PETITIONER:
BHAGWANT P. SULAKHE
Vs.
RESPONDENT:
DIGAMBAK GOPAL SULAKH AND OBS.
DATE OF JUDGMENT30/09/1985
BENCH:
SEN, AMARENDRA NATH (J)
BHAGWATI, P.N. (CJ)
MADON, D.P.
CITATION:
1986 AIR 79 1985 SCR Supl. (3) 169
1986 SCC (1) 366 1985 SCALE (2)819
ACT
Joint family property, character of - When lt changes ether by an unilateral act it is open to any member of the joint family to convert any joint family property into his personal property - Partnership firm formed out of joint family funds and managing agency agreement entered into by such a partnership firm with another company - Commission received by the co-sharers of the point family in terms of the managing agency agreement and the remuneration received by them as the managing director treated as the joint family property for all purposes - Whether one of the co-sharers by a simple letter claim the commission remuneration received by him as his personal property till the joint family is disrupted - Position of managing director and the managing agent, explained.
HEADNOTE
One Pandarinath Martand Sulakhe died leaving behind him his sons Vishwanath, Gopal, Govind and Bhagwant and considerable properties. Vishwanath died in 1910 leaving behind his son Dattatraya, Govind, one of the brothers who constituted a pint family after the death of their father Pandarinath Sulakhe, separated from the joint family in 1914 taking his share of the family properties. However, the other two brothers along with the son of Vishwanath continued to remain pint and lived as members of the joint family till 8.12.1941 on which date Bhagwant intimated Dattatraya son of Vishwanath his intention to cause severance of the point family status.
Prior to it, in the year 1922, a Public Limited Company named Lokmanya Mills Ltd. was intended to be floated and with that in view Dattatraya and Bhagwant entered into a partnership under the name and style of M/s. Sulakhe and Co. with four outsiders, as per the Partnership Agreement dated 3rd January, 1923. me said Partnership firm Sulakhe and Co. entered into a Managing Agency agreement on 5.2.1923 with the said Lokmanya Mills Company Ltd. The said agreement was to expire after 35 years. The mill actually went into production in the year 1938. on the basis of the managing agency agreement between the company 170 and the firm Sulakhe & Co., Dattatraya acted as the managing agent upto 1935 and thereafter Bhagwant became the managing agent. After Bhagwant’s appointment as managing agent, Dattatraya was appointed as the Director of the company.
At the time when the company was incorporated and its articles were adopted and also at the time when the company entered into the managing agency agreement with Sulakhe and Co. and when the deed of partnership of the firm was executed Bhagwant and Dattatraya being members of the joint family, all the 325 shares which was initially purchased in the company - 200 in the name of Dattatraya and 125 in the name of Bhagwant - plus the 83 further shares - 79 in the name of Bhagwant and 4 in the name of Gopal - were paid for by the joint family out of the joint family funds. Therefore, the entire amount of remuneration which was received by Dattatraya and Bhagwant not only on account of their shares of commission under the managing agency agreement on the basis of the partnership deed but also on account of the Director’s fees paid to them and also on account of the salary paid to Dattatraya who acted as the managing agent of the company till 1935, was treated as joint family property. Even after Bhagwant took over as the managing agent in 1935, the position continued to be the same and the remuneration received by him formed part of the joint family income till the dispute raised by him by his letter dated 15th July, 1941. All monies received by Bhagwant and Dattatraya from the company were not only treated as joint family property, but also were so entered in the books of account of joint family and were so shown in the income tax returns.
However by his letter dated 15th July, 1941 Bhagwant informed Dattatraya that the remuneration received by him as the managing agent of the company on the basis of the managing agency agreement, fees received by him as the director of the company and his income from his profession as a lawyer were his personal income and should be treated as such. He made it clear that he will not in future put any of these incomes into the hotch pot of the joint family. By another letter dated 8.12.1941 Bhagwant intimated his intention to cause severance of the joint family status. Since Dattatraya did not accept the claim of Bhagwant for treating the said amount as the personal property. Bhagwant filed a suit No. 166/43 in the original side of the Bombay High Court laying claim to the said amounts. In the meantime Gopal and Dattatraya filed two suits in the Civil Court against the Company and Bhagwant for the payment of the sum of money credited to the 171 joint family in the books of the parties and as a result thereof A most of the joint family properties came to be divided amongst the parties in accordance with their respective shares, except the dispute raised in the suit in the original side of the High Court.
During the pendency of the said suit the managing agency agreement had come to an end by virtue of the provisions contained in section 87 (A) (2) of the Companies Act, in as much as though the Board of Directors of the company had passed a resolution on 28.6.56 for the renewal of the managing agency agreement, no action was taken by SuLakhe & Co. to get the Managing Agency Agreement for a further term after 1957 extended. On the other hand, the company amended its articles of association and proceeded to appoint Bhagwant as its managing Director and neither his appointment nor the validity of the amendment of articles of association was objected to by either Sulakhe & Co. or any of the co-sharers forming part of the partnership firm. The trial Judge accepted the claims of Bhagwant and decreed the suit in his favour and made Gopal and Dattatraya accountable in respect of the joint family business. The High Court in appeal held that the income received by Bhagwant as managing agent and managing Director of the company could not be considered to be the personal property of Bhagwant and reversed the decision of the trial Judge in this respect and also on various other claims to cash etc. Hence the appeals by certificate under Article 133 (1) (a) as it stood before the Constitution (Thirtieth) Amendment Act, 1972.
Allowing the appeals in part and passing a final decree in terms clarified, the Court. ^
HELD : 1.1 The character of any joint family property does not change with the severance of the status of the joint family and a joint family property continues to retain its joint family-character so long as the joint family property is in existence and is not partitioned amongst the co-sharers. By an unilateral act it is not open to any member of the joint family to convert any joint family property into his personal property. [194 B-C]
1.2 The agreement of partnership clearly indicates that Bhagwant and Dattatraya became members of the firm M/s. SuLakhe & Cowhich Was appointed as the managing agent of the company, on the basis of the managing agency agreement, representing the joint family and for the benefit of the joint family. Their 172 interest in the partnership firm and managing agency was a part of joint family assets and whatever income was earned by them on the basis of the managing agency agreement belongs to the joint family and formed part of the joint family property. The same position must necessarily continue in the eye of law so long as the partnership agreement and the managing agency agreement continued. [192 G-H; 193 A-D]
1.3 By seeking to bring about a severance in the status of the joint family, one of the co-sharers cannot deprive the joint family of this property and the income derived on the basis of the managing agency agreement continues to remain the property of the joint family so long as the joint family asset is not partitioned and otherwise continues to remain in existence. In the facts and circumstances of the case, the entire income arising out of the managing agency agreement and accruing to the two members of the family, namely, Bhagwant and Dattatraya who might have rendered the services had been earned for and on behalf of the family and as representatives of the point family. Dattatraya had continued as the managing agent for a number of years and there had been no question of apportionment of any income derived by him as his remunerations for the services rendered by him as managing agent. Therefore, Bhagwant cannot lay any claim for retaining any part of the remuneration received by him from the company for the services rendered by him. [193 D-E; 194 A]
2.1 In Raj Kumar Singh Hukum Chandji’s case, [1971] S.C.R. 748, the Supreme Court held that the broader principle that emerges is whether the remuneration received by the coparcener in substance though not in form was but one of the modes of return made to the family because of the investment of the family funds in the business or whether it was a compensation made for the services rendered by the individual coparcener. If it is the former, it is an income of the Hindu undivided family but if it is the latter then it is the income of the individual coparcener. If the income was essentially earned as a result of the funds invested the fact that a coparcener has rendered sore service would not change the character of the receipt. But, if on the other hand, it is essentially a remuneration for the services rendered by a coparcener, the circumstance that his services were availed of because of the reason that he was a member of the family which had invested funds in that business or that he had obtained the qualification shares from out of the family funds would not make the receipt, the income of the Hindu undivided family. The legal principle enunciated therein for determining 173 the true nature and character of the remuneration received by any A member of the joint family equally applies in deciding the nature and character of the remuneration received by the Managing Director in the instant case. [195 C-D; 196 C-E; 197 A-B]
2.2 The position of the Managing Director is entirely different from the position of the managing agent on the basis of the managing agency agreement between the partnership firm of Sulakhe & Co. and the position of the Managing Director stands entirely on a different footing. At the time when Bhagwant was appointed the Managing Director of the company on 19.10.1957, with effect from 16.1.1957, there was complete disruption of the joint family and there was no joint family in existence. Further inspite of the Board of Director’s resolution dated 28.6.1956 for the renewal of the managing agency agreement as required by section 87 A (2) of the Companies Act, no action was taken by the firm of sulakhe Co. or any partner thereof for obtaining renewal of the managing agency agreement for a further term after 1957. On the other hand when the company had amended its articles of association and had proceeded to appoint Bhagwant as the Managing Director, there was no challenge to them either by any partner of the firm of Sulakhe & Co. which hat been appointed as the managing agent of the company or by any member of the joint family. Is the managing agency agreement had ceased to exist at the time Bhagwant was appointed the Managing Director of the company and as at that time there was no joint family of Bhagwant and the other co-sharers in existence, Bhagwant cannot be said to have been appointed as the Managing Director of the company either because of the managing agency agreement or because of his being a member of the joint family. The facts and circumstances make it clear that the partnership agreement or the managing agency agreement had no relevance to the appointment of Bhagwant as the Managing Director of the Company. In the said circumstances, (i) the remuneration received by Bhagwant as Managing Director of the company from the company is his personal property ant cannot be considered to be the income of the joint family; (ii) the appointment of Bhagwant as Managing Director, at a time when there was complete disruption of the joint family and the members of the family were fighting in Court cannot be considered to be by way of any return on the investment mate by the Joint family; aud (iii) Bhagwant was appointed as the Managing Director by the company for services to be rendered by him, as the company might have been impressed by his performance as the managing agent for a number of years. Though undoubtedly Bhagwant acted as the managing agent for ant on behalf of the joint family and for 174 benefit of the Joint family, yet what must have weighed with the company is the kind of services rendered by him to the company. The company was concerned with his services and not with the question whether he was rendering the services for and on behalf of the family. The remuneration which the company agreed to pay to Bhagwant for acting as the Managing Director was for the services to be rendered by him. [194 ; 195 A-B; 196 G]
Raj kumar Singh Hukum Chandji v. Commissioner of Income Tax, Madhya Pradesh [1971] 1 S.C.B. 748 applied.
