{"id":154853,"date":"1958-10-06T00:00:00","date_gmt":"1958-10-05T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/chennuru-gavararaju-chetty-vs-chennuru-silaramamurty-chetty-on-6-october-1958"},"modified":"2015-06-22T10:18:34","modified_gmt":"2015-06-22T04:48:34","slug":"chennuru-gavararaju-chetty-vs-chennuru-silaramamurty-chetty-on-6-october-1958","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/chennuru-gavararaju-chetty-vs-chennuru-silaramamurty-chetty-on-6-october-1958","title":{"rendered":"Chennuru Gavararaju Chetty vs Chennuru Silaramamurty Chetty … on 6 October, 1958"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Chennuru Gavararaju Chetty vs Chennuru Silaramamurty Chetty … on 6 October, 1958<\/div>\n
Equivalent citations: 1959 AIR 190, \t\t 1959 SCR Supl. (1) 73<\/div>\n
Author: B P Sinha<\/div>\n
Bench: Sinha, Bhuvneshwar P.<\/div>\n
           PETITIONER:\nCHENNURU GAVARARAJU CHETTY\n\n\tVs.\n\nRESPONDENT:\nCHENNURU SILARAMAMURTY CHETTY AND OTHERS\n\nDATE OF JUDGMENT:\n06\/10\/1958\n\nBENCH:\nSINHA, BHUVNESHWAR P.\nBENCH:\nSINHA, BHUVNESHWAR P.\nIMAM, SYED JAFFER\nKAPUR, J.L.\n\nCITATION:\n 1959 AIR  190\t\t  1959 SCR  Supl. (1)  73\n\n\nACT:\n       Lease,\tRenewal\t  of-Manufacture   of\tsalt-Lessees,\t if\n       fiduciaries  of\tquondam\t partners-Constructive\ttrust-Test-\n       Presumption--Indian  Trusts Act, 1882 (II of 1882), ss.\t88,\n       90--Madras Salt Act, 1889 (Mad. 4 of 1889).\n\n\n\nHEADNOTE:\nThe  appellant, defendant No. 1 in the suit, from which\t the\nappeal\tarises, and the father of defendants 2 to 7, as\t the\nhighest bidders, obtained a seventeen years' lease of a salt\nfactory\t from the Government and the license to\t manufacture\nand sell salt under the Madras Salt Act, 1889.\tThey entered\ninto  a\t partnership with the plaintiffs to carry  on  their\nbusiness for the period of the lease.  On the death of their\nfather,\t  defendants   2  to  7\t were  admitted\t  into\t the\npartnership.   The partnership agreement made  no  provision\nfor  the  continuation of the partnership on expiry  of\t the\nlease  or for the acquisition of a fresh lease on behalf  of\nthe partnership.  The lease expired, the license came to  an\nend and the partnership stood automatically dissolved.\t The\nGovernment changed its old policy of granting leases to\t the\nhighest\t bidders and adopted one of renewing them in  favour\nof  previous  lessees  in whom\tthey  had  confidence.\t The\nappellant\n10\n74\nand  defendants 2 to 7 applied for the renewal of the  lease\nthat stood in their names.  The plaintiffs also applied\t for\na  grant of it to them.\t No premium was called for and\tnone\nhad to be paid.\t The Revenue Authorities chose to renew\t the\nlease  in favour of the appellant and the said defendants  f\nor  a further period of 25 years.  The plaintiffs filed\t the\nsuit claiming that the renewal of the lease was an asset  of\nthe  dissolved partnership.  The trial Court  found  against\nthem  but  the High Court on appeal reversed  that  finding.\nThe  suit  was instituted months before the renewal  of\t the\nlease  and  years before the renewal of the  license,  which\nalone  could  enable the licensee to  manufacture  and\tsell\nsalt.\tThe  Courts below found that the allegation  of\t the\nplaintiffs that the goodwill and assets of the firm had been\nutilised  for  obtaining  the  renewal\tof  the\t lease\t was\nunfounded,  as they had failed to prove that  a\t partnership\nfirmatall  existed.  It was also found that during the\tlast\nthree years of the existence of the partnership, the parties\nhad  fallen apart and lost mutual confidence.  The  question\nfor  decision  was whether s. 88 of the\t Indian\t Trusts\t Act\napplied\t and  the  renewal of the lease\t in  favour  of\t the\nappellant  and\tthe  said defendants for  running  the\tsalt\nfactory\t could\tbe  treated as an  asset  of  the  dissolved\npartnership between the contesting parties.\nHeld, that in order that a case might be brought within\t the\npurview of s. 88 of the Indian Trusts Act, it must be  shown\neither\tthat (1) a person had a fiduciary character and\t was\nthus  in  duty bound to protect the interests of  others  or\nthat  (2)  he had placed himself in such a  position  as  to\nrender\this interest adverse to those of the others and\t had\nthereby obtained a pecuniary interest which he must hold for\ntheir benefit as well.\tAs in the instant case the fiduciary\ncharacter   of\tthe  partners  came  to\t an  end  with\t the\ntermination  of\t the original lease and of  the\t partnership\nbusiness  along\t with  it,  there could\t no  longer  be\t any\nsubsisting interest in a partner which another was bound  to\nprotect nor could one partner be said to have availed of his\ncharacter  as  a partner when he obtained the  fresh  lease.\nSection 88 of the Indian Trusts Act or the illustrations (d)\nor  (e) thereto could, therefore, have no  application,\t nor\ncould  s. go of the Act, which in terms had  no\t application\neven if applied, improve the position of the plaintiffs.\nNo  question of a constructive trust could also arise  under\nthe  general  law  apart  from the  statute.   There  is  no\nabsolute rule of law or equity in England that renewal of  a\nlease  by one partner must necessarily enure to the  benefit\nof  all the partners.  There is, however, a  presumption  of\nfact that there is an equity in favour of the renewal of the\nlease  enuring to the benefit of all the partners.   Such  a\npresumption  may  be rebutted by the facts of  a  particular\ncase.\tThe Indian law as enacted in the Indian Trusts\tAct,\nand particularly ss. 88 and go of that Act, is substantially\nthe same.  In the instant case, the facts and  circumstances\namply rebut that presumption.\n75\nFeatherstonhaugh  v. Fenwick, (1810) 34 E.R. 115, Clegg\t  v.\nFishwick,  (1849) 41 E.R. 1278, Clements v. Hall, (1857)  44\nE.R.  954,  Clegg v. Edmondson, (1857) 44 E.R.\t593,  In  Ye\nBiss,  Biss v. Biss, [1903] 2 Ch. 40 and Griffith  v.  Owen,\n[1907] I Ch. 195, G considered.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE, JURISDICTION: Civil Appeal No. 91 of 1954.
