Kapur, J.:— This judgment will dispose of three appeals (Regular First Appeals Nos. 13, 14 and 15 of 1953) brought by the three defendants against a judgment and decree of the learned Senior Subordinate Judye of Delhi dated the 6th December, 1952 decreeing the plaintiff's suit which was brought by Laxmi Narain Gadodia against the three defendants praying for declaration, injunction and account, and in the alternative decree for damages for Rs. 6,00,000 with interest pendente lite.
2. On the 20th March, 1937 by a letter (Exhibit P. 2 at page 179 of the paper book) L.N Gaddodia & Co., were appointed selling agents to sell yarn and cloth of the Kanpur Cotton Mills Branch of the British India Corporation. The appointment was upto the end of the year and on probation and was terminable at the option of the Mills. The important clauses of the agreement are Nos. 1 to 4, 13 and 17. I reproduce paragraphs 3, 4, 13 and 17 are as follows:—
“(3) All sales will be effected at the rates specified by the Managing Directors and/or the Management of the Cawnpore Cotton Mills.
(4) You will publish and distribute throughout the United Provinces, Bihar and Orissa, Delhi, the Punjab and such other Provinces as may be stipulated by the Management, a printed list of rates at which sales will be made. This list will be revised and published at the discretion of the Management of the Cawnpore Cotton Mills.
(13) You will at all times use your best endeavours to dispose of the entire productions of Yarn and Cloth of the Cawnpore Cotton Mills and will in particular immediately concentrate on disposing of the stocks of Yarn and Cloth which had accumulated at the time of your appointment. The rates at which sales will be made will be indicated to you from time to time by the Cawnpore Cotton Mills.
(17) It is understood that a proprietor of your firm or your representative, Mr. D. Sharma, may act for and on behalf of your Company in any matter whatsoever that may appertain to this letter of appointment or the termination thereof and that one or other of them shall attend daily or as required at the office of the Cawnpore Cotton Mills. The services of D. Sharma will not be dispensed with by your Company without the prior sanction of the Cawnpore Cotton Mills”.
3. On the 29th March, 1937 by a document (Exhibit P. 1 at page 181) Laxmi Narain Gaddodia, the plaintiff, entered into a partnership with Dev Sharma defendant No. 1. This was for the selling agency of the Cawnpore Cotton Mills only and the shares were—Gaddodia 12 annas and Dev Sharma 4 annas. The plaintiff was the financier and Dev Sharma was the working partner…. This agreement was for one year in the first instance but was to continue and last as long as the agency continued. Clause 3 of this agreement was as follows:—
“3. That on the termination of the selling agency business neither of the parties to this agreement shall take up the paid selling agency from the Mills”.
4. By a document (Exhibit P. 3) dated the 1st March, 1938 the British India Corporation entered into an agreement with Gaddodia & Co., by Which the agency was continued for another year as from the 1st January, 1938 and the relevant provisions were contained in clauses 3, 14, 17 and 18 Which were as under:—
“(3) The Company shall sell its entire output of bazar and hosiery yarn and cloth (save as hereinafter provided and subject to the conditions set forth) solely through the agents but this agreement shall not include yarns and cloth supplied by the Company to any branch or Associated or Subsidiary Company of the Corporation or to Jails, Government Departments, recognised carpet or other manufacturers who are not classed as bazar dealers or to any dealer established outside the territory in which the agents normally conduct sales. No commission whatsoever shall be payable on any such sales or supplies.
(14) If it is proved, to the satisfaction of the Corporation, that the agents have failed to fulfil any of the terms and conditions of the agreement or should the Managing Directors of the Corporation consider that the agents are not carrying out their duties satisfactorily the Corporation shall be entitled to terminate this agreement within the period of agreement summarily and the decision of the Managing Directors of the Corporation in this matter shall be final.
(17) The services of the said Mr. D. Sharma shall not be dispensed with, by the Agents without the prior sanction of the Company.
(18) On the expiry of this agreement by the efflux of time, unless any new agreement is then entered into by the patties hereto, arrangement shall be regarded as a continuing agreement and shall be subject to the conditions detailed herein”.
5. The agency business continued smoothly but on the 8th of January 1939 by letter (Exhibit C.D 16 at page 229) the principals wrote to Gaddodia & Co. objecting to Ram Gopal who is the son of Laxmi Narain Gaddodia from attending the office of the Company. On the 15th February, 1939 the Corporation wrote to Gaddodia (Exhibit C.D 10 at page 230) warning him that, they would terminate the agency and also that they were dissatisfied with the way the business was being done by Gaddodia. On the 24th May, 1939 in a letter (Exhibit C.D 13 at page 231) Gadodia wrote to the Managing Director of the Corporation complaining that interest had been charged at a higher rate and he added:—
“This is to inform you that my son Ram Gopal Gadodia who attained majority five months ago has also been looking after the business and I give below his specimen signatures.”
6. In reply to this the Corporation wrote a letter on the 27th May, 1939 (Exhibit C.D 12 at page 233) in which the Corporation drew the attention of Gadodia to their previous fetter wherein they had informed him that they did not desire his son to attend their office and that they did not wish “to be encumbered with additional representatives nor was it their wish that other persons not covered by the agreement should interfere in matters which are the sole, concern of the agency” they added—
“We feel that a great deal of the friction, to which we have so frequently referred before, has been caused by those interested in your other business activities seeking to interfere in the activities of that branch of your firm which is responsible for the handling of our Cawnpore Cotton Mills, Agency and we must make it perfectly clear to you now that, if such interference is repeated, then we shall have no alternative but to terminate the agency as we are definitely not prepared in any manner whatsoever to permit internal arrangements of your firm, which are not acceptable to us, to damage the sales of our Cawnpore Cotton Mills Branch.”
7. There the matter rested till 1945. On the 7th November, 1945 Gadodia wrote a letter (Exhibit C.D 17 at page 236) to Cawnpore Cotton, Mills in which he stated that he was leading an almost retired life and had not been able to visit Cawnpore since long and that his son Ram Gopal was doing so, and added:—
“We trust that you will kindly make it convenient that he should meet you when he is there along with Mr. Sharma”.
8. This letter ended in a notice of termination of the agency agreement which was conveyed to Gadodia & Co. by a letter (Exhibit C.D 14 at page 233) dated the 29th November, 1945. This letter refers to the request made by Gadodia in his letter of the 7th November, 1945 in regard to Ram Gopal and then to the agreement which was entered into on the 1st March, 1938, and then it is stated that the terms of the letter amounted to going behind the terms of the contract and the suggestion was not acceptable to the Corporation. It ended:—
“In the circumstances we have, therefore, no alternative but to give you notice under the terms of the said contract that we desire to terminate this agreement as on the 31st December, 1945”.
9. This was under clause 14 of the agreement. On the 3rd December, 1945 Gadodia wrote to Dev Sharma asking him to get the notice withdrawn and also that if his proposal of the 7th of November 1945 did not suit the Mills it could be taken as withdrawn. Dev Sharma in reply (Exhibit D.54 at page 238) dated the 6th December, 1945 stated that he had been placed in a very awkward position and he could not approach the Mills. Gadodia writing to the Corporation withdrew his letter as regards Ram Gopal and also stated that although old, he was enjoying good health and could walk six miles. The Corporation by their letter dated the 20th December, 1945 (Exhibit D.34 at page 242) refused to withdraw the notice of termination and asked Gadodia to make all necessary arrangements and reiterated that the agreement would come to an end as from the 31st December of that year.
10. On the 22nd of January 1946 a new agreement was entered into between Sharma & Co., and the Corporation, the former acting through Shiv Nath Sharma, the brother of Dev Sharma, but of which Dev Sharma was not a partner at least not ostensibly. Coming to know of this, L.N Gadodia gave a notice through a Lawyer to Dev Sharma on the 11th February, 1946 (Exhibit P. 4 at page 218) in which it was stated that Dev Sharma was responsible for the termination of the agency, that one of the terms of the old partnership agreement between Gadodia and Sharma was that neither of the partners was to take the agency at the termination of the agency from the said Mills and that he (Dev Sharma) had take the agency against the interests of Gadodia and Dev Sharma was called upon not to take the agency and to render accounts of his dealings and to offer an explanation in regard to the matter and that Gadodia will take such action as he would be advised. To this Dev Sharma sent a reply through Mr. A. Hoon Advocate in which the new partnership was not categorically denied but he did deny that he was responsible for the termination of the agency by the Corporation and denied that there was any breach of the terms of the partnership and blamed Gadodia for the termination of the agency and he in return asked for accounts of the previous partnership. I may here add that in the agency which Sharma & Co., had taken through Shiv Nath Sharma, Shrimati Chandan Devi wife of Dev Sharma also became a partner. On the 6th January, 1948 a deed of partnership was executed between Dev Sharma and Shiv Nath Sharma which recites that Dev Sharma had taken over the former partnership business which was carried under the name and style of Sharma & Co. which had been dissolved and had ceased to exist as from the 31st of December 1947. Dev Sharma now got a share of ten annas and Shiv Nath Sharma had a share of six annas, and Dev Sharma was the Managing partner. On the 3rd of January 1949 Dev Sharma brought a suit against Gadodia (Exhibit D.36 at page 249) for dissolution of partnership and accounts. He claimed Rs. 88,051/11/9 and in the alternative accounts.
11. The suit out of which this appeal has arisen was filed on the 21st February, 1950 by Gadodia against three defendants Dev Sharma, Shrimati Chandan Devi wife of Dev Sharma and Shiv Nath Sharma brother of Dev Sharma. After giving the facts in regard to the partnership in paragraph 3 of the plaint clause 3 of the partnership agreement was set out. It was then alleged that the agency was terminated by the British India Corporation unjustly and in collusion with Dev Sharma. Reference is then made to the letter of the 11th February, 1946 and to the reply of Mr. Hoon, that the plaintiff was unable to find out the partners of Sharma & Co., that in January 1950 for the first time he came to know that Sharma & Co. was owned by the first defendant and the second and third defendants' were only ostensible and nominal partners, that the previous agreement dated the 16th March, 1946 was a benami transaction the real agent being Dev Sharma, that the first defendant had deliberately suppressed the agreement of the 16th March and by means of fraud kept concealed from the plaintiff the in tersest of Dev Sharma and that the plaintiff was entitled to injunction and other relief which I have already given above.
12. The allegation of the plaintiff were denied and it was pleaded that the termination was justified because of the conduct of Gadodia himself. It was denied that S.N Sharma was a benamidar and that Gadodia was fully aware of the facts ending in termination of the agency and of the taking of agency by Sharma & Co., and their constitution into a partnership, that the previous partnership was ended by consent and accounting had been was pleaded that the plaintiff was not entitled to injection or to any other relief.
13. The following issues were raised:—
(1) Whether this Court has jurisdiction to try the suit?
(2) Whether there was any agreement as alleged in para No. 3 of the plaint?
(3) Whether clause No. 3 of the agreement amounts to restraint of the trade? If also with what effect?
(4) Did defendant No. 1 commit breach of the contract?
(5) If so, is the plaintiff entitled to any damages and how much?
(6) Is the plaintiff's suit within time?
(7) Whether defendants 2 and 3 are benamidars or nominees of defendant No. 1? If so with effect?
(8) Whether the plaintiff was kept from the knowledge of the deed of 16th March, 1916 and of defendant No. 1's ownership and interest in the business of Messrs Sharma & Co. by fraud on the part of defendant No. 1? If so with what effect?
(8-A) Are the defendant accounting parties and are liable to render accounts as alleged in para 10 of the plaint? this was added on the application of the plaintiff on the 26th July, 1950.
(9) Is the plaintiff entitled to the injunction for against the defendants?
(10) Whether the plaint does not disclose any cause of action so far as the grant of permanent injection is concerned?
(10-A) Whether the defendants are entitled to special costs under section 35 A.C.P.C?
(11) Relief.
14. The defendants asked that an issue be raised in regard to the allegation of collation of the defendant in the termination of the agency but the plaintiff's counsel stated that did not wish to join issue on this matter contained in paragraph 5 of the plaint. Issue No. 8-A was raised later on. The learned Judge held that clause 3 of the partnership agreement was binding as between the parties, that defendant No. 1 had committed a breach of the contract, the plaintiff's suit was within time, that defendants No. 2 and 3 were benamidars of defendant No. 1, that the plaintiff was, not kept from know ledge the deed 16th March, 1946 that he had definite knowledge of the true state of affairs about Dev Sharma having obtained the selling agency in violation of clause 3 of the partnership agreement that Dev Sharma did not avail himself of his character as a partner of L.N Gadodia & Co. but the case fell within second part of section 88 of the India Trusts Act and the plaintiff was therefore entitled to accounts and he was also entitled to injunction. The Judge Also held that the plaintiff was not entitled to any damages as an alternative relief. The defendants have come up in appeal to this Court.
15. The first question which is to be decided is as to the effect of clause 3 of the partnership agreement dated the 29th March, 1937 (Exhibit P. 1 at page 181), I have already set out this clause. Under section 27 of the Indian Contract Act an agreement in restraint of trade is void but such agreements were valid under Exception 1 in the case of sale of good-will of business as long as the business is carried on provided the limits appear to the Court to be reasonable. But now the matter is governed by section 54 of the Indian Partnership Act which provides—
“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 Ate reasonable”.
16. According to this section as I read it partners can make an agreement so that some or all of them will not carry on a business similar to that which was being carried on by the firm within a specified period or within specified limits of space. For the appellants it was submitted that the true meaning of section 54 is that the agreement itself must specify the period or the local limits and that the Court cannot look at anything else excepting the agreement which may be contained in one document or more than one and which may even be oral, and when it is a written document the provisions of section 91 and 92 of the Evidence Act Would apply and no oral evidence can be given in proof of the specification of the period or of the local limits. A careful perusal of section 54 of the Indian Partnership Act does in my view show that the agreement itself must specify the period or the local limits within which the contract will be applicable. As I understand the law “an instrument embodying they final intentions and agreements of the parties must be interpreted according to the legal import of its terms, and a written contract merges all prior and contemporaneous negotiations in reference to the same subject and the whole engagements of the parties and the extent and manner of their undertaking are embraced in the writing”. This is the import of sections 91 and 92 of the Indian Evidence Act and this is the law in other countries also.
17. The word “specified” has been interpreted in a comparatively recent judgment of the Court of Appeal in Rex v. Winchester Area Assessment Committee . 1948 2 K.B 455., where at page 460 the word ‘specification’ was held to mean “clearly stated and stated with some definiteness or particularity”. If we read clause 3 in the light of this interpretation I do not find anything either in that clause or in any other clause of the partnership Agreement which can be said to “specify” either the period or the local limits. Even in the pleadings this clause is only set out and no local limits or period is sought to be specified or even alleged. See paragraph 3 of the plaint at page 2. After the legality of this clause was challenged in the written statement even in the issues (at page 33) the position remains the same and nothing is made clearer or particularised. Mr. Pathak in reply to this part of the argument submitted that the operation of this clause in regard to the area must be taken to be co-terminus with the area of operation of the agency agreement given in the other clauses and in the agency agreement. Now in the agency agreement itself, and I refer to Exhibit P. 2 dated the 20th March, 1937 in clause 4, reference is made to the publication and distribution of a printed list of rates at which sales will be made throughout the Provinces of U.P, Bihar and Orissa, Delhi and the Punjab and such other provinces as may be stipulated by the management. It cannot in my opinion be said that this again specified with any particularity or definiteness the local limits within which the selling activities of the partnership were to be confined, nor as I have said before do any other parts of the partnership agreement specify either the period or the area. As a matter of fact clause 13 of the agency agreement emphasises the anxiety of the Cawnpore Cotton Mills for disposing of the entire production of yarn and cloth particularly that which had got accumulated. In Exhibit P. 3 which is the agreement of the 1st of March 1938 in clause 3 reference is again made to the sale of the entire output of bazar and hosiery yarn and cloth and then occur the following words—
“Who are not, classed as bazar dealers or to any dealer established outside the territory in which the Agents normally conduct sales”.
18. And clause 12 of this agreement again emphasise the agents using their utmost endeavour “to dispose of the entire production of bazar yarns and cloth”. It appears to me that the scheme of the agency agreement was not to define the territory but to emphasize the sale of the entire output.
19. Even if we can go outside the terms of the partnership agreement to discover the area or the period within which clause 3 dealing with the restraint of trade was to be operative neither the first agency agreement nor the second agency agreement can be of any assistance and even if we were to look at the oral evidence for the purpose of finding out the area we get very little assistance in favour of the plaintiff, if anything it is against him. Counsel referred to the statements of certain witnesses. Herbert Jackson D.W 5 stated (at page 92, line 18) that the agency of Gadodia & Co. was not confined to Cawnpore but to the whole of India and same was the case of the agency given to Sharma & Co. In cross-examination (at page ??? line 30) he stated that the Corporation had no right to appoint dealers in India and no such right was reserved nor could they reserve the appointment of dealers outride India. Defendant Shiv Nath Sharma as D.W (at page 60) stated that they were the agents for the whole of India but Dev Sharma who was the working partner in the old partnership (at page 76) deposed that they were the agents for the whole production of the Mills and were required to sell goods throughout the whole of India and foreign countries. There is nothing stated by the plaintiff in their evidence which contradicts the defendant's witnesses, in regard to the operational area being confined to India and not extending outside India. I must hold therefore that there is no indication of any particularisation of the area or of the period in the agreement or in any of the documents which have been placed on the file. On the other hand the evidence if that is to be taken into consideration shows that there was no limit to the operational area and the agents could operate in any part of the world.
20. In order to determine the limits of restrictions of a covenant, it is the document alone which has to be seen and that a limitation cannot be imported which the parties themselves have not seen fit to express in the document itself was decided by the Privy Council in Vancouver Malt and Sake Brewing Co. Ltd. v. Vancouver Breweries, Ltd. . 1934 A.C 181.. The appellants in that case held a licence under the Dominion Excise Act which authorised them to manufacture beer, ale, porter, lager beer etc., but they only brewed sake, a Japanese liquor made from rice and their business was confined to the Province of British Columbia. Export trade was unrestricted but the appellants did not engage in it. The respondents also hold a breweries licence and carried on the business of brewers in Vancouver but they brewed beer only and had some export business with China. An agreement was entered into between the appellants and the respondents, the former being vendors and the latter purchasers. The restrictive covenant there was that the vendors covenanted that during a period of 15 years they would not be concerned in any manner whatsoever or in any capacity in any brewing business other than that of sake and in the event of breach of the covenant they were to pay to the purchasers 15 thousand dollars as liquidated damage. It is important to note that counsel in that case submitted that restrictions were limited by practical considerations to the Province and that this limitation should be held to be implied as a matter construction. Lord Macmillan observed at page 191:
“But it is not so nominated in the bond, and their Lordships see no reason to import a limitation which the parties have not seen fit to express in order to and so unprecedented a contract.”
21. This case supports the submissions of the appellants that in order to determine the limits of restrictions it is the document which has to be seen and that a limitation cannot be imported which the parties themselves did not see fit to express in the agreement itself.
22. The next case which was relied upon is Premji Damodar v. Firm L.V Govindji & Co. . A.I.R 1943 Sind. 197., where it was held that if the restrictive clauses do not specify any local limits it is not permissible to enter upon a consideration of what the parties were likely to have contemplated, and the judgment of their Lordships which I have given above was relied upon.
23. It has then to be determined whether the restrictions imposed by clause 3 of the agreement are reasonable. The onus is on the plaintiff, who is setting up the restraint, to justify it. In Vancouver Malt and Sake Brewing Co. Ltd. v. Vancouver Breweries Ltd. it was so held and the tests of justification laid down were that the contract cannot be enforced unless it is reasonable between the parties and it is consistent with the interests of the public.
24. In McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society, Limited . 1919 A.C 548., a Co-operative Society bound itself to take all milk produced by members' cows kept on any lands within a defined area at current prices and the rule provided that no member having milk to sell, should without the previous consent of the committee, sell any such milk to any creamery other than the creamery of the society, or to any company or person who sold milk or manufactured butter for sale. This rule it was held imposed upon the members a greater, restraint than was reasonably, required for the protection of the society and was illegal as in restraint of trade. At page 562 Lord Birkenhead L.C laid down the following test of reasonableness:—
“A contract which is in restraint of trade cannot be enforced unless (a) is reasonable as between the parties, (b) it is consistent with the interests of the public”.
25. The test laid down in Thorsten Nordenfelt v. The Maxim, Nordenfelt Guns and Ammunition Company, Ltd. . 1894 A.C 535., was similar. At page 565 Lord Macnaghten said—
“All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions; restraints of trade and interference with individual liberty of action may be justified by the special circumstance of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable……..reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public. That, I think is the fair result of all the authorities”.
26. Thus according to the authority also the test of reasonableness is that it should be adequate protection to the patties concerned and not injurious to the public.
27. This case was relied upon by Mr. Pathak in support of the proposition that even a world-wide restriction may be reasonable. In that case Nordenfelt who was a foreigner and was manufacturer of quick-firing guns had sold his business to a Company and had entered into a contract restraining his future activities. The Company was later on amalgamated with another and Nordenfelt was employed as its Managing Director and the covenant provided that for 25 years, if the Company so long continued, Nordenfelt would not directly or indirectly engage in the trade or business of a manufacturer of guns etc. The restraint was general in the most absolute sense since the business of the Company extended to all parts of the world. This covenant was upheld on the ground that it was reasonable in the interests of the parties to restrain Nordenflt trading in guns etc. since the business that he had sold for a large sum of money consisted in the manufacture of those very things and this part of the covenant was also reasonable in the interests of the public since it secured to England the business and inventions of a foreigner and thus increased the trade of the country, but that portion of the agreement restraining him from “any business competing dr liable to compete in any way with that for the time being carried on by the company was unreasonable, since it was wider than was reasonably necessary to protect the proprietary interests that the company had bought”. I may also and that the business was of a limited nature in the sense that the manufacture was of guts which would necessarily be purchased by the Governments of the various countries. At page 549 Lord Hersobell, L.C observed:—
“It seems to be impossible to doubt that it is shown that the covenant is not wider than is necessary for the protection of the respondents. The facts speak for themselves. If the covenant embraced anything less than the whole of the United Kingdom it is obvious that it would be nugatory. The only customers of the respondents must be found amongst the Governments of this and other countries, and it would not practically be material to them whether the business were carried on in one part of the United Kingdom or another”.
