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Sree Ramakrishna Mining Company Vs. Commissioner of Income-tax, Mysore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 9 of 1964
Judge
Reported in[1967]64ITR197(KAR); [1967]64ITR197(Karn)
ActsMineral Concession Rules, 1949 - Rule 37; Indian Contract Act, 1872 - Sections 23; Income Tax Act, 1922 - Sections 26A
AppellantSree Ramakrishna Mining Company
RespondentCommissioner of Income-tax, Mysore
Appellant AdvocateM.N. Venkatachaliah, Adv.
Respondent AdvocateRajasekhara Murthy, Adv.
Excerpt:
- section 149; [ram mohan reddy, j] compensation - claimants were passengers in the goods carriage and not loaders appeal against fastening liability on the insurance company held, the motor vehicle in question, indisputably a goods carriage, meant for carrying goods and not passengers in which the 1st respondent /claimant travelled and sustained injuries. it is for the insured owner of the vehicle to make good the compensation and no liability could be fastened on the appellant / insurer. - 11. but the second question as it reads assumes that there was an assignment by thiruvengadam chetty to venkatarama chetty and, according to the language of the question, it is also further assumed that the assignment was properly made in compliance with the conditions imposed by rule 37. if that.....1. this reference under section 66 (1) of the indian income-tax act, 1922, concerns assessments made for the years 1956-57, 1957-58, 1958-59 and 1959-60. the assessee was described in the orders of assessment as an unregistered firm composed of a certain raja venkatarama chetty, and his son, govindarajulu. 2. it is undisputed that a certain thiruvengadam chetty was the grantee of mining lease under the provisions of the mines and minerals (regulation and development) act, 1948, and the mineral concession rules, 1949. there was an assignment of this lease by thiruvengadam chetty formed a partnership along with six others on november 1, 1954, for carrying by thiruvengadam chetty of the identical mining lease on february 11, 1955, once again to venkatarama chetty. on july 1, 1955,.....
Judgment:

1. This reference under section 66 (1) of the Indian Income-tax Act, 1922, concerns assessments made for the years 1956-57, 1957-58, 1958-59 and 1959-60. The assessee was described in the orders of assessment as an unregistered firm composed of a certain Raja Venkatarama Chetty, and his son, Govindarajulu.

2. It is undisputed that a certain Thiruvengadam Chetty was the grantee of mining lease under the provisions of the Mines and Minerals (Regulation and Development) Act, 1948, and the Mineral Concession Rules, 1949. There was an assignment of this lease by Thiruvengadam Chetty formed a partnership along with six others on November 1, 1954, for carrying by Thiruvengadam Chetty of the identical mining lease on February 11, 1955, once again to Venkatarama Chetty. On July 1, 1955, Venkatarama Chetty formed a second partnership, the partners being himself and his son, Govindarajulu.

3. There were applications for registration under section 26A of the Indian Income-tax Act, 1922, in respect of each of the four periods with which we are concerned in this reference. Those applications were refused by the Income-tax Officer, and the appeals preferred by the assessee to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were dismissed. The refusal of the applications was founded on the view that the partnership on behalf of which applications were sought were not genuine, in the sense that the assignments of the mining lease by Thiruvengadam Chetty to Venkatarama Chetty once in the year 1954, and again in the year 1955, were not valid assignments, since the previous sanction of the State Government was not obtained in regard thereto under rule 37 of the Mineral Concession Rules. This, in our opinion, is how we should understand what was said, although the Income-tax Appellate Tribunal in some part of its order made a casual reference to the fact that there was a power of attorney executed by Thiruvengadam Chetty in favour of Venkatarama Chetty after the assignment on October 31, 1954, and observed in that context that the execution of the power of attorney militated against the assignment.

4. In regard to the application for registration, for one part of the assessment year in 1956-57, the view taken by the Income-tax Officer was that the application was made beyond the time prescribed for that purpose.