\nAppeal from the judgment and decree dated December 10, 1948,
\nof the Madras High Court in Regular First Appeal No. 609  of
\n1946, arising out of the judgment and decree dated March 30,
\n1946, of the Court of the Subordinate Judge of Chicacole  in
\nOriginal Suit No. 1 of 1943.\n<\/p>\n
A.   V.\t Viswanatha  Sastri and R. Ganapathy Iyer,  for\t the
\nappellant.\n<\/p>\n
K.   M. Rajagopala Sastri and S. K. Sastri, for\t respondents
\nNos. 1, 2, 3, 5-7, 13 and 24-27.\n<\/p>\n
1958.  October 6. The Judgment of the Court was delivered by
\nSINHA J.-The only question for determination in this  appeal
\nby the first defendant, on a certificate granted by the High
\nCourt  of  Madras,  is whether the renewal of  a  lease\t for
\nrunning a salt factory, granted by the Government in  favour
\nof  the appellant and others (defendants 1 to 7),  could  be
\ntreated as an asset of the dissolved partnership between the
\ncontesting  parties.  The trial court decided this  question
\nin  favour of the contesting defendants.  On appeal  by\t the
\nplaintiffs   and  some\tdefendants  on\tthe  side   of\t the
\nplaintiffs,  the  High\tCourt  of  Madras  determined\tthis
\ncontroversy  in\t favour of those  appellants.\tHence,\tthis
\nappeal\tby the first defendant whose interest  is  identical
\nwith  that  of\tdefendants 2 to 7.  The\t reference  in\tthis
\njudgment to I appellant’ will, thus, include the interest of
\nthe other non-appealing defendants also.\n<\/p>\n
 The  relevant\tfacts of this case, upon  which\t the  appeal
\ndepends,  may shortly be stated as follows:  The  contesting
\nparties used to carry on the business of salt manufacture in
\naccordance with the rules laid down by the Government  under
\nthe Madras Salt Act
\n76<\/span>
\n(Mad. 4 of 1889) (which will, hereinafter, be referred to as
\nthe  Act).   It\t is  not  permissible  to  manufacture\tsalt
\notherwise  than tinder the provisions of the Act.  The\tland
\nand  the factory where salt used to be manufactured  by\t the
\nparties, are Government property.  It appears that the first
\nplaintiff, the father of plaintiffs 2 to 4, plaintiff 5, the
\nfirst  defendant and the deceased father of defendants 2  to
\n7, had made bids for the lease of the land and the  factory,
\nand  the  highest  bid\tof  the\t defendants  aforesaid,\t was
\naccepted;  and\tin pursuance thereof, a lease for  17  years
\nfrom  January  1926, to December, 1942, was granted  by\t the
\nGovernment  in favour of the first defendant and the  father
\nof defendants 2 to 7. ‘By a deed of partnership dated  March
\n18,  1926,  the first plaintiff with a two-anna\t share,\t the
\nfather\tof  plaintiffs 2 to 4, having a similar\t share,\t and
\nplaintiff  5 with another two-anna share, on the  one  hand,
\nand  the first defendant, having a five anna share, and\t the
\nfather\tof defendants 2 to 7, with the\tremaining  five-anna
\nshare,\tentered\t into  a partnership for  running  the\tsalt
\nfactory.   The\tterms  of the partnership will\thave  to  be
\ndiscussed in detail hereinafter.  They contributed a sum  of
\nRs.  30,000  for paying the premium for the  lease  and\t for
\nother  incidental  expenses  in\t running  the  factory,\t  in
\nproportion  to\tthe shares just indicated.   The  father  of
\ndefendants  2  to  7,  who had\ta  five-anna  share  in\t the
\nbusiness,  died in August, 1935, and the defendants 2  to  7
\nwere  admitted\tas partners in place of\t their\tfather.\t  In
\naccordance  with  the  rules of\t the  salt  department,\t the
\nrequisite  licence for the manufacture of salt, was  granted
\nto the first defendant and the father of the defendants 2 to
\n7,  in, whose name, the lease also stood.  In or  about\t the
\nyear  1939, differences arose between the parties, but\t-the
\nbusiness  continued to be carried on by the defendants 1  to\n<\/p>\n
7. In August 1941, in accordance with the changed policy  of
\nthe  Government, which substituted the practice of  settling
\nsalt  leases  by  renewal of the lease in  favour  of  those
\nlease-holders  whose  conduct had been satisfactory  in\t the
\nopinion of the Department, for the old practice of  settling
\nsalt leases to highest bidders, the Collector enquired\tfrom
\nthe old
\n77<\/span>
\nlease-holders  whose record had been satisfactory  from\t the
\npoint  of  view of the salt department, whether\t they  would
\ntake  renewal  for a period of 25 years.  The  appellant  as
\nalso.  the other defendants aforesaid, their conduct  having
\nbeen  satisfactory, were amongst those lessees who had\tbeen
\n2invited  to  make  applications for the  renewal  of  their
\nleases.\t  Accordingly, they made their application in  July,
\n1942, and a fresh lease for 25 years, was granted to them on
\nApril  15, 1943, for the period January, 1943  to  December,
\n1967,  in  pursuance  of the  Collector’s  order  passed  in
\nNovember,  1942 (Ex.  P-15(a)).\t The terms of the new  lease
\nwill have to be discussed later in the course of this  judg-
\nment.  As the term of the previous lease and of the  licence
\nto  manufacture\t and sell salt-which  ‘was  the\t partnership
\nbusiness-was to expire at the end of December, 1942, one  of
\nthe  contesting defendants, served a notice upon one of\t the
\nplaintiffs  to\tthe  effect that  as.  the  partnership\t was
\nexpiring at the end of the month, the partners should settle
\ntheir  accounts, and make arrangements for the\tdisposal  of
\nthe unsold stock of 82102 maunds of salt.  The reply to\t the
\nnotice was given on December 28, 1942, through an  advocate,
\nalleging inter alia that the application for the renewal  of
\nthe  lease for a period of 25 years had been made on  behalf
\nand  with the consent of all the partners, and\tthat,  thus,
\nthe  partnership  business was agreed to be  continued\teven
\nafter  the expiry of the term of the  previous\tpartnership.
