T V RAMAKRISHNAN J.

The appellant herein is Sri Murugan Oil Industries Private Ltd. by its managing agents, Kolandaiyappan, defendant in O S No. 219 of 1958 on the file of the District Munsif of Karpur. The suit was filed by two partners of a firm for dissolution and rendition of accounts against the third partner. The trial court decreed the suit and this was confirmed by the lower appellant court. The defendants appealed. The prior circumstance necessary for a consideration of this second appeal are the following

On February 4, 1955 a deed of partnership was entered into between (1) A T V Suryanarayana Chettiar (2) A T V Ramachandran Chettir and (3) M Kolandaiyappan managing agent, Sir Murugan Oil Industries Ltd. for and on behalf of the said company. The agreement went to recite that Kolandaiyappan who is the proprietor of another company, M Kolandaiyappan and Co conducted and managed in his capacity as managing agent, the Sri Murugan Oil Industries Ltd. In the course of the management of the latter company it was found that there were no proper facilities for the conduct of the business and in accordance with the resolution of the managing committee of the said Murugan Oil Industries Ltd. dated October 10, 1954 and for the efficient conduct of the business Kolandaiyappan had on behalf of the above company decided to form a partnership with individuals Nos 1 and 2 the terms and conditions were (1) the partnership should be conducted under the name and style of Aid Venkatarama Cheittar Sons and Co (2) Individual Nos 1 and 2 will contribute Rs 3, 000 each to the capital and individual No 3 that is Kolandaiyappan will contribute Rs 3, 000 (3) Individual No 3 is prohibited from borrowing any amount from outsiders. (4) Individual No 3 had no right to conduct any business separately entire on behalf of the Mills (Sri Murugan Oil Industries Ltd) or on behalf of Aid Venkatarama Cheittar Sons and Co . (5) Kolandaiyappan was required to keep regular accounts and manage without any remarks. If any breach of rules or regulations were found in connection with the management of Murugan Oil Industries , Kolandaiyappan will be responsible for the same. (6) In respect of the above business Kolandaiyappan will credit in the accounts a sum of Rs 150 towards share or profit of Sri Murugan Oil Industries Ltd (7) So long as the partnership trade is in existence the buildings etc, belonging to Murgugan Oil Industries and used by the suit partnership shall not be alienated by individual No 3 to any third person. (8) In respect of profits, individual No 1 will be entitled to four annas individual No 2 will be entitled to four annas and the other 8 annas should be taken by individual No 3 for and on behalf of Sri Murugam Oil Industries LtdThe above specific recitals in the partnership agreement are important for the consideration of the principal question of law urged for determination in the second appeal. The defendant urged that the suit partnership was illegal because it contravended section 4(2) of the Indian Companies Act 1913 which corresponds to section 11(2) of the Indian Companies Act, 1956 reads

"No company association or partnership consisting of more than 20 persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company association or partnership or by individual members thereof unless it is registered as a company under this Act, or is formed in pursuance of some other Indian law." *

It is not in dispute that the corresponding section in force prior to the Companies Act, 1956 section 4 of Act VII of 1913 contained identical similar terms. In the present case it is common ground that the Muruguan Oil Industries (Pte) ltd. had more than 20 shareholders. The defendants therefore urged that when Murrugan Oil Industries entered into the suit partnership agreement with tow other persons, the number of partners exceeded 20, it is an essential requirement that s