Bhagwant P. Sulakhe Vs. Digambak Gopal
Sulakh and OBS [1985] INSC 215 (30 September 1985)
SEN, AMARENDRA NATH (J) SEN, AMARENDRA NATH
(J) BHAGWATI, P.N. (CJ) MADON, D.P.
CITATION: 1986 AIR 79 1985 SCR Supl. (3) 169
1986 SCC (1) 366 1985 SCALE (2)819
ACT:
Joint family property, character of - When lt
changes ether by an unilateral act it is open to any member of the joint family
to convert any joint family property into his personal property - Partnership
firm formed out of joint family funds and managing agency agreement entered
into by such a partnership firm with another company - Commission received by
the co-sharers of the point family in terms of the managing agency agreement
and the remuneration received by them as the managing director treated as the
joint family property for all purposes - Whether one of the co-sharers by a
simple letter claim the commission remuneration received by him as his personal
property till the joint family is disrupted - Position of managing director and
the managing agent, explained.
HEADNOTE:
One Pandarinath Martand Sulakhe died leaving
behind him his sons Vishwanath, Gopal, Govind and Bhagwant and considerable
properties. Vishwanath died in 1910 leaving behind his son Dattatraya, Govind,
one of the brothers who constituted a pint family after the death of their
father Pandarinath Sulakhe, separated from the joint family in 1914 taking his
share of the family properties. However, the other two brothers along with the
son of Vishwanath continued to remain pint and lived as members of the joint
family till 8.12.1941 on which date Bhagwant intimated Dattatraya son of
Vishwanath his intention to cause severance of the point family status.
Prior to it, in the year 1922, a Public
Limited Company named Lokmanya Mills Ltd. was intended to be floated and with
that in view Dattatraya and Bhagwant entered into a partnership under the name
and style of M/s. Sulakhe and Co.
with four outsiders, as per the Partnership
Agreement dated 3rd January, 1923. me said Partnership firm Sulakhe and Co.
entered into a Managing Agency agreement on
5.2.1923 with the said Lokmanya Mills Company Ltd. The said agreement was to
expire after 35 years. The mill actually went into production in the year 1938.
on the basis of the managing agency agreement between the company 170 and the
firm Sulakhe & Co., Dattatraya acted as the managing agent upto 1935 and
thereafter Bhagwant became the managing agent. After Bhagwant's appointment as
managing agent, Dattatraya was appointed as the Director of the company.
At the time when the company was incorporated
and its articles were adopted and also at the time when the company entered
into the managing agency agreement with Sulakhe and Co. and when the deed of
partnership of the firm was executed Bhagwant and Dattatraya being members of
the joint family, all the 325 shares which was initially purchased in the
company - 200 in the name of Dattatraya and 125 in the name of Bhagwant - plus
the 83 further shares - 79 in the name of Bhagwant and 4 in the name of Gopal -
were paid for by the joint family out of the joint family funds.
Therefore, the entire amount of remuneration
which was received by Dattatraya and Bhagwant not only on account of their
shares of commission under the managing agency agreement on the basis of the
partnership deed but also on account of the Director's fees paid to them and
also on account of the salary paid to Dattatraya who acted as the managing
agent of the company till 1935, was treated as joint family property. Even
after Bhagwant took over as the managing agent in 1935, the position continued
to be the same and the remuneration received by him formed part of the joint
family income till the dispute raised by him by his letter dated 15th July,
1941. All monies received by Bhagwant and Dattatraya from the company were not
only treated as joint family property, but also were so entered in the books of
account of joint family and were so shown in the income tax returns.
However by his letter dated 15th July, 1941
Bhagwant informed Dattatraya that the remuneration received by him as the
managing agent of the company on the basis of the managing agency agreement,
fees received by him as the director of the company and his income from his
profession as a lawyer were his personal income and should be treated as such.
He made it clear that he will not in future put any of these incomes into the
hotch pot of the joint family. By another letter dated 8.12.1941 Bhagwant
intimated his intention to cause severance of the joint family status.
Since Dattatraya did not accept the claim of
Bhagwant for treating the said amount as the personal property. Bhagwant filed
a suit No. 166/43 in the original side of the Bombay High Court laying claim to
the said amounts. In the meantime Gopal and Dattatraya filed two suits in the
Civil Court against the Company and Bhagwant for the payment of the sum of
money credited to the 171 joint family in the books of the parties and as a
result thereof A most of the joint family properties came to be divided amongst
the parties in accordance with their respective shares, except the dispute
raised in the suit in the original side of the High Court.
During the pendency of the said suit the
managing agency agreement had come to an end by virtue of the provisions
contained in section 87 (A) (2) of the Companies Act, in as much as though the
Board of Directors of the company had passed a resolution on 28.6.56 for the
renewal of the managing agency agreement, no action was taken by SuLakhe &
Co. to get the Managing Agency Agreement for a further term after 1957
extended. On the other hand, the company amended its articles of association
and proceeded to appoint Bhagwant as its managing Director and neither his
appointment nor the validity of the amendment of articles of association was
objected to by either Sulakhe & Co. or any of the co-sharers forming part
of the partnership firm. The trial Judge accepted the claims of Bhagwant and
decreed the suit in his favour and made Gopal and Dattatraya accountable in
respect of the joint family business. The High Court in appeal held that the
income received by Bhagwant as managing agent and managing Director of the
company could not be considered to be the personal property of Bhagwant and
reversed the decision of the trial Judge in this respect and also on various
other claims to cash etc. Hence the appeals by certificate under Article 133
(1) (a) as it stood before the Constitution (Thirtieth) Amendment Act, 1972.
Allowing the appeals in part and passing a
final decree in terms clarified, the Court.
^
HELD : 1.1 The character of any joint family
property does not change with the severance of the status of the joint family
and a joint family property continues to retain its joint family-character so
long as the joint family property is in existence and is not partitioned
amongst the co-sharers. By an unilateral act it is not open to any member of
the joint family to convert any joint family property into his personal
property. [194 B-C]
1.2 The agreement of partnership clearly
indicates that Bhagwant and Dattatraya became members of the firm M/s.
SuLakhe & Co- which Was appointed as the
managing agent of the company, on the basis of the managing agency agreement,
representing the joint family and for the benefit of the joint family. Their 172
interest in the partnership firm and managing agency was a part of joint family
assets and whatever income was earned by them on the basis of the managing
agency agreement belongs to the joint family and formed part of the joint
family property. The same position must necessarily continue in the eye of law
so long as the partnership agreement and the managing agency agreement
continued. [192 G-H; 193 A-D]
1.3 By seeking to bring about a severance in
the status of the joint family, one of the co-sharers cannot deprive the joint
family of this property and the income derived on the basis of the managing
agency agreement continues to remain the property of the joint family so long
as the joint family asset is not partitioned and otherwise continues to remain
in existence.
In the facts and circumstances of the case,
the entire income arising out of the managing agency agreement and accruing to
the two members of the family, namely, Bhagwant and Dattatraya who might have
rendered the services had been earned for and on behalf of the family and as
representatives of the point family. Dattatraya had continued as the managing
agent for a number of years and there had been no question of apportionment of
any income derived by him as his remunerations for the services rendered by him
as managing agent. Therefore, Bhagwant cannot lay any claim for retaining any
part of the remuneration received by him from the company for the services
rendered by him. [193 D-E; 194 A]
2.1 In Raj Kumar Singh Hukum Chandji's case,
[1971] S.C.R. 748, the Supreme Court held that the broader principle that
emerges is whether the remuneration received by the coparcener in substance
though not in form was but one of the modes of return made to the family
because of the investment of the family funds in the business or whether it was
a compensation made for the services rendered by the individual coparcener. If
it is the former, it is an income of the Hindu undivided family but if it is
the latter then it is the income of the individual coparcener. If the income
was essentially earned as a result of the funds invested the fact that a
coparcener has rendered sore service would not change the character of the
receipt. But, if on the other hand, it is essentially a remuneration for the
services rendered by a coparcener, the circumstance that his services were
availed of because of the reason that he was a member of the family which had
invested funds in that business or that he had obtained the qualification
shares from out of the family funds would not make the receipt, the income of
the Hindu undivided family. The legal principle enunciated therein for
determining 173 the true nature and character of the remuneration received by
any A member of the joint family equally applies in deciding the nature and
character of the remuneration received by the Managing Director in the instant
case. [195 C-D; 196 C-E; 197 A-B]
2.2 The position of the Managing Director is
entirely different from the position of the managing agent on the basis of the
managing agency agreement between the partnership firm of Sulakhe & Co. and
the position of the Managing Director stands entirely on a different footing.
