Gour Chandra Sinha vs Bata Krishna Ghosh

A.K. Janah, J.—This Second Appeal is by the Defendant and it arises out of a suit instituted by the Plaintiff Respondent against the Defendant Appellant for dissolution of partnership and for accounts. The Plaintiff''s case is as follows:

The Plaintiff and the Defendant entered into an agreement of partnership dated January 31, 1955, for the purpose of carrying on a business styled as ''Indian Acid and Chemical Company'' for the manufacture of heavy chemicals. As the Plaintiff was a Government servant serving in Calcutta Customs he could not actively participate in the management of the business. The partners contributed towards the capital of the business and also borrowed money from others and invested the same in the partnership business. A joint account was opened in the United Industrial Bank Ltd. Burrabazar Branch, Calcutta, in the name of the Plaintiff and the Defendant. The registered office and the factory of the partnership business are situated at 221/2, Bagmari Road, Calcutta. It was alleged that the above premises was originally a rented one and the rent used to be paid by the partnership firm. On May 6, 1967, the Plaintiff and the Defendant purchased the structures standing on the land from Suraj Prosad Poddar who was a thika tenant under the landlord Durlav Chandra Khung j. It was alleged that the partners also started two other businesses under the name and style of Eureka Chemical Company and Indian Acid Company The Plaintiff claimed that he had equal share in the said two subsidiary businesses. The Plaintiff further alleged that as he was unable to participate directly in the management of the business the Defendant in collusion with the manager, Suprokash Bose, misappropriated large sums of money out of the profits of the partnership business. The Plaintiff further alleged that in January 1961, he went to visit different places in India by a conducted tour known as ''Bharat-Darshan''. He returned to Calcutta in March 1961 and during his absence the Defendant in collusion with others closed the joint Bank account and opened a separate account in the name of Indian Acid and Chemical Company in the State Bank of India, Shyambazar Branch, describing himself as the sole proprietor thereof. The said account was subsequently transferred to Manicktola Branch of the State Bank of India. The Plaintiff alleged that in order to actively participate in the management of the partnership business the Plaintiff voluntarily retired from service on June 2, 1965, although in the usual course he would have retired about 8 years later. After retirement the Plaintiff wanted to take part actively in the affairs of the partnership business, but the Defendant refused to allow him to do so. The Plaintiff became suspicious and after making enquiries he came to know that the Defendant had been trying to create false evidence to show that the business was his proprietory concern in order to oust the Plaintiff from the business. The Plaintiff further came to know that the Defendant had been misappropriating the entire profit of the business. The Plaintiff, accordingly demanded accounts from the Defendant, but the Defendant wrongfully refused to render accounts. Hence, the Plaintiff brought the present suit for dissolution of the partnership and for accounts.

The Defendant denied the material allegations in the plaint. He denied that the Plaintiff was a partner in the business run under the name and style of Indian Acid and Chemical Company He claimed to be the sole proprietor of the said business. It was slated that the alleged agreement of partnership was ab initio void and illegal and it was, never acted upon and that the Defendant repudiated the said alleged agreement of the partnership and waived all rights under the same for a period of more than 6 years before the institution of the suit by his acts, deeds and conduct. The Defendant asserted that he alone started and carried on the business of dealership in acid and chemicals under the name and style of Indian Acid and Chemical Company from 1952 at 31, Mullick Street, Calcutta, having all necessary licences etc. in his own name. Subsequently, the business was shifted to 221/2, Bagmari Road, where the Defendant began the business of manufacturing acids since 1955-It was alleged that from time to time when he was short of funds for running the business he used to borrow money from different sources. The manager, Suprokash Bose, is the nephew of the Plaintiff. Suprokash introduced the Defendant to the Plaintiff who advanced money to the Defendant from time to time as temporary accommodation loan. The Plaintiff did not enter into the partnership business as it was not a profitable concern at the time when the alleged agreement was signed. It was alleged that the business was run and managed by the Defendant alone though the Plaintiff assured him that he would join the same after giving up his service under the Government. The Plaintiff never continued or conducted the business as a partner. It was alleged that in 1955 a Bank account was opened in the joint names of the Plaintiff and the Defendant, but the entire money was paid by the Defendant alone in the expectation that the Plaintiff would contribute towards the capital as per agreement, but the Plaintiff failed to do so. It was further alleged that the rent of premises No. 221/2, Bagmari Road, was paid by the Defendant as proprietor of the business and the structures were purchased in the joint names of the Plaintiff and the Defendant because the Plaintiff agreed to advance an accommodation loan of Rs. 2,250. The properties at Bagmari Road are the personal properties of the Defendant. The Defendant alleged that the Plaintiff submitted a statement in writing before the income tax officer on June 12, 1959, disclaiming any interest in the partnership business. According to the Defendant, the Plaintiff was merely a financial helper and he was never a partner of the business. It was stated by the Defendant that the partnership agreement was illegal being opposed to public policy. The Defendant, accordingly, prayed for dismissal of the suit

