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Judgment
The facts leading to the filing of the present appeal are that the plaintiff-appellant Dhuri Co-operative-cum-Marketing-cum-Processing Society, on 30-9-1957, entered into a partnership with the firm defendant-respondent No. 2 through respondent-defendant No. 1 vide partnership deed, Exhibit P.1. In the said deed, taking of Karkhana Kapas owned by defendant No. 1 on lease for a period of one year on payment of certain lease-money was envisaged, what was further envisaged therein was the manner of operating the said Karkhana and apportionment of the cost of repairs of the said Kharkhana, as also the profit and loss that may accrue from the working of the said Karkhana between the partners. The partnership firm was dissolved on 1-9-1958 and when defendants 1 to 3, who according to the allegation of the plaintiff were working the Karkhana and managing the affairs of the partnership firm, declined to render accounts, the plaintiff was led to file the present suit for rendition of accounts.
The plaintiff in the plaint has mentioned various amounts that he advanced to the partnership firm from time to time. The defendants controverted the allegations of the plaintiff and maintained that the partnership accounts had been settled on 31-3-1958 and therefore, the suit was not competent and various other pleas were also taken, as will be clear from the issues framed by the trial Court which are as follows :-
"1. Whether the partnership between the parties was only for ginning purposes ?
Whether the partnership business continued upto 31-3-1959 ?
Whether the plaintiffs are estopped from bringing the present suit or whether the defendants had settled the accounts with the plaintiffs of the partnership firm ? If so, to what effect ?
Relief. "
Later on, issues Nos. 2-A and 2-B were added, vide trial Court''s order dated 19-4-1962, which are as follows -
"2A. Whether the accounts upto 31-3-1958 had been settled and explained and from 1-4-1958 new account-books of the partnership business had been opened, If so, to what effect ?
2B. Whether with respect to the partnership''s business the plaintiffs had moved the Registrar of the Co-operative Societies and whether the property of defendants had been attached for realisation of the share due to the plaintiff from this partnership ? If so, to what effect ?". The trial court decided issue No. 1 against the plaintiff and in view of its decision on issue No. 1, issue No. 2 was not decided. Issues Nos. 2A and 2B were decided against the defendants and so was the decision on issue No. 3. However, in view of its finding on issue No. 1, the trial Court dismissed the suit of the plaintiff. The appeal of the plaintiff before the Senior Subordinate Judge also met the same fate and that is how the matter has come up to this Court in second appeal at the instance of the plaintiff.
The material points on which the decision of the case hinges are -
Whether the partnership between the parties was only for ginning purposes ? And,
Whether the accounts upto 31-3-1958 had been settled and explained and from 1-4-1958 new account-books of the partnership business had been opened ?
The lower appellate court on the first point has held that the business activity of the partnership was not confined to the ginning purposes only, but in fact the partnership firm also indulged in purchasing cotton and selling Banaula and Rui after ginning the same in the Karkhana. The lower appellate court has further held that since the partnership deed was silent about the object, for which the partnership was constituted, so the said object has to be spelt out from other material and the evidence brought on the record regarding the business activity carried on by the said partnership. Having held that the partnership in question carried on the business of buying cotton and selling Banaula and Rui, the lower appellate Court has further held that this business could not have been carried on without holding a proper licence under the Cotton Control Order, 1955 and since this business activity was carried on in contravention of the Cotton Control Order, 1955 and since the partnership was constituted for the purposes of carrying on the said illegal activity, so the contract of partnership from its very inception was void as being hit by Section 23 of the Indian Contract Act. In this connection, the lower appellate Court relied on S. Vairava Nadar Vs. Pothikachala Nadar, , Velu Padayachi Vs. Sivasooriam Pillai, ; Pisupati Rama Rao v. Tadepalli Papayya AIR 1954 AP 51; Muddi Narayanan & Bro., a Firm v. Subbaraju, AIR 1957 AP 837.
