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Petitioner: THE EASTEND AGENCIES AND OTHERS VS Respondent: AL-HAJ MAFIZUDDIN AND OTHERS
P L D 1970 Dacca 155
P L D 1970 Dacca 155
Before A. S. Chowdhury and A. H. Khan, JJ
Civil Appeal No. 9 of 1966
THE EASTEND AGENCIES AND OTHERS‑Appellants
Versus
Al‑haj MAFIZUDDIN AND OTHERS‑Respondents
AND
Civil Appeal No. 128 of 1966
ALI HAIDER AND OTHERS‑Appellants
Versus
THE DESHABANDHU SUGAR MILLS LTD. AND OTHERS Respondents
Civil Appeals Nos. 9 and 128 of 1966, decided on 25th April 1968.
(a) Partnership Act (IX of 1932), Ss. 40 & 43‑Dissolution of partnership‑Partnership deed containing contract for the determination of partnership‑Not a partnership‑at‑will‑Dissolu tion of such partnership, held, would be governed by S. 40 and provision of S. 43 will not apply.
In Court's opinion section 43 has no application in the case where the old partnership was not a partnership‑at‑will as defined in section 7 of the Partnership Act, as there was a contract under the old deed of "partnership for the determination of the part nership" though there was no contract regarding duration of the same. The Court was of the view that section 40 which provides for dissolution of a partnership with the consent of all the partners, was applicable to the present case.
(b) Companies Act (VII of 1913), S. 87‑B(f)‑Managing agents, appointment of‑Partnership of Managing Agent firm dissolved and new partnership created‑Continuance of such reconstituted firm as Managing Agent of company, held, could not be allowed by Board of Directors‑Appointment of such reconstituted firm as Managing Agent can be made only by members of company in terms of S. 87‑B(f) Powers of Board of Directors under S. 87(f )‑Only for tempo rary arrangement till appointment of Managing Agents is made by members of company‑Appointment of such re‑constituted firm as Managing Agent by Board of Directors, held, invalid.
There was a dissolution of the firm and creation of a new partnership and, therefore, it could be appointed managing agents only by members of the Company under section 87‑B(f)of the Companies Act.
Having regard to the provisions of section 87(f) of the Companies Act, it must be held that the Board of Directors had authority to appoint the new firm of partners to continue the work of the Managing Agency only by way of a temporary arrangement until the members of the Company appointed the Managing Agents under the powers vested in them by section 87‑B(f) of the Companies Act.
Bhagwanji Gocul Das v. Alembic Chemical Co. Ltd, 52 C W N 681 ref.
(c) Companies Act (VII of 1913), Ss. 30 & 31‑Members Persons, in order to be enrolled in Register of members‑Must have their shares already issued to them‑Persons not brought on Register of members under S. 31(1)‑Not members in terms of S. 30‑Meeting of company in which persons not yet brought on Register of members had participated and exercised influence in calling the same‑Held, invalid.
In order that the name of a person may be entered in the Register of members, shares must have been already issued to him so that the individual numbers of the shares may also be recorded in the Register of members.
Halsbury"s Laws of England, 3rd Edn., Vol, 6 ref.
In view of the provisions in sections 30 and 31 of the Companies Act it is clear that a person is not a member unless his name is registered in the register of the Company under section 31(1).
The firm not being one of the members of company not only called the meeting along with others but itself took part in the General Meeting and was also elected as a Director. There can be little doubt in the circumstances that it exercised a lot of influence in the matter of calling of the meeting and in the deliberations and decisions taken therein. The Court was of opinion that because of its participation in the meeting the meeting would not be a valid meeting even though it had been otherwise in accordance with law.
Lane v. Norman 66 L T R 83 ref.
(d) Transfer of Property Act (IV of 1882), Ss. 3 & 130‑Share in partnership‑An actionable claim ‑ A beneficial interest in movable property‑Transfer of share in partnership can only be effected by instrument in writing‑Partnership firm when possessing immovable property‑Transfer of its share must be registered in terms of S. 17(1)(b), Registration Act, 1908‑Registration Act (XVI of 1908), S. 17(1)(b).
Under section 3 of the Transfer of Property Act a share in a partnership is an actionable claim, vide 8 Ch. D 218 and as such may be a subject of transfer under section 130 of the Transfer of Property Act.
There is no provision of law exempting the requirements of writing and registration in case of transfer of a share of a partnership firm whose assets include immovable properties also. Therefore, in case of such a transfer a registered instrument would be necessary.