At the time when Bhagwant was appointed the Managing Director of the company on
19.10.1957, with effect from 16.1.1957, there was complete disruption of the
joint family and there was no joint family in existence. Further inspite of the
Board of Director's resolution dated 28.6.1956 for the renewal of the managing
agency agreement as required by section 87 A (2) of the Companies Act, no
action was taken by the firm of sulakhe Co. or any partner thereof for
obtaining renewal of the managing agency agreement for a further term after
1957. On the other hand when the company had amended its articles of
association and had proceeded to appoint Bhagwant as the Managing Director,
there was no challenge to them either by any partner of the firm of Sulakhe
& Co. which hat been appointed as the managing agent of the company or by
any member of the joint family. Is the managing agency agreement had ceased to
exist at the time Bhagwant was appointed the Managing Director of the company
and as at that time there was no joint family of Bhagwant and the other
co-sharers in existence, Bhagwant cannot be said to have been appointed as the
Managing Director of the company either because of the managing agency
agreement or because of his being a member of the joint family. The facts and
circumstances make it clear that the partnership agreement or the managing
agency agreement had no relevance to the appointment of Bhagwant as the
Managing Director of the Company. In the said circumstances, (i) the
remuneration received by Bhagwant as Managing Director of the company from the
company is his personal property ant cannot be considered to be the income of
the joint family; (ii) the appointment of Bhagwant as Managing Director, at a
time when there was complete disruption of the joint family and the members of
the family were fighting in Court cannot be considered to be by way of any
return on the investment mate by the Joint family; aud (iii) Bhagwant was
appointed as the Managing Director by the company for services to be rendered
by him, as the company might have been impressed by his performance as the
managing agent for a number of years.
Though undoubtedly Bhagwant acted as the
managing agent for ant on behalf of the joint family and for 174 benefit of the
Joint family, yet what must have weighed with the company is the kind of
services rendered by him to the company. The company was concerned with his
services and not with the question whether he was rendering the services for
and on behalf of the family. The remuneration which the company agreed to pay
to Bhagwant for acting as the Managing Director was for the services to be
rendered by him. [194 ;
195 A-B; 196 G] Raj kumar Singh Hukum Chandji
v. Commissioner of Income Tax, Madhya Pradesh [1971] 1 S.C.B. 748 applied.
2.3 From the materials on record, it is clear
that there can also be no question of Bhagwant being a trustee or acting as the
trustee for the benefit of the joint family in relation to his appointment as
the Managing Director of the company. The managing agency of the company was
that of the partnership firm in which the four outside members with a majority
of shares in the partnership were interested and the managing agency firm
cannot therefore, be considered to be an asset of the joint family. It was the
interest of Dattatraya and Bhagwant in the managing agency firm on the basis of
their shares in the partnership which belonged to the joint family and the
managing agency was an agreement between the company and the partnership firm.
The effect of not renewing the agreement was that the interest of the
partnership firm of Sulakhe & Co. in the company as the managing agent thereof
with all the rights and privileges on the basis of the said agreement came to
an end. With the termination of the managing agency agreement the interest of
the joint family in the managing agency on the footing that two of the members
of the joint family, namely, Dattatraya and Bhagwant were as partners of the
firm associated with the managing agency and were acting as the managing agent
on the basis of the partnership agreement and the managing agency agreement
also ceased. [197 C-G; 198 G-H]
CIVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 2622 & 2622A of 1969.
From the Judgment and Decree dated
18/19/20/25/29.9.1967 and 9.10.1967 of the Bombay High Court in First Appeal
Nos. 278 and 279 of 1969.
V.M. Tarkunde, Dr. Y.S. Chitale, Mukul
Mudgal, Mrs. M. Karanjawala and D.N. Mishra for the Appellant.
M.C. Bhandare, D.R. Dhanuka, Mrs. Rani
Chhabra K.H. Kapadia and G.B. Sathe for the Respondents.
175 The Judgment of the Court was delivered
by A.N. SEN, J. This is an unfortunate litigation between near relations and
this litigation between the parties is now going on for over four decades.
These two appeals have been filed with the
certificate granted by the High Court against the judgment of the High Court by
the plaintiff in the suit instituted by him for partition of joint family
properties, for accounts and other reliefs mentioned in the plaint.
By a common judgment delivered by the High
Court in two separate appeals filed by the defendants in the suit against the
judgment of the Trial Court., the High Court has substantially reversed the
judgment of Trial Court.
The facts of the case have been fully set out
in the judgment of the Trial Court and also in the judgment of the High Court.
We shall briefly indicate the facts material for the purpose of disposal of
these two appeals. As the High Court disposed of both the appeals by one common
judgment and the two appeals which have been preferred against the same
judgment have been heard together, this judgment will dispose of both the
appeals.
One Pandarinath Martand Sulakhe died leaving
behind him his sons Viswanath, Gopal, Govind and Bhagwant and considerable
properties. The properties left by him included agricultural lands, a number of
houses in Barshi and three shops. Of the three shops one was a Sharafi shop at
Barshi, another cloth shop at Barshi and the other a commission Agency and
Sarafi shop at Bombay. Business in all these three shops was carried on in the
name of P.N. Sulakhe. Of the four sons Vishwanath died in 1910 leaving behind
him his son Dattatraya who happens to be the second defendant in the suit.
Govind, one of the brothers who constituted a joint family after the death of
their father Pandarinath Sulakhe separated from the joint family in 1914 taking
his share of the family properties. Though Govind separated in 1914, the other
brothers and the son of Vishwanath continued to remain joint and lived as
members of the joint family. Bhagwant who filed a suit for partition as the
plaintiff was the youngest of the four brothers. He graduated in law in the
year 1914 and commenced practice as a lawyer at about that time.
176 In 1922, a public limited company named
Lokmanya Mills Ltd. (hereinafter referred to as the Company) was intended to be
floated and with that end in view, the defendant No. 2 Dattatraya and the
plaintiff Bhagwant entered into a partnership under the name and style of M/s.
Sulakhe & Co.
with four outsiders. Managing agency
agreement between the company and the partnership firm of Sulakhe & Company
was executed. The mill actually went into production in 1938. On the basis of
the managing agency agreement between the company and the firm of Sulakhe &
Co. the defendant No. 2 Dattatraya acted as the managing agent upto 1935 and
thereafter the plaintiff Bhagwant, became the managing agent. Sometime after
the plaintiff Bhagwant had been appointed the managing agent, the defendant No.
2 Dattatraya was appointed as the Director of the Company. It appears that in
the year 1935, a new Adat shop had been started at Barshi. All the shops were
run in the name of P.N. Sulakhe.
It is not in dispute that all the shops were
joint family businesses. It is also not in dispute that the remuneration paid
to the defendant No. 2 and also the plaintiff Bhagwant as managing agent and
also the amount of commission falling into the shares of defendant No. 2
Dattatraya and the plaintiff Bhagwant out of the commission earned by the
managing agency firm were treated as joint family properties and were shown in
the point family books so long as disputes between the parties had not arisen.
During the period when there were no disputes between the parties, the
Director's fees paid to defendant No. 2 Dattatraya and the plaintiff Bhagwant
were treated as income of the point family and even the professional h income
of the plaintiff Bhagwant earned by him as a lawyer was also thrown into the
joint family hotch-pot and Was treated as joint family income. In the
income-tax returns filed on behalf of the joint family, all these amounts were
shown as income cf the joint family. It appears that everything did not go well
with the members of the point family and disputes arose between the parties
soon after the commencement of the second world war. The plaintiff Bhagwant by
his letter dated 15th July, 1941 addressed to the defendant No. 2 Dattatraya
informed him that the remuneration received by him as the managing agent of the
company on the basis of the managing agency agreement, fees received by him as
the director of the company and his income from his profession as lawyer were
his personal income and should be treated as such. By this letter, he made it
clear that he was not prepared to throw any of these incomes into the point
family hotch-pot and he asked the defendant No. 2 Dattatraya that all these
amounts should be shown as his separate income for the purposes of income tax
and should be credited to his personal 177 Khata in Sarafi shop account.
Disputes and differences between the parties became more acute and the
plaintiff on 8.12.1941 intimated to the defendant No. 2 Dattatraya his
intention to cause severance of the joint family status.
Thereafter attempts were made to divide the
properties amicably between the parties without success. The plaintiff Bhagwant
claimed that the remunerations paid to him by the company as managing agent,
the fees paid to him as director of the company and his income from his
profession as a lawyer were his personal income and as such his personal
property. The defendants did not accept the claim of the plaintiff Bhagwant that
the remuneration paid to him as managing agent by the company and the fees paid
to him as the director of the company, could be his personal income and the
defendants claimed that all such amounts received by him belonged to the joint
family and formed part of the joint family properties. Ultimately Bhagwant
filed a suit being suit No. 166/43 in the original side of the High Court in
Bombay. In this suit Gopal was the first defendant and Dattatraya was the
second defendant and the suit was filed in the original side of the Bombay High
Court on the basis that the Adat Shop and Sarafi Shop were situated within the
original jurisdiction of the Bombay High Court. In this suit, Bhagwant the
plaintiff did not made any reference to the managing agency of the company in
the plaint and he claimed partition of the joint family shares and moveable and
immovable properties mentioned in the plaint as belonging to the joint family,
seeking to reserve his right under 0. 2, rule 2 of the Code of Civil Procedure
to file a suit for partition of the joint family properties situated at Barshi.
