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S.T. Sinniah Chettiar Vs. S.T. Karian Chettiar - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Reported in(1964)1MLJ335
AppellantS.T. Sinniah Chettiar
RespondentS.T. Karian Chettiar
Cases ReferredGundayya v. Siddappa A.I.R.
Excerpt:
- .....the plaintiff. during all this time, the brothers continued the business, which was originally a family business, but, later, after their division in status on 14th november, 1938, it became a joint business, in which they had rights as tenants-in-common, the share of each being one half. it was because of such treatment of the business as a joint business that a settlement of accounts was made on 6th june, 1955, in pursuance of which the defendant executed a promissory note for rs. 3,750 to the plaintiff in full settlement of the dues' by him to the plaintiff up to that date. the suit is filed for partition of the dhanalakshmi rice mill business and its properties and for directing the defendant to render account of his management of the business from 6th june, 1955, the date of the.....
Judgment:

P. Ramakrishnan, J.

1. The plaintiff in O.S. No. 1629 of 1955 on the file of the District Munsif, Coimbatore, is the appellant herein. The facts of the case which have led to this Second Appeal are briefly the following.

2. The plaintiff, Sinniah Chettiar, and the defendant, Karian Chettiar, are brothers. They became divided in status and executed a partition deed on 14th November, 1938, which has been marked as Exhibit A-2 in the case. Under the partition deed, they seem to have divided all their properties except the property described in the C Schedule thereto, which, it is recited, will be kept in common. This C Schedule property is Sri Dhanalakshmi Rice Mills, which the brothers had installed in certain premises which they had taken on lease. The value of this property was given as Rs. 300. The milling business was continued in that mill. In 1942, the Madras Foodgrains Control Order was promulgated, and it became necessary to obtain a licence for conducting the mill. The licence was obtained in the name of the defendant. The rice-milling business seems to have continued thereafter. In 1955, disputes arose between the brothers. Accounts had been kept during the whole period of the rice-mill business. A settlement was made between the brothers, and it was found that the defendant was liable to pay Rs. 3,750 to the plaintiff. Accordingly, on 6th June, 1955, the defendant executed a promissory note for the above amount in favour of the plaintiff. The mill business. seems to have continued thereafter. The plaintiff filed O.S. No. 1474 of 1955, on the promissory note. The plaintiff also filed the suit (O.S. No. 1629 of 1955) out of which this Second Appeal has arisen. At the same time, he alleged that the Dhanalakshmi Rice Mill was a business which belonged to the joint family. It was kept undivided at the partition between the plaintiff and the defendant on 14th November, 1938. It continued from 1938 to 1941 in the rented premises of one Subbiah Chetty. In 1941, it was shifted to an adjacent house belonging to the plaintiff. During all this time, the brothers continued the business, which was originally a family business, but, later, after their division in status on 14th November, 1938, it became a joint business, in which they had rights as tenants-in-common, the share of each being one half. It was because of such treatment of the business as a joint business that a settlement of accounts was made on 6th June, 1955, in pursuance of which the defendant executed a promissory note for Rs. 3,750 to the plaintiff in full settlement of the dues' by him to the plaintiff up to that date. The suit is filed for partition of the Dhanalakshmi Rice Mill business and its properties and for directing the defendant to render account of his management of the business from 6th June, 1955, the date of the last settlement.

3. The defendant pleaded that the mill business was exclusively his, even before the partition, that therefore he alone was entitled to it, and that the plaintiff was not entitled to a share in the profits. The business was never a family business. At the time of the partition in 1938, it was agreed that the business, which was till then the defendant's exclusive business, should be run thereafter on a partnership basis. Subsequently, the proposed partnership did not materialise. The defendant acquired a licence for himself for the hulling business. The licence issued to him was personal and not on behalf of the partnership. After 1938, the plaintiff did not take any part in the business at all. In 1945, the licence was cancelled and the business was stopped. In 1947, the defendant got a fresh licence in his name. The defendant's son, who was managing the business till 1951, left the village for higher studies. At that time, the plaintiff was entrusted with the management of the mill at the request of the defendant, and he looked after the mill as defendant's agent. In 1955, the defendant terminated the plaintiff's agency and took over the management of the mill himself. The circumstances relating to the execution of the promissory note for Rs. 3,750 were denied. The liability to account and the liability to partition were denied. There was also a plea that, by virtue of the Madras Rice Mills Licensing Order read with Essential Supply Temporary Powers Act of 1946, a licence was required before any one could conduct a rice-milling business. A partnership, therefore, for running such a business with licence only in the name of one partner is opposed to law and public policy, and, therefore, the plaintiff cannot enforce a claim to share in the profits of such a business.

4. The finding of the trial Court was that the business was a joint family business, and that after the partition in 1938, when this business was kept undivided, it became a joint business, in which the plaintiff and the defendant had rights as tenants-in-common. It was not a partnership. Therefore, the contention that the plaintiff could not obtain relief for accounts since the running of the rice-milling business with licence only in the name of the defendant was opposed to law and public policy, was negatived. The suit was decreed with costs, as prayed for.

