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Raj Chopra and anr. Vs. Narender Anand and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtDelhi High Court
Decided On
Case NumberInterim Application Nos. 244, 2238 of 1990 and Suit No. 80 of 1990
Judge
Reported in1991(21)DRJ53
ActsPartnership Act, 1940; Contract Act, 1872 - Sections 54
AppellantRaj Chopra and anr.
RespondentNarender Anand and ors.
Advocates: Arun Mohan,; R.K. Sanghi,; Sat Pal,;
Cases ReferredIn Rattan Chand Hira Chand v. Askar Nawaz Jung (dead
Excerpt:
partnership act, 1940 - partnership firm and its partners--have no separate legal entity--partnership cannot be forced by court--on persons having otherwise and indifferent conduct.(ii) section 54 and 55--section 27 contract act--change of nature of business by partnership firm--later parties decided to have separate business with separate showrooms--through a deed having restraint clause--effect--the clause of restraint is void under contract act. - - 1 bad an incorporated company in the name of competent motors & parts (p) ltd. i had agreed to keep the name of his concern 56 as classic motors at that stage and now bad got the company incorporated in the name m/s. 3 held at madras on 9th and 10th december, 1989, some dealers complained that co-dealers had established sales and service.....d.p. wadhwa, j. (1) by this order i am to decide two applications one filed by the plaintiffs under order 39 rules 1 and 2 of the code of civil procedure and other by defendant no. 2b under order 39 rule 4 of the code.(2) the suit is for dissolution of partnership, rendition of accounts, winding up and for perpetual injunction. there are two plaintiffs and in effect tour defendants. partnership ls in t e name of 'competent builders' of which first plaintiff and the first defendant are the partners. this was constituted by a deed of partnership dated february 20, 1978. these two partners extended the business of partnership and started a unit under the name 'competent motors'. for this purpose they entered into an agreement dated july 19, 1983 called the 'supplementary agreement of.....
Judgment:

D.P. Wadhwa, J.

(1) By this order I am to decide two applications one filed by the plaintiffs under Order 39 Rules 1 and 2 of the Code of Civil Procedure and other by defendant No. 2B under Order 39 Rule 4 of the Code.

(2) The suit is for dissolution of partnership, rendition of accounts, winding up and for perpetual injunction. There are two plaintiffs and in effect tour defendants. Partnership ls in t e name of 'Competent Builders' of which first plaintiff and the first defendant are the partners. This was constituted by a deed of partnership dated February 20, 1978. These two partners extended the business of partnership and started a unit under the name 'Competent Motors'. For this purpose they entered into an agreement dated July 19, 1983 called the 'Supplementary Agreement of Partnership.' Though this unit was part of the partnership 'Competent Builders' whose main business was that of builders and promoters of multi-storeyed buildings, this unit was to deal in automobiles. Then on September 1, 1983 an agreement was signed between the Competent Motors and defendant No. 3, manufacturers of cars, under the name 'Marnti', as dealers of these cars. Competent Motors for all intent and purposes was Competent Builders in whose name assessments under the tax laws were being done. The partners, however, could not pull on together and on

'22.The parties hereto have mutually agreed that the other party would not open any showrooms or any sale outlet for spares or booking within 8 k.m. radius of the showrooms at Connaught Place & Bhikaji Cama Place as taken over by the parties hereto. 23. The parties hereto have mutually agreed that the other party would not open any workshop or any servicing facilities at Mathura Road, New Delhi, and Connaught Place, New Delhi, as taken over by the parties hereto.'