Mr. K. N. Tiwari, learned counsel for the appellant, has assailed the finding of the lower appellate court on two points referred to above and has urged that the object of this partnership was to take on the lease the ginning plant of Budh Ram, respondent No. 1 for the purpose of ginning and since the partnership was managed by defendant No. 1, the proprietor of the firm defendant No. 2, and it carried on the business of buying cotton and selling of Banaula and Rui, for which the defendant No. 2 had a valid license, then the same was beyond the scope of the object of the partnership and accounts of the said activity may not be rendered to him. He has further urged that even if it is held that defendant No. 2 took the plaintiff into a partnership for the purpose of working the licence held by defendant No. 2 for buying and selling cotton, then there is nothing wrong in it and the contract of partnership in question is neither void nor against public policy.
As regards the second point, learned counsel for the appellant has urged that the there is no evidence on the record that the plaintiff agreed to the settling of the accounts of the plaintiff settled the accounts with the defendants. He has further urged that not a single question had been put to the plaintiff in the witness-box that he signed the accounts which were settled with him, in token of his agreement and, therefore, he submits that the said finding stands vitiated as being based on no evidence.
Before dealing with the various contentions of the learned counsel for the appellant, it is desirable to notice the provisions of Section 23 of the Indian Contract Act which are as follows :-
"23. 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 is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immortal, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void."
No provision of law contained in the Cotton Control Order or in any other statute in question to enter into partnership with another person who does not hold a licence for the purpose of working the said licence. In view of this, the object of the agreement of partnership cannot be considered to be one which is forbidden by law or is of such a nature that, if permitted, it will defeat the provisions of any law. The object of the agreement of partnership cannot also be considered either immoral or opposed to public policy in the light of what is stated above. The learned counsel, in support of his submission, has referred to me to certain decisions of various High Courts. The first such decision, that may be noticed, is of own High Court reported in L. Shiv Dayal L. Mela Mal and Others Vs. Firm Bishan Dass Shankar Dass, , where in Pandit, J., for the Court, has observed as under :-
"I am of the opinion that if a licensee under the Opium Act enters into an agreement with a third person to share the profits and 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 the Punjab Government under the Opium Act.
Such an agreement does not involve the ''transfer'' or ''sub-lease'' of the licence. 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 this Act ...................................."
The learned Judge approvingly quoted the following observations from a Division Bench decision of the Allahabad High Court reported in Shiam Bihari Lal v. Malhi AIR 1917 All 54(1) -
"The contract alleged by the plaintiff does not seem to us to be s either a ''transfer'' or a ''sub-lease'' of the licence. The alleged contract would not entitle the plaintiff to sell any goods of any sort of description covered by the licence. As between Government and the defendants, the latter would remain solely liable for the non-performance of the contract and the conditions under which the licence was granted."
The next decision relied upon by the learned counsel for the appellant is Mafizuddin Khan Choudhury Vs. Habibuddin Sheikh and Another, , from which the following observations may be profitably quoted :-
"Section 23, Contract Act, provides that the consideration or object of an agreement is lawful, unless it is forbidden by law. As to what is to be regarded as forbidden by law, the test applied by the Courts has not been uniform. Prohibition, no doubt may be either or implied, but what is regarded to be the implication of a prohibition has led to different interpretations by different High Courts on the same sets of circumstances.
So far as the Calcutta High Court is concerned, the decisions are to this effect that a person who is not the holder of the licence, where under the statutory provisions (e.g. the Bengal Silk Control Order, 1945) licence is to be taken before the article in question can be sold by him, he is not entitled to get a decree from the Court, for the value of the articles supplied, as allowing the claim of such a person would be violating the statutory provisions made restricting the sale to certain persons only.
The decisions rest on the principle that when there is a definite provision forbidding sale, transfer or subletting of a license and a party claims a right for such subletting or transfer as has taken place, the Court should refuse to enforce such contract as the consideration or object of such an agreement was definitely forbidden by law.
Held that a contract of partnership between A and B did not involve any violation or contravention of the Bengal Silk Control Order, 1945, because the Order did not prohibit the formation of any partnership for the starting of a filature or for carrying on a silk business.
* * * *
Section 23 provides that the consideration or object of an agreement is lawful unless the Court regards it as opposed to public policy. Public policy has been described as an unruly horse. It is a vague and perhaps unsatisfactory term, a treacherous ground for legal decision and a very unsuitable and treacherous foundation on which to build. All the same it has been and will be a just ground for a legal decision and the Court has to give a decision whether a particular contract militates against public policy.