\nThe answer further attributed fraud and “evil intention ” to
\nthe other party.  The answer also called upon the defendants
\nto pay a penalty of Rs. 2,500 per head, and to hand over the
\nentire partnership lease property to the plaintiffs’  party.
\nThus, the exchange of the notices aforesaid was a prelude to
\nthe  institution of the suit on January 5, 1943, that is  to
\nsay,  even before the fresh lease had been executed  by\t the
\nGovernment in favour of the contesting defendants 1 to 7.
\nThe  suit  was instituted on the footing that  the  original
\npartnership continued even after December, 1942, inasmuch as
\nthe  fresh  lease  had\tbeen  obtained\tin  pursuance  of  a
\nunanimous resolution of all the partners
\n78<\/span>
\nto  obtain the new lease for the partnership business.\t But
\nan alternative case also was sought to be made out that even
\nif the partnership did not continue after December, 1942, as
\na result of. the acts of the defendants, the benefit of\t the
\nfresh  lease for 25 years should be treated as an  asset  of
\nthe dissolved partnership business, and should be taken into
\naccount\t in the process of dissolution of  the\tpartnership.
\nThe plaint as framed contained a large number of reliefs  to
\nwhich,\tthe  plaintiffs\t claimed, they\twere  entitled,\t for
\nexample, a declaration that the partnership was\t continuing,
\nand that the defendants 1 to 7 had forfeited their rights in
\nthe  partnership  as a result of their fraudulent  acts,  an
\ninjunction  restraining defendants 1 to 7 from\tcarrying  on
\nthe salt works independently of the partnership and on their
\nown  account,  and the declaration that the renewal  of\t the
\nlease  in the name of the defendants 1 to 7, for  a  further
\nperiod of 25 years, was for the benefit of the\tpartnership.
\nBut  at\t the trial, the plaintiffs, perhaps,  realizing\t the
\nweakness  of their position, elected to put in a  memorandum
\nin  the\t trial court on February 8,  1946,  confining  their
\nprayers to reliefs on the basis of a dissolved\tpartnership,
\nand  giving  up\t other reliefs, which they  claimed  on\t the
\nfooting\t of the partnership still continuing.  Thus, at\t the
\ntrial, the reliefs claimed were confined to taking  accounts
\nbetween\t the  parties  of  the\tdissolved  partnership,\t and
\ntreating the fresh lease for 25 years, as part of the assets
\nof  the dissolved firm.\t It is, therefore, not necessary  to
\nrefer  to  the defendants’ written  statement,\texcept\twith
\nreference to the plaintiffs’ claim to have the renewed lease
\nfor   25  years\t treated  as  an  asset\t of  the   dissolved
\npartnership.   The  contesting\tdefendants 1  to  7  stoutly
\ndenied\tthat the plaintiffs’ claim in respect of  the  fresh
\nlease  for 25 years, was well-founded.\tThey  asserted\tthat
\nthey  only  were entitled to run the business on  the  fresh
\nlease  and licence meant only for their benefit and not\t for
\nthe benefit of the dissolved partnership.\n<\/p>\n
The trial court-passed a preliminary decree, declaring\tthat
\nthe  partnership stood dissolved on December 31,  1942,\t and
\nfor taking accounts.  As regards the
\n79<\/span>
\nbenefit\t of the renewed lease for 25 years, the trial  court
\nnegatived   the\t  plaintiffs’  claim  that   the   dissolved
\npartnership carried any firm or trade name, which(, could be
\nsaid to have any tangible goodwill, and that the  defendants
\ncould  not  be restrained from carrying on the\tbusiness  in
\ntheir  own names as they had been doing in the past.   After
\nexpressing a doubt as to whether there was any goodwill of a
\nparticular   firm  name,  the  court  directed\t that\t“the
\nCommissioner  is authorized to sell the goodwill of the\t old
\nfirm  for  what\t it is worth by way of\trealization  of\t the
\nassets\tof the dissolved firm as amongst the  partners.”  In
\neffect,\t  therefore,  the  trial  court\t decided  that\t the
\nplaintiffs  were  not  entitled to the benefit\tof  the\t new
\nlease.\n<\/p>\n
On  appeal  to the High Court, the  learned  Chief  Justice,
\ndelivering  the judgment of the Division Bench, came to\t the
\nconclusion  that the plaintiffs’ case that the\tfresh  lease
\nhad  been  obtained  as a result of the\t resolution  of\t the
\npartners  to  carry on the business after the lapse  of\t the
\nspecific  period of the partnership which came to an end  in
\nDecember   1942,  had  not  been  made\tout.   But  on\t the
\nalternative  plea  of the plaintiffs, the  Court,  after  an
\nelaborate  discussion  of  English and\tIndian\tLaw  on\t the
\nsubject, held that the plaintiffs were entitled to treat the
\nnew  lease  as an asset of the dissolved  partnership.\t The
\nconclusion of the High Court may better be stated in its own
\nwords, as follows:-\n<\/p>\n
“In  conclusion,  we  hold that the new\t lease\tobtained  by
\nDefendants 1 to 7 in -renewal of the old lease which  formed
\nthe subject matter of the partnership, must be held by\tthem
\nfor the benefit of the other members of the partnership, who
\nare entitled to share in the advantage gained by  Defendants
\n1  to  7.  As  the  lease  itself  was\texecuted  after\t the
\ntermination of the partnership and as it is not the case  of
\nthe Appellants that any one other than defendants 1 to 7 had
\nfurnished  the consideration for the new lease, the  benefit
\nof  the\t renewal alone ‘will be treated as an asset  of\t the
\npartnership which terminated on 31st December,- 1942, and  a
\nvalue placed on it.  The Commissioner appointed
\n80<\/span>
\nby the lower Court may, after taking such evidence as may be
\nnecessary,  be\tdirected  to  fix the  value  in  the  first
\ninstance.   In\tarriving  at  a\t value,\t the  liability\t  of
\ndefendants 1 to 7 to furnish capital and incur the necessary
\nexpenses for carrying on the new business with its attendant
\nrisks  and also possibilities of profits, are factors to  be
\ntaken into account.”\n<\/p>\n
In  those words, the High Court set aside the  judgment\t and
\ndecree\tof the trial court, and allowed the appeal in  terms
\nwhich  the  Commissioner appointed to take accounts  of\t the
\ndissolved partnership, may not find it easy to implement.
