CHENNURU SITHARAMAMURTHI CHETTY Vs. CHENNURU GURUSWAMI CHETTI

JUDGEMENT

(1.) This appeal and the memorandum of objections arise out of a suit filed in the Court of the Subordinate Judge at Chicacole for reliefs in respect of an alleged partnership formed to work a salt factory called the Badjanapara. salt factory in the Naupada division, Vizagapatam district.

(2.) In this Province the right to manufacture and sell salt is generally obtained by the grant of a licence issued by the Government subject to the rules under the Madras Salt Act of 1889 in pursuance of a lease of salt pans belonging to Government. The leases are usually for long periods, and in common practice are granted to the highest bidder or bidders at auctions held by the Salt Department, unless the Salt Department chooses to renew an expired lease already granted. In or about the later half of the year 1925, the Salt Department put up for auction the leasehold interest in a salt factory called the Badjanapara salt factory. Five persons namely Chennuru Appalanarasayya Setti, the father of defendants 2 to 7 in the suite, Chennuru Guruswami setti, the first defendant, Chennuru Appanna Setti, the first plaintiff, Chennuru Gavarayya, the father of plaintiffs 2 to 4 and Vajrapu Venkataratnam Setti, the fifth plaintiff entered into an agreement that each of them should offer bids at the auction, and if the sale was confirmed in favour of any one or more of them, all the five should enjoy the profit or bear the loss thereof, according to particular shares. They each contributed their share to the amount of the bid At the auction held by the Salt Department, the sale was confirmed in favour of Appalanarasayya and Guruswami out of the five The lease was for a period of 17 years from 1 January, 1926 to 31 December, 1942 In pursuance of the lease executed by the Government, necessary licences were also granted to work the factory. On 18 March, 1926, a formal deed of partner ship was executed between the five individuals, and registered on 25 March The shares of the five partners were as follows : Chennuru Appalanarasayya five annas, Chennuru Guruswami, five annas, Chennuru Appanna, two annas Chennuru Gavarayya, two annas, and Vajrapu Venkatratnam Setti two annas in the rupee Appalanarasayya and Guruswami in whose names the licence stood were to be the managing partners. The capital was a sum of Rs. 30,000 contributed m accordance with the respective shares of the five partners. It was inter alia provided in the deed that the two managing partners should consult the remaining partners and act according to the majority in case a sum exceeding Rs. 100 was required for any expense, and that the resolutions that may be passed at the meetings of the partners should be entered in a resolution book, maintained for the purpose. The other provisions are not material for the disposal of this