(3) Thus, it would appear the unit Competent Motors of the principal partnership was disbanded, but the parties remained together only to keep the agency of Maruti vehicles of defendant No. 3 alive. At a subsequent stage defendant No. 3 gave separate dealerships to the two partners. It so happened that at the All India Dealers Conference of defendant No. 3 held at Bangalore on 6-8th November, 1987, the Managing Director of defendant No. 3 announced the Board's decision that the Mul Dealers who were appointed dealers in 1983-84 could open their showrooms and workshop for sale and service of the vehicles in the same states provided they had the requisite infrastructure and other facilities of showrooms and workshops conforming to the Mul (Defendant No. 3) requirement. This announcement led the two partners to write a letter of December 14, 1987, to defendant No. 3 to sub-divide the dealership in the name of Competent Motors into two dealerships in the name of (1) Competent Motors & Co. and (2) Competent Motors and Parts. It was mentioned in this letter about the 8 kms. restriction as agreed to by the partners In reply to this letter, defendant No. 3 stipulated certain requirements and then meetings were held between the partners on the one side and the representatives of defendant No. 3 on the other. Ultimately, defendant No. 3 agreed to give two separate dealerships to the two partners. This was by a letter dated January 9, 1988 of defendant No. 3 stated that it had agreed to allow the two partners two separate and establish independent dealerships subject to certain conditions mentioned in the letter. These were that the existing dealership would cease to exist and separate agreements for dealerships will be entered into by plaintiff No. I and defendant No. I with defendant No. 3; showrooms for sale and workshop for servicing facilities for both the dealerships would be approved by defendant No. 3; separate security deposits as applicable would be paid: and appropriate names for dealerships would be approved by defendant No. 3. This was accepted by both the partners. They proposed two names of the dealerships: Competent Motors Company of plaintiff No. 1, and Competent Motors and Parts of defendant No. 1. Then there were discussions between these two partners and the General Manager (Sales) of defendant No. 3 As the old dealership was to come to an end new dealerships started, two dealerships agreements were separately entered on January 15, 1988 To the first plaintiff the dealership was given in the name of 'Competent Automobiles Pvt Ltd.' and to defendant No. 1 in the name of 'Classic Motors', respectively having showrooms at Connaught Place and Bhikaji Cama Piace. The defendant No 1 as proprietor of Classic Motors (Defendant No. 2A) wrote a letter dated February 15, 1988 to defendant No.3 for change of dealership in the name of defendant No.2B, i.e., Classic Motors Pvt. Ltd. It was stated in (his letter that at the time of division, defendant No. 1 bad an incorporated company in the name of Competent Motors & Parts (P) Ltd. and plaintiff No. 1 had an incorporated company in the name of M/s. Competent Automobiles Company Private Limited, and further as the defendant No. 3 had suggested that both the partners could not get the name 'Competent', defendant No. I had agreed to keep the name of his concern 56 as Classic Motors at that stage and now bad got the company incorporated in the name M/s. Classic Motors Private Limited. In the letter defendant No. I also gave the details of the authorised paid up capital of the company, the promoters thereof, the directors and the shareholders, In the letter dated February 23. 1988 from defendant No. 3 to defendant No. 1, while agreeing to the change in the dealership, it was mentioned that this was subject to the condition that no change in the existing shareholdings and directorship as indicated in the letter dated February 15, 1988 of the first defendant would be made without the prior approval in writing of defendant No. 3. Both the parties had, thus. entered into separate dealership agreements with defendant No. 3. At the All India Dealers Conference of defendant No. 3 held at Madras on 9th and 10th December, 1989, some dealers complained that co-dealers had established sales and service outlets in close proximity to their dealership and defendant No. 3 should put a restriction on the minimum distance to be maintained. The Managing Director of third defendant clarified this position. This would as appear from Minute 3.4.2. in the minutes of that meeting :- 'MD clarified that Mul would not impose any restriction in so far as distance between any two outlets are concerned. He reiterated that dealer could open Sales & Service Outlets within their allocated sales territories even without specific permission of the Regional Offices but, these outlets would have to be in accordance with Mul standards. He felt that no codes should be allotted to sales & service outlets and that dispatch of spare parts would be made only to parent dealerships to enable dealers to exercise greater control on their inventory.'

(4) Defendant No. 2B, namely. Classic Motors Pvt. Ltd.. now intended to open a showroom in Connaught Place area in breach of 8 kms. agreement between the parties.

(5) Plaintiff No. 2 is Competent Automobiles Co. Pvt. Ltd. Defendant No. 2A is Classic Motors Pvt. Ltd., and defendant No. 3 Maruti Udyog Limited. In this suit the plaintiffs have prayed for dissolution of the partnership Competent Builders and settlement of accounts and also sought perpetual injunction against defendants No. 1, 2A and 2B from establishing any showroom for the business of Maruti vehicles within 8 Kms. radius from the showroom of the plaintiffs. An appropriate injunction is also sought against the third defendant from permitting defendants 1, 2A and 2B from operating from any such showroom within the radius of 8 kilometres.

