Raghumull Khandelwal v. The Official Assignee Of Calcutta And Ors.

The Judgment of Woodroffe, J., was as follows:—

The issue in this case is whether the Appellant is a partner of a firm of which the Plaintiff-Respondent and the Respondents H.C Ghosh and D.N Sircar were admittedly partners. He says he was not, but was a manager who got Rs. 500 per month and 10 per cent, commission calculated on the net profits of the business as his remuneration for managing the firm. The learned Judge has held that he is a partner and has passed a decree which both sides admit is not a good, decree, for it makes no provision for any share of profits going to the Defendant who is found by the judgment to be a partner. I will exclude from consideration a letter by the contesting Respondent Raghumull who now says that the Appellant is a partner but which letter stated that he, Raghumull, was the owner of the business and the Appellant was only to have a monthly allowance, apparently as remuneration of his management.

It may be admitted at once that the memorandum of agreement of the partnership contained provisions which can be referred to, to show that the Appellant is, as the Respondent contends, a partner. The question is whether they can be explained, or if not, whether they outweighed the considerations to which I will refer. Thus the document is called a memorandum of partnership agreement. The parties to the document are said to be desirous of starting a partnership business and, in cl. 12 the Appellant and H.C Ghosh are directly called managing partners and cl. 23 contemplates an act by the Appellant which might be a ground for dissolution of partnership by the Court. I may here say that calling a man partner or a man calling himself a partner does not make him such. It must be seen whether the provisions under which the parties come together do constitute in law and fact a partnership. Apart from this, the document being loosely drawn it is possible to construe these references to a partnership in such a way as gives effect to them without affecting the Appellant's contention. Thus the memorandum was in fact a co-partnership agreement as regards three of the parties to it. All of them again may have been desirous of starting a partnership business in which their respective positions were to be those specified in the deed, without referring for the moment to the question whether the position assigned to the Appellant amounted to a partnership so far as he was concerned. The other two points to which I have referred have for whatever they are worth greater weight. Reliance is also placed on the fact that the name of the Appellant was used for the firm and he was given considerate powers. But his may mean that the Respondent Lala Raghumull who was supplying the capital was desirous of having the advantage of an English name for the firm and wisely enough left the management to a man who presumably knew the business which was that of the partnership.

The ground upon which I would decide this appeal is this: A person may share in profits and yet not be a partner. But a person cannot be a partner without sharing in profits. If he does not share in profits he may be called a partner, but is not in law or fact such. The question in short is, was the Appellant to have a share in the profits. This is the whole question in short which arises in this appeal.

To me it seems clear on a construction of the document that he was neither to share in the profits nor to share in the loss. As regards the profits the 5th paragraph of the agreement says: “The said Mr. Dorian Evans will be in charge of the firm and devote his whole time in the business of the firm and will get Rs. 500 per month as remuneration over and above 10 per cent, as commission on the net profit of the business exclusive of all the cost expense for payment of rent, taxes, municipal license, salaries of servants and all other charges and expenses to be incurred in carrying on partnership business but he will get no shares of profit of the firm.” After having stated expressly that he will have no share in the profits of the firm the next paragraph proceeds to allocate to the other three persons the shares which they are to get, and states that “Babu Lala Raghumull will get 12 annas share, H.C Ghosh will get 2-6 annas share and Babu D.N Sircar will get 1-6 annas share in the profits of the said business.” This exhausts the whole 16 annas of profits.

As regards loss para. 19 says: “If the firm suffer any loss Mr. Dorian Evans will get his monthly remuneration regularly, but he will not get any commission and the other partners will be liable for the said loss according to their shares.”