28. Dealing with its world-wide operation the Lord Chancellor held it to be necessary for the protection of the covenantees and observed:—
“When the nature of the business and the limited number of customers is considered, I do not think the covenant can be held to exceed what is necessary for the protection of the covenantees.”
29. Thus in the circumstances of that case it was considered to be necessary for the protection of the covenantees and I do not think that case can be an authority for the proposition that in a case such as the one that we have before us a world-wide restriction is necessary for the protection of the rights of the covenantees.
30. The learned Attorney-General then submitted that this agreement is unreasonable because it is not protective of the parties, it is of indefinite duration and extends to indefinite space and that the reasonableness must be looked at the time of the covenant becoming operative and therefore it must be looked at as from the 31st December, 1945. The question then arises is such a restraint reasonable in cases where there is no business to protect.
31. In Cheshire's Law of Contract, Third Edition the law in regard to restraint of trade is summarised and the fourth clause is as follows:—
“Fourthly, a restraint, to be reasonable between the parties, must be no wider than is reasonably necessary to protect, the covenantee's interest. The existence of some proprietary interest calling for protection must first be proved and it must then be shown to the satisfaction of the Court that the restraint, as regards its area and time of operation and the trades against which it is directed, is not excessive.”
32. The appellant contends that the existence of some proprietary interest which requires protection has first to be proved and it must then be shown that the restraint as regards time and space is not excessive. That such a restraint is inapplicable when there is no business to protect was laid down by Farwell, J., in Townsend v. Jarman . 1900 2 Ch. 698. at page 702 where the learned Judge observed—
“But a covenant of that nature when originally entered into must necessarily be incident to a business. In other words, there cannot be a covenant in gross in restraint of trade; for such a covenant would be unreasonable, and therefore void.”
33. The observations of Tindal, C.J in Horner v. Graves . 33 B.R 635., were approved of. The Chief Justice said—
“But the greater question is, whether this is a reasonable restraint of trade. So far as their Lordships are aware there is no case in the English Law Reports, and certainly none was cited at the Bar in which a bare covenant not to compete has been upheld. The covenants restrictive of competition which have been sustained have all been ancillary to some main transaction, contract or arrangement and have been found justified because they are reasonably necessary to render that transaction, contract or arrangement effective.
34. Continuing his Lordship said at page 191—
“In their Lordships opinion not only are the restrictive covenants, of the present agreement open to the objection that they Constitute a purchase of protection “against mere competition,” but the terms themselves of the covenants are in any event so wide that they cannot pass the test of reasonableness as between the parties. The restrictions are not confined to Vancouver or even to the Province of British Columbia; they prevent the appellants from manufacturing beer anywhere in the world.”
35. and at page 191 it was observed:—
“Nor did it help the respondents' case to point out that the appellants were badly in need of the 15,000 dollars to enable them to improve their plant and carry on their business, and so to argue that the contract was to their benefit and even to the public benefit by enabling them to avoid closing down or insolvency. The receipt of a sum of money can generally be shown to be advantageous to a businessman, but his liberty to trade is not an asset which the law will permit him to barter for money except in special circumstances and within well recognised limitations.”
36. This case therefore shows that—
(1) a covenant for protection against mere competition unconnected with any transaction, contract or arrangement cannot be upheld.
(2) a covenant providing for restriction from manufacturing in any part of the world cannot pass the test of reasonableness.
37. In Lindley on Partnership 11th Ed. an agreement not to carry on business is discussed at page 531, and it is there said that such an agreement will be enforced if the restriction imposed upon the covenantor is reasonable in reference to the interests of both parties and of the public and if it is not greater than will afford adequate protection to his late partners having regard to the nature and extent of partnership business. And at page 532(n) the Law is stated as follows:—
“A covenant in gross i.e not for the protection of the covenantee in his business is unreasonable Horner v. Graves. Townsend v. Jarman. See, too, Vancouver Malt etc. Co. v. Vancouver Brewerie Ltd.”.
38. The law in America also seems to he the same. A contract advantageous to the promisee may be valid but not a promise injurious to the promiser but without corresponding advantage to the promisee which is invalid. See Williston on Contracts, Volume 5, paragraph 1535, at page 4581.
39. Permissible restraints have been stated by Taft, J. (later Chief Justice of the Supreme Court of America) as follows:—
“Covenants in partial restraint of trade are generally upheld as valid when they are agreements (1) by the seller of property or business not to compete which the buyer in such a way as to derogate from the value of the property or business sold; (2) by a retiring partner not to compete with the firm, (3) by a partner pending the partnership not to do anything to interfere, by competition or otherwise with the business of the firm; (4) by the buyer of property not to use the same in competition with the business retained by the seller and (5) by an assistant, servant, or agent not to compete with his master or employer after expiration of his time of service. Before such agreements are upheld, however, the court must find that the restraints attempted thereby are reasonably necessary (1, 2 and 3) to the enjoyment by the buyer of the property, good will, or interest in the partnership, bought; or (4) to the legitimate ends of the existing partnership; or (5) to the prevention of possible injury to the business of the seller from use by the buyer of the thing sold; or (6) to protection from the danger of loss to the employer's business caused by the unjust use on the part of the employee of the confidential knowledge acquired in such business.
40. It has also been stated there that covenants in restraint of trade can be enforced if they are necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract or to protect him from the dangers of unjust use of those fruits by the other party. If these tests are applied to the facts of the present case. I cannot see what is there to protect. On the other hand it appears to me that this is protection in gross.
41. Mr. Pathak in reply contended that restraint clauses are upheld even when there is no business to protect and he relied on Elves v. Crofts . 84 R.R 553. and Whitehill v. Bradford . 1952 1 Ch. 236.. In the former case a butcher on assigning for the residue of a term of the premisee where he carried on his business covenanted with the purchaser that he would not at any time thereafter carry on or be employed in the trade or the business of a butcher within five miles from the premises assigned. This was held to be binding. The covenant there was to protect at a time when the dissolution took place and therefore if the effectiveness of the covenant is to be taken at the time of its operation then in that case it was effective at the time the assignment was made and it was valid when it did not cease to be so merely because later on the assignees had ceased to carry on their business. In my opinion it does not support the submission of Mr. Pathak as the efficiency of such a protection it was held is not necessarily impaired by subsequent occurrences. No doubt this case was referred to in Townsend v. Jarman at page 703. The learned Judge there said—
“It is therefore only an incident to the business that the covenant can its origin have legal validity, although, as was held in Elves v. Crofts, it may very well continue to have validity after the original business has ceased, because ex post facto occurrences do not necessarily invalidate a covenant good in its inception.”
42. The next case relied on was Whitehill v. Bradford. There four doctors had entered into a partnership agreement and a retiring doctor was not to practise within the area for 21 years and this covenant was held to be enforceable, the reason being that the object of this clause was a protection against competition. The Court also said there that a reasonable construction should be put on the language and a covenant should not be rejected by fanciful and extravagant possibilities. The ground of protection against competition was emphasised by the Master of the Rolls again at page 250 and at page 253 and therefore this case would be an authority for the proposition that where an agreement of this kind protects the remaining partners from competition by an outgoing partner it will be enforced but that is far from saying that where there is no business or proprietary interest to be protected a restrictive covenant of this kind would be effective.
43. Mr. Pathak also relied on a Privy Council judgment in Connors Brothers Ltd. v. Connors . 1940 4 A.E.R 179.. In that case Connors the respondent and other members of his family sold their business to Neil Mclean and three others. The respondent formed another Company Lewis Connors and Sons Ltd. which lost heavily. Neil Mclean group as a result of negotiations purchased a controlling interest in Lewis Connors & Sons but the respondent continued to be a Director in Lewis Connors & Sons until he exercised his option to sell his shares and was also to be employed as a manager of the Company at a salary. The respondent commenced the duties as Manager of the factory but disputes arose between Connors and the Companies and another agreement was entered into by which the shares which Connors held in the companies were purchased by the companies for a substantial sum of money and employment agreement was ended by mutual consent and another agreement was entered into by which Connors agreed not to directly or indirectly engage in any sardines business in the Dominion of Canada or use the brands of the companies in Canada or elsewhere. It was this agreement the validity of which Connors asked the Court to determine and it was held that the general principles applying to the sale of good will of a business would apply, that the covenant was reasonable and it was not necessary to prove that there was dominion wide business nor was the covenant injurious to the public and that Connors was barred from engaging in sardines business in Canada. At page 194 Lord Maugham said:—
“The question of reasonableness being a matter of law for the court, it has never yet been supposed that it is necessary in relation to the trade of a large manufacturer or merchant to prove to the satisfaction of the court that the business which the covenant is designed to protect has been carried on in every part of the area mentioned in the covenant.
However, the goodwill of a business such as is now under consideration would not adequately be protected if the restrictive covenant had to be limited to the towns and villages where actual sales could be proved, whilst leaving the vendor free to establish a business, which would almost certainly be competitive, in all the adjoining places.”
44. Now this case cannot be of much assistance to the respondents. Originally Connors was the vendor of the business which subsequently became Connors Brothers Ltd. He was their Manager on a salary and he had covenanted not to carry on any business in competition with Connors Brothers Limited and had received a large amount of money for his shares. The protection there was sought for the good-will of the business. There is no similarity between the facts of that case and that of the present, nor do I see any pronouncement of their Lordships which may be of assistance to the plaintiff. As was observed in that case reasonableness of a covenant will depend a great deal upon the nature of the business and the area in question. But what was protected in that case was the interest of the vendees who had built up a big business and it was in relation to the trade of these large manufacturers that the protection was sought and it was held that this protection was a reasonable one. As I have said I do not think that this helps the respondents in any way.
45. On a review of these cases I would hold that:
(1) The protection given in a restrictive covenant should be within specified limits of time or space.
(2) Its reasonableness is to be considered in relation to the trade of a merchant or manufacturer.
(3) It should be reasonably necessary to render a transaction, contract or arrangement effective.
(4) A covenant in gross is unreasonable.
46. Applying these tests the present covenant is unreasonable because—
(1) it does not specify the limits of time or space.
(2) It is unreasonable as it would provide a world-wide restriction.
(3) It is not for effectuating any contract, transaction or arrangement.
(4) It is in gross.
47. The covenant cannot therefore be enforced.
48. It was next submitted by Mr. Pathak that if the question of the covenant is held in his favour and I have held against the plaintiff he would be entitled to the relief of accounts by a combined operation of sections 88 and 95 of the Indian Trusts Act. The trial Court rejected the applicability of the first part of section 88, but that finding has been challenged by the respondents. This section runs as under:—
“Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other persons and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained”.
49. In order to decide the applicability of the first part of the section the meaning of the phrase “by availing himself of his character”, has to be determined. The appellants contend that it means his character as such partner and that it cannot mean any other character. Now, this phrase applies equally to the executor, agent trustees, etc., and to a person bound in a fiduciary character to protect the interests of another person and in the last case it must be the availing of the fiduciary character which imposes the liability of such person. And there is no reason why a different complexion should be given to the words in the case of a trustee, an executor, an agent or a partner. The illustrations under the section support the contention of the learned Attorney General. They all indicate that it is character as such which makes the person liable. No principle or precedent was cited for any contrary proposition. Sitaramamurthi Chetty v. Guruswami Chetty . I.L.R 1949 Mad. 849. cited by Mr. Pathak, supports this proposition as there the success of the plaintiff was specifically based on the fact that the defendants had obtained the renewal of the lease by their availing themselves of this character and position as a partner.
50. The applicability of the first part of section 88 of the Trusts Act was as I have said above rejected by the trial Court and in my opinion rightly so. The Corporation had terminated the agency in favour of Gadodia & Company because rightly or wrongly they objected to the induction of Ram Gopal into the business of the partnership and because Gadodia had written in his letter Exh. C.D 17 at page 236 that he was leading a retired life which is also proved by the statement of Herbert Jackson D.W 5 at p. 98; and even though Gadodia had withdrawn his proposal of inducting Ram Gopal and had made efforts to have the notice of termination withdrawn the Corporation refused to do so and thus refused to continue Gadodia & Company as their selling agents. And we have it from the evidence of the same Herbert Jackson D.W 5 that even if Sharma had pleaded for the continuance of the agency in favour of Gadodia & Company, the Corporation would not have changed its decision to terminate the agency. See page 99, line 17 of the paper-book. The basis of agency is confidence which is said by some text-book writers to be the distinguishing feature between an agent and an ordinary servant and the greater the confidence reposed, the greater is the power which an agent can wield. And it has not been shown that an excluded person, such as Gadodia was, could in equity continue to be a partner in the agency which was obtained by Dev Sharma.
51. That Dev Sharma obtained the agency by availing himself of his character as a partner was never alleged in the plaint, nor was it put in issue, and it seems to have been indirectly introduced at the argument and judgment stage to support the claim for accounts. In the evidence led by the plaintiff there is nothing to support that it was in his character as a partner that Dev Sharma obtained the agency.
52. Mr. Patbak then submitted that Dev Sharma was a constructive trustee because during the existence of the partnership he had taken the agency and for this he relied on two documents Exhibits C.P 9 and C.P 10 at pages 203 and 204 of the paper-book.
53. In the first place this point in not open to the respondents. In paragraph 7 of the plaint they definitely alleged that the agency was taken after the termination of the agency. I quote the relevant portion of this paragraph:—
“7. That after the termination by the aforesaid British India Corporation, Ltd., of the said selling agency, the said British India Corporation Ltd., appointed Messrs Sharma & Company as the cloth and Yarn selling agents of the Mills at Kanpur * * *”
54. In reply the defendants in para 7 admitted that they had taken the agency after the termination of the selling agency in favour of Gadodia & Company. And in the additional pleas they set out the circumstances which led to the termination of the agency in favour of Gadodia & Company. These circumstances are the same which I have already given. As the parties were not at variance as to the defendants having taken the agency after the termination of the agency agreement in favour of Gadodia's firm, no issue could be and was rained. In my opinion on the pleadings it is not open to Mr. Pathak to submit that the defendant Dev Sharma obtained the agency during the pendency of the partnership which according to clause 2 of the partnership was to continue only as long as the agency agreement was to continue.
55. The relevant portion of the document Exh. C.P 9, which is dated the 29th December, 1945, is as follows:
“One of the two partners L.N Gadodia in fact is dropping out of our cloth and yarns agents business as from the end of the current month. The other partner will continue to assist in the flame capacity as heretofore and thus preserve continuity, but the agency proper will be in favour of his brother S.N Sharma.
56. I may here point out that neither of these two documents was relied on for the purpose of showing the applicability of section 88 of the Trusts Act. On the other hand they were used in the Court below to prove the benami nature of the transaction of the new agency as is shown by the judgment of the Court below and the trend of cross-examination of Jackson D.W 5. Now this letter was addressed by Herbert Jackson, Managing Director of the British India Corporation, to the Textile Controller and in my opinion it only shows that, the principals were not continuing the firm Gadodia & Company as their selling agents but were going to entrust that work to Dev Sharma who was at one time a partner of Gadodias' firm. Even if this letter Exh C.P 9 could be used for the purpose of showing that Dev Sharma had obtained the agency, it does not show that he did it, by availing himself of his Character as a partner.
57. No doubt there is the statement of Shiv Nath Sharma (at p. 71, line 15) that in order to engage in cloth business the getting of a license was required, but this is denied by Dev Sharma who stated that licenses were issued to those persons who had been previous dealers as from 1940 onwards, but he also added that this was not a pre-requisite in the case of agents or nominees of manufacturers and this was stated in cross-examination and elicited by counsel for the plaintiff.
58. It appears to me, however, that Dev Sharma obtained the agency not by availing himself of his character as a partner of Gadodia & Company but in spite of it. The principals were not prepared to continue to repose any confidence in the firm and terminated the agency because of what L.N Gadodia had done. This is clear from the documents Exhs. C.D 17 at p. 236, C.D 14 at p. 236 and C.D 19 at p. 241 and the statement of Herbert Jackson at p. 93, lines 6-13. As a matter of fact the principals had so much confidence in Dev Sharma that even when they first gave the agency to Gadodia & Company, they made it a part of the contract that Dev Sharma would not be removed from that partnership except with the prior sanction of the principals which was re-incorporated in the second agreement of the 1st of March 1938 (See p. 185 of the paper-book, paragraph 17).
59. I may deal with the Madras case relied on by Mr. Pathak. This Sitaramamurthi Chetty v. Guruswami Chetty. In that case a leasehold interest in a salt factory belonging to Government was sold in auction by the Government. The lease was purchased by two persons in their own names but as there was an agreement that it would enure for the benefit of the persons in all including the two, a partnership was entered into specifying the shares of the five persons including the two in whose name the licence had been taken were appointed managing partners. A year and a half before the lease expired in December 1942, the Government enquired from the lessees if they required renewal for another term of 25 years requesting them to apply before a specified date. The managing partners did so stating that they had faithfully carried out the terms of the lease to the entire satisfaction of the department. And the lease was sanctioned for a further period of 25 years. Prior to this one of the working partners and another partner had died. After the lease had been renewed the managing partners issued a notice to one of the other partners that the partnership would terminate on the date of the expiry of the original lease and a demand was made to agree to settle profits and accounts up to December, 1942. No reference was made in this notice to the renewal of the lease. The partners thus excluded from the benefits of the renewed lease brought a suit in which it was claimed inter alia that the new lease should be treated as a partnership asset and it was held that the new lease obtained in renewal of the old must be treated as an asset of the partnership and that a value should be placed upon it. In this case two arguments were raised (1) that the application for renewal of the expiring lease was made on behalf and for the benefit of the partners in pursuance of a resolution and therefore it must, enure for the benefit of all the partners, and (2) that the new lease was obtained by the working partners as partners by availing themselves of their character and position as such and therefore they must hold it for the benefit of all the partners. The first argument was rejected but the second argument was accepted. The case is an authority for the proposition then that the ground on which the benefit of the renewed lease was claimed was that it was obtained by the managing partners by availing themselves of their character and position as partners.
60. This case was also relied upon by Mr. Pathak for the proposition that just as in the case of a lease which was obtained by the working partners the benefit of it was taken by all the partners, the same principle would apply to the present case, but the facts in the two are in my opinion, dissimilar. In the Madras case the renewal of the lease was obtained on behalf of all the partners on the ground that the partnership had carried out all the terms of the old lease and the renewal was in the name of the existing lessees who were acting for the partnership. It was after the obtaining of the renewed lease that same of the partners wanted to exclude the others. And one reason given for deciding in favour of the excluded partners was that had they been aware that the managing partners were trying to get the renewal for themselves, they “would certainly have made their individual attempts to obtain a lease, at an auction or otherwise”. This reason is non-existent in the present case where the facts are that the agency agreement had already been terminated and it is not the case of the plaintiff that this was at the instance of Dev Sharma. On the other hand this part of the case was expressly given up by the plaintiff. And the documents produced show that the termination was because of something done by Gadodia. The giving of the new agency at the termination of the old was not because of any kind of meritorious work of the old partnership of Gadodia. Therefore the obtaining of the new agency agreement was not on behalf of the partnership but on behalf of Dev Sharma alone and it cannot be said that he had obtained it availing himself of his character and position as a partner.
61. After considering the evidence I am of the opinion that it has not been proved that Dev Sharma, availing himself of his position and character as a partner in Gadodia and Company, obtained the agency agreement in January 1946 or even before that and has thus become liable to hold the benefit of his agency business for the plaintiff Gadodia also.
62. I should have stated that the finding of the trial Court also was that Dev Sharma had not availed himself of his character as a partner in acquiring the selling agency after the termination of the agreement with Gadodia & Co., and the learned Judge bases this on the ground that both partners knew that a notice had been given of the termination of the agency and that Dev Sharma could not as a partner of Gadodia get the agency extended in favour of the partnership because the Corporation had refused to do so, and the agency which was given to Dev Sharma was in his personal capacity and not as a partner of Laxmi Narain Gadndia. No funds of the partnership were employed and Dev Sharma himself had something like three lacs of rupees to his credit at the time.
63. The learned Senior Subordinate Judge was of the opinion that the second part of section 88 of the Indian Trusts Act was applicable to the facts of the case. This part runs as follows:—
“Or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other persons and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.”