Lindley on Partnership, pp. 403, 527 ; 8 Ch. D 218 ; Abdul Hakim v. Abdul Majid P L D 1957 Kar. 379 ; Dharam Chand Boid and another v. Mouji Shahu and others 16 I C 440 ; Jadu Nath v. Ruplal 10 C W N 650 ; Mulchand Tagiore v. Shamdas A I R 1941 Sind 73 ; K. Roy & Bros. v. Ramdas A I R 1945 Cal. 37 and Jaharmal v. Tejram Jagrup I L R 17 Bom. 235 ref.
The transfer of interest of a partner in a partnership firm does not entitle the transferee to interfere with the conduct of the business or to require accounts or to inspect the books of the firm but only to receive the share of the profits of the firm and after the firm is dissolved only then the transferee is entitled to receive the share of the assets to which he is entitled. It appears to be quite clear that transfer of the interest of a partner in a partnership firm can be effected only by an instrument in writing, the share m a partnership being of the nature of a beneficial interest in movable property, and it has also to be registered according to the provisions of section 17(1)(b) of the Registration Act when the firm is possessed of immovable property as the transfer operates to create an interest in immovable property.
(e) Companies Act (VII of 1913), Ss. 76(1) & 79(2)(a)‑Annual General Meeting, calling of‑Members not authorised under S. 79(2)(a) to call Annual General Meeting except in case of default contemplated in S. 76(1).
To assert that a certain percentage of members may call the Annual General Meeting under section 76 at any time even when there is no default under section 76 is to argue contrary to the provisions of that section and to interpret section 79(2)(a) as authorising a few members to interfere with the duties and rights and privileges of the Board of Directors and the Managing Agents. Obviously this is not contemplated under the Com p3rpies Act. Section 79(2) (a) does not authorise members to call the Annual General Meeting except in case of default as contemplated in section 76(1) of the Act.
A I R 1959 Cal. 715 ref
D. C. Bhattacharjee with A. K. M. Nurul Islam and B. B. Roy Choudhury for Appellants.
Asrarul Hossain, Advocate‑General, Anil Chandra Sarkar and S. S. Halder for Respondents.
JUDGMENT
A. H. KHAN, J.‑‑These two appeals are directed against the judgment and decrees passed by Mr. Santiranjan Karmakar, in Title Suits Nos. 2 and 12 of 1965.
The two appeals were heard analogously and are being disposed of by this judgment. Appeal No. 9 of 1966 is directed against the judgment and decree in Title Suit No. 2 of 1965 and Appeal No. 128 of 1966 against those in Title Suit No. 12 of 1965.
Title Suit No. 2 of 1965 has been instituted under the provisions of Order I, rule 8 of the Civil Procedure Code by Alhaj Mofizuddin Khan and several others on behalf of the plaintiffs themselves and other members of the Deshbandhu Sugar Mills Ltd., having its registered office at Dacca (hereinafter referred to as the Company). The Eastend Agencies is defendant No. 1 in this suit and Messrs M. M. Ishpahani Limited and Md. Mofazzel Hossain, the 2 partners of Eastend Agencies, are defendants Nos. 2 and 3 respectively. Ali Haider and S. Mobarak Reja are defendants Nos. 4 and 5 respectively they are the Agents of Messrs M. M. Ishpahani Limited under Power‑of‑Attorney authorising them to represent M. M. Ishpahani Limited in the affairs of the Eastend Agencies, the Managing Agents of the Company. Of the other defendants, defendant No. 5 (a) is It. N. Bose, representing a firm of the name of Eastend Consultants Limited. Defendants Nos. 6 to 10(a) are the Directors of the Company and the defendant No. 11 is the Company (the Deshbandhu Sugar Mills Limited). In Suit No. 12 of 1965 the Company is the plaintiff No. 1 and the remaining plaintiffs are Directors of the Company. Some of the defendants in this suit who are also defendants in Title Suit No. 2 are defendant No. 1, Ali Haider, defendant No. 2 Fastend Consultants Limited defendant No. 8, Eastend Agencies, defendant No. 9, M. M. Ishpahani Limited, defendant No. 10, Md. Mofazzel Hossain and defendant No. 11 S. M. Reja. As common questions of law and fact are involved in both the suits, the learned Subordinate Judge heard them analogously and disposed of them by the same judgment. In both the suits certain declarations in respect of the affairs of the Company which is a public Limited Company were prayed for. The company was incorporated under Companies Act of 1913 for the purpose of manufacturing sugar and selling the same in the market.
