Brij Lal vs Shri Rajeshwar Parshad and others

P.J. Pandit, J.—Rajeshwar Parshad, respondent No. 1, Bachan Singh, respondent No. 3 and Brij Lal, petitioner, obtained a license for the sale of country liquor at Jagadhri for one year from 1st of April, 1966 to 31st March, 1967. For the same year, Ishar Singh, respondent No. 2, got a license for the sale of English wine at Jagadhri On 7 th June, 1966 all these persons entered into an agreement of partnership by which they agreed to run the business of the sale of the country liquor and English wine. The deed mentioned the shares of the respective partners as well as the amounts which they had to invest, On 10th of May, 1967, Rajeshwar Parshad filed a suit for dissolution of the partnership and for rendition of accounts. It was contested only by brij Lal, Inter alia, on the ground that the said agreement had been executed in contravention of the conditions of the license and it was against the provisions of the Punjab Excise Act (hereinafter called the Act). That being so, it was illegal and against public policy. It could not be enforced in a Court of law and no suit was maintainable on it; basis. The following preliminary issue, was framed in the case:

Whether the agreement of partnership between the parties is in contravention of the terms of the license for sale of liquor and against the provisions of Punjab Excise Act and is as such void and not enforceable in the law courts as alleged ?

The counsel for the parties agreed before the court below that the said issue be disposed of without recording any evidence and on the basis of the provisions of law bearing on the subject. The contents of the partnership deed as well as the terms and conditions of the license were admitted by them. Their copies had been produced on the record.

This issue was decided against Brij Lil on 13th December, 1967 and against this order, the present revision petition has been filed by him.

Learned counsel for the petitioner has referred to three clauses, namely, 6, 10 and 16 in the deed of partnership and on their basis contended that this partnership was in contravention of the terms of the license and against the provisions of the Act. These clauses are as under:

Daily cash will be collected by Shri Brij Lal from both the shops and he will be responsible for safe custody and correct accounting.

That Shri Brij Lal will actively look to the sales on both the shops.

That any payment in connection with the purchase of Wine (including Beer, Whisky and Desi liquor), transportation of the same, travelling expenses of the partners and other expenses incurred in respect of both the shops will be made by Shri Brij Lal, direct or through any of the partners and he shall be responsible to take the receipt or any other documents necessary for the same.

He then referred to certain provisions of the Act and the rules framed thereunder in support of his submission that the above-mentioned clauses contravened the provisions of the Act and the rules. According to section 26 of the Act, no liquor could be sold except under the authority and subject to the terms and conditions of the license granted in that behalf. According to section 36, the authority granting the license under the Act could cancel or suspend it, if the same was transferred or sub-let by the holder thereof without the permission of the said authority. Section 61 mentioned the penalties for the contravention of any section or rule or condition of the license granted under the Act. Reference was then made to rule 37 of the Punjab Liquor License Rules, 1956, according to which every license under the rules was granted subject to the conditions set forth in the rules. Condition No. 26 laid down-

The licensee, shall not allow any person to conduct sales in his behalf unless the names of such person has been previously submitted to the Collector for approval and endorsed by him on the license.

Exception.- (I) This condition does not apply to (1) the licensee of a hotel restaurant bar, railway refreshment room or dining car; or (2) a chemist or druggist holding a license in form L. 12.

On the basis of these provisions of the Act and the rules, it was argued that the petitioner could not be entrusted with the conduct of the sales of both the shops, unless his name had been previously submitted to the Collector for approval and endorsed by him on the license, which was not done in the instant case. The license for the sale of English wine could not be transferred or sublet by Ishar Singh in favour of the petitioner. That would be against the provisions of section 36 and punishable u/s 61 of the Act. The petitioner could not sell the English wine without a proper license in his name, because that would offend the provisions of section 26 of the Act and for contravening that provision, he would again be liable u/s 61 of the Act. Under these circumstances, according to the learned counsel, the agreement of partnership was void and not enforceable in law, being against the provisions of the Act and the rules and in contravention of the terms of the license.