5. The defendant appealed to the learned Subordinate Judge of Coimbatore The learned Subordinate Judge, in paragraph 5 of his judgment, referred to the fact that the short point argued before him by learned Counsel for the appellant was that directing the defendant to render an account of the profits of the business was opposed to law, as the licence for the business was personal and individual to the appellant, and that none else, not borne on the licence could be deemed to be running the business, or entitled to any profits thereon. The lower appellate Court observed that, after the partition in 1938, the Dhanalakshmi Rice Mills was no longer a joint family property, but that it became a property held in co-ownership. The learned Subordinate Judge, after referring to the decisions in Narayanan v. Subbaraju (1956) 2 AW.R. 847, Velu Padayachi v. Sivasooriam Pillai : AIR1950Mad444 . Rama Rao v. Papayya (1954) 2 M.L.J.108. and Venkatarama Ayyar v. State (1957) M.L.J. 100. came to the conclusion that the running of the business with a licence only in the name of the defendant became unlawful from the date of the coming into force of the Licensing Order. Apparently, when the attention of the learned Subordinate Judge was drawn to the fact that the above rulings referred to a case of partnership, he expressed the view that it made no difference that, in the above rulings, it was a case of a partner asking for relief, and that in the instant case it is a co-ownership that is relied on by the plaintiff for asking for relief. The specific term of the Madras Rice Mills Licensing Order, Section 2, was that no person shall carry on the business of a rice-mill and operated by power-driven machinery, except under, and in accordance with, the conditions of a licence issued in that behalf by the Collector of the District. The Subordinate Judge observed that the meaning of this provision was that none who (whose name) does not appear on the licence, could run a business and get profits. The appeal was allowed and the judgment of the lower Court was modified in the respect, that the relief of accounting was disallowed, and the relief of partition was maintained.

6. Learned Counsel for the appellant before me, urged that the Subordinate Judge took a wrong view when he stated, that it would make no difference to the application of the rulings cited by him if, as in the instant case, it is an alleged co-owner who is asking for the relief of accounts and not a partner. There is a real point of distinction between a co-ownership and a partnership, in the context of an attack that the business was conducted in pursuance of an agreement which was contrary to law and was opposed to public policy. The relation of partnership arises from contract, and not from status. When there is a licence in the name of one individual under the Licensing Order, and a partnership is formed by him and another, agreeing that they shall both, conduct the business, then, the subsequent conduct of the business with the licence in the name of one of the partners, is a violation of the Control Order, which requires that every person who conducts. a business in rice-milling shall take a licence for it. Similarly, if there is already a partnership between two individuals, and they undertake a rice-milling business on the strength of a licence in the name of one person, it involves an agreement to conduct that new business under the licence granted to one person. It involves the idea of a transfer from the person to whom the licence was granted to the partner-ship and the transfer is prohibited by a particular provision of law vide Velu Padayachi v. Sivasooriam : AIR1950Mad444 . In the same decision, it is observed:

On the question of public policy, it is difficult to see any difference between the object of a partnership entered into before the licence was granted, and one entered into after it vras granted. In either case, the partnership would be entered into for the purpose of bringing about a result prohibited by law, i.e., the vending of arrack by a person who had no licence to do so.

The Full Bench was dealing with a licence under the Madras Abkari Act, which contains two provisions. One is Section 15, which ran:

No liquor or intoxicating drug shall be sold without a licence from the Collector....

The other provision, Rule 27 framed under the Act, said that no privilege of supply or vend shall be sold, transferred or sub-rented without the Collector's previous permission. The principle of the Full Bench decision in holding the partnership to be illegal under the Contract Act, was therefore that, if the partnership had agreed to sell liquor on the strength of the licence in the name of one partner, it would contravene Section 15, because, both the partners should be presumed to be con-ducting the business of selling, which would be illegal since only one partner had a. licence; and, secondly, when the partnership sells liquor on the strength of the licence issued to one partner, it would involve the transfer of the licence from the grantee to the partnership. In an earlier Full Bench decision of this Court in Ramanayudu v. Seetharamayya : AIR1935Mad440 a promissory note was executed by the successful bidder of a toddy shop in favour of another for advances made by the latter for carrying on the toddy shop business, which they agreed to work as partners. The suit filed for the recovery of money on the promissory note was dismissed on the ground that the partnership was formed for illegal purposes, as Rule 27 of the Abkari Act (referred to above) was contravened. That rule provides that the privilege of sale shall not be transferred without the Collector's previous permission. It was pointed out by learned Counsel for the appellant that all these decisions rested on the special provisions of the Abkari Act and their application to a partnership. When a partnership sells liquor relying on the licence in the name of one partner, it involves the idea of a transfer of the licence from the grantee to the partnership, and such transfer was illegal as it contravened Rule 27. When the unlicensed partner sells arrack, it is a direct contravention of Section 15. When the licensed partner sells, there is a presumption under the Partnership Act that he is an agent of the unlicensed partner, and, therefore, the unlicensed partner shall be treated as selling without a licence, again, a contravention of Section 15. But it was pointed out that there was no provision in the Rice Mill Control Order similar to Rule 27 of the Rules under the Abkari Act, prohibiting transfer. The real prohibition in the Rice Mill Control Order is under Section 2, which states that no person shall carry on the business of milling rice except under, and in accordance with, the conditions of a licence.