(3.) As already mentioned, the lease was to expire by 31 December 1942 In August, 1941, the Salt Department began to take steps to ascertain if the lessees who were working salt factories under leases which would expire during the course of the year 1942 required renewal for a further period of 25 years from the date of expiry of the subsisting lease. A notice was served on the joint licensees of M.E. No. 5, the suit salt factory, informing them that their lease would expire by 31 December, 1942, and requesting them to submit a petition to the office before 20 August 1941, if they required the renewal of their lease for a further period of 25 years. It may be mentioned that prior to this, Appalanarasayya had died, on or about 23 August, 1935, and his sons, defendants 2 to 7 were recognised by the Government as the joint lessees in the place of their father, and they were also admitted into the partnership in his place. On 23 July, 1942, defendants 1 to 7 as joint lessees of the suit salt factory put in a petition to the Collector of Customs and Salt Revenue Madras through the Factory Officer, Naupada, requesting that they may be granted a fresh lease of the factory for a further period of 25 years commencing from 1 January, 1943. In this petition, they mentioned the fact that they had been granted a lease current up to 31 December, 1942, and that they had faithfully observed the terms and conditions of the lease to the entire satisfaction of the department On this petition, the officers of the Salt Department reported that the work and conduct of the lessees were satisfactory. On 11 November 1942 the Collector sanctioned renewal of the lease in the names of the existing lessees in respect of the areas held by them, if they accepted the terms and conditions of the draft lease prepared by the department. On 18th December defendants 1 and 2 to 7 represented by the 2nd defendant, issued a notice to the fifth plaintiff intimating that the period of the partnership agreement would terminate by 31st December 1942, and that in respect of the 2 annas share belonging to the fifth plaintiff a sum of Rs. 1586-11-0 was due by him to the firm There was a reference to a settlement of account arrived at on 21 January 1939 A demand was made to agree to settle profits and losses for the period from 21 January, 1939 upto 31 December, 1942, after verifying the accounts. It was acknowledged that about 82, too maunds of salt remained undisposed of, which would be sold subsequently and the net proceeds divided. There was no reference whatever in this notice (Ex. P-9) to the renewal of the lease which had been sanctioned by the Collector on nth November, 1942. Under instructions from the fifth plaintiff, his advocate replied to this notice (Vide Ex. P-g-a). In this reply, the fifth plaintiff characterised the conduct of defendants 1 to 7, in issuing the notice as fraudulent, because the renewal of the lease for a further period of 25 years was. for the benefit of the partnership which had to be continued as before, and that they were actuated by the evil intention of obtaining wrongful gain, alleging that the renewed lease was their private property. The settlement of account on 21 January, 1939 alleged in the notice of defendants 1 to 7 was denied. The fifth plaintiff even invoked the operation of the penalty clause in the partnership deed, Ex. P. 2, under which he charged that defendants 1 to 7 were liable to a penalty at the rate of Rs. 2,500 per individual. This reply was dated 28th December, 1942, and on 5 January, 1943, the suit out of which this appeal arises was instituted by the fifth plaintiff, along with Chennuru Appanna Setti as the first plaintiff, and the sons of Gavarayya as plaintiffs 2 to 4. Besides defendants 1 to 7, other defendants were added as pro forma defendants as persons who might have an interest in the benefits of the partnership indirectly. The plaintiffs. originally prayed for the following reliefs: (a) For a declaration that the defendants 1 to 7 have forfeited their rights in the suit partnership, and (b) For a declaration that the suit partnership is continuing and that the renewal of the salt lease contained in the names of defendants 1 to 7 for a further period of 25 years is one of the assets; of the said partnership enuring to the benefit of the partnership, and (c) For an injunction restraining defendants 1 to 7 from carrying on the salt works or salt business independently of the partnership and for their personal benefit by using the firm name " Chennuru Guruswami Chetty and Venkataramanayya Chetty and Bros., Lessees of Badjanapara Extension Naupada," the goodwill of the firm and the material and the properties of the firm or partnership-arid its business connections, and (d) That an account be directed to be taken of the profits that arose annually from the suit partnership since the beginning of the partnership, till this day and the plaintiffs share of such annual profits be directed to be paid by defendant 1 to 7 with interest at 6 per cent, per annum alternatively, if for any reason the Court were to hold that the suit partnership terminated or legally dissolved by virtue of any construction put on the partnership agreement dated 18 March, 1926 and therefore not possible to grant the aforesaid reliefs, the plaintiffs pray that (e) It be declared that the renewal of the suit lease obtained in the names of defendants 1 to 7 for a. further period of 25 years is also an asset of the suit partnership concern, and (f) A general account of all the assets and liabilities and 6f all the profits arising from the partner-ship from its beginning be directed to be taken, and defendants 1 to 7 be directed to pay, deliver and distribute to the plaintiffs their share of the profits and assets that may be found due and payable on taking such accounts, and (g) That defendants 1 to 7 be further restrained by a permanent injunction from carrying on the partnership salt works or business or similar salt works or business and from using any of the partnership assets, material and utilities such as the salt works, trollies, channels, and other facilities and business connections, established or created for salt manufacture with partnership funds in the pans described in the A schedule in such business and from using the goodwill of the firm and the firm's name " Chennuru Guruswami and Venkataramanayya, Bros., Lessees of Badjanapara. Extension, Naupada" in the carrying on of any such business, and (h) Grant the costs of the suit and such further or other relief which the Court might deem fit and proper after taking into consideration all the circumstances, pleadings and evidence of the case. At the trial, reliefs (a), (b) and. (c), were abandoned, and the plaintiffs filed a memdrandum on the 8 February, 1946 electing to seek for the reliefs (d), (e), (f) and (h) only.