R. Chennayya vs T. Janikamma

Horwill, J.—It has been found by the Courts below that the appellants and others entered into a contract under which each was to advance

a certain sum of money to defendant 1, who was to bid at an abkari auction sale to be held on that day, and as consideration for the money paid

by them, they were to share in the business which defendant 1 was to bid for. Defendant 1 did bid, and he conducted the business and - it is said -

made profits. The plaintiffs brought the present suits for the dissolution of the partnership and accounts. Both the Courts below held that the

contract was illegal and could not be sued on. The first Court, however, granted them relief u/s 65, Contract Act. The appellate Court dismissed

the suits in toto. It is argued here that where the contract is entered into before the auction, it is not a contract which infringes the provisions of the

Abkari Act and can therefore be sued on. It is only contracts entered into after the auction takes place, it is contended, that are illegal; because

they amount to transfers of the interests of the licensee. This question has been considered by very many Judges on various occasions.

Venkatasubba Rao and Venkataramana Rao JJ., sitting separately, held. that that distinction could be made; but other Judges whose judgments

have been referred to - Wadsworth, King and Krishnaswami Ayyangar JJ. - held otherwise. In Ramanayudu v. Seetharamayya A.I.R l935 Mad

440, the question was with regard to a partnership which was established after the auction sale; but there can be no doubt that the learned Judges

were of opinion that any partnership without sanction, whether entered into before the auction or after it, would be illegal. Beasley C.J., who

delivered the judgment of the Court, in discussing a judgment of Reilly J. to the effect that it was not illegal for persons to enter into a partnership

for the purpose of carrying on a toddy shop business observed : ""That is quite true if it is intended at a future date to get a licence in the names of

all the partners."" Venkatasubba Rao J., who delivered his judgment shortly after this decision, was considering a case similar to that under

consideration here. He relied upon a judgment of Anantakrishna Ayyar J. and said that the Full Bench had not dissented from it. The Full Bench,

however, distinguished it on the ground that Anantakrishna Ayyar J. was not satisfied that a partnership had been entered into. Venkatasubba Rao

J. was aware that his decision was not in accordance with the reasoning in the Full Bench case, but he did. not follow it because he was not bound

to do so; for the point that directly arose for decision in the Full Bench case was different from the point in the case before him. The matter has,

however, now been set at rest by the decision of a Bench of this Court in O.S.A. No. 18 of 1942, J.D. Italia Vs. D. Cowasjee and Others, in

which the decision of Krishnaswami Ayyangar J. was in substance upheld. In considering the judgment of Venkatasubba Rao and Venkataramana

Rao JJ., it was pointed out that the learned Judges had overlooked the wider question of public policy and that it did not follow, because there was

no transfer of interest, that the partnership would be a lawful one. The learned Judges say : ""There can be no doubt that, on the decisions of this

Court, the partnership between the plaintiff and the defendant would have to be declared unlawful ab initio if a full disclosure of the position had not

been made to the Revenue authorities;"" and because the partnership was not subsequently sanctioned, the learned Judges refused to allow the

plaintiff an account after the time when it was found that the partnership was. illegal. So there can be no doubt that this question was decided in this

Original Side appeal and that this case is an authority on the point now before me; because it was necessary for the determination of the matter

before the Court.

It is argued, on the authority of the Full Bench decision in Sesha Ayyar v. Krishna Ayyar AIR 1936 Mad. 225 that the plaintiff was entitled to a

refund of the capital advanced u/s 84, Trusts Act; but the point raised in this case was whether a subscriber to an illegal lottery was in pari delicto

with the organisers of the chit fund. Clearly the position of a partner in an illegal partnership is very different from that of a humble subscriber to an

illegal chit fund. It seems to me quite irrelevant that the appellant played but a minor part in the actual partnership business after the licence had

been taken. His guilt lay in becoming a member of the illegal partnership in the first instance, when he was equally to blame with the other partners.

Section 65, Contract Act, was also invoked for the purpose of procuring a refund of the money advanced by the appellant; but although the

section applies in general to void contracts as well as to voidable ones, it does not apply to contracts that are illegal. In Venkataraju v. Ramanujam

A.I.R 1918 Mad. 163, the question was apparently whether a person who had entered into a wagering contract and had given a certain sum of

money by way of security for the fulfilment of his agreement, was entitled to receive that money back again. It was held that he was; but at the

same time the learned Judges said that Section 65, Contract Act, did not apply. In Auryaprabhakara v. Sanyasi AIR 1925 Mad. 885, Contract

Act, was invoked. There, although the contract was found to be illegal; yet the money was ordered to be refunded. From one point of view,

however, the contract was merely void and not illegal; because it purported to transfer a right in land that might never come into existence-a

transfer of a mere expectation of property. In such a case, Section 65 would apply. Finally, on the authority of Venkataraju v. Ramanujam A.I.R

1918 Mad. 163, it is argued that even though Section 84, Trusts Act, and Section 65, Contract Act, will not apply, there is a general principle of

law whereby a person who has money which belongs to another, can be made to return it. That can only be done, however, when the money is not

tainted with the illegality of the contract. The money held by a stakeholder is one example. In the case dealt with in Venkataraju v. Ramanujam

A.I.R 1918 Mad. 163, the sum of money in question was not paid in pursuance of the illegal contract but by way of security. The return of the

money was refused in Ramanayudu v. Seetharamayya A.I.R l935 Mad 440. In Sesha Ayyar v. Krishna Ayyar AIR 1936 Mad. 225, the money

was returned only on the ground that Section 84, Trusts Act, would apply, while in Auryaprabhakara v. Sanyasi AIR 1925 Mad. 885 the money

was returned because Section 65, Contract Act, applied. Moreover, in this case, the sum of money no longer exists; for in pursuance of the

contract, the money advanced by the appellants was utilised in the (business. On no ground, therefore, can the plaintiffs to any extent succeed. The

appeals are dismissed with costs. Advocate''s fee in S. A. No. 1213 only.