in Delhi on the 24th ultimo regarding the revision of our agreement. You promised to come to Kan-pur within a week to settle the matters, but you failed to do so and did not let me have any word of explanation.
Instead you addressed the Mills and the Management considered your letter as going behind the agency agreement. I have given the matter much thought and if the Management have decided you have gone behind the agency agreement, you have also gone behind the agreement between you and myself.
In consequence cf your action it is apparent that the terms of both the agreements are no longer binding on the opposite parties.
You have placed me in a very awkward position and I cannot now very well approach the Mills as you suggest and it would appear we can only accept the notice as issued.
I think it would be better for you to come to Kanpur immediately to settle with me all affairs connected with the agency.'
8. The plaintiff promptly sent the letter, D. 51, dated 7-12-1945 in reply. This runs:
'I acknowledge receipt of your registered A. D. letter of the 6th instant. I regret to defy your statement that I had promised you to come to Kanpur for 'revision of agreement'.
You never mentioned about revision of agreement. I recollect fairly well that you simply expressed your desire for making some provisions for Shiv Kumar since he has grown up and I unhesitatingly expressed my ready willingness with all goodwill since I do not differentiate between Ram Gopal and Shiv Kumar.
It was, however, during conversation about the proposed import and installation of textile manufacturing plant plan that you asked me to come to you sometime after Dewali to which I told you that I could come to you whenever you like.
The letter of 7th ultimo was simply written to the Mills as Ram Gopal was scheduled to go to Kanpur soon after and my going to the Mills is not so useful as I do not know English. It was under these circumstances that I was prompted to write to the Mills. It was a mere request, acceptance of which was wholly optional with the Mills. I am at a fix and cannot understand which word or action on my part caused your annoyance which please clarify.
I am quite sincere and likewise counting upon your sincerity. I have wholly depended upon you as a most confidential friend. I have been even consulting you in my 'personal business also and it has been my desire that Ram Gopal should also gain by your guidance. I still entertain the same feelings towards you and hope you will also count upon my sincerity and dontinue to keep the same cordial relations in mutual interests. You can write to me your wishes for revision of agreement with a clear heart'.
9. The plaintiff followed this with, D. 52 dated the 8th of December, also written to Deva Sharma as follows:
'In continuation of my yesterday's letter It strikes me and I think it proper also to assure you with a clean breast that my letter of the 7th ultimo to the Mills was not actuated with any othermotive behind it than explained in the letter referred to above and I shall, therefore, thank you to withdraw that letter and arrange with the Mills, to withdraw their notice as well.'
10. He also sent the letter C. D. 19 dated 15-12-1945 to the Corporation as follows:
'We are in receipt of your letter of the 29th ultimo duly forwarded by our Kanpur office.
We are surprised to note how you consider that the terms of our letter of 7-11-1945 go behind the terms of contract. Leaving aside other aspects of that letter it is obvious that it was a mere request, acceptance or rejection of which was optional with your Kanpur Cotton Mills Branch.
The undersigned has been entrusting much of the work to the supervision of his son and, therefore, wished that he should be allowed to exchange thoughts with the Mills authorities. By inability the undersigned did not mean that he could not look to work.
We may mention in this connection that the undersigned though old enjoys such health as he never before enjoyed in life. He still takes six miles morning walk daily in 1 3/4 hours. A copy of his enclosed memorandum to Sapru Committee in this connection may perhaps interest you to read.
We feel that question of our going back on the terms of contract referred to by you does not arise. Still if you consider that way, we have no hesitation in withdrawing our letter of the 7-11-1945 .which we hereby do.
A copy of the correspondence passed between the undersigned and Mr. Sharma in this connection will corroborate the statements made in this letter. From this it will be obvious that Mr. D. Sharma wishes to get the agreement between undersigned and himself revised with a view to get increased share to which as you will notice, the undersigned has no hesitation.
We hops the matters will stand reconciled now and you will kindly withdraw your letter under reference.'
11. The Corporation, however, refused to reconsider its attitude and informed the plaintiff as shown by the letter C. D. 15 dated 20-12-1945, which read?
'We refer to a letter addressed to this Corporation by your Delhi office under dated 15th December of which a copy was apparently sent to your Mr. D. Sharma in Kanpur.
Your letter has now been placed before a meeting of the Committee of Management of the Corporation and we are now desired to inform you that the Corporation sees no good reason to agree to your request that your letter of the 7th of November should be withdrawn and the Corporation adheres to its letter addressed to you by registered post on the 29th of November which was replied to by you on the 1st December.
We trust, therefore, that you will make all the necessary arrangements, as, so far as this Corporation & its Kanpur Cotton Mills Branch is concerned, the agreement presently existing between us will terminate on the 31st instant.'
Thereafter the plaintiff caused the notice P. 4 dated 11-2-1946 to be sent to Deva Sharma. This read:
'On behalf of my client Seth Laxminarain Gadodia I have to state as under: That my client who was carrying on business as L. N. Gadodia and Co., obtained along with yourself selling agency of the Kanpur Cotton Mills, Co., which business was carried on under the name, style and firm of Messrs. L. N. Gadodia and Co., Kanpur Cotton Mills Selling-Agency Department on terms and conditions mentioned in the partnership deed therefor dated 29-3-1937.
