- Bookmark
- Share
- CaseIQ
Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd. And Others
Factual and Procedural Background
The appellant, plaintiff in the original suit, claimed Rs. 9,00,000 in damages against respondent 1, Alembic Chemical Works Co., Ltd. ("the company"), for breach of an agreement dated 7th December 1907. This agreement appointed the firm of Kotibhasker Amin and Co., of which the appellant claimed membership, as managing agents of the company with terms that the appointment could not be revoked except on grounds of fraud.
The company was incorporated in 1907, and its Memorandum and Articles of Association incorporated the managing agents' agreement. The agreement bound the company to employ the firm as secretaries, treasurers, and agents so long as both the company and the firm existed, with the appointment being irrevocable except for fraud.
Over the years, the constitution of the firm changed due to deaths, assignments, and admissions of new partners, culminating in a firm consisting of the appellant and respondent 2 by 1930. Although the company recorded changes in the firm's constitution, it did not enter into fresh agreements as contemplated in the original managing agents' agreement.
In November 1939, the company notified the firm that the managing agents' agreement had ended because the original firm ceased to exist after the last original partner assigned his share. The company denied the firm's entitlement to act as managing agents or receive remuneration.
The appellant filed suit in March 1940 claiming damages for breach of the 1907 agreement. The trial court dismissed the suit on the ground that the current firm was not the same as the original firm and that the appellant, not being a party to the original agreement, could not enforce its rights. The High Court dismissed the appellant's appeal on similar grounds. This appeal arises from that dismissal.
Legal Issues Presented
- Whether the firm of Kotibhasker Amin and Co. as constituted at the time of the suit was the same legal entity as the original firm that entered into the 1907 managing agents' agreement with the company.
- Whether the appellant, not being an original party to the 1907 agreement, could enforce the rights or be liable for obligations under that agreement.
- Whether the recognition by the company of the appellant and respondent 2 as managing agents from 1922 to 1939 implied a new agreement binding on the company.
- Whether the refusal to allow the appellant to amend the plaint to allege an implied agreement was correct.
- The applicability of Section 87B(c) of the Companies Act, introduced in 1936, to the present case regarding transfers of office by managing agents.
Arguments of the Parties
Appellant's Arguments
- The appellant contended that under the Indian Partnership Act, 1932, a firm is recognized as an entity distinct from its members and continues so long as the business continues, implying that the firm remained the same despite changes in membership.
- The appellant argued that the company's recognition of the appellant and respondent 2 as managing agents from 1922 to 1939 indicated an implied agreement to employ them on the terms of the 1907 agreement.
- The appellant challenged the refusal to allow amendment of the plaint to include a claim based on the alleged implied agreement.
Respondents' Arguments
- The respondents maintained that the firm existing at the time of suit was not the same as the original firm that entered into the 1907 agreement, and therefore the appellant could not enforce the agreement.
- They contended that no fresh agreement was entered into upon changes in the firm's constitution as required by the original agreement.
- They argued that the appellant's claim was limited to breach of the original agreement and did not plead estoppel or an implied agreement.
- They asserted that Section 87B(c) of the Companies Act did not apply to alter the status of the appellant as an original partner for the purposes of the managing agents' agreement.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court acknowledged that under the Indian Partnership Act, 1932, a firm is recognized as an entity distinct from its members, a position more aligned with Scottish law than English law. However, the Court emphasized that this recognition does not equate to perpetual succession or a corporate personality that remains unchanged despite changes in membership. The Indian Partnership Act, like the English Act, does not confer corporate status or perpetual succession on firms.
The Court held that the 1907 managing agents' agreement was made between the company and four named individuals constituting the original firm. When all original members ceased to be partners, the firm as it then existed lacked privity with the company under the original agreement. Hence, the appellant, not being a party to the original agreement, could not enforce its terms.
Regarding the appellant's contention of an implied agreement arising from the company's recognition of the appellant and respondent 2 as managing agents, the Court noted that no estoppel or implied agreement was pleaded, and damages were claimed solely for breach of the original agreement. The Court upheld the refusal to allow amendment of the plaint because any claim based on an implied agreement would have been barred by limitation at the time of the application.
The Court also considered Section 87B(c) of the Companies Act, 1936, which restricts transfer of office by managing agents but excludes changes in partners so long as an original partner remains. While this provision placed the appellant in the position of an original partner for its purposes, it did not affect the appellant's status under the managing agents' agreement. Thus, the provision was deemed inapplicable to the present dispute.