According to Section 23 of the Indian Contract Act, 1872, every agreement of which the object or consideration is unlawful is void. The consideration or object of an agreement is lawful, unless it is forbidden by law or is of such a nature that, if permitted, it would defeat the provisions of any law or the court ragards it as immoral, or opposed to public policy. In the present case, it is admitted that the license to sell the country liquor was in the name of Rajeshwar Parshad, Bachan Singh and Brij Lal, while the other license for the sale of English wine hid been granted to Ishar Singh alone. Under rule 4 of the Punjab Liquor License Rules, 1956, a license could be granted to a partnership or a 6 p.m. It is conceded that the partnership, which was formed in the instant case had not been granted any license. Under the license granted to Ishar Singh, he alone could sell the English wine and he could not allow any other person to conduct the sales on his behalf, unless the name of such person had been previously submitted to the Collector for approval and endorsed by him on the license. Under clause 10 of the agreement of partnership in the present case, Brij Lal had been authorised to look to the sales on both the shops. It was he who had to collect the daily cash from these shops and was responsible for its safe custody and correct accounting. This he could not do, unless the previous permission of he Collector had been obtained in that behalf According to this agreement, Ishar Singh, who had got the license for the sale of English wine, had become a partner in the license given to the other three for the sale of country liquor. By virtue of this partnership, he could conduct the sales of country liquor, which he was not authorised to do under the rules, unless his name was approved by the Collector before hand. Under this agreement all the four persons had become the licenses for the sale of country liquor and foreign liquor. This was clearly against the provisions of the Act and the rules. The object of this agreement was therefore, to defeat the provisions of law. This object would also be against public policy,, which was that only the licensees should be permitted to sell liquor. Such an agreement of partnership was, therefore clearly illegal, void and unenforceable is law.

It was laid down in a Bench decision of this Court consisting of Mehar Singh and Grover, JJ. in Commissioner of income tax v. Benarsi Dass and Company (1962) XLIV ITR 835.

Where a person obtained a license for the sale of opium in his own name and, later on, found a partnership with others for carrying on the business and applied for registration of the firm u/s 26-A of the income tax Act.

Held, that in view of the rules regulating the granting of licence for sale of opium, the object of the firm was unlawful and the firm should not he registered u/s 26 A.

Similarly, another Bench of this Court, to which I was also a party, in Messrs Lal Chand Mohan Lal v. The Commissioner of income tax (1967) 69 P.L.R. S.N.89, held. "The provisions of the Opium Act and rules made thereunder indicate that the relevant statutory provisions contemplate a partnership carrying on the business of sale of opium only if a licence is taken in its name and if it is proposed that certain or all the partners should actively carry on business the rules must be complied with, where the licence granted to sell opium is not in the name of the partnership but only in the name of some of the partners, the partnership being against law, cannot be registered u/s 26-A of the income tax Act." Similar view was taken by the other High Courts. So far as the Madras High Court is concerned, there are two Pull Bench decisions one in Chava Ramanayudu Vs. Suryadevara Seetharamayya and Others, and the other Velu Padayachi Vs. Sivasooriam Pillai, in the former, it was observed- "The effect of Cl. 27 is that a partnership in an abkari business is prohibited unless the previous permission of the Collector has been obtained. A promissory note was executed for advances to be made by the plant if for the partnership, the plaintiff was a partner and defendant 1 who obtained the license, was not shown to have obtained the Collector''s permission to work the shop in partnership. Defendant I was a successful bidder at the auction on 30th July 1927 and it was in his name that the license was issued on Ist October 1927. The promissory note was dated 17th August 1927 and the money was therefore lent to the partnership after defendant 1 had become the successful bidder at the auction and was the person in whose name the license would be issued. After the license was issued the partnership carried on the business. The permission of the Collector required by CL. 27. of the Genera) Notification was neither obtained nor applied for and there evidence that the plaintiff himself was collecting the money of the business and keeping accounts :

Held, that an illegal partnership was actually being carried on and the fair inference was that the object of the partnership was to do that which it did in fact do, namely, carry on the business in contravention of CL. 27. Hence plaintiff''s suit on the pronote should be dismissed.