2.3 From the materials on record, it is clear that there can also be no question of Bhagwant being a trustee or acting as the trustee for the benefit of the joint family in relation to his appointment as the Managing Director of the company. The managing agency of the company was that of the partnership firm in which the four outside members with a majority of shares in the partnership were interested and the managing agency firm cannot therefore, be considered to be an asset of the joint family. It was the interest of Dattatraya and Bhagwant in the managing agency firm on the basis of their shares in the partnership which belonged to the joint family and the managing agency was an agreement between the company and the partnership firm. The effect of not renewing the agreement was that the interest of the partnership firm of Sulakhe & Co. in the company as the managing agent thereof with all the rights and privileges on the basis of the said agreement came to an end. With the termination of the managing agency agreement the interest of the joint family in the managing agency on the footing that two of the members of the joint family, namely, Dattatraya and Bhagwant were as partners of the firm associated with the managing agency and were acting as the managing agent on the basis of the partnership agreement and the managing agency agreement also ceased. [197 C-G; 198 G-H]
JUDGMENT
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2622 & 2622A of 1969.
From the Judgment and Decree dated 18/19/20/25/29.9.1967 and 9.10.1967 of the Bombay High Court in First Appeal Nos. 278 and 279 of 1969.
V.M. Tarkunde, Dr. Y.S. Chitale, Mukul Mudgal, Mrs. M. Karanjawala and D.N. Mishra for the Appellant.
M.C. Bhandare, D.R. Dhanuka, Mrs. Rani Chhabra K.H. Kapadia and G.B. Sathe for the Respondents. 175
The Judgment of the Court was delivered by
A.N. SEN, J. This is an unfortunate litigation between near relations and this litigation between the parties is now going on for over four decades.
These two appeals have been filed with the certificate granted by the High Court against the judgment of the High Court by the plaintiff in the suit instituted by him for partition of joint family properties, for accounts and other reliefs mentioned in the plaint.
By a common judgment delivered by the High Court in two separate appeals filed by the defendants in the suit against the judgment of the Trial Court., the High Court has substantially reversed the judgment of Trial Court.
The facts of the case have been fully set out in the judgment of the Trial Court and also in the judgment of the High Court. We shall briefly indicate the facts material for the purpose of disposal of these two appeals. As the High Court disposed of both the appeals by one common judgment and the two appeals which have been preferred against the same judgment have been heard together, this judgment will dispose of both the appeals.
One Pandarinath Martand Sulakhe died leaving behind him his sons Viswanath, Gopal, Govind and Bhagwant and considerable properties. The properties left by him included agricultural lands, a number of houses in Barshi and three shops. Of the three shops one was a Sharafi shop at Barshi, another cloth shop at Barshi and the other a commission Agency and Sarafi shop at Bombay. Business in all these three shops was carried on in the name of P.N. Sulakhe. Of the four sons Vishwanath died in 1910 leaving behind him his son Dattatraya who happens to be the second defendant in the suit. Govind, one of the brothers who constituted a joint family after the death of their father Pandarinath Sulakhe separated from the joint family in 1914 taking his share of the family properties. Though Govind separated in 1914, the other brothers and the son of Vishwanath continued to remain joint and lived as members of the joint family. Bhagwant who filed a suit for partition as the plaintiff was the youngest of the four brothers. He graduated in law in the year 1914 and commenced practice as a lawyer at about that time. 176
In 1922, a public limited company named Lokmanya Mills Ltd. (hereinafter referred to as the Company) was intended to be floated and with that end in view, the defendant No. 2 Dattatraya and the plaintiff Bhagwant entered into a partnership under the name and style of M/s. Sulakhe & Co. with four outsiders. Managing agency agreement between the company and the partnership firm of Sulakhe & Company was executed. The mill actually went into production in 1938. On the basis of the managing agency agreement between the company and the firm of Sulakhe & Co. the defendant No. 2 Dattatraya acted as the managing agent upto 1935 and thereafter the plaintiff Bhagwant, became the managing agent. Sometime after the plaintiff Bhagwant had been appointed the managing agent, the defendant No. 2 Dattatraya was appointed as the Director of the Company. It appears that in the year 1935, a new Adat shop had been started at Barshi. All the shops were run in the name of P.N. Sulakhe. It is not in dispute that all the shops were joint family businesses. It is also not in dispute that the remuneration paid to the defendant No. 2 and also the plaintiff Bhagwant as managing agent and also the amount of commission falling into the shares of defendant No. 2 Dattatraya and the plaintiff Bhagwant out of the commission earned by the managing agency firm were treated as joint family properties and were shown in the point family books so long as disputes between the parties had not arisen. During the period when there were no disputes between the parties, the Director’s fees paid to defendant No. 2 Dattatraya and the plaintiff Bhagwant were treated as income of the point family and even the professional h income of the plaintiff Bhagwant earned by him as a lawyer was also thrown into the joint family hotch-pot and Was treated as joint family income. In the income-tax returns filed on behalf of the joint family, all these amounts were shown as income cf the joint family. It appears that everything did not go well with the members of the point family and disputes arose between the parties soon after the commencement of the second world war. The plaintiff Bhagwant by his letter dated 15th July, 1941 addressed to the defendant No. 2 Dattatraya informed him that the remuneration received by him as the managing agent of the company on the basis of the managing agency agreement, fees received by him as the director of the company and his income from his profession as lawyer were his personal income and should be treated as such. By this letter, he made it clear that he was not prepared to throw any of these incomes into the point family hotch-pot and he asked the defendant No. 2 Dattatraya that all these amounts should be shown as his separate income for the purposes of income tax and should be credited to his personal 177 Khata in Sarafi shop account. Disputes and differences between the parties became more acute and the plaintiff on 8.12.1941 intimated to the defendant No. 2 Dattatraya his intention to cause severance of the joint family status. Thereafter attempts were made to divide the properties amicably between the parties without success. The plaintiff Bhagwant claimed that the remunerations paid to him by the company as managing agent, the fees paid to him as director of the company and his income from his profession as a lawyer were his personal income and as such his personal property. The defendants did not accept the claim of the plaintiff Bhagwant that the remuneration paid to him as managing agent by the company and the fees paid to him as the director of the company, could be his personal income and the defendants claimed that all such amounts received by him belonged to the joint family and formed part of the joint family properties. Ultimately Bhagwant filed a suit being suit No. 166/43 in the original side of the High Court in Bombay. In this suit Gopal was the first defendant and Dattatraya was the second defendant and the suit was filed in the original side of the Bombay High Court on the basis that the Adat Shop and Sarafi Shop were situated within the original jurisdiction of the Bombay High Court. In this suit, Bhagwant the plaintiff did not made any reference to the managing agency of the company in the plaint and he claimed partition of the joint family shares and moveable and immovable properties mentioned in the plaint as belonging to the joint family, seeking to reserve his right under 0. 2, rule 2 of the Code of Civil Procedure to file a suit for partition of the joint family properties situated at Barshi. The plaintiff Bhagwant in this suit claimed various other reliefs. He prayed for a direction that the immovable properties and the business at Bombay should be ordered to be partitioned under the directions of the Court, that the joint family firms should be wound up that the sum of Rs. 6843-36 claimed by him as his personal Income as a lawyer from his profession from 1940 should be awarded to him with interest at 12% interest on the same and he also claimed as consequential relief that the defendants should be ordered to account for the profits earned by them from the joint family business from the date of severance and also of the income derived by them from immoveable properties belonging to the joint family. In the suit Govind as defendant No. 1 and Dattatraya as defendant No. 2 were impleaded and no other members of their branches were made parties to the suit. On the death of defendant No. 1 Gopal during the pendency of the suit his five sons were brought on record as his heirs and legal representatives. The defendants resisted the suit of the plaintiff on 178 various grounds, mainly however on the ground that the plaintiff had asked for partition only of some of the joint family properties without including in the suit various other joint family properties, particularly the shares and interest of the joint family in the company. The defendants contended that the plaintiff was bound to include in the suit all the joint family properties which also comprised all the interests of the joint family in the company and various other immovable properties in the possession of the plaintiff. It may be noted that defendant No. l Gopal and the defendant No. 2 Dattatraya filed two suits in the Court of Civil Judge against the company and the plaintiff for payment of the sum of money credited to the joint family in the books of the company in accordance with the respective shares of the parties. In the suits various proceedings were taken and various orders including the appointment of the Court receiver for all the properties of the joint family were passed from time to time. It does not become necessary for us to refer to these proceedings at any length as in the present appeals these questions are no longer germane. It appears that as a result of the various proceedings in the suit most of the joint family properties came to be divided amongst the parties in accordance with their respective shares and the disputes between the parties now centre on the following questions :-
1. Whether the shares in the company standing in
the names of the various members of the family are
joint family properties?