The plaintiff Bhagwant in this suit claimed various other reliefs. He prayed
for a direction that the immovable properties and the business at Bombay should
be ordered to be partitioned under the directions of the Court, that the joint
family firms should be wound up that the sum of Rs. 6843-36 claimed by him as
his personal Income as a lawyer from his profession from 1940 should be awarded
to him with interest at 12% interest on the same and he also claimed as
consequential relief that the defendants should be ordered to account for the
profits earned by them from the joint family business from the date of
severance and also of the income derived by them from immoveable properties
belonging to the joint family. In the suit Govind as defendant No. 1 and
Dattatraya as defendant No. 2 were impleaded and no other members of their
branches were made parties to the suit. On the death of defendant No. 1 Gopal
during the pendency of the suit his five sons were brought on record as his
heirs and legal representatives. The defendants resisted the suit of the
plaintiff on 178 various grounds, mainly however on the ground that the
plaintiff had asked for partition only of some of the joint family properties
without including in the suit various other joint family properties,
particularly the shares and interest of the joint family in the company. The
defendants contended that the plaintiff was bound to include in the suit all
the joint family properties which also comprised all the interests of the joint
family in the company and various other immovable properties in the possession
of the plaintiff. It may be noted that defendant No. l Gopal and the defendant
No. 2 Dattatraya filed two suits in the Court of Civil Judge against the
company and the plaintiff for payment of the sum of money credited to the joint
family in the books of the company in accordance with the respective shares of
the parties. In the suits various proceedings were taken and various orders
including the appointment of the Court receiver for all the properties of the
joint family were passed from time to time. It does not become necessary for us
to refer to these proceedings at any length as in the present appeals these
questions are no longer germane. It appears that as a result of the various
proceedings in the suit most of the joint family properties came to be divided
amongst the parties in accordance with their respective shares and the disputes
between the parties now centre on the following questions :-
1. Whether the shares in the company standing
in the names of the various members of the family are joint family properties?
2. Whether the commission received by the two
members of the family namely, defendant No. 2 Dattatraya and plaintiff Bhagwant
from the managing agency firm in respect of their shares in the firm out of the
total commission paid by the company to the managing agency firm belongs to the
joint family?
3. Whether the remuneration received by the
plaintiff Bhagwant from the company as managing agent on the basis of the
managing agency agreement with the company is the personal property of the
plaintiff or whether the same belongs to the joint family?
4. Whether the remunerations paid to the
plaintiff as the managing director of the company is his personal income or is
the property of the joint family? 179
5. Whether there was any amount in cash in
Mahalaxmi room belonging to the family and if so, how much?
6. Whether there were any ornaments and
jewellary belonging to the joint family? If SO, in whose possession and custody
are such ornaments lying and what is the value of such ornaments? It is to be
noted that during the pendency of the proceedings in the Court relating to
partition of the joint family properties the managing agency agreement had come
to an end and it has also become inoperative by virtue of the provisions of
law. The plaintiff Bhagwant was the managing agent on the basis of the managing
agency agreement and thereafter he had been appointed ac the managing director
of the company. The learned trial Judge on the question of the remuneration
paid to the plaintiff as managing agent on the basis of the managing agency
agreement and the fees paid to him as the director of the company has held in
favour of the plaintiff that these are the personal incomes of the plaintiff
and do not belong to the joint family. The learned trial Judge also held in
favour of the plaintiff on the question of cash money belonging to the joint
family found in the Mahalaxmi room and also on the question of accountability
of the defendants in respect of the joint family business. The High Court in
appeal has held that the income received by the plaintiff as managing agent and
as Managing director of the company could not be considered to be the personal
property of the plaintiff and they belonged to the joint family and the High
Court has reversed the decision of the trial Judge on this question. On various
other questions also, the High Court has held in favour of the defendants reversing
the decision of the Trial Court.
The correctness of the High Court judgment is
questioned by the plaintiff in the appeals.
The principal controversy between the parties
relates to the question whether the remuneration paid to the plaintiff Bhagwant
by the company as the Managing Agent and also as the Managing Director is his
personal property or whether the sane forms as part of the joint family
property.
The contention of the plaintiff-appellant
Bhagwant is that the remuneration received by him for acting as Managing Agent
and also as Managing Director of the company is his personal income and cannot
be considered to belong to the joint family, whereas it is the case of the
defendant No. 2 Dattatraya and the heirs of the Defendant No. 1 Gopal and that
all such remuneration received by the plaintiff 180 must belong to the joint
family and must be held to constitute part of the joint family properties. They
further contend that the shares in the company subsequently purchased by the
members of the plaintiff's family must also be held to belong to the joint
family. As this happens to be the most important question which has been urged
at length before us, we propose to deal with this question in the first place.
In our view it will be appropriate to consider this question under two separate
heads, namely, (1) the remuneration received by the plaintiff Bhagwant as
managing agent and (2) remunerations received by him as managing director. We
first propose to take up the question whether the remuneration received by the
plaintiff from the company as managing agent, is his personal income or the
same constitutes a part of the joint family property.
For a proper appreciation of this question it
is necessary to consider some broad facts which are not in serious dispute.
A partnership agreement was entered into on
the 3rd of January, 1923 between defendant No. 2 Dattatraya, plaintiff
Bhagwant, one Ramchandra Moreshwar Sane, one Moolchand Jotiram Baldote, one
Nemchand Shivram Baldote and one Ganoba Andoba Gavane to start a mill by the
name 'The Lokmanya Mills Barso Limited' as promoters and agents of the said
mills on terms and conditions set out in the deed of partnership dated 3rd
January, 1923. This deed of partnership which is not in dispute and which has been
exhibited in the suit provides :- "An agreement dated 3rd of the month of
January, 1923. We, Dattatraya Vishwanath Sulakhe, Caste Brahmin, aged 37,
profession trader, resident of Barsi and Bhagwant Pandharinath Sulakhe, caste
Brahmin, age 33, profession pleader, resident of Barsi, and Ramchandra
Moreshwar Sane, caste Brahmin, age 64 profession pleader, resident of Barsi and
Moolchand Jotiram Baldote, Gaste Marwari, resident of Barsi age 48, profession
trade, and Nemchand Shivaram Baldote, caste Marwari, age 39, profession trade,
resident of Barsi, and Ganoba Andoba Gavane, caste Maratha, age 58 profession
agriculturist resident of Pangaon, Taluka Barsi, Distt. Sholapur, all of us
make an agreement as follows :- We all of us have agreed and decided between us
on 29th November, 1922 to start a mill by name 'The 181 Lokamanya Mills Barsi
Limited'. The following are the terms of agreement, that we have agreed to,
between us all as the promoters agents of the Mills.
1. The agency firm should be named as 'Sulakhe
& Co.' and the agreement of this firm are to be in force and existence for
the period of 35 years from the date of registration of the said company.
2. Messers. Dattatraya, Vishwanath Sulakhe
and Bhagwant Pandharinath Sulakhe should jointly contribute towards the
purchase of shares of the value of Rs.40,625 (forty thousand six hundred and
twenty five). Mr. Moolchand Jotiram should purchase in his name shares of a
value of Rs.25,000 (twenty five thousand), Namchand Shivram should purchase in
his name shares of the value of Rs.9375 (nine thousand three hundred seventy
five) and Ganoba Andoba Gavane should purchase in his name shares of the value
of Rs.25,000 (twenty five thousand) and Ramchandra Moreshwar Sane should
purchase in his name share of the value of Rs.3000 (Rupees three thousand). The
above named persons, or in case of their death, or if they become incapable on
account of some illness or if they have been unable to purchase the said shares
or have been unable to pay further instalments after purchase of the said
shares on account of some difficulty, their heirs should as stated above
purchase the shares or pay the amount of further instalments.
3. After the shares are purchased as stated
in the foregoing clause, the agents are to get 10% commission on the net profit
earned by the Lokamanya Mills Barsi Limited. Out of this 10% commission 1/1/2%
amount is to be paid to a committee appointed in that behalf for the purpose of
spending that amount over public charitable purposes and the remaining 8/1/2%
commission is agreed to be distributed as follows:-
1. Messrs D.V.Sulakhe & B.P. Sulakhe to
get 3/1/4%
2. Moolchand Jotiram - 2%
3. Ganoba Andoba Gavane - 2% 182
4. Namchand Shivaram -3/4%
5. Ramchandra Moreshwar Sane -1/2% The total
amount of 8/1/2% is to be thus distributed.
4. The amount of profits is to be distributed
as stated in the foregoing clause, after it has been received by the Managing
Agents from the company.
If any partner or his heirs had not purchased
the shares originally or not paid amount of further instalments after allotment
on account of some inability stated in the last foregoing clause 2, he will
lose his share in the agency firm and his share is to be distributed among the
remaining partners in proportion to the capital contributed by each of them.
The partners must keep in tact their shares for the period of five years from
the date of allotment. The partners have no right to dispose of or mortgage
their share within that period of five years. If any of the partners fails to
do so, he stands to lose his interest in the partnership.
5. The agents firm is entitled to receive
2-1/2% commission on the amounts of expenditure which the company may incur
towards the construction of buildings, purchase of machinery and other necessaries,
purchase of lands and other materials. Out of the amounts so received, an
amount of 1-1/2% is to be paid towards public charitable purposes and the
remaining amount is to be distributed among the partners in proportion to their
shares described above. This amount is to be received in the first instance by
the managing agents, and after setting a part the amount of charity, he has to
distribute the balance amongst the partners in proportion of their respective
shares.
6. All the responsibility of all work of
whatever kind to be performed by the managing agents firm such as, raising of
capital of the said mill running of the mill, keeping of accounts, purchase of
land, purchase of machinery, appointing and removing of servants, solicitors,
auditors, banker, agents, brokers, and underwriters to keep accounts and
prepare the reports 183 of the company and do all such other as the managing
agents are required to do shall be on the managing agent Mr. D.V. Sulakhe or
his family.
