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1943 Supreme(SC) 39
Privy Council At Bombay
Sir George Rankin, Clauson, Porter, Thankerton, Justice Lords Atkin, JJ.
Morarji Goculdas and Co. -Appellant
Versus
Sholapur Spinning and Weaving Co. Ltd. and others -Resopndent
Privy Council Appeal No. 39 of 1942; Bombay Appeal No. 20 of 1938
Decided On : 21-10-1943
T.L. Wilson and Co., Hy. S.L. Polak and Co., S.P. Khambatta, Sir Herbert Cunliffe, W.W.K. Page, D.N. Pritt
Important Points
Subject
Company Law - Managing Agency
Headnote
(B) Principle of Misconduct - The principle governing termination for misconduct is consistent across different employment relationships, including managing agencies and master-servant relationships - The central question is whether the misconduct proved, or reasonably apprehended, has such a direct bearing on the employer's business, or on the discharge by the employee of that part of the employer's business in which he is employed, as to seriously affect or to threaten to seriously affect the employer's business or the employee's efficient discharge of his duty to his employer. (Para 12)
Facts of the case:
A merchant firm served as managing agents for a joint stock company. Following a change in partnership to secure finance, severe differences and quarrels arose between the partners of the managing agent firm. The company's directors subsequently passed a resolution terminating the firm's employment as managing agents. The firm sued for damages for wrongful termination, while the company justified the action on the grounds of misconduct, specifically citing the internal disputes as detrimental to the company's interests.
Findings of Court:
The court found that the internal quarrels between the partners were of such a nature as to be detrimental to the interests of the company and sufficient to justify the termination of the employment.
Issues: Whether the internal disputes between partners of a managing agent firm constitute misconduct sufficient to justify termination of their employment, and whether the legal principles applicable to master-servant relationships regarding misconduct also apply to managing agents.
Ratio Decidendi: The court held that while the nature of the business and duties must be considered in each case, the overarching principle remains that any misconduct which seriously affects or threatens to affect the employer's business or the employee's efficient discharge of duty justifies termination, regardless of whether the relationship is that of a managing agent or a servant.
Result: Appeal dismissed.
The appellants, who are a merchant firm carrying on business in Bombay, seek to recover damages from the respondents in respect of the alleged wrongful termination of their employment as managing agents of the respondent company. By judgment and decree dated 12th October 1938, the High Court of Judicature at Bombay, in its civil appellate jurisdiction, affirmed the judgment and decree of that Court in its original civil jurisdiction, dated 15th February 1938, by which the suit of the appellants was dismissed with costs.
The respondent company is a joint stock company carrying on business at Bombay as spinners and weavers of cotton, jute and other fibres; the individ+++ual respondents, along with two other original defendants now deceased, were the directors of the respondent company who passed the resolution, dated 27th January 1933, which terminated the employment of the appellants as managing agents of the respondent company. The respondent company was formed in 1874, and by cl. 6 of the memorandum of association it was provided as follows:
"That the firm of Morarji Goculdas and; Co. of Bombay Merchants or whatever member or members that firm may for the time consist of, shall be the agents of the company, so long as the said firm shall carry on business in Bombay or until they shall resign, and they shall receive a commission of ¼ anna per lb. on all the yarns and other material manufactured and sold by the company; should however the company during any one year be unable to declare a dividend of 4 per cent. owing to their profits being less than that amount, the agents shall only be paid one-third of the above commission."
In 1931 important changes were made in the partnership of the appellant firm, out of which arose the troubles which caused the termination of their managing agency. The account of these changes may be conveniently taken from the judgment of the learned Chief Justice:
"The circumstances in which the present plaintiffs were appointed to, or assumed, the position of managing agents of the company are as follows :- In 1930 the Company was in financial difficulties, and a petition to wind up was presented by a creditor. In order to get out of their difficulties, it was essential for the Company to secure further finance, and the usual practice in this country is for finance to be provided for the joint stock companies by their managing agents. So the Company approached Morarji Goculdas and; Co., to see whether they could provide the finance. At that time there were three partners in the firm, Ratansey, Tricumdas and Shantikumar. They were not able to provide the money themselves, but they entered into negotiations with two Calcutta firms known as the Jhajharias and Dhandhanias, and eventually it was agreed that these two Calcutta firms should be admitted as partners in the firm of Morarji Goculdas and; Co., that they should advance 12 lacs of rupees to the Company, and that they should also be appointed as selling agents of the Company. Those negotiations were completed early in 1931, and on 19th February 1931, three documents were executed, first, an agreement between the existing partners in Morarji Goculdas and; Co. of the one part and these two Calcutta firms of the other part, by which the two Calcutta firms were admitted as partners in Morarji Goculdas and; Co. I will refer more particularly to that agreement hereafter. Then there was a second agreement, an hypothecation agreement, between the Company and the two Calcutta firms, by which the Calcutta firms agreed to advance 12 lacs of rupees to the Company on certain security, and there was further an agreement between the Company and the Calcutta firms by which the firms were appointed selling agents. There was no actual agreement between the Company and Morarji Goculdas and; Co., appointing the new firm of Morarji Goculdas and; Co. as managing agents of the Company."
It should be added that under cl. 8 of the first of these agreements, by