Rules of public policy do not belong to a fixed or customary law; they are capable on proper occasions of expansion and modification. Circumstances may change and make a commercial practice expedient which was formerly mischievous to commerce.
During the period of the second world war trading in silk or the manufacturing thereof was a war necessity. Only such persons as were certified under a license issued under the provision of the Bengal Silk Control Order, 1945 by the authorities to be responsible or competent to manufacture would be the persons who would deal with them. And if a licensee retained the control of the business, but to help the Government and the country he had to fall back upon the financial assistance from others, there could be no rule of public policy which would militate against such a person approaching another for financial assistance. Asking for financial assistance therefore without giving the latter party control over the business did not militate against any one of the provisions contained either in the Defence of India Rules or the Bengal Silk Control Order, 1945."
Yet another decision relied upon by the learned counsel for the appellant is Pamulapati Bhushayya Vs. Kommareddy Chinnapareddi and Another, . In that case, the illegality of the partnership was sought to be based on the contravention of Section 6 of the Central Excise and Salt Act (1 of 1944) and Rules 175(2), 178(4) and 210 of the Rules made under the above Act. Section 6 provides that no person without a licence can do any whole-sale purchase or sale (whether as a broker or commission agent) or store any excisable goods specified in part A of the II schedule of which the tobacco is one of the items. Section 7 provides for the issue of a licence for such area, if any, for such period subject to such restrictions and conditions and in such form and containing such particulars as may be prescribed. Section 9 prescribes the penalties, so far as it is relevant, for contravention of any one of the provisions of the notification issued u/s 6 or Section 8, or of any rule made under Clause (iii) of sub-section 2 of S. 37. Clause (2) of Rule 175 made under the powers conferred by Section 37, lays down that if the same person desires to have licences for carrying on business in more than one capacity, he shall submit a separate application and where the applicant has more than one place of business, he shall obtain a separate licence in respect of such place of business. Rule 178(4) provides that :-
"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 thirty 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 the licence shall be bound by the conditions of that licence."
Rule 210 provides for a penalty where no other penalty is provided. It is in the following terms :-
"210. General Penalty : A breach of these Rules shall, where no other penalty is provided herein, be punishable with a penalty which may extend to one thousand rupees and with confiscation of the goods in respect of which the offence is committed.
It has been observed in that case that -
"Where, therefore, a statute merely imposes a penalty without declaring it to be illegal or void, the imposition of penalty by itself does not in our view, have the effect of making any contract made in contravention of a specific provision of the statute illegal or void. It must further be seen whether the statute was designed as a whole to further a public policy.
* * * * *
Section 23, Contract Act, does not hit a partnership made in contravention of Section 6 of the Central Excises and Salt Act and Rules 175(2), 178(4), and 210 framed under the Act, inasmuch as the Act was not designed as a whole to further a public policy, and consequently the settlement of accounts of the partnership and a promissory note executed for the payment of the amount is not void."
The present case is on a better footing as the Cotton Control Order of 1955 does not contain any provision prohibiting a licensee from entering into a partnership with a non-licence holder. Agreeing with the observations of the various High Courts quoted above, I am of the view that the partnership in question is not hit by the provisions of the Section 23 of the said Act and the same is a valid partnership. The four authorities relied upon by the lower appellate court (i.e; S. Vairava Nadar Vs. Pothikachala Nadar, : Velu Padayachi Vs. Sivasooriam Pillai, , Pishupati Rama Rao''s case AIR 19544 AP 51 and Kanumuri Subbaraju''s case AIR 1957 AP 837) are distinguishable. In S. Vairava Nadar Vs. Pothikachala Nadar, which was a case involving the partnership under the Abkari Act, it was observed as follows :-
"Clearly under the Abkari Act, the licence could not stand in the name of more than one person and the evidence of the defendant was that is stood in the name of the first executant of the promissory note (Pillayar Nadar); and that evidence has not been challenged. Therefore, it is quite clear that in the absence of any clear evidence of the permission of the Collector having been obtained for the transfer of the licence to other members of the partnership it became an illegal one. The position therefore is that the business was one forbidden by law and it was so to the knowledge of the plaintiff...................."
