CHENNURU GAVARARAJU CHETTY Vs. CHENNURU SITARAMAMURTHY CHETTY

JUDGEMENT

(1.) The only question for determination in this appeal by the first defendant on a certificate granted by the High Court of Madras, is whether the renewal of a lease for running a salt factory, granted by the Government in favour of the appellant and others (defendants 1 to 7), could be treated as an asset of the dissolved partnership between the contesting parties. The trial court decided this question in favour of the contesting defendants. On appeal by the plaintiffs and some defendants on the side of the plaintiffs, the High Court of Madras determined this controversy in favour of those appellants. Hence, this appeal by the first defendant whose interest is identical with that of defendants 2 to 7. The reference in this judgment to appellant' will, thus, include the interest of the other non-appealing defendants also.

(2.) The relevant facts of this case, upon which the appeal depends, may shortly be stated as follows:The contesting parties used to carry on the business of salt manufacture in accordance with the rules laid down by the Government under the Madras Salt Act (Mad. 4 of 1889) (which will, hereinafter, be referred to as the Act). It is not permissible to manufacture salt otherwise than under the provisions of the Act. The land and the factory where salt used to be manufactured by the parties, are Government property. It appears that the first plaintiff, the father of plaintiffs 2 to 4, plaintiff 5, the first defendant and the deceased father of defendants 2 to 7, had made bids for the lease of the land and the factory, and the highest bid of the defendants aforesaid, was accepted; and in pursuance thereof, a lease for 17 years from January 1926, to December 1942, was granted by the Government in favour of the first defendant and the father of defendants 2 to 7. By a deed of partnership dated March 18, 1926, the first plaintiff with a two-anna share, the father of plaintiffs 2 to 4, having a similar share, and plaintiff 5 with another two-anna share, on the one hand, and the first defendant, having a five-anna share and the father of defendants 2 to 7, with the remaining five-anna share, entered into a partnership for running the salt factory. The terms of the partnership will have to be discussed in detail hereinafter. They contributed a sum of Rs. 30,000 for paying the premium for the lease and for other incidental expenses in running the factory, in proportion to the shares just indicated. The father of defendants 2 to 7, who had a five-anna share in the business, died in August 1935, and defendants 2 to 7 were admitted as partners in place of their father. In accordance with the rules of the salt department, the requisite licence for the manufacture of salt, was granted to the first defendant and the father of the defendants 2 to 7, in whose name, the lease also stood. In or about the year 1939, differences arose between the parties, but the business continued to be earned on by the defendants 1 to 7. In August 1941, in accordance with the changed policy of the Government, which substituted the practice of settling salt leases by renewal of the lease in favour of those lease-holders whose conduct had been satisfactory in the opinion of the Department, for the old practice of settling salt leases to highest bidders, the Collector enquired from the old lease-holders whose record had been satisfactory from the point of view of the salt department, whether they would take renewal for a period of 25 years. The appellant as also the other defendants aforesaid, their conduct having been satisfactory, were amongst those lessees who had been invited to make applications for the renewal of their leases. Accordingly, they made their application in July, 1942, and a fresh lease for 25 years, was granted to them on April 15, 1943, for the period January 1943 to December 1967, in pursuance of the Collector's order passed in November 1942 (Ex. P-15 (a) ). The terms of the new lease will have to be discussed later in the course of this judgment. As the term of the previous lease and of the licence to manufacture and sell salt which was the partnership business - was to expire at the end of December 1942, one of the contesting defendants served a notice upon one of the plaintiffs to the effect that as the partnership was expiring at the end of the month, the partners should settle their accounts, and make arrangements for the disposal of the unsold stock of 82102 maunds of salt. The reply to the notice was given on December 28,1942, through an advocate, alleging inter alia that the application for the renewal of the lease for a period of 25 years, had been made on behalf and with the consent of all the partners, and that, thus, the partnership business was agreed to be continued even after the expiry of the term of the previous partnership. The answer further attributed fraud and "evil intention" to the other party. The answer also called upon the defendants to pay a penalty of Rs. 2,500 per head, and to hand over the entire partnership lease property to the plaintiffs' party. Thus, the exchange of the notices aforesaid, was a prelude to the institution of the suit on January 5, 1943, that is to say, even before the fresh lease had been executed by the Government in favour of the contesting defendants 1 to 7.

(3.) The suit was instituted on the footing that the original partnership continued even after December 1942, inasmuch as the fresh lease had been obtained in pursuance of a unanimous resolution of all the partners to obtain the new lease for the partnership business. But an alternative case also was sought to be made out that even if the partnership did not continue after December 1942, as a result of the acts of the defendants, the benefit of the fresh lease for 25 years, should be treated as an asset of the dissolved partnership business, and should be taken in account in the process of dissolution of the partnership. The plaint as framed, contained large number of reliefs to which, the plaintiffs claimed, they were entitled, for example, a declaration that the partnership was continuing, and that the defendants 1 to 7 had forfeited their rights in the partnership as a result of their fraudulent acts, an injunction restraining defendants 1 to 7 from carrying on the salt works independently of the partnership and on their own account, and the declaration that the renewal of the lease in the name of the defendant 1 to 7, for a further period of 25 years, was for the benefit of the partnership. But at the trial, the plaintiffs, perhaps, realizing the weakness of their position, elected to put in a memorandum in the trial court on February 8, 1946, confining their prayers to reliefs on the basis of a dissolved partnership, and giving up other reliefs, which they claimed on the footing of the partnership still continuing. Thus, at the trial, the reliefs claimed were confined to taking accounts between the parties of the dissolved partnership, and treating the fresh lease for 25 years, as part of the assets of the dissolved firm. It is, therefore, not necessary to refer to the defendants' written statement, except with reference to the plaintiffs' claim to have the renewed lease for 25 years treated as an asset of the dissolved partnership. The contesting defendants 1 to 7 stoutly denied that the plaintiffs' claim in respect of the fresh lease or 25 years, was well-founded. They asserted that they only were entitled to run the business on the fresh lease and licence meant only for their benefit and not for the benefit of the dissolved partnership.