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PETITIONER: KARUMUTHU THIAGARAJAN CHETTIARAND ANOTHER

       Vs.

RESPONDENT: E.   M. MUTHAPPA CHETTIAR.

DATE OF JUDGMENT: 27/02/1961

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B.

CITATION:  1961 AIR 1225            1961 SCR  (3) 998  CITATOR INFO :  RF         1991 SC1020  (17)

ACT: Partnership-Durations  not  expressly Provided-When  can  be implied-Termination  of  Partnership  by  notice-Partnership Act, 1932 (IX of 1932), ss. 7, 10, 13(g).

HEADNOTE: The  appellant  and the respondent entered  into  a  written partnership with respect to the managing agency business  of two  mills,  the terms of which were, inter alia,  that  the management  shall  be carried on in rotation  once  in  four years, the appellant to manage for the first four years  and thereafter the respondent to manage for the next four  years and in the same way thereafter.                             999 It  further provided that the partners and their  heirs  and those getting their rights shall carry on the management  in rotation.   Soon after disputes arose between  the  partners and the appellant gave notice to the respondent  terminating the  partnership treating it as a partnership at  will,  and the  directors  of the mills in their  turn  terminated  the managing agency on the ground that the quarrels between  the partners  were  detrimental to the good   management  of the mills.  Thereafter the respondent brought a suit against the appellant  and the mills for dissolution of the  partnership firm   and   damages  alleging  that  dissolution   of   the partnership  by the appellant by notice was  fraudulent  and connived  at  by the mills.  The trial court held  that  the partnership was at will and the termination of the  managing agency was, legal and disallowed damages.  On appeal by  the respondent the High Court held that the partnership was  not a  partnership at will and could not be dissolved by  notice by  the appellant.  The termination of the  managing  agency was  also held to be illegal.  On. appeal by  the  appellant with a certificate of the High Court: Held,  that  considering the provision that  the  management would be carried on in rotation between the partners in four yearly periods and that the heirs of the partners would also carry  on  the  business  in  rotation  the  intention   was obviously to have a partnership of some duration, though the duration  was  not expressly fixed in  the  agreement.   The

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duration of a, partnership may be expressly provided for  in the  contract but even when there is no  express  provision, courts have held that the partner. ship will not be at  will if the duration can be implied. Grawshay v. Manle,  Swans 495; 36 E.R. 479, followed. The contract in this case disclosed a partnership the deter- mination  of which was implied, namely, the  termination  of the  managing  agency  and, therefore, under  s.  7  of  the Partnership Act it was not a partnership at will and was not legally terminable by the notice given by the appellant. In  view  of the strained atmosphere  between  the  partners there  was sufficient reason for the mill to  terminate  the managing agency and the resolution of the board of directors terminating  the managing agency agreement confirmed by  the general  meeting  of  the shareholders,  did  terminate  the managing agency.  There was neither any fraud nor  collusion by the mills with the appellant.  Morarji  Gokuldas and Co. v. Sholapur Spinning and  Weaving Co.  Ltd. and Others, A.I.R. 1944 P.C. 17 and  Commissioners of Inland Revenue v. Sansom, [1921] K.B. 492, referred to. The  partnership in the present case must be deemed to  have determined  on the date of the passing of the resolution  by the board of directors terminating the managing agency. Sections  10  and  13(f)  of the  Partnership  Act  have  no application to the facts of the case. 1000