His family means the joint family of three
persons viz: D.V. Sulakhe, B.P. Sulakhe and Gopal Pandharinath Sulakhe. The
other partners have nothing to do with the above work and they have no right to
interfere with the power of the managing agents. The company will' hold only
the managing agent responsible for his faults and the other partners are not to
be responsible to the company.
7. The preliminary expenses of the mill will
be about Rs.8000 (eight thousand). This amount is to be paid to the managing
agent Mr. D.V. Sulakhe, by all the partners except Mr.sane, in proportion to
their respective shares. The managing agent is to return this amount of
expenditure to the partners form the proceeds of the shares of the company that
may be collected after its registration.
8. Some one person from among the family of
Sulakhe described above shall always be an Ex- officio Director. some other
person from amongst the agency firm, or some other person from outside elected
by majority, and who is not in the agency firm shall be a special director, but
he shall not be in office permanently. The term of his office will be as of the
other directors and he shall be eligible for re-election. Some person from the
firm or some one from outside according to the opinion of the firm shall always
be among the directors.
9. No partner of the agent's firm, shall
except with the leave of the directors, enter in any other agency firm of a
mill of the like tenure and situate within the limits of Barsi Taluka. If any
one of them does so enter he will stand to lose his share in this partnership
firm of this mill.
10. A partner of the agent's firm shall be
entitled as any other outsider to do business with the company and enter into
private transactions on reasonable terms and to take commission from the company.
184
11. From the date the share, of the value of
Rs.7,00,000 (seven lacs) are sold the managing agent Mr. Sulakhe shall get a
remuneration (salary) of Rs.600 per month. The other partners or the charity
fund shall have no interest whatsoever therein. From the time when products
shall be begun to be manufactured in the mill, the managing agents are to
receive a remuneration of Rs.1000 (salary) every month. Out of that amount
Rs.600 are to be taken by the managing agent every month and the remaining amount
of Rs.400 (Four hundred) is to be divided among all the partners of the agency
firm including Sulakhe, in proportion to their respective shares (till the
profits of the company come to 10% by the way of divident) so that the partners
may get an interest over their amounts at the rate of 5% per annum, but from
and after the date when the dividend of the company shall be distributed at the
rate of 10% on the amount of shares, the other partners shall have no right
over the said sum of Rs.400 (Four hundred) to be received every month, and this
amount is to be taken by the managing agent Mr. Sulakhe as the increase in his
remuneration (salary). After that period other partners will have no claim
whatever against the said amount of Rs.400.
12. The rights of the partners in the agency
firm are to pass to their respective lineal descendants or to their respective
assignees after the expiration of the period of 5 years allotment. The right of
a partner shall go to other persons by partition among his family or by
heirship and if such persons to whom the rights of a partner in the agency firm
are to pass, are more than one, they shall unanimously elect some one from
among themselves for the purpose. If there is disagreement between them the
board of directors shall choose some such person from among them and the person
so chosen shall take interest in the agency firm. The company or the managing
agents shall not take cognizance of the other sub- partners.
The terms of agreement between us all are as
above, and for that this agreement (in writing), is prepared and is signed by
us all and a copy of this agreement i.e. a counter part of it is delivered to
each of us 185 all. This agreement made and signed on the 3rd of the A month of
January in the year of 1923, and it is in the handwriting of Sarbootam Annaji
Madhekar, a resident of Barshi .
Sd/- Datartraya Vishwanath Sulakhe d/-
Bhagwant Pandharinath Sulakhe Sd/- Ramchandra Moreshwar Sane Sd/- Molchand
Jotiram Marwadi Nemchand Shivaram Marwadi Ganoba Andoba Gavane.
The said partnership firm of M/s. Sulakhe
& Co.
consisting of the aforesaid six partners
entered into a managing agency agreement on 5.2.1923 with the company. Relevant
provisions of the managing agency agreement dated 5.2.192% may be set out:
1. The Agents will faithfully and with best
of their ability perform the offices of the Secretaries, Treasurers and Agents
of the Company for purposes of carrying on the best advantage the business of
the company so long as the company and the agents shall continue to carry on
their respective business (unless prevented from so doing in manner hereinafter
mentioned) at the remuneration upon the terms and subject to the conditions
hereinafter particularly mentioned and described.
2. In consideration of the agreement hereinafter
contained on the part of the Agents and in further consideration of the Agents
having advanced the company - the Company hereby promise and agree with the
Agents that the agent shall be the Secretaries, Treasurers and Agents of the
Company for the period of 35 years from the date of these presents unless
prevented from so doing in manner hereinafter mention ed PROVIDED ALWAYS AND IT
IS HEREBY AGREED AND DECLARED that after the lapse of the said period of 35
years the Agents shall not be removed from the office as the Secretaries,
Treasurers and Agents but shall carry on their respective business unless found
guilty of fraud in the management of their duties as Secretaries, Treasurers
and Agents of the Company.
186 Clause 2A. The Managing Agents shall not
transfer or assign or cause to be transferred or assign the present Managing
Agency Agreement of the Company their right, title and interest therein to any
person or persons firm or Company during the continuation of the security
created by the Indenture of Mortgage dated the 29th day of December 1950
without first obtaining the approval in writing of the corporation to any such
transfer or assignment and the Company shall not cause or permit or suffer to
be transferred or assigned the present Managing Agency Agreement of the Company
or the right, title and interest of the Managing Agents therein to any other
person or persons or firm or Company during the continuance of the said
security without first obtaining the approval in writing of the Corporation to
such transfer or assignment nor shall the Company appoint any other person or
persons or firm or Company to be the Managing Agents of the company during the
continuance of the said security without first obtaining the approval in writin
of the Corporation to such appointment.
(Amended as per Special resolution No. 2 in
Extra ordinary general meeting held on 18.3.1951)
2. A Commission at the rate of 10% per annum
on the annual net profits of the said company after making all allowance and
deductions from revenue for interest on loans and deposits and working expenses
chargeable against profits without making any deductions for or in respect of
interest on debentures Income Tax, Super Tax or any other tax based on profits
or of any amount carried to insurance, reserve, depreciation or sinking fund or
to any other special fund or in respect of any expenditure on capital amount or
on the wages or remuneration which shall be payable to Bankers Auditor,
Solicitors, Mukadams, Clerks, Brokers, Under writers or any other officers or
employees who may be employed by the said firm for or on behalf of the Company
or for carrying on and conducting the business of the Company and for any rent,
cost of postage, telegram printing stationery or other expenses or travelling
expenses incurred and to be paid by the said Company.
187 "The Company shall not pay and the
Managing Agents shall not receive any commission during the pendency of the
loan from Industrial Finance Corporation of India as provided above in Clause 3
without previous consent in writing of the Corporation unless the interest and
instalment of principal sum due in any year as provided by the Indenture of
mortgage dated the 29th December 1950 have been duly paid by the Company to the
Corporation.
(Amended as per Special Resolution No.2 in
Extra ordinary general meeting held on 18.3.1951.) Clause 4. The Agents are
entitled to two and half percent commission on all sum or sums expended towards
the purchase of the land, construction of the mill premises, including
outhouses etc., the cost price of Machinery, appliances and initial stock in
trade necessary in establishing and starting the mill.
But during the pendency at the said loan,
provisions contained in clause 4 above relating to payment of commission to the
Managing Agents on the Capital Expenditure shall remain suspended.
(Amended as per special Resolution No. 2, in
extra ordinary general meeting held on 18.3.1951.)
5. Out of the Commission of 10 per cent and
out of the amount of 2-1/2 per cent commission as stated above Agents will have
to set apart for public charitable purposes 1-1/2 per cent of their gains.
The purpose shall be uplift of the masses in
the Bombay Presidency, without any distinction of caste, creed or religion in
matters social, educational, economic cr national as the committee of three
persons, two of whom shall be unconnected with the firm of the Agency and one
from the Agency firm. The first such members shall be N.C. Kelkar Esqr. B.A.
LL.B. Editor of Kesari Poona.
M.R. Jayalkar Esqr. Bar-at-Law, Bombay and
R.M. Sane Esqr. pleader Barsi.
6. On the death or retirement of any of the
said members their place or places shall be filled in by the remaining members
of the Committee, or if he or 188 they fail or neglect to make the appointment
as aforesaid within a reasonable time, such appointment is to be made by the
Board of Directors strictly conforming to the condition stated above that the
majority of the committee should be independent and unconnected with the firm
of the Agency.
7. The commission due to the Agency shall be
payable yearly immediately when the accounts are made up.
8. After deducting the amount from the
commission for public purposes as stated above the remaining amount will be
received by Mr. D.V. Sulakhe and his successors and divided among the members
of the firm as agreed upon between them.
9. The Directors are authorised to increase
the amount of remuneration or the percentage of commission on profits or to
allow any bonus if they think that the profits of the concern are encouraging
enough to grant an increase.
Clause 9. The said clause shall remain
modified to the extent that "so long as any moneys due to the Corporation
under the Indenture of Mortgage dated 29th day of December 1950 remain unpaid,
no payments what soever under this clause shall be made to the Managing Agent
without first obtaining the approval in writing of the Corporation to such
payment.
(Amended as per Special Resolution No. 2 in
Extra ordinary general meeting held on 18.3.1951)
10. The remuneration of the Agents' firm
shall be Rs.600 per month from the date of allotment and Rs.1000 per month from
the date when products are begun to be manufactured and the said remuneration
is always to be received from the Company by Mr. D.V. Sulakhe or his
successors.
