INTRODUCTION

Until the midddle of the last century, courts used to deal with disputes between business partners
in accordance with the prevalent customs and usages of the country. However, with the advent of
Indian Partnership Act, 1932, law relating to partnership was codified separately. From time to
time, the courts have adjudicated on the finer points of partnership law as laid down by this Act.
The Act is practically identical in substance with the English Partnership Act, 1890 and the
similarity in wording of important provisions attracted to difficult cases in India the benefit ofs
English judicial experience.

Despite this, hard cases have often come before the Courts on which no judicial precedent either
in Indian Law or on English Law exists on it. Such hard cases have only gone on to reaffirm the
ingenuity of our courts which have always risen to the occasion. Supreme Court had one such
occasion when a matter came before the Court on ‘partnership at will’. The matter pertained to
the question of whether the partnership was one at will or not. In answering this question,
Supreme Court also laid down a landmark interpretation of Section 7 of the Act.

In this study, I have endeavoured to critically examine the landmark case of Karumuthu
Thiagarajan Chettiar and Anr. Vs. E.M. Muthappa Chettiar1, wherein Supreme Court filled
in some gaps in the interpretation of of law of partnership at will.

FACTS OF THE CASE

Coram: Hon’ble Judges K. N. Wanchoo and P. B. Gajendragadkar, JJ. This order was given by
Wanchoo J. on behalf of the Bench.

Parties to the suit

The present suit was brought by Muthappa Chettiar (hereinafter referred to as the respondent)
against K. Thiagarajan Chettiar (hereinafter called the appellant) and the Saroja Mills Ltd. In
1939 these two persons thought of doing business jointly by securing managing agencies of some
mills. They entered into a partnership for this prupose.

1
AIR 1961 SC 1225

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 EVENTS LEADING TO PRESENT SUIT:

1. Managing Agency of Saroja Mills--The parties negotiated were granted the managing agency
of Saroja Mills Limited, Coimbatore (hereinafter called the Mills). The managing agency of the
Mills was with the Cotton Corporation Limited. On October 4, 1939, the said Corporation
transferred and assigned its rights to the appellant and the respondent under the name of
Muthappa and Co. On November 15, 1939, the Mills at an extra-ordinary general meeting of the
shareholders accepted Muthappa and Co. as the managing agents and made the necessary
changes in the Articles of Association.

2. Managing Agency of Rajendra Mills--Later the appellant and the respondent obtained the
managing agency of the Rajendra Mills Limited, Salem. The managing agents of this mill were
Salem Balasubramaniam and Co. Ltd. Muthappa and Co. purchased all the shares of the Salem
Balasubramaniam and Co. and thereafter carried on the business of the managing agency of this
mill in the name of Salem Balasubramaniam and Co. Ltd.

3. Partnership Agreement--In November 1940 the appellant and the respondent entered into a
written partnership agreement with respect to the managing agency business of the two mills.

4. Relations Become Strained--Soon after however disputes arose between the appellant and the
respondent with respect to the managing agency of the Rajendra Mills Limited, which resulted in
various suits being filed between the partners.

5. Notice of Termination--Eventually on March 4, 1943, the appellant gave notice to the

6. Termination of Managing Agency of Saroj Mills--This was followed by the directors of the
Mills terminating the managing agency of Muthappa and Co. on the ground that that company
had ceased to exist and also on the ground that quarrels between the partners of the firm were not
conducive to good management of the Mills. This was notified to the respondent on March 22,
1943. This action of the directors was approved in a meeting of the shareholders of the Mills on

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 September 29, 1943, and necessary modifications were again made in the Articles of
Association.

7. Parallel Litigation--In between on April 17, 1943, the respondent had filed a suit for a
declaration that Muthappa and Co. continued to be the managing agents of the Mills and for
obtaining possession of the office of managing agents for himself or along with the appellant and
also for a permanent injunction restraining the Mills from appointing any other managing agents.
This suit was dismissed by the trial court on the ground that it was not maintainable under s. 69
of the Indian Partnership Act, No. IX of 1932 (hereinafter called the Act), though the trial court
gave findings on other issues also.

The respondent went up in appeal to the Madras High Court against the decree in that suit. This
appeal was dismissed on July 8, 1948, as the High Court held that the finding of the subordinate
judge that the suit was not maintainable under s. 69 of the Act was correct. The High Court
however made it clear that it was expressing no opinion on the correctness or otherwise of the
other findings recorded by the subordinate judge.