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 375 of 1956. Appeal from the judgment and decree dated July 27, 1953,  of the Madras High Court, in A. S. No. 623 of 1949. A.   V.  Viswanatha Sastri and S. Venkata Krishnan, for  the appellants. M.   C.  Setalvad, Attorney-General for India, R.  Ganapathy Iyer and G. Gopalakrishnan, for the respondent. 1961.  February 27.  The Judgment of the Court was delivered by WANCHOO,  J.-This is an appeal on a certificate  granted  by the  Madras  High  Court.  The  brief  facts  necessary  for present purposes are these: The present suit was brought  by Muthappa   Chettiar   (hereinafter  referred   to   as   the respondent)  against  K. Thiagarajan  Chettiar  (hereinafter called  the  appellant) and the Saroja Mills Ltd.   In  1939 these  two  persons  thought of doing  business  jointly  by securing   managing  agencies  of  some  mills.    In   that connection  they  carried on negotiations  with  two  mills, namely,  Rajendra Mills Limited, Salem and the Saroja  Mills Limited,  Coimbatore  (hereinafter called the  Mills).   The managing agency of the Mills was with the Cotton Corporation Limited.    On  October  4,  1939,  the   said   Corporation transferred and assigned its rights to the appellant and the respondent  under the name of Muthappa and Co.  On  November 15,  1939, the Mills at an extraordinary general meeting  of the  shareholders accepted Muthappa and Co. as the  managing agents  and  made the necessary changes in the  Articles  of Association.    Later  the  appellant  and  the   respondent obtained the managing agency of the Rajendra Mills  Limited, Salem.   The  managing  agents  of  this  mill  were   Salem Balasubramaniam and Co. Ltd.  Muthappa and Co. purchased all the  shares  of  the  Salem  Balasubramaniam  and  Co.   and thereafter carried on the business of the managing agency of this mill in the name of Salem Balasubramaniam and Co.  Ltd. In  November 1940 the appellant and the  respondent  entered

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into a written partnership agreement with respect to 1001 the  managing  agency business of the two mills.   We  shall consider  the terms of this agreement later and all that  we need  say  at this stage is that turns were  fixed  for  the appellant and respondent to look after the actual management of the two mills and the appellant’s turn was the first  and he  therefore  came into actual control of  the  two  mills. Soon after however disputes arose between the appellant  and the  respondent with respect to the managing agency  of  the Rajendra  Mills  Limited, which resulted  in  various  suits being  filed between the partners, to which we  shall  refer later.   Eventually  on March 4, 1943,  the  appellant  gave notice  to  the  respondent  terminating  the   partnership, considering it as a partnership at will.  This was  followed by  the  directors  of the Mills  terminating  the  managing agency  of Muthappa, and Co. on the ground that company  had ceased to exist and also on the ground that quarrels between the  partners  of  the  firm  were  not  conducive  to  good management   of  the  Mills.   This  was  notified  to   the respondent on March 22, 1943.  This action of the  directors was  approved in a meeting of the shareholders of the  Mills on  September  29, 1943, and  necessary  modifications  were again  made in the Articles of Association.  In  between  on April  17,  1943,  the respondent had filed  a  suit  for  a declaration  that  Muthappa  and Co.  continued  to  be  the managing agents of the Mills and for obtaining possession of the office of managing agents for himself or along with  the appellant  and also for a permanent  injunction  restraining the  Mills from appointing any other managing agents.   This suit was dismissed by the trial court on the ground that  it was  not maintainable under s. 69 of the Indian  Partnership Act, No. IX of 1932 (hereinafter called the Act), though the trial court gave findings on other issues also.  The respon- dent went up in appeal to the Madras High Court against  the decree  in that suit.  This appeal was dismissed on July  8, 1948,  as  the  High  Court held that  the  finding  of  the subordinate  judge that the suit was not maintainable  under s.  69 of the Act was correct.  The High Court however  made it clear that it was 1002 expressing  no opinion on the correctness ’or  otherwise  of the other findings recorded by the subordinate Judge. While  this  appeal was pending the respondent  brought  the present  suit  on  February 28, 1946.  In       this suit he prayed  for  dissolving  the  firm  Muthappa  and  Co.,  for accounts  and  for  damages against the  appellant  and  the Mills.   The main contention of the respondent in  the  suit was  that  the  alleged dissolution of  partnership  by  the appellant  and  the removal of Muthappa; and  Co.  from  the managing agency of the Mills ’were part of a scheme of fraud conceived by the Appellant which was actively connived at by the  mills in order to defeat and defraud the respondent  of ’his  legitimate dues and his right to continue and  act  as the ’managing agent of the Mills.  The damages claimed  were estimated  at  the  figure  of five lacs  of  rupees  to  be recovered  from  both the appellant and the  Mills  or  from either  of them.  In the alternative the respondent  claimed that even if Muthappa and Co. had been removed validly  from the  managing agency on September 29, 1943, he was  entitled to  account  from the appellant from November 15,  1939,  to September  29,  1943.   The suit was resisted  by  both  the appellant  and  the  Mills  and  their  case  was  that  the partnership  was  one at will and  therefore  ’,Was  validly terminated  by  the  appellant by notice.   It  Was  further