11. If the said firm or any member of the
firm shall at any time hereinafter act as Mucadams or brokers of the Company or
as selling agents of the Company's yarn or cloth or for purchase of other
articles such as coal, wool machinery oil-seeds or other products or 189 other
things required for the business of the Company they shall be paid such
commission or additional remuneration as shall be agreed to between them and
the directors.
The said clause shall remain modified to the
extent that so long as any moneys due to the Corporation under the Indenture of
Mortgage dated 29th day of December 1950 remain unpaid, no payments whatsoever
under the clause shall be made to the Managing Agent without first obtaining
the approval in writing of the Corporation to such payment." C (Amended as
per special Resolution No. 2 in Extraordinary general meeting held on
18.3.1951)
12. Until the Company is registered all
expenses of whatever nature of and incidental to the promotion thereof shall be
defrayed in the first instance by the firm of Agency as agreed between them.
The sum or sums os expended will be duly refunded to the aforesaid firm when
the first call in respect of the subscribed shares of the Company is paid in
and realized.
13. All work of whatsoever kind which is
usually attended to or done by the managing agents in connection with the
business of the Company by virtue of the Articles of Association of the Company
such as raising the necessary capital, erection of the mill premises employment
of staff, establishment of Agencies buying of raw materials, disposing of the
finished products of the Mill, keeping regular accounts preparing the statutory
reports &c. &c. will be attended to and all powers of the managing
Agents shall be vasted in and exercised by Mr. D.V. Sulakhe alone or in case of
his retirement or death by Mr. B.P. Sulakhe if he survives him, or by a person
of the Sulakhe family nominated unanimously by all the surviving major male
members of the family of Messrs. D.V.
Sulakhe, B.P. Sulakhe and Gopal P. Sulakhe
and in case of disagreement between these members in nominating a member from
the Sulakhe family, the board of directors will choose some one from the said
Sulakhe family for acting as a Managing Agent on behalf of the firm. There will
be no inter- 190 ference or obstruction from any other member of the Agency
Firm who will have neither any voice nor control of any kind over the matters
of management of the business of the company such as those enumerated above.
All the responsibility with regard to such work lies solely and entirely on the
said D.V. Sulakhe and his successor or successors as aforesaid.
14. me other partners of the Agency firm who
have no right to take any part in the management of the Agency business or no
right to interfere with such management will not be liable in any way
whatsoever to the Company for any acts of commission or omission, misfeasance,
malfeasance fraud, misappropriation or any other act or acts of the said D.V.
Sulakhe and his successors. me company will look to and hold responsible the
said D.V. Sulakhe and his successors aforesaid in respect of the management of
the Agency business in all branches and in all its aspects.
15. Either D.V. Sulakhe or B.P. Sulakhe may
act as Ex-officio Director and after them some person from the Sulakhe family
shall be entitled to act as Ex officio Director and he will not be liable to
retirement or he will not be removed from such office.
15A. The firm of Agency has always a right of
appointing any one of them or outsider as a special Director and he will be
liable to retire as other Directors, but he is eligible for re- election by the
firm of Agency.
20. The shares of the profits of the Agency
business to which each partner is entitled according to their mutual agreement
will pass to their direct lineal descendants by way of an ancestral and
hereditary right unless alienated or disposed of by such partner during his
life time.
If the said share devolves on more than one
of such lineal descendants by way of inheritance or otherwise they (they said
descendants) should elect one of them to be the member of the firm on the-r
behalf. If they cannot agree among themselves for the purpose of such election
the Board of 191 Directors has the right to elect one of them to be their
representative in the Agency Firm for receiving commission; neither the Board
of Directors nor the Agents are bound to recognise the rights of the other
heirs and legal representatives as aforesaid.
Two of the relevant Articles namely, Art.
113A and Art.
146 cf the Articles of Association may be
noted. Art.113A reads:- M/s. D.V. Or B.P. Or Gopal P. Sulakhe or any other
members of the Sulakhe family who may be chosen for that purpose in terms of
the agency agreement shall be an ex-officio director of the company.
Agents firm have, however, subject to the
terms of the agency agreement to appoint any other person whether a member of
the firm or not, as a special director. The person appointed as special
director as aforesaid shall after the lapse of one year, retire but be eligible
for re-election.
Art. 146 of the Articles of Association
provides as follows:- "The firm of M/s. Sulakhe & Co. and the partners
or members for the time being constituting the said firm and their successors
in business notwithstanding any change in the constitution or in the name or
style of the said firm by the death, retirement or insolvancy of any member of
the said firm shall be and they are hereby appointed the managing agency of the
company for the period and upon the terms, provisions and conditions set out in
the agreement referred to in article hereof. Such agreement may be modified in
such manner as may be mutually agreed between the firm and the directors and
the Board is hereby authorised to execute the said agreement on behalf of the
company.
It has to be borne in mind that at the time
when the company was incorporated and its articles were adopted and also at the
time when the company entered into the managing agency agreement with Sulakhe
& Co. and when the deed of partnership of the firm of Sulakhe & Co. was
executed, the plaintiff Bhagwant and the defendant No. 2 Dattatraya were
admittedly the members of the joint family and no disputed of any kind had
arisen amongst the members of the joint family. It is not in dispute that 325
shares 192 which were Initially purchased in the company - 200 in the name of
the defendant No. 2 Dattatraya and 125 in the name of the plaintiff Bhagwant
were paid for by the joint family out of the joint family funds. It is also an
admitted position that the entire amount of remuneration which was received by
the defendant No. 2 Dattatraya and plaintiff Bhagwant not only on account of
their shares of commission under the managing agency agreement on the basis of
the partnership deed but also on account of the Directors' fees paid to them
and also on account of the salary paid to defendant No.2 Dattatraya who acted
as the managing agent on behalf of the firm was treated as joint family
property.
Defendant No. 2 Dattatraya had continued to
be the managing agent of the company till 1935. It is also not in dispute that
when the plaintiff Bhagwant took over as the managing agent from defendant No.
2 Dattatraya in 1935, the position continued to be the same and the remuneration
received by him formed part of the joint family income till the dispute raised
by plaintiff Bhagwant by his letter dated 15th July, 1941 to the defendant No.
2 Dattatraya. The agreement of partnership clearly indicates that the plaintiff
Bhagwant and the defendant No. 2 Dattatraya became members of the firm M/s.
Sulakhe & Co. which was appointed the managing agent of the company on the
basis of the managing agency agreement, representing the joint family and for
the benefit of the joint family. Since the establishment of the partnership
firm of Sulakhe & Co. On the 3rd day of January, 1923 and since this firm's
appointment as the managing agent of the company under the managing agency
agreement dated 5- 2-1923 till the dispute was raised by the plaintiff in July,
1941 this position appears to be accepted by all without any kind of
reservation. All monies received by the plaintiff Bhagwant and defendant No. 2
Dattatraya from the company, were treated as joint family income , were entered
in the books of account of joint family and were shown in income tax returns to
be the income of the joint family.
The facts and circumstances of this Case
clearly indicate that in the partnership agreement and the managing agency
agreement in which the plaintiff Bhagwant and defendant No. 2 Dattatraya were
parties, they had become parties on behalf of the joint family representing the
joint family and the entire remuneration received by them, whether by way of
commission or the directors' fees or by way of salary for having acted as the
managing agent, was joint family income. On the materials on record we have no
hesitation in coming to the conclusion that the plaintiff Bhagwant and the
defendant No. 2 Dattatraya became the partners of Sulakhe & Co. which was
appointed as the managing 193 agent of the company on the basis of the Managing
Agency Agreement for the benefit of the joint family and their interest in the
partnership firm and Managing Agency was a part of joint family assets and
whatever income was earned either by the plaintiff Bhagwant or by the defendant
No. 2 Dattatraya on the basis of the managing agency agreement belongs to the
joint family and formed part of the joint family property. As the entire income
coming in the hands of the plaintiff Bhagwant or defendant No. 2 Dattatraya on
the basis of the partnership agreement and the managing agency agreement,
whether on account of commission or by way of directors' fees or remuneration
for acting as the managing agent, belonged to the joint family and formed part
of the joint family property, the same position must necessarily continue in
the eye of law so long as the partnership agreement and the managing agency
agreement continued. The plaintiff by seeking to bring about a severance in the
status of the joint family, cannot deprive the joint family of this property
and the income derived on the basis of the managing agency agreement continues
to remain the property of the joint family, so long as this pint family asset
is not partitioned and otherwise continues to remain in existence. We have,
therefore, no hesitation in holding that the remuneration received by the
plaintiff Bhagwant from the company for acting as the managing agent on the
basis of the managing agency agreement must necessarily be held to be the joint
family property and the plaintiff Bhagwant cannot claim the same to be his
personal property.
Mr. Tarkunde had addressed a novel and
interesting argument that even if the Income derived by the plaintiff Bhagwant
from the company by way of remuneration for acting as the managing agent can be
considered to be the income of the joint family, there should be an
apportionment of this income between the plaintiff and the joint family, as the
plaintiff alone had rendered all services on behalf of the family and he
should, therefore, be held entitled to retain a part thereof for himself for
the services rendered by him.