2. Whether the commission received by the two
members of the family namely, defendant No. 2
Dattatraya and plaintiff Bhagwant from the
managing agency firm in respect of their shares in
the firm out of the total commission paid by the
company to the managing agency firm belongs to the
joint family?
3. Whether the remuneration received by the
plaintiff Bhagwant from the company as managing
agent on the basis of the managing agency
agreement with the company is the personal
property of the plaintiff or whether the same
belongs to the joint family?
4. Whether the remunerations paid to the plaintiff
as the managing director of the company is his
personal income or is the property of the joint
family? 179
5. Whether there was any amount in cash in
Mahalaxmi room belonging to the family and if so,
how much?
6. Whether there were any ornaments and jewellary
belonging to the joint family? If SO, in whose
possession and custody are such ornaments lying
and what is the value of such ornaments? It is to be noted that during the pendency of the proceedings in the Court relating to partition of the joint family properties the managing agency agreement had come to an end and it has also become inoperative by virtue of the provisions of law. The plaintiff Bhagwant was the managing agent on the basis of the managing agency agreement and thereafter he had been appointed ac the managing director of the company. The learned trial Judge on the question of the remuneration paid to the plaintiff as managing agent on the basis of the managing agency agreement and the fees paid to him as the director of the company has held in favour of the plaintiff that these are the personal incomes of the plaintiff and do not belong to the joint family. The learned trial Judge also held in favour of the plaintiff on the question of cash money belonging to the joint family found in the Mahalaxmi room and also on the question of accountability of the defendants in respect of the joint family business. The High Court in appeal has held that the income received by the plaintiff as managing agent and as Managing director of the company could not be considered to be the personal property of the plaintiff and they belonged to the joint family and the High Court has reversed the decision of the trial Judge on this question. On various other questions also, the High Court has held in favour of the defendants reversing the decision of the Trial Court. The correctness of the High Court judgment is questioned by the plaintiff in the appeals.
The principal controversy between the parties relates to the question whether the remuneration paid to the plaintiff Bhagwant by the company as the Managing Agent and also as the Managing Director is his personal property or whether the sane forms as part of the joint family property. The contention of the plaintiff-appellant Bhagwant is that the remuneration received by him for acting as Managing Agent and also as Managing Director of the company is his personal income and cannot be considered to belong to the joint family, whereas it is the case of the defendant No. 2 Dattatraya and the heirs of the Defendant No. 1 Gopal and that all such remuneration received by the plaintiff 180 must belong to the joint family and must be held to constitute part of the joint family properties. They further contend that the shares in the company subsequently purchased by the members of the plaintiff’s family must also be held to belong to the joint family. As this happens to be the most important question which has been urged at length before us, we propose to deal with this question in the first place. In our view it will be appropriate to consider this question under two separate heads, namely, (1) the remuneration received by the plaintiff Bhagwant as managing agent and (2) remunerations received by him as managing director. We first propose to take up the question whether the remuneration received by the plaintiff from the company as managing agent, is his personal income or the same constitutes a part of the joint family property.
For a proper appreciation of this question it is necessary to consider some broad facts which are not in serious dispute.
A partnership agreement was entered into on the 3rd of January, 1923 between defendant No. 2 Dattatraya, plaintiff Bhagwant, one Ramchandra Moreshwar Sane, one Moolchand Jotiram Baldote, one Nemchand Shivram Baldote and one Ganoba Andoba Gavane to start a mill by the name ’The Lokmanya Mills Barso Limited’ as promoters and agents of the said mills on terms and conditions set out in the deed of partnership dated 3rd January, 1923. This deed of partnership which is not in dispute and which has been exhibited in the suit provides :-
"An agreement dated 3rd of the month of January,
1923. We, Dattatraya Vishwanath Sulakhe, Caste
Brahmin, aged 37, profession trader, resident of
Barsi and Bhagwant Pandharinath Sulakhe, caste
Brahmin, age 33, profession pleader, resident of
Barsi, and Ramchandra Moreshwar Sane, caste
Brahmin, age 64 profession pleader, resident of
Barsi and Moolchand Jotiram Baldote, Gaste
Marwari, resident of Barsi age 48, profession
trade, and Nemchand Shivaram Baldote, caste
Marwari, age 39, profession trade, resident of
Barsi, and Ganoba Andoba Gavane, caste Maratha,
age 58 profession agriculturist resident of
Pangaon, Taluka Barsi, Distt. Sholapur, all of us
make an agreement as follows :-
We all of us have agreed and decided between us on
29th November, 1922 to start a mill by name ’The 181
Lokamanya Mills Barsi Limited’. The following are
the terms of agreement, that we have agreed to,
between us all as the promoters agents of the
Mills.
1. The agency firm should be named as ’Sulakhe &
Co.’ and the agreement of this firm are to be in
force and existence for the period of 35 years
from the date of registration of the said company.
2. Messers. Dattatraya, Vishwanath Sulakhe and
Bhagwant Pandharinath Sulakhe should jointly
contribute towards the purchase of shares of the
value of Rs.40,625 (forty thousand six hundred and
twenty five). Mr. Moolchand Jotiram should
purchase in his name shares of a value of
Rs.25,000 (twenty five thousand), Namchand Shivram
should purchase in his name shares of the value of
Rs.9375 (nine thousand three hundred seventy five)
and Ganoba Andoba Gavane should purchase in his
name shares of the value of Rs.25,000 (twenty five
thousand) and Ramchandra Moreshwar Sane should
purchase in his name share of the value of Rs.3000
(Rupees three thousand). The above named persons,
or in case of their death, or if they become
incapable on account of some illness or if they
have been unable to purchase the said shares or
have been unable to pay further instalments after
purchase of the said shares on account of some
difficulty, their heirs should as stated above
purchase the shares or pay the amount of further
instalments.
3. After the shares are purchased as stated in
the foregoing clause, the agents are to get 10%
commission on the net profit earned by the
Lokamanya Mills Barsi Limited. Out of this 10%
commission 1/1/2% amount is to be paid to a
committee appointed in that behalf for the purpose
of spending that amount over public charitable
purposes and the remaining 8/1/2% commission is
agreed to be distributed as follows:-
1. Messrs D.V.Sulakhe & B.P. Sulakhe to get 3/1/4%
2. Moolchand Jotiram - 2%
3. Ganoba Andoba Gavane - 2% 182
4. Namchand Shivaram -3/4%
5. Ramchandra Moreshwar Sane -1/2%
The total amount of 8/1/2% is to be thus
distributed.
4. The amount of profits is to be distributed as
stated in the foregoing clause, after it has been
received by the Managing Agents from the company.
If any partner or his heirs had not purchased the
shares originally or not paid amount of further
instalments after allotment on account of some
inability stated in the last foregoing clause 2,
he will lose his share in the agency firm and his
share is to be distributed among the remaining
partners in proportion to the capital contributed
by each of them. The partners must keep in tact
their shares for the period of five years from the
date of allotment. The partners have no right to
dispose of or mortgage their share within that
period of five years. If any of the partners fails
to do so, he stands to lose his interest in the
partnership.
5. The agents firm is entitled to receive 2-1/2%
commission on the amounts of expenditure which the
company may incur towards the construction of
buildings, purchase of machinery and other
necessaries, purchase of lands and other
materials. Out of the amounts so received, an
amount of 1-1/2% is to be paid towards public
charitable purposes and the remaining amount is to
be distributed among the partners in proportion to
their shares described above. This amount is to be
received in the first instance by the managing
agents, and after setting a part the amount of
charity, he has to distribute the balance amongst
the partners in proportion of their respective
shares.
6. All the responsibility of all work of
whatever kind to be performed by the managing
agents firm such as, raising of capital of the
said mill running of the mill, keeping of
accounts, purchase of land, purchase of machinery,
appointing and removing of servants, solicitors,
auditors, banker, agents, brokers, and
underwriters to keep accounts and prepare the
reports 183
of the company and do all such other as the
managing agents are required to do shall be on
the managing agent Mr. D.V. Sulakhe or his family.
His family means the joint family of three persons
viz: D.V. Sulakhe, B.P. Sulakhe and Gopal
Pandharinath Sulakhe. The other partners have
nothing to do with the above work and they have no
right to interfere with the power of the managing
agents. The company will’ hold only the managing
agent responsible for his faults and the other
partners are not to be responsible to the company.