7. One other decision quoted in this connection is of Subba Rao, C.J., in Rama Rao v. Papayya (1954) 2 M.L.J. 108. That dealt with the licence under the Rice Rationing Order of 1943, granted to the first defendant in the suit. A partnership was formed by the plaintiff and the defendants for running a rice ration shop business and they conducted the business on the basis of the licence issued in the name of the first defendant. There were provisions in that Order by which a person was prohibited from transferring the licence to any other person. In such circumstances it was held that the partnership was illegal. But it appears that where a lease had been issued in favour of three partners for exploiting the salt pans under the Madras Salt Act, there would be nothing illegal if one of the partners entered into an agreement with a stranger that the latter was to receive a share of the profits of that partner in lieu of an advance of money. Such a provision would not contravene the terms of the lease that it should not be sub-let, assigned or transferred, etc., by the lessee without the written consent of the lessor vide Sama Venkataratnam v. Yenduri Venkataratnam (1944) 1 M.L.J. 461. But this dealt with a situation quite different from the cases cited above where a partnership conducted a business in the name of a licence granted to only one partner. All the above cases can be distinguished on the ground that they dealt with partnerships which had a juristic status of its own derived from contract and which also carried with it the principles of agency of one partner on behalf of the other partners. They also dealt with the special provisions of the various enactments which had a condition that the licence should not be transferred, but the position would be different, if the business is found to be originally a joint family business and then on the division in status of the coparceners, they continued to conduct the business as tenants-in-common. A tenancy-in-common which is brought about among members of a coparcenary on division in status is not the result of any contractual agreement between them. It is a result brought about by the operation of Hindu Law on their title altering it from a coparcenary interest in property, to a tenancy-in-common.

8. In Gundayya v. Siddappa A.I.R. 1937 Mad. 599. Varadachariar and King, JJ., dealt with a joint Hindu family business. There it was held that when all the property of a joint Hindu family is divided, the presumption is that the further conduct of the family business is in the nature of a partnership, but where some property only is divided, excluding the family trade, the mere fact that partial partition amounts to a division in status, does not make the members partners in respect of that business. The judgment also referred to Section 5 of the Partnership Act, which recognises the antethesis between a partnership on the one hand, and the conduct of a joint family business by the former coparceners after division in status, on the other. Section 5 of the Partnership Act reads:

The relation of a partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such, are not partners in such business.

At page 601 of the same report Gundayya v. Siddappa A.I.R. 1937 Mad. 599, the position is stated that

on the partition taking place, the status between the coparceners became one of tenancy-in-common in place of the old coparcenary status, but this did not attract the further result that the status must be held to have so far changed as to give rise to a relationship under a contract.

The finding whether the status in a particular case continued to be that of tenancy-in-common, or had been replaced by a contractual relationship of partners must be one of fact based on the evidence in the particular case.

9. If the business which was a family business was conducted by the former coparceners, after division in status, with the rights of tenants-in-common, without super-imposing a contractual relationship of partners, they may not be liable to the penalties which arise when a partnership conducts a business with the licence in the name of one partner. Then it may happen that one co-owner is in possession of the entire property or conducts the entire business. In such a case no question of agency would be implied on behalf of the non-participating co-owner. Nor is there a presumption, that the latter co-owner is also actually participating in the business. The co-owner in charge of the business will be a trustee for the non-participating co-owner and he is liable to render accounts. He can be in entire charge of the business which he is conducting; if he has a licence, it will protect the conduct of the business by him. None of the infringements of the law which will make the conduct of the business illegal or opposed to public policy, will take place, in that event.

10. In view of the foregoing observations it is necessary for the lower appellate Court to arrive at a finding on the evidence whether the business was conducted during the period we are concerned with, by the two brothers as tenants-in-common or as partners. If they conducted it as tenants-in-common the relief of accounting will be available to the plaintiff. Only if it is found that they conducted the business as partners, the question of applying the law relating to infringement of the terms of the licence and, therefore, the non-availability of relief to the plaintiff will arise. That will again depend upon the interpretation of the terms of the particular enactment and the Rules framed thereunder. The lower appellate Court has made a mistake in assuming that there will be no difference in the application of the law, whether the relationship was that of partners or of tenants-in common.

11. The Second Appeal is allowed; the decree of the lower appellate Court is set aside. The lower appellate Court will restore the appeal to its file and dispose of it according to law, in the light of the foregoing observations. The costs of the Second Appeal will abide the result. Appellant will be entitled to a refund of the Court-fee paid in the memo of Second Appeal. No leave.


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