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contended  that  in  any case the Mills  were  within  their rights in terminating the managing :,agency of Muthappa  and Co.,  as  that  firm  had ceased to  exist  and  there  were interminable  disputes  between  the  partners.   Fraud  and collusion  were denied and it ’was alleged that it  was  the respondent’s  conduct which compelled the appellant to  give notice  of  termination  of partnership  and  the  Mills  to terminate  the  managing agency.  The Mills took  a  further plea,  namely, that so far as they were concerned, the  suit was barred under s. 69 of the Act. The trial court held that the firm of Muthappa and Co. *as a partnership  at will and therefore was legally dissolved  by the  appellant  by giving notice dated March  4,  1943.   It further held that no case of fraud 1003 had  proved and that the termination of the managing  agency was  legal.  As to the Mills the trial court held  that  the suit  against  them was barred under s. 69 of the  Act.   In consequence the suit against the Mills was dismissed in toto and  the  prayer for damages was also rejected.   The  trial court  however  directed the appellant to  account  for  the profits  earned  from  the  inception  of  the   partnership business  till  March  4, 1943,  when  the  partnership  was terminated by the appellant by notice. Thereupon  the  respondent  went up in appeal  to  the  High Court.  The High Court held that the suit against the  Mills was barred under s. 69 of the Act, though it was made  clear that  if  there  were  assets of  the  partnership  firm  in possession of the Mills the respondent would be entitled  to recover  them.  The High Court however ordered the Mills  to bear  their own costs in both the courts on the ground  that the Mills were guilty of fraud.  As to the case against  the appellant, the High Court held that the partnership was. not a  partnership  at  will  and  therefore  it  could  not  be dissolved by notice by the appellant.  It further held  that the  appellant fraudulently and in collusion with the  Mills purported to dissolve the partnership by issuing an  illegal notice  and  to have the managing agency terminated  by  the Mills,  and in consequence the termination of  the  managing agency  was  illegal.   On  the  view  therefore  that   the partnership as well as the managing agency continued and  on a review of the circumstances, the High Court held that this was  a  fit case for dissolving the  partnership  and  fixed March  10,  1949, ’which was the date of the decree  of  the trial court as the date from which the partnership would  be dissolved.  Consequently it modified the decree of the trial court  and passed a preliminary decree for accounts  against the  appellant in respect of the firm Muthappa and Co.  from November  15, 1939, to March 10, 1949.. and added  that  the respondent could also recover any amount found due to him on taking  accounts against the partnership assets, if any,  in the  hands of the Mills.  The appellant thou applied  for  a certificate to 1004 appeal to this Court which was granted; and that is how  the matter has come up before us. The  first  question therefore that arises  for  our  deter- mination  is  whether  the partnership in  this  case  is  a partnership  at  will and it is necessary to  refer  to  the terms  of  the  partnership  agreement  to  determine   this question.  After reciting that the management of the.  Mills was  being carried on in the name and style of Muthappa  and Company  and of the Rajendra Mills Limited in the  name  and style   of  Salem  Balasubramaniam  and  Co.  Limited,   the partnership agreement goes on to say that the partners shall