Apparently to meet the case that the Appellant is not a partner the plaint alleges in para. 1 that the Appellant was to get besides remuneration at the rate of Rs. 500 a month, 10 per cent, of the profit and loss and the balance of 90 per cent, of the profit and loss was to be divided between and borne by the Plaintiff and the Defendants Hari Charan Ghosh and Dina Nath Sircar according to the shares mentioned in para. 6 of the agreement to which I have referred. But this is not what the agreement says. The agreement does not say that the Appellant was to have 10 per cent, of the profit and loss, but 10 per cent, was given to him as a commission which was calculated on the amount of the net profit, which is a different thing. On the contrary the agreement expressly says that he is to have no share of the profit of the firm and is not to be liable for any loss. I am unable to agree that a commission, the amount of which is calculated on the net profits, is the same as a share of the profits. Such a provision is a well-known one and acted upon here, namely, the payment to persons as managers of a fixed salary together with a commission calculated on the net profits. This I think is done without it being supposed that the recipient of the commission thereby becomes a partner. Moreover, as I have said, cl. 5 in express terms states that the Appellant is not to get any share of the profits of the firm, and to make it still more clear, cl. 6 which does set out the shares of the profits altogether excludes the Appellant.

This point appears to me to have such force as to justify me in differing from the opinion of my learned brother in this matter—a course which I might otherwise have hesitated to take, seeing that his opinion is also that of the learned Judge whose judgment is under appeal. As in my opinion the Appellant was not to share in the profit or loss it was not a partnership and this is what he contends. In my opinion the appeal ought to be allowed with costs and the suit as regards the Appellant should be dismissed with costs.

The Judgment of Richardson, J., was as follows:—

The question whether the Appellant Dorian Evans is a partner in the firm of Dorian Evans & Co. turns on the terms of a written agreement, dated the 15th June 1919. This document describes itself as a “memorandum of co-partnership agreement” among four persons, the Plaintiff, the Appellant, and the other two Defendants in the suit H.C Ghosh and D.N Sircar (not represented before us). This general description of the nature of the agreement is followed by the words: “Whereas the said persons are desirous of entering into a partnership business upon (sic) on terms and conditions hereinafter contained, viz.,” the sentence such as it is, is never grammatically finished but though the English may be imperfect and the language rough, primâ, facie no words could more clearly and unequivocally express the intention of the four persons to become partners on the terms and conditions which are then set out in separate clauses numbered from 1 to 23.

By cl. 1 the firm's name was to be Messrs Dorian Evans & Co.

By cl. 2 the capital of the firm Rs. 1,00,000 was to be supplied by the Plaintiff who in addition to his share of the profits was to receive interest on the amount at the rate of 6 per cent, per annum.

By cl. 3 the firm was to continue for a period of five years commencing from the 1st July 1919.

Cl. 4 provides: “That the partnership business shall be that of hardware but partners may include other business with their mutual consent.”

Cls. 5 and 6 upon which the Appellant takes his stand are as follows:—

“5. That the said Mr. Dorian Evans will be in charge of the firm and devote his whole time in the business of the firm and will get Rs. 500 per month as his remuneration over and above 10 per cent, as commission on the net profit of the business exclusive of all the cost expense for payment of rent, taxes, municipal license, salaries of servants and all other charges and expenses to be incurred in carrying on partnership business but he will get no shares of profit of the firm.

6. That the Babu Lala Raghumull will get 12 (Twelve) annas shares and H.C Ghosh will get 2-6 annas shares and Babu D.N Sircar will get 1-6 annas shares in the profits of the said business.”

These two clauses should be read with the first sentence of cl. 19 which runs:—

“If the firm suffer any loss, Mr. Dorian Evans will get his monthly remuneration regularly but he will not get any commission and the other partners will be liable for the said loss according to their shares.”

Cl. 7 like many others is badly expressed but quite intelligible. Dorian Evans is to remain in charge of the firm, to devote all his time to improving the business with all his effort and H.C Ghosh is to ??? his whole time to the firm and to ??? the sale department.

??? Cl. 12 Dorian Evans and H.C Ghosh are described as “managing partners.”

By cl. 14, the general management of the firm is to remain entirely in the hands of Dorian Evans and H.C Ghosh.

Cl. 15 empowers the same two persons to appoint and to discharge the servants of the firm.

Cl. 20 is also of some importance on the point of control. It reads:—

“If any big job of value of above Rs. 25,000 (Twenty-Five thousand) is taken in hand all the partners should be consulted and the permission of the capitalist partner Lala Raghumull be taken.”