\nIn  support  of\t this appeal, the learned  counsel  for\t the
\nappellant, has contended that the High Court has misdirected
\nitself\tin  construing the provisions of the  Indian  Trusts
\nAct, in holding that a constructive trust had been made\t out
\nin favour of the plaintiffs; that there is no absolute\trule
\nthat the renewal of a lease which was the subject-matter  of
\na  partnership, must always enure to the benefit of the\t old
\npartners; and that the essential ingredients of s. 88 of the
\nTrusts\tAct,  had not been made out in this case.   He\talso
\ncontended  that the lease by itself, did not create a  right
\nto manufacture salt and to sell it, and that a licence is  a
\nnecessary   pre-requisite  to  carry  on  the  business\t  of
\nmanufacture and sale of salt in accordance with the rules of
\nthe Department, and that it is open to the Department not to
\nrecognise  any partners in the business.  In this  case,  it
\nwas  further  contended, the licence to sell salt  had\tbeen
\ngranted only in 1945.  Under the English law, there may be a
\npresumption  that  the renewal of a lease which\t formed\t the
\nsubject matter of a partnership, will enure for the  benefit
\nof the partners, but he contended that in the  circumstances
\nof  this case, such a presumption could not arise, and\teven
\nif it did, it was rebutted by the following facts.  The term
\nof  the\t original partnership was a fixed  one,\t terminating
\nwith the term of the lease and of the licence to manufacture
\nsalt,  which  came  to\tan  end\t with  the  year  1942;\t the
\npartnership-deed  did  not contemplate\tthat  this  business
\nwould  be extended beyond the fixed term in the event  of  a
\nfresh lease
\n81<\/span>
\nbeing\tobtained  from\tthe  Government.   It\twas   highly
\nsignificant that the term of the partnership to carry on the
\nsalt  business was deliberately fixed as  conterminous\twith
\nthe  terms  of the lease and the  licence.   The  plaintiffs
\nnever  took any steps to obtain a renewal of the lease,\t nor
\nwas  there  any evidence that they asked the  defendants  to
\ntake a renewal for the benefit of all the partners.  On\t the
\nother hand, when the defendants applied on their own  behalf
\nfor  a\tfresh lease for 25 years, the plaintiffs  put  in  a
\npetition of protest, and prayed to the Government for  being
\nincluded  in  the  category of lessees in the  lease  to  be
\ngranted\t for  25  years,  as  co-lessees,  but\twithout\t any
\nsuccess.   There  is  no allegation in\tthe  plaint  of\t any
\nattempt at concealment on the part of the appellants to\t the
\neffect\tthat  they  were  taking the  lease  for  their\t own
\nbenefit.  Nor was there any evidence that the defendants had
\ntaken  any advantage of their position as partners,  or\t had
\nutilized  any  funds of the partnership\t for  obtaining\t the
\nfresh  lease.\tLastly, it was\tcontended  that\t differences
\nhaving cropped up between the parties during the years\t1939
\nto  1942,  it could not be said that the  plaintiffs  placed
\nsuch a confidence in the defendants -as to place them in the
\nposition  of constructive trustees within the meaning of  s.
\n88 of the Trusts Act.\n<\/p>\n
On  the\t other\thand,  it was contended\t on  behalf  of\t the
\nrespondents  that the fresh lease for 25 years, was  granted
\nto  the appellants as a result of the changed policy of\t the
\nGovernment,  by\t which\tthey  substituted  the\trenewal\t  to
\napproved  parties in place of the old practice\tof  settling
\nthe  terms of the lease by open competition and\t by  holding
\nauction-sales.\tThe contesting defendants obtained the lease
\nin  their names because they were entered in the  Government
\nrecords\t as the original lessees, and as the original  lease
\nwas admittedly for the benefit of all the partners, the\t new
\nlease  also  must  be treated as being founded\ton  the\t old
\nlease.\t It was also contended that s. 88 of the Trust\tAct,
\nwas  not exhaustive, and that even if the present  case\t did
\nnot come strictly within the terms of that
\n11<\/span>
\n82<\/span>
\nsection,  the rule of English law relating  to\tconstructive
\ntrusts,\t applied to the case, and that, therefore, the\tHigh
\nCourt  was quite justified in coming to the conclusion\tthat
\nthe  lessees  were  in the position of\ttrustees  when\tthey
\nobtained the renewed lease.  The plaintiffs failed in  their
\nattempt\t to  be included in the\t category  of  joint-lessees
\nalong  with those defendants because of the  changed  policy
\nand the rules of the Department.  Hence, the plaintiffs were
\nin a position of disadvantage as compared to the  defendants
\nin whose name, the original lease and the licence stood.  In
\nview   of  those  facts,  it  was  further  contended,\t the
\nplaintiffs could not either get the lease independently\t for
\nthemselves,  or succeed in getting their names\tincluded  in
\nthe  category  of joint-lessees.  Lastly, it  was  contended
\nthat   in  the\tcircumstances  of  the\tpresent\t case,\t the
\npresumption  of\t law that the defendants  were\tconstructive
\ntrustees, had not been rebutted.\n<\/p>\n
Before\tdealing with the arguments advanced on be.  half  of
\nthe parties, it is convenient to set out, in brief  outline,
\nthe  system of working salt factories under the Act (Mad.  4
\nof  1889), which was enacted to ” consolidate and amend\t the
\nlaw relating to the salt revenue in the Presidency “.  Under
\nthe  Act,  a  ” salt factory ” includes any  place  used  or
\nintended  to be used for the manufacture of salt or for\t the
\nstorage or keeping of the same, as defined from time to time
\nby  the Collector of salt revenue.  ” Licensee “, under\t the
\nAct, means a person to whom a licence to manufacture salt or
\nsaltpeter, is issued, and includes any person registered  as
\nthe  transferee of such licence under the provisions of\t the
\nAct.   Under s. 8, only licensees or public  servants  under
\nthe Central Government, are authorized to manufacture  salt.