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get  in equal shares the salary, commission,  profit,  etc., that  may be realised from the aforesaid managing  agencies. It provides for carrying on the management in rotation  once in  four years, the appellant to manage for the  first  four years  and thereafter the respondent to manage for the  next four  years  and  in the same way  thereafter.   It  further provides that the partners and their heirs and those getting their  ’rights  shall carry on the management  in  rotation. The  accounts were to be made once in every year  after  the closing of the yearly accounts of the two mills.  There were then  provisions as to borrowing with which we are not  con- cerned.  The agreement further provides that in case  either partner  thinks  of relinquishing his  right  of  management under  the  agreement it shall be surrendered to  the  other partner  only  but shall not be transferred or sold  to  any other person whatever.  Finally it is provided that the  two partners shall carry on the affairs of the firm by rotation, once in four years and the income realised thereby shall  be divided  year  after year and the partners and  their  heirs shall  get  the same in equal shares and thus carry  on  the partnership management. The  contention on behalf of the appellant is that  as  this partnership  does not fall under s. 8 of the Act and is  not within the two exceptions under s. 7, it is a partnership at will.  Section 7 provides that where no provision is made by contract  between  the  partners for  the  duration  of  the partnership,  or for the determination of  the  partnership, the partnership is partnership at will.  Section 8  provides that a person may 1005 become   a  partner  with  another  person   in   particular adventures or undertakings.  Section 43 provides that  where the partnership is at will, the firm may be dissolved by any partner  giving notice in writing to all the other  partners of his intention to dissolve the firm.  On the other hand if the  partnership  is not at will, a. 42 applies  and  is  in these terms:-                "Subject  to contract between the partners  a               firm is dissolved-               (a)   if constituted for a fixed term, by  the               expiry of that term;               (b)   if constituted to carry out one or  more               adventures or undertakings, by the  completion               thereof;               (c)   by the death of a partner; and               (d)   by  the adjudication of a partner as  an               insolvent.  " Section 44 provides for dissolution by the court.  The  High Court  was  of  the view that looking to the  terms  of  the partnership it could not be held to be a partnership at will and  that under s. 7 it will be a case of a partnership  the duration of which as well as the determination of which were fixed.  The High Court was further of the view that s. 8  of the  Act would also apply to the partnership in question  as the  evidence  showed  that the partners  had  entered  into partnership  in order to carry on the business  of  managing agency  of  the two mills and such business  was  an  under- taking, As we read the terms of the agreement it seems to us clear   that  the  intention  could  not  be  to  create   a partnership  at  will.  The partners contemplated  that  the management  would be carried on in rotation between them  in four  yearly  periods.  It was also  contemplated  that  the heirs of the partners would also carry on the management  in rotation.  Considering this provision as well as the  nature of the business of partnership it could not be  contemplated