64. The requirements of this part are that (1) there should be a fiduciary relation, and (2) such person enters into dealings under circumstances in which his own interests are adverse to the interests of another person, the cestui quo trust i.e, there is a conflict of duty and interest and as a result of that adverse interest such person obtains an advantage. I am unable to find any evidence by which Dev Sharma could be described as being a person who held any fiduciary capacity qua Gadodia. According to the findings which I have given above and also according to the findings of the Senior Subordinate Judge Dev Sharma had not used his character as a partner to obtain the new agency agreement, nor was the Corporation prepared to give the agency to the old partnership even if Dev Sharma had pleaded for it. It must be remembered that agency is in the nature of a personal service. It is a relationship by which one of the parties confides to the other the management of some business to be transacted in his name or on his account and by which that other assumes the business and renders an account for it. The relationship results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. After giving his finding the learned trial Judge (at page 147 of the paper book) has held that Dev Sharma indirectly acquired for his benefit the new agency during the continuance of his partnership with Laxmi Narain Gadodia when his duty was to act otherwise. And this case goes beyond the plaint and is therefore not available to the plaintiff as I have discussed above while dealing with the first part of section 88 of the Trusts Act. The reason that the learned trial Judge seems to give is that the accounts of the partnership had not yet been settled. If the finding is correct as indeed it is that the agency had been terminated because of something which had been done by Gadodia himself and that the Corporation was not prepared to give the agency to Gadodia, I fail to see how the appointment of Dev Sharma as an agent in place of Gadodia & Co., can fall within the second part of section 88 of the Indian Trusts Act. At this stage reference may be made to Siddavarapu Ramalinga Reddy v. Rachaputi Ramalingam Setty . A.I.R 1938 Mad. 929., which in my opinion applies to the facts of this case. In that case a partnership had obtained a lease for mica mining for a definite period. There was no provision for renewal of the lease. One B became a partner with the knowledge of the conditions of the lease and the partners in the lease had intended that the partnership should last as long as the duration of the lease. Another partner A obtained a fresh lease for himself and he got it without any consideration arising out of the old lease. It was held that in obtaining the renewal the partner had not availed himself of his character as an old lessee or took any advantage of it and because the lease was for a definite period the partner could not be said to have been placed in the matter of the new lease in a position of conflict of duty and interest and that the other partner B was not entitled to claim an interest in the new lease or to insist that the new lease should be treated as a part of the assets of the old partnership. At page 936 Varadachariar, J. observed:—
“In this connection there was some discussion as to the scope of the partnership under Ex. M as Mr. Srinivasa Avvangar relied on (1906) A.C 494 as indicating the test to be applied in determining whether in obtaining the renewal plaintiff adopted a course in which his duty and his interest came into conflict.”
65. This case was sought to be differentiated on the ground that the negotiations for the new lease were carried on by the successful partner openly and no advantage was clandestinely obtained, and the test laid down by Varadachariar, J. is whether in obtaining the renewal the partner adopted a course in which his duty and his interest came into conflict. In the present case, as I have also said above, the agency had been terminated, and the attempt of Gadodia to get the termination set aside had failed. And the evidence shows that the Corporation was not prepared to change its decision. In the case set up in the Court below and even in this Court it was not contended that Dev Sharma had anything to do with the termination of the agency. The respondents relied on Exhibit C.P 9 (at page 203) and wanted us to draw the conclusion that this shows that Dev Sharma had acted in a manner adverse that is there was conflict of duly and interest. I fail to see what, duty, after the termination of the agency, Dev Sharma had towards the old partnership taking into view the fact that it was the action of Gadodia which brought about the termination of the agency and the Corporation had refused to continue the agency. When the agency had been terminated and there is no suggestion that Dev Sharma was responsible for that, there was no duty cast on Dev Sharma not to take the agency if it was given to him. He appeared as D.W 2 and it does not appear that any questions were put to him to show that he acted in any manner showing any conflict of duty and interest. Nor was this case put forward by the plaintiff in his plaint. I have already discussed the restraint clause.
66. I am of the opinion therefore that the learned Judge has misdirected himself in this part of the case and that his findings, if I may say so, are contradictory. There is no evidence to show that Dev Sharma had in any manner abused his position and thus obtained the agency. This case seems to be within the rule in Bias v. Biss . 1903 2 Ch. 40.. In that case a lease was obtained by one John Biss for seven years of a house in which he carried on a profitable business. The lease was renewed from year to year. John Biss died intestate leaving a widow and three children one being an infant. The widow took out administration of her husband's estate and she and the two adults children one of whom was a son continued to carry on the business. The widow and son each applied for the renewal of the lease for the benefit of the estate which was refused but after determining the yearly tenancy the landlord granted to the son personally a new lease for three years on an increased rent. The administratrix applied to have the new lease treated as having been taken for the benefit of the estate and for accounts. Buckley, J. held that the son was a trustee of the new lease for the benefit of the estate and this was because the learned Judge thought he was bound by a judgment of the Court of Appeal Ex-parte Grace14. In appeal it was held that the right or hope of renewal had been determined by the landlord himself before the son intervened, so that the new lease could not be treated as an accretion to the estate of the deceased, and also that the son had in no way abused his position nor stood in any fiduciary relation towards the others nor owed any duty towards them and that he was entitled to retain the lease for his own benefit. This case supports the case of the appellants.
67. I may also add that a common instance of constructive trusts occurs in the renewal of leases; the rule being that if a trustee, or executor renews a lease in his own name, he will be deemed in equity to be a trustee for those interested in the original lease. The new lease is deemed to be a graft on the old one. (Lewis on Trusts, 11th Edition, page 160). Can it be said that this will also apply in the case of renewal of agency agreements which are based on a relationship of confidence as between the principal and agent and does this rule apply to partners in whose case unlike that of trustees the presumption is not irrebutable and depends on the facts and circumstances of each case. And the basis of presumption is public policy (Lewis on Trusts, page 161).
68. The respondents relied on Bennett v. Gaslight and Coke Company of London . 48 L.T 156.. There one W assigned his estate to his four creditors as trustees. Before the trust was wound-up B one of the trustees applied to renew the agency for the trustees, but as that was refused he got the agency for his own firm. He Hid not inform the other trustees and it was held that B by reason of his trusteeship was disqualified from obtaining the agency for himself on the ground that it became against his interest to press for a renewal to the trustees, and that the interest he had obtained belonged to the trust estate. The evidence in that case showed that B obtained the contract without communicating with his co-trustees and without giving them an opportunity of themselves applying for obtaining it and to get a renewal of the contract for the benefit of the creditors. Pearson, J. was of the opinion that by getting the contract in the way that he did B was disqualified at the time he obtained it from holding it for his own benefit. Besides this was a case of a trustee and the presumption in their case is irrebutable. Therefore this case is not an authority for the proposition which was contended for by Mr. Pathak.
69. I would therefore hold that—
(1) it has not been proved that Dev Sharma availed himself of his character as a partner;
(2) he had no fiduciary position vis a vis Gadodia at the time he took the agency;
(3) he did not have any interest adverse to that of Gadodia at the time; and
(4) he did not acquire any pecuniary advantage to himself through the medium of his fiduciary character.
70. The next question to be decided is whether the plaintiff would be entitled to a relief of injunction and if so against whom. His right of action can only be against Dev Sharma who was party to the agreement of partnership and Shiv Nath Sharma and Shrimali Chandan Devi cannot be proceeded against. This was not seriously contested by Mr. Pathak. The defendants contend that this is not a case for injunction because the breach occurred in 1946 of which the plaintiff had knowledge and it was his conduct which had brought about the termination of the agency. The finding of the trial Court which has been attacked by Mr. Pathak is that Gadoaia had knowledge of the breach in 1946 which is shown by the letter of his Advocate (Exhibit P. 4 at page 218) dated the 11th February, 1946. Plaintiff as his own witness stated (at page 53 line 10) that he learnt that the agency of the Mills had been taken in the name of Sharma & Co. by defendant No. 1 after the termination of the agency and thereupon he served Dev Sharma with a notice to which the reply given by the defendant is Exhibit P. 5 dated the 20th February, 1946. This document has already been discussed in some detail. In cross-examination the plaintiff admitted that “after the termination of the agency defendant No. 1 commenced his business under the new name in the neighbouring premises” not situate on the main road and also that he went to Kanpur twice or thrice a year (page 53, lines 41-47). Mr. Pathak submitted that the plaintiff might have had a vague kind of knowledge and that it was not till 1950 when Babu Lal, an ex-employee of the partnership informed him that defendant No. 1 had taken the agency in the name of Sharma & Co. that he really came to know about it. On this point reliance was also placed on the evidence of Beni Parshad P.W 5 who supported Babu Lal and there is also the statement of Manohar Lal Wachhar an Advocate of Delhi D.W 3 that certain papers were sent to him as legal adviser of Gadodia and the testimony of Beni Parshad and Manohar Lal Wachhar has been accepted by the learned trial Judge (at page 133 of the judgment), but the evidence in regard to Babu Lal's statement does not affect the question of what happened in 1946. The plaintiff's statement referred to above and the lawyer's notice sent on his behalf show quite clearly that Gadodia was aware of the fact that, Dev Sharma had taken the agency under the name of Sharma & Co., and at that time he thought that Dev Sharma had got the agency agreement in favour of Gadodia & Co. terminated and had acted in his own interest and to the detriment of Gadodia and it was definitely stated there that Dev Sharma had no right to take such an agency. Is the plaintiff not then guilty of laches and has thus deprived himself of the equitable right of injunction keeping in view the fact that it was his own conduct which had brought about the termination of the agency.
71. When injunctions can be granted is dealt with in section 54 of the Specific Relief Act and it is there stated that when obligations arise from contracts the Court shall be guided by the rules and provisions contained in Chapter II of the Act. The learned Attorney General relied on a judgment of the Privy Council in Ma Shwe Mya v. Maung Mo Hnaung . I.L.R 48 Cal. 832.. Their Lordships there said:—
“It certainly is rather startling to be told that nine years after a contract has been made which could have been satisfied within twelve months of its execution, a party to the contract is at liberty to take proceedings for specific performance. The rights of equity which prevail in British Burma are rights which are given to people who are vigilant and not to those who sleep, and, unless there can be clearly established some reason which threw upon the defendant the entire blame for the delay that had occurred, or unless, indeed, it can be shown that the real right of action had only accrued a short time before the proceedings were instituted, such a lapse of time would be fatal to any action for specific performance of a contract.
72. Mr. Pathak submitted that this case was really decided on the ground that the claim was statute barred. The suit out of which the appeal arise was instituted by the respondent in 1913 claiming specific performance of a verbal agreement alleged to have been made by the appellant in 1912 to transfer three specified sites for oil wells and this agreement was alleged in relation to an agreement in writing made in 1903 by which the appellant agreed to sell to the respondent three out of twelve sites allotted to her. This may have been the case in regard to the appeal which the appellant brought but when their Lordships dealt with the cross-appeal the question of limitation does not seem to have been raised or at any rate the language used by the Privy Council is irrespective of the statute. Their Lordships applied the rules of equity and emphasised the fact that the rights in equity are given to those who are vigilant and not to those who sleep.
73. The next case which was referred to is a Single Bench judgment of Lahore Court in Yasuf Alim Hakimji v. Muhammad Din & Sons . A.I.R 1927 Lah. 718 - 28 P.L.R 590., where it was held that delay disentitle a grant of injunction. That was a case which dealt with the demolition of a platform and staircase. In that Case two and a half years' delay disentitled the plaintiff to the discretionary relief of injunction. The learned Judge said at page 719:—
“I am unable to see that the ordinary principle that laches disentitles a person to the discretionary relief on an injunction should not apply in this case. I therefore consider that the plaintiff's suit qua the platform must be dismissed.”
74. The next case relied upon was Kissondas Premchand v. Jivatlal Pratapshi & Co. . A.I.R 1936 Bom 423.. At page 428 after referring to several judgments Rangnekar, J. said:—
“This decision clearly establishes the principle that long delay and negligence of the plaintiff, which in other words, amounts in language of equity pleadings to ‘laches’ will disentitle a claimant to come in and establish his claim, even though that claim is not disputed.”
75. And towards the end of that paragraph he observed that the plaintiff is not entitled to the relief he seeks in the suit, even if the suit is maintainable by reason of his gross delay, negligence and laches”. This case was sought to be distinguished on the ground that it was in administration suit in which the claim had become barred by time and other people's right had accrued.
76. Mr. Pathak contended that the covenant in the present case was of a negative kind and therefore the Court had no discretion to refuse the injunction. He referred firstly to Hailsham's Edition of Laws of England, Volume 18 at P. 18, where it is stated that delay in applying to the Court, though it may excite the diligence of the Court to ascertain whether the plaintiff has stood by and voluntarily suffered his right to be infringed, is no bar if it can be satisfactorily explained and that there must be fraud or such acquiescence as, in the view of the Court, would make it a fraud afterwards to insist on the right. At the same page it is further stated that mere delay in bringing an action for an injunction is not sufficient to deprive the plaintiff of his right; but long abstention from the assertion of his right, coupled with an alteration of the condition of other parties, may render it unconscientious on his part to enforce it.
77. Reference was then made to Doherty v. Allman . 3 A.C 709.. That was a case of leases. In each of the leases there was a covenant of keeping the demised premises in good and sufficient order and repairing them. The premises had fallen into disrepair and the lessees converted them into dwelling houses. In this case at P. 719 Lord Cairns L.C said:—
“My Lords, if there had been a negative covenant, I apprehend, according to well-settled practice, a Court of Equity would have had no discretion to exercise.”
78. This was followed by the Privy Council in McEacharn v. Colton . 1902 A.C 101.. That again was a covenant of a lease by the lessee not to assign without the lessor's consent. He also relied on Hogg v. Scott . 1874 18 Equity 444.. In this case an injunction was sought to restrain a piracy of copyright by sale of a book and it was held that mere delay in taking proceedings after knowledge of a piracy is not in itself such acquiescence as to have deprived the plaintiff of his right of injunction.
79. The next case which was cited is Jamnadas Shankarlal v. Atmaram Harjiwan . I.L.R 2 Bom. 133.. In that case the defendants pulled down their house and started digging new foundation to rebuild and the plaintiff served a notice on the defendants, warning them not to obstruct the access of light and air to his house. A month later another notice was given and notwithstanding this the defendants went on building their bouse and digging the foundations. The defendants caused some damage to the plaintiff's walls and they also opened some windows which overlooked into the plaintiff's house. A year after the completion of the building the plaintiff brought a suit for a mandatory injunction which was granted. In this case it was found that there was no acquiescence and the circumstances constituting delay and acquiescence were discussed, but I fail to see how that case is applicable to the facts of the present one.
80. The next case relied upon is Athikarath Nanu Memon v. Erathanikat Komu Nayar . I.L.R 21 Mad. 42., where it was held that because in this country there is a period of limitation prescribed, mere lapse of time short of the period of limitation is not a good ground for granting relief to a plaintiff. Smith v. Smith . 1875 20 Equity 500., was a case of mandatory injunction and of the obstruction of ancient lights. In Allah Ditta v. Jamna Das . A.I.R 1929 Lah 679., a Division Bench of the Lahore High Court allowed specific performance of a contract four years after it was entered into.
81. Two cases which were strongly relied upon by Mr. Pathak for the respondents are: Hari Bhushan v. Sheikh Abdul . A.I.R 1927 Cal. 54., and Fullwood v. Fullwood . 9 Ch. D 176.. In the former case it was held that if an owner stands by and allows another to spend money by making improvements on his land in a bona fide belief that the property belonged to him, section 115 of the Evidence Act will become applicable. In that particular case it was held that the circumstances did not call for the application of the rule of estoppel and the notice given in that case was held to be proof of the fact that the true owner was not standing by and that once he had given notice it was sufficient. B.B Ghose, J. observed at p. 56—
“But I cannot think what more the plaintiff was bound to do in addition to giving notice to the defendants, even if they had acted bona fide, that he had a right to the land and he objected to the defendant's making any further use of it”.
82. This case again is a case of immovable property and can not be authority for the broad proposition that a notice once given in a case like the present will make the principle of vigilance or equitable relief inapplicable. In the latter case, Fullwood v. Fullwood, the action for an injunction to restrain the defendant from representing that the business carried on by him was the same as that carried on by the plaintiff was held not to be barred on the ground that the plaintiff had known for between two and three years before issuing his writ the facts on which he relied. The real point in the case was that the defendant misrepresented that be was carrying on the business which had descended to the plaintiff who was brother of the defendant and the cards and wrappers which were used by him showed that he was attempting to represent that the business which he was carrying on was the business of which the plaintiff was the proprietor. It was an action for deceit and it was held that the mere lapse of time unaccompanied by anything else was not sufficient to bar a suit for injunction.
83. Excepting the above case all the other cases which were relied upon by Mr. Pathak were cases of immovable property as it is understood in this country. It is true that in Fullwood's case there are certain observations which may be of assistance to the respondent, but that was a case of deceit where a man was representing to the world that he was carrying on the business of the plaintiff which had descended to him from his father, the defendant being a brother of the plaintiff. Even in that case it was held that defence of acquiescence or acknowledgement may be open to the defendant, but mere lapse of time unaccompanied by anything else was not enough.
84. The case of injunctions in case of partnerships where a partner has been excluded from a partnership has been discussed in Lindley's Partnership at pages 578 to 582. The effect of laches is thus stated at page 581—
“Notwithstanding Bart v. Clarke . 6 H.L.C 633. and Clements v. Hall . 24 Beav. 333., it is submitted that the doctrine laid down and acted upon in Norway v. Rowe . 19 Ves. 144., Senhouse v. Christian . 19 Ves 157, Prendergast v. Turton . 13 L.J Ch. 238., Clogg v. Edmondson . 8 De. G.M & G. 787. and Rule v. Jewell . 12 Ch. D. 660., may still be safely relied on in all cases except those in which the Court can be driven, as it was in Hart v. Clarke, to the alternative of holding either that the plaintiff is entitled to relief or that he has abandoned and lost his former legal rights and the evidence is insufficient to prove an abandonment.”
85. This is a case of an agency agreement which is in the nature of a personal service, though not strictly so, in that a servant merely serves and an agent also acts for the principal. It has been held in case of servants that if the effect of a Court granting an injunction will be to compel a servant to carry out his contract for personal service or remain idle the Court will not grant an injunction. See Rely-a-Bell Burglar & Fire Alarm Co. v. Eisler . 1926 1 Ch. 609..
86. In the present case, as I have said above, the British India Corporation reposed a great deal of confidence in Dev Sharma, so much so that they had covenanted with Gadodia & Company that Dev Sharma would not be dismissed without their previous consent. If an injunction is granted in a case like this, the effect will be that the principals would in this case be deprived of the services of a reliable agent in whom they have full confidence and who, according to the evidence of Herbert Jackson D.W 5 has succeeded in increasing the sales of the Corporation and work has improved since he took over the agency (see p. 101 line 12 of the paper book).
87. Beside can it not be said in this case that the plaintiff must be taken to have acquiesced in Dev Sharma carrying on with the agency work of the British India Corporation. According to the finding of the trial Court, with which I have agreed, in February 1946 the plaintiff had come to know that Dev Sharma had taken the agency of the British India Corporation. For about four years he had been carrying on this business when the present suit was brought. There is no satisfactory explanation by Gadodia as to why the suit was not brought earlier. Considering the kind of business that was being carried on by the defendants and the amounts of money which must have been invested by them, as shown by accounts which have been produced, this injunction, if granted, would be injurious to the promiser without corresponding advantage to the promisee and should, therefore, not be granted.
88. The other question to he decided is whether the plaintiff would be entitled to accounts even if he were successful on other points. It is not a case to which section 18 of the Indian Limitation Act is applicable. What that section requires is that the plaintiff having a right to institute a suit has by means of fraud been kept from the knowledge of such right or of the title on which it is founded. I fail to see how this section is applicable to the facts of the present case. It is true that it is stated in paragraph 7 of the plaint that the plaintiff made unsuccessful attempts to find out who the partners were, but this is denied in paragraph 8 of Dev Sharma's written statement at p. 15 of the paper book. He pleaded that the plaintiff knew at the latest by the 11th February, 1946 the exact state of affairs and there is evidence of Dev Sharma and Shiv Nath Sharma as witnesses that the plaintiff had been told who the partners were. But as to who the partners in Sharma & Company were makes no difference because the cause of complaint of Gadodia could only be against Dev Sharma and he knew in February 1946 that Dev Sharma had taken on the agency of the British India Corporation which, according to him, was a breach of the covenant in clause 8 of the partnership agreement. If he wanted to get an injunction against Dev Sharma there was nothing to prevent Gadodia from doing it as soon as he came to know about it, but he had no cause of action against Chandan Devi and against Shiv Nath Sharma and in regard to accounts section 18 in my opinion is wholly inapplicable, and there is no allegation even that the plaintiff, was, because of the fraud of the defendant, kept from the knowledge of his right to bring the suit, still less is there any proof of this.
89. In my view the plaintiff is not entitled to a decree for accounts against the defendants. Even if the plaintiff were to get a declaration that the renewed agency rather that portion of it which is the share of Dev Sharma was taken for the benefit of the old partnership, it would not entitle the plaintiff to the profits that might be made during the continuance of that agency but his interest would be confined to this that in taking an account of the old partnership (between Gadodia and Dev Sharma) stock as it existed on date of dissolution, i.e 31st December, 1945, this agency should be included in the estimate of value as part of the joint assets Keech v. Sandford . 25 E.R 223.. In that case renewed lease was sold as partnership property. That was what was held in the Madras case, Sitaramamurthi v. Guruswami at, p. 875 and the Commissioner appointed for taking accounts of the old partnership was directed to evaluate the renewed lease and in order to do that he was given certain directions, but no decree for accounts was passed. See also Lindley on Partnership under the heading unsaleable but valuable assets p. 661 (11th Ed).
90. It will be interesting to note the Illustration (f) of section 88 of the Trusts Act has been held to go further than the operative portion of the section itself and it has been held in Siddick v. Mahomed Hussain . A.I.R 1917 Mad. 71., that—
“Illustration (f), section 88, Trusts Act, goes further than the operative portion of the section itself, and if it is to be regarded as laying down that in every case where after the death of a partner the money is left outstanding in that partnership the legal representative of the deceased partner is entitled to a share of the profits, it is not sound law.”