7. The preliminary expenses of the mill will be
about Rs.8000 (eight thousand). This amount is to
be paid to the managing agent Mr. D.V. Sulakhe, by
all the partners except Mr.sane, in proportion to
their respective shares. The managing agent is to
return this amount of expenditure to the partners
form the proceeds of the shares of the company
that may be collected after its registration.
8. Some one person from among the family of
Sulakhe described above shall always be an Ex-
officio Director. some other person from amongst
the agency firm, or some other person from outside
elected by majority, and who is not in the agency
firm shall be a special director, but he shall not
be in office permanently. The term of his office
will be as of the other directors and he shall be
eligible for re-election. Some person from the
firm or some one from outside according to the
opinion of the firm shall always be among the
directors.
9. No partner of the agent’s firm, shall except
with the leave of the directors, enter in any
other agency firm of a mill of the like tenure and
situate within the limits of Barsi Taluka. If any
one of them does so enter he will stand to lose
his share in this partnership firm of this mill.
10. A partner of the agent’s firm shall be
entitled as any other outsider to do business with
the company and enter into private transactions on
reasonable terms and to take commission from the
company. 184
11. From the date the share, of the value of
Rs.7,00,000 (seven lacs) are sold the managing
agent Mr. Sulakhe shall get a remuneration
(salary) of Rs.600 per month. The other partners
or the charity fund shall have no interest
whatsoever therein. From the time when products
shall be begun to be manufactured in the mill, the
managing agents are to receive a remuneration of
Rs.1000 (salary) every month. Out of that amount
Rs.600 are to be taken by the managing agent every
month and the remaining amount of Rs.400 (Four
hundred) is to be divided among all the partners
of the agency firm including Sulakhe, in
proportion to their respective shares (till the
profits of the company come to 10% by the way of
divident) so that the partners may get an interest
over their amounts at the rate of 5% per annum,
but from and after the date when the dividend of
the company shall be distributed at the rate of
10% on the amount of shares, the other partners
shall have no right over the said sum of Rs.400
(Four hundred) to be received every month, and
this amount is to be taken by the managing agent
Mr. Sulakhe as the increase in his remuneration
(salary). After that period other partners will
have no claim whatever against the said amount of
Rs.400.
12. The rights of the partners in the agency firm
are to pass to their respective lineal descendants
or to their respective assignees after the
expiration of the period of 5 years allotment. The
right of a partner shall go to other persons by
partition among his family or by heirship and if
such persons to whom the rights of a partner in
the agency firm are to pass, are more than one,
they shall unanimously elect some one from among
themselves for the purpose. If there is
disagreement between them the board of directors
shall choose some such person from among them and
the person so chosen shall take interest in the
agency firm. The company or the managing agents
shall not take cognizance of the other sub-
partners.
The terms of agreement between us all are as
above, and for that this agreement (in writing),
is prepared and is signed by us all and a copy of
this agreement i.e. a counter part of it is
delivered to each of us 185
all. This agreement made and signed on the 3rd of
the A month of January in the year of 1923, and it
is in the handwriting of Sarbootam Annaji
Madhekar, a resident of Barshi .
Sd/- Datartraya Vishwanath Sulakhe
d/- Bhagwant Pandharinath Sulakhe
Sd/- Ramchandra Moreshwar Sane
Sd/- Molchand Jotiram Marwadi
Nemchand Shivaram Marwadi
Ganoba Andoba Gavane.
The said partnership firm of M/s. Sulakhe & Co.
consisting of the aforesaid six partners entered
into a managing agency agreement on 5.2.1923 with
the company. Relevant provisions of the managing
agency agreement dated 5.2.192% may be set out:
1. The Agents will faithfully and with best of
their ability perform the offices of the
Secretaries, Treasurers and Agents of the Company
for purposes of carrying on the best advantage the
business of the company so long as the company and
the agents shall continue to carry on their
respective business (unless prevented from so
doing in manner hereinafter mentioned) at the
remuneration upon the terms and subject to the
conditions hereinafter particularly mentioned and
described.
2. In consideration of the agreement hereinafter
contained on the part of the Agents and in further
consideration of the Agents having advanced the
company - the Company hereby promise and agree
with the Agents that the agent shall be the
Secretaries, Treasurers and Agents of the Company
for the period of 35 years from the date of these
presents unless prevented from so doing in manner
hereinafter mention ed PROVIDED ALWAYS AND IT IS
HEREBY AGREED AND DECLARED that after the lapse of
the said period of 35 years the Agents shall not
be removed from the office as the Secretaries,
Treasurers and Agents but shall carry on their
respective business unless found guilty of fraud
in the management of their duties as Secretaries,
Treasurers and Agents of the Company. 186
Clause 2A. The Managing Agents shall not transfer
or assign or cause to be transferred or assign the
present Managing Agency Agreement of the Company
their right, title and interest therein to any
person or persons firm or Company during the
continuation of the security created by the
Indenture of Mortgage dated the 29th day of
December 1950 without first obtaining the approval
in writing of the corporation to any such transfer
or assignment and the Company shall not cause or
permit or suffer to be transferred or assigned the
present Managing Agency Agreement of the Company
or the right, title and interest of the Managing
Agents therein to any other person or persons or
firm or Company during the continuance of the said
security without first obtaining the approval in
writing of the Corporation to such transfer or
assignment nor shall the Company appoint any other
person or persons or firm or Company to be the
Managing Agents of the company during the
continuance of the said security without first
obtaining the approval in writin of the
Corporation to such appointment.
(Amended as per Special resolution No. 2 in Extra
ordinary general meeting held on 18.3.1951)
2. A Commission at the rate of 10% per annum on
the annual net profits of the said company after
making all allowance and deductions from revenue
for interest on loans and deposits and working
expenses chargeable against profits without making
any deductions for or in respect of interest on
debentures Income Tax, Super Tax or any other tax
based on profits or of any amount carried to
insurance, reserve, depreciation or sinking fund
or to any other special fund or in respect of any
expenditure on capital amount or on the wages or
remuneration which shall be payable to Bankers
Auditor, Solicitors, Mukadams, Clerks, Brokers,
Under writers or any other officers or employees
who may be employed by the said firm for or on
behalf of the Company or for carrying on and
conducting the business of the Company and for any
rent, cost of postage, telegram printing
stationery or other expenses or travelling
expenses incurred and to be paid by the said
Company. 187
"The Company shall not pay and the Managing Agents
shall not receive any commission during the
pendency of the loan from Industrial Finance
Corporation of India as provided above in Clause 3
without previous consent in writing of the
Corporation unless the interest and instalment of
principal sum due in any year as provided by the
Indenture of mortgage dated the 29th December 1950
have been duly paid by the Company to the
Corporation.
(Amended as per Special Resolution No.2 in Extra
ordinary general meeting held on 18.3.1951.)
Clause 4. The Agents are entitled to two and half
percent commission on all sum or sums expended
towards the purchase of the land, construction of
the mill premises, including outhouses etc., the
cost price of Machinery, appliances and initial
stock in trade necessary in establishing and
starting the mill.
But during the pendency at the said loan,
provisions contained in clause 4 above relating to
payment of commission to the Managing Agents on
the Capital Expenditure shall remain suspended.
(Amended as per special Resolution No. 2, in extra
ordinary general meeting held on 18.3.1951.)
5. Out of the Commission of 10 per cent and out of
the amount of 2-1/2 per cent commission as stated
above Agents will have to set apart for public
charitable purposes 1-1/2 per cent of their gains.
The purpose shall be uplift of the masses in the
Bombay Presidency, without any distinction of
caste, creed or religion in matters social,
educational, economic cr national as the committee
of three persons, two of whom shall be unconnected
with the firm of the Agency and one from the
Agency firm. The first such members shall be N.C.
Kelkar Esqr. B.A. LL.B. Editor of Kesari Poona.
M.R. Jayalkar Esqr. Bar-at-Law, Bombay and R.M.
Sane Esqr. pleader Barsi.
6. On the death or retirement of any of the said
members their place or places shall be filled in
by the remaining members of the Committee, or if
he or 188
they fail or neglect to make the appointment as
aforesaid within a reasonable time, such
appointment is to be made by the Board of
Directors strictly conforming to the condition
stated above that the majority of the committee
should be independent and unconnected with the
firm of the Agency.
7. The commission due to the Agency shall be
payable yearly immediately when the accounts are
made up.
8. After deducting the amount from the commission
for public purposes as stated above the remaining
amount will be received by Mr. D.V. Sulakhe and
his successors and divided among the members of
the firm as agreed upon between them.
9. The Directors are authorised to increase the
amount of remuneration or the percentage of
commission on profits or to allow any bonus if
they think that the profits of the concern are
encouraging enough to grant an increase.
Clause 9. The said clause shall remain modified to
the extent that "so long as any moneys due to the
Corporation under the Indenture of Mortgage dated
29th day of December 1950 remain unpaid, no
payments what soever under this clause shall be
made to the Managing Agent without first obtaining
the approval in writing of the Corporation to such
payment.
(Amended as per Special Resolution No. 2 in Extra
ordinary general meeting held on 18.3.1951)
10. The remuneration of the Agents’ firm shall be
Rs.600 per month from the date of allotment and
Rs.1000 per month from the date when products are
begun to be manufactured and the said remuneration
is always to be received from the Company by Mr.