As many as 12 issues were framed in the trial Court, all these issues were answered in favour of the Plaintiff-and the suit was decreed. The Defendant went up in appeal before the lower appellate Court but the appeal was also dismissed. Against the decision of the lower appellate Court the present Second Appeal has been preferred by the Defendant.

Mr. Chatterjee appearing on behalf of the Appellant challenged the findings of the Courts below on the issue regarding the existence of partnership between the Plaintiff and Defendant in respect of the business carried on under the name and style ''Indian Acid and Chemical Company'' He also challenged the finding that the Plaintiff had advanced money in the shape of capital for the partnership business. According to him, the materials on record did not warrant such a finding. He contended that these findings had been arrived at by drawing unwarranted inferences from some of the evidences adduced in the case. He contended that upon the evidence on record the Courts below ought to have come to the conclusion that whatever money was advanced by the Plaintiff was advanced by way of temporary accommodation loan for the Defendant''s business. According to him, the Courts below ought to have found that there was no existence of any partnership between the Plaintiff and the Defendant. We have been taken through the judgments of both the Courts below and we have carefully considered the materials on record. In our view, these findings of the Courts below are findings on questions of fact which are not liable to be disturbed in a Second Appeal unless these are contrary to the evidence on record or are utterly perverse. These findings arrived at by the Courts below, therefore, must be taken to be binding upon the Appellant in this appeal.

The next point which has been urged by Mr. Chatterjee? in support of this appeal is that the agreement of partnership dated January 31, 1955, Ex. 1(a) is illegal and void as it is in contravention of the Central Civil Services (Conduct) Rules, 1955. According to Mr. Chatterjee, the Plaintiff being admittedly a servant of the Central Government the agreement of partnership offends Rule 12 of the said Rules. The relevant portion of Rule 12 of the aforesaid rules is as follows:

Private trade or employment--

(1) No Government servant shall, except with previous sanction of the Government, engage directly or indirectly in any trade or business or undertake any employment provided that a Govt, servant may, without such sanction, undertake honorary work of social and charitable nature or occasional work or a literary, artistic or scientific character subject to the condition that his official duties do not thereby suffer; but he shall not undertake or shall discontinue such work if so directed by the Government.

Explanation : Canvassing by a Government servant in support of the business of insurance agency, commission etc. owned or managed by his wife or any other member of his family shall be deemed to be breach of the sub-rule. Mr. Chatterjee contended that these rules were framed by the President in exercise of the powers conferred by the proviso to Article 309 and Clause (V) of Article 148 of the Constitution and therefore these were statutory rules. He, accordingly, contended that the alleged agreement of partnership was void and illegal from the very inception as it is in violation of a statutory rule which has the force of law. On behalf of the Respondent, Mr. Roy contended that the Central Civil Services (Conduct) Rules, 1955, came into force on March 7, 1955 and the disputed partnership came into existence on January 31, 1955 and therefore, the said rules would have no application in the present case. In answer to this contention it was pointed out by Mr. Chatterjee that prior to the coming into force of the said rules there were similar rules applicable to all Government servants, namely, the Government Servants'' Conduct Rules.