One of the terms of the said partnership provides that on termination of the said selling agency business neither of the parties should take up the said selling agency from the said Mills.
My client had a twelve-anna share and you had a four-anna share in the said business. Under the said deed of partnership you were to be a working partner. I leave the terms of the partnership to speak for themselves
I am instructed to state that you have got the said selling agency business to be terminated by the Mills authorities and you have taken up the same under the name of Messrs. Sharma and Co. My client further says that you, taking advantage of your position, have got the said Mills to terminate the agency with a view to oust my client and to benefit yours..... (torn) ..... to the detriment, of my client's interest.
My client maintains that you have no right to take or otherwise directly or indirectly be interested in or concerned with the selling agency business of the said Kanpur Cotton Mills and have made yourself liable and accountable to my client.
I need not dwell at greater length on all that has transpired. Suffice it to say that your action in the matter is wrongful and in breach of the terms of the said agreement and your duty towards my client has caused wrongful gain to yourself and wrongful loss to my client.
Under the circumstances, I am instructed to call upon you, which I hereby do, to desist from directly or indirectly being Interested in or concerned with the said selling agency business and to give an undertaking that you will not do so hereafter and render lull, free and complete accounts of your dealings and to offer an explanation if any have in the matter and please note that in default of a clear and definite reply within a week from this day, my client will act further in the matter as he may be advised, for the costs and consequences whereof you will only have to thank yourself.'
12. The reply sent on behalf of Deva Sharma to this notice P. 5 dated 20-2-1946 reads as follows:
'Your notice dated 11-2-1943 on behalf of Seth Laxmi Narain Gadodia to my client Mr, Deva Sharma has been handed over to me with instructions to reply to you as follows:
While my client admits of being a party to the partnership deed dated 29-3-1937 he categorically denies and resents the allegations made in the notice because of their being totally baseless, improper and undignified.
My client is not prepared to admit that he has committed a breach of any of the terms of the deed of partnership referred to above. My client fails to understand the meaning of the allegation to the effect that it was my client who got the agency terminated by taking advantage of his position.
The agency has been terminated by the British India Corporation because of the conduct and certain action of your client which the Corporation did not approve of. My client apprehends that your client has not given you full and correct history of the creation and the termination of the agency.
Your client's conduct in dealing with my client as his partner has been considerably blameworthy and my client has brought this fact to the notice of your client. My client knows that the loss of the agency must be a shock to your client, but he has to thank himself for that.
My client is under no obligation whatsoever to render to your client any accounts or to giveyour client any kind of undertaking as suggested by you.
If in view of the facts mentioned above your client takes any action against my client he shall do so entirely at his own risk and responsibility.
Now that the agency has been terminated and the partnership dissolved my client demands from your client the rendition of all accounts pertaining to the agency and paying my client his dues without any further loss of time. All the account books said papers in connection with the agency are in possession of your client.
My client expects and hopes that the settlement of the accounts will be done immediately and thus all sort of trouble avoided.'
13. In the meantime the Corporation had entered into the agreement C. D. 8 dated 22-1-1946 with a -firm named Messrs. Sharma and Co., for the selling agency of the yarn and cloth produced by the Kanpur Cotton Mills. This agreement was signed on behalf of the firm by Shiv Nath Sharma, who is one of the defendants in the suit and is apparently the brother of Deva Sharma.
14. It seems that after receiving the reply quoted above to the notice sent on his behalf the plaintiff took no further action to enforce his rights until he instituted the present suit in February 1950. In his plaint he briefly related the facts about the selling agency and his partnership with Deva Sharma, and para 5 of the plaint reads:
'5. That pursuant to the agreement of partnership mentioned in paras 2 and 3 above the plaintiff & defendant 1 carried on the said business till 31-12-1945 when the said selling agency was unjustly and in collusion with defendant 1 terminated by the British India Corporation Ltd., with effect from 31-12-1945.'
He then went on to mention the agreement of the Corporation with the firm of Sharma and Co., and he alleged that he had been making unsuccessful efforts to ascertain who were the partners of Sharma and Co., and only in January 1950 had he learnt for the first time that defendants 2 and 3 i.e. the wife and brother of Deva Sharma, were ostensibly the partners in that firm which, however, was really owned by Deva Sharma. On these allegations he sought
(a) a declaration that Deva Sharma was the real owner of the selling agency carried on in the name of Sharma & Co. and that defendants 2 and 3 were merely 'benamidars' on his behalf;
(b) a permanent injunction restraining the defendants from carrying on the selling agency business of the Kanpur Cotton Mills either in the name of Messrs. Sharma and Co., or any other name; and
(c) rendition of accounts of the firm of Sharma and Co., from 1-1-1946 and payment of the plaintiff's share of -/12/- in a rupee out of any profits, or in the alternative a decree for Rs. 60,00,00/- as damages.