D.V. Sulakhe or his successors.
11. If the said firm or any member of the firm
shall at any time hereinafter act as Mucadams or
brokers of the Company or as selling agents of the
Company’s yarn or cloth or for purchase of other
articles such as coal, wool machinery oil-seeds or
other products or 189
other things required for the business of the
Company they shall be paid such commission or
additional remuneration as shall be agreed to
between them and the directors.
The said clause shall remain modified to the
extent that so long as any moneys due to the
Corporation under the Indenture of Mortgage dated
29th day of December 1950 remain unpaid, no
payments whatsoever under the clause shall be made
to the Managing Agent without first obtaining the
approval in writing of the Corporation to such
payment." C
(Amended as per special Resolution No. 2 in
Extraordinary general meeting held on 18.3.1951)
12. Until the Company is registered all expenses
of whatever nature of and incidental to the
promotion thereof shall be defrayed in the first
instance by the firm of Agency as agreed between
them. The sum or sums os expended will be duly
refunded to the aforesaid firm when the first call
in respect of the subscribed shares of the Company
is paid in and realized.
13. All work of whatsoever kind which is usually
attended to or done by the managing agents in
connection with the business of the Company by
virtue of the Articles of Association of the
Company such as raising the necessary capital,
erection of the mill premises employment of staff,
establishment of Agencies buying of raw materials,
disposing of the finished products of the Mill,
keeping regular accounts preparing the statutory
reports &c. &c. will be attended to and all powers
of the managing Agents shall be vasted in and
exercised by Mr. D.V. Sulakhe alone or in case of
his retirement or death by Mr. B.P. Sulakhe if he
survives him, or by a person of the Sulakhe family
nominated unanimously by all the surviving major
male members of the family of Messrs. D.V.
Sulakhe, B.P. Sulakhe and Gopal P. Sulakhe and in
case of disagreement between these members in
nominating a member from the Sulakhe family, the
board of directors will choose some one from the
said Sulakhe family for acting as a Managing Agent
on behalf of the firm. There will be no inter- 190
ference or obstruction from any other member of
the Agency Firm who will have neither any voice
nor control of any kind over the matters of
management of the business of the company such as
those enumerated above. All the responsibility
with regard to such work lies solely and entirely
on the said D.V. Sulakhe and his successor or
successors as aforesaid.
14. me other partners of the Agency firm who have
no right to take any part in the management of the
Agency business or no right to interfere with such
management will not be liable in any way
whatsoever to the Company for any acts of
commission or omission, misfeasance, malfeasance
fraud, misappropriation or any other act or acts
of the said D.V. Sulakhe and his successors. me
company will look to and hold responsible the said
D.V. Sulakhe and his successors aforesaid in
respect of the management of the Agency business
in all branches and in all its aspects.
15. Either D.V. Sulakhe or B.P. Sulakhe may act as
Ex-officio Director and after them some person
from the Sulakhe family shall be entitled to act
as Ex officio Director and he will not be liable
to retirement or he will not be removed from such
office.
15A. The firm of Agency has always a right of
appointing any one of them or outsider as a
special Director and he will be liable to retire
as other Directors, but he is eligible for re-
election by the firm of Agency.
20. The shares of the profits of the Agency
business to which each partner is entitled
according to their mutual agreement will pass to
their direct lineal descendants by way of an
ancestral and hereditary right unless alienated or
disposed of by such partner during his life time.
If the said share devolves on more than one of
such lineal descendants by way of inheritance or
otherwise they (they said descendants) should
elect one of them to be the member of the firm on
the-r behalf. If they cannot agree among
themselves for the purpose of such election the
Board of 191
Directors has the right to elect one of them to be
their representative in the Agency Firm for
receiving commission; neither the Board of
Directors nor the Agents are bound to recognise
the rights of the other heirs and legal
representatives as aforesaid.
Two of the relevant Articles namely, Art. 113A and Art. 146 cf the Articles of Association may be noted. Art.113A reads:-
M/s. D.V. Or B.P. Or Gopal P. Sulakhe or any other
members of the Sulakhe family who may be chosen
for that purpose in terms of the agency agreement
shall be an ex-officio director of the company.
Agents firm have, however, subject to the terms of
the agency agreement to appoint any other person
whether a member of the firm or not, as a special
director. The person appointed as special director
as aforesaid shall after the lapse of one year,
retire but be eligible for re-election. Art. 146 of the Articles of Association provides as follows:-
"The firm of M/s. Sulakhe & Co. and the partners
or members for the time being constituting the
said firm and their successors in business
notwithstanding any change in the constitution or
in the name or style of the said firm by the
death, retirement or insolvancy of any member of
the said firm shall be and they are hereby
appointed the managing agency of the company for
the period and upon the terms, provisions and
conditions set out in the agreement referred to in
article hereof. Such agreement may be modified in
such manner as may be mutually agreed between the
firm and the directors and the Board is hereby
authorised to execute the said agreement on behalf
of the company.
It has to be borne in mind that at the time when the company was incorporated and its articles were adopted and also at the time when the company entered into the managing agency agreement with Sulakhe & Co. and when the deed of partnership of the firm of Sulakhe & Co. was executed, the plaintiff Bhagwant and the defendant No. 2 Dattatraya were admittedly the members of the joint family and no disputed of any kind had arisen amongst the members of the joint family. It is not in dispute that 325 shares 192 which were Initially purchased in the company - 200 in the name of the defendant No. 2 Dattatraya and 125 in the name of the plaintiff Bhagwant were paid for by the joint family out of the joint family funds. It is also an admitted position that the entire amount of remuneration which was received by the defendant No. 2 Dattatraya and plaintiff Bhagwant not only on account of their shares of commission under the managing agency agreement on the basis of the partnership deed but also on account of the Directors’ fees paid to them and also on account of the salary paid to defendant No.2 Dattatraya who acted as the managing agent on behalf of the firm was treated as joint family property. Defendant No. 2 Dattatraya had continued to be the managing agent of the company till 1935. It is also not in dispute that when the plaintiff Bhagwant took over as the managing agent from defendant No. 2 Dattatraya in 1935, the position continued to be the same and the remuneration received by him formed part of the joint family income till the dispute raised by plaintiff Bhagwant by his letter dated 15th July, 1941 to the defendant No. 2 Dattatraya. The agreement of partnership clearly indicates that the plaintiff Bhagwant and the defendant No. 2 Dattatraya became members of the firm M/s. Sulakhe & Co. which was appointed the managing agent of the company on the basis of the managing agency agreement, representing the joint family and for the benefit of the joint family. Since the establishment of the partnership firm of Sulakhe & Co. On the 3rd day of January, 1923 and since this firm’s appointment as the managing agent of the company under the managing agency agreement dated 5- 2-1923 till the dispute was raised by the plaintiff in July, 1941 this position appears to be accepted by all without any kind of reservation. All monies received by the plaintiff Bhagwant and defendant No. 2 Dattatraya from the company, were treated as joint family income , were entered in the books of account of joint family and were shown in income tax returns to be the income of the joint family.
The facts and circumstances of this Case clearly indicate that in the partnership agreement and the managing agency agreement in which the plaintiff Bhagwant and defendant No. 2 Dattatraya were parties, they had become parties on behalf of the joint family representing the joint family and the entire remuneration received by them, whether by way of commission or the directors’ fees or by way of salary for having acted as the managing agent, was joint family income. On the materials on record we have no hesitation in coming to the conclusion that the plaintiff Bhagwant and the defendant No. 2 Dattatraya became the partners of Sulakhe & Co. which was appointed as the managing 193 agent of the company on the basis of the Managing Agency Agreement for the benefit of the joint family and their interest in the partnership firm and Managing Agency was a part of joint family assets and whatever income was earned either by the plaintiff Bhagwant or by the defendant No. 2 Dattatraya on the basis of the managing agency agreement belongs to the joint family and formed part of the joint family property. As the entire income coming in the hands of the plaintiff Bhagwant or defendant No. 2 Dattatraya on the basis of the partnership agreement and the managing agency agreement, whether on account of commission or by way of directors’ fees or remuneration for acting as the managing agent, belonged to the joint family and formed part of the joint family property, the same position must necessarily continue in the eye of law so long as the partnership agreement and the managing agency agreement continued. The plaintiff by seeking to bring about a severance in the status of the joint family, cannot deprive the joint family of this property and the income derived on the basis of the managing agency agreement continues to remain the property of the joint family, so long as this pint family asset is not partitioned and otherwise continues to remain in existence. We have, therefore, no hesitation in holding that the remuneration received by the plaintiff Bhagwant from the company for acting as the managing agent on the basis of the managing agency agreement must necessarily be held to be the joint family property and the plaintiff Bhagwant cannot claim the same to be his personal property.