Under the Articles of Association the Company is entrusted to Managing Agents to be appointed by the Company; and the Managing Agents subject to the control of the Directors are to conduct the business of the Company. The facts regarding the Management of the affairs of the Company so far relevant for the purpose of the present appeals are as follows :
On 18‑12‑53 the Company in its Annual General Meeting passed a Special Resolution appointing as the Managing Agents, Messrs Eastend Agencies, a partnership firm consisting of Raziuddin Bhuiya, Mofazzel Hossain and Suresh Chandra Pal as partners. The partnership firm was first brought into existence by an oral agreement among the partners and the partnership deed was executed on 22‑12‑54 and a deed of agreement between the Company and the Managing Agent was executed on 30‑12‑53. This firm continued to act as Managing Agents peacefully till 10.1‑63 on which date one of the partners, Raziuddin Bhuiya died and then on 19‑1‑63 the surviving partners, Suresh Chandra Pal and Mofazzal Hossain executed a Deed of Dissolution of the partnership with effect from 11‑1‑63 and a fresh Deed of ‑Partnership was executed under the old name and style of Eastend Agency on 21‑1‑63. The Board of Directors in a meeting held on 23‑1‑63 approved of this new partnership as the reconstituted firm of Eastend Agency by its resolution No. 3 of the aforesaid date. This is one of the acts validity of which has been challenged in both the suits on the contention that the partnership firm that was brought into existence on the dissolution of the old partnership firm was a new firm and not merely a reconstituted firm and the appointment or approval of the new firm by the Board of Directors wag illegal and ultra vires the Articles of Association as well as the provisions of Companies Act.
The partnership firm with Suresh Chandra Pal and Mofazzel Hossain however had continued working as Agents of the Company till 14‑7‑64 when another partnership was brought into existence. Before that on 18‑11‑63 one of the two partners, Suresh Chandra Pal had entered into an agreement to transfer his interest in the firm in favour of M. M. Ishpahani Limited, and on 13‑4‑64 the said partner had also served a three months' notice on the firm expressing his intention to retire from the firm with effect from 13‑7-64, and on this date (13‑7‑64) Suresh Chandra Pal also executed a Power‑of‑Attorney in favour of M. M. Ishpahani Limited authorising them to represent Suresh Chandra Pal as a partner of the firm. On 14‑7‑64 a deed of partnership was executed by M. M. Ishapahani Limited and Mofazzel Hossain for carrying on the Managing Agency and other business under the name and style of East End Agencies. On the same date a resolution in a meeting of the Board of Directors was also passed appointing as Managing Agents the Eastend Agencies with the two partners, Mofazzel Hossain and M. M. Ishpahani Limited, in place of Suresh Chandra Pal. Subsequently the appointment of the newly‑constituted partner ship as Agents of the Company was approved in a meeting claimed to be the 32nd Annual General Meeting of the Company held on 28‑3‑65 in which new Directors of the Company were also elected. The plaintiffs in both the suits have also challenged the validity of the appointment as Managing Agents of this firm consisting of M. M. Ishpahani Limited and Mofazzel Hossain as partners.
In both the suits the plaintiffs have further challenged the validity of the so‑called 32nd Annual General Meeting held on 28‑3‑1964 convened under two notices both dated 10‑3‑65, one issued by Ali Haider representing the Managing Agents and the other issued by Eastend Consultants Limited represented by R. N. Bose, and 5 other members.
In Title Suit No. 12 of 1966 there was a further prayer for a decision that defendants Nos. 2 to 7 and 12 to 20 of that suit are not share‑holders of the Company.
Ali Haider and S. Mobarak Reja who are common defendants in both the suits contested the suits. They contended inter alia that the firm consisting first of Mofazzel Hossain and Suresh Chandra Pal and then of Mofazzel Hossain and M. M. Ishpahani Limited as partners was in each case a reconstituted firm and not a new firm and it was legally approved by the Board of Directors and as such all acts done by them as partners of the said firm were legal and valid, including convening and holding of the 32nd Annual General Meeting of the Company on 28‑3‑65. They also asserted that defendants Nos. 2 to 7 and 12 to 20 of Title Suit No. 12 of 1965 were duly accepted as share‑holders by virtue of their purchase of some forfeited shares of the Company, and as such they were members of the Company.
During the course of hearing of the suits the following three issues were agreed upon as the issues to be determined in the suits:
(1) Whether the firm of Eastend Agencies consisting of M. M. Ishpahani Limited and Mofazzel Hossain was validly appointed Managing Agents of the Company?
(2) Whether the 32nd Annual General Meeting of the Company was legally convened and held on 28‑3‑65?
