Ghulam Ahmed vs Mohammad Iqbal and Others

J.N. Bhat, J.—This revision application is directed against the order of the Sub-Judge, Ramban, dated 10th November, 1969. The facts

giving rise to this application are as under:

A suit for dissolution of partnership and rendition of accounts was instituted by the plaintiffs-respondents against the defendant-petitioner in the

Court of the Sub-Judge, Ramban, on the following facts that the plaintiffs and the defendant by means of a partnership deed dated 3rd January,

1969, registered by the Sub-Registrar, Ramban on the same date, became partners in a truck No. JKA-6591, Model 1962, in equal shares; that

the plaintiffs had invested Rs. 14,000/-as their share of the business; but the truck was, being driven by the defendant and he had to render

accounts towards the plaintiff No. 1 but as no accounts were rendered by the defendant, a suit for dissolution of partnership and rendition of

accounts was instituted.

We need not go into the pleas taken on the merits of the case by the defendant: but as an additional plea, it was asserted by him that a route

permit could not be transferred in favour of anybody and in the partnership deed the route permit also was transferred, therefore the partnership

deed was illegal and the suit of the plaintiffs was not as such maintainable. Issues were struck in this case on 4th August, 1969 and issue No. 2 ran

in the following words:

Whether under law, no person can transfer a route permit to Anr. person and since there is no mention of transfer of route permit in the partnership

between the parties, the partnership-deed is against law and what is its effect upon the present suit? O.P.D.

After bearing arguments, the learned trial Judge by his order under revision relying on a Madhya Pradesh ruling reported as Dayabhai and Co. Vs.

Commissioner of Income Tax, , held that this partnership was not hit by any provisions of the Motor Vehicles Act and decided the issue against the

defendant. It is against this order of the learned trial Judge holding that the suit is maintainable that this revision petition has been preferred in tills

Court.

The revision petition came up for hearing before His Lordship, the Hon'ble Chief Justice who by his order dated 9-3-1970, referred it to a Full

Bench. We have heard the learned Counsel for the parties at length. In order to understand the argument advanced on the legal proposition by the

learned Counsel for the parties, it is necessary to reproduce the relevant clause from the partnership deed. The relevant clause translated, reads as

under:

Truck No. JKA-6591 Model 1962, Jammu Srinagar route, is the property (material of the truck as well as the route permit) of the executant No.

1 (i.e., defendant). Executant No. 1 has now made executants Nos. 2, 3 and 4 (i.e., plaintiffs) as partners of this truck; henceforth executant No. 1

will be the owner of the material of the truck as well as its route permit to the extent of one-third, and executant No. 2 to the extent of one-third,

executant: No. 3 and 4 also to the extent of one-third. The valuation of the truck alongwith route permit has been fixed at Rupees 21,000/- and

executant No. 2 will pay Rupees 7,000/- and executants Nos. 3 and 4 will also pay a sum of Rs. 7,000/- to the executant No. 1 before the Sub-

Registrar Ramban. From 1st January, 1969, the earnings of the truck and its expenses and profit and loss will be borne by executants 1 to 4

according to the shares mentioned above....

From the above it is clear that route permit of this truck as well as the material of the truck was the property of the executant No. 1 i.e., the

defendant-petitioner. He has transferred the truck itself as well as its route permit (Jammu-Srinagar route) to the plaintiffs. It is argued on behalf of

the petitioner that u/s 42 of the Motor Vehicles Act no owner of a transport vehicle shall use or permit the use of the vehicle in any public place,

save in accordance with the conditions of a permit granted or countersigned by a Regional or State Transport Authority or the Commission

authorising the use of the vehicle in that place in the manner in which the vehicle is being used, and Section 59 of the same Act says:

Save as provided in Section 61, a permit shall not be transferable from one person to Anr. except with the permission or the transport authority

which granted the permit and shall not without such permission operate to confer on any person to whom a Vehicle covered by the permit is

transferred any right to use that vehicle in the maimer authorised by the permit.

On a plain reading of these two sections, particularly Section 59 the transfer of a permit from one person to Anr. is prohibited unless it is permitted

by the Transport Authority who granted the permit. In this case admittedly on the date on which the partnership was entered into, the route permit

stood in the name of the petitioner only. He could not transfer the permit either wholly or partly in favour of anybody (in this case the plaintiffs)

without the permission of the Transport Authority mentioned in the Section. In this case the permit holder i.e., the defendant-petitioner has in clear

and unambiguous terms transferred the 2/3rd of this permit in favour of the plaintiffs which is forbidden by law. On a plain reading of these sections

no legal discussion is necessary but as some authorities have been referred to by the learned Counsel for the parties, it will be worthwhile to

mention them.