Mr. Tarkunde had addressed a novel and interesting argument that even if the Income derived by the plaintiff Bhagwant from the company by way of remuneration for acting as the managing agent can be considered to be the income of the joint family, there should be an apportionment of this income between the plaintiff and the joint family, as the plaintiff alone had rendered all services on behalf of the family and he should, therefore, be held entitled to retain a part thereof for himself for the services rendered by him. This argument of Mr. Tarkunde sounds attractive and my raise an interesting question in an appropriate case. But in the facts and circumstances of this case and taking into consideration the true nature of the partnership and the Managing Agency Agreement and the conduct of the parties, we are of the opinion that there is no merit in the plaintiff’s claim for retaining any part of the remuneration received by him from the company for the services rendered by him. The entire income arising out of the managing agency agreement and accruing 194 to the two members of the family, namely, the plaintiff Bhagwant and the defendant No. 2 Dattatraya who might have rendered the services, had been earned for and on behalf of the family and as representatives of the joint family. The defendant No. 2 Dattatraya had continued as the managing agent for a number of years and there has been no question of apportionment of any income derived by him as his remunerations for the services rendered by him as managing agent. The character of any joint family property does not change with the severance of the status of the joint family and a joint family property continues to retain its joint family character so long as the joint family property is in existence and is not partitioned amongst the cosharers. By an unilateral act it is not open to any member of the Joint Family to convert any joint family property into his personal property.
We now proceed to consider whether the remunerations received by the plaintiff Bhagwant from the company as the Managing Director of the Company belonged to the joint family or not. The position of the Managing Director is entirely different from the position of the Managing Agent on the basis of the Managing Agency Agreement between the firm of Sulakhe & Co. and the company and the position of the Managing Director stands entirely on a different footing. At the time the plaintiff was appointed the Managing Director of the company on 19.10.1957 with effect from 16th January, 1957, there was complete disruption of the joint family and there was no joint family in existence. In fact at that point of time litigation between the parties was going on. By virtue of the incorporation of S. 87A in the Indian Companies Act by amendment in 1937 the duration of any Managing Agency Agreement was limited to a period of 20 years only at a time though on the expiry of the period of 20 years the Managing Agency Agreement could be renewed by virtue of the provisions contained in Sub-Sec. (2) of S. 87A of the Act. In view of the change brought about with regard to the duration of the Managing Agency Agreement at a time the Managing agency Agreement automatically came to an end on the expiry of the period of 20 years and though there was the provision with regard to the renewal of the Managing Agency Agreement it appears that the Managing Agency Agreement was not renewed. It appears that the Board of Directors of the Company had passed a resolution on 28.6.56 for the renewal of the Managing Agency Agreement. The Managing Agency Agreement was not ultimately renewed and it does not appear that any action was taken by the firm of Sulakhe & Co. Or any partner thereof for obtaining renewal of the Managing 195 Agency Agreement for a further term after 1957. On the other hand it appears that the company had amended its articles of association and had proceeded tc appoint the plaintiff Bhagwant as the Managing Director. It is significant to note that no partner of the firm of Sulakhe & Co. which had been appointed as the Managing Agent of the Company or no member of the joint family took any steps for challenging the validity of the amendment of the articles of association or the validity of the appointment of the plaintiff as the Managing Director of the Company.
Before we proceed to decide whether the remuneration received by the plaintiff as the Managing Director of the Company can be considered to be part of the joint family property, it will be appropriate to refer to a decision of this Court for proper appreciation of the legal position. Though a number of decisions had been cited from the Bar, we do not consider it necessary to refer to all the decisions, as in our view the legal position has been very lucidly and clearly discussed in the case of Raj Kumar Singh Hukum Chandji v. Commissioner of Income-Tax Madhya Pradesh, [1971] 1 S.C.R. 748 by this Court after reviewing the earlier decisions on this question. After considering various earlier decisions, this Court at page 758-759 observed:-
At first sight there appears to be conflict
between the two lines of decisions namely Kalu
Babu’s case, Mathura Prasad’s case; two
Dhanwatey’s cases and Krishna Iyer’s case on one
side Palaniappa Chettiar’s case, Dakappa’s case
and D.C. Shah’s case on the other. The line that
demarcates these two lines of decisions is not
very distinct but on a closer examination that
line cane be located. In order to find out whether
a given income is that of the person to whom it
was purported to have been given or that of his
family, several tests have been enumerated in the
aforementioned decisions but none of them
excepting Kalu Babu’s case makes reference to the
observations of Lord Summer in Gokal Chand’s case
that ’in considering whether gains are partible,
there is no (’ valid distinction between the
direct use of the joint family funds and a sue
which qualifies the member to make the gains by
his own efforts.’ We think that that principle is
no more valid. The other tests enumerated are:
(1) Whether the income received by a co-parcener
of a Hindu undivided family as remuneration had
any real 196
connection with the investment of the joint family
funds:
(2) Whether the income received was directly
related to any utilization of family assets;
(3) Whether the family had suffered any detriment
in the process of realization of the income; and
(4) Whether the income was received with the aid
and assistance of the family funds;
In our opinion form these subsidiary principles,
the broader principle that emerges is whether the
remuneration received by the coparcener in
substance though not in form was but one of the
modes of return made to the family because of the
investment of the family funds in the business or
whether it was a compensation made for the
services rendered by the individual coparcener. If
it is the former, it is an income of the Hindu
undivided family but if it is that latter then it
is the income of the individual coparcener. If the
income was essentially earned as a result of the
funds invested the fact that a coparcener has
rendered some service would not change the
character of the receipt. But if on the other hand
it is essentially a remuneration for the services
rendered by a coparcener, the circumstance that
his services were availed of because of the reason
that he was a member of the family which had
invested funds in that business or that he had
obtained the qualification shares from out of the
family funds would not make the receipts the
income of the Hindu undivided family." This decision was no doubt given in a case arising out of an Income-Tax matter. The various cases which have been referred in the judgment also arise out of Income-tax matters and they mainly deal with the question of determination of the nature and character of remuneration received by a member of the family, whether the remuneration so received is income of the joint family property or is the personal income of the individual, - for the prupose of assessment of income-tax on such income. It is no doubt true that the observations which we have earlier quoted have been made on the nature and character of the income received by way of remuneration by a member of the joint family while 197 considering the question of assessment of Income-tax on such A income; but, in our opinion, the legal principles enunciated in this decision for determining the true nature and character of the remuneration received by any member of the joint family apply equally in deciding the nature and character of the remuneration received by the Managing Director in the instant case. This decision, to our mind, correctly lays down the tests which have to be considered for deciding the question whether the income derived by any member of the joint family by way of remuneration as managing Director is his personal income or is the income of the joint family.
In the facts and circumstances of this case, we have no hesitation in coming to the conclusion that the remuneration received by the plaintiff Bhagwant as Managing Director of the company from the company is his personal income and cannot be considered to be the income of the joint family. At the time the plaintiff Bhagwant became the Managing Director of the Company, the joint family had completely disrupted and it cannot be said that the plaintiff was the member of any joint family of which the defendants were also members. In fact, litigation between the parties was going on. Though the defendant No. 2 Dattatraya was also a member of the managing agency firm Sulakhe and Co., it does not appear that he took any steps for reappointment of the said firm as the managing agent. There were four outside partners interested in the Managing Agency Agreement and it does not appear that the defendant Dattatraya or the other outside partners of the managing agency firm Sulakhe & Co. had taken any steps against the company for ’not renewing the managing agency agreement. It is to be borne in mind that it was for the company to renew the managing agency agreement. For the purpose of appointing the plaintiff as the managing director, the articles of association of the company had to be amended and Art. 146A had been incorporated in the Articles of Association by amendment. It does not appear that defendant No. 2 Dattatraya or the other outside partners of the managing agency firm Sulakhe & Co. Or any other shareholder of the company sought to prevent the company from amending the articles of association or challenged the validity of the amendment of the articles. The appointment of plaintiff Bhagwant as Managing director after the amendment of the Articles also does not appear to have been challenged by the defendant No. 2 Dattatraya or any of the other partners of the managing agency firm. The termination of the managing agency agreement with the partnership firm Sulakhe & Co. appears to have been accepted by the members of the said firm including the 198 defendant No. 2 Dattatraya who alongwith the plaintiff Bhagwant were partners of the firm representing the joint family. It is also to be noted that in the partnership firm of Sulakhe & Co. which was appointed the managing agent sf the company on the basis of the managing agency agreement, the four partners who did not belong to the family held majority shares in the partnership although by virtue of the agreement between the parties they had agreed that either the plaintiff Bhagwant or defendant No. 2 Dattatraya would act as the managing agent of the company on behalf of the managing agency firm and should receive the remuneration which would be paid to the managing agent acting as such on behalf of the firm. These outside partners who held the majority shares in the partnership firm of Sulakhe & Co. which had been appointed and had been acting as the managing agent of the company on the basis of the managing agency agreement, raised no protests for not renewing managing agency for a further term, though under Sub-section (2) of S. 87A of the amended provision, the managing agency agreement which stood terminated in 1957, could have been extended. It appears, therefore, that the majority of the partners had lost interest in the renewal of the managing agency agreement. In any event, the undisputed facts remain that the managing agency agreement was not renewed after 1957 and no action was taken against the company or anybody else by the firm of Sulakhe & Co. which had been acting as the managing agent or by any partner thereof either for renewal of the managing agency agreement or for not renewing the managing agency agreement. It also does not appear that the firm Sulakhe & Co. Or any of its partners took any action to prevent the company from amending its articles and for appointing Bhagwant as the Managing Director of the company. The facts and circumstances of the case go to indicate that the partners of the firm Sulakhe & Co. which had been acting as the Managing Agent on the basis of the managing