8. Present Suit--While this appeal was pending the respondent brought the present suit on
February 28, 1946. In this suit he prayed for dissolving the firm Muthappa and Co., for accounts
and for damages against the appellant and the Mills.

9. Contentions of Parties & Relief Prayed--The main contention of the respondent in the suit was
that the alleged dissolution of partnership by the appellant and the removal of Muthappa and Co.
from the managing agency of the Mills were part of a scheme of fraud conceived by the
appellant which was actively connived at by the Mills in order to defeat and defraud the
respondent of his legitimate dues and his right to continue and act as the managing agent of the
Mills. The damages claimed were estimated at the figure of five lacs of rupees to the recovered
from both the appellant and the Mills or from either of them.

In the alternative the respondent claimed that even if Muthappa and Co. had been removed
validly from the managing agency on September 29, 1943, he was entitled to an account from the
appellant from November 15, 1939, to September 29, 1943.

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 The suit was resisted by both the appellant and the Mills and their case was that the partnership
was one at will and therefore was validly terminated by the appellant by notice. It was further
contended that in any case the Mills were within their rights in terminating the managing agency
of Muthappa and Co., as that firm had ceased to exist and there were interminable disputes
between the partners. Fraud and collusion were denied and it was alleged that it was the
respondent's conduct which compelled the appellant to give notice of termination of partnership
and the Mills to terminate the managing agency.

The Mills took a further plea, namely, that so far as they were concerned, the suit was barred
under s. 69 of the Act.

10. Decision of Trial Court--The trial court held that the firm of Muthappa and Co. was a
partnership at will and therefore was legally dissolved by the appellant by giving notice dated
March 4, 1943. It further held that no case of fraud had been proved and that the termination of
the managing agency was legal. As to the Mills the trial court held that the suit against them was
barred under s. 69 of the Act. In consequence the suit against the Mills was dismissed in toto and
the prayer for damages was also rejected. The trial court however directed the appellant to
account for the profits earned from the inception of the partnership business till March 4, 1943,
when the partnership was terminated by the appellant by notice.

11. Decision of High Court--Thereupon the respondent went up in appeal to the High Court. The
High Court held that the suit against the Mills was barred under s. 69 of the Act, though it was
made clear that if there were assets of the partnership firm in possession of the Mills the
respondent would be entitled to recover them. The High Court however ordered the Mills to bear
their own costs in both the courts on the ground that the Mills were guilty of fraud.

As to the case against the appellant, the High Court held that the partnership was not a
partnership at will and therefore it could not be dissolved by notice by the appellant. It further
held that the appellant fraudulently and in collusion with the Mills purported to dissolve the
partnership by issuing an illegal notice and to have the managing agency terminated by the Mills,
and in consequence the termination of the managing agency was illegal. One the view therefore
that the partnership as well as the managing agency continued and on a review of the
circumstances, the High Court held that this was a fit case for dissolving the partnership and

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 fixed March 10, 1949, which was the date of the decree of the trial court as the date from which
the partnership would be dissolved.

Consequently it modified the decree of the trial court and passed a preliminary decree for
accounts against the appellant in respect of the firm Muthappa and Co. from November 15, 1939,
to March 10, 1949, and added that the respondent could also recover any amount found due to
him on taking accounts against the partnership assets, if any, in the hands of the Mills. The
appellant then applied for a certificate to appeal to this Court which was granted; and that is how
the matter had come up before Supreme Court.

ISSUES RAISED

1. Whether the partnership in this case is a partnership at will under section & of the Act?
2. Whether the managing agency has been terminated legally?
3. When can the managing agency be said to have been terminated?

DECISION OF THE COURT

Issue I: No, the partnership is not at will, as it falls within the two exception to Section 7 of the
Act.

Issue II: Yes. Termination of managing agency was well within the rights of Saroj Mills, as they
were acting in the best interests of the Mills.

Issue III: Managing agency was terminated on March 22, 1943 when termination was approved
by a resolution at the general meeting of the Company.

