Jiwan Lal Shinghu and Another vs Jai Narain Parshad and Others

G.L. Chopra, J.—This is an appeal by one of the Defendants against the final decree in a suit for dissolution of partnership and for rendition of accounts.

The partnership styled as Jiwan Lal Jai Narain Parshad was constituted by an agreement dated 6th January, 1941, between the partners of the firm Rai Sahib Chiranji Lal and Sons on the one side and Shri Jiwan Lal Appellant on the other, with 5th/7th and 2nd/7th, respectively, as their shares. The partnership firm was to work and did work for some years as contractors for different departments of the Government at Allahabad, Fatehgarh, Muttra and Agra. Debi Parshad and his son Jai Narain Parshad, the former of whom was one of the partners of R. S. Chiranji Lal and Sons, filed the present suit for dissolution of partnership and rendition of accounts on 11th July, 1945. Jiwan Lal Appellant, his brother Ram Ji Lal and other partners of firm R. S. Chiranji Lal and Sons were impleaded as Defendants.

On 10th February, 1947, the parties agreed to refer the dispute to Jiwan Lal Defendant No. 1 as referee and on the basis of an affidavit submitted by him the Court, on 21st August, 1947, passed a preliminary decree for the dissolution of partnership and for the taking of accounts. Shri Raj Kishen Tandon, Pleader, Delhi, was appointed as Commissioner to go into the accounts and submit his report.

The Commissioner after framing a number of issues and recording evidence of the parties submitted a detailed report, accompanied with a balance sheet showing the amounts due from one party to the other. Both the parties filed objections to the report. The Commercial Subordinate Judge, Delhi, turned down almost all of these objections and passed a final decree as reported by the Commissioner, except for slight modifications. The report of the Commissioner and accordingly the decree made Jiwan Lal Appellant liable to pay a total sum of Rs. 39,470/11/6 to the other partner of the firm, viz., Messrs. R. S. Chiranji Lal and Sons. It is against this decree that the appeal by Jiwan Lal is directed.

Each of the items constituting the total sum of Rs. 39,470/11/6, for which the Appellant was held liable, was contested in the memorandum of appeal, but in the relief clause it was prayed that the decretal amount be reduced by Rs. 30,649/2/3, and Court-fee on that amount was paid. On an objection raised by the Respondent, the Appellant accepts to confine the appeal only to two of the items (one of Rs. 24,517 and the other of Rs. 9,000), aggregating to Rs. 33,517 and gives up his objections with respect to the other items. Even then there remains a deficit of Court-fee on. the amount of Rs. 2,868, which is allowed to be made up. We are thus concerned only with two of the objections which formed the subject-matter of issues Nos. 13 and 22 framed by the Commissioner.

In the account books at Muttra, Rs. 9,000 was shown to have been paid to Pt. Ramji Lal on 30th January, 1944. This was stated to be his salary for 1 years at. the rate of Rs. 500 per mensem. The item was regarded as suspicious by the Commissioner and was, therefore, debited to the Appellant''s account in the final balance sheet. On behalf of the Appellant it is contended that Ramji Dass, who is a brother of the Appellant, had worked as an employee of the firm at Muttra for 1 1/2 years and a sum of Rs. 9,000 was actually paid to him as salary for this period. It is pointed out that the amount was shown in the accounts submitted for income tax purposes and that a sum of Rs. 6,000 ''as a salary for the whole year as a Manager-" in-charge of Muttra works'', was allowed on appeal by the Appellate Assistant Commissioner. The contention, in my opinion, is without substance. There is no reliable evidence to prove that Ramji Dass worked as an employee of the firm or that there was an agreement to pay him any salary or remuneration. In the plaint, Ramji Dass was stated to be a partner in the share of his brother Jiwan Lal, Defendant No 1, the Appellant, in the firm and as such he was impleaded as Defendant No. 2. Jiwan Lal and Ramji Dass filed a joint written statement, in which they denied the above assertiqn but did not take up the plea that Ramji Dass was a paid employee of the firm. Nothing of the kind was stated even in the affidavit of Jiwan Lal as a referee, on the basis of which the preliminary decree was, passed and the suit against Ramji Dass stood dismissed. Appearing as his own witness before the Commissioner Jiwan Lal admitted that Ramji Dass was his Mukhtiar-i-am, that Ramji Dass worked in the firm on his behalf and that Ramji Dass was not paid any salary because he (Jiwan Lal) did not work himself. In the circumstances, the mere fact that the income tax Authorities allowed a sum of Rs. 6,000 as a salary,for the whole year as a Manager-in-charge of Muttra works'', would not justify the payment of the amount to him as salary or emoluments for the work done by him at the firm.