91. In this case Sheshagiri Aiyar, J. relied on the observations of Lord Westbury in Knox v. Gye . 42 C.J Ch. 234., where it was held that there is no fiduciary relation between the surviving partners and the legal representatives of a deceased partner. Lord Westbury said at page 239.—
“There is nothing fiduciary between the surviving partner and the dead partner's representative, there are certain legal rights and duties which attach to them, but it is a mistake to apply the word ‘trust’ to the legal relations which is thereby created.”
92. Thus it is a case of pure contract in which a legal relationship is substituted on the death of the deceased partner, and to a case like this the Statute of Limitations will be applicable: See Knox v. Gye, and Lindley on Partnership, Eleventh Edition, page 620, where the same proposition has been laid down. In my view therefore the existence of a fiduciary relationship which is indicated by section 88(f) of the Indian Trusts Act has been rightly negatived by the Madras High Court. Sir Frederick Pollock in his Law of Partnership, Fifteenth Edition, at page 124, has thus stated the law:—
“A surviving partner has sometimes been said to be a, trustee for the deceased partner's representatives in respect of his interest in the partnership; but this is a metaphorical and inaccurate expression. The claim of the representatives against the surviving partner is in the nature of a simple contract debt, and is subject to the Statute of Limitations, which runs from the deceased partner's death.”
93. In the present case there is nothing to show, as a matter of fact this has been held by the trial Court also and it has not been challenged, that any assets of the old partnership Gadodia & Co., were used by Dev Sharma and therefore Gadodia is not entitled, even if section 88(f) was applicable, to any share in the partnership. Even in cases such as these where assets are employed by the surviving partners in some of the English cases it has been held that the assets are only a debt, upon which the representative of the deceased partner will have a right to get interest but, in regard to which, he is not entitled to claim as a right a share in the profits: See Willet v. Blandford . 1 Hare 253., and Lindley on Partnership, Eleventh Edition, page 710, from where I quote the following passage:—
“The extent of the liability to account for subsequent profits was elaborately discussed by the late V.C Wigram in Willet v. Blandford, and the conclusion arrived at by him was, that no general rule could be laid down upon the subject, and that every case must depend upon its own circumstances. ‘The nature of the trade, the manner of carrying it on, the capital employed, the state of the account between the late partnership and the deceased partner at the time of his death, and the conduct of the parties after his death, may materially affect the rights of the parties’. This conclusion of the Vice Chancellor was entirely in accordance with previous decisions, and has been approved by subsequent Judges; and in conformity therewith several cases have since been decided, in which profits acquired after the death of a partner were held to belong wholly or in part to those by whose labour they had been made. An element of uncertainty is thus introduced into an already difficult and complicated branch of law, and renders it extremely embarrassing. More-ever, experience shows that judgments for an account of profits after dissolution are fearfully oppressive and the author was not aware of any instance in which such a judgment had been worked out and had resulted beneficially to the person in whose favour it was made.
94. And this view of the law was accepted by the Madras High Court in Siddick v. Mahomed Hussain where Ahmed Musaji Saleji v. Hashim Ebrahim Saleji . I.L.R 42 Cal. 914 P.C., was also followed. In this latter case Lord Sumner observed:—
“It is well settled that in certain cases, when on the dissolution of a firm one of the partners retains assets of the firm in his hands without any settlement of accounts and applies them in continuing the business for his own benefit, he may be ordered to account for these assets with interest thereon, and this apart from fraud or misconduct in the nature of fraud.”
95. There are no doubt some cases where an account was ordered where the surviving partners carried on the business after the death of a partner utilising the assets of the partnership: See Haji Hedayetulla v. Mahomed Kamil . A.I.R 1924 P.C 93., but in none of these cases was the applicability of the doctrine of trust introduced; they are all eases which were decided in accordance with the Law of Partnership.
96. Several cases were cited by Mr. Pathak to support the proposition that if business is earned on by partners after the death of one of the partners, the legal representatives of the deceased partner are entitled to profits as determined by taking accounts, but these are all cases under the Law of Partnership and they are not under section 88 of the Trusts Act and that is how I read Lachhmi Narain v. Beni Ram . I.L.R 53 All. 479.. It is true that section 88, Illustration (f), was referred to in that case, but the other eases which were there relied upon were all cases under the Partnership Law. (See Haji Hedayetulla v. Mahomed Kamil, Mahomed Kamel v. Haji Hedayetulla . I.L.R 48 Cal. 906.). In the Allahabad case the learned Judges did refer to Illustration (f) section 88 of the Trusts Act, but it appears that their attention was not drawn to the Madras case, which I have referred to above, Siddick v. Mahomed Hussain.
97. The plaintiff has in the alternative sued for damages and section 73 of the Contract, Act is the only section which deals with damages and according to the pronouncements of the Supreme Court in Gangn Saran v. Ram Charan Ram Gopal . 1952 S.C.R 36. and Satyabrata Ghose v. Mugneeram Bangur & Co. . 1954 S.C.R 187., the Courts in this country must look primarily to the law as embodied in the sections of the Contract Act. Section 73 provides—
“When a contract has been broken, the party, who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.”
98. In the present case the claim of the plaintiff comes to this that if the defendant had observed the terms of his agreement contained in clause 3 of the partnership deed, he would have had no pecuniary advantage, but because there has been a breach of the agreement in as much as the defendant took and has carried on his agency business, he is entitled to receive his share of the profits as if he was a partner. As I read the section it means this that if a party suffers damage as a result of breach of contract by another, such party is entitled to compensation for any loss or damage caused to him because of the breach of the contract. For the plaintiff reliance was placed on Lindley on Partnership, Eleventh Edition, p. 582, where it is stated that “If two persons have agreed to enter into partnership and one of them refuses to abide by the agreement, the remedy for the other is an action for damages.” Several cases are quoted there; and Akuljee v. Hurbhuj and Harnam Dass . 68 P.R 1867., relied upon by Mr. Pathak is also a case of that kind because what was found there was that though no partnership had been entered into, the transaction amounted to an agreement to enter into partnership on specified terms, which the plaintiffs were ready and willing to perform, and therefore the plaintiffs were entitled to damages for breach of contract, which in that case were found to be profits for two and a half years. But as I have said, the present' case is a different one. The plaintiff would not have obtained any pecuniary advantage if Dev Sharma had not taken the agency, but he claims compensation on the ground that the breach consists in his (Dev Sharma's) taking the agency which has resulted in profits to Dev Sharma. No case has been cited in support of a decree for damages in a case of this kind.
99. I have already held that section 18 of the Indian Limitation Act is not applicable to the facts of the present case and to a suit of this kind Article 115 of the Limitation Act would apply, which provides—
“115. For compensation Three for the breach of any contract, years, express or implied not in writing registered and not herein specially provided for.
When the contract is broken, or (where there are successive breaches) when the breach in respect of which the suit is instituted occurs, or (where the breach is continuing) when it ceases.”
100. In the present case the breach took place on the date when Dev Sharma took the new agency and even if we were to take the terminus a quo to be the date of knowledge, i.e 16th of February 1946 (it should be the date of breach), the suit will be barred by time. Time under this Article runs from the date of the breach. See The East India Company v. Oditchurn Paul . 5 M.I.A 43.. In V.M Gany v. Leong Chye . 166 I.C 48., it was held that in a suit for compensation for breach of contract, the breach of contract per se gives rise to a cause of action and time begins to run from the date of breach and not from the date of actual loss or damage. In Gopalan Nair v. District Board of Malabar . 145 I.C 476., the following passage from Halsbury's Laws of England, Volume 19, page 43, section 64 was quoted with approval:—
“In an action for a breach of contract the cause of action is the breach. Accordingly such an action must be brought within six years of the breach, after the expiration of that period the action will be barred, although damage may have accrued to the plaintiff within six years of action brought.”
101. In Rustomji's Law of Limitation, 5th Edition, Volume II, at page 988, the law is stated as follows:—
“An action for breach of contract accrues as soon as the contract is broken, though no injury results until afterwards. This view is not necessarily inconsistent with decisions laying down that ‘the cause of action is not the breach but the loss itself, and the statute therefore runs from the time when the loss is incurred by the plaintiff’”.
102. I am of the opinion therefore that the suit for compensation i.e for damages due to breach of contract, which is governed by section 73 of the Indian Contract Act and to which Article 115 of the Limitation Act applies, is barred by time.
103. I would therefore hold that—
(1) the parties did enter into an agreement containing a restrictive clause;
(2) in order to determine its validity it is that contract alone which has to be examined to determine the specification of time or space;
(3) in this case even if other documents or even oral evidence is looked into and the latter is not allowed under the provisions of the Evidence Act, there is nothing to specify or particularise the time or space;
(4) the agreement is in the circumstances unreasonable and is therefore unenforceable;
(5) neither the first part nor the second part of section 88 of the Trusts Act applies;
(6) the plaintiff is guilty of laches and this being a suit relating to partnership no injunction should be granted by the Court in its equity jurisdiction;
(7) no case has been made out for accounts being ordered;
(8) the damages have to be determined in accordance with section 73 of the Indian Contract Act and a suit such as this is barred by time because it was brought more than three years after the breach occurred.
104. I would therefore allow these appeals, set aside the decree of the trial Court and dismiss the plaintiff's suit, but in the circumstances of this case I would leave the parties to bear their own costs throughout.
105. It is not necessary in view of what I have said above to go into the other questions which arise in Regular First Appeals Nos. 14 and 15 of 1953 as to how far the appellants in these two cases are liable on the contract.
106. Khosla, J.:— My brother Kapur, J. has very kindly allowed me to see the judgment which he has prepared. I have taken some tittle time to consider the matter as I found myself unable (with what reluctance I need hardly say) to agree with the conclusion arrived at by my learned brother. My anxiety was all the greater as I realised that a difference of opinion would inevitably result in this long and somewhat elaborate case being reheard by a third Judge, but for the reason I shall presently indicate I was forced to reach a conclusion which is directly opposite to the conclusion arrived at by my learned brother.
107. These three appeals have arisen out of a suit by Laxmi Narain Gadodia against Dev Sharma, his wife Chandan Devi and his brother Shiv Nath Sharma. The plaintiff claimed four reliefs in his suit. In the first place, he prayed for a declaration that defendant No. 1, that is, Dev Sharma was the real owner of the selling agency business of the Kanpur Cotton Mills. In the second place, be asked for an injunction restraining the defendants from carrying on the said agency business. In the third place, he asked for accounts of the agency business with effect from the 1st of January 1946. His fourth relief was an alternative claim for damages amounting to Rs. 6,00,000.
108. The facts upon which these reliefs were based are briefly as follows. On the 20th of March 1937 the British India Corporation Limited appointed Messrs L.N Gadodia & Co. agents to the Kanpur Cotton Mills Branch of the Corporation. The appointment was up to the end of the calendar year but it was subsequently renewed. A few days after this on the 29th of March 1937 the plaintiff and defendant No. 1 entered into a partnership under the name of Messrs L.N Gadodia & Co. Therefore, it was this partnership firm which became the selling agents of the Kanpur Cotton Mills. Clause 3 of the partnership agreement was—
“3. That on the termination of the selling agency business neither of the parties to this agreement shall take up the said selling agency from the mills.”
109. The agency was renewed from time to time and finally was terminated on the 31st of December 1945. The circumstances in which the agency ended were these. The plaintiff had made an attempt to introduce his son to the agency business as early as 1939. Objection was however, taken to this by the British India Corporation and they wrote to the plaintiff on the 28th of January 1939 saying—
“We have to inform that we do not desire Mr. Ram Gopal to attend this office. So far as we are concerned, under the terms of your agreement, there but two principals connected with the agency, i.e Messrs L.N Gadodia and Dev Sharma as we have no wish to be encumbered with additional representative nor is it our wish that other persons not covered by the agreement should interfere in matters which are the sole concern of the agency.”
110. On receipt of this letter the plaintiff abandoned his attempt to introduce his son Ram Gopal into the business. On the 7th of November 1945 the plaintiff made a second attempt to bring his son, who was now a major, into the business. On that date he wrote to the Corporation—
“We take this opportunity of writing to you that the undersigned (L.N Gadodia, the plaintiff) is now leading almost a retired life and has tot been able to visit Kanpur since long. In his place, his son, Ram Gopal Gadodia, pays short and occasional visits to Kanpur during the year and we trust that you will kindly make it convenient that he should meet you when he is there along with Mr. Sharma.”
111. A violent objection was taken to this proposition and on the 29th of November, 1945 the Corporation wrote to the plaintiff intimating its intention to terminate the agency at the end of the year. The plaintiff was considerably upset by this move, and he wrote to his partner, Deva Sharma, to intervene in the matter. Deva Sharma, however, declined to approach the Corporation and as a last resort the plaintiff wrote to the Corporation withdrawing his previous let ter of the 7th of November. He intimated at the same time that Ram Gopal would not interfere in the agency business and that he himself was still physically and mentally fit to do all that was necessary in connection with the agency business with singular naivete he wrote—
“By ‘inability’ the undersinged did not mean that be could not look to work. We may mention in this connection that the undersigned though old enjoys such health as be never before enjoyed in life. He still takes 6 miles morning walk daily in 1¾ hours. A copy of his enclosed memorandum to Sapru Committee in this connection may perhaps interest you to read”
112. This letter was sent on the 15th of December, 1945 but the Corporation was not prepared to alter its previous decision and finally intimated on the 20th of December, 1945 that the decision to terminate the agency on the 31st of December, 1945 was irrevocable.
113. Shiv Nath Sharma defendant No. 3 who is the brother of Deva Sharma had been visiting the offices of the Kanpur Colton Mills and had been representing his brother. No objection was raised to his visiting the offices or to his transacting business on behalf of Deva Sharma. On the 22nd of January, 1946 an agreement was arrived at between the Corporation and a firm named Sharma & Co. There were 2 partners of this firm, namely S.N Sharma defendant No. 3 and Chandan Devi wife of Deva Sharma, defendant No. 2 Deva Sharma himself kept in the background and the plaintiff's allegation is that it was be who was the real proprietor of Sharma & Co. and not his wife and brother. In those days it was necessary to obtain a permit for the sale of cloth and an application for the permit was made by Sharma & Co. Permits were only issued to those persons who had been doing similar business in the previous years, and with the application, Sharma & Co. submitted a statement showing the sales effected by them in the previous years. It is clear that this statement referred to the sales done by the previous agents Messrs L.N Gadodia & Co. It is significant that this application was sent to the Provincial Textile Controller along with a private letter written by Jackson on behalf of the British India Corporation. This letter was sent on the 29th of December, 1945, that is two days before the termination of the agency in favour of Messrs L.N Gadodia & Co. This letter deserves to be quoted in full as it reveals what was really happening with regard to the matter of the agency—
“My dear Eric,
One of the two partners L.N Gadodia in fact is dropping out of our cloth and yarn agents business as from the end of the current month. The other partner will continue to assist in the same capacity as heretofore and thus preserve continuity, but the agency proper will be in favour of his brother S.N Sharma.
In support of the change I am sending herewith the required application for licenses (together with Treasury Challans covering the respective fees). Will you be good enough to substitute these applications for those previously submitted in the names of Messrs L.N Gadodia & Co. and return the latter to me with authority to claim a refund of the amounts paid in fees.”
114. It is a matter of common knowledge that the grant of licences could be expedited if an approach to the official concerned were made on a personal basis, and this is exactly what happened in this case. Jackson wrote a personal letter to the Provincial Textile Controller telling him that the agency was to be continued by one of the partners of the previous agency, although the agency would be in the name of his brother S.N Sharma.
115. The plaintiff got wind of this new agency and on the 11th of February 1946 sent a lawyer's notice to his erstwhile partner Dev Sharma reminding him of the term in the partnership deed which prohibited one of the partners from taking up the agency alone, to the exclusion of the other partner, and accusing him of having broken this term in the agreement. He asked him not to carry on the business of selling agency and to render full accounts to him. The reply of Deva Sharma to this notice was evasive in the extreme. He made no reference to the new agency. He did not deny that he had an interest in the new agency. All that was said was—
“My client is not prepared to admit that he has committed a breach of any of the terms of the deed of partnership referred to above. My client fails to understand the meaning of the allegation to the effect that it was my client who got the agency terminated by taking advantage of his position.”
116. It was after this that a deed of partnership was drawn up between defendants Nos. 2 and 3. This deed is dated the 16th of March 1946. On the 6th of January 1948 the constitution of Sharma & Co. was changed and defendants Nos. 1 and 3 became the new partners. The previous partnership between defendants Nos. 2 and 3 was dissolved rib the 31st of December 1947. The new Sharma & Co. continued the business of the agency and the Corporation does not appear to have taken any objection to the change in the constitution of the agency firm. Indeed, it is said that this was done with their tacit approval.
117. The plaintiff's case therefore is that in accordance with the terms of clause 3 of the partnership agreement between him and defendant' No. 1, the defendant No. 1 could not take up the business of the agency on his own. By doing so he came within the mischief of section 54 of the Indian Partnership Act. Further, it was he who was really the proprietor, and the sole proprietor, of Sharma & Co. from the Very beginning. His wife and his brother were nothing more than benamidars and this subterfuge was adopted in order to keep the knowledge of the reel state of affairs from the plaintiff. The defendant No. 1 obtained the agency in his character as the partner of the previous agents Messrs L.N Gadodia & Co. He also held a fiduciary position vis-a-vis the plaintiff and therefore his conduct was covered by section 88 of the Indian Trusts Act. He was therefore liable to render accounts of the agency business with effect from the beginning of 1946 and was also liable to be restrained from carrying on the business of the agency.
118. The defendants resisted the suit and it was alleged on their behalf that clause 3 of the partnership agreement being a clause in restraint of trade was not binding upon the defendants. Further, defendants Nos. 2 & 3 were the real proprietors of the first agency Sharma & Co. and not the benamidars of defendant No. 1 Subsequently on the 6th of January 1948 the constitution of the firm Sharma & Co. was altered and defendant No. 1 took the place of his wife. It was contended that the plaintiff was aware of the true state of affairs from the very beginning and had delayed filing this suit until defendant No. 1 had brought a suit against him for rendition of accounts. Therefore, the defence is that the plaintiff's suit is nothing more than a counterblast to the suit for rendition of accounts filed by defendant No. 1. It is further contended that defendant No. 1 did not act in his character as the partner of the firm Messrs L.N Gadodia & Co. nor did he occupy a fiduciary position vis-a-vis the plaintiff. He was, therefore not liable to render accounts to the plaintiff, nor did his conduct come within the purview of section 88 of the Indian Trusts Act. He denied further that the Court had jurisdiction to hear the suit and pleaded that the plaintiff's suit was barred by limitation and the plaintiff was not entitled to any damages. He denied the plaintiff's claim for injunction and lastly he claimed special costs under section 35-A of the Code of Civil Procedure.
119. On these pleadings the trial Court, framed twelve issues. The issues are given below and the findings of the learned trial Judge are set out on the margin,—
Yes.
1. Whether this Court has jurisdiction to try the suit?
Yes.
2. Whether there was any agreement as alleged in para. No. 3 of the plaint?
No.
3. Whether clause No. 3 of the agreement amounts to restraint of trade? If so, with what effect?
Yes.
4. Did defendant No. 1 commit breach of the contract?
No.
5. If so, is the plaintiff entitled to any damages and how much?
Yes.
6. Is the plaintiff's suit within time?
Yes.
7. Whether defendants 2 and 3 are benamidars or nominees of defendant No. 1? If so, with what effect?
No fraud, Plaintiff had knowledge.
8. Whether the plaintiff was kept from the knowledge of the deed of 16th March, 1946, and of defendant No. 1's ownership and interest in the business of Messrs Sharma & Co. by fraud on the part of defendant No. 1? If so, with what effect?
Yes.
8-A. Are the defendants accounting parties and are liable to render accounts as alleged in para 10 of the plaint?
Yes.
9. Is the plaintiff entitled to the injunction prayed for against the defendants?
Yes, it does.
10. Whether the plaint does not disclose any cause of action so far as the grant of permanent injection is concerned?
No.
10A. Whether the defendants are entitled to special costs under section 35-A, Civil Procedure Code?
120. On the findings arrived at the learned trial Judge granted the reliefs claimed with regard to declaration, injunction and the taking of accounts. The alternative relief of Rs. 6,00,000 on account of damages was refused. A local commissioner was appointed to go into the accounts and certain directions were given to him regarding the manner in which accounts were to be taken. The decree for accounts was only against defendant No. 1. The injunction was, however, granted against all defendants restraining them from carrying on the agency business of the Kanpur Cotton Mills. The three defendants have filed three separate appeals to this Court.
121. In appeal the learned Attorney-General raised the following points—
1. In the first place, it was argued that the term of clause 3 in the partnership agreement were not enforceable under the provisions of section 54 of the Indian Partnership Act been use (a) the agreement was not arrived at upon or in anticipation of the dissolution of partnership, (b) the business subsequently carried on by the defendants was the same business and not similar business, (c) the restrictions were not specified either with regard to time or with regard to local limits, and (d) the restriction was not reasonable because (i) the restriction was one for all time, and (ii) for unlimited territory.
2. In the second place, it was argued that no injunction should be granted to the plaintiff because (a) the plaintiff had been guilty of laches and (b) it was the plaintiff's own conduct which had resulted in the termination of the agency.
3. In the third place, it was argued that no decree for accounts should be granted because there was no implied trust under the provisions of section 88 of the Indian Trusts Act, for (i) there was no fiduciary relationship between the plaintiff and defendant No. 1(ii) what the defendant No. 1 had done was not adverse to the interests of the plaintiff, and (iii) the defendant No. 1 had not gained any advantage by availing himself of his character as partner.