Mr. Chatterjee contended that these rules were issued or confirmed u/s 96B of the Government of India Act, 1919. He drew our attention to Rule 15 of the said rules which contained similar provisions. It was accordingly contended by Mr. Chatterjee that the agreement of partnership was void ab initio. In support of this contention he relied upon the majority decision in Sukhdev Singh, Oil and Natural Gas Commission, Life Insurance Corporation, Industrial Finance Corporation Employees Associations Vs. Bhagat Ram, Association of Clause II. Officers, Shyam Lal, Industrial Finance Corporation, . It is true that statutory rules have the force of law, but an act done in violation of law will not per se render the act void ab initio. Mr. Chatterjee also relied upon the decision in Chettiar v. Chettiar 1962 (1) All E.R. 494. In that case the father who owned 99 acres of rubber land bought another 40 acres. There were regulations for controlling production of rubber differentiating holdings of more than 100 acres and holdings of less than 100 acres. In order to avoid having to disclose to the authority that he held more than 100 acres the father transferred 40 acres in the name of his son. He did not intend to give the land to the son. The transfer was effected by a sale. But no consideration was paid. The two holdings were treated by the Public authorities as two separate holdings each under 100 acres. In a suit brought by the father for a declaration that the son held the land in trust for the father and for an order upon the son to re-transfer it to the father, it was held by the Judicial Committee that since the father had of necessity to disclose his own illegality, namely, his deceit of the Public Administration of the country, in order to make out his claim, the Court was bound to take notice of the illegality and would not lend its aid to the father and would let the legal estate lie where it was, there being no loco parentis as the fraudulent purpose had been effected. In that case the Plaintiff had actually carried out the fraudulent object for which the transfer was made in the name of the son, namely, to deceive the Public Administration. In the present case, no fraud has been committed. A similar question, as is involved in the present case, came up for consideration before a Division Bench of this Court in the case of Dhirendra Chandra Bose v. Chandrakanta Roy 36 C.L.J. 82 where their Lordships after a careful consideration of various decisions of this Court as well as of other High Courts and also of the Privy Council came to the conclusion that although where an intended fraud has been carried into effect the Court will not allow the true owner to resume the individuality which he has once cast off in order to defraud others, yet, if he has not defrauded anyone, the Court will not punish his intention by giving his estates away to another whose retention on it is an act of gross fraud. It is further held that although where an intended fraud has been carried into effect the Court will not assist the true owner, yet if he has not defrauded anyone and the purpose for which the assignment was made has not been carried into execution, the mere intention to effect an illegal object does not deprive the assignor of his right to recover from the assignee who has given no consideration for it. In the present case, the Plaintiff might have acted dishonestly and in contravention of rules of his department, but he cannot be said to have acted illegally so as to bring the case within the scope of the rule that a man is precluded from obtaining relief in respect of a transaction the purpose of which is illegal and has been accomplished. The Plaintiff having acted in contravention of Rule 12 of the Central Civil Services (Conduct) Rules, 1955, might have exposed himself to departmental action against him, but for that reason the agreement itself cannot become void ab initio. We are accordingly unable to accept the submission made by Mr. Chatterjee in this behalf. Several other decisions were cited on behalf of the respective parties, but it is unnecessary for us to refer to all the decisions having regard to the view We have taken above.

