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1917 Supreme(SC) 78
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD BUCKMASTER, SIR JOHN EDGE, SIR WALTER PHILLIMORE, BART., AND SIR LAWRENCE JENKINS.
REHMAT-UN-NISSA BEGAM - Appellant
Versus
PRICE - Respondents
On Appeal from the High Court at Bombay.
Decided On : December 13, 1917.
Solicitors for appellants : T. L. Wilson & Co.
Solicitors for respondents: Grundy, Kershaw, Samson & Co.
A court has discretionary power under Section 254(6) of the Indian Contract Act, 1872, to dissolve a partnership if the business can only be carried on at a loss, regardless of any contractual agreement specifying a fixed term or event for termination.
Headnote:(A) Indian Contract Act, 1872 - Sections 252 and 254(6) - Dissolution of partnership - Business carried on at a loss - Power of the Court to decree dissolution - Where the business of a partnership can only be carried on at a loss, the Court may, at the suit of a partner, dissolve the partnership under Section 254(6) - This discretionary power is not taken away by an agreement between the parties that the partnership shall continue until a specific event occurs - A partner's claim for dissolution rests on an inherent right to invoke the Court's protection on equitable grounds, which cannot be excluded by contract.
(B) Jurisdiction of Court - No person can exclude themselves from the protection of the Courts - The power to decree dissolution under Section 254 is specifically conferred to address situations where a partnership is not terminable at will.
Facts of the case:
A partnership was constituted for the quarrying and supply of stone and granite for a construction project. The partnership instrument provided that the partnership should continue until the supply of materials for the construction was completed, at which point it would terminate and be wound up. The business consistently operated at an annual loss. The plaintiff sought a decree for dissolution on the ground that the business could only be carried on at a loss. The appellate court had previously held that the suit was premature because the agreement specified the partnership should continue until the completion of the works.
Findings of Court:
The court found that the business could only be carried on at a loss, as evidenced by balance sheets and profit and loss accounts, thereby establishing the condition described in Section 254(6) of the Indian Contract Act, 1872. The court held that the agreement to continue the partnership until a certain event did not constitute a bar to the court's jurisdiction to dissolve the partnership on equitable grounds.
Issues: Whether a suit for dissolution is premature if the partnership agreement provides for the partnership to continue until a specific event, and whether the court's discretionary power to dissolve a partnership operating at a loss is overridden by such a contractual provision.
Ratio Decidendi: The court ruled that the right to seek dissolution is an inherent right to invoke the court's protection on equitable grounds, regardless of the contractual terms regulating the partnership. Section 254(6) provides the court with the power to dissolve a partnership in the event of inevitable loss precisely because such partnerships are not terminable at will. The court's discretion to dissolve was further justified by the conflict of interest between the defendants' roles as contractors and their duties as partners, and the stated purpose of making the quarries profitable.
Result: Appeal allowed; decree of the original court restored.
Legal Category Hierarchy
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contract law
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partnership law
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dissolution of partnership
- court-ordered dissolution
- partnership at will vs fixed term
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dissolution of partnership
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partnership law
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practice and procedure
- equitable jurisdiction
Judgement
Appeal from a judgment and decree of the High Court (Septem ber 8, 1914) varying a decree of Macleod J. (March 28, 1914).
The suit was instituted in the High Court by the Nawab Kamal Khan (now represented by the appellants) for a decree that a partnership between himself and the respondents, constituted by an agreement dated March 11, 1908, be dissolved, and for accounts.
The facts appear from the judgment of their Lordships.
Macleod J. found that the partnership business could only be carried on at a loss ; he decreed a dissolution from the date of the institution of the suit and made certain declarations as to the effect of the agreement as to the respective rights upon taking the accounts.
The present respondents appealed and the appellants cross-appealed.
Sir Basil Scott C. J. and Davar J. varied the decree. They held that the plaintiff was not entitled to sue for a dissolution of the partnership at the date of the institution of the suit, nor until the completion of the construction of the works, since the partnership agreement provided that the partnership should continue until that event. The works, however, being completed at the date of the decree, the partnership accounts were ordered; the decree of Macleod J. as to the respective rights of the parties was also varied.
1917. Nov. 13, 15. (The arguments as to the right to a dissolution are alone reported.) Upjohn, K.C., and Sir William Garth, for the appellants. It was proved that the business could not be carried on at a profit and the trial judge had a discretion under s. 254, sub-s. 6, of the Indian Contract Act, 1872, to order a dissolution. That discretion was not taken away by the agreement of the parties Lindley on Partnership, 8th ed., p. 658. In Cowasjee Nanabhoy v. Lallbhoy Vullubhoy (( 1876) L. R, 3 I. A. 200.) the Board held merely that the partners might by their agreement renounce the right to a dissolution. There was nothing in the conduct of the Nawab which disentitled him to the equitable assistance of the Court and the discretion was properly exercised.
P. O. Lawrence, K.C., De Gruyther, K.C., and E. B. Raikes, for the respondents. The Court had not a discretionary power under s. 254, sub-s. (6) to dissolve the partnership since the evidence did not show that the business could not be carried on at a profit. In any case, having regard to the circumstances in which the partnership was entered into, it would be inequitable to the respondents to decree a dissolution before the completion of the works.
Upjohn, K.C., in reply.
Dec. 13. The judgment of their Lordships was delivered by
SIR LAWRENCE JENKINS. This is an appeal from a decree of the High Court at Bombay in its appellate jurisdiction, dated September 8, 1914, varying a decree of that Court in its original jurisdiction passed on March 28, 1914. The suit is for a dissolution of partnership. The original plaintiff was Nawab Kamal Khan, but he has died in the course of the suit and the present appellants are his representatives. The defendants, his partners, are the respondents in this appeal. The partnership was constituted on March 11, 1908, and its terms are contained in an instrument of that date, To appreciate its purpose and legal effect it will be convenient to describe briefly the events that led up to its execution. The defen dants, a firm of contractors, had undertaken the construction of the New Alexandra Dock in the island of Bombay, and they required for the work a large supply of granite and other stone. They accordingly made two contracts in 1906 for this supply, and in both of them the Nawab was either directly or indirectly interested.
For reasons which need not be discussed, the supply of granite and stone under these contracts was so unsatisfactory that the defendants manager complained, and declared that he would be compelled to look elsewhere if he could not get delivery according to contract.
In the end an arrangement was made for cancellation of the two contracts a