4. In the fourth place, it was urged that the decision of the trial Court refusing the relief of damages was correct and should be upheld because (i) damages are a measure of the loss caused to the plaintiff and no loss has been proved in this case, and (ii) the plaintiff's suit is barred by time as his case was not covered by section 18 of the Indian Limitation Act.
122. Before dealing with the arguments of the learned Attorney-Genera it is necessary to clear the atmosphere by setting out what are the trued facts as revealed by the evidence produced in the case.
123. The plaintiff in his plaint raised a plea of collusion between defendant No. 1 and the Corporation. His contention was that the agency was terminated as the result of this collusion. This plea was later given up and need not be considered here although there are indications in the evidence that the British India Corporation and defendant No. 1 were agreed upon ousting the plaintiff from the agency business. The conduct of the representatives of the Corporation and the manner in which the defendant Dev Sharma behaved towards the plaintiff, however, go to show that the plaintiff was kept completely in the dark as to what was happening. The corporation when appointing Messrs L.N Gadodia & Co. their agents had made it quite clear (clause 17) that the proprietor of the agency firm or its representative Dev Sharma could act on behalf of the agency firm. The Corporation had reserved to itself the right to terminate summarily the agency. Objection was taken to the plaintiff's attempt to introduce his son to the business on the ground that no out rider could middle with the affairs of the agency but no objection was taken to S.N Sharma going to the offices of the Kanpur Cotton Mills and transacting business on behalf of his brother Dev Sharma. This is quite clear from the statement made by S.N Sharma who stated that he used to go and meet the representatives of the Kanpur Cotton Mills and the never objected to his representing Messrs L.N Gadodia & Co. When is 1945 the plaintiff made a second attempt to introduce his son, the objection took a more categorical form and the Corporation at once gave notice of the termination of the agency. The notice was not withdrawn despite the fact that the plaintiff recanted his previous letter and assured the Corporation that he was quite active enough to deal with the business himself. In any case, it was well known that the plaintiff was only the finance of the agency business and that it was Dev Sharma who was really the working partner. The truth of the matter seems to be the Dev Sharma was jealous of the plaintiff's attempt to introduce his young son in the business. He feared that his son might learn the sale business and so in time, oust him (the defendant). This is an inference which ma legitimately be drawn from the circumstances of the case. The defendant refused to intervene on the plaintiff's behalf although the plaintiff asked him to do so, telling him that Ram Gopal would not interfere with the business in any way. The defendant had, by then, a large amount of money to his credit in the agency business, and he must certainly have felt that he could continue on his own. He knew that he was a good salesman and was recognised as such. He represented to the Corporation that he was willing to go on with the business and that the beet thing would be to push the plaintiff out. Even before the agency business was finished and before the new partnership Sharma & Co. was formed an application for a licence was made and this application was forwarded by Jackson with a private letter which I have quoted above. Jackson represented that the new business was merely a continuation of the old one and that in the old firm one partner had dropped out while the other was going to carry on under a new name. Jackson came into the witness-box and was cross-examined at great length on this point. He was singularly disingenuous about the matter and was forced to prevaricate on more than one occasion. He denied that Dev Sharma had any interest beyond that of an employee in Sharma & Co. He was confronted with the letter written by him and asked to explain the significance of the words in the same capacity.” His reply was—
“Well, this is incorrect whereas when he was with Gadodia & Co. Sharma was the working partner but was not to be a partner in Sharma & Co. He was to assist in the agency as a worker as distinct from a partner.”
124. The following questions and answers then followed—
“Question:—Why this incorrect statement was made in this letter?
Answer:—Anyone is liable to make mistake.
Question:—Please explain the significance of the words ‘preserve continuity’ used in Exhibit C.P 9?
Answer:—Naturally if Dev Sharma continued to work in the new agency, he would by virtue of his experience, be of considerable assistance to the Kanpur Cotton Mills Co.
Question:—Does not the word ‘dropping out’ in the context signify that the other partner was to continue in the same capacity?
Answer:—No, the agency was granted to Messrs L.N Gadodia & Co. on the understanding that Dev Sharma would be a partner in the agency and the fact that one of the partners was to drop out meant that the agency in the name of L.N Gadodia & Co came to an end.
Question:—Does this not mean that the other partner will continue in the same capacity?
Answer:—No, not in my opinion, but the whole matter was decided by the Directors of the British India Corporation * * *.
Question:—Is it a fact that at the time when you wrote the letter C.P 9 Licence could be granted only to a person who had done similar business from 1940 to 1944?
Answer:—There was some qualification of that kind.
Question:—Did Sharma & Co. do any business prior to 1945?
Answer:—To the best of my knowledge they were engaged in several activities which included oil, cloth and yarn.
Question:—While forwarding Exhibit C.P 10 along with your letter Exhibit C.P 9 did you enquire from S.N Sharma as to on whose behalf he had sold bales of cloth mentioned in Column 8 of the application C.P 8?
Answer:—I did not enquire into the domestic details of everything concerning the company (Sharma & Co.).
Question:—Can you say if the figures given in column 8 are correct or not?
Answer:—I did not verify the figures.”
125. When further examined in regard to the change in the constitution of Sharma & Co. he made the following somewhat significant statements—
“I do not know if at any time after the execution of this agreement business of Sharma & Co. or its assets were acquired by Dev Sharma. I do not know what was the change affected in Sharma & Co. * * *. To my knowledge no request was made to me for changing the agreement of the agency consequent on any change being made in the constitution of Sharma & Co. It was purely a domestic matter as far as the mill was concerned.”
126. This last statement is somewhat astounding, in view of the attitude taken up by the Corporation and the Mills towards the plaintiff's attempt to introduce his son into the business. During the whole of the time when the plaintiff was one of the partners in the agency business the Corporation was most anxious to know what was the real constitution of the agency firm. It was not a domestic matter at that time. Even the attempt of the plaintiff to send his son to interview the representatives of the Mills was considered an outrage, but as soon as the plaintiff was ousted from the agency business the Corporation ceased to concern itself with the constitution of the agency firm. Then it was a matter of no importance to them whether Dev Sharma had or had not any interest in the firm, whether he was a partner or not, and what other persons were partners with him. It seems to me quite clear that defendant No. 1 did not want the plaintiff to know what the true state of affairs was and the Corporation was quite willing to help the defendant by a conspiracy of silence.
127. The defendant's brother and wife had no funds of their own when the new agency business started and the entire money was advanced by Dev Sharma. When cross-examined he stated:—
“Sharma & Co. as originally constituted opened an overdraft account and not cash credit account with Chartered Bank of India, Kanpur. Subsequently, I gave guarantee for this overdraft account to the Bank. I got the hundi Exhibit C.P 5 for Rs. 2,10,000 from my brother S.N Sharma on 4th January, 1940. I endorsed this hundi in favour of the Chartered Bank as required by them.”
128. He had withdrawn a sum of Rs. 2,10,000 from the funds lying to the credit of Messrs L.N Gadodia & Co. and it was with this money that he covered the hundi drawn by his brother. There can, therefore, be no doubt that the entire funds for the agency business were furnished by Dev Sharma. It was he who was the moving force in obtaining the agency after the termination of the previous agency. The Corporation dealt with him, and him alone, and when applying for a licence they represented that he was the man who was going to carry on the new agency business. When the plaintiff sent him a lawyer's notice on the 11th of February 1946 the defendant felt that he could not openly take the new agency in his own name and so he adopted the subterfuge of putting forward his wife and brother and the agency was taken in their name. The matter was kept a secret from the plaintiff and in the reply which he sent to his notice no reference was made to the new agency, and the defendant merely contended himself by denying that he had committed any breach of the contrast. After the expiry of two years be openly became a partner in the agency firm and replaced his wife.
129. From this it is quite clear that it was Deva Sharma and Deva Sharma alone who took the new agency business and that his wife and brother were nothing more than his benamidars. It is also quite clear that the matter was kept from the knowledge of the plaintiff who had no means of knowing that the defendant had, by taking up the new agency, contravened the terms of clause 3 of the original partnership deed. From rumours which he must have heard he became suspicious and sent a lawyer's notice to him but the reply mode him feel that, he had no cause of action. It was not till 1950 that Babu Ram a dismissed employee of the defendant, went to him and told him what the real state of affairs was, and immediately after this the plaintiff instituted the present suit on the 21st of February, 1950. The defendant's protestations with regard to this matter are wholly false. He said that he never asked for the agency to be given to him and it was never offered to him. He said:—
“I was yet thinking of asking for the agency when my brother and wife told me that they had secured the same, so I kept quiet.”
130. This statement can only be characterised as a deliberate lie, for it is impossible to believe that Deva Sharma did not wish to continue the agency and was merely thinking about the matter when his brother and his wife went behind his back and secured the agency. The statement is belied by Jackson's letter, and the evasive statements made by Jackson in the witness-box only go to intensify the deceitful and mendacious conduct of Deva Sharma.
131. From what has been said above the following facts emerge quite clearly—
1. Deva Sharma was the real proprietor of the original firm Sharma and Co. and his brother and wife were only benamidars:
(2) The knowledge of this fact was deliberately concealed from the plaintiff and the plaintiff only came to know of it in the beginning of 1950;
(3) The agency business was acquired by defendant No. 1 because as partner of Messrs L.N Gadorlia & Co. he had proved a successful agent. He gave himself this character when renewing the agency and he was represented in this same character when a licence was applied for in the name of Sharma & Co.
132. I shall now consider the points raised by the learned Attorney-General seriatim.
133. The first point concerns the validity of clause 3 in the partnership agreement. There can be no doubt that this clause is in restraint of trade, but the question is whether, despite this, it is enforceable by virtue of section 51 of the Indian Partnership Act. The learned Attorney-General raised four obections to the clause. The first two objections may be disposed of in a few words. He contended that the agreement was not entered into upon or in anticipation of dissolution. It is, however, clear that when a partnership is formed and a clause of this nature is included in the partnership deed it is in anticipation of the dissolution of partnership. The second objection was that the business carried on by the defendants was the same business, namely the selling agency of the Kanpur Cotton Mills and not similar business as stated in section 54. But ‘similar’ clearly includes ‘same’. To argue otherwise would be to defeat the very purpose for which section 54 was enacted.
134. The remaining two grounds need a little closer examination. It is contended by the learned Attorney-General that the restriction was not specified in clause 3 and, therefore, the clause cannot be enforced. Section 54 is in the following terms—
“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.” There can be no doubt that the restrictions must be specified; otherwise it is impossible to know what the agreement meant and therefore to enforce it. In this case, however, there is no doubt that the restrictions were clearly specified. Clause 3 ran as follows:—
“3. That on the termination of the selling agency business neither of the parties to this agreement shall take up the said selling agency from the mills.”
135. From this it is quite clear that the restriction imposed was with regard to all time and with regard to those territories in which the agency business was to be conducted. The word ‘said’ in my view specifies quite clearly the territorial limits and there were no limits with regard to time. Therefore, according to this clause the restriction imposed was with regard to the area in which the agency business was to be conducted and with regard to all time. The learned Attorney-General argued that the clause alone must be locked at and nothing else and that the clause must clearly set out the restriction referred to. He drew our attention to an observation in Rex v. Winchester Area Assessment Committee, page 460. This case did not not relate to a restriction of the type we are considering but the word ‘specified’ was considered. The observation is as follows:—
“but the grounds for proposing a change must be ‘specified’, and that means clearly stated and stated with some definiteness or particularity.”
136. Premji Damodar v. Firm L.V Govindji and Co., is a case in which it was held that where the restrictive clauses appear in the formal document of the dissolution of partnership and no local limits are at all specified, it is not permissible to enter upon a consideration of what the parties were likely to have contemplated.
137. It is, however, unnecessary to cite further authorities as it is clear that before a contract can be enforced the Court must know what the contract is and know it quite clearly and unequivocally. Clause 3 is nothing more than a contract and if its terms are vague and indefinite and if the restrictions which are sought to be enforced are not specified the clause cannot be enforced. The wording, however, makes it quite clear what the intention of the parties was. The restriction is clearly specified and the restriction is simply this. The agency business will not be taken up by one of the partners after the dissolution of the partnership. That means that one of the partners will not for all time to come carry on the agency business throughout the territories where the previous partnership was doing it. There can be no mistake about this matter, and a reading of clause 3 together with the letter appointing Messrs L.N Gadodia & Co. the agents of the Corporation leaves no doubt as to the nature of the restriction. Therefore, the argument that clause 3 is bad and unenforceable because of lack of specification has no force.
138. The last objection to the clause was that the restriction was not reasonable because it was (a) for all time and (b) for all territories. Now, the question whether a certain restriction in restraint of trade is or is not reasonable depends upon a number of factors. It depends upon the nature of the business, the relationship of the parties, the effect of the restrictive clause on the interests of the partners, in a other words, its protective value, its effect on the public, namely whether it is injurious to public interest or not, and finally upon whether it is oppressive. Counsel for both parties cited before us a large number of cases in which the reasonableness of restrictive clauses of this nature was considered. The principles laid down in these rulings are clear and unexceptionable, but the difficulty arises when these principles have to be applied to any particular case. It is for this reason alone that an examination of the reported cases is helpful in coming to a decision, and the facts of the cases are more important than the abstract principles enunciated, for there is no dispute whatsoever about these principles which may be stated as follows. The restrictive clause must be intended for the protection of the partners. Its scope should not be beyond the limits absolutely necessary for the protection of those partners. The restriction should not be injurious to the public, nor should it be oppressive to any one of the partners. It should relate to the business itself and not be a restriction or covenant in gross, and if these conditions obtain the restriction will be considered to be a reasonable one and courts of law will enforce it.
139. The case Townsand v. Jarman is a very instructive case. The facts of this case were briefly as follows. The defendant dealt in seed, corn and manure under the style of “E.J Jarman.” On the 30th of June, 1888 the plaintiff was taken into partnership for a period of twenty-one years and it was agreed that if the plaintiff left the firm he would not for a period of twenty-one years carry on this business within a distance of forty miles. In 1895 the defendant and the plaintiff formed a company and the original business was acquired by this company. Four years latter in 1899 the company was wound up and the plaintiff alone bought it. The defendant started another business. The plaintiff sued for injunction against the defendant and the defendant in a cross claim claimed an injunction against the plaintiff. The real question in that case was did the benefit of the covenant pass on to the company? and Farewell, J. observed that the covenant must be incident to a business and not a covenant in gross, by which he meant a covenant prohibiting a person from carrying on any kind of trade and not the trade in relation to which the covenant was arrived at. The plaintiff was granted an injunction but the defendant's cross claim was rejected. In the course of his judgment. Farewell, J. observed:
“But a covenant of that nature when originally entered into must necessarily be incident to a business. In other words, there cannot be a covenant in gross in restraint of trade; for such a covenant would be unreasonable, and therefore void”.
140. What he meant was that the defendant could not prohibit the plaintiff from carrying on any business. The plaintiff had acquired that very business and therefore, the covenant must have relation to that business. The defendant, therefore, really claimed to enforce the covenant in gross, whereas the plaintiff's claim was to enforce a covenant incident to the business Farewell, J. went on to give certain examples and observed—
“Whatever restraint is larger than the necessary protection of the party, can be of no benefit to either, it can only be oppressive, and if oppressive, it is, in the eye of the law, unreasonable. Whatever is injurious to the interest of the public is void, on the grounds of public policy. Now, if one man, apart from any business, takes a covenant in gross from another man that he will not trade at all, that is simply oppressive. He does not require it to protect his own interest, because he has no interest to protect. It is therefore only as incident to the business that the covenant can in its origin have legal validity, although, as was held in Elves v. Crofts it may very well Continue to have validity after the original business has ceased, because ex-post facto occurrences do not necessarily invalidate a covenant good in its inception. The defendant, therefore, cannot successfully assert that this was a covenant in gross not incident to the business.” In that case the defendant had started a separate business of a similar kind and the plaintiff was held entitled to enforce the covenant on the ground that it was necessary for his protection.
141. In Horner v. Graves an agreement that defendant who was a moderately skillful dentist, would abstain from practising over a district 200 miles in diameter, in consideration of receiving instructions and a salary from the plaintiff, determinable at three months' notice was held unreasonable on the ground that it was injurious to the public.
142. McEllistrim v. Ballymacelligott Co-operative Agricultural and Diary Society, Limited was another case in which the covenant was held unreasonable because the restraint imposed upon the members of a Co-operative society with regard to the sale of milk was greater than was reasonably required for the protection of the society.
143. Vancouver Malt and Sake Brewing Company, Limited v. Vancouver Breweries, Limited was also a case in which the agreement was held unenforceable because it was a bare covenant against competition and the restriction was unlimited in area. In this case the plaintiff sought to enforce a clause whereby the defendants would be unable to manufacture beer over an unlimited area. The defendants in that case carried on a brewing business and only brewed beer. There were no other breweries operating in the city of Vancouver although there were a few others elsewhere in the Province. The plaintiffs were brewers of sake, a Japanese liquor made from rice. It is clear that in that case the restriction was unreasonable because it was not intended for the protection of the parties. It did not relate to any business but really was a restriction or covenant in gross. Had the restrictive clause prohibited the defendant from manufacturing sake, or selling something resembling sake, the decision of the case might well have been otherwise.
144. It will be seen that all the above-cited cases are clearly distinguishable from the case under our consideration. The following four cases are much more in point. In all these cases the restrictive clause was held reasonble and enforceable. Connors Bros. Ltd. v. Connors arose out of a case to enforce a restriction barring the defendant from engaging in the selling business of a certain commodity in Canada as owner by himself or in partnership with others. It was held that the covenant was enforceable. In Whitehill v. Bradford four doctors entered into a partnership. In the terms of the partnership agreement the retiring partner was prohibited for a period of twenty-one years from practising within ten miles of a certain parish church. It was held that the covenant was enforceable. Elves v. Crofts was a case in which a butcher on selling his business covenanted with the purchaser that he would not do the business of a butcher within five miles of the premises assigned to the purchaser. There was no limit with regard to time and the territorial limit was a circle with a radius of five miles from the original premises. It was held that the covenant was binding. Thorsten Nordenfelt v. The Maxim Nordenfelt Guns and Ammunition Company, Limited was a case in which a patentee and manufacturer of guns and ammunition for purposes of war, covenanted with a company to which his patents and business had been transferred that he would not for twenty-five years engage except on behalf of the company either directly or indirectly in the business of a manufacturer of guns or ammunition. The covenant was held to be valid, although extended to an unlimited area.
145. In the present case the covenant related to and was incidental to the business of the agency. The agency was a definite business whereby the goods manufactured by one particular firm were to be sold in certain specified territories. The partners agreed that neither of them would take up this agency on his own for an unlimited period. It was clear that this clause was intended to protect the interests of the two partners. It was not a covenant in gross because it was incident to the business of the agency. It was in no way oppressive because neither partner was debarred from pursuing a thousand other trades including the business of taking the agency of another firm. It was the agency of one firm only from which he was debarred. Nor was the covenant prejudicial to the public interest in any way because the firm could have taken any other agents. It is in evidence that the corporation was producing goods which were easily saleable and there was no dearth of agents for the sale of their goods. The plaintiff was financing the agency and defendant No. 1 was the active partner. In order to protect their interests the partners agreed that neither of them would separately take the agency. It seems to me that this was no more than was necessary for the protection of the partners. There was no limit with regard to time, but it has been held in a number of cases that a covenant of this type for an unlimited period of time can be enforced. The important point to notice in this case is that the business itself was so restrictive, namely being confined to the agency of one particular firm that the somewhat wide restriction with regard to time and space would not prove oppressive to any one or injurious to the public. I must, therefore, hold that the restriction was reasonable and as such enforceable.
146. The next point raised by the learned Attorney General was that this was not a fit case for granting the relief of injunction because—
(a) the plaintiff had been guilty of laches in as much as he had taken no steps to enforce his rights for a period of nearly four years; and
(b) the termination of the agency resulted from the plaintiff's own conduct and a party could not be allowed to take advantage of his own wrongful act.
147. With regard to the question of laches I have already, while discussing the facts of the case, observed that the plaintiff did not come to know of Deva Sharma's interest in Sharma & Co. until he learnt of it in 1950 from a dismissed employee of the defendants. Beni Parshad, the attorney of the plaintiff (P.W 5), has stated quite clearly that it was on the 29th of January 1950 when Babu Ram told him that he had some information to give about the company, Sharma & Co. Beni Parshad took Babu Ram to Delhi and it was then that the plaintiff came to know what the real state of affairs was. Beni Parshad stated in cross-examination,—
“After the termination of the agency I had been visiting Kanpur twice or more every year. I went to Kanpur immediately after the termination of the agency. At that time I had my doubts that the termination of the agency was due to the defendant No. 1. I made no enquiries on that occasion to find out who were the partners of Sharma & Co. I did not go to see who was working the company. Before I visited Kanpur the second time reply of the notice sent by the plaintiff had been received from Mr. Hoon and so I did not feel the necessity of making any enquiries. In fact I felt assured by the letter that the defendant No. 1 had no hand in the termination of the agency.”
148. There is no reason for disbelieving this statement and considering the secretive and mendacious conduct of Dey Sharma it is not difficult to conclude that the plaintiff remained entirely in the dark. The evidence in this case revealed the plaintiff to be a somewhat simple person who had a great deal of money to invest and who while reposing confidence in Dev Sharma entered into a very lucrative partnership with him Dev Sharma having established his own position took the first opportunity to break away from a partner who was taking the major share of the profits. The plaintiff being the finance was entitled to a twelve-anna share out of the profits while defendant No. 1 was entitled to only a four-anna share. Dev Sharma wanted to make all the profit that he could and after the termination of the original agency he became virtually the sole proprietor, although in his partnership with his brother Shiv Nath Sharma he had a ten-anna share while his brother had a six-anna share. It will be observed that the defendant never admitted that he was a partner in the original firm Sharma & Co. nor did he deny this circumstance. In his written statement he was careful to use a somewhat evasive and involved phraseology. In paragraph 8 of the plaint the plaintiff had clearly averred that defendant No. 1 was the real owner of Messrs Sharma & Co. The defendant's reply to thin was—
“The plaintiff according to his own showing knew at the latest by the 11th February, 1946, the exact state of affairs and the plaintiff's allegation that he was informed for the first time in or about January 1950 is incorrect.”