15. The suit was resisted by the defendants on all possible grounds and on 13-5-1950 the following Issues were framed:
1. Whether this Court has jurisdiction to try the suit?
2. Whether there was any agreement as alleged in para 3 of the plaint?
3. Whether Clause 3 of the agreement amounts to lestraint of trade. If so, with what effect?
4. Did defendant 1 commit a breach of the contract?
5. If so, is the plaintiff entitled to any damages and how much?
6. Is the plaintiff's suit within time?
7. Whether defendants 2 and 3 are 'benamidars' nominees of defendant 1. If so, with what effect?
8. Whether the plaintiff was kept from the knowledge of the deed of 16-3-1946 and of defendant No. 1's ownership and interest in the business of Messrs. Sharma and Co., by fraud on the part of defendant No. 1. If so, with what effect?
9. Is the plaintiff entitled to the injunction prayed for against the defendants?
10. Whether the plaint does not disclose any cause of action so far as the grant of permanent injunction is concerned?
It appears from a note of the learned Sub-Judgerecorded immediately below the above issues thatthe defendants' counsel suggested that an issueshould be framed on the plea of the plaintiff contained in para 5 of the plaint to the effect that theselling agency had been terminated by collusionbetween the British India Corporation and DevaSharma, but the plaintiff's counsel said that hedid not wish to join issue on the matters contained in that paragraph.
No reason was given for this, but the reason appears to be fairly obvious, namely that if the plaintiff based any claim to relief on an allegation of any wrongful actions on the part of the British India Corporation, he would also have been forced to implead the Corporation as a defendant in the suit. The plaintiff thus preferred to claim whatever reliefs he thought he was entitled to from Deva Sharma and his relations. On 26-7-1950 two supplementary issues were added, namely:
(8-A) Are the defendants accounting parties and liable to render accounts as alleged in para 10 of the plaint? And
(10-A) Whether the defendants are entitled to special costs under Section 35A, Civil P. C.?
16. The only points on which the trial Court appears to have found against the plaintiff were that it was not true that he had been kept from knowledge of the partnership agreement between Sharma and Co., and defendant 1's interest in that firm by fraud, and that in fact he was aware of the interest of Deva Sharma in the selling agency from the outset, and that he was not entitled to damages.
Otherwise the findings were generally in his favour and he was granted the declaration prayed for together with a decree for rendition of accounts against Deva Sharma, though the local commissioner appointed to go into accounts was directed in calculating the plaintiff's share of the profits to bear in mind the fact that Deva Sharma was now financing the selling agency and not the plaintiff any longer, and an injunction restraining all the three defendants from, carrying on the business of the selling agency.
17. Each of the three defendants filed a separate appeal in this Court. This was apparently done because at the time of the filing of the appeals it was seriously intended to challenge the finding of the lower Court that Deva Sharma was the real proprietor of the new selling agency and that his wife and brother were merely his 'benami-dars', but it seems that when the appeals came to be heard the decision was taken not to contest this part of the case.
Thus even before the Division Bench the appeal was really only argued on behalf of Deva Sharma by the learned Attorney-General, and such was also the case before me, it being frankly conceded now that Deva Sharma is the real proprietor of the new selling agency and of the firm Messrs. Sharma and Co.
18. Indeed, as the evidence stands, it would have been very difficult to make out a convincing case to the contrary. At the time when the agency was terminated the war-time textile controls were still in full force, and so, with the change in the identity of the selling agents, it was necessary for the Corporation to obtain the necessary licences in the name of its new agents, and for this purpose as early as 29-12-1945 Mr. Herbert Jackson who has appeared as D. W. 5, and was a Director of the Corporation and General Manager of the Kanpur Cotton Mills, wrote a letter to Mr. E. Royston, the Provincial Textile Controller at Kanpur,
It appears from this letter, C. P. 9 that Mr. Jackson was on sufficiently familiar terms with the Textile Controller to address him fay his Christian name although the letter was 011 official business. The letter reads:
'My dear Eric,
One of the two partners L. N. Gadodia in fact is dropping out of our cloth and yarn agents business as from the end of the current month. The other partner will continue to assist in the same capacity as heretofore and thus preserve continuity, but the agency proper will be in favour of his brother S. N. Sharma.
In support of the change I am sending herewith the required application for licences (together with Treasury Challans covering the respective fees). Will you be good enough to substitute these applications for those previously submitted in the name of Messrs. L. N. Gadodia and Co. and return the latter to me with authority to claim a refund of the amounts paid in fees.'
The accompanying application form shows that licences were being applied for in the name of S. N. Sharma on behalf of the firm Messrs. S. N. Sharma and Co., and that in the spaces provided in these forms for furnishing particulars about the amount of cloth sold during previous five years, the details filled in were those of the business done by the partnership consisting of the plaintiff and Deva Sharma.
The obvious meaning of this letter was that Deva Sharma was really carrying on the business though the licences were to be in the name of his brother, and that Mr. Jackson knew the Textile Controller sufficiently well to be in a position to ask him to issue the licenses on these terms, and in the witness-bos Mr. Jackson cut a sorry figure in cross-examination in his efforts to explain these facts away.
It was also proved that the new agency was financed by Deva Sharma, and he and his brother came rather badly out of cross-examination on this and his aspect of the case. It is for instance quite obvious that Deva Sharma told a deliberate lie when he said:
'I was yet thinking of asking for the agency when my brother and wife told me that they had secured the same, so I kept quiet.'