The second objection relates to the amount of Rs. 24,517/8/- debited to the Appellant''s account in the balance sheet prepared by the Commissioner. The amount consists of several items mentioned in the account books of Fatehgarh, Agra and Muttra as having been received and spent by Jiwan Lal Appellant. They are described as ''miscellaneous expenses'' and debited to that account. The Commissioner did not allow this amount because the books or the vouchers in respect of the items did not give details of the expenses incurred. According to Jiwan Lal, these entries related either to cash payments made on behalf of the firm to different persons or officers with whom the firm had to deal for obtaining the contracts or in the process of completion of these contracts, or to the expenses incurred in entertaining them. On being questioned as to whether these items or any of them related to bribes, Jiwan Lal hesitated to give an answer in the affirmative. He, however, stated that the amounts were spent in the interest of the partnership and for the purpose of carrying on its business. The learned trial Subordinate Judge agreed with the Commissioner and disallowed the amount on the sole ground that details of expenses were neither mentioned in the books nor they were given by the Appellant in his statement before the Commissioner. On a careful consideration of the facts of the case, particularly the nature of the business transacted by the firm, I am of the view that the objection must prevail. The firm worked as contractors for the construction of buildings and for the supply of all sorts of goods to various Departments of the Government, including the Military, at Allahabad, Agra, Fatehgarh and Muttra. Business worth several lacs was transacted. The entries are not found to be bogus and it is not the case for the Respondents that the expenditure was not in fact incurred. All that is stated is that the details having not been disclosed and the insinuation being that they related mostly to bribes, the amount of expenditure cannot be debited to the firm''s account. The very nature of the expenses was such that their details or purpose cannot be expected to have been stated in the books. The items relate to the year 1941. More than seven years after, it was not expected of Jiwan Lal Appellant to give any more details than that the expenses were incurred in the interest of the firm viz., to obtain, carry out and complete the contracts and to receive payments, therefor, from the Government. The reason for his being hesitant to state clearly and admit that the expenses related to bribes or some similar matters is self-evident. All the same, I have no doubt that the expenditure, which does not appear to be disproportionate to the total amount of business done by the firm, was in respect of bribes to or entertainments of the persons and officers concerned and that the expenses were regarded as necessary for the conduct of the partnership business and in the interest of the firm. I am further of opinion that the expenditure was incurred with the express or implied consent or concurrence of the partners. The accounts and the balance sheets at the places where the Appellant was working were being submitted to R. S. Chiranji Lal and Sons and ought to have been scrutinised. The accounts were also sent to Delhi under sealed covers at the close of the business. No objection was ever taken on behalf of any of the partners to the purpose for which the amounts were spent. Similar expenses were being incurred at Allahabad, where a representative of R. S. Chiranji Lal and,Sons, the contesting Respondent was incharge. These expenses were not objected to and have in fact been allowed. The partners it seems were conscious of the fact that the business could not be profitably carried on without such expenses being incurred. Shri Jai Narain Parshad, the Plaintiff, in his statement before the Commissioner, candidly admitted the true import of ''miscellaneous expenses'',, as they were described and that they were incurred in the interest of the partnership business and with the approval or concurrence of the partners. The amount having been spent for and in the interest of the firm and the money having gone out of the assets and being no longer available for distribution between the partners, it will not in my view, be fair and just to debit the amount to the Appellant who happened to be the person incharge at the places where the business was transacted. A similar objection to the allowing of expenditure on bribes on the ground of its being opposed to public policy was raised in Joti Prasad and Another Vs. Hardwari Mal and Another, Refuting the objection, Sen, J., who prepared the judgment of the Division Bench, observes:

It is of course opposed to public policy to offer bribes to a public servant to corrupt him and to alienate him from the discharge of his duties. An inquiry into the character of the bribes, whether it is ba-badal or be-badal is entirely beside the mark. The finding that expenditure or bribes is opposed to public policy is irrelevant and unproductive. The bribe in question is not the consideration of a contract which is sought to be enforced by the Defendants. If the bribes have been paid out of the assets of the firm, the partnership funds become reduced in value to the extent of the amounts so paid. If the Defendants on behalf of the firm, with the express or implied consent or concurrence of the Plaintiffs, spent Rs. 2,525 or any part of it on bribes, the Defendants are entitled to maintain that those sums have been duly accounted for.