\nSection\t 9  of the Act, authorizes the\tCollector  of  salt-
\nrevenue\t to  grant licences for the manufacture of  salt  in
\nrespect of specified salt works, containing such particulars
\nand conditions as the Central Government may prescribe\tfrom
\ntime to time.  Such a licence may be for the manufacture  of
\nsalt for sale to the Central Government or for general sale;
\nand  may be transferred or relinquished in  accordance\twith
\nthe prescribed rules.  Section 12 lays down that?\n<\/p>\n
83<\/span><\/p>\n
a licensee shall be taken to be the owner of the licence and
\nof  the\t salt works specified therein.\tIt is  open  to\t the
\nCentral\t Board of Revenue to establish a new salt,  factory,
\nand,  subject to the payment of compensation, to  close\t any
\nsalt factory or a portion thereof, and thus, cancel or amend
\nthe  licence.  A provision has also been made by s.  17\t for
\nthe grant of a temporary licence for the manufacture of salt
\nin   certain  contingencies.   Section\t25  authorizes\t the
\nCollector  of salt revenue to impose upon a licensee a\tfine
\naccording  to the prescribed scale, or to suspend a  licence
\nor  even  to cancel a licence for want of due  diligence  or
\ndefault\t by a licensee.\t Section 43 contains  a\t prohibition
\nagainst\t the removal of salt from a salt  factory  otherwise
\nthan  on account of the Central Government or for  transport
\nto  a place of storage authorized by the Collector  of\tsalt
\nrevenue,  except under a permit and upon payment of duty  at
\nthe  fixed  rate.  The Central Government is  authorized  to
\nmake rules generally for carrying out the provisions of\t the
\nAct, and specially for regulating certain matters set out in
\ns. 85.\tSuch rules, on publication in the official  gazette,
\nhave  the force of law, and have to be read as part  of\t the
\nAct.   It  is common ground that elaborate rules  have\tbeen
\nlaid down by the Government, for regulating the\t manufacture
\nand  sale of salt, so as to safeguard public revenue and  to
\nprevent\t the manufacture of contraband salt.  It  is,  thus,
\nclear  that the business of manufacture of salt,  which\t the
\nparties to the agreement of partnership carried on, was\t not
\nan  ordinary  occupation, which, is free  from\tsuch  strict
\nrules and regulation as have been laid down by and under the
\nAct.   The  licensee owes a special  responsibility  to\t the
\nGovernment,  and, therefore, the transfer or  relinquishment
\nof licences under the Act, has to be regulated according  to
\nthe  rules  laid down by the Government.  It  is  true\tthat
\nthere  is no absolute prohibition against such\ttransfer  or
\nrelinquishment,\t but  the  Government  through\tits   public
\nofficers, has the determining voice in such matters.
\nIt is in the background of the law laid down by or under the
\nAct, that we have to discuss the rights and
\n84<\/span>
\nlease.\t The  first lease, a draft copy of which is  on\t the
\nrecord\tas  ex.\t  P-16 at pp. 101 to 105,  is  an  indenture
\nbetween\t the Secretary of State for India in Council as\t the
\nlessor, and the first defendant and the father of defendants
\n2 to 7, as the lessees.\t The consideration for -the lease is
\nthe  sum of Rs. 25,000\/-.  The lease is for a period  of  17
\nyears  from January 1, 1926, subject to either party  having
\nthe  right to determine the lease by a notice in writing  at
\nthe  close  of the salt manufacturing season.\tIt  provides
\nthat on the expiry of the lease or its sooner  determination
\nas  aforesaid  by notice on either side, the  lessees  shall
\nleave  the  demised  premises  which  had  been\t leased\t out
\nexclusively  for the manufacture, storage and sale  of\tsalt
\nand for the works connected therewith, without any right  to
\nerect  any dwelling houses, etc.  It also provides that\t the
\nlessees\t shall be granted a modified excise licence in\tForm
\nE-1(d).\t  It  also contains the condition that\tthe  lessees
\nshall  not, except with the written consent of\tthe  lessor,
\nfirst  had and obtained, assign, underlet, or part with\t the
\npossession  of the leased land or any portion thereof.\t The
\nlessees may take a partner or partners, who may be  approved
\nby  the Collector in the business.  The lease also  contains
\ndetailed  provisions as to how the business  of\t manufacture
\nhas  to\t be carried on under the supervision of\t the  public
\nauthorities like the Collector.\n<\/p>\n
The  renewed  lease, exh.  D-18, dated April  15,  1943,  is
\nbetween\t His Excellency the Governor-General in Council,  as
\nthe lessor and the contesting defendants as the lessees, for
\na period of 25 years commencing from January 1, 1943.  There
\nis no payment of any premium for the lease.  The other terms
\nand conditions of the lease are similar to the previous one.