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that the partnership could be brought to an end by notice by either  partner.   The  intention  obviously  was  to   have a partnership of some duration, though the duration was  not expressly fixed in the agreement.  Now s. 7 contemplates two exceptions to a partnership at will. 1006 The  first  exception is where there is a provision  in  the contract  for  the  duration  of  partnership;  the   second exception is where there is provision for the  determination of   the  partnership.   In  either  of  these   cases   the partnership  is not at will.  The duration of a  partnership may  be  expressly provided for in the  contract;  but  even where  there is no express provision, courts have held  that the  partnership will not be at will if the duration can  be implied.   See  Halsbury’s Laws of England,  Third  Edition, Vol.  28,  p. 502, para. 964, where it is  said  that  where there is no express agreement to continue a partnership  for a  definite period there may be an implied agreement  to  do so.   In Crawshay v. Maule (1) the same principle  was  laid down in these words at p. 483:-               "  The general rules of partnership are  well-               settled.  Where no term is  expressly  limited               for its duration, and there is nothing in  the               contract  to  fix it, the partnership  may  be               terminated  at  a moment’s  notice  by  either               party......  Without doubt, in the absence  of               express, there may be an implied, contract  as               to the duration of a partnership." The  same  principle  in our opinion applies to  a  case  of determination.  The contract may expressly contain that  the partnership  will  determine in certain  circumstances;  but even if there is no such express term, an implied term as to when  the  partnership will determine may be  found  in  the contract.   What we have therefore to see is whether in  the present  case it is possible to infer from the  contract  of partnership  whether  there was an implied term  as  to  its duration  or at any rate an implied term as to when it  will determine.   It is clear from the terms of the  contract  of partnership  that  it was entered into for  the  purpose  of carrying  on  managing agency business.   Further  the  term relating  to  turns  of  the  two  partners  in  the  actual management and the further term that these turns will go  on even  in  the  case of their heirs in  our  opinion  clearly suggest  that the duration of the partnership would  be  the same  as  the duration of the managing  agency.   We  cannot agree that this means that the partnership  (1) [1818] 36 E.R. 479. 483. 1007 would  become permanent.  In any case even if there is  some doubt  as to whether the terms of this contract implied  any duration of the partnership, there can in our opinion be  no doubt  that  the  terms  do imply  a  determination  of  the partnership  when the managing agency agreement comes to  an end.   It  is clear that’ the partnership was for  the  sole business of carrying on the managing agency and therefore by necessary  implication it must follow that  the  partnership would   determine  when  the  managing  agency   determines. Therefore on the terms of the contract in this case, even if there  is some doubt whether any duration is implied,  there can  be  no  doubt  that  this  contract  implies  that  the partnership   will  determine  when  the   managing   agency terminates.   In  this view the partnership will  not  be  a partnership at will as s. 7 of the Act makes it clear that a partnership in which there is a term as to its determination is  not a partnership at will.  Our attention was  drawn  in

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this  connection to a term in the contract which  lays  down that  either partner may withdraw from the partner. ship  by relinquishing his right of management to the other  partner. That however does not make the partnership a partnership  at will, for the essence of a partnership at will is that it is open to either partner to dissolve the partnership by giving notice.  Relinquishment of one partner’s interest in  favour of the other, which is provided in this contract, is a  very different  matter.  It is true that in this particular  case there  were only two partners and the partnership will  come to  an end as soon as one partner relinquishes his right  in favour   of  the  other.   That  however  is  a   fortuitous circumstance;  for,  if (for example) there  had  been  four partners in this case and one of them relinquished his right in  favour of the other partners, the partnership would  not come  to  an  end.  That clearly shows that  a  term  as  to relinquishment of a partner’s interest in favour of  another would not make the partnership one at will.  We may in  this connection  refer to Abbott v. Abbott (1).  That was a  case where there were more than two partners and it was (1)  [1936] 3 All E.R. 825. 1008 provided  that  the  retirement  of  a  partner  would   not terminate  the partnership and there was an option  for  the purchase of the retiring partner’s share by other  partners. It  was held that in the circumstances the  partnership  was not  at will and it was pointed out that only when  all  the partners except one retired that the partnership would  come to an end because there could not be a partnership with only one partner.  We are, therefore, in agreement with the  High Court that the contract in this case disclosed a partnership the   determination  of  which  is  implied,   namely,   the termination of the managing agency and, therefore, under  s. 7  of  the  Act it is not a partnership  at  will.   In  the circumstances it is unnecessary to consider whether the case will also come under s. 8 of the Act. The next question that arises is whether the managing agency has  been  terminated  legally  ; for  if  that  is  so  the partnership would also be determined.  This takes us to  the history  of  the relations between the  partners  after  the partnership  came  into existence.  It seems  that  disputes arose  between the partners some time in 1941 in  connection with  the Rajendra Mills Limited which was one of the  mills included  in the managing agency business.   The  respondent filed  a  suit on March 4, 1942, against the  appellant  and Salem  Balasubramaniam and Co. Limited with respect  to  the ’allotment of shares in the managing agency company On March 11,  1942, the respondent filed another suit, this  time  on the  basis  of debentures which he hold against  the  Mills, praying  for a decree against the Mills with respect to  the debenture amount., On June 17, 1942, the respondent filed  a third suit with respect to the Rajendra Mills Limited for  a declaration  that the respondent was a partner  owning  half share in the managing agency of the Rajendra mills  Limited’ On  the same day the respondent filed a fourth suit  against the  appellant,  his son and Salem Balasubramaniam  and  Co. Limited  with  respect  to  certain  actions  taken  by  the managing  agency company.  On July 15, 1942,  the  appellant filed a counter-suit against the respondent and the managing agency company relating to the Rajendra Mills Limited for a 1009 declaration  that  the  respondent had no  interest  in  the managing  agency company and for further reliefs.  There  is no doubt, therefore, that the relations between the partners were very strained in 1942.  The respondent admitted in  his