19. Before discussing the points of law which have been argued before me I should like to state the conclusions to which I have come from the above facts. It is clear that Deva Sharma was a favoured person, and in fact in protege of the British India Corporation, and it was for this reason that clauses were introduced into both the original selling agency agreement and the renewed agreement which virtually had the effect of making the retention of Deva Sharma as a partner a condition of the continuance of the agreement in favour of Gadodia and Co.
This was for the protection of Deva Sharma who evidently even in those days feared that L. N. Gadodia might bring his son into the business to his own exclusion. This is clear from the fact thatthe termination of the agency was threatened by the Corporation as early as 1939 when L. N. Gadodia wanted his son to be permitted to familiarize himself with the running of the business.
Since Deva Sharma was protected in this way, the inclusion of Clause 3 in the partnership agreement must have been intended primarily for the protection of L. N. Gadodia, who seems to have been afraid that in course of time Deva Sharma might become prosperous enough to undertake the financing side of the partnership as well as the active side and he certainly seems to have been afraid of a conspiracy between the Corporation and Deva Sharma to oust him.
How well these apprehensions were founded appears to be borne out by what happened in the end of 1945, when, the moment L. N. Gadodia raised the suggestion that he was getting beyond the age at which he could carry on the business properly himself and that his son might be permitted to take an active part in the business, the Corporation seized this as a ground for terminating the selling agency in favour of Gadodia and Co.
The way in which the licenses for the newagency were applied for certainly suggests that theCorporation was glad to let Deva Sharma carryon the agency business, and to give him every possible assistance with a view to evading Clause 3 of thepartnership agreement by getting the licenses inthe name of his brother as the proprietor of a newfirm.
20. It is, however, a point which will require the most careful consideration to what extent the latter part of these conclusions can form the basis of the decision on the points of law which have been argued before me in view of the fact that when the defendants wanted an issue regarding the allegation of collusion between Deva Sharma and the Corporation in wrongfully terminating the agency in favour of Gadodia and Co., the plaintiff specifically disclaimed any desire to join issue on this point.
21. The first question to be decided, and this is the crux of the case, is whether Clause 3 of the partnership agreement is enforceable. The object of this clause was clearly to keep the partnership alive as long as possible by holding the threat over each of the partners that if they could not continue to work together in the selling agency business then neither of them would be able to take advantage of this fact by securing the business for himself.
The difficulty of deciding whether such an agreement is enforceable can be seen from the fact that after carefully considering the point at some length and discussing all the leading cases the two learned Judges who heard the appeal together have come to different conclusions, Khosla J., being of the opinion that the agreement was enforceable while Kapur J., was of the opinion that it was not.
22. The statute law on the point is contained in Section 27, Contract Act and Section 54, Partnership Act. Section 27 reads:
'Every agreement by which any one is restrain-ed from exercising a lawful profession, trade or. business of any kind, is to that extent void.
Exception 1(a) : One who sells the good-will of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business therein: Provided that such limits appear to the Court reasonable, regard being had to the nature of the business.'
The first part of this section lays down the basic principle that every contract in restraint of trade or business is void but an exception is madein the case of the sale of the good-will of a business, in which case the vendor may lawfully enter into an agreement that he will not enter into competition with his vendee within certain geographical limits, the reasonableless of which is to be determined with regard to the nature of the business. A further modification of the general principle is provided in Section 54, Partnership Act which reads:
'Partners may, upon or in anticipation of the dissolution of the form, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits; and notwithstanding anything contained in Section 27, Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.'
There can be no doubt that the disputed clause is one in restraint of business and the learned counsel for the appellants has strenuously attacked the finding that it is enforceable under Section 54 on three grounds-- (1) that it relates to the same business and not a similar business, (2) it specifies neither local limits nor any period of time, and (3) that it is not reasonable.
23. As I have said all the leading English cases regarding agreement in restraint of trade and business have been cited and discussed by the learned Judges, each of whom has derived from them, and sometimes from the same case, material in support of his own conclusion. It seems to me that the main difficulty arises out of the fact that in none of these cases was there under consideration an agreement of the nature of that in the present case, in which two partners had agreed that if they could not continue to work together in selling the goods produced by a third party, the Kan-pur Cotton Mills, neither of them separately would be allowed to take up the selling agency.
Moreover, although the English Partnership Act does not contain any section corresponding with Section 54 of the Indian Act, it would seem that this section was drafted with a view to incorporating the principles evolved by the decisions of the Courts in England, and the only agreements by partners contemplated by this section appear to be restraints on carrying on similar business within fixed temporal or geographical limits, and it appears to me to be very doubtful indeed whether this section was ever intended to cover an agreement like the present one which restrains either of the partners for ever, on the termination of the partnership, not from carrying on a similar business such as the selling agency of some other Cotton mills, but the very same business i. e. the selling agency of the Kanpur Cotton Mills.
24. In deciding that the disputed agreement was not enforceable Kapur J. has based his decision on the fact that the disputed agreement was defective in that it did not contain either any temporal or geographical limits and that the restraint, being in gross, was unreasonable and he has not discussed whether in Section 54, Indian Partnership Act the word 'similar' includes 'same'. This point has been briefly discussed by Khosla J. in the following passage:
'The second objection was that the business carried on by the defendants was the same business, namely the selling agency of the Kanpur Cotton Mills and not similar business as stated in Section 54. But 'similar' clearly includes 'same'. To argue otherwise would be to defeat the very purpose for which Section 54 was enacted.'
