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1948 Supreme(SC) 19
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD NORMAND, LORD MACDERMOTT AND SIR JOHN BEAUMONT.
BHAGWANJI MORARJI GOCULDAS - Appellant
Versus
ALEMBIC CHEMICAL WORKS COMPANY, LIMITED, - Respondents
On appeal from the High Court at Bombay.
Decided On : Feb. 26. 1948.
Solicitors for appellant : T. L. Wilson & Co.
Solicitors for first respondent: Hy. S. L. Polak & Co.
A partnership firm lacks perpetual succession; therefore, a contract made with specific partners is not enforceable by a reconstituted firm once all original contracting partners have ceased to be members, as privity of contract is lost.
Headnote:(A) Indian Partnership Act, 1932 - Distinct personality of a firm - A firm's recognition as an entity apart from the persons constituting it does not involve that the personality continues unchanged so long as the business continues - A firm is not a corporate body enjoying the right of perpetual succession - Where an agreement is made between a company and specific individuals as members of a firm, and all those individuals cease to be members, there is no privity between the company and the firm as it then exists.
(B) Amendment of Pleadings - Leave to amend a plaint may be refused by the court if the claim introduced by the proposed amendment would be barred by limitation.
(C) Indian Companies Act - Section 87b(c) - A statutory definition of "original partners" provided for the purpose of a regulatory proviso does not make a person an original partner for the purposes of a private managing agents agreement, nor does it create contractual privity.
Facts of the case:
A company entered into an agreement with a firm and four named individuals to employ them as managing agents. The agreement provided that the appointment was irrevocable except in cases of fraud. Over several years, the composition of the firm changed through deaths and assignments of shares. Eventually, all original partners ceased to be members of the firm. The company subsequently terminated the agreement, asserting that the firm with which it had originally contracted no longer existed. A subsequent partner sued the company for damages for breach of the original agreement.
Findings of Court:
The court found that the firm, despite having a distinct personality under the Indian Partnership Act, does not possess perpetual succession. Since all original partners had left, there was no privity of contract between the company and the reconstituted firm. The request to amend the plaint to allege an implied agreement was rightly refused as such a claim would have been barred by limitation. Furthermore, the statutory definition of "original partner" in the Companies Act was for regulatory purposes and did not alter the contractual rights under the managing agents agreement.
Issues: Whether a partnership firm's distinct personality ensures the continuity of a contract when all original partners have changed; whether a statutory definition of "original partner" in the Companies Act creates contractual privity; and whether a plaint can be amended to allege an implied agreement if such a claim is barred by limitation.
Ratio Decidendi: A partnership firm is not a corporate body with perpetual succession. When a contract is made with specific individuals as members of a firm, and all those individuals cease to be partners, the privity of contract is severed. Statutory provisions defining terms for specific regulatory purposes do not override common law principles of contract and privity.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
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partnership law
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legal personality
- perpetual succession
- privity of contract
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legal personality
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company law
- managing agents
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practice and procedure
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amendment of pleadings
- limitation
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amendment of pleadings
Judgement
Appeal (No. 73 of 1946) from a judgment and decree of the High Court (November 24, 1943) affirming a judgment and decree of that court in its original civil jurisdiction (December 16, 1942).
The following facts are taken from the judgment of the Judicial Committee. In the suit out of which this appeal arose the appellant, who was plaintiff, claimed against the first respondent, The Alembic Chemical Works Co., Ld. (hereinafter referred to as " the company") Rs. 9,00,000 damages for breach of an agreement of December 7, 1907, to employ the firm of Kotibhasker, Amin and Company, of which the appellant claimed to be a member, as managing agents of the company. The claim arose in this way. The company was formed in the year 1907, and under
cl. 6 of the Memorandum of Association it was provided that the members who then constituted or who might thereafter constitute the firm of Messrs. Kotibhasker, Amin and Company were thereby appointed secretaries, treasurers and agents of the company on the terms contained in the agreement annexed to the Articles of Association, and it was expressly provided that in consideration of the services rendered by them in promoting the company, the appointment of the said firm as secretaries, treasurers and agents of the company should not be liable at any time thereafter to be revoked or cancelled on any ground or for any reason whatever, save and except their being found guilty of fraud in the management and discharge of their duties as such secretaries, treasurers and agents, and that the remuneration payable to the said firm should be as therein mentioned. Clause III of the Articles of Association was expressed in much the same terms and referred to the agreement thereto annexed and marked A.
The agreement referred to in the Memorandum and Articles of Association was dated December 7, 1907, and was made between the company of the one part and Anant Shridhar Kotibhasker, Bhailal Dajibhai Amin, Krishnalal Tribhowandas Gajjar, then a minor, by his guardian Tribhowandas Kalyandas Gajjar, and Moreshwar Bhalchandra Bhatvabeker, carrying on business in Bombay under the name and style of Messrs. Kotibhasker, Amin and Company of the other part. The agreement so far as material provided that in consideration of the agreement of the company thereinafter contained they, the four persons of "the second part, promised and agreed on behalf of themselves and each of them and the members or member of the said firm of Messrs. Kotibhasker, Amin and Company, for the time being, thereinafter referred to as the said firm (cl. 1). That they would faithfully and to the best of. their ability perform the offices of secretaries, treasurers and agents of the said company for the purpose of carrying on to the best advantage the business of the said company so long as the said company and the said firm should continue to carry on their respective business at the remuneration, upon the terms and subject to the conditions thereinafter mentioned. (Clause 2.) That in consideration of the agreement thereinbefore contained on the part of the said firm, and in further consideration of the said firm having promoted the said company, the company thereby promised and agreed with the said firm and its members or member for the time being that the said firm should be employed as, and should be the secretaries, treasurers and agents of the said company as long as the said firm and the said company should exist and continue to carry on the business either in the present or any name, and that such appointment should not be liable to be at any time revoked or cancelled on any ground or for any reason whatever except their being found guilty of fraud in the management and discharge of their duties of secretaries, treasurers and agents ; and the said company thereby for itself and for its successors covenanted with the said four persons of the second part and the said firm severally and jointly that the said company should from time to