The learned Counsel for the petitioner has referred us to A.V. Varadarajulu Naidu (decd.) and Others Vs. K.V. Thavasi Nadar, which says:

A partnership between A and B for the purchase of a lorry and to use it for carrying on the business of transport service with a permit obtained in

B's name only is illegal and opposed to public policy as it involves the contravention of the provisions of Sections 42(1) and 59(1) Motor Vehicles

Act. The partnership firm being the owner of the vehicle cannot use (he permit obtained in 13's name unless the permit is transferred in the name of

the partnership with the permission of the Transport Authority u/s 59(1), M.V. Act. Therefore, any claim arising out of the settlement of accounts

of the partnership is also illegal and cannot be enforced.

He has also referred us to In Re: Bavaji alias Abdul Muhammad, which has been considered in A.V. Varadarajulu Naidu (decd.) and Others Vs.

K.V. Thavasi Nadar, and Maniam Hiria Gowder Vs. Naga Maistry, also says that partnership in lorry business involving transfer of permit is

illegal. Therefore, according to the learned Counsel for the petitioner, the partnership is illegal and cannot be enforced, and as such the present suit

cannot lie.

The learned Counsel for the respondents, however, has invited our attention to two Supreme Court authorities namely (1959) Umacharan Shaw

and Bros. Vs. Commissioner of Income Tax, West Bengal, and K.M. Viswanatha Pillai Vs. K.M. Shanmugam Pillai, , and to Dayabhai and Co.

Vs. Commissioner of Income Tax, .

In Umacharan Shaw and Bros. Vs. Commissioner of Income Tax, West Bengal, three brOrs. carried on the business of sale of foreign liquor

and the licences for its three shops were held in the different names of the members, but not in the name of the family. It was claimed that in 1938

the family was disrupted and on April 7, 1939, the three brOrs. entered into a deed of partnership which was registered, by which they agreed to

carry on the business in partnership. They opened a separate book of account which they called the Rati Khata which purported to show the

capital contribution and. accounts of the partners as well as the division of pro-fits amongst them. Two brOrs. died and a new partnership was

entered into in respect of the said three liquor shops and the main relevant provisions of the partnership were that the partnership would be deemed

to have commenced from January 25, 1947 and that the capital of the partnership was the amount as found to the credit of the parties thereof, and

the banking accounts could be opened in the firm's name or any other name as may be agreed upon. The Income Tax Officer rejected their claim

for registration on the ground that there was no separate capital account of the partners and that the share of profit of each partner was not

credited in his account in the ledger. The officer placed no reliance on the Bati Khata maintained by the partners. On facts it was held by the S.C.

that there was no evidence of transgression of the provisions of the Bengal Excise Act, 1911 and there was nothing affecting the validity of the

partnership. The argument advanced before the Supreme Court ""was that the partnership was illegal being against Section 42(1) of the Bengal

Excise Act, which read as under:

42(1): Subject to such restrictions as the State Government; may prescribe the authority who granted any licence permit or pass under this Act

may cancel or suspend it (a) it is transferred or sub-let by the holder thereof without the permission of the said authority.

Their Lordships of the Supreme Court came to the finding that there was no evidence that the excise licences were transferred or sub-let. The

three shops, it appears, were managed separately and their accounts were kept distinct. So in this case as each of the brOrs. held a licence and all

the three joined in a partnership agreeing to share the profits earned by them in this business, it was pointed out by the Supreme Court that the

transfer or sub-letting of the licences could not be thereby inferred and it was not therefore proved. This authority is therefore distinguishable

because in the case before us the respondent has transferred 2/3rd share of the route permit in favour of the plaintiffs.

The other authority relied upon is K.M. Viswanatha Pillai Vs. K.M. Shanmugam Pillai, . In this case the point for determination was whether a

suit by the owner of vehicles against the benamidar thereof for declaration and mandatory injunction, would lie. The relevant facts of that ease are

given in para 2 of the judgment and may be again summarized as under:

The parties were members of a Joint Hindu family. On 29th June, 1953, the six brOrs. who constituted the Joint Hindu Family entered Into a

partition or the properties belonging to the Joint Family. A Motor Bus MDH 662 fell to the share of the plaintiff. At the time of partition the permit

was not in the name of the defendant and some proceedings for the transfer of the permit to his name were pending, and it was recited in the deed

that as soon as the route permit and registration etc., are transferred to the name of the defendant he shall have the same transferred to the name of

the appellant. The defendant executed a power of attorney in favour of the plaintiff and in the presence of attorney the defendant admitted that

three buses belonged to the plaintiff and were plying in his name as requested by the plaintiff. The plaintiff's case was that the defendant was

carrying on business on his behalf as a benamidar. He accordingly prayed for a declaration. The Supreme Court held that there was nothing in the

Motor Vehicles Act which was against Benami transaction as their Lordships have said in para 12 of the judgment with reads as under:

The learned Counsel for the respondent says that at any rate the Act (i.e., Motor Vehicles Act) does not contemplate persons applying for permits

benami. In India benami transactions are recognized and not frowned upon....

Therefore in our opinion this authority also does not help the case of the plaintiffs. In that case the real owner of the vehicles as well as the permit

was the plaintiff but he had allowed the defendant to become a benamidar. Therefore the declaration and injunction sought by the plaintiff were

granted in his favour.