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statement that from the end of 1941 there was enmity between him  and  the  appellant and there  were  vital  differences between  them  and litigation was going on, though  he  said that  in  spite of the enmity he was willing  to  co-operate with  the  appellant  if the amount of  which  he  had  been defrauded  were paid to him, on accounting.  So far  as  the litigation  with respect to the Rajendra Mills  Limited  was concerned  the respondent lost and it was held that  he  had withdrawn  from  the  partnership  of  the  managing  agency company  with  respect  to that mill.  As  to  the  suit  on debentures, the money was deposited in court and the dispute was only about costs.  That matter also went up to the  High Court  and finally the High Court refused to allow costs  to the respondent. It was in this strained atmosphere between the partners that the  appellant gave notice dated March 4, 1943,  terminating the partnership with respect to the Mills considering it  as a  partnership  at  will.  We have  however  held  that  the partnership  was  not a partnership at will and  the  notice given  by the appellant could not, therefore,  terminate  it legally.   But  the  question  still  remains  whether   the managing agency of the Mills was terminated legally ; for if that was so the partnership would also come to an end on the date  the managing agency was terminated in view of what  we have   held  above.   The  High  Court  has   examined   the circumstances  in  this  connection  and  has  come  to  the conclusion  that the appellant fraudulently and  collusively with  the  Mills  got the managing  agency  terminated  and, therefore,  the  termination  of  the  managing  agency  was illegal.  We are unable to agree with this view of the  High Court.    It  is,  therefore,  necessary  to   examine   the circumstances  in  which the termination  came  about.   The appellant  sent  a copy of his notice dated March  4,  1943, terminating   the  partnership  to  the  Mills  also.    The respondent  sent a reply to this notice in which he  claimed that the partnership was 1010 not at will and the appellant was not entitled to  terminate it, and a copy of this reply was also sent to, the Mills  on March  16,  1943.  On March 22, 1943, the directors  of  the Mills held a meeting.  In that meeting the directors decided that as the partners of Muthappa and Company were unable  to get  on  in  harmony with each other and  were  involved  in litigation and several suits were going on between them  and on  account of their differences the work of the  Mills  was suffering  and  was,  likely  to  suffer  and  also  because Muthappa  and Company had ceased to exist and had  lost  its right  of  management  and was no longer in  a  position  to manage  the  Mills,  it became necessary  to  appoint  other managing  agents.   Thus  by this  resolution  the  managing agency  of  Muthappa  and Company  was  terminated  for  two reasons:  (1)  that  there  were  differences  between   the partners of the managing agency company and the work of  the Mills  was suffering and was likely to suffer, and (2)  that Muthappa and Company had come to an end and, therefore,  had lost  its right of management.  It appears that before  this resolution  was  passed the appellant  had  been  purchasing shares  of  the  Mills  in the market  and  had  acquired  a controlling  interest therein.  The High  Court,  therefore, thought  that the hidden hand of the appellant  was  visible behind  this resolution of the directors of the  Mills,  the more  so  as the appellant’s son was nominated by  the  same resolution  to  administer the whole affairs  of  the  Mills subject  to  the  control  and direction  of  the  board  of directors  till such time as suitable managing  agents  were