(6) By interlocutory application (IA 244/90) the plaintiffs sought restraint on the defendants from commencing or operating any showroom for Maruti vehicles within 8 kilometres radius from the showroom of the plaintiffs at Connaught Place, New Delhi.

(7) When this suit and the application came up for admission, passed an ad interim ex parte order restraining defendants 1, 2A and 2B from opening any showroom for sale and servicing of Maruti cars at premises known as Avg Bhawan, M-Block, Connaught Place, New Delhi, or any other place within a radius of eight kilometres from F-14, Connaught Place, New Delhi, where the plaintiffs were having their showroom for sale of Maruti 57

(8) While the plaintiffs seek confirmation of this order during the pendency of this suit, defendants 1, 2A and 2B seek vacation of the same,

(9) Now if reference is made to three documents, (1) Partnership Deed dated 20-2-1978; (2) Supplementary Agreement of Partnership dated 19-7-1983 ; and (3) Modification Deed dated 30-9-1986, it is quite apparent partnership deed dated 20-2-1978 continues to operate This deed of partnership stipulated that business of the partnership shall ordinarily be that of building of multi-storeyed buildings, but the parties could do any other business which might be mutually decided by them from time to time. In pursuance to this, the parties agreed to carry on the business of dealers in automobiles and for that purpose supplementary agreement dated 19-7-1983 was entered into. It was clearly stated in this supplementary agreement that the business of automobile dealership would be run under the name and style of 'Competent Motors' as a unit of 'Competent Builders' under the partnership deed dated 20-2-1978. So as no one remains in doubt, it was stated that Competent Builders would be proprietors of Competent Motors. As noted above, the partners also agreed to carry on the business of dealership in motorcycles under the name of Competent Motorcycles which was by agreement dated 11-5-1985 and again as a unit of Competent Builders. Then comes the last document. This modification deed was not entered into to modify the partnership deed but only to modify the supplementary agreement. This document starts with the words 'This modification of Supplementary agreement of Partnership'. Recitals said that the business of partnership bad extended to dealing in automobiles and motorcycles and that the parties then wanted to segregate these activities from that of the original partnership and for that purpose parties wanted to reorganise the working of the firm and redefine the joint and individual interests as well as obligations in relation thereto. This was only with reference to splitting the 'sales and service centres and related infrastructures and facilities for individual exploitation' by the partners keeping, however, the agency of Maruti Udyog Limited as 'a joint activity for limited purpose in partnership as stipulated hereinafter'. This modification deed came into operation w.e.f. 1-10-1986 Maruti Udyog Limited, defendant No. 3, had given an agency of sale of Maruti cars in the name of Competent Motors and the partners at no cost wanted to jeopardies. this agency which was spinning money for them. Thus, though under the modification deed the parties agreed to exploit this agency on individual basis it was only for keeping the agency alive that name of Competent Motors as partnership was to be utilised for that purpose. Various clauses in the modification deed laid down as to how this agreement was to operate The partners shared the showrooms including booking centres, workshops and other office premises. (It must, not, however, be forgotten that the two partners could open showrooms and workshops in the Union Territory of Delhi in view of the policy statement of defendant No. 3 though after due. approval). Rights of third parties were also safeguarded. Thus, though the parties for all intent and purposes separated respecting the automobile and motorcycle business, they remained joint so that it was not made known to the outside world of their separation and also to keep the agency of defendant No. 3 intact. While plaintiff No. 1 was to work under the name of Competent Motors (CP), defendant No. 1 was to work under the name of Competent Motors (South) That defendant No. 3 should not get inkling of their separation, parties were forbidden from entering into any correspondence with defendant No. 3 which might be detrimental to the interest of the other party. It would, thus, appear that it was in this context that clauses 22 and 23, which have been reproduced above, were introduced to keep each partner away from the scene of operation of the other party and 1991(21) to avoid overlapping of their working. Under clause 28 of the modification deed parties agreed that the builders and developers activity would continue to be carried on jointly under the name and style of Competent Builders in terms of the partnership deed dated 20-2-1978.