5. The four question which we are called upon to decide read :

'(i) Weather it was open in law to the Tribunal to reject the application for registration (or renewal of it) of the partnership deed dated November 1, 1954, on the ground that the application field for obtaining registration of the same was belated when neither the Appellate Assistant Commissioner nor the Income-tax Officer had rejected the application for registration (or renewal of it) on the ground of the belatedness of the said application

(ii) Whether a partnership formed for working mines on the assignment on permission of a person, who held a valid lease from the State government, is hit as being prohibited by the Mines and Minerals (Regulation and Development) Act, 1948, and the Rules made thereunder

(iii) And even if there is there no prohibition, is a partnership of the type mentioned entitled to registration

(iv) Even if the assignment mentioned in question No. 2 is held to be void for lack of sanction of the State Government, can the partnership, which are in the nature of collateral agreements, be held to be illegal or forbidden by law ?'

6. The first question relates to a period of only three month forming part of the assessment year 1956-57. The application for registration was sought by the firm of which Venkatarama Chetty, the assignee from Thiruvengadam Chetty, and six others were partners under the instrument of partnership executed on November 1, 1954. The Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal alluded to the fact that the application, which concerned the period of three months, was made beyond the period prescribed, although as Mr. Visvanatha Iyer, appearing for the assessee, contends that the delay in making the application did not constitute the foundation of the refusal of the registration.

7. However that may be, Mr. Visvanatha Iyer did not contend that the answer to the first question should be in a favour of the assessee. He very frankly admitted that, since the application in respect of that period of three months was made beyond the period prescribed, the answer to the first question should be against the assessee and we answer it accordingly.

8. Questions Nos. 2, 3 and 4 cover the same ground although they are worded in somewhat different phraseology. Mr. Rajasekhara Murthy, appearing for the respondent, made the submission that the real question which we should decide is that presented by the second question and that the answer to the third and the fourth questions would depend upon our answer to the second. We think Mr. Rajasekhara Murthy is right in making this submission.

9. Now, the second question, we must observe, is somewhat awkwardly worded. That question asks us to say whether a partnership for continuing mining operations, or an assignment made by a person who holds a lease or on his permission, is prohibited by the Mines and Mineral (Regulation and Development) Act, 1948 (to which we shall refer as 'the Act') and the Mineral Concession Rules) to which we shall refer as 'the Rules'.)

10. It is common ground that Thiruvengadam Chetty was granted a mining lease. It is also common ground that there were two assignments of that lease by Thiruvengadam Chetty. The first was on October 31, 1954, and the second was on February 11, 1955. The 37th rule of the Mining and Mineral Concession Rules authorities a transfer by a lessee of his rights under a mining lease, provided such transferee has a certificate of approval to which rules 6 and 7 after. Venkatarama Chetty, the transferee, was, it is not denied, a holder of certificate of approval. But what appealed to the Appellate Tribunal and the others who decided the matter was that, since the assignment to Venkatarama Chetty was not proceeded by the sanction of the State Government, the assignment was not properly made and was made in disobedience to rule 37. That was the reason on which was founded the conclusion that there was no genuine partnership and that the partnership was formed in disobedience to law.

11. But the second question as it reads assumes that there was an assignment by Thiruvengadam Chetty to Venkatarama Chetty and, according to the language of the question, it is also further assumed that the assignment was properly made in compliance with the conditions imposed by rule 37. If that be how the question has to be understood, there should be no difficulty in answering in favour of the assessee, since the partnership formed for conducting and working a mine on a proper assignment by the lessee is a good partnership, the information of which would not transgress any statue or statutory provision.

12. But Mr. Rajasekhara Murthy, in our opinion, is right in submitting that the true meaning of the question is whether the partnership formed for working a mine on an assignment which does not conform to the requirements of rule 37 is prohibited by the Act and the Rules. We, therefore, proceed to decide the second question understanding it in that way.