Cl. 23 is in the nature of a penal clause. If Dorian Evans and H.C Ghosh do certain things, and inter alia, if they “do or suffer any act which would be ground for dissolution of the partnership by the Court,” then the Plaintiff as capitalist partner, “may within three calendar months after becoming aware thereof by notice in writing determine the partnership.”

My learned brother's view makes me diffident of my own. Otherwise I should have thought that under this deed the Appellant was undoubtedly the partner of the Plaintiff and the other two Defendants.

It is said that cl. 5 of the agreement expressly states that the Appellant “will get no shares of profit of the firm.” In my opinion that can only mean in the context that he is to get no share other than the share already provided for, namely, a salary of Rs. 500 a month and a commission of 10 per cent, on the net profits. The first sentence of cl. 19 supports this construction. If the Appellant was not a partner but a mere servant or managing agent, what was the necessity of providing that if the firm should suffer loss he should still “get his monthly remuneration regularly.” The view that the Appellant was a partner is also supported by the powers of control and management conferred on him and H.C Ghosh by such clauses as 4, 12, 14, 15 and 20. The Appellant was to have at least an equal voice in the management with H.G Ghosh.

No doubt if cls. 5 and 6 are abstracted from the rest of the document, I should agree that they point to the Appellant being a mere servant or manager remunerated by salary and by a commission on the profits.

But the intention of the parties must be gathered from the agreement as a whole. The agreement as a whole, as I read it, plainly manifests the intention of the parties to it, including the Appellant, to enter into partnership with one another. The Appellant in my opinion became a partner unless it can be said that the receipt of a fixed salary or of a commission on the net profits con never in law amount to sharing in the profits within the meaning of sec. 239 of the Contract Act which defines “partnership” as the relation subsisting between persons “who have agreed to combine their property labour or skill in some business and to share the profits thereof between them.”

A commission of 10 per cent, on the net profits is a fixed share of those profits and the argument for the Appellant seems merely to resuscitate a distinction which has been abandoned with the rule that any “participation in the net profits of a business made the participant liable as a partner to third persons.” In the leading case of Mollwo, March v. The Court of Wards (2), the Privy Council stigmatized this rule as “evidently an arbitrary one.” Their Lordships continue:— “While it was supposed to prevail much hardship arose from its application, and a distinction, equally arbitrary was established between a right to participate in profits generally as such, and a right to payment by way of salary or commission in proportion (to use the words of Lord Eldon) ‘to a given quantum of the profits’.”

Further on their Lordships say:—

“This distinction has always been admitted to be thin, but it nun be observed that the supposed rule itself was arbitrary in the sense of being imposed by law and of being founded on an assumption opposed in many cases to the real relation of the parties; and when the law thus creates a rule of liability and a distinction both equally arbitrary, the distinction which protects from liability is entitled to as much weight as the rule which imposes it.”

Their Lordships go on to point out that the necessity of resorting to these fine distinctions had been greatly lessened since the rule or presumption itself had lost the rigid character it was originally supposed to possess and the conclusion of the matter is thus stated:—

“It appears to be now established that a right to participate in the profits of trade is a strong test of partnership and that there may be cases when from such participation alone, it may, as a presumption, not of law but of fact, be inferred; yet whether that relation does or does not exist, must depend on the real intention and contract of the parties.”

It is true that these observations were made with reference to the liability of in alleged partner to third persons but the reasoning has its application, and ??? fact been applied, where the ??? arises between the parties to the agreement which is alleged to constitute a partnership.

The English law on the topic as it stood after the leading case (an Indian case be it noted) was codified in cl. (3) of sec. 2 of the Partnership Act of 1890 (53 and 54, Vic, c. 39). The clause lays down the general rule and then applies it to particular cases dealt with in sub-clauses. The general rule and the relevant sub-cl. (b) read as follows:—

“The receipt by a person of a share of the profits of a business is primâ facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent or varying with the profits of a business does not of itself make him a partner in the business and in particular.

“(b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such.”

The principle thus accurately expressed holds true as I conceive as much in India and in England. If that is so and if due emphasis be laid on the words “of itself” which I have underlined, then upon such an agreement as that before us the burden would seem to be on the Appellant to show that he is not a partner rather than on the Plaintiff to show that he is.