With due respect I do not think that the matter is quite as simple as it is here made out to be. The words 'similar' and 'same' are undoubtedly often loosely used in the same sense, and a large number of instances have been collected under theword 'same' in Stroud's Judicial Dictionary inwhich it has been held that 'same' has been usedin the sense of 'similar'.
For instance, 'in the same circumstances' has frequently been held to mean 'in similar circumstances' and in the case 'Ashby v. Wilson', (1900) 1 Ch. 66(A), the meaning of the phrase 'same business' has been interpreted as meaning 'selling similar goods'. This was in the interpretation ofa contract in which a landlord owning six houses had let one of them to a tenant for the purpose ofcarrying on a certain business. In the contract he undertook not to let any of the other five houses for the purposes of 'the same business'.
25. The present agreement, however, is not one in which any ambiguity at all can be said to exist as regards the identity of the business from carrying on which the partners agreed to restrain each other. It is in fact the sale of goods manufactured by a third party, and the agreement it-self uses the words 'the said selling agency', i. e. the very same business, and not a similar business such as selling goods of the same character but manufactured by another company, and under the heading 'similar' in the same Judicial Dictionary I do not find a single instance of 'similar' being used in the strict sense of 'same', and it is perhaps significant to find that the other words to which persons consulting the Dictionary under the heading 'similar' are referred are 'like' and 'such', and do not include 'same'.
The conclusion would therefore appear to bethat although the word 'same' is frequently looselyused in the sense of 'similar', the word 'similar'never means 'same' in its strict sense, and in factit cannot, since similarity implies the existence ofTWO or more objects for comparison.
26. Whether the word 'similar' in the context of Section 54 should be deemed to have been used loosely, and to include 'same' in its strict sense, is perhaps more difficult. Prima facie it must be deemed that the word 'similar' was deliberately chosen, and that the section, being basesd on principles of English law, was only intended to cover cases in which the business previously carried on by the partnership was intended to be continued after the dissolution of the partnership, and the restraint contemplated was one restraining competition with that business either for a certain period of time or within certain local limits.
The fixing of either temporal or local limits is obviously a necessary ingredient of any valid agreement and it is the function of the Court to decide whether such restrictions as are imposed are reasonable from the point of view of the pub-lie interest, which is against restraint of competition, and in the interest of the partners.
27. The question whether 'similar' includes same in Section 54 appears to have been argued somewhat more thoroughly before me than perhaps it was before the Division Bench, and the learned counsel for the plaintiff has argued that the wording of Section 54 suggests that its framers intended to go beyound the principles evolved by English case law and contemplated a case in which the partners in a firm might all agree, on dissolution of the partnership, not to carry on the business of the partnership at all. The words of the section may be repeated again:
'Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits.'
It is argued that since Section 55(3) specifically provides for restraint on competition when the good-will of the firm is sold, Section 54 must be heldclearly to cover agreements between the partners strictly 'inter se' & that, as the section stands, it permitsall the partners to enter into an agreement thatnone of them will carry on a business similar tothat of the partnership within specified temporal or local limits.
In other words it contemplates an agreement the result of which would be that the partnership business would cease altogether and that none of the partners would be permitted to start a similar business either for a fixed period of time or within so many miles of the place where the partnership business had been carried on. I must concede that the words of the section are capable of this interpretation, but I very much doubt whether either any same persons could possibly enter into such an agreement, or whether, if they did so, the restrictions embodied in the agreement could possibly be regarded by any Court as reasonable, since nobody could possibly be benefited by such an agreement, neither the public nor any of the partners.
In any case such an agreement would not be like the present one since obviously the Kanpur Cotton Mills will continue to sell their output of cloth and yarn, and thus its selling agency will continue to exist, whether it is given to any of the present parties or to anybody else unless the Mills decide to sell direct to dealers.
28. What the present agreement means 13 this:
'If we cannot carry on the running of the selling agency business together we will cut each other's throat and neither of us shall have it, and as far as the parties are concerned it can go to somebody else for all time.'
In my opinion no such agreement was ever contemplated when Section 54, Partnership Act was drafted and that all that was intended by this section was to exempt from the general rule reasonable restraints on the partners from competing with each other in a similar line of business on the dissolution of the partnership. I thus do not consider that in this context the word 'similar' means or includes 'same'.
29. In view of this finding it does not seem to be necessary to enter into the same lengthy discussion as my two learned colleagues have done regarding local limits and reasonableness. If I had been of the opinion that the agreement was one covered by Section 54, Partnership Act, and otherwise enforceable, I should have had no hesitation in holding that the agreement was not bad because it did not specify any local limits, since in my opinion the words 'the said selling agency' are a sufficiently clear indication of the local limits intended by the agreement, namely where the business had been carried on in the past and was likely to be carried on in the future.
The discussion of the cases cited regarding the reasonableness of local limits to my mind only serves to emphasise the fact that an agreement like the present one was not contemplated by Section 54, since as far as I can see the question of the reasonableness of local limits fixed in a particular contract can only arise when there is a question of competition between two businesses or professional men, and the reasonableness can only be determined by having regard te the nature of the rival businesses or the professions of the persons concerned. In the circumstances I answer the first of the questions framed for my consideration in the negative.