Holding and Implications
The appeal was dismissed with costs.
The direct effect of this decision is that the appellant cannot enforce the 1907 managing agents' agreement against the company as the firm constituting the managing agents at the time of suit was not the original firm and the appellant was not a party to the original agreement. The Court's ruling confirms that changes in the constitution of a firm may sever privity under contracts made with the original members, and that recognition by the company without a fresh agreement does not create enforceable rights if not pleaded properly and within limitation periods. No new precedent was set beyond affirming existing principles regarding firm identity and contractual privity under Indian partnership law.
Sir John Beaumont.-
This is an appeal from the judgment and decree of the High Court of Judicature at Bombay dated 24th November 1943, dismissing the appellant's appeal from the judgment and decree dated 16th December 1942, of Chagla J. exercising original civil jurisdiction of the High Court.
[2] In the suit out of which this appeal arises the appellant, who was plaintiff, claimed against respondent 1, the Alembic Chemical Works Co., Ltd. (hereinafter referred to as "the company") Rs. 9,00,000 damages for breach of an agreement of 7th December 1907, to employ the firm of Kotibhasker Amin and Co., of which the appellant claimed to be a member, as managing agents of the company.
[3] The claim arises in this way. The company was formed in the year 1907 and under el. 6 of the Memorandum of Association it was provided that the members who then constituted or who might thereafter constitute the firm of Messrs. Kotibhasker Amin and Co. were thereby appointed secretaries, treasurers and agents of the company upon the terms contained in the agreement annexed to the Articles of Association, and it was expressly provided that in consideration of the services rendered by them in promoting the company, the appointment of the said firm as secretaries, treasurers and agents of the company should not be liable at any time thereafter to be revoked or cancelled on any ground or for any reason whatever, save and except their being found guilty of fraud in the management and discharge of their duties as such secretaties, treasurers and agents, and that the remuneration payable to the said firm should be as therein mentioned. clause iii of the article of association was expressed in much the same terms and referred to the agreement thereto annexed and marked A.
[4] The agreement referred to in the Memorandum and Articles of Association was dated 7th December 1907, and was made between the company of the one part and Anant Shridhar Kotibhasker, Bhailal Dajibhai Amin, Krishnalal Tribhowandas Gajjar then a minor by his guardian Tribhowandas Kalyandas Gajjar and Moreshwar Bhalchandra Bhatvadeker, carrying on business in Bombay under the name and style of Messrs. Kotibhasker, Amin and Co. of the other part. The agreement so far as material provided that in consideration of the agreement of the company thereinafter contained they, the four persons of the second part, promised and agreed on behalf of themselves and each of them and the members or member of the said firm of Messrs. Kotibhaskar, Amin and Co., for the time being, thereinafter referred to as the said firm: (cl. 1)-That they would faithfully and to the best of their ability perform the offices of secretaries, treasurers and agents of the said company for the purpose of carrying on to the best advantage the business of the said company so long as the said company and the said firm should continue to carry on their respective business at the remuneration upon the terms and subject to the conditions thereinafter mentioned; (clause 2)- That in consideration of the agreement hereinbefore contained on the part of the said firm, and in further consideration of the said firm having promoted the said company, the company thereby promised and agreed with the said firm and its members or member for the time being that the said firm should be employed as, and should be the secretaries, treasurers and agents of the said company as long as the said firm and the said company should exist and continue to carry on the business either in the present or any name, and that such appointment should not be liable to be at any time revoked or cancelled on any ground or for any reason whatever except their being found guilty of fraud in the management and discharge of their duties of secretaries, treasurers and agents; and the said company thereby for itself and for its successors covenanted with the said four persons of the second part and the said firm severally and jointly that the said company should from time to time when the constitution of the said firm changed by death, retirement, admission of any new partner or otherwise, enter into a fresh agreement if necessary with the said firm and the partner or partners therein in the terms of that agreement.
[5] It was admitted by counsel for the respondents before the Board that the said managing agents' agreement was executed by the company after its incorporation, though that fact does not appear from the record.