RATIONALE BEHIND DECISION OF THE COURT

Issue I:

1. Statutory provision-- Section 7 provides that where no provision is made by contract between
the partners for the duration of the partnership, or for the determination of the partnership, the

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partnership is partnership at will. Section 8 provides that a person may become a partner with
another person in particular adventures or undertakings. Section 43 provides that where the
partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the
other partners of his intention to dissolve the firm. On the other hand if the partnership is not at
will, s. 42 applies and is in these terms :-

"Subject to contract between the partners a firm is dissolved -

(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) by the death of a partner; and

(d) by the adjudication of a partner as an insolvent."

2. Partnership agreement-- It provides for carrying on the management in rotation once in four
years, the appellant to manage for the first four years and thereafter the respondent to manage for
the next four years and in the same way thereafter. If further provides that the partners and their
heirs and those getting their rights shall carry on the management in rotation. The accounts were
to be made once in every year after the closing of the yearly accounts of the two mills. There
were then provisions as to borrowing with which we are not concerned. The agreement further
provides that in case either partner thinks of relinquishing his right of management under the
agreement it shall be surrendered to the other partner only but shall not be transferred or sold to
any other person whatever. Finally it is provided that the two partners shall carry on the affairs of
the firm by rotation once in four years and the income realised thereby shall be divided year after
year and the partners and their heirs shall get the same in equal shares and thus carry on the
partnership management.

3. Intention of the parties-- The partners contemplated that the management would be carried
on in rotation between them in four yearly periods. It was also contemplated that the heirs of the
partners would also carry on the management in rotation. Considering this provision as well as
the nature of the business of partnership it could not be contemplated that the partnership could

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be brought to an end by notice by either partner. The intention obviously was to have a
partnership of some duration, though the duration was not expressly fixed in the agreement.

4. Provision of Section 7-- Now s. 7 contemplates two exceptions to a partnership at will. The
first exception is where there is a provision in the contract for the duration of partnership; the
second exception is where there is provision for the determination of the partnership. In either of
these cases the partnership is not at will. The duration of a partnership may be expressly
provided for in the contract; but even where there is no express provision, courts have held that
the partnership will not be at will if the duration can be implied. 2In Crawshay v. Maule3, the
same principle was laid down in these words:-

"The general rules of partnership are well-settled. Where no term is expressly limited for its
duration, and there is nothing in the contract to fix it, the partnership may be terminated at a
moment's notice by either party..... Without doubt, in the absence of express, there may be an
implied, contract as to the duration of a partnership."

The same principle applies to a case of determination. The contract may expressly contain that
the partnership will determine in certain circumstances; but even if there is no such express term,
an implied term as to when the partnership will determine may be found in the contract. What we
have therefore to see is whether in the present case it is possible to infer from the contract of
partnership whether there was an implied term as to its duration or at any rate an implied term as
to when it will determine.
5. Nature of Partnership-- It is clear from the terms of the contract of partnership that it was
entered into for the purpose of carrying on managing agency business. Further the term relating
to turns of the two partners in the actual management and the further term that these turns will go
on even in the case of their heirs in our opinion clearly suggest that the duration of the
partnership would be the same as the duration of the managing agency. We cannot agree that this
means that the partnership would become permanent. In any case even if there is some doubt as
to whether the terms of this contract implied any duration of the partnership, there can in our
opinion be no doubt that the terms do imply a determination of the partnership when the

2
See Halsbury's Laws of England, Third Edition, Vol. 28. p. 502, para. 964, where it is said that where there is no
express agreement to continue a partnership for a definite period there may be an implied agreement to do so.
3
[1818] 36 E.R. 479