\nThough temporary licences were granted from time to time, it
\nwas  only  on  April 17, 1945, that a  ”  revised  permanent
\nlicence ” was granted, and the temporary licence granted for
\n1945, was cancelled.\n<\/p>\n
The ” co-partnership deed ” as it is called, which is  dated
\nMarch  18, 1926, is between five individuals,  and  provides
\nthat those five persons should enjoy the profit
\n85<\/span>
\nor bear the loss thereof, according to the shares  indicated
\nabove; ” that as the licence in the salt stands in the names
\nof Chennuru Appala Narasayya Chetty and Guruswamy Chetty out
\nof  us,\t the  said individuals\tonly  shall  be\t responsible
\nthereto\t “;  and that ” In case the  said  Appala  Narasayya
\nChetty\tand Guruswamy Chetty or their heirs fail  to  render
\nproper accounts whenever demanded according to the aforesaid
\nterms  to the remaining three sharers or their heirs  during
\nthe salt lease period of seventeen years and commit defaults
\nor  any\t kind of frauds, Appala Narasayya  Chetty  Garu\t and
\nGuruswamy  Chetty  Garu shall pay by way of penalty  to\t the
\nsaid three sharers at the rate of Rs. 2,500\/- (two  thousand
\nfive  hundred)\tper  share  for\t the  year  when  fraud\t  is
\ncommitted,  without  having anything to do  with  the  other
\nprofits and losses.” It is, thus, clear that the partnership
\nwas for the fixed term of 17 years, ending with the  -period
\nof the lease, and the parties did not, in terms, contemplate
\nthe continuance of the partnership after the expiry of\tthat
\nperiod.\t  Their\t rights and liabilities\t are  entirely\twith
\nreference  to  the said period of 17 years, there  being  no
\nprovision  for\tthe  continuance  of  the  business  by\t the
\npartnership after the expiry of the said term.
\nIf there bad been a specific stipulation in the\t partnership
\ndeed,  or even an indication that the  partnership  business
\nwould  continue even after the expiration of the  17  years,
\nwhich\twas   the  term\t of   the   partnership,   different
\nconsiderations\tmay have arisen.  It could then have  justly
\nbeen said that the managing partner owed a duty to the other
\npartners to obtain a renewal of the previous lease.  It\t is,
\ntherefore, not without significance that in para. 12 of\t the
\nplaint, the plaintiffs specifically alleged that it had been
\nunanimously  resolved by the partners that a renewal of\t the
\nlease  should  be  obtained for a  further  period  for\t the
\nbenefit\t of the partnership, and that as a matter  of  fact,
\nthe renewal was obtained in pursuance of that resolution and
\nby  using  the goodwill of the partnership.   This  specific
\ncase  has  failed  in both the courts below,  but  the\tHigh
\nCourt,\tin disagreement with the trial court,  has  accepted
\nthe alternative case as made ‘out,
\n86<\/span>
\nin  para.  17 of the plaint, that the renewal of  the  lease
\nshould\tbe  treated  as\t an  asset  of\tthe  partnership  in
\n,settling  the\taccounts  and dividing\tthe  assets  of\t the
\ndissolved  partnership.\t But even in para. 17, there  is  no
\nspecific case made out under s. 88 of the Indian Trusts\t Act
\n(II  of\t 1882).\t  It  is not alleged,  in  terms,  that\t the
\ncontesting  defendants\tfilled a  fiduciary  character,\t and
\nwere,  thus,  bound  to protect the interest.%\tof  all\t the
\npartners in obtaining the renewal of the lease, or that,  in
\nso doing, their interests were adverse to those of the other
\npartners, and they had, this gained a pecuniary advantage to
\nthe detriment of the other partners.  Though the  plaintiffs
\nhad  suggested\tthat  the contesting  defendants  had  large
\nfunds,\tamounting to about Rs. 90,000, of  the\tpartnership,
\nportion\t of which had been set apart for Payment of  premium
\nand  for  other expenses incidental to the  renewal  of\t the
\nlease,\tit  had been found, and there cannot  be  the  least
\ndoubt  about it, that no funds of the partnership  had\tbeen
\nutilized for obtaining the new lease.  As already indicated,
\nno  premium had to be paid for the fresh lease\tobtained  by
\nthe contesting defendants.\n<\/p>\n
Though\tno  foundation was laid in the\tpleadings,  strictly
\nconstrued, for a case tinder s. 88 of the Indian Trusts Act,
\nwe  have  still to examine the question’  whether  the\tHigh
\nCourt was right in holding that either under that section or
\nunder  the  general law, apart from the statutory  law,\t the
\ncontesting  defendants\tbad  placed  themselves\t in  such  a
\nposition as to render themselves accountable as constructive
\ntrustees.  Section 88 is in these terms:-\n<\/p>\n
”  88.\tWhere a trustee, executor, partner, agent,  director
\nof  a  company,\t legal adviser or other person\tbound  in  a
\nfiduciary  character  to protect the  interests\t of  another
\nperson,\t by  availing himself of his  character,  gains\t for
\nhimself\t any  pecuniary advantage,’ or where any  person  so
\nbound enters into any dealings under circumstances in  which
\nhis  own interests are, or may be, adverse to those of\tsuch
\nother  persons\tand thereby gains for  himself\ta  pecuniary
\nadvantage, he must hold for the benefit of such other person
\nthe advantage so gained.”\n<\/p>\n
87<\/span><\/p>\n
The  section  is in two parts.\tIn order to bring  the\tcase
\nwithin\tthe  first  part,  it  has  to\tbe  shown  that\t the
\ncontesting  defendants had a fiduciary character,  and\twere
\nthus,  in duty bound to protect the interests of  the  other
\npartners in the matter of obtaining the lease; and that they
\nobtained  the  lease  for themselves  instead,\tby  availing
\nthemselves  of that character.\tAs already pointed  out,  it
\nwas  not within the scope of the partnership  in  accordance
\nwith  the  terms  of the deed, to obtain a  renewal  of\t the
\nlease.\t At the time of entering into the  partnership,\t the
\nparties were fully cognizant of the rules of the  Department
\nthen  in  force, according to which a fresh lease  could  be
\ngranted to the highest bidder irrespective of any other con-
\nsiderations  as\t to whether any one of the  bidders  war,  a