(3) Whether the defendants Nos. 2(a) to 7 and 12 to 20 of Title Suit No. 12 of 1965 were share‑holders by virtue of the alleged purchase of some forfeited shares?
On a careful consideration of the evidence and facts and circumstances of the case in an elaborate and well‑reasoned judgment the learned Subordinate Judge found issue No. 3 in favour of the defendants and the remaining two issues in favour of the plaintiffs and accordingly declared (i) that the firm, Eastend Agencies consisting of M. M. Ishpahani Ltd. and Mofazzel Hossain as partners was not validly appointed Managing Agents of the Company and further that the 32nd Annual General Meeting of the Company held on 28‑3‑6j was not legally called nor legally held.
The first question that arises for determination in these appeals is whether the firm of Eastend Agencies as constituted or reconstituted with M, M. Ishpahani Limited and Mofazzel Hossain as partners under the partnership deed of 14‑7‑64 was duly appointed Managing Agent of the Company. Now, though no specific issue was raised regarding the validity of the appoint ment of the firm consisting of Mofazzel Hossain and Suresh Chandra Pal as Managing Agents by the Board of Directors and though no decision was necessary on this point, for a decision of the points at issue in the suits, the learned Subordinate Judge dealt with that question at length. As this was also argued before us, we shall discuss this question as this will serve to clarify the legal position of the Eastend Agencies that was subsequently formed with M. M. Ishpahani Limited and Mofazzel Hossain as partners. Mr. D. C. Bhattacharjee, learned Advocate for the appellants, has contended that the learned Subordinate Judge erred in holding that the deed of partnership, dated 21‑1‑63 (Exh. 3 (a)), created a new partnership on dissolution of the old partnership consisting of Raziuddin Bhuiya, Md. Mofazzel Hossain and Suresh Chandra Pal under the deed of dissolution of partnership, Exh. 4 dated 19‑1‑63 (vide page 41 of Paper Book 11), Mr. D. C. Bhattacharjee has argued that both the document namely, the deed of dissolution of partner ship, Exh. 4, and the new deed of partnership between Suresh Chandra Pal and Mofazzel Hossain dated 21‑1‑63, Exh. 3 (a), read together clearly show that the intention of the parties was reconstitution of the partnership on the death of third partner, Raziuddin Bhuiya, The learned Advocate has contended that the alleged dissolution cannot be held to be dissolution as it was in effect a reconstitution of the old partnership and as such, approval or appointment by the Board of Directors was enough and there was no necessity for re‑appointment of the firm as Managing Agents in a General Meeting of the members of the Company under the provisions of section 87‑B (f ) of the Companies Act. Now, it is true that in clause No. 21 of the old partnership deed including Raziuddin Bhuiya as a partner, it is provided that on the death of one of the partners his legal heirs etc. shall step rote his shoes but in case they express their unwillingness to work with the other partners, the accounts of the deceased partner shall b;, adjusted and paid in full to the legal heirs etc, with such compensatory allowances as may be decided by the partners within three months from the date of death of the deceased partner. The said old partnership deed, Exh.3, also provided in clause No. 17 that if from any cause "any two members of the partnership ceased to be so, the partnership would be dissolved". In view of above provisions it was, no doubt, open to the surviving partners to continue the partnership as a reconstituted firm.
The first question that arises is whether in the eye of law the two documents namely, the deed of dissolution. Exh. 4, dated 19‑1‑63 and new deed of partnership, Exh. 3 (a), dated 21‑1‑63 had the effect of a simple reconstitution of the firm, or whether they brought into existence a new partnership firm, dissolving the old one.
Section 40 of the Partnership Act provides that "a firm may be dissolved with the consent of all partners or in accordance with the contract between the partners," while section 43 (1) provides for dissolution of a partnership‑at‑will by any partner on giving notice in writing to all other partners of his intention to dissolve the firm. To our mind, section 43 has no applications in the present case inasmuch as the old partnership including Raziuddin Bhuiya was not a partnership‑at‑will as defined in. section 7 of the Partnership Act, as there is a contract under A the old deed of partnership" for the determination of the partnership though there was no contract regarding duration of the same. We are of the view that section 40 which provides for dissolution of a partnership with the consent of all the partners, is applicable to the present case.
In Exh. 4, dated 19‑1‑63 the deed of dissolution of partnership, it is stated, inter alia, that "as one of the partners of the aforesaid firm Mr. Raziuddin Bhuiya died on the 10th pf January 1963 and there is no unanimity amongst the heirs to continue the said firm and the remaining referred to as the first and second parties after due notice has mutually dissolved, the partnership and a new partnership firm will be formed soon, after which they shall carry on the business of the Managing Agency."