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managing agency agreement comes to an end. It is clear that the partnership was for the sole
business of carrying on the managing agency and therefore by necessary implication it must
follow that the partnership would determine when the managing agency determines. Therefore
on the terms of the contract in this case, even if there is some doubt whether any duration is
implied, there can be no doubt that this contract implies that the partnership will determine when
the managing agency terminates. In this view the partnership will not be a partnership at will as
s. 7 of the Act makes it clear that a partnership in which there is a term as to its determination is
not a partnership at will.
6. Rejection of Appellant’s Contention-- A term in the contract laid down that either partner
may withdraw from the partnership by relinquishing his right of management to the other
partner. That however does not make the partnership a partnership at will, for the essence of a
partnership at will is that it is open to either partner to dissolve the partnership by giving notice.
Relinquishment of one partner's interest in favour of the other, which is provided in this contract,
is a very different matter. It is true that in this particular case there were only two partners and
the partnership will come to an end as soon as one partner relinquishes his right in favour of the
other. That however is a fortuitous circumstance; for, if (for example) there had been four
partners in this case and one of them relinquished his right in favour of the other partners, the
partnership would not come to an end.
That clearly shows that a term as to relinquishment of a partner's interest in favour of another
would not make the partnership one at will. Thus, in Abbott v. Abbott4 there were more than
two partners and it was provided that the retirement of a partner would not terminate the
partnership and there was an option for the purchase of the retiring partner's share by other
partners. It was held that in the circumstances the partnership was not at will and it was pointed
out that only when all the partners except one retired that the partnership would come to an end
because there could not be a partnership with only one partner.
7. Conclusion-- Therefore, in agreement with the High Court, Suprme Court held that the
contract in this case disclosed a partnership the determination of which is implied, namely, the
termination of the managing agency and, therefore, under s. 7 of the Act it is not a partnership at
will. In the circumstances it is unnecessary to consider whether the case will also come under s. 8
of the Act.

4
[1936] 3 All. E.R. 823

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 Issue II:

1. Strained relations between the partners-- It seems that disputes arose between the partners
some time in 1941 in connection with the Rajendra Mills Limited which was one of the mills
included in the managing agency business. The respondent filed a suit on March 4, 1942, against
the appellant and Salem Balasubramaniam and Co. Limited with respect to the allotment of
shares in the managing agency company.
2. Termination of Managing Agency-- The appellant sent a copy of his notice dated March 4,
1943, terminating the partnership to the Mills also. The respondent sent a reply to this notice in
which he claimed that the partnership was not at will and the appellant was not entitled to
terminate it, and a copy of this reply was also sent to the Mills on March 16, 1943. On March 22,
1943, the directors of the Mills held a meeting. In that meeting the directors decided that as the
partners of Muthappa and Company were unable to get on in harmony with each other and were
involved in litigation and several suits were going on between them and on account of their
differences the work of the Mills was suffering and was likely to suffer and also because
Muthappa and Company had ceased to exist and had lost its right of management and was no
longer in position to manage the Mills, it became necessary to appoint other managing agents.
Thus by this resolution the managing agency of Muthappa and Company was terminated for two
reasons : (1) that there were differences between the partners of the managing agency company
and the work of the Mills was suffering and was likely to suffer, and (2) that Muthappa and
Company had come to an end and, therefore, had lost its right of management.
3. Termination held valid-- The crucial question therefore is whether the action taken by the Mills
by the two resolutions in such as would be taken by any prudent company when faced with the
situation with which the Mills was faced in the present case. There can in our opinion be no
doubt that any company when faced with a situation in which the Mills was in this case, and
finding that the two partners of its managing agency firm were fighting tooth and nail and there
was no love lost between them and also finding that the interest of the Mills was suffering and
was likely to suffer because of the bad blood between the two partners of the managing agency,
was bound to take steps to protect its own interests. The fact that the major shareholder in the

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 Mills also happened to be a partner in the managing agency would not disentitle him from acting
in the interest of the Mills as a major shareholders.5

Issue III:

1. Statutory provision-- Under s. 87-B(f) of the Indian Companies Act, No. VII of 1913, which
was then in force, the appointment of a managing agent, the removal of a managing agent and
any variation of a managing agent's conduct of management shall not be valid unless approved
by the company by a resolution at a general meeting of the company.
2. Date of termination-- Therefore, when the general meeting in this case approved the action of
the board of directors, the removal became valid and came into effect from March 22, 1943.
Therefore, the managing agency agreement in this case was validly terminated on March 22,
1943. As had already been held that there was an implied term in the contract of partnership that
it will determine when the managing agency agreement with the Mills terminates, the partnership
in the present case must under the contract be deemed to have determined on March 22, 1943.
Therefore, the respondent was entitled to an account only from November 15, 1939, to March
22, 1943.

SIGNIFICANCE OF THE CASE

1. First interpretation of general principles of Section 7: It was in this case, that law as to
interpretation of Section 7 with respect to implied terms of duration or determination of
partnership were laid down. This case has since been followed in many High Court and Supreme
Court judgments.
2. Party Autonomy upheld: By reading into the provisions of Section 7, intention of the parties,
the Court upheld the much reverred principle of Partnership Act viz. party autonomy.
3. Filled the gaps in Section 7: Court held that duration or determination of the partnership can
either be express or can be implied. In latter case, it can be deduced from terms of the partnership
agreement.