This argument of Mr. Tarkunde sounds
attractive and my raise an interesting question in an appropriate case. But in
the facts and circumstances of this case and taking into consideration the true
nature of the partnership and the Managing Agency Agreement and the conduct of
the parties, we are of the opinion that there is no merit in the plaintiff's
claim for retaining any part of the remuneration received by him from the
company for the services rendered by him. The entire income arising out of the
managing agency agreement and accruing 194 to the two members of the family,
namely, the plaintiff Bhagwant and the defendant No. 2 Dattatraya who might
have rendered the services, had been earned for and on behalf of the family and
as representatives of the joint family. The defendant No. 2 Dattatraya had
continued as the managing agent for a number of years and there has been no
question of apportionment of any income derived by him as his remunerations for
the services rendered by him as managing agent. The character of any joint
family property does not change with the severance of the status of the joint
family and a joint family property continues to retain its joint family
character so long as the joint family property is in existence and is not
partitioned amongst the cosharers. By an unilateral act it is not open to any
member of the Joint Family to convert any joint family property into his personal
property.
We now proceed to consider whether the
remunerations received by the plaintiff Bhagwant from the company as the
Managing Director of the Company belonged to the joint family or not. The
position of the Managing Director is entirely different from the position of
the Managing Agent on the basis of the Managing Agency Agreement between the
firm of Sulakhe & Co. and the company and the position of the Managing
Director stands entirely on a different footing. At the time the plaintiff was
appointed the Managing Director of the company on 19.10.1957 with effect from
16th January, 1957, there was complete disruption of the joint family and there
was no joint family in existence.
In fact at that point of time litigation
between the parties was going on. By virtue of the incorporation of S. 87A in
the Indian Companies Act by amendment in 1937 the duration of any Managing
Agency Agreement was limited to a period of 20 years only at a time though on
the expiry of the period of 20 years the Managing Agency Agreement could be
renewed by virtue of the provisions contained in Sub-Sec. (2) of S. 87A of the
Act. In view of the change brought about with regard to the duration of the
Managing Agency Agreement at a time the Managing agency Agreement automatically
came to an end on the expiry of the period of 20 years and though there was the
provision with regard to the renewal of the Managing Agency Agreement it
appears that the Managing Agency Agreement was not renewed. It appears that the
Board of Directors of the Company had passed a resolution on 28.6.56 for the
renewal of the Managing Agency Agreement. The Managing Agency Agreement was not
ultimately renewed and it does not appear that any action was taken by the firm
of Sulakhe & Co. Or any partner thereof for obtaining renewal of the
Managing 195 Agency Agreement for a further term after 1957. On the other hand
it appears that the company had amended its articles of association and had
proceeded tc appoint the plaintiff Bhagwant as the Managing Director. It is
significant to note that no partner of the firm of Sulakhe & Co. which had
been appointed as the Managing Agent of the Company or no member of the joint
family took any steps for challenging the validity of the amendment of the
articles of association or the validity of the appointment of the plaintiff as
the Managing Director of the Company.
Before we proceed to decide whether the
remuneration received by the plaintiff as the Managing Director of the Company
can be considered to be part of the joint family property, it will be
appropriate to refer to a decision of this Court for proper appreciation of the
legal position.
Though a number of decisions had been cited
from the Bar, we do not consider it necessary to refer to all the decisions, as
in our view the legal position has been very lucidly and clearly discussed in
the case of Raj Kumar Singh Hukum Chandji v. Commissioner of Income-Tax Madhya
Pradesh, [1971] 1 S.C.R. 748 by this Court after reviewing the earlier
decisions on this question. After considering various earlier decisions, this
Court at page 758-759 observed:- At first sight there appears to be conflict
between the two lines of decisions namely Kalu Babu's case, Mathura Prasad's
case; two Dhanwatey's cases and Krishna Iyer's case on one side Palaniappa
Chettiar's case, Dakappa's case and D.C. Shah's case on the other. The line
that demarcates these two lines of decisions is not very distinct but on a
closer examination that line cane be located. In order to find out whether a
given income is that of the person to whom it was purported to have been given
or that of his family, several tests have been enumerated in the aforementioned
decisions but none of them excepting Kalu Babu's case makes reference to the
observations of Lord Summer in Gokal Chand's case that 'in considering whether
gains are partible, there is no (' valid distinction between the direct use of
the joint family funds and a sue which qualifies the member to make the gains
by his own efforts.' We think that that principle is no more valid. The other
tests enumerated are:
(1) Whether the income received by a
co-parcener of a Hindu undivided family as remuneration had any real 196
connection with the investment of the joint family funds:
(2) Whether the income received was directly
related to any utilization of family assets;
(3) Whether the family had suffered any
detriment in the process of realization of the income; and (4) Whether the
income was received with the aid and assistance of the family funds;
In our opinion form these subsidiary
principles, the broader principle that emerges is whether the remuneration
received by the coparcener in substance though not in form was but one of the
modes of return made to the family because of the investment of the family
funds in the business or whether it was a compensation made for the services
rendered by the individual coparcener. If it is the former, it is an income of
the Hindu undivided family but if it is that latter then it is the income of
the individual coparcener. If the income was essentially earned as a result of
the funds invested the fact that a coparcener has rendered some service would
not change the character of the receipt. But if on the other hand it is
essentially a remuneration for the services rendered by a coparcener, the
circumstance that his services were availed of because of the reason that he
was a member of the family which had invested funds in that business or that he
had obtained the qualification shares from out of the family funds would not
make the receipts the income of the Hindu undivided family." This decision
was no doubt given in a case arising out of an Income-Tax matter. The various
cases which have been referred in the judgment also arise out of Income-tax
matters and they mainly deal with the question of determination of the nature
and character of remuneration received by a member of the family, whether the
remuneration so received is income of the joint family property or is the
personal income of the individual, - for the prupose of assessment of
income-tax on such income. It is no doubt true that the observations which we
have earlier quoted have been made on the nature and character of the income
received by way of remuneration by a member of the joint family while 197
considering the question of assessment of Income-tax on such A income; but, in
our opinion, the legal principles enunciated in this decision for determining
the true nature and character of the remuneration received by any member of the
joint family apply equally in deciding the nature and character of the
remuneration received by the Managing Director in the instant case. This
decision, to our mind, correctly lays down the tests which have to be
considered for deciding the question whether the income derived by any member of
the joint family by way of remuneration as managing Director is his personal
income or is the income of the joint family.
In the facts and circumstances of this case,
we have no hesitation in coming to the conclusion that the remuneration
received by the plaintiff Bhagwant as Managing Director of the company from the
company is his personal income and cannot be considered to be the income of the
joint family.
At the time the plaintiff Bhagwant became the
Managing Director of the Company, the joint family had completely disrupted and
it cannot be said that the plaintiff was the member of any joint family of
which the defendants were also members. In fact, litigation between the parties
was going on. Though the defendant No. 2 Dattatraya was also a member of the
managing agency firm Sulakhe and Co., it does not appear that he took any steps
for reappointment of the said firm as the managing agent. There were four
outside partners interested in the Managing Agency Agreement and it does not
appear that the defendant Dattatraya or the other outside partners of the
managing agency firm Sulakhe & Co. had taken any steps against the company
for 'not renewing the managing agency agreement. It is to be borne in mind that
it was for the company to renew the managing agency agreement. For the purpose
of appointing the plaintiff as the managing director, the articles of
association of the company had to be amended and Art. 146A had been
incorporated in the Articles of Association by amendment. It does not appear
that defendant No. 2 Dattatraya or the other outside partners of the managing
agency firm Sulakhe & Co. Or any other shareholder of the company sought to
prevent the company from amending the articles of association or challenged the
validity of the amendment of the articles.
The appointment of plaintiff Bhagwant as
Managing director after the amendment of the Articles also does not appear to
have been challenged by the defendant No. 2 Dattatraya or any of the other
partners of the managing agency firm. The termination of the managing agency
agreement with the partnership firm Sulakhe & Co. appears to have been
accepted by the members of the said firm including the 198 defendant No. 2
Dattatraya who alongwith the plaintiff Bhagwant were partners of the firm representing
the joint family. It is also to be noted that in the partnership firm of
Sulakhe & Co. which was appointed the managing agent sf the company on the
basis of the managing agency agreement, the four partners who did not belong to
the family held majority shares in the partnership although by virtue of the
agreement between the parties they had agreed that either the plaintiff
Bhagwant or defendant No. 2 Dattatraya would act as the managing agent of the
company on behalf of the managing agency firm and should receive the
remuneration which would be paid to the managing agent acting as such on behalf
of the firm. These outside partners who held the majority shares in the
partnership firm of Sulakhe & Co.
which had been appointed and had been acting
as the managing agent of the company on the basis of the managing agency
agreement, raised no protests for not renewing managing agency for a further
term, though under Sub-section (2) of S. 87A of the amended provision, the
managing agency agreement which stood terminated in 1957, could have been
extended. It appears, therefore, that the majority of the partners had lost
interest in the renewal of the managing agency agreement. In any event, the
undisputed facts remain that the managing agency agreement was not renewed
after 1957 and no action was taken against the company or anybody else by the
firm of Sulakhe & Co. which had been acting as the managing agent or by any
partner thereof either for renewal of the managing agency agreement or for not
renewing the managing agency agreement. It also does not appear that the firm
Sulakhe & Co. Or any of its partners took any action to prevent the company
from amending its articles and for appointing Bhagwant as the Managing Director
of the company. The facts and circumstances of the case go to indicate that the
partners of the firm Sulakhe & Co. which had been acting as the Managing
Agent on the basis of the managing agency agreement with the company accepted
the termination of the managing agency on the expiry of the term prescribed
under the amended law without any protest and did not seek to enforce the right
or renewal of the managing agency agreement or of any other provision of the
agreement.