I do not, I may add, accept the suggestion of the learned Judge (it was a mere suggestion and not the ground of his judgment) that the Appellant was in some way estopped from contending that as between himself and the other parties to the agreement he was not a partner. If two parses agreed together on terms ??? to and inconsistent with the partnership relation, they would not be partners in the legal sense inter se, however, the terms might be loosely or mistakenly used in the agreement and whatever rights third parties might have against either of them on the principle that he had held himself out as a partner. But that is not the present case. Here as it seems to me, regard being had to the agreement as a whole cls. 5 and 6 not only can but ought to be construed in a sense consistent with the partnership relation. In the agreement which came before the Court in Walker v. Hirsch (3), the word “partner” was not used, nevertheless the question whether Walker was a partner was taken to the Court of Appeal. It was decided that he was not a partner partly on the ground that he had no voice in the management of the business.

Much was made here of the imperfections of language and the want of art in this agreement. But any argument founded on the form of the agreement us opposed to its substance cuts both ways. It may be possible to say that the terms “partner” and “partnership” were loosely used. But the terms are common business terms and it is much more likely that they were used in their usual legal and business sense and that cls. 5 and 6 were badly constructed.

In my opinion these four persons knew what they wanted. They wanted to be partners. In the agreement before as they sufficiently stated their intention to be partners and nothing therein contained is necessarily inconsistent with the Appellant being a partner. I have no doubt that the Appellant would have claimed the rights of a partner if it had been to his advantage to do so. I hold therefore that the Appellant is a partner with all the rights and liabilities of a partner compatible with the express terms of the agreement, and if the decision rested with me, I should, with great respect to my learned brother, dismiss the appeal with costs.

[Against this judgment there was a further appeal preferred by the Plaintiff under the Letters Patent.]

Sir B.C Mitter and Mr. S.N Banerjee for the Appellant.

Messrs H.D Bose and S.K Chakrabarti for the Official Assignee (Respondent).

The Judgment of the Court was as follows:—

Sanderson, C.J— This is an appeal by the Plaintiff in the suit, one Raghumull Khandelwal, and the Respondent is the Official Assignee representing the estate of one Dorian Evans, who was the first Defendant in the suit.

The suit was brought against Dorian Evans, Hari Charan Ghosh and Dino Nath Sircar on the allegation that there was a partnership between the Plaintiff and the Defendants: and, the prayers were for a declaration of the shares of the parties in the partnership and for a declaration that the partnership stood dissolved on the 21st of December 1920 and for incidental reliefs.

The sole question which we have to consider is whether Dorian Evans was a member of the partnership, which admittedly existed between the Plaintiff and the other two Defendants and, the question depends upon the construction of the agreement, dated the 15th June 1919.

My learned brother Mr. Justice Greaves who tried this suit came to the conclusion that Dorian Evans was a partner in the firm.

There was an appeal by Dorian Evans to the Appeal Court, and the appeal was heard by my learned brothers Mr. Justice Woodroffe and Mr. Justice Richardson. These two learned Judges differed in their opinion, Mr. Justice Woodroffe holding that Dorian Evans was not a partner and Mr. Justice Richardson holding that he was a partner. The result was that the opinion of Mr. Justice Woodroffe prevailed and the appeal was allowed.

This appeal is under the Letters Patent against the decision of Mr. Justice Woodroffe.

The terms of the agreement have been so fully dealt with in the judgments of both the learned Judges, who heard the appeal, that I do not think it necessary to go through the clauses in detail. It is sufficient for me to say that but for cls. 5 and 6 of the agreement, in my opinion, there could not be the smallest doubt that Dorian Evans was a partner of the firm in question.

The section of the Contract Act which applies to the matter is sec. 239 which runs as follows: “Partnership is the relation which subsists between persons who have agreed to combine their property, labour, or skill in some business, and to share the profits thereof between them.” That is the definition of partnership within the meaning of the Contract Act: and, I desire to emphasize in this case, that which I have said on previous occasions, viz., that the principle which was laid down by Lord Herschell in the case of Vagliano Brothers v. The Governor and Company of the Bank of England should be observed when the Court has to consider the interpretation which ought to be put upon a section such as that now under consideration. The learned Lord said as follows: “I think the proper course is in the first instance to examine the language of the statute, and to ask what is its nature meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view. If a statute, intended to embody in a code a particular branch of the law, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated.” It is on account of the principle, which was thus laid down, that I do not refer to the English cases, which were cited to us during the argument, and I decide this case having regard to the language of sec. 239 of the Contract Act.