30. Although the point appears to have been argued at some length before the Division Bench, and both the learned Judges have discussed it thoroughly in coming to their opposite conclusions,the learned Attorney General has not attempted to argue before me that, assuming that Clause 3 of the partnership agreement is enforceable, the appropriate remedy is not an injunction, or that the plaintiff has lost his right to be granted an injunction by his laches for any other reason.
I therefore answer the second of the questions by saying that if Clause 3 of the partnership agreement is enforceable in law there is no reason why the plaintiff should not be granted an injunction restraining the defendants from carrying on the selling agency business.
31. I may also add that no attempt was made to argue before me that the suit was nub within time and I therefore answer the fourth question in the affirmative.
32. There thus remains only the third question:
'Is the plaintiff entitled to the relief in respect of accounts?'
Although Section 88, Indian Trusts Act was not specifically pleaded by the plaintiff, it is clear that it was this provision of law on which he relied at the time of the arguments in the lower Court. The section reads:
'88. Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.'
The section clearly falls into two parts, and the plaintiff claimed rendition of accounts, and his share of the profits from the new selling agency business, under both heads. The trial Court found that he was not entitled under the first part of the section, but that his case was covered by the second part. Kapur J. has found that the plaintiff was not entitled to the benefit of either part of the section, while Khosla J. has going beyond the findings of the lower Court and has held that the first part applied to the plaintiff's case as well as the second.
33. I may say at once that with due deference to the views of my learned brother Khosla J., I entirely agree with the views of the lower Court and Kapur J. that the plaintiff's case does not fall under the first part of the section, since in my opinion Deva Sharma did not obtain the selling agency in his character of partner of the plaintiff. It is in fact quite clear that both Deva Sharma and the British India Corporation regarded both the agreement by which the selling agency was given to the partnership, and also the partnership, itself, was virtually at an end when the negotiations were taking place for the selling agency to be given to Deva Sharma's nominees.
The first part of the section obviously contemplates that the pecuniary advantage to be gained, by a partner or other person in a fiduciary capacity must be in dealings with some third party, and in my opinion the words 'by availing himself of his character' clearly imply that at the time when the transaction takes place which results in the pecuniary advantage, the partner must be purporting to deal with the third party as a partner acting on behalf of the partnership, and also that the third party must be under the impression that he is dealing as such.
No question of this situation arises in the present case in which quite clearly the British India. Corporation had itself terminated the selling agency agreement, and was well aware that along with the agreement the partnership would also be terminated, and the Corporation entered into dealings with Deva Sharma and his nominees with full, knowledge of the facts.
34. The question whether the second part of the section would apply is perhaps more difficult. It is clear from the judgment of Khosla J. that his conclusions on this part of the case as a whole have been very greatly influenced by his finding on the facts that the British India Corporation and Deva Sharma were acting in collusion with each other, and that the British India Corporation seised on a flimsy pretext for terminating the selling agency agreement in favour of the partnership of Gadodia and Deva Sharma and then gave the agency to Deva Sharma and at the same time the Corporation helped Deva Sharma to evade Clause 3 of the partnership agreement by nominally giving the agency to a firm with which Deva Sharma had no ostensible connection and by helping to secure the necessary licenses in the name of Deva. Sharma's brother.
My own summary of the position given earlier in this judgment is much the same as far as the facts go, but at the same time, in coming to this conclusion, I then expressed doubts as to how far some parts of it would be relevant for determining the legal points in issue in view of the fact that although the plaintiff had in his plaint alleged that the selling agency had wrongfully been terminated by collusion between the Corporation and Deva Sharma, nevertheless when issues were being framed and the defendants wanted an issue on this point, the plaintiff declined to join issue with them on it
The fact is that the evidence which has caused both my learned brother and myself to come to the conclusion that the Corporation was looking for an excuse to terminate the agency agreement in favour of the partnership, and to give the business to Deva Sharma, and at the same-time helped the latter to evade the operation of the relevant clause in the partnership agreement, was not led for the purpose of proving these facts at all, but only emerged with reference to that of the defendants' case which they have now completely abandoned, namely that the partnership consisting of the wife and brother of Deva Sharma was genuine and that these relations of his were not merely his nominees and 'benami-dars'.
In view of the fact that the plaintiff had for tactical reasons abandoned his plea of collusion between Deva Sharma and the British India Corporation, it seems tc be very doubtful whether a finding that there was in fact some sort of collusion, which is based simply on evidence led for another purpose, can be invoked as the basis of a decision on the applicability of Section 88 of the Trusts Act. This is the view which has been taken by my learned brother Kapur J. and on this point I find myself in agreement with him.
In my opinion the basis on which the question of the applicability of the second part of Section 88 must be decided is simply that Deva Sharma negotiated for and secured the selling agency business in December 1945 at a time when all the interested parties, Gadodia. Deva Sharma, the British India Corporation and the Kanpur Cotton Mills, were aware that the selling agency agreement in favour of Gadodia and Company Limited was due to expire on 31-12-1945, and that with it the partnership agreement between Gadodia andDeva Sharma, which was co-terminous with theselling agency business, was also about to terminate.