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appointed.   This  action  of the  board  of  directors  was confirmed  at  a  general meeting  of  the  shareholders  on September 29, 1943. The High Court thought that as the appellant had acquired  a controlling  interest  in  the  Mills  he  was  behind   the resolution  of  the  directors of March  22  1943,  and  the resolution  of  the general meeting of the  shareholders  of September  29,  1943.  It may be that the  appellant  having acquired a controlling interest in the Mills had a good deal to  do with the resolutions; but that in our  opinion  would not necessarily make his 1011 conduct  fraudulent  and  the termination  of  the  managing agency  agreement illegal.  It is not in dispute that  there was  no agreement between the partners that either  of  them would  not purchase shares of the Mills in open market.   We do not therefore see anything improper in the conduct of the appellant when he purchased the shares of the Mills in  open market  and  managed  to acquire  the  controlling  interest therein.  The appellant obviously had two capacities: in one capacity he was a partner of the respondent in the  managing agency  business,  in  the other capacity  he  was  a  large shareholder  of  the Mills and as such  shareholder  it  was certainly his interest to see that the interest of the Mills did  not suffer.  The crucial question therefore is  whether the action taken by the Mills by the two resolutions is such as would be taken by any prudent company when faced with the situation  with  which the Mills was faced  in  the  present case.  There can in our opinion be no doubt that any company when  faced with a situation in which the Mills was in  this case,  and  finding that the two partners  of  its  managing agency  firm were fighting tooth and nail and there  was  no love lost between them and also finding that the interest of the Mills was suffering and was likely to suffer because  of the  bad  blood  between the two partners  of  the  managing agency,  was  bound  to  take  steps  to  protect  its   own interests.  The fact that the major shareholder in the Mills also  happened to be a partner in the managing agency  would not disentitle him from acting in the interest of the  Mills as a major shareholder.  We may in this connection refer  to Morarji  Goculdas and Co. v. Sholapur Spinning  and  Weaving Co.  Ltd.  and  Others(1).  In that case  a  question  arose whether the termination of the managing agency agreement was illegal  on the ground of misconduct.  It was found in  that case  that there were quarrels between the partners  of  the managing  agency  firm of such a nature and duration  as  to impair  seriously their capacity to discharge their duty  to the  company as managing agents and to affect  prejudicially the interests of the company.  It was held that :- (1) A.I.R. 1944 P.C. 17. 129 1012               "  In each case the question must  be  whether               the    misconduct   proved,   or    reasonably               apprehended, has such a direct bearing on  the               employer’s business or on the discharge by the               employee  of  that  part  of  the   employer’s               business  in  which  he  is  employed,  as  to               seriously  affect or to threaten to  seriously               affect   the   employer’s  business   or   the               employee’s efficient discharge of his duty  to               his employer." If on the facts and circumstances of the case it was so, the termination  of the managing agency would be justified.   In the  present  case there can be no doubt that  the  quarrels