It is not disputed that the proper test is to try and to find out from the agreement, reading it as a whole, what was the real intention and contract of the parties. Applying that test and having regard to the natural meaning of the language used in sec. 239, I have no doubt that the intention of the parties to the agreement was that Mr. Evans should be a partner.

Mr. Justice Woodroffe based his decision on the sole ground that in this case there was no agreement that Dorian Evans should share the profits of the business: and I proceed to deal with that point.

Cl. 5 provides that “the said Mr. Dorian Evans will be in charge of the firm and devote his whole time in the business of the firm and will get Rs. 500 per month as his remuneration over and above 10 per cent, as commission on the net profit of the business exclusive of all the cost expense for payment of rent, taxes, municipal license, salaries of servants and all ??? charges and expenses to be incurred in carrying on partnership business but he will get no shares of profit of the firm.”

Cl. 6 provides that “Babu Lala Raghumull will get 12 annas share and H.C Ghosh will get 2 annas 6 pies share and Babu D.N Sircar will get 1 anna 6 pies share in the profits of the said business,” making altogether the 16 annas.

I agree with my learned brother Mr. Justice Richardson's conclusion in respect of this part of the contract. The learned Judge said: “It is said that cl. 5 of the agreement expressly states that the Appellant ‘will get no shares of profit of the firm.’ In my opinion that can only mean in the context that he is to get no share other than the share already provided for, namely, a salary of Rs. 500 a month and a commission of 10 per cent, on the net profits.” I agree, with respect to my learned brother, with that conclusion except that I should substitute the word “remuneration” for “salary.” The learned Judge then proceeded as follows. “The first sentence of cl. 19 supports this construction. If the Appellant was not a partner but a mere servant or managing agent, what was the necessity of providing that if the firm should suffer loss he should still ‘get his monthly remuneration regularly’.”

In my judgment, it is clear that the 10 per cent, was to be paid to Dorian Evans out of the net profits of the business when they were ascertained, and although the words “as commission” are used in the agreement, the 10 per cent, which was to be received by Mr. Dorian Evans was a share of profits within the meaning of sec. 239 of the Contract Act.

The conclusion, therefore, at which I arrive, is that Dorian Evans by the terms of the agreement had a share in the profits and that reading the agreement as a whole there is overwhelming evidence that the intention of the parties was that Dorian Evans as well as the other three persons should be partners of the firm.

For these reasons I agree with the conclusion at which my learned brother Mr. Justice Richardson arrived: and, in my opinion, this appeal should be allowed.

The Appellant Raghumull Khandelwal is entitled to his costs in the appeal before Mr. Justice Woodroffe and Mr. Justice Richardson, and also in the appeal before this Court.

It was pointed out by Mr. Justice Woodroffe that the form of the decree was admittedly defective; consequently the decree will be amended in accordance with the suggestion made by Mr. H.D Bose, the learned Counsel for the Official Assignee, as follows:—

“It is declared that the Defendant A.H.C Dorian Evans is a partner of the firm of Dorian Evans & Company in the plaint in this suit mentioned and is entitled to a remuneration of Rs. 500 a month and also a commission of 10 per cent, on the net profit of the business as mentioned in cl. 5 of the Memorandum of Partnership, dated the 15th of June 1919, and it is further declared that the Plaintiff is entitled to twelve annas part or share of the profits of the partnership in the plaint in the suit mentioned and the Defendant Hari Charan Ghosh is entitled to two and a half annas share therein and that the Defendant Dino Nath Sircar is entitled to one and a half share thereof, and are liable for loss in such shares as mentioned in cls. 6 and 19 of the said plaint.”

Subject to the above modification the decree of the Court of first instance is restored.