149. Dev Sharma could not admit that he was the sole proprietor of the original Sharma & Co., for that would make him clearly liable under section 54 of the Indian Partnership Act and also under section 88 of the Trusts Act. Also it would mean that he had deliberately misled the plaintiff in his reply to the notice. On the other hand, he could not admit that the plaintiff was kept in the dark until he came to know of the real state of affairs in January 1950, for on that admission the plea of limitation could not be raised. The defendant was not obsessed with any scruples in the matter but he tried to take up as many defences as he could and in trying to repel the plaintiff's suit on all possible sides he laid himself open to the attack of prevarication and deliberate suppression of facts. It is, therefore, clear that the plaintiff was in no way guilty of laches. He brought; the suit as soon as he cause to know that it was the defendant No. 1 who had the main interest in Sharma & Co. and therefore the terms of clause 3 of the partnership agreement had been contravened.
150. I have already discussed the circumstances in which the original agency was terminated and I have observed that the termination was not due to any default of the plaintiff.
151. It only remains to consider whether an injunction should or should not be granted to the plaintiff merely because so much time has elapsed since the agency was renewed in favour of the defendant. It most be understood that this is not a case in which a mandatory injunction is prayed for. This is a case of negative covenant. Courts of law have made a distinction between enforcing a positive contract and a negative covenant, and in all cases where a negative covenant has been proved Courts have not hesitated in granting the relief of injunction once the plaintiff's rights have been established. To do otherwise would be a gross denial of justice. In Richard Wheeler Doherty v. James Clagston Allman and W.S Dowden Lord Cairns, L.C observed—
“My Lords, if there had been a negative covenant, I apprehend, according to well settled practise, a Court of Equity would have had no discretion to exercise. If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury—it is the specific performance, by the Court, of that negative bargain which the parties have made, with their eyes open, between themselves.”
152. These remarks deserve the greatest respect and although the case in which these observations were made dealt with a mandatory injunction there can be no doubt that the observations of Lord Cairns, L.C, lay down the correct law.
153. Hogg v. Scott was a case of a negative covenant relating to the piracy of copyright in a book. The question of laches was considered in this case and Sir Charles Hall, V.C while delivering judgment observed—
“I have first of all to consider whether not taking any proceeding with reference to the old matter in any given time would deprive the plaintiff, on the ground of acquiescence of the right to come to this Court. The omission to take any proceeding at law or in equity for a time does not in itself appear to me an encouragement to the defendant amounting to an equitable bar in this Court.”
154. The Vice-Chancellor referred to an observation of Lord St. Leonards in Gerrard v. O'Reilly . 3 D. & War. 414, 433.—
“It must not be understood that this Court will on light grounds act against the legal rights of parties in cases like the present. There must be fraud or such acquiescence as in the view of this Court would make it a fraud afterwards to insist upon the legal right”
155. It was held in Hogg v. Scott that where laches amounts to fraud then only will the plaintiff be deprived of his right to enforce a negative covenant.
156. Even in the case of a positive covenant it has been held that mere lapse of time does not deprive the plaintiff of his right to specific performance. A Division Bench of the Lahore High Court in Allah Ditta v. Jamna Das considered the matter of enforcing an agreement for pale. The learned Judges observed—
“In no case does mere lapse of time deprive the plaintiff of his right to specific performance, unless it be held that there has been abandonment, acquiescence or waiver, or at least, an alteration in the position of the defendant in that the other party has been put in a situation in which it would not be reasonable to place him, if the remedy were afterwards to be asserted.”
157. Fullwood v. Fullwood was another case of a negative covenant and it was held that when an injunction is sought in aid of a legal right, the Court is bound to grant it if the legal right is established, and mere lapse of time will not be a bar to the granting of the injunction, unless it would be a bar to the legal right. This was a case rather similar to the case under our consideration in as much as the plaintiff prayed for an injunction restraining the defendant from doing business under the same or similar name.
158. McEacharn v. Colton was also a case in which a negative covenant relating to a lease was granted. The question of laches did not arise in this case.
159. The learned Attorney-General relied on a Privy Council decision in Ma Shwe Mya v. Maung Mo Hnaung. In this case the plaintiff sued for the specific performance of a contract but it was held that the claim was barred by time and therefore the question of whether the relief of injunction merely on the ground of laches even if the claim was within limitation should or should not be granted did not arise. Yusaf Alim Hakimji v. Muhammad Din & Sons was a case relating to a mandatory injunction and as I have already observed above a Court may well refuse a mandatory injunction on the ground of laches. Kissondas Premchand v. Jivatlal Pratapshi & Co. was another case of mandatory injunction. The facts of that case were very unusual and it was held that laches disentitlad the plaintiff from establishing his claim.
160. Another case which the learned Attorney-General relied on was Rely-a-Bell Burglar and Fire Alarm Company, Ltd. v. Eisler. In this a Court refused to enforce a negative covenant by granting an injunction against the defendant not on the ground of laches but on the ground that the plaintiff's remedy lay in damages. It will depend on each particular case whether damages is the more appropriate remedy. In the present case it seems to me that the plaintiff is entitled to the injunction prayed for.
161. From the discussion of the case law given above it will appear that this being a case of prayer to enforce a negative covenant and the plaintiff not being guilty of any laches or misconduct the relief of injunction was rightly granted by the learned trial Judge.
162. The next point raised by the learned Attorney General was that the plaintiff was not entitled to a decree for account because the case was not covered by the provisions of section 88 or section 95 of the Indian Trusts Act. He contended that—
(1) the relationship of the defendant No. 1 to the plaintiff was not fiduciary one;
(2) the defendant had not acquired an interest adverse to the plaintiff; and
(3) the agency Sharma & Co. had not been obtained by the defendant in his character of a partner of the firm Messrs L.N Gadodia & Co.
163. section 88 of the Trusts Act is in the following terms:—
“88. Whore a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.”
164. I have underlined the words and phrases which were made the basis of his arguments by the learned Attorney-General.
165. It is clear that two partners of a firm stand to each other in a fiduciary relationship. This statement needs no argument to support it. To assert otherwise would be striking at the very basis of the whole conception of partnership and, therefore, the argument that the defendant No. 1 did not stand in a fiduciary relationship to the plaintiff has only to be examined to be rejected. There is no need to elaborate this matter further and the assertion that partners stand to each other in a fiduciary relationship may be taken as almost axiomatic.
166. The main question is whether the defendant No. 1 gained any pecuniary advantage in his character as a partner. I have considered this matter at some length while discussing the facts of the case. The circumstances in which the original agency was terminated, the manner in which defendant No. 1 substituted himself as the holder of the selling agency, the wording of Jackson's letter to the Provincial Textile Controller, and statements submitted by S.N Sharma along with his application leave no doubt whatsoever that the subsequent agency was obtained not because S.N Sharma was acting independently but because Deva Sharma was acting in his character as a partner of the firm Messrs L.N Gadodia & Co. To act in a certain character does not mean that you must go and say. “The old firm still exists and I as the partner of this firm am applying for the agency and for a licence to sell cloth and yarn. “The fact that Deva Sharma made use of his position and character as a partner of the older firm in acquiring the new agency is sufficient to bring him within the mischief of section 88 of the Trusts Act. Deva Sharma independently of the partner of the original agency could not by any means have obtained a renewal of the agency, nor could he have obtained a permit for the sale of cloth because such permits were granted only to persons who had been selling cloth in the years 1940 to 1944. This was made clear by Jackson's statement in cross-examination. In deed, it seems to me that if the plaintiff had known what was happening and had brought the true facts to the knowledge of the Textile Controller the agency would never have been renewed and, therefore, it is clear that Deva Sharma acquired the new agency in the name of his brother and wife in his capacity or character as the partner of the old firm.
167. It is also clear that the advantage which he gained was adverse to the plaintiff because the plaintiff lost the agency and was, therefore, deprived of the profits which this very lucrative business had been bringing him for many years, and would have continued to bring him in the years to come. Therefore, it seems to me that the plaintiff's case is covered both under the first part of section 88 and under the second part of section 88. The first part applies because defendant No. 1 was a partner of the firm and as such stood in a fiduciary relationship to the plaintiff and he acquired the advantage in his character as such partner. The second part applies because Deva Sharma standing in a fiduciary relationship entered into dealings which were adverse to the interest of the plaintiff and he is therefore answerable to him for the profits which be made.
168. The learned Attorney-General relied on M. Manaiappa Pillai v. I. Anthonisami Mudaliar . A.I.R 1950 Mad. 289.. The facts of this case were that a partnership between the plaintiff and the defendant in textiles was dissolved. By the deed of dissolution it was provided that in respect of future licences which should be obtained the plaintiff would be entitled to one-fourth of the quota and the defendant to three-fourths. The plaintiff applied to the Export Trade Controller for his quota, but on objection raised by the defendant the quota was refused. The defendant however obtained the quota in full. The plaintiff then sued the defendant for a declaration that he was entitled to one-fourth of the quota and for damages. He based his claim on the provisions of section 88 of the Trusts Act. It was held that no implied trust had been set up because the partnership had ended and there could no longer be any fiduciary relationship between the parties. That case is clearly distinguishable from the present case. The defendant in that case applied for the quota independently, after the dissolution of the partnership. The plaintiff knew of the true state of affairs and he himself had also applied for some part of the quota independently. Therefore, there could be no question of an implied trust. The relationship between the parties was contractual and not fiduciary and the Madras High Court held that the plaintiff could have sued for damages arising out of the breach of the contract. There is no similarity between that case and the case under our consideration.
169. A case which is nearly on all fours with the present, case is Chennuru Sitharamamurthi Chatty v. Chennuru Guruswami Chetti . A.I.R 1949 Mad. 860.. It is significant that Rajamannar, C.J, who wrote the judgment in M. Manaiappa Pillai v. L. Anthonisami Mudaliar also wrote the judgment in the second case Chennuru Sitharamamurthi Chelty v. Chennuru Guruswami Chetti. In this case five partners held a lease from Government for the manufacture of salt for seventeen years. Before the expiry of the lease one of the lessees and the representatives of the second lessee (who had now died) applied for the renewal of the lease. In their petition they mentioned the fact that they already held a lease and had worked to the entire satisfaction of the Salt Department. They were successful in obtaining a renewal of the lease for a further period of twenty-five years. The previous lease was to expire on the 31st of December 1942 and on the 18th of December the new lessees sent a notice to the remaining lessees that the period of the partnership would terminate on the 31st of December 1942, that is, on the date the original lease for seventeen years ended. In this notice a demand was made to agree to settle profits and losses for a portion of the previous period after verifying the accounts. It was acknowledged that a quantity of salt remained undisposed of, which would be sold subsequently and the net proceeds divided but there was no reference whatever to the renewal of the lease which had been sanctioned by the Collector on the 11th of November 1942. The plaintiffs as soon as they came to know of the new lease filed a suit and they claimed, as the plaintiff has claimed in the present case, a declaration that the suit partnership was continuing. They prayed for injunction restraining the defendants from carrying on the salt business independently and also asked for accounts. The Madras High Court held that this was clearly a case falling under section 88 of the Trusts Act, in as much as the two sets of defendants who had got the lease renewed in their own favour stood in a fiduciary relationship to the plaintiffs and had acquired the new lease in that character. A decree for accounts was passed. No injunction was granted because the plaintiffs themselves abandoned the relief for injunction.
170. There is a very close similarity between that case and the case under consideration. There the original lease was to expire on the 31st of December 1942. Notice ending the partnership was given to the plaintiffs on the 18th of December 1942. In the meantime steps were taken to renew the lease and the lease was in fact renewed in favour of the defendants. This matter was kept a secret from the plaintiff. This is exactly what has happened in the present case. The original agency was to expire on the 31st of December 1945. The partnership agreement was to terminate with the agency and, therefore, this, too, was to expire on the 31st of December 1945. Notice was given to the plaintiff of the expiry of the agency on the 20th of December 1945. Efforts were being made by Dev Sharma to renew the agency and the agency was in fact renewed before the expiry of the old agency because Jackson had sent S.N Sharma's application for a permit to the Provincial Textile Controller indicating that the agency was to be continued under the another name. The plaintiff was kept in the dark about the whole matter. There could be no clearer case falling under section 88 of the Indian Trusts Act. In the Madras case too an argument was raised that the plaintiff's application for renewal of lease would not have been granted just as the learned Attorney General argued that Messrs L.N Gadodia & Company's agency was not being renewed by the British India Corporation. Rajamannar, C.J, while dealing with this argument observed that this would, make no difference to the case.
171. The learned Attorney-General also cited Siddayarapu Ratnalinga Reddy v. Rachaputi Ramalingam Setty, but the case is clearly distinguish able from the case before us. In that case a partnership had obtained a lease for mica mining for a definite period and there was no provision for the renewal of the lease. It was intended by the parties that the partnership should last as long as the duration of the lease which was for a definite period. Therefore when one of the partners renewed the lease the other could not claim any profit out of the lease, especially when no part of the consideration for the fresh lease arose out of the old lease.
172. A Division Bench of the Madras High Court in Siddick Sumtrr Sait v. Mahomed Hussain Sait criticised the aptness of Illustration (f) of section 88 of the Trusts Act and Seshagiri Aiyar, J., observed that the illustration went further than the operative portion of the section itself. With great respect to the learned Judge I do not think it is the function of Courts to say that an illustration goes beyond the operative part of the section. The function of Courts is to interpret law and not to criticise it. The object of an illustration is to give a concrete instance of the abstract proposition and the Legislature by giving an illustration clearly intends that a case covered by the illustration should fall within the operative clause and, therefore, to say that illustration (f) goes beyond the operative clause is to trespass on the functions of the Legislature rather than keep within the bounds of interpretation.
173. The learned Attorney-General also relied on Biss v. Biss, but this case is clearly distinguishable from the one before us. The case Bennet v. The Gaslight and Coke Company of London is more in point. There one won becoming insolvent assigned all his estate to four of his creditors as trustees. B, one of the trustees, applied on behalf of the trust for the renewal of the agency which was a valuable asset of W. The renewal was refused and then B obtained a renewal for his own firm. It was held that B was by reason of his trusteeship, disqualified from obtaining the agency for himself, on the ground that it became against his interest to press for a renewal to the trustees. It was held that the agency would enure for the benefit of the trust. In the present case there was an implied trust and the facts show that Deva Sharma took no steps to intervene on behalf of the plaintiff and to renew the agency on behalf of the older firm.
174. For the reasons given, I hold the defendant No. 1 was in a fiduciary relationship to the plaintiff and that there exists an implied trust in respect of the agency obtained by Sharma & Co. The defendant is, therefore, accountable to the plaintiff for the profits which he had received.
175. The question of damages need scarcely be discussed. The plaintiff was refused this relief and Mr. Pathak on his behalf merely contended that if the relief for accounts were denied to him he would be entitled to damages. It seems to me that this is a case where the more appropriate remedy is by way of accounts rather than by way of damages. The argument of the learned Attorney-General was that damages are a measure of loss suffered by the plaintiff, and in this case no loss has been proved. The plaintiff has only attempted to prove the defendant's gain, but it is dear that the plaintiff's loss is occasioned by the defendant's gain and the measure of his loss can only be determined by measuring the extent of the defendant's gain, and this again will necessitate the taking of accounts.
176. The last argument was raised on the ground of limitation. It was contended that no fraud had been proved, and, therefore, the plaintiff could not claim the benefit of section 18 of the Indian Limitation Act. I have already discussed this matter and need not say anything further except to observe that the plaintiff's suit is within limitation, in us much as he came to know of defendant No. 1's interest in the new agency early in 1950 and soon after he learnt of the true state of affairs he filed the present suit.
177. Summing up my findings, therefore, I hold that the plaintiff is entitled to enforce the terms of Clause 3 in the partnership agreement. The restriction contemplated by that clause is in no way unreasonable or unenforceable. The plaintiff is entitled to the injunction prayed for and he is also entitled to a decree for accounts. This was the relief which was awarded by the Madras High Court in Chinnuru Sitharamamurthi Chetty v. Chennuru Gurusuami Chetti. And lastly the suit is not barred by time.
178. I would therefore dismiss these three appeals with costs throughout.
ORDER OF THE COURT
179. Khosla and Kapur, JJ.:— In view of our difference of opinion we state the following points for the decision of a third Judge under the provisions of section 98 of the Civil Procedure Code—
1. Is the restriction imposed by clause 3 of the partnership agreement enforceable in law?
2. Is the plaintiff entitled to the relief of injunction as claimed by him?
3. Is the plaintiff entitled to the relief in respect of accounts?
4. Is the suit within limitation?
The Judgment of the Court was delivered by
180. Falshaw, J.:— On a difference of opinion between Khosla and Kapur JJ., in three connected appeals (Regular First Appeals Nos. 13, 14 and 15 of 1953) the following points have been referred to me for decision under section 98, Civil Procedure Code:—
(1) Is the restriction imposed by clause 3 of the partnership agreement enforceable in law?
(2) Is the plaintiff entitled to the relief of injunction as claimed by him?
(3) Is the plaintiff entitled to the relief in respect of accounts?
(4) Is the suit within limitation?.
181. Although the facts of the case have been set out at some length in the judgments of the two learned Judges who have disagreed, I find it necessary to give at least my own brief version of them. The British India Corporation Limited is the owner of a number of enterprises including the Kanpur Cotton Mills Co., and by an agreement in the form of a letter dated the 20th of March 1937, P. 2, the Corporation appointed the firm Messrs L.N Gadodia & Co., of which Laxmi Narain Gadodia, the plaintiff, is the proprietor, as selling agents for the sale of all yarn and cloth produced by the Kanpur Cotton Mills up to the 31st of December 1937. A few days later, the 29th of March, 1937, Laxmi Narain Gadodia entered into a partnership agreement with Deva Sharma one of the defendants in the suit, the sole business of the partnership being the said selling agency and the partnership agreement was to continue in force as long as the selling agency business continued. According to the terms of this agreement L.N Gadodia was to receive -/12/- in the rupee out of the profits of the agency and Deva Sharma the remaining -/4/-. Clause 3 of the partnership agreement, which is one of the most contentious points in the case, reads:—
“3. That on the termination of the selling agency business neither of the parties to this agreement shall take up the said selling agency from the mills”.
182. It is not in dispute that L.N Gadodia was to be the financing partner and that Deva Sharma was the man who was mainly to be responsible for the running of the business and the fact that Deva Sharma was persona grata with the Corporation is clear from the inclusion in para. 17 of the Corporations' letter, P. 2, of the sentence—
“The services of D. Sharma will not be dispensed with by your Company without the prior sanction of the Kanpur Cotton Mills.”.
183. The selling agency was renewed in favour of the partnership by the agreement, P. 3, dated the 1st of March 1938 for a period of one year from the 1st of January, 1938, but clause 18 in the agreement provided that: “On the expiry of the agreement by the efflux of time unless any new agreement is then entered into by the parties hereto, this agreement shall be regarded as a continuing agreement and shall be subject to the conditions detailed herein”. The position of Deva Sharma in the partnership running the selling agency was again assured by clause 17, which was to the effect that his services should not be dispensed with by the agents without the prior sanction of the Company.
184. It seems that about the beginning of 1939 L.N Gadodia made some efforts to introduce his son Ram Gopal into the work of the selling agency, but this was resented by Deva Sharma and the Corporation with the result that the letter C.D 16 dated the 28th of January 1939 was sent to L.N Gadodia in the following terms:—
“We have to inform you that we do not desire Mr. Ram Gopal to attend this office. So far as we are concerned, under the terms of your agreement there are but two principals connected with the agency, i.e, Messrs L.N Gadodia and D. Sharma, as we have no wish to be encumbered with additional representatives nor is it our wish that other persons not covered by the agreement should interfere in matters which are the sole concern of the agency.”
185. In spite of this the plaintiff sent the letter, C.D 13, dated the 24th of May 1939 to the Corporation in which the following passage occurs:—
“This is to inform you that my son Ram Gopal Gadodia, who attained majority five months ago, has also been looking after the business and I give below his specimen signatures”.
186. This drew from the Corporation the letter C.D 12, dated the 27th of May 1939 in which the following passage occurs—
“We observe from your letter of the 24th May that your son Mr. Ram Gopal Gadodia, has attained his majority and you have sent us a specimen of his signature as proprietor of your firm. We presume we are to infer from this that on his attaining his majority you have admitted him to partnership in the firm.
This being so, we must invite your attention to our Kanpur Cotton Mills letter to your Kanpur office (with copy) to your Head Office in Delhi for information No. T/399 of 28th January last wherein the Kanpur Cotton Mills informed you that they did not desire your son to attend their office. That letter also pointed out that so far as the Kanpur Cotton Mills were concerned under the terms of the agreement between you, there could only be two principals connected with the agency—Messrs L.N Gadodia and D. Sharma—and they had no wish to be encumbered with additional representatives nor was it their wish that other persons not covered by the agreement should interfere in matters which are the sole concern of the agency.
We have also in this connection to remind you that it is specifically laid down in the agreement between us that Mr. Sharma would attend daily or as required at the office of the Kanpur Cotton Mills and further that in the agreement which exists between you and Mr. Sharma it is stipulated in clause 8 that Mr. Sharma shall be responsible for the work of Kanpur Cotton Mills Agency business and its efficiency. That being so, we trust that the admission of Mr. Ram Gopal Gadodia as a partner in your firm will in no way effect the handling of our agency.