(10) The effect of the Modification Deed would appear to be that though the dealership of cars from defendant No. 3 remained in partnership the partners were allowed to exploit the dealership individually to their own benefit. In this process they arrived at the arrangement called the Modification Deed. It is quite competent for partners by agreement amongst themselves to convert that which was partnership property into the separate property of an individual partner. The owning of different properties by the two partners under the Modification Deed is quite valid. For defendant No. 3 and for the outside world these partners continued to do business in the name of Competent Motors as unit of Competent Builders 8 kms. clause was introduced in order to avoid confusion as well. There is no term as 'partial dissolution' under the Partnership Act. Rather this terms appears to be misnomer and cannot best be applied in the case of a retiring partner. It cannot be applied when a particular business carried on by the partnership is closed or some different arrangement is arrived at between the partners to carry on that business. In the present case, under the Partnership Deed the partners could do any other business apart from that of building of multi-storeyed buildings. Then they extended their business to that of dealers in automobiles and again enlarged the same to that of dealing in motorcycles as well. If under the partnership deed business of partnership cap be enlarged, the parties can certainly agree to reduce or decrease the same. That would certainly not be a case of partial dissolution. Parties have been showing themselves as partners of Competent Motors, but since Competent Motors is a unit of Competent Builders they are in fact the partners of Competent Builders. No suit can be filed by Competent Motors. It can only be filed by Competent Builders. The fact that Competent Motors is not registered as a partnership firm is immaterial as it did not have any independent existence as a partnership firm. In view of the dear terms of the Supplementary Agreement of Partnership dated 19-7-1983 it cannot be said that Competent Builders is a separate partnership firm. It can also not be said that the Modification Deed which was executed for the modification of the supplementary agreement constituted a new partnership between the parties. The dealership of defendant No. 3 which was in the name of Competent Motors, which would mean. Competent Builders, continued even after the modification deed. Since the parties had clearly intended to separate their individual business of automobiles and they remained together because of the bond of dealership of defendant No. 3. This bond though also broke down after separate dealership was awarded and it is not very material whether it was in lieu of the existing dealership or independent of that. The modification deed is in two parts: (1) giving free hand to the. partners to individually exploit the dealership of Maruti cars and separating their activities and dividing the properties of the partnership for that purpose and putting restraint clause of 8 kms ; and (2) to make provisions so long as the dealership was joint, like receipt of commission from defendant No. 3 in the joint account, payment to staff and to meet other expenses out of the joint commission so received, and the like. The modification deed had to be a complex affair inasmuch as though the parties wanted to separate in their automobile business they nevertheless per force had to continue together in partnership thought in name only because of the dealership of Maruti cars. Reference may be made to Clause 6 of the Modification Deed which is as under:- 59 '6. The vehicles allotted by the Maruti Udyog Limited would be sold by the parties hereto in their respective showrooms on 50:50 basis at the respective showrooms. The agency commission received from Maruti Udyog Limited would be equally shared up to3lst March, 1988 irrespective of allocation between the parties hereto. However, after 1-4-1988 the commission together with warranty claims shall be shared on the basis of and its proportionate to booking and allocation of vehicles respectively made by the Competent Motors (CP) and Competent Motors (SOUTH) units.'