Same view was held in Velu Padayachi Vs. Sivasooriam Pillai, which was a case of partnership under the Madras Abkari Act. In the case in hand, the licensee earlier stood in the name of the firm Balak Ram Budh Ram and even after the plaintiff joined the said firm the licensee stood in the name of that very firm and no transfer of the licence was involved.
In Pisupati Ram Rao''s and Muddi Narayanama and Bro''s case, which were cases under the Madras Rationing Order and the Foodgrains Control Order, it was observed that under the above said Orders, a person cannot engage himself in an undertaking involving the purchase, sale or storage for sale of foodgrains except under a licence and the contravention of the prohibition is made punishable under the provisions of the said Orders. There is no dispute with the above proposition of law but in the case in hand the undertaking which has carried on the controlled business activity had a licence in its own name. Further, there is no provision in the Cotton Control Order, as already noticed, prohibiting a licensee from entering into a partnership with a non-licence-holder as also there is no provision punishable under the Cotton Control Order, 1955. Therefore, the position is that the partnership involved in the present case is not forbidden by law and thus it was not illegal or opposed to public policy.
Even if, for the sake of argument, it is held that the partnership in question was void and was opposed to public policy, the parties were not in pari delicto, as the plaintiff was merely a sleeping partner to provide finances to the partnership firm, which had been managed by the defendant Nos. 1 and 3 and the plaintiff had no hand in the management of the same. Since the plaintiff-appellant advanced, the money to the partnership firm, defendant No. 1 as also defendant No. 2, the firm and the defendant No. 3 stood in fiduciary relationship to him and the following the observation of their Lordships of the Supreme Court reported in Sita Ram Vs. Radhabai and Others, , I am of the opinion that, in the circumstances of this case, the Court should not shrink from helping the appellant in having the accounts settled with the defendant-respondents. The said observations of the Supreme Court are as follows-
"The principle that the Courts will refuse to enforce an illegal agreement at the instance of a person who is himself a party to an illegality or fraud is expressed in the maxim ''in pari delicto potior est condition defendants.'' But there are exceptional cases in which a man will be relieved of an illegal contract into which he has entered - cases to which the maxim does not apply. They fall into three classes : (a) where the illegal purpose has not yet been substantially carried into effect before it is sought to recover money paid or goods delivered in furtherance of it: (b)where the plaintiff is not in pari delicto with the defendant (c) where the plaintiff does not have to rely on the illegality to make out his claim.
* * * * * Where the parties are not in pari delicto, the less guilty party may be able to recover money paid or property transferred, under the contract."
The learned counsel for the respondents has, however, urged that once it is held that the partnership carried on not only the ginning business but other business also, then the suit of the plaintiff cannot succeed, because he has only demanded rendition of accounts regarding the ginning business carried on by the partnership firm. There is no merit in this contention of the learned counsel. The suit is for rendition of accounts of the business carried on by the partnership firm in question. Whether the said partnership firm carried on the business of ginning and, in addition to that, other business also and the fact that the plaintiff-appellant mentioned that the partnership firm carried on only the ginning business is not going to make any difference, because basically the accounts that he had demanded are of the business activity of the partnership firm and he cannot be non-suited on the ground that he did not demand the rendition of accounts of the business activity other than the ginning business of the partnership firm.
As regards the finding of the lower appellate Court pertaining to te settling of the accounts of the partnership firm is concerned, I find force in the contention of the learned counsel for the appellant. I have perused the evidence and found that not a single question was put to the plaintiff that he had signed the accounts in token of their being settled. What was put to him was that he had settled the accounts which fact he denied. Since the defendants were controlling the firm and were managing the affairs of the firm and the accounts thereof on their own, they may have prepared a chitha of the accounts, but so long as the same have not been agreed top by the plaintiff and signed in token of the said agreement, the accounts cannot be considered s having been settled. In view of this, the finding of the lower appellate Court stands vitiated.
For the reasons stated above, this appeal succeeds and setting aside the judgment and decree of the lower appellate Court I accept the same with costs. The trial Court is directed to proceed further with the case in accordance with law. The parties are directed to appear before the trial Court on 17-8-1970.
Case Remanded.