This is not a case where any agreement or contract, the consideration or object of which is illegal or opposed to public policy, is sought to be enforced. The bribes had already been paid and the expenditure on entertainments already incurred, out of the partnership funds. The purpose opposed to public policy had already been effected and the gains derived by the partnership business. The Defendant-Appellant did not come'' to Court to seek contribution. Illegality of a contract is a good plea for a Defendant but it is not a permissible plea for a Plaintiff. The general rule is, that, "where an illegal contract has been made, neither Courts of law nor of equity will interpose to grant any relief to the parties, but will leave them where it finds them, according to the maxim, In pari delicto potior est conditio Defendantis et possidentis. Yet this rule is not without exceptions, which are allowed on the ground of public policy. An illegal contract will never, indeed be enforced, if it be executory; but if it be executed, in spite of a statute or rule of public policy prohibiting it, relief will often be granted, not only by setting aside the agreement, but by ordering a repayment of money paid under it. But relief will never be granted where the parties are in pari delicto, unless in cases where public policy would be thereby promoted; for it is not the benefit of the party, but of the public, that is regarded." (Story''s Law of Contracts, 4th Edition, Volume I, p. 590). The contract, if there was any, having been executed and the parties being in pari delicto no relief on the basis of it can be granted and the matter has to be left as it was.

Mr. Amar Nath Goyal, learned Counsel for the Respondents, relies upon Dipchand Golomal v. Kishnibai and Ors. AIR 1928 Sind 133 , and K.M. Venkatachala Chetty Vs. N.D. Natesa Chetty, in support of his contention that illegal payments and expenses ought not to be taken into account. In the first of these, it was held that if a partner, who entertains customers, wishes to be re-imbursed, he should take the precaution of having an agreement made for an allowance. The observation is based upon the cases cited in Lind-ley on Partnership, page 475, on the subject of ''useful but unauthorised outlays''. These are cases where the Plaintiff alleged to have expended money in entertaining customers but did not make any charge for the amount in the accounts of partnership, which he was keeping. The Plaintiff nevertheless afterwards contended that he ought to be allowed in taking accounts of the partnership, to debit the firm with a specified sum per year as allowance for entertainments. But it was shown to be usual, in cases of this sort, to insert some special clause in the articles if an allowance was intended to be made, and the articles into which the partners had entered contained nothing more than the general stipulation that all losses and expenses should be borne equally. It was accordingly held that the Plaintiff was not entitled to any allowance, for he could only claim it as being a gross article of expenditure, and he was precluded from charging it in that way by not having included it in the yearly accounts. Evidently, the facts of the context case are totally different.

In the Madras case which was tried on its original side by the High Court, the learned single Judge held the partnership which was disputed, to be, proved and passed a preliminary decree for the taking of accounts. In directing the Official Referee to take the accounts the learned Judge stated that any item of expenditure which was shown to be for an unlawful purpose was to be excluded. In the appeal, it was contended that the learned trial Judge was wrong in holding that there was a partnership and that he also erred in giving this direction to the Official Referee. Both the contentions were turned down by the Division Bench. With regard to the direction to the Official Referee, the opinion of the learned trial Judge that ''if either party had been foolish enough to give a bribe in the hope that his partner would bear his share of the expenditure he could not use the Court to recover that share'', was approved Joti Prasad and Another Vs. Hardwari Mal and Another, was relied'' upon by the Appellant, but it was distinguished on the ground that in that case the partnership capital had been utilized for the payment of bribes with the consent of the partners and the money had left the firm for this purpose with their joint consent. The facts in the present case are almost similar to those in Joti Prasad and Another Vs. Hardwari Mal and Another, and I am in respectful greement with the view expressed therein.

For all these reasons, I would accept the appeal, with proportionate costs, to the extent that the amount of the decree against the Appellant is reduced by Rs. 24,517/8/-. The decree shall be drawn up after the deficit in Court-fee is paid by the Appellant.

D. Falshaw, J.

I agree.