1. This is an appeal preferred against the decree and judgment of the learned District Judge of Coimbatore, in A.S. No. 391 of 1953, reversing the decree and judgment of the learned District Munsiff, Erode, in O.S. No. 574 of 1951.
2. On 18th November, 1939, the plaintiffs' predecessor entered into an agreement with the first defendant styling it as an 'Indenture of Partnership' in the following terms:
The indenture is made the 18th day of November, 1939, between K.N. Mohamed Ghouse Sahib of No. 127, Pitt Street, Penang (hereinafter called the first party) of the one part and S.E. Abdul Rahim also of No. 127, Pitt Street, Penang (hereinafter called the second party) of the other part:
Whereas the first and second parties were carrying on from the year 1925 up to the 30th day of September, 1939, the business of cattle dealers and skin merchants:
And whereas from the 30th day of September, 1939, the said partnership was dissolved by mutual consent on the understanding that the parties hereto shall each carry on a new business of cattle dealers and skin merchants under the style of N.K. Mohamed Ghouse Sahib alternately for a period of two years each at a time at the risk of the party so carrying on and whereas pursuant to the said understanding the second party has been carrying on the said business as from the 1st day of October, 1939 by himself and at his own risk:
Now this indenture witnesseth that it is hereby mutually agreed that the said parties shall become partners in the said business upon the terms hereinafter contained, viz.,
1. The partnership business shall be that of cattle traders and skin merchants and shall be carried on under the style or firm name of 'N. K. Mohamed Ghouse Sahib' at No. 127, Pitt Street, Penang, or at such other places in the Colony of the Straits Settlements as may be mutually decided upon.
2. The capital of the partnership shall consist of the following:
(a) The net value of the stock-in-trade, book debts and other assets (including the goodwill) as on the 30th day of September, 1939, of the business of 'N. K. Mohamed Ghouse Sahib ' carried on by the parties hereto at No. 127, Pitt Street, Penang, aforesaid, less the outstanding liabilities of the said business on that date. The said assets less the said outstanding liabilities of the said business shall be credited to the said parties as their respective shares in equal shares. But this shall be subject to re-adjustment in the event of the said liabilities ultimately proving to be more or less than what they are at present in me books.
(A) Any further sums which either party shall from time to time contribute for capital purposes which shall be credited to his capital account.
3. The duration of the partnership shall be from the 1st of October, 1939, until dissolution by mutual consent.
4. The management of the partnership business shall be in the hands of the second party for a period of two years from the 1st of October, 1939, and shall be in the hands of the first party for a period of two years from the ist of October, 1941, and so on, the ' parties shall respectively manage the said business for alternate periods of two years at a time. The partner who is at any time managing the business shall hereinafter be called 'the partner-in-management'.
5. The net amount of capital and monies (other than monies, if any, credited for goodwill) credited to the said first party on the said 1st day of October, 1939, shall be paid by the second party to the first party on demand and the said second party shall for a period of two years from the 1st day of October, 1939, be the partner in management. Any partner in management shall have the sole and exclusive management of the partnership business and shall devote his whole-time and attention thereto and carry on and manage the same in a prudent and business like manner to the utmost of his skill and ability.
6. A partner-in-management shall during the period of his management be solely entitled to the whole profits of the said partnership business and shall be liable for all expenses, debts, outgoings and losses and shall indemnify and keep indemnified the other partner from all claims, debts, demands or actions in connection with any such expenses, debts, outgoings or losses and in connection with anything done or omitted to be done, during the management of the said partner-in-management.
7. A partner-in-management shall keep proper accounts of his management of the partnership business and shall render to the other partner one month before the expiry of his period of management a correct general account of his management together with valuations of stock-in-trade, credits and properties and showing the debts and liabilities of the business during his management and all transactions, matters and things justly comprehended in a general account of the like nature and such general account shall be balanced and, if agreed to, such balance-sheet shall be signed by both the parties hereto as approved. Account-books shall be kept at the premises of the partnership business and shall be open to the inspection of either partner at any time. The business shall be valued as at the date of expiry of the period of management of the partner-in-management and the value ascertained.
8. At the end of any period of management of a partner in management the business shall be handed over by the said partner-in-management to the other partner. Such other partner shall take over the said business paying the said, partner-in-management the value of the net assets (other than goodwill) of the said business as shown by the balance-sheet agreed to by the parties as aforesaid. The said partner shall on such taking over be the partner-in-management for a period of two years and shall manage the said business on his account and at his own risk without any control or unnecessary interference from the previous partner-in-management.