In the latter case, it was held-

A partnership entered into for the purpose of conducting a business in arrack or toddy on a licence granted or to be granted to only one of the partners is void abinitio whether the contact was entered into before the licence was granted or afterwards, in that it either involves a transfer of the licence, which is prohibited under R. 27 and punishable under S. 56, or a breach of s. 15 of the Abkari Act, punishable under S. 55, because the unlicensed partner by himself or through his agent, the other partner, sells without a licence. If a partnership is lawful at its inception, because it is not intended to infringe any provision of the Contract Act, it never the less becomes unlawfull when if intends to conduct the business jointly on a lincence granted to one only of the partners. Hence a partner in a partnership entered into for the purpose of vending arrack cannot file a suit for the balance due on settlement of accounts when only one of the partners has obtained a licence under the Abkari Act for the vending of arrack.

There are two Full Bench decisions of the Hyderabad High Court. (1) Teegula Babiah v. Mohammad Abdus Subhan Khan AIR 1994 Hyd 156, and (2) in Fakirchand v. Bansilal AIR 1985 Hyd 28. In Teegula Babiah''s case, it was observed :

The purpose of imposing conditions under Ss. 14 and 15 of the Hyderabad Abkari Act is not merely for the convenient collection of revenue but also to control the sale of liquor and Sendhi. An excise contract which is in contravention of the provisions of Ss. 14 and 15 is therefore against public policy and therefore void.

In Fakirchand''s case, it was held:

The provisions contained in the Hydrabad Abkari (Excise) Act and the rules framed thereunder, especially those contained in S. 14 and R. 23, restricting the transfer of the business of the liquor shop or entering into a partnership without the previous permission of the Government are not merely for the protection of the State revenue or for convenience of revenue collection, but are also for the protection of the public and as such the provisions of the Act should be observed and cannot be allowed to be contravened. That being the intention of the Act and the rules, their observance must be strictly enforced and contracts made in contravention of these provisions are invalid.

There is again a Full Bench decision of the Kerala High Court in Krishna Menon Vs. Narayana Ayyar and Others, , wherein it was held:

A agreed to transfer his license for the foreign liquor tavern in consideration of certain amount in favour of B who was to do the business from the date of agreement. Sanction of the Commissioner under Cochin Abkari Act was not obtained.

Held that though there was no express provision in the Cochin Abkari Act making contracts in contravention of the Abkari Act void, the agreement in question being calculated to defeat the object of the Cochin Abkari Act (Sec. 15) was void under Sec. 24 of the Cochin Contract Act, corresponding to Sec. 23 of the Indian Contract Act and A could not claim money due under the agreement. The case was not covered by the exception to the maxim "pari delicto" because the business had been carried out by B without licence.

There is a decision of the Rajasthan High Court in Mohrilal Vs. Shri Ballabh and Another, . In that case, one of the partners alone in a partnership held a license in his name for doing tobbaco business In fact the business was carried on by the partnership. Subsequently a suit for the dissolution of the partnership and redition of accounts was brought by some of the partners. It was held that as the partnership was not licensed, it could not deal in the wholesale trade of tobbaco and the license in the name of one of the partners could not be accepted to be in favour of the partnership and consequently, the whole of the tobbaco business, which according to the plaintiffs, belonged to the partnership was unlawful and a suit for dissolution of such a partnership and rendition of accounts could not be maintained in any court of law.

The trial Court while deciding this preliminary issue against defendant No. 3 relied on a Bench decision of this Court in L. Shiv Dayal L. Mela Mal and Others Vs. Firm Bishan Dass Shankar Dass, to which I was also a party. There it was held :

Where a licensee under the Opium Act enters into an agreement with a third person (non-licensee) to share the profits the losses of his business in consideration of the latter''s contributing towards the capital of the business, then such an agreement is neither illegal nor opposed to public policy nor in contravention of any of the rules framed by Punjab Government under the Opium Act. Such an agreement does not involve the ''transfer'' or ''S sub-lease'' of the license. The licensee alone remains personally responsible to the Government and is liable for the performance of the contract and the conditions under which the licence is granted to him. No privilege under the licence is transferred to such a third person who would not be buying or selling opium or poppy-heads covered by the licence. Moreover, such an agreement of partnership is not prohibited by the Punjab Rules under that Act.

This decision has no application to the facts of the present case. There the licensee had entered into an agreement with a non-licensee merely to share the profits and losses of his business. The non-licensee was not authorised to buy or sell opium or poppy heads covered by the license The licensee alone was to the perform the conditions under which the license was granted. He had not in any way transferred the license to the non-licensee. In the instant case, on the other hand, as I have already held above. Brij Lal had been given the power to conduct sales of English wine, though the license for the same was in favour of lshar Singh.