35. In coming to their respective conclusions regarding the applicability of Section 88 of the Trusts Act the learned Judges have chiefly considered four cases -- 'Siddavarapu Ramalinga Reddy v. Ramalingam Setty,' AIR 1938 Mad 929 (B), --Biss v. Biss, (1903) 2 Ch 40 (C), -- Benett v. Gaslight and Coke Co. of London,' (1882) 48 LT 156 (D), -- 'Sitharamamurthi Chetty v. Guruswami Chetti,' AIR 1949 Mad 860 (E).
36. In the first of these cases, which is a decision by Varadachariar and Horwill JJ., the facts were that a partnership had obtained a lease of certain land for a definite period for the purpose of carrying on the business of mica mining and the partnership agreement was for the period of the lease. Shortly before the lease was due to expire one of the partners obtained a fresh lease of the same land for himself. It was found that he did so openly and in competition with other persons.
He then sent a notice to the other partners to appear and settle accounts up to the date on which the old lease was to expire, which was also the date of the expiry of the partnership agreement. Since after that date he was obstructed by the other partners from working the mine under the new lease, he instituted two suits, one for a declaration that the other partners could not claim any interest in the new lease and for an injunction restraining them from interfering with him, and the other for damages on account of the interference which had already taken place.
In these circumstances it was held that in obtaining the renewal of the lease the partner could not be said to have availed himself of his character or of the advantage of the old lease, and further as the lease was for a definite period it could not be suggested that in the matter of the new lease the partner placed himself in a position of con-flict of duty and interest. Hence the other persons were not entitled to claim an interest in the new lease or to insist that it should be treated as part of the assets of the old partnership.
37. In the second case 1903-2 Ch 40 (C) the facts were as follows, A lessor granted a lease for seven years of a house in which the lessee carried on a profitable business. On the expiration of the term the lessor refused to renew, but allowed the lessee to remain as tenant from year to year at an increased rent. During that tenancy the lessee died intestate, leaving a widow and three children, one being an infant. The widow took out administration to her husband's estate, and she and the two adult children, one of whom was a son, continued to carry on the business under the existing yearly tenancy.
The widow and son each applied to the lessor for a new lease for the benefit of the estate, which he refused to grant, but having determined the yearly tenancy by notice, he granted to the son personally a new lease for three years at a still further increased rent. In an action which had in the meantime been instituted by the three children including the infant against the administratrix for administration of the intestate's estate the administratrix applied to have the new lease treated as having been taken by the son for the benefit of the estate, and for an account of the rents and profits received by him.
It was held by Buckley J. that the son was a trustee of the new lease for the benefit of the estate, and an account was directed accordingly, but the matter was taken by the son before theCourt of Appeal, which held that the evidence took the case out of 'Ex parte Grace' 1799-1 Bos and P 376 (P) in that it shewed that the right or hope of renewal had been determined by the lessor himself before the son intervened, so that the new lease could not be treated as an accretion to the estate of the deceased, and also that the son had in no way abused his position nor stood in any fiduciary relation towards nor owed any duty to the other persons interested in the estate, and that he was therefore entitled to retain the lease for his own benefit.
38. The facts in the third case (1882) 48 LT 156 (D), were that one W becoming insolvent assigned all his estate to four creditors, trustees, to carry on his business for the creditors' benefit. W's principal asset was a valuable agency for the defendants, also creditors. As part of the arrangement, W's agency contract was cancelled, and a fresh one, for about thirteen months, was entered into with the trustees for the creditors' benefit.
Before the expiration of the fresh 'contract, and before the trust was wound up, B, one of the trustees, applied to the defendants to renew the agency to the trustees, and, on that being refused, obtained from the defendants a contract that his own firm should have the agency when that of himself and his co-trustees expired. B did not inform his co-trustees of this arrangement for hfs own benefit. Subsequently another application was made to the defendants to renew the agency to the trustees and refused.
It was held in these circumstances by Pearson J. that B was by reason of his trusteeship disqualified from obtaining the agency for himself, on the ground that it had become against his interest to press for renewal to the trustees, and that the interest he had acquired belonged to the trust estate.
39. Finally there is the second Madras case AIR 1949, Mad 860 (E), in which the facts were somewhat complicated. The Madras Government, put up for auction for a period of seventeen years the lease of a salt factory, and five persons en-tiered into an agreement to bid on the understanding that if, the sale was confirmed in favour of any of them they would enter into a partnership, to run the business in certain shares in proportion to the amount contributed by them towards the amount of the bid.
Two of them jointly made a successful bid and the sale was confirmed in their favour, and the partnership then continued to function during the period of the lease in accordance with the agreement. Two of the partners died but their places were taken by their sons. Some, months be-iore the period of the lease expired, the Salt Department began making enquiries about the renewal of the lease for a further period of twenty-five years, and a renewal of the lease was secured in the name of one of the original successful bidders and the sons of the other who had taken his place had been recognised as lessees by the Government
It is clear that the lease was renewed in favour of the same lessees at least partly because it was reported that they had worked to the satis7 faction of the Department. Shortly before the-old lease was due to expire the partners in whose names the lease had been renewed sent notices to the other partners for a settlement of accounts up to the date on which the old lease was due to expire, and did not mention therein the renewed lease.