The next branch of Mr. Chatterjee''s argument has been that the business of manufacture of acid and chemicals was brought under the purview of Central Excises and Salt Act, 1944, in 1961, by a notification issued under the Act and thereafter, the business of manufacture of acid and chemicals could not be carried on by the partnership unless it had a licence for that purpose. There is no dispute between the parties that the production and manufacture of acid and chemicals were brought within the purview of the Central Excises and Salt Act, 1944, by a notification issued by the Central Government in 1961. The licence issued under the said Act, Ex. 1 stands in the name of the Defendant alone. The licence was first granted on May 1, 1962, showing the Appellant as the proprietor of Indian Acid and Chemical Company On the question whether the business of manufacturing acid and chemicals could be carried on by the partnership although the licence stood in the name of the Defendant alone, the lower appellate Court relying upon the decision in The Dhuri Co-operative Cum-Marketing-cum-Processing Society, Dhuri Vs. Budh Ram and Others, took the view that in spite of the licence being in the name of the Defendant alone the partnership could carry on the business of manufacturing acid and chemicals. The decision relied on by the learned Judge has been overruled by a Division Bench of the same High Court, in the case Budh Ram Balak Ram and Another Vs. The Dhuri Co-operative-cum-Marketing-cum-Processing Society, Dhuri and Others, , which has taken the view that when a licence is issued in the name of a particular person it is that person alone who is entitled to carry on the business covered by the licence and the licensee cannot carry on the business in partnership with others. The Division Bench has further held that the constitution of a partnership to work a licence issued in the name of a partner is illegal. In this connection the Rules framed under the Central Excises and Salt Act, 1944, may be referred to Rule 174 of the said rules is as follows:

Person requiring a licence.

Every manufacturer, trader or person hereinafter mentioned, shall be required to take out a licence and shall not conduct his business in regard to such goods otherwise than by the authority and subject to the terms and conditions of a licence granted by a duly authorised officer in the proper form.

Rule 175 provides:

Every person desiring to engage in operations requiring the possession of a licence as aforesaid shall apply in writing every year for a licence or renewal thereof to the licensing authority who shall be such officer as Central Board of Revenue may authorise in this behalf.

Sub-rule (2) of Rule 178 provides that

every licence shall be deemed to have been granted or renewed personally to the licensee and no licence shall be sold or transferred.

Sub-rule (4) of the said rule is as follows:

If the holder of a licence enters into partnership in regard to the business covered by the licence he shall report the fact to the licensing authority within 30 days of his entering into such partnership and shall get his licence suitably amended. Where a partnership is entered into, the partner as well as the original holder of a licence shall be bound by the conditions of that licence.

It is clear from these rules that the carrying on of any business for which a licence is required to be obtained by a person without obtaining such licence, is illegal. In the present case after the business of manufacture of acid and chemicals was brought under the Central Excises and Salt Act, 1944, the partnership between the Plaintiff and the Defendant could not carry on such business without obtaining a licence from the authorities concerned. The licence was obtained by the Defendant alone in his own name describing himself as the proprietor of Indian Acid and Chemical Company It might have been a wrongful act on the part of the Defendant and the Plaintiff might have such remedy against the Plaintiff as he was entitled to, under the law, for such wrongful act on the part of the Defendant. But it cannot be said that the partnership which existed between the Plaintiff and the Defendant continued to carry on its business after 1961, although it had no licence granted to it under the said Act. The partnership, therefore, came to an end from the date when manufacture of acid and chemicals was brought under the aforesaid Act in 1961. The partnership thus having come to an end by operation of law there could be no question of dissolution of that partnership which was no longer there. The Plaintiff could have sued the Defendant for accounts on the ground that as a result of the Defendant having obtained the licence in his own name, the partnership, has come to end and the Defendant is liable to render accounts of the partnership business before it thus came to an end. But such a suit ought to have been filed within 3 years from the date on which the partnership came to an end. The present suit having been filed on February 8, 1966, is hopelessly barred by limitation.

We are not unmindful of the fact that no issue regarding limitation was framed in the suit. But it appears from the judgment of the trial Court (at p. 8 of the Paper Book) that the point of limitation was urged on behalf of the Defendant in the trial Court. Moreover, the plea of limitation even if not pleaded by the Defendant the Court has to dismiss the suit if it finds that the suit is barred by limitation.

In the above view of the matter the Plaintiff is not entitled to get any relief in the present suit. The appeal is accordingly allowed. The judgment and decree of the Courts below are set aside and the suit is dismissed. In the circumstances of the case we make no order as to costs.

A.N. Banerjee, J.

I agree.