13. It is not very clear from the materials is before us, whether any application was made for the sanction of the State Government under rule 37 of the Rules when Thiruvengadam Chetty made an assignment on the first occasion on October 31, 1954. But from the statement of the case, it transpires that when there was a second assignment on February 11, 1955, there was an application made simultaneously on that date to the concerned authorities for a sanction under rule 37. We shall, at the appropriate stage, advert to what happened in the context of that application. But it is enough now to mention that no order was passed by anyone during the relevant period, and it appears that a communication was issued that the matter was under the consideration of the Government.

14. So, the position is that during the period between November 1, 1954, and June 30, 1955, which was period of the first partnership consisting of Venkatarama Chetty and six others, and, during the period commencing on July 1, 1955, when the second partnership was formed, the assignment did not have the support of a sanction under rule 37. Venkatarama Chetty was nevertheless handed over possession of the mine and he worked it, and to overcome technical difficulties such as might emanate from there being no sanction by the State Government, Thiruvengadam Chetty executed two powers of attorney in favour of Venkatarama Chetty. The first was executed on December 11, 1954, and the second on July 25, 1955.

15. In one part of its order, the Tribunal was disposed to think that the execution of the powers of attorney in this way superseded the antecedent assignments made by Thiruvengadam Chetty, although in the statement of the case, the Tribunal made it clear that the powers of attorney were executed 'to meet the technical requirements of the mining law till the lease was actually transferred'. Mr. Rajasekhara Murthy did not however ask us to say that the execution of the powers of attorney had the effect of superseding the assignment made to Venkatarama Chetty. There can be no doubt that there was no such suppression. It is not however necessary to say anything more about it since none of the questions which are before us asks us to decide whether there was any such suppression.

16. But the argument before us surrounded the question whether the partnership formed by Venkatarama Chetty and six others in one case on November 1, 1954, and that formed by Venkatarama Chetty and his son on July 1, 1955, could, or could not, be registered under section 26A of the Indian Income-tax Act, 1922. The Tribunal observed in one part of its order that no such partnership ever came into existence and there was no genuine partnership which was entitled to registration. In another part of its order, it was said that the transfer of the lease without the sanction of the State Government, which was a condition precedent to the transfer of the lease, made the transfer invalid or illegal. The Tribunal again stated that there is something illegal in the formation of the partnership.

17. It is difficult what exactly the Tribunal had in its mind when it observed that no partnership ever came into existence. That view taken by the Tribunal was founded on the execution of the powers of attorney by Thiruvengadam after the assignment in each case. Since, for reasons already stated and on the submission made by Mr. Rajasekhara Murthy, the powers of attorney had no relevance either to the partnership or to the assignment, we may proceed straight to the consideration of the question which are actually before us.

18. Questions Nos. 2, 3 and 4 involve the same matter. The issue which they pose is whether the registration of the partnership can be refused on the ground that to the assignment made by Thiruvengadam on each occasion, the previous sanction of the Government had not been given. It is on this questions have to be answered against the assessee, and his submission was that, so long as there was no transfer in conformity with rule 37, it was impossible for the transferee to work the mine, and it became equally impossible to form nevertheless one was formed for working a mine, the lease pertaining to which belonged to Thiruvengadam, but had not been properly transferred to Venkatarama Chetty, that partnership was an illegal partnership and so could not be registered.

19. It is clear that the registration of a partnership cannot be refused under section 26A if there is a genuine partnership and one exists in the eye of the law. The refusal of registration is possible only when there is no genuine partnership or the partnership is illegal. We were not asked by Mr. Rajasekhara Murthy to say that there the partnership which was indeed formed between Venkatarama Chetty and his son was illegal partnership. It was in that sense that he asks us to understand the observation made by the Appellate Tribunal that there was no genuine partnership.