\nprevious  lessee.  The renewal of the lease without  payment
\nof any premium, was the result of the changed policy of\t the
\nGovernment,  according to which the personal conduct of\t the
\nlessees, and not the amount of premium, was the\t determining
\nfactor\tin  the\t grant\tof  a  fresh  lease.   Because\t the
\ncontesting  defendants bad managed the factory well  and  to
\nthe satisfaction of the Revenue Authorities, they were\table
\nto  obtain the fresh lease, and it cannot be said that\tthey
\nhad  availed  themselves of their character as\tpartners  in
\nobtaining  the\trenewal\t of  the  lease.   The\t plaintiffs’
\nallegation  that the goodwill of the firm had been  utilized
\nfor  obtaining the renewal, has also not been found  by\t the
\ncourts\tbelow to be true, because the basic allegation\tthat
\nthere  was a partnership firm with a goodwill, had not\tbeen
\nestablished  as\t a  fact.  In our  opinion,  therefore,\t the
\nplaintiffs  have failed to bring the case within  the  first
\npart of s. 88.\n<\/p>\n
We  shall  now examine the position whether  the  plaintiffs
\nhave  made  out a case in terms of the second  part  of\t the
\nsection.   In  order to do so, it bad to be shown  that\t the
\ncontesting defendants, while obtaining renewal of the lease,
\nhad placed themselves in such a position as to render  their
\ninterests  adverse to those of the other partners,  and\t had
\nthereby\t obtained  a pecuniary advantage, which\t they.\tmust
\nhold for the -benefit
\n88<\/span>
\nof  the\t other\tpartners  as  well.   In  this\t connection,
\nillustrations  (d) and (e) under the section,  are  instruc-
\ntive.\tIf the plaintiffs had succeeded in proving, as\tthey
\nhad  attempted to do, that any funds or any goodwill of\t the
\nalleged\t firm  name,  had been utilized\t for  obtaining\t the
\nrenewal\t of  the lease, the case would\thave  directly\tcome
\nunder illustration (d). illustration (e), on the face of it,
\ndoes not apply, because on the findings, the defendants were
\nnot  negotiating for the renewal of the lease on  behalf  of
\nthe  entire  body of partners, nor is there  any  allegation
\nthat  they  had clandestinely stipulated  for  themselves  a
\nbenefit\t to  the detriment of the  partnership\tbusiness  or
\nfunds.\tIn this connection, it has to be noted that the suit
\nwas instituted months before the renewed lease was  actually
\ngranted,  and  years  before a\tpermanent  licence  for\t the
\nmanufacture  and sale of salt, was issued to the  contesting
\ndefendants.   It has also to be noted that the grant of\t the
\nlease  by  itself does confer on the grantee  the  right  to
\nmanufacture and sell salt.  The lease has to be followed  by
\na permanent licence in order to enable the grantee to  carry
\non the business of manufacturing, storing and selling  salt.
\nHence,\tthe  lease  by\titself has no  value  unless  it  is
\nfollowed  by a licence to manufacture and sell\tsalt,  which
\nwas granted only on April 17, 1945, about two years and four
\nmonths\tafter the expiry of the previous lease and  licence,
\nwhich, as already indicated, were conterminous with the term
\nof  the partnership.  That is the reason why the High  Court
\ngranted\t the  decree in favour of the  plaintiffs  in  terms
\nwhich  are  rather amorphous and which do  not\teasily\tlend
\nthemselves  to\tconversion  in terms of money.\t This  is  a
\nbusiness  in  which the personal factor of  the\t persons  in
\ncharge\tof  managing the business, is  more  important\tthan
\nanything else.\tAnother important matter which has a bearing
\non the case, has also to be adverted to.  Between the  years
\n1939  and 1942, that is to say, during the last three  years
\nof  the\t term of the partnership, the partners Were  not  on
\ncordial\t terms, and there does not appear to have been\tmuch
\nof  confidence\tbetween\t them.\t The”  had  already  started
\nquarreling and attributing
\n89<\/span>
\nunworthy motives.  There is, therefore, hardly any room\t for
\nimporting  the idea of such confidence amongst\tpartners  as
\nwould\trender\tthe  contesting(,  defendants  occupying   a
\nfiduciary  position,  apart  from the fact  that  they\twere
\npartners.\n<\/p>\n
As  already indicated, the partnership\tstood  automatically
\nterminated at the end of the year 1942.\t The actual grant of
\nthe  lease  in\tquestion was made in  April  1943,  and\t the
\npermanent licence to manufacture and sell salt, was  granted
\nonly  in 1945.\tHence, strictly speaking, when the suit\t was
\ninstituted in January, 1943, legally, there was no lease  in
\nexistence, nor could the business of manufacture and sale of
\nsalt  be  effectively  carried on until\t the  grant  of\t the
\npermanent  licence.   The plaintiffs could have a  cause  of
\naction in respect of the renewed lease if their\t substantive
\ncase  of continuing partnership had been  established.\t But
\nthat case having failed, it is a little difficult to  appre-
\nciate how they could claim any interest in the renewed lease
\nas  an\tasset of the partnership  business.   The  fiduciary
\ncharacter  as  between\tthe  partners  had  ceased  on\t the
\ntermination  of\t the original lease and of  the\t partnership
\nbusiness.   On such a termination, there was no interest  of
\nthe partners, which the contesting defendants were bound  to
\nprotect.  For the same reasons, the defendants’ character as
\npartners had ceased, and they could not, therefore, be\tsaid
\nto have availed themselves of their character as partners in
\nobtaining  the fresh lease.  For all these reasons, it\tmust
\nbe  held that the plaintiffs have failed to bring  the\tcase
\nstrictly within the terms of s. 88 of the Indian Trusts Act.
\nA passing reference was made by the learned counsel for\t the
\nrespondents to the terms of s. 90 of the Trusts Act.  But it
\nwill  be noticed that whereas s. 88, quoted above,  makes  a
\nspecific  reference to partners and agents, etc., s. 90,  in
\nterms,\tapplies\t to  a\ttenant\tfor  life,  a  co-owner,   a
\nmortgagee,  or\tany other qualified owner of  any  property.