(11) It would, thus, appear that 8 kms. restriction clauses were not to have any independent existence and were merely ancillary to the main purpose of the modification deed. This deed of modification regarding second part could not have continued after both the partners were granted individual dealership. The unit Competent Motors as part of the Competent Builders stood finally wound up after both the partners were granted individual dealership of Maruti vehicles by defendant No. 3 The business of automobiles which was added to the partnership of Competent Builders, thereforee, stood closed as such. The word 'wound up' used by me is not in the sense of winding up of the partnership. The argument that modification deed constituted an independent partnership, as contended by the defendants, cannot be accepted. Partnership is a relationship between partners on mutual trust and confidence. Relationship of the partners had soured and they decided to part ways with regarding business of automobile and motorcycles. As to how the dealership which was in the name of the partnership should work after the partners had separated in that business was all what various terms in the modification deed stipulated for. Sharing of profit may be evidence of partnership but that is not the conclusive evidence. When the partners decline to work in partnership and express a clear intention not to work in partnership any more, can it be said that they nevertheless still agreed to continue in partnership. The answer obviously is no. One has to see from the circumstances of each ease to ascertain the real intention of the parties and also as appearing from terms of the contract between them A partnership has no legal existence separate from the partners. Since a partnership is not a legal entity a great deal of problems can arise for lack of it. Court cannot infer a partnership readily with all the rights of a. partner to bind the other partner and the firm. Also such law relating to economic offences looming large, where the firm. and all the partners with some exceptions, becoming liable. Court cannot foist a partnership on persons when upon a consideration of the relationship as a whole as evidenced by the written agreement and their conduct as well, it cannot be said that the parties intended to work in partnership Parties in the present case are not view to the business of partnership, and if they had intended the modification deed to be a partnership deed, there was no stopping them from saying so in clear terms. Ali what they wanted was that though they world separate in the business of automobiles, the dealership of Maruti vehicles from defendant No. 3 shall continue as a joint venture. I have noted the two decisions in Paramount v. Coupland. 1824 C.P. 12 Bing 170 ; and Russel v. Austwick, 1828 CH. 1 Simons. 52-63; on the question whether a partnership could be inferred from the modification deed in the present ease. If reference is made to Sections 4, 5 and 6 of the Partnership Act it is quite clear that the parties never wanted a relationship in the form of partnership under the modification deed. It cannot be said that the parties agreed to share the profits of business of sale of vehicles under the dealership obtained from defendant No, 3 carried on by all or any one of them acting for all 60 The parties here wanted to carry on the business separately. Reference may also be made to an advertisement given by the parties and published in the Hindustan Times dated January 17, 1988. in this the parties stated that defendant No. 3 had sanctioned independent dealership to each of the existing partners, namely, Raj Chopra and Narinder Anand, and accordingly both the partners voluntarily agreed to dissolve the existing partnership firm M/s. Competent Motors, and also surrendered w.e.f. January 20, 1988 the dealership of defendant No. 3 in the name of that partnership firm. This advertisement cannot mean to say that Competent Motors was a partnership firm even after the modification deed. What it meant was that dealership which in fact had been granted to Competent Builders, though in the name of Competent Motors, stood closed as a business of Competent Builders and dealership of defendant No. 3 in the name of the firm had, thereforee, been surrendered w.e.f. January 20. 1988. Nothing can be read more in this advertisement. After the dealership was given to the firm plaintiff in the name of M/s. Competent Automobiles Co. Pvt. Ltd. and to the first defendant in the name of M/s. Classic Motors It appears that in anticipation of the different dealership the parties, i e,. the first plaintiff and the first defendant, proposed names as Competent Motors Company and Competent Motors and Parts respectively. Then both of them got private limited companies incorporated again respectively in the names of Competent Automobile Co. Pvt Ltd. and Competent Motors and Parts Pvt. Ltd. Defendant No. 3. however, objected to the use of the word 'Competent' in the names of both the newly formed companies and, thereforee, the separate dealership was given to Competent Automobiles Pvt. Ltd. of the first plaintiff and Classic Motors of the first defendant. It is alleged, that now defendant No. 1 has got registered a company in the name of Classic Motors Pvt. Ltd. and this newly formed company in breach of 8 kms. restraint clause wants to open a showroom in the Connaught Place (CP) area It is said that this company which is defendant No. 2B before me is in fact an alter ego of the first defendant. As noted above, dealership of defendant No. 3 in the name of Classic Motors (defendant No 2A) of which first defendant is the sole proprietor, has now been awarded to defendant No. 2B This was on the request of defendant No 2A by letter dated February 15, 1988 to defendant No. 3. In this letter it is stated that a private limited company in the name of M/s. Classic Motors Pvt. Ltd. had been registered with authorised capital of Rs. 5 lakhs in 5000 equity shares of Rs 100.00 each and paid-up capital of Rs.1 lakhs and the promoters of this company being the first defendant and his wife, who were also the Directors of the company Six shareholders were mentioned being the first defendant, his wife and his four daughters. While first defendant had 400 shares, his wife 200 shares and his four daughter 100 shares each. Defendant No. 3 by its letter dated February 23, 1988 accepted the request of the first defendant for change in the dealership to the limited company Classic Motors Pvt. Ltd A condition was, however, imposed that existing shareholding and directorship shall not be changed without the prior approval in writing of the third defendant It is not that defendant No. 2B has now been constituted. It was there when plaintiff No. 2 had been incorporated It appears that now only the name was changed from Competent Motors and Parts Pvt Ltd to Classic Motors Pvt. Ltd It is, however, not very material if defendant No. 2B was newly incorporated or not.