agency agreement with the company accepted the termination of the managing agency on the expiry of the term prescribed under the amended law without any protest and did not seek to enforce the right or renewal of the managing agency agreement or of any other provision of the agreement. As the managing agency agreement had ceased to exist at the time the plaintiff Bhagwant was appointed the Managing Director of the company and as at that time there was no joint family of the plaintiff Bhagwant and the defendants in existences, the plaintiff Bhagwant cannot be said to have been appointed as the Managing Director of the company either because of the Managing agency agreement or because of his being a member of the joint family. The facts and circumstances make it clear that the partnership agreement or the managing 199 agency agreement had no relevance to the appointment of the plaintiff Bhagwant as the Managing Director of the Company. As we A have earlier indicated the company had initially contemplated to renew the managing agency on the expiry of the term prescribed by law and the Board of Directors had passed a resolution accordingly. Subsequently, for reasons known to the company, the company decided not to continue the managing agency agreement and decided to appoint plaintiff Bhagwant as the Managing Director of the company. For the purpose of appointing the plaintiff Bhagwant as the Managing Director, the company had to amend its Articles of Association and the company, in fact, duly altered the Articles of Association and the company. Neither the partnership firm of Sulakhe & Co. which had been appointed as the Managing Agent of the company and had been acting as such till the expiry of the term nor any partner thereof had taken any effective step for renewal of the managing agency agreement or had made any effective protest for not reappointing the firm Sulakhe & Co. as the managing agents of the firm and for appointing the plaintiff as managing director of the company after having amended the articles of association of the company. The facts and circumstances of the case also do not go to indicate that the appointment of the plaintiff as managing director of the company was by way of any return to the family because of the investments of the family funds in the business of company. As earlier noticed the joint family had purchased only 325 shares at the time of the managing agency agreement with the company and, in fact, other parties have invested a much larger amount in the purchase of shares. Taking into consideration the total investment made in the company by various parties it appears that the contribution of the joint family appears to be insignificant. It cannot, therefore, be said that the appointment of the plaintiff as Managing Director, at a time when there was complete disruption of the joint family and the members of the family were fighting in Court, was by way of any return on the investment made by the Joint family. It Is quite clear that the plaintiff Bhagwant was appointed as the Managing Director by the company for services to be rendered by him, as the company might have been impressed by his performance as the managing agent for a number of years. Though undoubtedly the plaintiff Bhagwant acted as the managing agent for and on behalf of the joint family and for benefit of the joint family, yet what must have weighed with the company is the kind of services rendered by him to the company. The company was concerned with his services and not with the question whether he was rendering the services for and on behalf of the family. The plaintiff Bhagwant, was therefore appointed as the managing 200 director for the services rendered by him and for services to be rendered by him. The remuneration which the company agreed to pay to the plaintiff Bhagwant for acting as the managing director was for the services to be rendered by him. This remuneration must, therefore, be the personal income of Bhagwant and does not belong to the joint family. The decisions of this Court and the principles enunciated by this Court which we have earlier noted clearly support the view we have taken.
In facts and circumstances of this case there can be no question of the plaintiff Bhagwant being a trustee or acting as the trustee for the benefit of the joint family in relation to his appointment as the managing director of the company.
It has to be borne in mind that it was the partnership firm of Sulakhe & Co. which was appointed as the managing agent of the company and on the basis of the partnership agreement and the managing agency agreement, the defendant No. 2 Dattatraya and thereafter the plaintiff Bhagwant acted as the managing agent of the company and was entitled to receive the remuneration from the company for acting as such managing agent. As we have already noticed the partnership firm consisted of six members, four of whom were outsiders and did not belong to the family. These four outside members of the partnership firm had, in fact, held the majority shares in the partnership. me defendant No. 2 Dattatraya and the plaintiff Bhagwant had become members of the partnership firm for and on behalf of the joint family and representing the joint family interest. The firm had entered into the Managing Agency agreement with the company. The managing agency of the company was that of the partnership firm in which the four outside members with a majority of shares in the partnership were interested and the managing agency firm cannot, therefore, be considered to be an asset of the joint family. It was the interest of the defendant No. 2 and the plaintiff Bhagwant in the managing agency firm on the basis of their shares in the partnership which belonged to the joint family. Furthermore, the managing agency was an agreement between the company and the partnership firm. It would no doubt be open to the partnership firm to ask for renewal of the managing agency agreement and it would be equally open to the company to decide what the company should do. We have earlier observed that on the expiry of the term of the managing agency by virtue of the changes introduced in the Companies Act no effective steps appear to have been taken by the firm Sulakhe & Co. which acted as the managing agent or any partner thereof for renewal of the managing 201 agency agreement. The alterations of the articles of association of the company and the appointment of the plaintiff as managing director after the amendment of the articles also went without any effective challenge by the firm of Sulakhe & Co. or any partner thereof or by any share holder of the company. The effect of not renewing the agreement was that the interest of the partnership firm of Sulakhe & Co. in the company as the managing agent thereof with all the rights and privileges on the basis of the said agreement came to an end. With the termination of the managing agency agreement the interest of the joint family in the managing agency on the footing that two of the members of the joint family, namely, defendant No. 2 Dattatraya and plaintiff Bhagwant were as partners of the firm associated with the managing agency and were acting as the managing agent on the basis of the partnership agreement and the managing agency agreement also ceased. As we have earlier observed, the appointment of the plaintiff Bhagwant as managing director was not because of any special investment by the joint family in the company and the remuneration which was agreed to be paid by the company to the plaintiff Bhagwant for acting as the managing Director of the company was not by way of any return on the investment of the joint family in the company and the plaintiff Bhagwant became entitled in his individual capacity as the managing director of the company to the remuneration offered to him for the services to be rendered by him as such Managing Director. The plaintiff Bhagwant earned the remuneration in his personal capacity for services rendered by him. The argument advanced on behalf of the defendants that plaintiff Bhagwant was in the position of a trustee with regard to the remuneration received by him for acting as managing director of the company and is accountable to the joint family for all such remunerations received by him is, therefore, in the facts and circumstances of this case without any merit.
At the time when the company was incorporated and admittedly when the family was joint, 325 shares in the company were purchased, - 200 in the name of the defendant No. 2 Dattatraya and 125 in the name of the plaintiff Bhagwant. Admittedly the price for these shares was paid out of the joint family funds. There can, therefore, be no dispute that these shares belong to the joint family in which each branch of the joint family has an equal share. In fact, it is so conceded ’before us by the parties concerned. It appears that 79 further shares in the company in the name of the plaintiff Bhagwant and four further shares in the name of defendant No. 1 Gopal were purchased. It further appears 202 that the purchase price of these 83 shares were also paid out of the joint family funds. So far as the four shares purchased in The names of defendant No. 1 it is not disputed that the said four shares belong to The joint family. Though the plaintiff claims that the 79 shares belong to him and not to the joint family on the plea that the price paid by the joint family for the purchase of the said shares was paid to the plantiff Bhagwant by way of loan to him, we must hold taking into consideration the facts and circumstances of this case and in particular the fact that the story of the loan by the joint family, has not been accepted, that these 79 shares also belong to the joint family. Shares which were subsequently purchased by the parties were purchased when the status of the joint family has been completely disrupted and there is no evidence to indicate that the joint family had paid for the shares subsequently purchased by the parties. Shares had been purchased by the plaintiff, his sons and other members of the family. Plaintiff’s son is a Doctor and has his own income. It is not established that the plaintiff purchased shares out of the remunerations earned by him as the Managing Agent or the managing director of the company. Even if we assume that the plaintiff has paid for these shares out of the remunerations paid to him by the company for acting as the Managing Agent or the managing director, the joint family can have no claim with regard to any such share. The plaintiff Bhagwant may in the facts and circumstances of this case be accountable to the joint family for the remuneration earned by him as Managing Agent, but he is not a trustee and the shares purchased by him will not belong to the joint family. We have already held that the plaintiff was not in the position of a trustee for the benefit of the joint family in his capacity as the managing director of the company and the remuneration which the plaintiff earned belonged to him and was his personal income. We, therefore, hold that 200 shares standing in the name of defendant No. 2, 125 shares standing in the name of the plaintiff Bhagwant, four shares standing in the name of defendant No. 1 and the 79 shares standing in the name of the plaintiff or his sons which were purchased out of the joint family funds belong to the joint family and each branch has equal 1/3 shares in these shares.
We now proceed to consider the question of cash money which was found in the Mahalaxmi room. The plaintiff claims that in the Mahalaxmi room there was about a Lac of Rupees belonging to the joint family which had been secreted by the defendants. When the receiver counted the money, it was found that there was cash 203 money in Mahalaxmi room over twenty-one-thousand rupees. There is no evidence on record which would justify the claim of the plaintiff that there was a Lac of Rupees in the Mahalaxmi room. Materials on record show that there was some cash money belonging to the joint family in the Mahalaxmi room. To ascertain exactly how much cash money was there in the Mahalaxmi room, it becomes necessary to direct that a proper account should be taken. The litigation between the parties is going on for decades, and any reference directing accounts to be taken on this question would necessarily mean that the litigation would be prolonged further. Taking an overall view of the matter we have decided that in the interest of justice and in the interest of the parties it will ’be appropriate in The facts and circumstances of this case that this Court should determine and reasonable amount on the basis of the materials which are there on the record and on the basis of the submission made by the counsel and the counsel for the parties also suggested that in the interest of the parties concerned it would be desirable that this Court should fix an amount which the Court will consider reasonable. We propose to take this aspect into consideration while passing the decree in these appeals.