9. No partner shall pledge the credit of the other partner.
10. Each partner shall-
(a) punctually pay his separate debts and indemnify the other partner and the partnership business against the same and all expenses on account thereof.
(b) be just and faithful to the other of them and at all times give to such other full information and explanation of all matters relating to the affairs of the said partnership business.
11. Either partner shall-
(a) not carry on or be interested in any other business in the Colony of the Straits Settlements ;
(b) mortgage or charge his interest in the partnership or take another partner into the said business ;
(c) endanger the partnership business or the tenancy of the premises occupied by the said partnership business in any manner whatsoever.
12. If either partner shall commit any act of bankruptcy or become physically or mentally unfit to attend to the partnership business or suffer any act which would be a ground for the dissolution of a partnership by the Court, then in any such case the other partner may by notice in writing determine the partnership and in that case he shall have the option of purchasing the interests of the other partner in the good will and other assets of the business.
13. All disputes which shall arise between the parties hereto whether during the subsistence of this agreement or thereafter in connection with this agreement or the management of the said partnership business or in relation to any act or omission by either party or any act that ought to be done by either party or in connection with any matter whatsoever touching the partnership affairs shall be referred to arbitration under the provisions of the Arbitration Ordinance.
3. This business went on from 1939 to 1941, and, as stipulated in the above agreement, the first defendant took over and complied with the requirements of that agreement. Then by 1943 the conditions seem to have become unsettled in Malaya, and there has been no taking over by the plaintiff. In fact nothing has happened till 1951. Then the suit has been filed by the heirs of one of the parties of the agreement for declaring that the partnership between the first defendant and their predecessor-in-title, Abdul Rahim who had died, had become dissolved as from 26th July, 1948 at Erode, and for accounting by the first defendant.
4. The case for the defendant was that notwithstanding the fact that this agreement is styled as a deed of partnership and there are terms therein appareling the parties thereto as partners, in substance and in essence this was not a partnership deed at all and no partnership was constituted thereunder and therefore no question of dissolution of partnership and taking of accounts can be granted to the plaintiffs.
5. The learned District Munsif came to the conclusion that there was a partnership and granted the plaintiffs the reliefs asked for. On appeal the learned District Judge came to the conclusion that the plaintiffs were not entitled to the reliefs on the foot of a partnership.
6. The short point for determination before me is whether under this agreement a partnership was constituted entitling the plaintiffs to the reliefs asked for. Section 6 of the Partnership Act, which embodies the well known English decision in Cox v. Hickman (1860) 8 H.L.C. 268, lays down, that in determining whether a person is or is not a partner in a firm, the Court must have regard to the real relation between the parties, and that whether the relation of partnership does or does not exist must depend on the real intention and contract of the parties (Mollow Narch & Co. v. Court of Wards (1872) L.R. 4 P.G. 419, ; Sutton & Co. v. Grey (1894) I Q.B. 285. Walker v. Hindi (1884) 27 Ch. D. 460.; Badley v. Consolidated Bank (1888) 38 Ch.D. 238. King & Co. v. Whichelow (1895) L.J. Q.B. 801 ; Abdul Rahiman, In re (1928) 51 Mad. 308,: : (1928)55MLJ12 . Raghunandan v. Hormasjee (1927) 51 Bom. 342. McLaren v. S. Verschoyle (1901) 6 Cal. W.N. 429 . Porter v. Incell (1905) 10 C.W.N. 313. Raghumull v. Official Assignee of Calcutta (1923) 28 Cal. W.N. 34, as appearing from the whole facts of the case (Ross v. Parkyas (1875)20 EQ.331. Ex parte Delhasee) (1876) 7 Ch. D. 511 and not merely on their expressed intention. A and B may in a written agreement have stated expressely that they are not partners yet they have been held to be partners (Ex Parte Delhasee (1876) 7 Ch. D. 511. Moore v. Davis (1879) 11 Ch. D. 261, or they may have stated that they arc partners and have been held not to be partners, Bhaggu Lal v. De Gruyther (1881) 4 All. 74. Nature of the relation is not altered by the mere use of the word partnership, either in the agreement or in pleadings, Abdulla v. Allaj Diya (1927) 8 Lah. 310. Hirabbai v. Bhagirath R. & Co.(1943) 47 Bom. L.R. 808, (use of the words sleeping partner in written agreement) Karnidan Sarda v. Sailaja Kanta I.L.R. (1940) Pat. 715. Also see, Mohammad Tusuf v. Pirmohammad A.I.R. 1922 Nag. 67. Mamooji v. Tayebali A.I.R. 1933 Sind. 210. See the full discussion in Om Prakash Aggarwala. 'The Indian Partnership Act, p. 70' and following citing Chimaram Motlal v. Jayantilal : AIR1939Bom410 . Madho Prasad v. Gouri Dutt A.I.R. i939 Pat. 323. Band Ram v. Jagan Nath A.I.R. 1935 Lah. 209. Tajmal Hussain v. Ahmad Ali A.I.R. 1937 Oudh 438. Raghumall v. Official Receiver, Calcutta : AIR1924Cal424 . In re Abdul Rehman (1926) 55 M.L.J. 12 : I.L.R. Mad. 308. Mamooji v. Tayebali : AIR1925Mad768 Chockkalinga v. Muthuswami : AIR1925Mad768 . If we analyse Section 4 of the Partnership Act there must be three elements present before any relation, which may be termed partnership, can come into existence : (1) there must be agreement entered into by all the persons concerned ; (2) The agreement must be to share the profits of a business, and (3) the business must be carried on by all or any of the persons concerned acting for all. All these elements must be present before a number of persons can be called partners (See G. N. Sinha on Partnership Act, 1957 edition, page 17) ; Pollock and Mulla. 'The Indian Sale of Goods and the Indian Partnership Acts' Second Edn., p. 302). In this case the first requirement has been fulfilled.