Learned counsel for the respondent placed his reliance on a Single Bench decision of Tek Chand, J. in AIR 1937 316 (Lahore) . That authority again is of no assistance to the respondent, because under the exception to Rule 27 Volume II, of the Punjab Excise Manual, Chapter 5.39, it was permissible for the licensee of a bar to allow another person to conduct sales without previously submitting his. name to the Collector for approval, and it was because of that reason that it was held that the contractor of the bar could sell liquor to persons visiting the bar and it could not be said that his contract for the purchase of liquor was unlawful, simply because he did not hold a license to sell retail liquor.

Under these circumstances, I would hold that the learned Subordinate Judge bad erred in law in coming to the conclusion that the partnership between the parties was not in contravention of the turns of the license granted for the sale of country and foreign liquor, was also not against the provisions of the Punjab Excise Act and was not illegal or against public policy and as such was valid and could be enforced in a Court of law.

Learned counsel for the respondent then contended that even if it be held that the partnership was illegal, the objection that the agreement of partnership was unenforceable in law was not available to the petitioner after he bad received the benefit under the sail agreement for the entire period during which the partnership remained in force. All the accounts were with the petitioner and he could not refuse to render the same to the other partners on the ground that. the partnership offended the provisions of the Act and the rules and no suit could be brought on its basis. He himself was a party to this illegal agreement and he could not retain the benefit derived under the illegal partnership and seek the assistance of the Court in that behalf.

There is not merit in this contention. It is true that all the parties to this litigation were partners in the partnership which has been held by me to be illegal and unenforceable in law. It is further true that the petitioner bad the accounts of the partnership with him. But none of the partners of an illegal partnership can seek the assistance of the Court in getting any relief on the basis of the said agreement of partnership. In the present case, Brij Lal had not filed any suit and it was not he who was wanting the Court to help him in getting any relief on the strength of that partnership deed. On the other hand, it was Rajesewar Parshad who had filed the salt for dissolution of partnership and rendition of accounts. In other words, it is Rajeshwar Parshad, one of the partners, who wants the illegal partnership agreement to be enforced through the Court, which he is not entitled to do under the law. It was held by the Supreme Court in Immani Appa Rao and Others Vs. Gollapalli Ramalingamurthi and Others,

Where both the transferor and the transferee were in equal fraud in carrying out the transfer to defraud the creditors of the transferor and the fraud contemplated has been carried out, but the possession remains with the transferor, in a suit by transferee for possession, it is open to the transferor to plead fraud and the absence of consideration.

In such a case there can be no question of stopped for the obvious reason that the fraud in question was agreed to by both the parties and both the. parties assisted each other in carrying out the fraud. When it is said that a person cannot plead his own fraud it really means that a person cannot be permitted to go to a Court of law to seek for its assistance and yet base is claim for the Court''s assistance on the ground of his fraud.

Besides, it is also undisputed that where law is clear, equitable principles cannot be brought in to give relief to a party. (See in this connection, Kidar Lall Seal and Another Vs. Hari Lall Seal, . Secondly, there cannot be any stopped against a statute. If the agreement of partnership is illegal and opposed to public policy to partner can be stopped from raising such an objection in a Court of law.

Lastly, it was submitted that no revision petition was competent against an interlocutory order of this kind on the preliminary issue framed in the case.

There is no substance in this submission as well. If the agreement of partnership on the basis of which the suit was brought was not enforceable in the law courts, then the Court could have no jurisdiction at all to try such a suit. A decision on such a preliminary issue was clearly revisable by this Court u/s 115 of the Code of Civil Procedure. It was held in a Full Bench decision of seven Judges of the Lahore High Court in AIR 1943 65 (Lahore)

If a Court which has no jurisdiction at all to try a certain cause, proceeds to try it, a great deal of time and money will be was held if the error is patent but cannot be rectified till the final decision of the suit. It seems hardly likely that the legislature could have intended to exclude such cases from the scope of Section 115 Civil P.C.

In view of what I have said above, this petition succeeds and the order under revision is set aside. There will, however, be no order as to costs.