[6] The subsequent history of the constitution of the firm is as follows:
In the year 1910 A. S. Kotibhasker died. In the year 1911 the said Bhatvadeker assigned his share in the firm to T. K Gajjar. In the year 1919 T. K. Gajjar assigned his share to K. T. Gajjar, who already possessed one share. In 1920 K. T. Gajjar assigned his two shares to one N. Purshottam. In the year 1922 the said N. Purshottam assigned his shares to the appellant. The firm then consisted of the said B. D. Amin, one of the original partners, and the appellant. On 5th October 1930, the said B. D. Amin assigned his share in the firm to his son, respondent 2. It is not disputed that on the occasion of any change in the constitution of the firm notice of the fact was given to the company who recorded such fact in its minutes, but it is not alleged that on any of these occasions an express fresh agreement was entered into by the company with the reconstituted firm as contemplated in cl. 2 of the managing agents' agreement.
[7] On 20th November 1939, the company, by their attorneys, wrote to the firm alleging that since 5th October 1939, when B. D. Amin, the only remaining original partner, assinged his share in the firm the firm with which the company had entered into the agreement of 7th December 1907, ceased to exist and that such agreement had come to an end, and informing the firm that the then firm of Kotibhasker, Amin and Company was not entitled to act as secretaries, treasurers and agents of the company and to be paid remuneration as such. After some correspondence between the parties this suit was filed on 14th March 1940, by the appellant against the company, respondent 2 who was not willing to join as plaintiff, and certain other parties whose position is not now material. The claim, as already stated, was for damages for breach of the agreement of 7th December 1907.
[8] The learned trial Judge dismissed the suit primarily upon the ground that the firm of Kotibhasker, Amin and Company existing at the commencement of this suit, and consisting of the appellant and respondent 2, neither of whom was a partner at the date of the managing agents' agreement was not the same firm as that which had entered into such agreement, and that the appellant, not having been a party to such agreement could not enforce the rights, nor be rendered liable for the obligations, of the firm, arising thereunder.
[9] An appeal to the High Court in its appellate jurisdiction was dismissed substantially on the same grounds. Their Lordships think that the decisions of the Courts in India upon this point were right.
[10] Before the Board it was argued that under the Indian Partnership Act, 1932, a firm is recognised as an entity apart from the persons constituting it, and that the entity continues so long as the firm exists and continues to carry on its business. It is true that the Indian Partnership Act goes further than the English Partnership Act, 1890, in recognising that a firm may possess a personality distinct from the persons constituting it; the law in India in that respect being more in accordance with the law of Scotland, than with that of England. But the fact that a firm possesses a distinct personality does not involve that the personality continues unchanged so long as the business of the firm continues. The Indian Act, like the English Act, avoids making a firm a corporate body enjoying the right of perpetual succession. The argeement of 7th December 1907 was made between the company and four named individuals, and when all of those four individuals had ceased to be members of the firm, there was no privity between the company and the firm as it then existed.
11 In the Court of appeal the appellant sought to raise a further point. It was contended that as the company had recognised B. D. Amin and the appellant as their managing agents from 1922 to 1939 it must be inferred that the company had entered into an agreement with the said B. D. Amin and the appellant to employ them as managing agents upon the terms of the agreement of 7th December 1907. To this contention it was pointed out that in the plaint there was no plea of estoppel against the company, and no allegation of any implied agreement between the company and the appellant, and that damages were claimed only for breach of the agreement of 7th December 1907. Thereupon the appellant asked for leave to amend the plaint by alleging an implied agreement made in 1922 between the company on the one band and B. D. Amin and the appellant on the other, and claiming damages for the breach of such agreement. The Court refused leave to amend, and the appellant has argued before the Board that such refusal was wrongful. In their Lordships' view the Court of appeal in India was right to refuse leave to amend, since at the time when leave to amend was sought any claim under the alleged implied agreement would have been barred by limitation.
12 In the trial Court and before this Board some reliance was placed on S. 87B (c), Companies Act. That sub - clause was introduced into the Companies Act by the amending Act of 1936. The sub - clause renders a transfer of his office by a managing agent void unless approved by the company in general meeting, but there is a proviso removing from the operation of the sub - clause any change in the partners of a managing agent's firm, so long as one of the original partners continues to be a partner in such firm, and "original partners" are defined to mean, in the case of managing agents appointed before the commencement of the amending Act. 1936, partners who were partners at the date of the commencement of the Act. So for the purposes of the proviso, the appellant was to be regarded as an original partner. Their Lordships agree with the learned trial Judge that this section of the companies act has no application to the present case. It places the appellant in the position of an original partner for the purposes of the proviso but does not make him an original partner for the purposes of the managing agents' agreement. For these reasons their Lordships will humbly advise His Majesty that this appeal be dismissed with costs.
Appeal dismissed.
Alert