JUDGMENT
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 Munsif, Erode in O.S No. 574 of 1951. On 18-11-1939 the plaintiffs' predecessor entered into an agreement with the 1st defendant styling it as an “Indenture of Partnership” in the following terms:
“The indenture is made on the 18th day of November 1939 between N.K 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 upto the 30th day of September 1939 the business of cattle dealers and skin merchants;
And whereas as from 30-9-1939 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 Chouse Sahib’ alternately for a period of two years each 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:
Mow 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 good-will) as on 30-9-1939 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 passels 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 the books.
(b) 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 1st 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 1-10-1939 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 1-10-1939 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 businesslike 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 idemnified 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 at 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 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 goodwill 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”.
2. This business want on from 1939 to 1941; and as stipulated in the above agreement the 1st 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 1st defendant and their predecessor-in-title, Abdul Rahim, who had died, had become dissolved as from 26-7-1948 at Erode, and for accounting by the 1st defendant.
3. The case for the defendant was that notwithstanding the fact that this agreement is styled as a deed of partnership and there as terms therein apparelling 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.
4. 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.
5. 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 HLC 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, Mollwo March and Co. v. Court of Wards, (1872) 4 PC 419 at p. 435; Sutton and Co. v. Grey, (1894) 1 QB 285 at p. 286: Walker v. Hirsch, (1884) 27 Ch. D. 460; Badeley v. Consolidated Bank, (1888) 38 Ch. D. 238; King and Co. v. Whichelow, (1895) 64 LTQB 801; In re Abdul Rahiman, ILR 51 Mad 308 at p. 314 : (AIR 1928 Mad 890 at page 893), Raghunandan v. Hormasjee, ILR 51 Bom 342 : (AIR 1927 Bom 187); Mclaren v. Verschoyle, 6 Cal WN 429 at p. 438; Porter v. Incell, 10 Cal WN 313 at p. 318; Raghumull v. Official Assignee of Calcutta, 28 Cal WN 34 : (AIR 1924 Cal 424), as appearing from the whole facts of the case (Ross v. Parkvns, (1875) 20 En 331; Re Megevand, Ex. Parte Delhasse, (1878) 7 Ch. D. 511) and not merely on their expressed intention.
6. A and B may in a written agreement have stated expressly that they are not partners, yet they have been held to be partners, (1878) 7 Ch. D. 511; Moore v. Davis, (1879) 11 Ch. D. 261; or they may have stated that they are partners and have been held not to be partners, Bhaggu Lal v. De Gruyther, ILR 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, Abdullah v. Allah Diya, ILR 8 Lah 310 : (AIR 1927 Lah 333); Hirabhai v. Bhagirath Ramchandra & Co., 47 Bom LR 808 : (AIR 1946 Bom 174) (use of the words sleeping partner in written agreement); Karnidan Sarda v. Sailaja Kanla, ILR 19 Pat 715 : (AIR 1940 Pat 683). Also see Mohammad Yusuf v. Pirmohamad, AIR 1922 Nag 67; Mamooji v. Tayebali, AIR 1933 Sind 210. See the full discussion in Om Prakash Aggarwala ‘The Indian Partnership Act’ p. 70 and following citing Chimanram Motilal v. Jayantilal Chhaganlal, AIR 1939 Bom 410; Madho Prasad v. Gouri Dutt, AIR 1939 Pat 323: Bansi Ram v. Jagan Nath, AIR 1935 Lah 209; Tajmmul Hussain v. Ahmad Ali, AIR 1937 Oudh 438; AIR 1924 Cal 424; AIR 1928 Mad 890; AIR 1933 Sind 210; Chokalinga v. Muthuswami, AIR 1925 Mad 768.
7. If we analyse Section 4 of the Partnership Act there must be three elements present before any relation, I 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.
8. 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 good-will 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. In other words, this business was nothing more than a convenient agreement between these people for a two year turns of a business exploiting its good-will. It is 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 hereby 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.
11. 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.
12. 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.
13. 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. 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.
V.S.B
14. Appeal dismissed.