(12) A company unlike partnership is a legal person set apart from its members. House of Lords in England as far back as at the turn of this century set its seal on the reality of corporate existence when it gave to a debenture-holder, who was virtually the proprietor of the company, priority over unsecured creditors in a winding up, despite the protest of those 61 creditors that Salomon and his company were in truth he same person (See Saloman v. Saloman & Co. Ltd., 1897 AC. 22). Corporate veil is certainly not, however, an impregnable screen. The courts have to an increasing extent shown themselves to be prepared to strip aside (or lift, pierce, remove, put aside, or tear as the different terms go) the veil in order to perceive the real person in the corporate entity Palmer in his Company Law (Twenty Fourth Edition) gives, with reference to case law, sixteen instances where corporate veil was lifted. The learned author, however, observes as under :- 'In practice, the ability to choose between the application of the rule in Salomon's case and the jurisdiction to pierce the veil of corporate ness gives the courts a considerable degree of discretion and enables them to do justice and to decide individual cases in accordance with equitable considerations. But it should be emphasised that the rule in Salomon's case is still the principle and the instances of piercing the veil are the exceptions, though their number is growing'.

(13) The Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. and others : 1986(8)ECC189 . and State of U.P. and others v Renusagar Power Co. and others. : AIR1988SC1737 , examined in depth the circumstances under which corporate veil can be lifted. The court said that generally and broadly speaking corporate veil might be lifted (1) where a statute itself contemplates lifting the veil, or (2) fraud or improper conduct is intended to be prevented, or (3) a taxing statute is sought to be evaded, or (4) where associated companies are inextricably connected as to be. in reality, part of one concern. The Supreme Court in Renusagar Power Company case again observed as under:- 'It is high time to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The aim of the legislation is to do justice to all the parties. The horizon of the doctrine of lifting of corporate veil is expanding...'

(14) Nevertheless the fact remains that it has to be seen if from the shareholdings of the company, the inevitable inference in any event is if the company is merely Mr. so-and-so in corporate form Is this so in the present case and is defendant No. 2B in fact defendant No. 1 incorporate form? This is the question which arises for consideration. Shareholdings of defendant No. 2B have been given Defendant No. 1 is not even a majority shareholder. Simply because his wife and children hold majority shares is not, to my mind, enough to conclude that defendant No. 2B in fact is nothing but defendant No. 1. It is not that the company has been got incorporated now with the object of getting over the 8 Kms. restraint clause. It was in reality incorporated in 1987 in the name of Competent Motors and Parts Pvt Ltd. When under the modification deed the two partners took charge of two different showrooms it was under a policy of defendant No. 3 that such showrooms, though to be approved by it, could be opened, and now it is again a policy of defendant No. 3 that a dealer can open a showroom near the showroom of any other dealer. It is not disputed that there are other dealers of defendant No.3.having showrooms in the Connaught Place area itself and also within the limit of 8 kms. radius of the. showroom of the plaintiffs. It 62 is not possible for me to come to a conclusion that first defendant floated defendant No. 2B to circumvent 8 kms. restraint clause. He got permission from defendant No 3 to have the dealership of Classic Motors, defendant No. 2A, transferred to defendant No. 2B. Moreover, the plaintiff said that all the shareholders would be bound by the 8 kms. restraint clause. It is difficult to appreciate how that can be so. Those shareholders are not parties to the modification deed and not parties in these proceeding as well. To me it appears that defendant No. 2B being an independent person is not bound by any 8 kms. restraint clause and in the circumstances of the present case I am not prepared to even lift the veil to find out who is the person lurking behind defendant No. 2B or who is the moving spirit behind defendant No. 2B or who is the moving spirit behind defendant No. 2B, as suggested by the plaintiff.