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between the two partners of the managing agency firm were so serious and of such duration as to impair their capacity  to discharge their duty to the Mills as managing agents and  to affect the interests of the Mills prejudicially.  Therefore, if the directors of the Mills came to that conclusion it  is in  our  opinion  not correct to  say  that  conclusion  was arrived at fraudulently, simply because a major  shareholder happened  to  be the appellant.  We may in  this  connection refer  to the observations of Younger L.J. in  Commissioners of Inland Revenue v. Sansom (1) :-               "  No doubt there are amongst such  companies,               as  amongst  any other  kind  of  association,               blacksheep;  but in my judgment such terms  of               reproach  as  I  have  alluded  to  should  be               strictly  reserved  for those of them  and  of               their  directors  who  are  shown  to  deserve               condemnation,  and I am quite  satisfied  that               the indiscriminate use of such terms has,  not               infrequently,   led  to  results  which   were               unfortunate  and  unjust, and in  my  judgment               this is no case for their use." These  remarks  are in our opinion apposite in  the  present context.   It  is true that the appellant had a  hand  as  a major shareholder in the two resolutions and this was  never hidden;  but  it is equally true that in  the  circumstances then existing any prudent board of directors and any body of shareholders interested in a company would act in the manner in which the board of directors and the shareholders of  the Mills (1)  [1921] 2 K.B. 492, 514. 1013 acted  in the present case.  We cannot therefore agree  with the  High  Court  that this is a case  where  the  board  of directors   and  the  shareholders  acted  fraudulently   in collusion with the appellant, for we cannot forget that  the appellant  as  a  major  shareholder  of  the  Mills   could legitimately  act to protect them and the action  taken  was such as any board of directors and any body of  shareholders would  bona  fide  take.  In the  circumstances  we  are  of opinion  that  the  resolution of  the  board  of  directors terminating the managing agency agreement, confirmed by  the general  meeting of the shareholders, did legally  terminate the  managing  agency  between the Mills  and  Muthappa  and Company.   It  is true that in these  resolutions  a  second reason  was given for the termination, viz.,  that  Muthappa and Co. had come to an end because of the notice of March 4. That legal position is in our view incorrect; but that apart there  were  otherwise sufficient reasons for the  Mills  to terminate  the  managing agency in  the  circumstances  with which it was faced. The  next  question that arises is as to when  the  managing agency can be said to have been terminated, i.e., whether on March  22, 1943, or on September 29, 1943.  Now under  s.87- B(f)of the Indian Companies Act, No. VII of 1913, which  was then  in  force, the appointment of a  managing  agent,  the removal of a managing agent and any variation of a  managing agent’s  contract  of management shall Dot be  valid  unless approved by the company by a resolution at a general meeting of  the  company.   This  provision  clearly  shows  that  a managing agent may be appointed and removed by the board  of directors, though such appointment and removal is subject to the  approval  by the company by a resolution at  a  general meeting  of the company.  We agree with the High Court  that when  the  company  at its general meeting  approves  of  an appointment or of a removal, the approval takes effect  from

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the  date  of  the appointment or removal by  the  board  of directors.  On this view therefore, when the general meeting in this case approved the action of the board of  directors, the removal became valid and came into effect from March 22, 1943. 1014 Therefore,  the managing agency agreement in this  case  was validly  terminated on March 22, 1943.  As we  have  already held  that  there  was an implied term in  the  contract  of partnership that it will determine when the managing  agency agreement with the Mills terminates, the partnership in  the present  case  must  under the contract be  deemed  to  have determined  on  March 22, 1943.  Therefore,  the  respondent will be entitled to an account only from November 15,  1939, to March 22, 1943. The  learned Attorney-General however referred us to ss.  9, 10  and  13(f) of the Act and his contention was  that.  the appellant  must account for all the profits made by him  out of the managing agency business, even after March 22,  1943. Unders.10  every partner has to indemnify the firm  for  any loss  caused  to  it  by his fraud in  the  conduct  of  the business  of  the firm and under s. 13(f) a partner  has  to indemnify  the firm for any loss caused to it by his  wilful neglect in the conduct of the business of the firm.  In  the first  place, such a case was not made out in the plaint  by the  respondent; in the second place we are of opinion  that ss.  10  and 13(f) have no application to the facts  of  the present case.  We therefore reject this contention. That  leaves the question of costs.  So far as Saroja  Mills Limited  are  concerned,  we are of opinion  that  they  are entitled  to their costs throughout from the  respondent  as their  action  in terminating the managing agency  has  been held  by  us  to  be legal and  valid.   As  to  Thiagarajan Chettiar we are of opinion that in the circumstances of this case,  the  order  of the subordinate  judge  that  Muthappa Chettiar  (respondent) and Thiagarajan Chettiar  (appellant) should  bear  their own costs is just and we order  them  to bear their own costs throughout. We  therefore  allow  the  appeal in  part  and  order  that accounts will be taken from November 15, 1939,. to March 22, 1943, as between Thiagarajan Chettiar and Muthappa Chettiar. The  respondent will pay the costs of Saroja  Mills  Limited throughout;  but Muthappa Chettiar and Thiagarajan  Chettiar will bear their own costs throughout. Appeal allowed in part. 1015