As the managing agency agreement had ceased
to exist at the time the plaintiff Bhagwant was appointed the Managing Director
of the company and as at that time there was no joint family of the plaintiff
Bhagwant and the defendants in existences, the plaintiff Bhagwant cannot be
said to have been appointed as the Managing Director of the company either
because of the Managing agency agreement or because of his being a member of
the joint family. The facts and circumstances make it clear that the
partnership agreement or the managing 199 agency agreement had no relevance to
the appointment of the plaintiff Bhagwant as the Managing Director of the
Company.
As we A have earlier indicated the company
had initially contemplated to renew the managing agency on the expiry of the
term prescribed by law and the Board of Directors had passed a resolution
accordingly. Subsequently, for reasons known to the company, the company
decided not to continue the managing agency agreement and decided to appoint
plaintiff Bhagwant as the Managing Director of the company.
For the purpose of appointing the plaintiff
Bhagwant as the Managing Director, the company had to amend its Articles of
Association and the company, in fact, duly altered the Articles of Association
and the company. Neither the partnership firm of Sulakhe & Co. which had
been appointed as the Managing Agent of the company and had been acting as such
till the expiry of the term nor any partner thereof had taken any effective
step for renewal of the managing agency agreement or had made any effective
protest for not reappointing the firm Sulakhe & Co. as the managing agents
of the firm and for appointing the plaintiff as managing director of the
company after having amended the articles of association of the company. The
facts and circumstances of the case also do not go to indicate that the
appointment of the plaintiff as managing director of the company was by way of
any return to the family because of the investments of the family funds in the
business of company. As earlier noticed the joint family had purchased only 325
shares at the time of the managing agency agreement with the company and, in
fact, other parties have invested a much larger amount in the purchase of
shares. Taking into consideration the total investment made in the company by
various parties it appears that the contribution of the joint family appears to
be insignificant. It cannot, therefore, be said that the appointment of the
plaintiff as Managing Director, at a time when there was complete disruption of
the joint family and the members of the family were fighting in Court, was by
way of any return on the investment made by the Joint family. It Is quite clear
that the plaintiff Bhagwant was appointed as the Managing Director by the
company for services to be rendered by him, as the company might have been
impressed by his performance as the managing agent for a number of years.
Though undoubtedly the plaintiff Bhagwant
acted as the managing agent for and on behalf of the joint family and for
benefit of the joint family, yet what must have weighed with the company is the
kind of services rendered by him to the company. The company was concerned with
his services and not with the question whether he was rendering the services
for and on behalf of the family. The plaintiff Bhagwant, was therefore
appointed as the managing 200 director for the services rendered by him and for
services to be rendered by him. The remuneration which the company agreed to
pay to the plaintiff Bhagwant for acting as the managing director was for the
services to be rendered by him. This remuneration must, therefore, be the
personal income of Bhagwant and does not belong to the joint family.
The decisions of this Court and the
principles enunciated by this Court which we have earlier noted clearly support
the view we have taken.
In facts and circumstances of this case there
can be no question of the plaintiff Bhagwant being a trustee or acting as the
trustee for the benefit of the joint family in relation to his appointment as
the managing director of the company.
It has to be borne in mind that it was the
partnership firm of Sulakhe & Co. which was appointed as the managing agent
of the company and on the basis of the partnership agreement and the managing
agency agreement, the defendant No. 2 Dattatraya and thereafter the plaintiff
Bhagwant acted as the managing agent of the company and was entitled to receive
the remuneration from the company for acting as such managing agent. As we have
already noticed the partnership firm consisted of six members, four of whom
were outsiders and did not belong to the family. These four outside members of
the partnership firm had, in fact, held the majority shares in the partnership.
me defendant No. 2 Dattatraya and the plaintiff Bhagwant had become members of
the partnership firm for and on behalf of the joint family and representing the
joint family interest. The firm had entered into the Managing Agency agreement
with the company. The managing agency of the company was that of the
partnership firm in which the four outside members with a majority of shares in
the partnership were interested and the managing agency firm cannot, therefore,
be considered to be an asset of the joint family. It was the interest of the
defendant No. 2 and the plaintiff Bhagwant in the managing agency firm on the
basis of their shares in the partnership which belonged to the joint family.
Furthermore, the managing agency was an agreement between the company and the
partnership firm. It would no doubt be open to the partnership firm to ask for
renewal of the managing agency agreement and it would be equally open to the
company to decide what the company should do. We have earlier observed that on
the expiry of the term of the managing agency by virtue of the changes
introduced in the Companies Act no effective steps appear to have been taken by
the firm Sulakhe & Co. which acted as the managing agent or any partner
thereof for renewal of the managing 201 agency agreement. The alterations of
the articles of association of the company and the appointment of the plaintiff
as managing director after the amendment of the articles also went without any
effective challenge by the firm of Sulakhe & Co. or any partner thereof or
by any share holder of the company. The effect of not renewing the agreement
was that the interest of the partnership firm of Sulakhe & Co. in the
company as the managing agent thereof with all the rights and privileges on the
basis of the said agreement came to an end. With the termination of the
managing agency agreement the interest of the joint family in the managing agency
on the footing that two of the members of the joint family, namely, defendant
No. 2 Dattatraya and plaintiff Bhagwant were as partners of the firm associated
with the managing agency and were acting as the managing agent on the basis of
the partnership agreement and the managing agency agreement also ceased. As we
have earlier observed, the appointment of the plaintiff Bhagwant as managing
director was not because of any special investment by the joint family in the
company and the remuneration which was agreed to be paid by the company to the
plaintiff Bhagwant for acting as the managing Director of the company was not
by way of any return on the investment of the joint family in the company and
the plaintiff Bhagwant became entitled in his individual capacity as the
managing director of the company to the remuneration offered to him for the
services to be rendered by him as such Managing Director. The plaintiff
Bhagwant earned the remuneration in his personal capacity for services rendered
by him. The argument advanced on behalf of the defendants that plaintiff
Bhagwant was in the position of a trustee with regard to the remuneration
received by him for acting as managing director of the company and is
accountable to the joint family for all such remunerations received by him is,
therefore, in the facts and circumstances of this case without any merit.
At the time when the company was incorporated
and admittedly when the family was joint, 325 shares in the company were
purchased, - 200 in the name of the defendant No. 2 Dattatraya and 125 in the
name of the plaintiff Bhagwant. Admittedly the price for these shares was paid
out of the joint family funds. There can, therefore, be no dispute that these
shares belong to the joint family in which each branch of the joint family has
an equal share. In fact, it is so conceded 'before us by the parties concerned.
It appears that 79 further shares in the
company in the name of the plaintiff Bhagwant and four further shares in the
name of defendant No. 1 Gopal were purchased. It further appears 202 that the
purchase price of these 83 shares were also paid out of the joint family funds.
So far as the four shares purchased in The names of defendant No. 1 it is not
disputed that the said four shares belong to The joint family. Though the
plaintiff claims that the 79 shares belong to him and not to the joint family
on the plea that the price paid by the joint family for the purchase of the
said shares was paid to the plantiff Bhagwant by way of loan to him, we must hold
taking into consideration the facts and circumstances of this case and in
particular the fact that the story of the loan by the joint family, has not
been accepted, that these 79 shares also belong to the joint family. Shares
which were subsequently purchased by the parties were purchased when the status
of the joint family has been completely disrupted and there is no evidence to
indicate that the joint family had paid for the shares subsequently purchased
by the parties. Shares had been purchased by the plaintiff, his sons and other
members of the family.
Plaintiff's son is a Doctor and has his own
income. It is not established that the plaintiff purchased shares out of the
remunerations earned by him as the Managing Agent or the managing director of the
company. Even if we assume that the plaintiff has paid for these shares out of
the remunerations paid to him by the company for acting as the Managing Agent
or the managing director, the joint family can have no claim with regard to any
such share. The plaintiff Bhagwant may in the facts and circumstances of this
case be accountable to the joint family for the remuneration earned by him as
Managing Agent, but he is not a trustee and the shares purchased by him will
not belong to the joint family. We have already held that the plaintiff was not
in the position of a trustee for the benefit of the joint family in his
capacity as the managing director of the company and the remuneration which the
plaintiff earned belonged to him and was his personal income. We, therefore,
hold that 200 shares standing in the name of defendant No. 2, 125 shares
standing in the name of the plaintiff Bhagwant, four shares standing in the
name of defendant No. 1 and the 79 shares standing in the name of the plaintiff
or his sons which were purchased out of the joint family funds belong to the
joint family and each branch has equal 1/3 shares in these shares.
We now proceed to consider the question of
cash money which was found in the Mahalaxmi room. The plaintiff claims that in
the Mahalaxmi room there was about a Lac of Rupees belonging to the joint
family which had been secreted by the defendants. When the receiver counted the
money, it was found that there was cash 203 money in Mahalaxmi room over
twenty-one-thousand rupees.