Mookerjee, J.—I agree that the view taken by Mr. Justice Richardson must be upheld. I would not have thought it necessary to make any observation but for the fact that there has been a difference of opinion between Mr. Justice Woodroffe and Mr. Justice Richardson.

It is conceded that the relative rights of the parties must be determined upon a true construction of what is described as the memorandum of co-partnership agreement made on the 15th of June 1919 among four persons Raghumull, Dorian Evans, H.C Ghosh and D.N Sircar. The true rule of construction is not to take one term of the contract and raise a presumption therefrom, but to ascertain the whole scope of the agreement by reference to all its terms. If this process be adopted it is plain that there is no answer to the appeal. The introductory paragraph makes it abundantly clear that the memorandum was a partnership agreement amongst the four persons and that these persons desired to start a partnership business. The firm itself was named after Evans and the next paragraph stated that the place or places of business were to be determined by agreement of the copartners, i.e, the four persons who had entered into the partnership agreement. The second paragraph entitled the financing partner to get interest not from three of the four persons but from the firm. It is not necessary to examine in detail all the provisions of this agreement but I may refer to para. 19 and para. 23. Para. 19 leaves no doubt that Evans was a partner and that he was entitled to get his monthly remuneration regularly while the other partners would be liable for loss according to their shares. Then follows the sentence “Each partner shall be just and faithful to the capitalist partner.” This I have no doubt refers to all the three partners other than the capitalist partner. Para. 23 placed. Evans and Ghosh on the same footing in respect of certain matter namely, if either of them committed breach of the provisions of the memorandum or committed an act of bankruptcy or should become physically unfit to attend to the business or committed a criminal offence or did or suffered an act which would be a ground for dissolution of the partnership by the Court, then the capitalist partner might by notice in writing determine the partnership which according to a previous clause was to continue for a fixed term of five years. To my mind it is inconceivable that if Evans had been a mere Manager, the partners should have ever contemplated that this result would follow merely because he became physically unfit to attend to the business or committed an act of bankruptcy.

The deed taken as a whole leaves no doubt as to the position of Evans, but it is urged that the provisions of the 5th and 6th paragraphs nullify the effect of the other clauses. In this connection an attempt was made to refer to a decision which had no bearing upon the construction of sec. 239 of the Indian Contract Act, this codifies the law on the subject in this country and I agree entirely with the observations made by the learned Chief Justice as to the danger likely to result if provisions of this character were attempted to be interpreted by reference to judicial decisions which, it is well known, cannot be reconciled. Sec. 239 requires that the persons should have agreed to combine their property, labour or skill in some business, and to share the profits thereof between them. The argument on behalf of the Respondent was that the legislature intended to provide that the parties should have agreed to share in the profits “as such” between them. This is precisely what the legislature has not said. Cl. 5 provides for the payment of Rs. 500 as remuneration to Evans and also 10 per cent, of the net profits of the business as commission. It is urged that as the 10 per cent of the profits was to be paid as commission, this was not a share in the profits within the meaning of sec. 239. I do not think this contention is well-founded. The expression “share of the profits” is simple and a narrow construction ought not to be put on it.

Taking the document as a whole I have no doubt that the view taken by Mr. Justice Richardson is correct.

Chatterjea, J.—The question whether Dorian Evans was or was not a partner depends upon the construction of the memorandum of agreement, and there can be no doubt, having regard to the terms of the document (except cls. 5 and 6), that it was intended that Dorian Evans was to be a partner just as the others.

The only question to be considered, to my mind, is whether having regard to the terms of cls. 5 and 6, there was an agreement to share the profits of the business between Dorian Evans and the other partners: in other words, whether the payment of 10 per cent, commission of the net profits of the business was a share of the profits of the business. The expression “a share of the profits” is not defined in the section, and I think there is no sufficient reason for holding that payment of 10 per cent, on the net profits is not a share of the profits. The question whether there was a partnership or not must depend on the real intention and contract of the parties: and, having regard to the agreement of the parties, taken as a whole, I am of opinion that Dorian Evans was a partner.

Messrs Khaitan & Co., Solicitors for the Appellant.

Messrs H.N Datta & Co., Solicitors for the Respondent.

P.K.C