We feel that a great deal of the friction, to which we have so frequently referred before, has been caused by those interested in your other business activities seeking to interfere in the activities of that branch of your firm which is responsible for the handling of our Kanpur Cotton Mills Agency and we must make it perfectly clear to you now that if such interference is repeated, then we shall have no alternative but to terminate the agency as we are definitely not prepared in any manner whatsoever to permit internal arrangements of your firm, which are not acceptable to us, to damage the sales of our Kanpur Cotton Mills Branch.”
187. This threat to terminate the agency apparently stopped any further efforts on the part of the plaintiff to introduce his son into the selling agency business for some time, and no further trouble occurred until the end of 1945 when the plaintiff sent the letter, C.D 17, dated the 7th of November to the General Manager of the Kanpur Cotton Mills as follows:—
“We take this opportunity of writing to you that the undersigned is now leading almost a retired life and has not been able to visit Kanpur since long. In his place, his son, Ram Gopal Gadodia, “pays short and occasional visits to Kanpur during the year and we trust that you will kindly make it convenient that he should meet you when he is there along with Mr. Sharma”.
188. This drew the following reply, C.D 14, dated the 29th of November, 1945 from the Corporation:—
“We refer to a letter sent by your principal on the 7th instant to our Kanpur Cotton Mills Branch in which he advises that he is now leading almost a retired life and has been unable for many months to visit Kanpur. The letter, indicates that the writer's adopted son, Mr. Ram Gopal Gadodia, will pay short and occasional visits to Kanpur during the year and asks our Kanpur Cotton Mills to make it convenient to meet the said adopted son when he is in Kanpur along with Mr. Sharma.
We also invite your attention to the agreement entered into between this Corporation and your company under the date 1st March, 1938.
We consider that the terms of the letter received by our Kanpur Cotton Mills go behind the terms of the contract and it is, therefore, a suggestion not acceptable to this Corporation or to its Kanpur Cotton Mills Branch.
In the circumstances, we have therefore no alternative but to give you notice under the terms of the said contract that we desire to terminate this agreement as on the 31st of December, 1945.
In this connection we would refer you to clause 14 of the said agreement.
We shall be glad to have your acknowledgement of this commutation.”
189. The next letter, D.I.A dated the 3rd of December 1945, is from the plaintiff to Deva Sharma, reads:—
“Received you letter of the 1st instant along with a letter of the British India Corporation Limited. For your information I am enclosing herewith a copy of my letter of the 7th ultimo. If, however, this does not suit the mills it can be treated as withdrawn. I hope you will be able to persuade the mills to withdraw their notice as well.”
190. In reply to this Deva Sharma seat the latter D.54, dated the 6th of December 1945 as follows:—
“Your letter of the 2nd instant along with a copy of your letter of 7th ultimo to the Mills have been received.
I am very sorry you should have written as you did to the Mills without first having a discussion with me when I last saw you in Delhi on the 24th ultimo regarding the revision of our agreement. You promised to come to Kanpur within a week to settle the matters, but you failed to do so and did not let me have any word of explanation. Instead you addressed the Mills and the Management considered your letter as going behind the agency agreement. I have given the matter much thought and if the Management have decided you have gone behind the agency agreement, you have also gone behind the agreement between you and myself. In consequence of your action it is apparent that the terms of both the agreements are no longer binding on the opposite parties.
You have placed me in a very awkward position and I cannot now very well approach the Mills as you suggest and it would appear we can only accept the notice as issued.
I think it would he better for you to come to Kanpur immediately to settle with me all affairs connected with the agency.”
191. The plaintiff promptly sent the letter, D.51, dated the 7th of December 1945 in reply. This runs—
“I acknowledge receipt of your registered A.D letter of the 6th instant I regret to defy your statement that I had promised you to come to Kanpur for revision of agreement. You never mentioned about revision of agreement. I recollect fairly well that you simply expressed your desire for making some provisions for Shiv Kumar since he has grown up and I unhesitatingly expressed my ready willingness with all goodwill since I do not differentiate between Ram Gopal and Shiv Kumar.
It was, however, during conversation about the proposed import and installation of textile manufacturing plant plan that you asked me to come to you sometime after Dewali to which I told you that I could come to you whenever you like.
The letter of 7th ultimo was simply written to the Mills as Ram Gopal was scheduled to go to Kanpur soon after and my going to the Mills is not so useful as I do not know English. It was under these circumstances that I was prompted to write to the Mills. It was a mere request, acceptance of which was wholly optional with the Mills. I am at a fix and cannot understand which word or action on my part caused your annoyance which please clarify.
I am quite sincere and likewise counting upon your sincerity. I have wholly depended upon you as a most confidential friend. I have been even consulting you in my personal business also and it has been my desire that Ram Gopal should also gain by your guidance I still entertain the same feelings towards you and hope you will also count upon my sincerity and continue to keep the same cordial relations in mutual interests. You can write to me your wishes for revision of agreement with a clear heart”.
192. The plaintiff followed this with D.52 dated the 8th of December, also written to Deva Sharma as follows:—
“In continuation of my yesterday's letter it strikes me and I think it proper also to assure you with a clean breast that my letter of the 7th ultimo to the Mills was not actuated with any other motive behind it than explained in the letter referred to above and I shall, therefore, thank you to withdraw that letter and arrange with the Mills to withdraw their notice as well.
He also sent the letter C.D 19 dated the 15th of December 1945 to the Corporation as follows:—
“We are in receipt of your letter of the 29th ultimo duly forwarded by our Kanpur office.
We are surprised to note how you consider that the terms of our letter of 7th November, 1945 go behind the terms of contract. Leaving aside other aspects of that letter it is obvious that it was a mere request, acceptance or rejection of which was optional with your Kanpur Cotton Mills Branch. The undersigned has been entrusting much of the work to the supervision of his son and, therefore, wished that he should be allowed to exchange thoughts with the Mills authorities. By inability the undersigned did not mean that he could not look to work. We may mention in this connection that the undersigned though old enjoys such health as he never before enjoyed in life. He still takes six miles morning walk daily in if hours. A copy of his enclosed memorandum to Sapru Committee in this connection may perhaps interest you to read.
We feel that question of our going back on the terms of contract referred to by you dues not arise. Still if you consider that way, we have no hesitation in withdrawing our letter of the 7th of November 1945 which we hereby do. A copy of the correspondence passed between the undersigned and Mr. Sharma in this connection will corroborate the statements made in this letter. From this it will be obvious that Mr. D. Sharma wishes to get the agreement between undersigned and himself revised with a view to get increased share to which, as you will notice, the undersigned has no hesitation.
We hope the matters will stand reconciled now and you will kindly withdraw your letter under reference.”
193. The Corporation, however, refused to reconsider its attitude and informed the plaintiff as shown by the letter C.D 15 dated the 20th of December 1945, which reads:—
“We refer to a letter addressed to this Corporation by your Delhi office under dated 15th December of which a copy was apparently sent to your Mr. D. Sharma in Kanpur.
Your letter has now been placed before a meeting of the Committee of Management of the Corporation and we are now desired to inform you that the Corporation sees no good reason to agree to your request that your letter of the 7th of November should be withdrawn and the Corporation adheres to its letter addressed to you by registered post on the 29th of November which was replied to by you on the 1st December.
We trust, therefore, that you will make all the necessary arrangements, as far as this Corporation and its Kanpur Cotton Mills Branch is concerned the agreement presently existing between us will terminate on the 31st instant.”
194. Thereafter the plaintiff caused the notice P. 4 dated the 11th February, 1946 to be sent to Deva Sharma. This read—
“On behalf of my client Seth Laxminarain Gadodia I have to state as under:—
That my client who was carrying on business as L.N Gadodia So Co., obtained along with yourself selling agency of the Kanpur Cotton Mills, Co., which business was carried on under the name, style and firm of Messrs L.N Gadodia & Co., Kanpur Cotton Mills Selling Agency Department on terms and conditions mentioned in the partnership deed therefor dated the 29th of March 1937.
One of the terms of the said partnership provides that on termination of the said selling agency business neither of the parties should take up the said selling agency from the said Mills.
My client had a twelve anna share and you had a four anna share in the said business. Under the said deed of partnership you were to be a working partner I leave the terms of the partnership to speak for themselves.
I am instructed to state that you have got the said selling agency business to be terminated by the Mills authorities and yon have taken up the same under the name of Messrs Sharma & Co. My client further says that you, taking advantage of your position, have got the said Mills to terminate the agency with a view to oust my client and to benefit yours……(torn) …to the detriment of my client's interest.
My client maintains that you have no right to take or otherwise directly or indirectly be interested in or concerned with the selling agency business of the said Kanpur Cotton Mills and have made yourself liable and accountable to my client. I need not dwell at greater length on all that has transp red. Suffice it to say that your action in the matter is wrongful and in breach of the terms of the said agreement and your duty towards my client has caused wrongful gain to yourself and wrongful loss to my client.
Under the circumstances, I am instructed to call upon you, which I hereby do, to desist from directly or indirectly being interested in or concerned with the said selling agency business and to give an undertaking that you will not do so hereafter and render full, free and complete accounts of your dealings and to offer an explanation if any you have in the matter and please note that in default of a clear and definite reply within a week from this day, my client will act farther in the matter as he may be advised, for the costs and consequences whereof you will only have to thank yourself.”
195. The reply sent on behalf of Deva Sharma to this notice P. 5, dated the 20th of February 1946 reads as follows:—
“Your notice dated the 11th of February 1946 on behalf of Seth Laxmi Narain Gadodia to my client Mr. Deva Sharma has been handed over to me with instructions to reply to you as follows:—
While my client admits of being a party to the partnership deed dated the 29th March, 1937 he categorically denies and resents the allegations made in the notice because of their being totally baseless, improper and undignified.
My client is not prepared to admit that he has committed a breach of any of the terms of the deed of partnership referred to above. My client, fails to understand the meaning of the allegation to the effect that it was my client who got the agency terminated by taking advantage of his position. The agency has been terminated by the British India Corporation because of the conduct and certain action of your client which the Corporation did not approve of. My client apprehends that your client has not given you full and correct history of the creation and the termination of the agency.
Your client's conduct in dealing with my client as his partner has been considerably blameworthy and my client has brought this fact to the notice of your client. My client knows that the loss of the agency must he a shock to your client, but he has to thank himself for that.
My client is under no obligation whatsoever to render to your client any accounts or to give your client any kind of undertaking as suggested by you.
If in view of the facts mentioned above your client takes any action against my client he shall do so entirely at his own risk and responsibility.
Now that the agency has been terminated and the partnership dissolved my client demands from your client the rendition of all accounts pertaining to the agency and paying my client his dues without any further loss of time. All the account books and papers in connection with the agency are in possession of your client.
My client expects and hopes that the settlement of the accounts will be done immediately and thus all sort of trouble avoided.”
196. In the meantime the Corporation had entered into the agreement C.D 8, dated the 22nd of January, 1916 with a firm named Messrs Sharma & Co., for the selling agency of the yarn and cloth produced by the Kanpur Cotton Mills. This agreement was signed on behalf of the firm by Shiv Nath Sharma, who is one of the defendants in the suit and is apparently the brother of Deva Sharma.
197. It seems that after receiving the reply quoted above to the notice sent on his behalf the plaintiff took no further action to enforce his rights until he instituted the present suit in February 1950. In his plaint he briefly related the facts about the selling agency and his partnership with Deva Sharma, and para 5, of the plaint reads:—
“5. That pursuant to the agreement of partnership mentioned in paras 2 and 3 above the plaintiff and the first defendant carried on the said business till the 31st of December, 1945 when the said selling agency was unjustly and in collusion with the first defendant terminated by the British India Corporation Ltd., with effect from the 31st of December, 1945.”
198. He then went on to mention the agreement of the Corporation with the firm of Sharma & Co., and he alleged that he had been making unsuccessful efforts to ascertain who were the partners of Sharma & Co., and only in January 1950 had he learnt for the first time that defendants 2 and 3 i.e the wife and brother of Deva Sharma, were ostensibly the partners in that firm which, however, was really owned by Deva Sharma. On these allegations he sought—
(a) a declaration that Deva Sharma was the real owner of the selling agency carried on in the name of Sharma & Co., and that the 2nd and 3rd defendants were merely benamidars on his behalf;
(b) a permanent injunction restraining the defendants from carrying on the selling agency business of the Kanpur Cotton Mills either in the name of Messrs Sharma & Co., or any other name; and
(c) rendition of accounts of the firm of Sharma & Co., from the 1st of January 1946 and payment of the plaintiff's share of -/12/- in a rupee out of any profits, or in the alternative a decree for Rs. 6,00,000 as damages.
199. The suit was resisted by the defendants on all possible grounds and on the 16th of May 1950 the following issues were framed:—
(1) Whether this Court has jurisdiction to try the suit?
(2) Whether there was any agreement as alleged in para, 3 of the plaint?
(3) Whether clause 3 of the agreement amounts to restraint of trade. If so, with what effect?
(4) Did defendant No. 1 commit a breach of the contract?
(5) If so, is the plaintiff entitled to any damages and how much?
(6) Is the plaintiff's suit within time?
(7) Whether defendants 2 and 3 are benamidars nominees of defendant No. 1. If so, with what effect?
(8) Whether the plaintiff was kept from the knowledge of the deed of 16th March, 1946 and of defendant No. 1's ownership and interest in the business of Messrs Sharma & Co., by fraud on the part of defendant No. 1. If so, with what effect?
(9) Is the plaintiff entitled to the injunction prayed for against the defendants?
(10) Whether the plaint does not disclose any cause of action so far as the grant of permanent injunction is concerned.
200. It appears from a note of the learned Sub Judge recorded immediately below the above issues that the defendants' counsel suggested that an issue should be framed on the plea of the plaintiff contained in para 5 of the plaint to the effect, that the selling agency had been terminated by collusion between the British India Corporation and Deva Sharma, but the plaintiff's counsel said that he did not wish to join issue on the matters contained in that paragraph. No reason was given for this, but the reason appears to be fairly obvious, namely that if the plaintiff based any claim to relief on an allegation of any wrongful actions on the part of the British India Corporation, he would also have been forced to implead the Corporation as a defendant in the suit. The plaintiff thus preferred to claim whatever reliefs he thought he was entitled to from Deva Sharma and his relations. On the 26th of July 1950 two supplementary issues were added, namely—
(8-A) Are the defendants accounting parties and liable to render accounts as alleged in para. 10 of the plaint? and
(10-A) Whether the defendants are entitled to special costs under section 35-A, Civil Procedure Code?.
201. The only points on which the trial Court appears to have found against the plaintiff were that it was not true that he had been kept from knowledge of the partnership agreement between Sharma & Co., and the defendant No. 1's interest in that firm by fraud, and that in fact he was aware of the interest of Deva Sharma in the selling agency from the outset, and that he was not entitled to damages. Otherwise the findings were generally in his favour and he was granted the declaration prayed for together with a decree for rendition of accounts against Deva Sharma, though the local commissioner appointed to go into accounts was directed in calculating the plaintiff's share of the profits to bear in mind the fact that Deva Sharma was now financing the selling agency and not the plaintiff any longer, and an injunction restraining all the three defendants from carrying on the business of the selling agency.
202. Each of the three defendants filed a separate appeal in this Court. This was apparently done because at the time of the filing of the appeals it was seriously intended to challenge the finding of the lower Court that Deva Sharma was the real proprietor of the new selling agency and that his wife and brother were merely his benamidars, but it seems that when the appeals came to be heard the decision was taken nor to content this part of the case. Thus even before the Division Bench the appeal was really only argued on behalf of Deva Sharma by the learned Attorney-General, and such was also the case before me, it being frankly conceded now that Deva Sharma is the real proprietor of the new selling agency and of the firm Messrs Sharma & Co.
203. Indeed, as the evidence stands, it would have been very difficult to make out a convincing case to the contrary. At the time when the agency was terminated the war-time textile controls were still in full force, and so, with the change in the identity of the selling agents, it was necessary for the Corporation to obtain the necessary licences in the name of its new agents, and for this purpose as early as the 29th of December 1915. Mr. Herbert Jackson who has appeared as D.W 5, and was a Director of the Corporation and General Manager of the Kanpur Cotton Mills wrote a letter to Mr. E. Royston, the Provincial Textile Controller at Kanpur. It appears from this letter, C.P 9 that Mr. Jackson was on sufficiently familiar terms with the Textile Controller to address him by his Christian name although the letter was on official business. The letter reads—
“My dear Eric,
One of the two partners L.N Gadodia in fact is dropping out of our cloth and yarn agents business as from the end of the current month. The other partner will continue to assist in the same capacity as heretofore and thus preserve continuity, but the agency proper will be in favour of his brother S.N Sharma.
In support of the change I am sending herewith the required application for licences (together with Treasury Challans covering the respective fees). Will you be good enough to substitute these applications for those previously submitted in the name of Messrs L.N Gadodia & Co. and return the letter to me with authority to claim a refund of the amounts paid in fees.”
204. The accompanying application forms show that licences were being applied for in the name of S.N Sharma on behalf of the firm Messrs S.N Sharma & Co., and that in the spaces provided in these forms for furnishing particulars about the amount of cloth sold during previous five years, the details filled in were those of the business done by the partnership consisting of the plaintiff and Deva Sharma. The obvious meaning of this letter was that Deva Sharma was really carrying on the business though the licences were to be in the name of his brother, and that Mr. Jackson knew the Textile Controller sufficiently well to be in a position to ask him to issue the licences on these terms, and in the witness-box Mr. Jackson cut a sorry figure in cross-examination in his efforts to explain these facts away. It was also proved that the now agency was financed by Deva Sharma, and he and his brother came rather badly out of cross-examination on this aspect of the case. It is for instance quite obvious that Deva Sharma told a deliberate lie when he said—
“I was yet thinking of asking for the agency when my brother and wife told me that they had secured the same, so I kept quiet.”
205. Before discussing the points of law which have been argued before me I should like to state the conclusions to which I have come from the above facts. It is clear that Deva Sharma was a favoured person, and in fact the protege of the British India Corporation, and it was for this reason that clauses were introduced into the original selling agency agreement and the renewed agreement which virtually had the effect of making the retention of Deva Sharma as a partner a condition of the continuance of the agreement in favour of Gadodia & Co. This was for the protection of Deva Sharma who evidently even in those days feared that L.N Gadodia might bring his son into the business to his own exclusion. This is clear from the fact that the termination of the agency was threatened by the Corporation as early as 1939 when L.N Gadodia wanted his son to be permitted to familiarise himself with the running of the business. Since Deva Sharma was protected in this way, the inclusion of clause 3 in the partnership agreement must have been intended primarily for the protection of L.N Gadodia, who seems to have been afraid that in course of time Deva Sharma might become prosperous enough to undertake the financing side of the partnership as well as the active side and he certainly seems to have been afraid of a conspiracy between the Corporation and Deva Sharma to oust him. How well these apprehensions were founded appears to be borne out by what happened in the end of 1945, when, the moment L.N Gadodia raised the suggestion that he was getting beyond the age at which he could carry on the business properly himself and that his son might be permitted to take an active part in the business, the Corporation seized this as a ground for terminating the selling agency in favour of Gadodia & Co. The way in which the licenses for the new agency were applied for certainly suggests that the Corporation was glad to let Deva Sharma carry on the agency business, and to give him every possible assistance with a view to evading clause 3 of the partnership agreement by getting the licenses in the name of his brother as the proprietor of a new firm.
206. It is, however, a point which will require the most careful consideration to what extent the latter part of these conclusions can form the basis of the decision on the points of law which have been argued before me in view of the fact that when the defendants wanted an issue regarding the allegation of collusion between Deva Sharma and the Corporation in wrongfully terminating the agency in favour of Gadodia & Co., the plaintiff specifically disclaimed any desire to join issue on this point.
207. The first question to be decided, and this is the crux of the case, is whether clause 3 of the partnership agreement is enforceable. The object of this clause was clearly to keep the partnership alive as long as possible by holding the threat over each of the partners that if they could not continue to work together in the selling agency business then neither of them would be able to take advantage of this fact by securing the business for himself. The difficulty of deciding whether such an agreement is enforceable can be seen from the fact that after carefully considering the point at some length and discussing all the leading cases the two learned Judges who heard the appeal together have come to different conclusions, Khosla, J., being of the opinion that the agreement was enforceable while Kapur, J., was of the opinion that it was not.
208. The statute law on the point is contained in section 27 of the Contract Act and section 54 of the Partnership Act. Section 27 reads:
“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(a)—One who sells the good-will of a business 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 good-will 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.”
209. The first part of this section lays down the basic principle that every contract in restraint of trade or business is void but an exception is made in the case of the sale of the good-will of a business, in which case the vendor may lawfully enter into an agreement that he will not enter into competition with his vendee within certain geographical limits, the reasonableness of which is to be determined with regard to the nature of the business. A further, modification of the general principle is provided in section 54 of the Partnership Act which reads:
“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.”
210. There can be no doubt that the disputed clause is one in restraint of business and the learned counsel for the appellants has strenuously attacked the finding that it is enforceable under section 54 on three grounds—(1) that it relates to the same business and not a similar business, (2) it specifies neither local limits nor any period of time, and (3) that it is not reasonable.