7. But the second element, namely, that the agreement must be to share the profits of the business, has not been fulfilled. The substance of the agreement is that the old business was wound up in 1939 and that after taking over the goodwill and the remaining stock-in-trade for over two years each of the parties to the agreement should carry on the business for two years without in any way being accountable to the other. In other words, that person who took over the two year turn was to take over all the profits and losses.
8. In other words, this business was nothing more than a convenient arrangements between these people for a two year turns of a business exploiting its goodwill. It it an association for some special purpose of persons not being partners. Pollock and Mulla, Ibid, p. 304). Therefore the second requirement, namely, that the agreement must be to share the profits of the business does not stand made out.
9. It is no doubt true that though participation in the profits of a business by a person is a prima facie cogent, and at times strong evidence that he is a partner, the receipt of such a share or of a payment contingent on or varying with the profits does not of itself make him a partner in the business or liable as such. A creditor who supervises the conduct of a debtor's trade with an agreement that he will be paid out of the profits of the business does not thereby become his partner and cannot be held liable to third parties for the liabilities of the business. But at the same time to constitute a partnership there must be a community of benefit. That is why, as the definition of partnership involves that of joint operation for the sake of gain, a society for religious or charitable purpose is not deemed to be a partnership. A common interest will not make a partnership without division of profits.
10. Then coming to the third requirement, the terms of the indenture reproduced above purposely clearly show that in this case there is no question of agency and authority. The true test for determination whether a person receiving a share of profits in a business is or is not a partner in the business, is to examine whether the business was carried on by the others acting for him and whether the relationship of principal and agent subsisted between them, that is to say whether one was authorised to work on behalf of another, and not merely whether that other was sharing the profits. The question is one of agency and authority. Section 4 of the Partnership Act clearly states as reproduced above that it must be a business carried on by all or any of them acting for all. The words 'acting for all' were inserted to emphasize that partners are agents and not merely principals. One essential element of partnership, as is shown in the definition, is that there should be agency. One partner can always bind another partner in any matter which falls within the scope of the partnership business, subject to any limitation under Section 20 of the Act, and if the relationship constituted between parties in respect of a particular matter does not expressly or by necessary implication involve the right of one party to pledge the other as an agent, then there is no partnership. (Justice S.T. Desai in the 'Law of Partnerships in India and Pakistan,' Second edn. page 35, etc.). In this case there has been an express stipulation, to the contrary and therefore it cannot be said to prove that one of them was the agent of the other. Here it has not been shown that something was done on behalf of both without consulting the other, and which was accepted or found binding on both.
11. The instant case seems to be one of co-ownership. Co-ownership is not partnership. See the difference between co-ownership and partnership pointed out at pages 108-109 of K.M. Ghosh, 'Partnership Law in India and Pakistan.'
12. Therefore, the analysis of the terms of the indenture, though cast in the form of a partnership deed, does not fulfil the requirements of a partnership within the meaning of the Partnership Act. Therefore, the lower appellate Court came to the correct conclusion that the plaintiffs were not entitled to the reliefs asked for and rightly dismissed the suit. I confirm the decree and judgment of the lower appellate Court and dismiss this Second Appeal and, in the circumstances, without costs.