The question which arose for decision in the subsequent action brought by the partners who were sought to be excluded by those who had ob-tained the renewed lease in their own names was what interest, if any, the excluded partners had in the renewed lease. In these circumstances Rajamannar C. J. and Somasundaram J. held that the new lease must be held by the partners who had obtained it for the benefit of the other members of the partnership, but since the lease itself was executed after the termination of the partnership, and it was not the case of the others that any one other than the partnership had ob- tained the lease on furnishing the consideration for it, the benefit of the renewal alone should be created as an asset of the partnership which had 'nded and a value placed on it.
It was, however, observed during the course of the judgment that there may be cases when a partner during the continuance of the partnership can secure a new lease to himself without the new lease being held to be for the benefit of the partnership, and it would depend on the facts andcircumstances in each case.
40. The views of the two learned Judges regarding these cases are in sharp conflict, sincewhile Khosla J. thought that the first two wereeasily distinguishable from the present case, and that the third and fourth were in point, KapurJ. took a directly opposite view. The. view of Khosla J. appears to have been influenced by one finding of fact on which I do not agree with him, since although I share his view that the British India Corporation and Deva Sharma were glad to get rid of Gadodia did not know what was happening.
What happened in fact was the very thing to guard against which Gadodia had cause to be inserted the contentious clause in the partnership agreement, and the whole correspondence in December, 1945 and the notice sent by Gadodia to Deva Sharma early in 1946 clearly to my mind show that he realised all too well what was happening. I thus consider that if it is held that Gadodia knew, or had a very good idea, of what was happening, a good deal of the force of the arguments used by Khosla J. in support of his conclusion disappears. In my opinion the two cases which he considered were the pries applicable to the present case are distinguishable.
The English case (1882) 48 LT 156 (D), was A case of a trustee who had clearly acted behind the backs of his co-trustees, and in whose case, according to the learned Judges of the Madras High Court in the case also relied on by Khosla J. there was an irrebuttable presumption of personal incapacity to retain the benefit. In the Madras case also the original lease had been secured by the joint contribution of all the partners although it was only in the names of two of them and one of the reasons by which the partners who secured the' renewal of the lease in their names were enabled to do so was the good record of the partnership in running the salt business to the satisfaction of the authorities during the continuance of the partnership.
The history of the present case shows that the work done by Gadodia and Deva Sharma in partnership had little or nothing to do with the giving of the selling agency to Deva Sharma, who throughout was clearly the favourite and protegeof the British India Corporation. Khosla J. derived some support for his argument that the work done by the partnership helped to secure the agency for Deva Sharma in the sense that the sales of cloth during the previous years by the partnership were quoted as the business done bythe new partnership when the necessary licenses were being applied for.
The learned Judges thought that the licencescould not have been given to the new partnership except on the strength of the record of the business done by the old partnership. This is not strictly correct if the statement made by Shiv Nath Sharma in cross, examination is true, that licenses could be granted to new dealers even after 1940 when they were the agents or nominees of manufacturers. I have already cited a letter from Mr. Jackson to the Textile Controller which appears to me to indicate that the British India Corporation or the Kanpur Cotton - Mills would have had no difficulty whatever in obtaining the necessary license for anyone to whom they gave their selling agency business.
On the other hand it seems to me that the cases relied on by Kapur J. bear much more resemblance to the circumstances of the present case, and the principle which they seem to me to establish is that when it is clear that a particular benefit can no longer be secured on behalf of an estate or a partnership, the fiduciary relationship ends and an Individual partner or beneficiary of the estate is free to look after his own interests and secure the benefit for himself.
41. In my opinion once it is held that whatever was done in December, 1945 was done with the knowledge, and on the basis, that the selling agency agreement in favour of Gadodia and Company Limited and the partnership agreement between Gadodia and Deva Sharma were inevitably terminating on 31-12-1945, there was nothing in the provisions of Section 88 of the Trusts Act to prevent Deva Sharma from securing the selling agency business for himself, and the plaintiff's only safeguard was the disputed clause in the partnership agreement, regarding which I have already given my opinion that it is not enforceable at law.
42. I may add that even if I had been of the opinion that Deva Sharma had rendered himself liable under the second part of Section 88 of the Trusts Act a decree for accounts and share of the profits should not have been granted. Even in AIR 1949 Mad 860 (E) when the learned Judges held that the excluded partners were entitled to the benefit of the renewal of the lease obtained by the other partners, they did not grant a decree for accounts but simply held that a valuation should be placed on the renewed lease and this valuation was to be treated as part of the assets of the dissolved partnership.
Applying this to the present case it would mean that the value of the selling agency would have to be calculated and the plaintiff's share of this value given to him on settlement if accounts on the dissolution of partnership, which would virtually amount to a payment of liquidated damages. However, as I have said above, I am of the opinion that Deva Sharma did not render himself accountable in any way under Section 88 of the Trusts Act, and my answer to the third question therefore is in the negative.
43. In accordance with the opinion given by Falshaw J. this appeal must be allowed. Parties will bear their own costs throughout.
44. I agree.