211. As I have said all the leading English cases regarding agreement in restraint of trade and business have been cited and discussed by the learned Judges, each of whom has derived from them, and sometimes from the same case, material in support of his own conclusion. It seems to me that the main difficulty arises out of the fact that in none of these cases was there under consideration an agreement of the nature of that in the present case, in which two partners had agreed that if they could not continue to work together in selling the goods produced by a third party the Kanpur Cotton Mills, neither of them separately would be allowed to take up the selling agency. Moreover, although the English Partnership Act does not contain any section corresponding with section 54 of the Indian Act, it would seem that this section was drafted with a view to incorporating the principles evolved by the decisions of the Courts in England, and the only agreements by partners contemplated by this section appear to be restraints on carrying on similar business within fixed temporal or geographical limits, and it appears to me to be very doubtful indeed whether this section was ever intended to cover ait agreement like the present one which restrains either of the partners for ever, on the termination of the partnership, not from carrying on a similar business such as the selling agency of some other Cotton Mills, but the very same business i.e the selling agency of the Kanpur Cotton Mills.
212. In deciding that the disputed agreement was not enforceable Kapur, J. has based the decision on the fact that the disputed agreement was defective in that it did not contain either any temporal or geographical limits and that the restraint, being in gross, was unreasonable and he has not discussed whether in section 54 of the Indian Partnership Act the word ‘similar’ includes ‘same’. This point has been briefly discussed by Khosla, J. in the following passage:
“The second objection was that the business carried on by the defendants was the same business, namely the “selling agency of the Kanpur Cotton Mills and not similar business as stated in section 54. But ‘similar’ clearly includes ‘same’. To argue otherwise would be to defeat the vary purpose for which section 54 was enacted.”
213. With due respect I do not think that the matter is quite as simple as it is here made out to be. The words ‘similar’ and ‘same’ are undoubted often loosely used in the same sense and a large number of instance have been collected under the word ‘same’ in Stroud's Judicial Dictionary in which it has been held that ‘same’ has been used in the sense of ‘similar’. For instance, ‘in the same circumstances’ has frequently been held to mean, ‘in similar circumstances’ and in the case Ashby v. Wilson . 1900 1. Ch. 66., the meaning of the phrase ‘same’ business' has been interpreted as meaning ‘selling similar goods’. This was in the interpretation of a contract in which a landlord owning six houses had let one of them to a tenant for the purpose of carrying on a certain business. In the contract he undertook not to let any of the other five bournes for the purposes of ‘the same business’.
214. The present agreement, however, is not one in which any ambiguity at all can be said to exist as regards the identity of the business from carrying on which the partners agreed to restrain each other. It is in fact the sale of goods manufactured by a third party, and the agreement itself uses the words ‘the said selling agency’, i.e the very same business, and not a similar business such as selling goods of the same character but manufactured by another company, and under the heading ‘similar’ in the same Judicial Dictionary I do not find a single instance of ‘similar’ being used in the strict sense of ‘same’, and it is perhaps significant to find that the other words to which persons consulting the Dictionary under the heading ‘similar’ are referred are ‘like’ and ‘such’, and do not include ‘same’. The conclusion would therefore appear to be that although the word ‘same’ is frequently loosely used in the sense of ‘similar’, the word ‘similar’ never means ‘same’ in its strict sense, and in fact it cannot, since similarity implies the existence of two or more objects for comparison.
215. Whether the word ‘similar’ in the context of section 54 would be deemed to have been used loosely, and to include ‘same’ in its strict sense, is perhaps more difficult. Prima facie it must be deemed that the word ‘similar’ was deliberately chosen, and that the section, being based on principles of English law, was only intended to cover casts in which the business previously carried on by the partnership was intended to be continued after the dissolution of the partnership, and the restraint contemplated was one restraining competition with that business either for a certain period of time or within certain local limits. The fixing of either temporal or local limits is obviously a necessary ingredient of any valid agreement and it is the function of the Court to decide whether such restrictions as are imposed are reasonable from the point of view of the public interest, which is against restraint of competition, and in the interest of the partners.
216. The question whether ‘similar’ includes ‘same’ in section 54 appears to have been argued somewhat more thoroughly before me than perhaps it was before the Division Bench, and the learned counsel for the plaintiff has argued that the wording of section 54 suggests that its framers intended to go beyond the principles evolved by English case law and contemplated a case in which the partners in a firm might all agree, on dissolution of the partnership, not to carry on the business of the partnership at all. The words of the section may be repeated again—
“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.”
217. It is argued that since section 55(3) specifically provides for restraint of competition when the good-will of the firm is sold, section 54 must be held dearly to cover agreements between the partners strictly inter se and that, as the section stands, it permits all the partners to enter into an agreement that none of them will carry on a business similar to that of the partnership within specified temporal or local limits. In other words it contemplates an agreement the result of which would be that the partnership business would cease altogether and that none of the partners would be permitted to start a similar business either for a fixed period of time or within so many miles of the place where the partnership business had been carried on. I must concede that the words of the section are capable of this interpretation, but I very much doubt whether either any sane person could possibly enter into such an agreement, or whether, if they did so, the restrictions embodied in the agreement could possibly be regarded by any Court as reasonable, since nobody could possibly be benefited by such an agreement, neither the public nor any of the partners. In any case such an agreement would not be like the present one since obviously the Kanpur Cotton Mills will continue to sell their output of cloth and yarn, and thus its selling agency will continue to exist, whether it is given to any of the present parties or to anybody else unless the Mills decide to sell direct to dealers.
218. What the present agreement means is this—
“If we cannot carry on the running of the selling agency business together we will cut each other's throat and neither of us shall have it, and as far as the parties are concerned it can go to somebody else for all time.”
219. In my opinion no such agreement was ever contemplated when section 54 of the Partnership Act was drafted and that all that was intended by this section was to exempt from the general rule reasonable restraints on the partners from competing with each other in a similar line of business on the dissolution of the partnership. I thus do not consider that in this context the word ‘similar’ means or includes ‘same’.
220. In view of this finding it does not seem to be necessary to enter into the same lengthy discussion as my two learned colleagues have done regarding local limits and reasonableness. If I had been of the opinion that the agreement was one covered by section 54 of the Partnership Act, and otherwise enforceable, I should have had no hesitation in holding that the agreement was not bad because it did not specify any local limits, since in my opinion the words “the said selling agency” are a sufficiently clear indication of the local limits intended by the agreement, namely where the business had been carried on in the past and was likely to be carried on in the future. The discussion of the cases cited regarding the reasonableness of local limits to my mind only serves to emphasise the fact that an agreement like the present one was not contemplated by section 54, since as far as I can see the question of the reasonableness; of local limits fixed in a particular contract can only arise when the re is a question of competition between two businesses or professional men, and the reasonableness can only be determined by having regard to the nature of the rival businesses or the profession of the persons concerned. In the circumstances I answer the first of the questions framed for my consideration in the negative.
221. Although the point appears to have been argued at some length before the Division Bench, and both the learned Judges have discussed it thoroughly in coming to their opposite conclusions, the learned Attorney General has not attempted to argue before me that, assuming that clause 3 of the partnership agreement is enforceable, the appropriate remedy is not an injunction, or that the plaintiff has lost his right to be granted an injunction by his laches or for any other reason. I therefore answer the second of the questions by saving that if clause 3 of the partnership agreement is enforceable in law there is no reason why the plaintiff should not be granted an injunction restraining the defendants from carrying on the selling agency business.
222. I may also add that no attempt was made to argue before me that the suit was not within time and I therefore answer the fourth question in the affirmative.
223. There thus remains only the third question—
224. Is the plaintiff entitled to the relief in respect of accounts?
225. Although section 88 of the Indian Trusts Act was not specifically pleaded by the plaintiff, it is clear that it was this provision of law on which he relied at the time of the arguments in the lower Court. The section reads—
“88. Where a trustee, executor, partner, agent, director of a company, legal adviser, or other person bound in a fiduciary character to protect the interests of another person, by availing himself of his character, gains for himself any pecuniary advantage, or where any person so bound enters into any dealings under circumstances in which his own interests are, or may be, adverse to those of such other person and thereby gains for himself a pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.”
226. The section clearly falls into two parts, and the plaintiff claimed rendition of accounts, and his share of the profits from the new selling agency business, under both heads. The trial Court found that he was not entitled under the first part of the section, but that his case was covered by the second part. Kapur, J. has found that the plaintiff was not entitled to the benefit of either part of the section, while Khosla, J. has gone beyond the findings of the lower Court, and has held that the first part applied to the plaintiff's a case as well as the second.
227. I may say at once that with due deference to the views of my learned brother Khosla, J. I entirely agree with the views of the lower Court and Kapur, J. that the plaintiff's case does not fall under the first part of the section, since in my opinion Deva Sharma did not obtain the selling agency in his character of a partner of the plaintiff. It is in fact quite clear that both Deva Sharma and the British India Corporation regarded both the agreement by which the selling agency was given to the partnership, and also the partnership itself as virtually at an end when the negotiations were taking place for the selling agency to be given to Deva Sharma's nominees. The first part of the section obviously contemplates that the pecuniary advantage to be gained by a partner or other person in a fiduciary capacity must be in dealings with some third party, and in my opinion the words “by availing himself of his character” clearly imply that at the time when the transaction takes place which results in the pecuniary advantage, the partner must be purporting to deal with the third party as a partner acting on behalf of the partnership, and also that the third party must be under the impression that he is dealing as such. No question of this situation arises in the present case in which quite clearly the British India Corporation had itself terminated the selling agency agreement, and was well aware that along with the agreement the partnership would also be terminated, and the Corporation entered into dealings with Deva Sharma and his nominees with full knowledge of the facts.
228. The question whether the second part of the section would apply is perhaps more difficult. It is clear from the judgment of Khosla, J. that his conclusions on this part of the case as a whole have been very greatly if influenced by his finding on the facts that the British India Corporation and Deva Sharma were acting in collusion with each other, and that the British India Corporation seized on a flimsy pretext for terminating the selling agency agreement in favour of the partnership of Gadodia and Deva Sharma and then gave the agency to Deva Sharma and at the same time the Corporation helped Deva Sharma to evade clause 3 of the partnership agreement by nominally giving the agency to a firm with which Deva Sharma had no ostensible connection and by helping to secure the necessary licenses in the name of Deva Sharma's brother. My own summary of the position given earlier in this judgment is much the same as far as the facts go but at the same time, in coming to this conclusion, I then expressed doubts as to how far some parts of it would be relevant for determining the legal points in issue in view of the fact that although the plaintiff had in his plaint alleged that the selling agency had wrongfully been terminated by collusion between the Corporation and Deva Sharma, nevertheless when issues were being framed and the defendants wanted an issue on this point, the plaintiff declined to join issue with them on it. The fact is that the evidence which has caused both my learned brother and myself to come to the conclusion that the Corporation was looking for an excuse to terminate the agency agreement in favour of the partnership, and to give the business to Deva Sharma, and at the same time helped the latter to evade the operation of the relevant clause in the partnership agreement, was not led for the purpose of proving these facts at all, but only emerged with reference to that part of the defendant's case which they have now completely abandoned, namely that the partnership consisting of the wife and brother of Deva Sharma was genuine and that these relations of his were not merely his nominees and benamidars. In view of the fact that the plaintiff had for tactical reasons abandoned his plea of collusion between Deva Sharma and the British India Corporation it seems to be very doubtful whether a finding that there was in fact some sort of collusion, which is based simply on evidence led for another purpose, can be invoked as the basis of a decision on the applicability of section 88 of the Trusts Act. This is the view which has been taken by my learned brother Kapur, J. and on this point I find myself in agreement with him. In my opinion the basis on which the question of the applicability of the second part of section 88 must be decided is simply that Deva Sharma negotiated for and secured the selling agency business in December 1945 at a time when all the interested parties, Gadodia, Deva Sharma, the British India Corporation and the Kanpur Cotton Mills, were aware that the selling agency agreement in favour of Gadodia & Company Limited was due to expire on the 31st of December, 1945, and that with it the partnership agreement between Gododia and Deva Sharma, which was co-terminus with the selling agency business, was also about to terminate.
229. In coming to their respective conclusions regarding the applicability of section 88 of the Trusts Act the learned Judges have chiefly considered four cases Siddavarapu Ramalinga Reddy v. Rachaputi Ramalingam Setty, Biss v. Biss, Benett v. The Gaslight and Coke Company of London, Chennuru Sitharamamurthi Chetty v. Chennuru Guruswami Chetti.
230. In the first of these eases, which is a decision by Varadachariar and Horwill JJ., the facts were that a partnership had obtained a lease of certain land for a definite period for the purpose of carrying on the business of mica mining and the partnership agreement was for the period of the lease Shortly before the lease was due to expire one of the partners obtained a fresh lease of the same land for himself. It was found that he did so openly and in competition with other persons. He then sent a notice to the other partners to appear and settle accounts up to the date on which the old lease was to expire, which was also the date of the expiry of the partnership agreement. Since after that date he was obstructed by the other partners from working the mine under the new lease, he instituted two suits, one for a declaration that the other partners could not claim any interest in the new lease and for an injunction restraining them from interfering with him, and the other for damages on account of the interference which had already taken place. In these circumstances it was held that in obtaining the renewal of the lease the partner could not be said to have availed himself of his character or of the advantage of the old lease, and further as the lease was for a definite period it could not be suggested that in the matter of the new lease the partner placed himself in a position of conflict of duty and interest. Hence the other persons were not entitled to claim an interest in the new lease or to insist that it should be treated as part of the assets of the old partnership.
231. In the second case Biss v. Biss, the facts were as follows. A lessor granted a lease for seven years of a house in which the lessee carried on a profitable business. On the expiration of the term the lessor refused to renew, but allowed the lessee to remain as tenant from year to year at an increased rent. During that tenancy the lessee died intestate, leaving a widow and three children, one being an infant. The widow took out administration to her husband's estate, and she and the two adult children, one of whom was a son, continued to carry on the business under the existing yearly tenancy. The widow and son each applied to the lessor for a new lease for the benefit of the estate, which be refused to grant, but having determined the yearly tenancy by notice, he granted to the son personally a new lease for three years at a still farther increased rent. In an action which had in the meantime been instituted by the three children, including the infant, against the administratrix for administration of the intestate's estate, the administratrix applied to have the new lease treated as having been taken by the son for the benefit of the estate, and for an account of the rents and profits received by him. It was held by Buckley, J. that the son was a trustee of the new lease for the benefit of the estate, and an account was directed accordingly, but the matter wan taken by the son before the Court of Appeal, which held that the evidence took the case out of Ex parte Grace in that it shewed that the right or hope of renewal had been determined by the lessor himself before the son intervened, so that the new lease could not be treated as an accretion to the estate of the deceased, and also that the son had in no way abused his position nor stood in any fiduciary relation towards nor owed any duty to other persons interested in the estate, and that he was therefore entitled to retain the lease for his own benefit.
232. The facts in the third case Bennett v. The Gaslight and Coke Company of London, were that one W becoming insolvent assigned all his estate to four creditors, trustees, to carry on his business for the creditors' benefit. W's principal asset was a valuable agency for the defendants also creditors. As part of the arrangement, W's agency contract was cancelled, and afresh one, for about thirteen months, entered into with the trustees for the oreditors' benefit. Before the expiration of the fresh contract, and before the trust was wound-up, B, one of the trustees, applied to the defendants to renew the agency to the trustees, and, on that being refused, obtained from the defendants a contract that his own firm should have the agency when that of himself and his co-trustees expired. B did not inform his co-trustees of this arrangement for his own benefit. Subsequently another application was made to the defendants to renew the agency to the trustees and refused. It was held in these circumstances by Pearson J that B was by reason of his trusteeship disqualified from obtaining the agency for himself, on the ground that it had become against his interest to press for renewal to the trustees, and that the interest he had acquired belonged to the trust estate.
233. Finally there is the second Madras case Chennuru Sitharamamurthi Chetty v. Chennuru Guruswami Chetti in which the facts were somewhat complicated. The Madras Government put up for auction for a period of seventeen years the lease of a salt factory, and five persons entered into an agreement to bid on the understanding that if the sale was confirmed in favour of any of them they would enter into a partnership to run the business in certain shares in proportion to the amount contributed by them towards the amount of the bid. Two of them jointly made a successful bid and the sale was confirmed in their favour, and the partnership then continued to function during the period of the lease in accordance with the agreement. Two of the partners died but their places were taken by their sons. Some months before the period of the lease expired the Salt Department began making enquiries about the renewal of the lease for a further period of twenty-five years, and a renewal of the lease was secured in the name of one of the original successful bidders and the sons of the other who had taken his place and been recognised as leases by the Government. It is clear that the lease was renewed in favour of the same lessees at least partly because it was reported that they had worked to the satisfaction of the Department. Shortly before the old lease was due to expire the partners in whose names the lease had been renewed sent notices to the other partners for a settlement of accounts up to the date on which the old lease was due to expire, and did not mention therein the renewed lease. The question which arose for decision in the subsequent action brought by the partners who were sought to be excluded by those who had obtained the renewed lease in their own names was that interest, if any, the excluded partners had in the renewed lease. In these circumstances Rajamannar, C.J and Somasundaram, J. held that the new lease must be held by the partners, who had obtained it for the benefit of the other members of the partnership, but since the lease itself was executed after the termination of the partnership, and it was not the case of the others that any one other than the partnership had obtained the lease on furnishing the consideration for it, the benefit of the renewal alone should be treated as an asset of the partnership which had ended and a value placed on it. It was however, observed during the course of the judgment that there may be cases when a partner during the continuance of the partnership can secure a pew lease to himself without the new lease being held to be for the benefit of the partnership, and it would depend on the facts and circumstances in each case.
234. The views of the learned Judges regarding these case are in sharp conflict, since while Khosla, J. thought that the first two were easily distinguishable from the present case, and that the third and fourth were in point, Kapur, J. took a directly opposite view. The view of Khosla, J. appears to have been influenced by one finding of fact on which I do not agree with him, since although I share his view that the British India Corporation and Deva Sharma were glad to get rid of Gadodia and give the business to Deva Sharma, I cannot agree with the opinion of Khosla, J. that Gadodia did not know what was happening. What happened in fact was the very thing to guard against which Gadodia had caused to be inserted the contentious clause in the partnership agreement, and the whole correspondence in December, 1945 and the notice sent by Gadodia to Deva Sharma early in 1946 clearly to my mind show that he realised all too well what was happening. I thus consider that if it is held that Gadodia knew, or had a very good idea, of what was happening, a good deal of the force of the arguments used by Khosla, J. in support of his conclusion disappears. I my opinion the two cases which he considered were the ones applicable to the present case are distinguishable. The English case Benett v. The Gaslight and Coke Company of London, was a case of a trustee who had clearly acted behind the backs of his co-trustees and in whose case, according to the learned Judges of the Madras High Court in the case also relied on by Khosla, J. there was an irrebuttable presumption of personal incapacity to retain the benefit. In the Madras case also the original leas had been secured by the joint contribution of all the partners although it was only in the names of two of them and one of the reasons by which the partners who secured the renewal of the lease in their names were enabled to do so was the good record of the partnership in running the salt business to the satisfaction of the authorities during the continuance of the partnership. The history of the present case shows that the work done by Gadodia and Leva Sharma in partnership had little or nothing to do with the giving of the selling agency to Deva Sharma, who throughout was clearly the favourite and portage of the British India Corporation. Khosla, J. derived some support for his argument that the work done by the partnership helped to secure the agency for Deva Sharma in the sense that the sales of cloth during the previous years by the partnership were quoted as the business done by the new partnership when the necessary licenses were being applied for. The learned Judges thought that the licences could not have been given to the new partnership except on the strength of the record of the business done by the old partnership. This is not strictly correct if the statement made by Shiv Nath Sharma in Cross Examination is true, that licenses could be granted to new dealers even after 1940 where they were the agents or nominees of manufacturers. I have already cited a letter from Mr. Jackson to the Textile Controller which appears to me to indicate that the British India Corporation or the Kanpur Cotton Mills would have had no difficulty whatever in obtaining the necessary license for anyone to whom they gave their selling agency business. On the other hand it seems to me that the cases relied on by Kapur, J. bear much more resemblance to the circumstances of the present case, and the principle which they seem to me to establish is that when it is clear that a particular benefit can no longer be secured on behalf of an estate or a partnership, the fiduciary relationship ends and an individual partner or beneficiary of the estate is free to look after his own interests and secure the benefit for himself.
235. In my opinion once it is held that whatever was done in December, 1945 was done with the knowledge, and on the basis, that the selling agency agreement in favour of Gadodia & Company Limited and the partnership agreement between Gadodia and Deva Sharma were inevitably terminating on the 31st of December, 1945, there was nothing in the provisions of section 88 of the Trusts Act to prevent Deva Sharma from securing the selling agency business for himself, and the plaintiff's only safeguard was the disputed clause in the partnership agreement, regarding which I have already given my opinion that it is not enforceable at law. I may add that even if I had been of the opinion that Deva Sharma had rendered himself liable under the second part of section 88 of the Trusts Act a decree for accounts and share of the profits should not have been granted. Even in Chennuru Sitharamamurthi Chetty v. Chennuru Guruswami Chetti when the learned Judges held that the excluded partners were entitled to the benefit of the renewal of the lease obtained by the other partners, they did not grant a decree for accounts but simply held that a valuation should be placed on the renewed lease and this valuation was to be treated as part of the assets of the dissolved partnership. Applying this to the present case it would mean that the value of the selling agency would have to be calculated and the plaintiff's share of this value given to him on settlement of accounts on the dissolution of partnership, which would virtually amount to a payment of liquidated damages. However, as I have said above. I am of the opinion that Deva Sharma did not render himself accountable in any way under section 88 of the Trusts Act, and my answer to the third question therefore is in the negative.
236. Khosla, J.:— In accordance with the opinion given by Falshaw, J. this appeal must be allowed. Parties will bear their own costs throughout.
237. Kapur, J.:— I agree.
238. Appeal allowed.