IMPACT OF THE JUDGMENT

5
Morarji Goculdas and Co. v. Sholapur Spinning and Weaving Co. Ltd. and Others MANU/PR/0033/1943;
Commissioners of Inland Revenue v. Sansom [1921] 2 K.B. 492

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 As has been stated earlier, this case was a landmark case, adding new dimensions to the
understanding of Section 7. Since its pronouncement, it has been relied on by many high courts
from time to time. Some of the cases where High Courts relied predominantly on this case have
been provided below.
1. Keshavlal Lallubhai Narnadas and Ors. Vs. Patel Bhailal Narandas and Ors.
The short question that arises for determination is this appeal is as to the date of dissolution of a
partnership constituted of the plaintiffs and the defendants. By a deed of partnership dated 4th
July 1954 the plaintiffs and the defendants agreed to carry on business in partnership in the firm
name of National Construction Company on the germs and conditions recorded in the
partnership deed. The business of the partnership was stated in Clause 1 of the partnership deed
to be construction of buildings, roads, dams, canals and other structures in various parts of India
and production and transport work in connection with the same. Clauses 6 and 7 of the
partnership deed which are material Clauses for the determination of this appeal were in the
following terms as translated in English:-
"6. The duration of this partnership is not fixed and it will, therefore, be a partnership at will.
7. Each partner will be entitled to a share in the goodwill of the firm according to his share in the
partnership. If any partner wishes to retire from the firm, he can do so by giving notice in writing
to the other partners of his intention to retire after completion of the pending construction works
and the retirement shall take effect after the pending construction works are completed, accounts
in respect thereof are taken and the amount due at the foot of the accounts is paid or received by
him, as the case may be…”
The contract may expressly provide that the partnership will determine in certain circumstances
but even if there is no such express term, am implied term as to when the partnership will
determine may be gathered from the contract and the nature of the business Vide Thiagarjan v.
Muthappa Chettiar.
Retirement of a partner from a firm does not dissolve the firm, that is determine the partnership
inter so between all the partners but merely severs the partnership between the retiring partner
and the continuing partners, leaving the partnership amongst the continuing partners unaffected
and the firm continues with the changed constitution comprising the continuing partners. A
provision for retirement of a partner which has the effect disrupting the partnership only as
between the retiring partner and the continuing partners and not as between all the partners inter

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 so cannot therefore be regarded as a provision for determination of "their partnership" within the
meaning of Section 7.
It is clear from the foregoing discussion that Clause 7 of the partnership deed which contains a
provision for retirement of a partner does not constitute an express provision made by contract
between the partners for determination of "their partnership" within the meaning of Section 7
and, therefore, does not operate to exclude the partnership from the category of partnership at
will.
2. Iqbalnath v. Rameshwarnath6
Deed of partnership did not contain any express provison either as to the duration or
determination of partnership. However one of the clauses of partnership agreement after stating
that partnership was at will, provided for conditions of retirement of a partner. Court dismissed
plaintiff’s argument that since it was an ancestral business, it could not have been intneded to be
brought to an abrupt end. Obsersing that partnership agreement contained impliedly the duration
of partnership as till the time when atleast two partners remain, held partnership as an exception
to Section 7.
3. Deoki Prasad v. Smt. Anar Dai7
Partnership business was to carry out construction work. Partnership Agrement contained a
stipulation that duration of the partnership would be till December, 1963 and partnership shall be
extended for such further period after Dec. 1963 as may be necessary for completion of work
already going on. Court held that duration of partnership was actually till completion of ventures
and was not for an indefinite period. Therefore it was not a partnership at will.
4. M.O.H. Uduman and others Vs. M.O.H. Aslum8
Supreme Court observed that in a contract of partnership, intention of parties has to be gathered
from language of the contract to be interpreted by adopting harmonious construction. Court held
that duration of partnership has been expressly provided under Will and partnership shall
continue till there are two partners. Therefore respondent had no right to withdraw or retire from
partnership or seek dissolution of firm as it is not a partnership at will.

6
AIR 1076 Bom 405
7
AIR 1999 Pat 22
8
AIR 1991 SC 1020

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