(15) In these very circumstances I also find that the 8 kms. restraint clause is not quite reasonable. At one stage of the arguments it was the case of the plaintiffs that Section 27 of the Contract Act was not applicable and that plaintiffs relied on Section 54 of the Partnership Act. Then Section 27 of the Contract Act was also relied upon and so also Section 55 of the Partnership Act. At that time it was stated that modification deed was a partial dissolution and though complete with respect to motor and motorcycles units of Competent Builders and in any case it. was in anticipation of the dissolution and also as the restraint was reasonable. Section 54 of the Partnership Act removed the bar imposed by Section 27 of the Contract Act. It does, however, appear to me that the plaintiffs themselves are not sure of their stand but let me set out the sections : Indian Contract Act, 1872 : 'Section 27. Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Exception 1. One who sells the goodwill 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 goodwill 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 Indian Partnership Act, 1932 :

'SECTION 54. 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; and notwithstanding anything contained in Section 27 of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable. . Section 55(1) In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets, and it may be sold either separately or along with other property of the firm. (2) Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and be may advertise such business, but, subject to agreement between him and the buyer, he may not- (a) use the firm name, (b) represent himself as carrying on the business of the firm, or (c) solicit the custom of persons who were dealing with the firm before its dissolution. (3) Any partner may, upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified local limits, and, notwithstanding anything contained in Section 27 of the India Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable. '

(16) Under Section 27 of the Contract Act every agreement by which any person is restrained from exercising a lawful profession, trade or business of any kind is to that extent void. The 8 kms. restraint clause would appear to be per se void under Section 27 of the Contract Act as it puts restriction on the party preventing him from exercising his lawful right of trade or business of the kind. The exception to the section is inapplicable. There is no question of sale by one partner to the other of any goodwill. In fact the argument bad been that since the first defendant was given more assets a restriction was put on him. But the restriction acts on both the partners, and there is nothing in the agreement (modification deed) to suggest that first defendant got larger assets. Two lots were prepared of the assets to which this deed applied. (One partner opted for one lot and the other partner for the second. It was said that the restraint clause went with the property taken over by the first defendant and as such it survived even after the dealership of Maruti vehicles was granted separately to both the erstwhile partners, and since defendant No. I was bound by the restrictive covenant, defendant No. 2B was also similarly bound I have been unable to appreciate this argument. Under Section 27 question of reasonableness of the restriction does not arise. A.P. Sen, J. in Superintendence Company of India (P) Ltd v. Krishan Murgai, : (1981)ILLJ121SC , observed that when a covenant or an agreement was impeached on the ground that it was in restraint of trade, it was the duty of the court first to interpret the covenant or agreement itself and to ascertain according to the ordinary rules of construction what was the fair meaning of the parties. There is no ambiguity in the present case The restraint is very much there. Then the learned Judge observed that while the Contract Act did not profess to be a complete code dealing with the law relating to contracts, to the extent the Act dealt with a particular subject, it was exhaustive on the same and it was not permissible to import the principles of the English Law dehors the statutory provision unless the statute was such that it could not be understood without the aid of the English Law. This restraint clause has, thereforee, to be held to be void under Section 27 of the Contract Act.