There is no evidence on record which would
justify the claim of the plaintiff that there was a Lac of Rupees in the
Mahalaxmi room. Materials on record show that there was some cash money
belonging to the joint family in the Mahalaxmi room. To ascertain exactly how
much cash money was there in the Mahalaxmi room, it becomes necessary to direct
that a proper account should be taken. The litigation between the parties is
going on for decades, and any reference directing accounts to be taken on this
question would necessarily mean that the litigation would be prolonged further.
Taking an overall view of the matter we have decided that in the interest of
justice and in the interest of the parties it will 'be appropriate in The facts
and circumstances of this case that this Court should determine and reasonable
amount on the basis of the materials which are there on the record and on the
basis of the submission made by the counsel and the counsel for the parties
also suggested that in the interest of the parties concerned it would be
desirable that this Court should fix an amount which the Court will consider
reasonable. We propose to take this aspect into consideration while passing the
decree in these appeals.
The last question which falls for
determination is on the question of ornaments, jewellery and utensils. There is
no proper evidence on record which will justifiable lead to the conclusion that
any ornaments, jewellery or utensils belonging to the joint family are in the
possession of any particular party. Materials on record, on the other hand,
suggest that these movables have already been partitioned.
We are, therefore, inclined to take the view
that whatever ornaments, jewellery and utensils are in the possession of any of
the parties now belong to them and there is no question of any party being in
possession of any joint family ornaments, and utensils.
In the result we hold :-
1. That all remunerations received by the
plaintiff Bhagwant from the company by way of commission director's fees and
remunerations as the managing agent of the company so long as the managing
agency agreement continued its existence till 1957, belong to the joint family
and the plaintiff is bound to render true and faithful accounts of all such
amounts received by him and to pay to the other two branches their share,
namely, 1/3rd to each of the other branches who happen to be the defendants in
the suit.
204
2. The position of the defendant No. 2
Dattatraya who was the other person in the firm of Sulakhe & Co.
representing the joint family and who also acted as a managing agent is also
the same. There is no question, however, of the defendant No. 2 Dattatraya
rendering any account in respect of such sums received by him as all such sums
received by him had been treated without any kind of dispute as joint family
income and had been entered in the books of the joint family. The question of
rendition of any account by the defendant No. 2 Dattatraya therefore, does not
arise.
3. The remuneration received by the plaintiff
as managing director of the company on his appointment as managing director of
the company in 1957, belongs to the plaintiff personally and does not belong to
the joint family. The entire remuneration received by the plaintiff after the
termination of the managing agency agreement and after his appointment as
managing director of the company is the personal income of the plaintiff and
the joint family or any member thereof has no interest or claim in the amounts
so received by the plaintiff.
4. 200 shares of the company in the name of
the defendant No. 2, 125 shares in the company in the name Of the plaintiff
which were initially acquired by the joint family and the subsequent
acquisition of 79 shares by the plaintiff in his name or in the name of his
sons and the acquisition of four shares in the name of defendant No. 1 belongs
to the joint family and each branch of the joint family has an equal interest
in the shares. In other words, these 408 shares belong to the joint family and
being 408 shares have to be divided equally amongst the three Branches of the
family. All other shares in the company standing in the names of the parties or
their children do not belong to the joint family and form no part of the joint
family property.
5. So for as the cash money in the Mahalaxmi
room is concerned there was undoubtedly some cash money lying in that room
belonging to the joint family.
The exact amount of cash money lying in the
Mahalaxmi room is difficult, if not impossible, to ascertain on the 205 basis
of the materials on record. It will be equally difficult to ascertain the exact
amount even if a reference is directed as on the materials on record and after
hearing the submissions of the counsel for the parties, we find that there is
no dependable material to come to any definite conclusion. The plaintiff claims
that there was approximately a Lakh of Rupees whereas the receiver found only
an amount of over Rs. 21,000. The plaintiff Bhagwant is no doubt entitled to a
reasonable amount in respect of money lying in Mahalaxmi room and we shall take
this account into account while passing the final decree herein.
6. So far as the ornaments, jewellery and
utensils are concerned, we hold that there is no material on record to
establish that any party in possession of any ornaments, jewellery and utensils
belong to the joint family. The ornaments, jewellery and utensils in the
possession of the respective parties will be treated as their own properties.
There is nothing further to enquire into or decide on these questions.
On the basis of the aforesaid findings we now
proceed to consider the nature of the relief that should be granted and the
kind of decree that we should pass in these appeals.
We are of the opinion that taking into
consideration that the litigation between the parties has been going on for
over four decades, it will be in the interest of justice and in the interest of
parties that any kind of decree would not be passed which may have the effect
of prolonging the litigation. In that view of the matter we are of the opinion
that we should not pass any decree for accounts, as any reference for taking
accounts will result in prolongation of litigation to the detriment of the
interest of the parties.
The learned counsel appearing on behalf of
the parties also submitted before us that we should pass a final decree to put
an end to the litigation. To enable us to pass a final decree without any
directions for taking of accounts between two parties we directed all the
parties to place before us the relevant facts and the necessary figures in
respect of their claims on each head. On the basis of the directions given by
us, the parties have furnished the Court with relevant facts and figures
relating to their claims in respect of every item of claim and have also made
their submissions before US on the basis thereof. We have carefully considered
all the materials which have been placed before us by the parties and also the
206 submissions made in support thereof by the parties. On a careful
consideration of all the materials placed before us and also the submissions
made on behalf of the parties, we now proceed to pass the final decree in these
appeals in the following terms :- (1) The plaintiff Bhagwant who happens to be
the appellant before us will pay a sum of Rupee two Lacs to the defendants to
be divided equally between the two respective branches of the defendants. In
other words, the plaintiff Bhagwant will pay a sum of Rupees one lac to the
heirs of defendant No. 1 Gopal and a sum of Rupees one lac to the defendant No.
2 Dattatraya.
(2) The said sum of Rupees two lacs will be
paid to the defendants in the manner aforesaid, namely, one lac to the heris of
defendant No. 1 Gopal and Rupees one lac to the defendant No. 2 Dattatraya
within a period of two months from date.
(3) In default of payment of the said sum
within the aforesaid period, the decretal amount of Rupees 1 lac in favour of
each branch of the defendants will carry interest @ 9% per annum from the date
of default till recovery of the said amount by the defendants. In other words,
the interest on the said sum of Rupees one lac each for defendant No. 2 and the
heirs of defendant No.
1 Gopal will run from 1st December, 1985, if
the said amount is not paid by the end of November 1985.
(4) If the amount of Rupees one Lac or any
part thereof remains unpaid by the end of November, 1985 to the heirs of
defendants No. 1 Gopal or to the defendant No. 2 Dattatraya, the said
defendants or either of them who would not be paid the entire sum of Rupees one
Lac by the end of November, 1985 will be entitled to execute the decree for the
said amount of Rupees one Lac or any part thereof which will remain unpaid with
interest on the said amount, on the basis of the decree passed herein.
(5) It is declared that 408 shares which we
have held to be the property of the Joint family as recorded in our finding No.
2 belong to the joint family and the 207 plaintiff Bhagwant, the defendant No.
2 Dattatraya and heirs of defendant No. 1 Gopal shall have each 1s/3 share in
the said 408 shares in the company.
The said 408 shares shall be divided equally
amongst the three branches and the plaintiff will get 136 shares, defendant No.
2 Dattatraya 136 shares and the heirs of Defendant No. 1 Gopal will get 136
shares.
(6) Mr. S.B. Sulakhe son of the plaintiff
Bhagwant who happens to be the present managing director of the company is
hereby appointed Commissioner without any remuneration to divide the shares
equally in the aforesaid three lots and to. have the same transferred and
registered in the names of the parties on the basis of the division of the said
shares to be effect ed in terms of the decree. The plaintiff will proceed to
divide the said shares in the manner directed above within two months from
date. All the parties will give necessary co-operation to the plaintiff in the
matter of effecting division of the said 408 shares in the manner aforesaid.
(7) If for any reason, the plaintiff in not
able to divide the said shares within a period of two months from date of the
decree any of the parties will have the liberty to apply before the Trial Judge
for the appointment of a Commissioner of partition to divide the said 408
shares in three equal lots of 136 shares each in the manner directed by this
decree.
(8) It is declared that the amount which
would have been payable to the plaintiff as his share out of cash money lying
in the Mahalaxmi room, has been taken into consideration while passing the
decree for Rupees two lacs against the plaintiff and the plaintiff will have no
further claim against the defendants on this account.
(9) It is declared that no party has any
claim against the other on account of any joint family ornaments, jewellery and
utensils. It is further declared that whatever ornaments jewellery and utensils
are in the possession of any of the parties are their own properties and no
other party has any claim in respect thereof.
208 (10) It is declared that there are no
other joint family properties in respect of which any of the parties can make
any claim and it is further declared that apart from what is provided in this
decree, no party has or will have any claim against any other party on the
basis of any property being a part of the Joint family property.
(11) Save and except the costs already paid
by the plaintiff to the defendants, the parties will pay and bear their own
costs. It is made clear that the plain tiff will not be entitled to recover
whatever costs he might have paid to the defendants and the defendants will be
entitled to retain all sums received on account of costs and will not be called
upon to refund any part of the amounts received by them by way of costs from
the plaintiff.
(12) Any direction or finding of the High
Court contrary to what we have held must necessarily stand set aside and
appeals to that extent stand allowed.
S.R. Appeals partly allowed.
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