\nSection\t 90,  therefore, in terms, -could not apply  to\t the
\ncase.\tEven  if  it did, it does not  carry  the  case\t any
\nfurther in favour of the plaintiff-respondents.\n<\/p>\n
12<\/span>
\n90<\/span><\/p>\n
that even though the provisions of the Trusts Act, did\tnot,
\nin  terms, apply to the case, the general principles of\t law
\nas  applied in the English courts, support  the\t plaintiffs’
\ncase.\tIn  this connection, reliance was  placed  upon\t the
\ncases of Featherstonhaugh v. Fenwick (1), Clegg v.  Fishwick
\n(2),  Clements\tv. Hall (3), Clegg v. Edmondson (4),  In  re
\nBiss,  Biss v. Biss (5), Griffith v. Owen (6) . The  law  in
\nEngland\t has been summarized in Halsbury’s Laws of  England,
\n2nd Ed., Vol. 24 (Lord Hailsham’s Edition) in Art. 863 at p.
\n450, as follows:-\n<\/p>\n
” The renewal of a lease of the partnership property by\t one
\nor  more of the partners without the privity of\t the  others
\nenures\tfor the benefit of all.\t The rule is the  same\twhen
\nthe intention to renew is communicated to the others if\t the
\nlatter\tare  prompt  to\t assert\t their\trights;\t and  it  is
\nimmaterial  whether the term of the partnership is  definite
\nor indefinite, or whether the lessors would have refused  to
\nrenew to the partners who are not privy to the renewal.\t The
\nrepresentatives\t of a deceased partner may have a  right  to
\nshare in the profits derived from a renewal of the lease  by
\nthe surviving partner.”\n<\/p>\n
Most of the cases relied upon on behalf of the\trespondents,
\nform  the  basis  of the statement of the  law\tin  England,
\nquoted above.\n<\/p>\n
On a close examination of the English precedents  aforesaid,
\nit  will be found that there is no absolute rule of  law  or
\nequity\tthat  a\t renewal of a lease  by\t one  partner,\tmust
\nnecessarily  enure  for\t the benefit of\t all  the  partners.
\nThere  is  a presumption of fact, as  distinguished  from  a
\npresumption of law, that there is an equity in favour of the
\nrenewal\t of  the lease enuring for the benefit\tof  all\t the
\npartners.   But\t such a presumption being one  of  fact,  is
\nrebuttable,  and must, therefore, depend upon the facts\t and
\ncircumstances  of  each case.  The  Indian  Legislature\t has
\nsubstantially  adopted the English law quoted  above,  while
\nenacting
\n(1)  (1810) 34 E. R. 115.\n<\/p>\n
(3)  (1857) 44 E. R. 954.\n<\/p>\n
(5)  [1903] 2 Ch. 40.\n<\/p>\n
(2)  (1849) 41 E. R. 1278.\n<\/p>\n
(4)  (1857) 44 E. R. 593-\n<\/p>\n
(6)  [1907] I. ch. 195.\n<\/p>\n
91<\/span><\/p>\n
the rules laid down in the Indian Trusts Act,  particularly,
\nss.  88 and 90 of the Trusts Act.  In the instant case,\t the
\nfacts  that. the parties deliberately chose to fix the\tterm
\nof  the\t partnership as conterminous with the  term  of\t the
\nlease  and licence ending with the year 1942; that they\t did
\nnot, in express terms, or by necessary implication, make any
\nprovision for extending the period of the partnership or for
\nobtaining  renewal of the lease and the\t necessary  licence;
\nthat there was no averment or proof of any clandestine\tacts
\non  the part of the contesting defendants in the  matter  of
\nobtaining  the\trenewal of the lease;  that  the  plaintiffs
\nthemselves  made  attempts,  though  unsuccessful,  to\t get
\nthemselves included in the category of grantees at the\ttime
\nof the renewal of the lease ; that the special nature of the
\nbusiness  required personal efficiency and good\t conduct  on
\nthe part of the actual managing agents; that no funds of the
\nexpiring partnership or any goodwill of the partnership\t was
\nutilized for obtaining the fresh lease; that the fresh lease
\nand  licence  were granted to the contesting  defendants  in
\nconsideration of their personal qualities of good management
\nand  good conduct; that the parties were not on the best  of
\nterms  during  the last few years of  the  partnership,\t and
\nfinally,  that\tthe  lease and the  permanent  licence\twere
\nactually  granted after the partnership stood  automatically
\ndissolved   at\t the  end  of  1942,  are  all\t facts\t and
\ncircumstances  which point to only one\tconclusion,  namely,
\nthat the renewal of the lease was not intended to be for the
\nbenefit\t of  all  the quondam  partners.   Those  facts\t and
\ncircumstances  amply rebut any presumption of fact that\t the
\nlease should enure to the benefit of all the parties.
\nFor  the  reasons  given above, it must\t be  held  that\t the
\njudgment  and decree passed by the High Court, in so far  as
\nthey  reverse those of the trial court, are  erroneous,\t and
\nmust be set aside.  The appeal is, accordingly, allowed with
\ncosts throughout, which are attributable to the single issue
\nwhich has been decided in this Court.\n<\/p>\n
\t\t\t       Appeal allowed.\n<\/p>\n
92<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Chennuru Gavararaju Chetty vs Chennuru Silaramamurty Chetty … on 6 October, 1958 Equivalent citations: 1959 AIR 190, 1959 SCR Supl. (1) 73 Author: B P Sinha Bench: Sinha, Bhuvneshwar P. PETITIONER: CHENNURU GAVARARAJU CHETTY Vs. RESPONDENT: CHENNURU SILARAMAMURTY CHETTY AND OTHERS DATE OF JUDGMENT: 06\/10\/1958 BENCH: SINHA, BHUVNESHWAR P. BENCH: SINHA, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-154853","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nChennuru Gavararaju Chetty vs Chennuru Silaramamurty Chetty ... on 6 October, 1958 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/chennuru-gavararaju-chetty-vs-chennuru-silaramamurty-chetty-on-6-october-1958\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Chennuru Gavararaju Chetty vs Chennuru Silaramamurty Chetty ... on 6 October, 1958 - 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