The last question which falls for determination is on the question of ornaments, jewellery and utensils. There is no proper evidence on record which will justifiable lead to the conclusion that any ornaments, jewellery or utensils belonging to the joint family are in the possession of any particular party. Materials on record, on the other hand, suggest that these movables have already been partitioned. We are, therefore, inclined to take the view that whatever ornaments, jewellery and utensils are in the possession of any of the parties now belong to them and there is no question of any party being in possession of any joint family ornaments, and utensils.
In the result we hold :-
1. That all remunerations received by the
plaintiff Bhagwant from the company by way of
commission director’s fees and remunerations as
the managing agent of the company so long as the
managing agency agreement continued its existence
till 1957, belong to the joint family and the
plaintiff is bound to render true and faithful
accounts of all such amounts received by him and
to pay to the other two branches their share,
namely, 1/3rd to each of the other branches who
happen to be the defendants in the suit. 204
2. The position of the defendant No. 2 Dattatraya
who was the other person in the firm of Sulakhe &
Co. representing the joint family and who also
acted as a managing agent is also the same. There
is no question, however, of the defendant No. 2
Dattatraya rendering any account in respect of
such sums received by him as all such sums
received by him had been treated without any kind
of dispute as joint family income and had been
entered in the books of the joint family. The
question of rendition of any account by the
defendant No. 2 Dattatraya therefore, does not
arise.
3. The remuneration received by the plaintiff as
managing director of the company on his
appointment as managing director of the company in
1957, belongs to the plaintiff personally and does
not belong to the joint family. The entire
remuneration received by the plaintiff after the
termination of the managing agency agreement and
after his appointment as managing director of the
company is the personal income of the plaintiff
and the joint family or any member thereof has no
interest or claim in the amounts so received by
the plaintiff.
4. 200 shares of the company in the name of the
defendant No. 2, 125 shares in the company in the
name Of the plaintiff which were initially
acquired by the joint family and the subsequent
acquisition of 79 shares by the plaintiff in his
name or in the name of his sons and the
acquisition of four shares in the name of
defendant No. 1 belongs to the joint family and
each branch of the joint family has an equal
interest in the shares. In other words, these 408
shares belong to the joint family and being 408
shares have to be divided equally amongst the
three Branches of the family. All other shares in
the company standing in the names of the parties
or their children do not belong to the joint
family and form no part of the joint family
property.
5. So for as the cash money in the Mahalaxmi room
is concerned there was undoubtedly some cash money
lying in that room belonging to the joint family.
The exact amount of cash money lying in the
Mahalaxmi room is difficult, if not impossible, to
ascertain on the 205
basis of the materials on record. It will be
equally difficult to ascertain the exact amount
even if a reference is directed as on the
materials on record and after hearing the
submissions of the counsel for the parties, we
find that there is no dependable material to come
to any definite conclusion. The plaintiff claims
that there was approximately a Lakh of Rupees
whereas the receiver found only an amount of over
Rs. 21,000. The plaintiff Bhagwant is no doubt
entitled to a reasonable amount in respect of
money lying in Mahalaxmi room and we shall take
this account into account while passing the final
decree herein.
6. So far as the ornaments, jewellery and utensils
are concerned, we hold that there is no material
on record to establish that any party in
possession of any ornaments, jewellery and
utensils belong to the joint family. The
ornaments, jewellery and utensils in the
possession of the respective parties will be
treated as their own properties. There is nothing
further to enquire into or decide on these
questions.
On the basis of the aforesaid findings we now proceed to consider the nature of the relief that should be granted and the kind of decree that we should pass in these appeals. We are of the opinion that taking into consideration that the litigation between the parties has been going on for over four decades, it will be in the interest of justice and in the interest of parties that any kind of decree would not be passed which may have the effect of prolonging the litigation. In that view of the matter we are of the opinion that we should not pass any decree for accounts, as any reference for taking accounts will result in prolongation of litigation to the detriment of the interest of the parties. The learned counsel appearing on behalf of the parties also submitted before us that we should pass a final decree to put an end to the litigation. To enable us to pass a final decree without any directions for taking of accounts between two parties we directed all the parties to place before us the relevant facts and the necessary figures in respect of their claims on each head. On the basis of the directions given by us, the parties have furnished the Court with relevant facts and figures relating to their claims in respect of every item of claim and have also made their submissions before US on the basis thereof. We have carefully considered all the materials which have been placed before us by the parties and also the 206 submissions made in support thereof by the parties. On a careful consideration of all the materials placed before us and also the submissions made on behalf of the parties, we now proceed to pass the final decree in these appeals in the following terms :-
(1) The plaintiff Bhagwant who happens to be the
appellant before us will pay a sum of Rupee two
Lacs to the defendants to be divided equally
between the two respective branches of the
defendants. In other words, the plaintiff Bhagwant
will pay a sum of Rupees one lac to the heirs of
defendant No. 1 Gopal and a sum of Rupees one lac
to the defendant No. 2 Dattatraya.
(2) The said sum of Rupees two lacs will be paid
to the defendants in the manner aforesaid, namely,
one lac to the heris of defendant No. 1 Gopal and
Rupees one lac to the defendant No. 2 Dattatraya
within a period of two months from date.
(3) In default of payment of the said sum within
the aforesaid period, the decretal amount of
Rupees 1 lac in favour of each branch of the
defendants will carry interest @ 9% per annum from
the date of default till recovery of the said
amount by the defendants. In other words, the
interest on the said sum of Rupees one lac each
for defendant No. 2 and the heirs of defendant No.
1 Gopal will run from 1st December, 1985, if the
said amount is not paid by the end of November
1985.
(4) If the amount of Rupees one Lac or any part
thereof remains unpaid by the end of November,
1985 to the heirs of defendants No. 1 Gopal or to
the defendant No. 2 Dattatraya, the said
defendants or either of them who would not be paid
the entire sum of Rupees one Lac by the end of
November, 1985 will be entitled to execute the
decree for the said amount of Rupees one Lac or
any part thereof which will remain unpaid with
interest on the said amount, on the basis of the
decree passed herein.
(5) It is declared that 408 shares which we have
held to be the property of the Joint family as
recorded in our finding No. 2 belong to the joint
family and the 207
plaintiff Bhagwant, the defendant No. 2 Dattatraya
and heirs of defendant No. 1 Gopal shall have each
1s/3 share in the said 408 shares in the company.
The said 408 shares shall be divided equally
amongst the three branches and the plaintiff will
get 136 shares, defendant No. 2 Dattatraya 136
shares and the heirs of Defendant No. 1 Gopal will
get 136 shares.
(6) Mr. S.B. Sulakhe son of the plaintiff Bhagwant
who happens to be the present managing director of
the company is hereby appointed Commissioner
without any remuneration to divide the shares
equally in the aforesaid three lots and to. have
the same transferred and registered in the names
of the parties on the basis of the division of the
said shares to be effect ed in terms of the
decree. The plaintiff will proceed to divide the
said shares in the manner directed above within
two months from date. All the parties will give
necessary co-operation to the plaintiff in the
matter of effecting division of the said 408
shares in the manner aforesaid.
(7) If for any reason, the plaintiff in not able
to divide the said shares within a period of two
months from date of the decree any of the parties
will have the liberty to apply before the Trial
Judge for the appointment of a Commissioner of
partition to divide the said 408 shares in three
equal lots of 136 shares each in the manner
directed by this decree.
(8) It is declared that the amount which would
have been payable to the plaintiff as his share
out of cash money lying in the Mahalaxmi room, has
been taken into consideration while passing the
decree for Rupees two lacs against the plaintiff
and the plaintiff will have no further claim
against the defendants on this account.
(9) It is declared that no party has any claim
against the other on account of any joint family
ornaments, jewellery and utensils. It is further
declared that whatever ornaments jewellery and
utensils are in the possession of any of the
parties are their own properties and no other
party has any claim in respect thereof. 208
(10) It is declared that there are no other joint
family properties in respect of which any of the
parties can make any claim and it is further
declared that apart from what is provided in this
decree, no party has or will have any claim
against any other party on the basis of any
property being a part of the Joint family
property.
(11) Save and except the costs already paid by the
plaintiff to the defendants, the parties will pay
and bear their own costs. It is made clear that
the plain tiff will not be entitled to recover
whatever costs he might have paid to the
defendants and the defendants will be entitled to
retain all sums received on account of costs and
will not be called upon to refund any part of the
amounts received by them by way of costs from the
plaintiff.
(12) Any direction or finding of the High Court
contrary to what we have held must necessarily
stand set aside and appeals to that extent stand
allowed. S.R. Appeals partly allowed. 209