(17) The word 'firm' in Section 54 would mean here the Competent Builders. This firm continues. A unit of automobiles and motorcycles was started by this firm and then closed. Deed of Modification cannot be 64 said to be in anticipation of dissolution of the firm Competent Builders and this document itself is also not a dissolution deed of the Competent Builders. Even if the business of Competent Builders was also of dealership in automobiles and motorcycles for section 54 to be applicable the parties bad to agree that both or one of them will not carry on a business similar to that of the firm. Modification deed is no such agreement. Again, thereforee, section 54 of the Partnership Act is inapplicable. Section 55 is also not applicable. The firm Competent Builders had not been dissolved and no question of setting the accounts would arise and so also the goodwill being included in the assets of the firm. A question neverthless was raised if the restraint clause imposed a restriction which was reasonable and so vailed. I am not unmindful of the fact that when two persons of experience in business and equally placed enter into an agreement, they should be held bound by the same. But then agreement has to be such as would be valid under the law of the land. No doubt the parties voluntarily agree to the restraint as stipulated in 8 kms. clause. I have narrated the circumstances under which this Deed of Modification came to be excited and what were the objects the parties desired to achieve. The parties at no cost wanted to impair the gran of dealership of Maruti vehicles by defendant No. 3 which was granted in the name of the firm When they decided to have two separate showrooms it was under the guidelines of defendant No 3. That Their separate business in automobiles may not not be hampered by over-lapping of bookings and they, thereforee, imposed upon themselves this restraint. Now when the dealership is separate this restraint clause even otherwise loses significance alltogether. Defendant No. 3 itself has allowed opening of showrooms in the vicinity of the showroom of another dealer. As noted above, there are already in existence showrooms of the other dealers in the vicinity of the showroom of the plaintiffs in the Connaught Place area and also existing within 8 kms. radius. Of course validity of a clause cannot be judged with reference to subsequent events, but the clause was clearly intended to operate so long as the dealership was in the name of the partnership firm. This was in fact ancillary clause to the main agreement, i.e.. Modification Deed, and when the modification deed itself outlived its utility, this restraint clause also fell. Moreover, this restraint clause is not limited to any particular period of time and on this account talso, in my opinion, she restriction imposed is not reasonable. The court does not gently look upon an agreement in restraint of trade and the party who claims that restriction imposed is reasonable has to prove its point which in the present case plaintiffs have not been able to do so. In Rattan Chand Hira Chand v. Askar Nawaz Jung (dead) by Lrs. & Ors AIR 1991 Sc 496, the Supreme Court (P. B. Sawant, J. observed that the social milieu which the contract is sought to be enforced would decide the factum. the nature and the degree of the injury, and that it was contrary to the concept of public policy to contend that it was immutable, since it must vary with the varying needs of the society, and further what constituted an injury to public interests or welfare would depend upon the times and claims (claims ?).

(18) Various decisions of the English courts were cited show how the legal doctrine regarding agreements in restraint of trade becomes applicable and what are the considerations in determines reasonableness. The courts there also examined the question as to should not the man's words be his bond and where contractual obligations are freely entered into should not these be enforced. Courts in England in such circumstance have habitually enforced the covenant provided the covenant itself could not be attacked on the grounds of obscurity illegality or on public policy such as that it was inc trait it of trade. It was argued that the restraint clause in the present case 65 was bad for obscurity, illegality and was against public policy. I have already held that the clause is void under section 27 of the Contract Act and section 54 and 55 of the Partnership Act do not apply to the facts of the case.

(19) Traditional weighing of the factors in granting temporary injunction has been done by me and it appears to me that the case of the plaintiffs is based on wrong premise that there is partial dissolution or restraint clause was entered into in anticipation of any dissolution or that the restraint clause is independent of the deed of modification or that the same is reasonable. In fact, there is no foundation laid for all this. However, I find that the as such is maintainable on the basis of the averments made in the plaint. The plaintiffs, in short have alleged that defendant No. 2B nothing but defendant No. 1 in corporate form and restrictions were imposed in anticipation of the dissolution of the firm and that these are reasonable and ail the defendants would be bound by the restriction clause. Further, the restriction clause which operates as a negative convenant cannot be passed on as a consideration and it cannot be taken into account for settlement of of account even if it is held that it is a case of partial dissolution.

(20) I will record that defendant No. 28 has offered to keep a record of the booking and sale of Maruti vehicles under dealership with defendant No. 3 during the pendency of this suit. This defendant No. 2B will do.

(21) Because of the view which I have taken it is not necessary for me to refer to various decisions cited at the bar. The case which otherwise looked simple assumed multi-faceted proportions rich is issues. Arguments have been addressed in considerable detail and I did not think it necessary to note all the arguments for the purpose of decision of the present application. I must, however record my deep appreciation of the assistance rendered to me by the learned counsel for the parties.

(22) The application is 244/90 filled by the plaintiffs is. thereforee. dismissed and 1.A. 2238/90 filled by defendant No. 28 is allowed. The interim order made on January 12, 1990, is vacated. There will be, however, no order as to costs.


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