In Dayabhai and Co. Vs. Commissioner of Income Tax, the narration of the facts would make it clear that it has no application to the facts of

this case. The portion of the judgment relating to the facts may be quoted:

...Prior to the formation of firm Motor Bus and Truck plying business of Barwani was being carried on by Shri Dayabhai as a proprietary concern.

But due to lack of proper administration the business was running in losses and to improve efficiency in management he admitted Shri. Chhotabhai

Poonambhai as a partner and agreed to carry on the business of bus plying and Cinemas in partnership and accordingly this partnership, firm has

been constituted.

According to the deed the capital contributed by the partners was to be credited to their respective accounts. It said nothing about the transfer to

the partnership firm of any permits held by Dayabhai or by any assets including buses and trucks belonging to him....

Then in para (5a) of the Judgment, it is again reiterated that such an agreement was neither illegal nor opposed to any statutory provisions. Their

Lordships of the Madhya Pradesh High Court held that:

If follows from the above propositions that partnership business in transport, can be carried on the strength of a permit obtained by a partner and

with a vehicle belonging to him. It can also be carried on with vehicles belonging to the partnership firm on the basis of permits obtained by a

partner in respect of those vehicles, as a partner though not owner of those vehicles is clearly as a partner in possession of these vehicles. In the

absence of any provisions in the Motor Vehicles Act laying down the transport business in partnership can only be done on permits issued and

obtained by the firm itself and with vehicles of which the firm is the owner, it cannot be held that Sections 31, 42 and 59 of the Motor Vehicles Act

are transgressed when transport business is carried on with vehicles belonging to a partner or to the firm on the authorisation of permits held by a

partner. In the partnership business done by partner with vehicles belonging to him or to the partnership firm on permits obtained and held by him,

there is no transfer of vehicles or transfer of permits. There being thus no violation of any provision of the Motor Vehicles Act, a partnership firm

constituted for carrying on transfer business cannot be regarded as illegal merely because the partnership business is carried on by a partner on the

strength of permits obtained and held by him and with vehicles belonging to him or to the partnership firm.

So in all these cases relied upon by the learned Counsel for the respondents there was no transfer of permits or any share therein. ""Therefore, these

authorities do not help the respondents at all. If however, the terms of the partnership would have been that the permit would continue in the name

of the petitioner and he had joined the other partners who either invested some money or their physical or mental labour, which would entitle them

to share the benefit of the partnership, keeping the permit intact in the name of the petitioner, there would have been nothing objectionable in such a

partnership. It is this kind of partnership which is saved by the authorities mentioned above.

A further argument was made by the learned Counsel for the respondents that the defendant had not transferred the permit to the plaintiffs but

it was stated in the partnership deed that he would move the transport authorities for the transfer of ownership of the truck as well as the permit in

favour of the plaintiffs also. Therefore, this partnership was only an agreement and as the parties were aware of the necessity of getting the route

permit transferred they had put down this term in the so-called partnership; the suit of the plaintiffs was maintainable. But in our opinion this

argument is without any substance because according to the terms of this document the plaintiffs became owners of the truck as well as its permit

right from 1st January, 1969, to the extent of 2/3rd. At that time admittedly there was no permission obtained from the Transport Authorities to

transfer this share, in the permit to the plaintiffs. Therefore, in our opinion this partnership is hit by Section 59 of the Motor Vehicles Act and is

illegal. The same view has been taken in a case decided by this Court viz., Mislri Alla Ditta v. Puran Chand decided on 30th April, 1962.

The last argument of Mr. D.D. Thakur was that the transfer of the truck i.e. the material of the truck did not require any permission of the

Transport Authority. To that extent the partnership deed would be valid and not hit by the provisions of Section 59 of the Motor Vehicles Act and

to that extent the suit should be allowed to proceed. But in our opinion even this argument has no strength in it. There has been no separate

valuation of the truck i.e., the material of the truck and the permit as such. Both the truck and the route permit have been valued at Rs. 21,000/-.

We do not know what was in the mind of the parties when they placed this valuation, what was the worth of the material of the truck and what

notional value was placed on the permit. The contract is one and indivisible and cannot be separated. In such cases where part of the

consideration' is void, the whole contract is vitiated. Atkinson, J., observed that:

If any part of the consideration supporting a contract is void, it taints the whole contract with illegality; and even though a part of the consideration

may be legal yet you cannot sever the illegal from the legal; the taint of illegality vitiates the entire contract.

Quoted from Sanjiva Row's Contract Act, 1959, Edition, Vol. I page 436.

Therefore, in our opinion the Sub-Judge was wrong in holding the suit as maintainable. The partnership in question is an illegal contract and no

suit for rendition of accounts and for its dissolution can be maintained. The revision is therefore, allowed and the order of the Sub-Judge, Ramban,

is set aside but as the petitioner has taken advantage of his own fraud, we leave the parties to bear their own costs throughout.

S.M.F. Ali, C.J.

I agree.

Jaswant Singh, J.

I also agree.