In the said deed of dissolution it is also stated that "the existing firm of Eastend Agency has no liabilities on books of account and its commission and other earnings", and further that the partners have signed notices addressed to the Registrar of Firms notifying the dissolution of the Firm, which shall be recorded with the Registrar as soon as possible, and it is further stated that the parties have agreed to notify the Deshbandhu Sugar Mills Limited that "the existing partnership firm has been dissolved and a new partnership firm will be formed soon, after which they shall carry on the business of the Agency". In the new partnership deed, Exh. 3 (a), dated 21‑1‑63 it is also stated, inter alia, that the two partners have dissolved the old partnership and constituted a new partnership for the same and other purposes as they deem fit and proper. It is further stated, that the capital of the partnership firm shall be Rs. 4,000 whereas under the old partnership the capital was Rs. 5,000. Now, in view of the unequivocal expressions in the documents regarding the dissolution of the old partnership and creation of a new partnership, we find no reason why the two documents should be construed as documents merely reconstituting the old firm. It also appears that there were good reasons for bringing into existence a new partnership firm in order that there might be complete severance from the old partnership, as otherwise the legal heirs of Raziuddin Bhuiya might bring forward claims in respect of the future profits and gains of the firm. It may be mentioned here that under certain circumstances, under the provisions of section 37 of the Partnership Act, in the absence of a contract to the contrary, the legal representatives of a deceased partner are entitled, at their option, to such shares of the profits after the death of the partner as may be attributable to the use of the share of the party of the firm, or to interest at the rate of 6 % per annum on the amount in the share of his property in the firm In view of the above facts and circumstances, we have no hesitation to hold that the learned Subordinate Judge's finding that there was in fact a dissolution of the old partnership and creation of a new partnership consisting of Mofazzel Hossain and Suresh Chandra Pal, and that it was not a reconstitution of the old firm as contended by Mr. Bhattacharjee.
In view of the dissolution as found above, and having regard to the provisions of section 87‑B (f) of the Companies Act which lays down that the Managing Agent shall be appointed by the members of the Company, it appears to be clear that the appointment of the partnership firm of Mofazzel Hossain and Suresh Chandra Pal treating it as a reconstituted firm as Managing Agents by the resolution of the board of Directors dated 21‑1‑63 (vide Exh. 6(e) page 67 of the Paper Book 11) was invalid, the appointment having been in contravention of the provisions of section $7‑13(f) of the Companies Act.
Mr. Bhattacharjee, however, has contended that in view of the provisions of Article 86‑A (c) of the Articles of Association of the Company (vide page 126 of the Paper Book il), the learned Subordinate Judge should have held that the appointment by Board of Directors of the Eastend Agency consisting of the partners, Suresh Chandra Pal and Mofazzel Hossain, even, if, considered to be a new firm, was valid in the eye of law. Article 86‑A(c) of the Articles of Association, Exh. D (page 129 of the Paper Book II) is as follows :‑
"In the event of dissolution of the partnership all the members of the Eastend Agency now constituting the Managing Agency of the Company, owing to death, resignation, withdrawal or any other cause or causes, the Board of Directors shall be at liberty to retain or withhold the operation of any or all articles mentioned in this Chapter (XVII) for, or from, the successor or successors of this Managing Agency of the Company or, if necessary, and expedient, to appoint one or two members of the Board as Managing Director for the Management of the affairs of the Company."
On the basis of the above provision Mr. Bhattacharjee has argued that the clause empowers the Board of Directors to retain the service of the surviving partners as Manag ing Agents even on the dissolution of the partnership firm. We are in complete agreement with the learned Subordinate Judge that this provision was made merely for the purpose of an ad hoc arrangement, till a new Managing Agent was appointed by the members of the Company under the provisions of section 87‑B (f) of the Companies Act.
It appears from the judgment of the trial Court that it was argued before that Court that the appointment of the partnership firm consisting of Messrs Suresh Chandra Pal and Mofazzal Hossain by the Board of Directors was ratified in 31st Annual General Meeting of the members of the Company. But from the proceedings of the 31st Annual General Meeting held on 21‑6‑64 (vide Exh. 5 (a), page 50 of the Paper Book II), it appears that there was no such resolution ratifying the appointment. Mr. Bhattacharjee has also not argued before this Court that there was any such ratification in respect of the appointment of the firm…
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