20. As already observed, the illegality of the partnership was sought to be deduced from the fact that it was formed, according to Mr. Rajasekhara Murthy, for working a mine in respect of which the lease had been granted to Thiruvengadam from whom there was no transfer of the lease with the previous sanction of the State Government. We were, therefore, asked to say that there was no transfer by Thiruvengadam to Venkatarama Chetty, and that if nevertheless the partnership was formed for working a mine without such transfer, the agreement of partnership was what was forbidden by law or the consideration for it was of such a nature that, if permitted, it would defeat the provisions of the Mines and Minerals (Regulation and Development) Act, 1948, and the Mineral Concession Rules. The argument placed before us was that under section 4 of the Act, no mining lease is valid unless it is in accordance with its provisions and any lease granted contrary to such provisions shall be void and of no effect. With this as the foundation, the further argument constructed was that if Venkatarama Chetty pupated to become a transferee of the lease from Thiruvengadam without the previous sanction of the Government be acquired no rights in the lease granted to Thiruvengadam and the transfer to him was a void transfer within the meaning of section 4 (2) of the Act.

21. The other submission was that rule 37 of the Rules forbids a transfer except with the previous sanction of the Government and so a person, who wishes to carry on mining operations under a lease granted to another without proper transfer by him, infringes the provisions of the 37th rule and, therefore, if a partnership is entered into for that purpose, it is an illegal partnership.

22. Section 4 of the Act reads :

'4. No mining lease to be valid unless it is in accordance with this Act. -

(1) No mining lease shall be granted after the commencement of this Act otherwise than in accordance with the Rules made under this Act.

(2) Any mining lease granted contrary to the provisions of sub-section (1) shall be void and of no effect.'

23. Rule 37 reads :

'37. Transfer of lease. - The lessee may with the previous sanction of the State Government and subject to the conditions specified in the first proviso to rule 35, and in rule 38, transfer his lease or any right, title or interest therein, to a person holding a certificate of approval on payment of a fee of Rs. 100 to the State Government.'

24. We must say at once that section 4 of the Act has really no relevance, since it speaks of the grant of a lease which, according to its provisions, could be granted only in accordance with the Rules made under the Act. What if next provides is that a lease granted contrary to the provisions of sub-section (1) shall be void. We are not concerned in this case with the grant of any lease, not is it contended by Mr. Rajasekhara Murthy that the grant of the lease to Thiruvengadam was contrary to the provisions of section 4 and the Rules. On the contrary, it is disputed that there was a proper grant of the lease to Thiruvengadam.

25. Rules 26 to 36 are the relevant rules which regulate the grant of a lease. The 26th rule provides that there shall be no grant of a mining a lease to a person who does not hold a certificate of approval. Rule 27 prescribes an application for grant of a mining lease and the particulars to be furnished by the applicant. Rule 28 directs the deposit of a fee along with the application. Rule 28A requires that the lease shall be executed within six months of the order sanctioning the lease. Rule 29 to 36 provide for miscellaneous matters such as the deposit of preliminary expenses, survey of the land leased, the declination of the area of the lease, the security deposit to be made by the applicant and the like. It is after these rules that rule 37 appears and it is the rule which provides for the transfer of a lease by the lessee with the previous sanction of the State Government and subject to the conditions specified in that rule.

26. It will be seen from rules 26 to 36 that the grantee of a lease is a person to whom it is granted by the State Government, whereas it is clear from the 37th rule that it speaks of a transfer by the grantee to the transferee. So, while the 37th rule does not concern itself with the grant of a lease to anyone under the preceding rules which regulate the grant of a lease by the State Government, section 4 of the Act whose purpose is to control the grant of a lease by the State Government has no relevance to the transfer of a lease by a person to whom it has already been granted by the State Government. We must, therefore, say that disobedience to the provisions of rule 37 will not amount to a disobedience to the provisions of section 4 and so, while discussing the legality of the partnership with which we are concerned, we must exclude from consideration the provisions of section 4 of the Act.

27. We should now proceed to discuss whether the partnership agreement is liable to the denunciation that it is illegal on the ground that no transfer of a lease was made in accordance with the provisions of rule 37. The only disobedience, according to Mr. Rajasekhara Murthy, to this rule is the omission to obtain the previous sanction of the State Government for the transfer. It would be recalled that the transfer of the lease was made on October 31, 1954, and for a second time on February 11, 1955. It is not the case of anyone that any previous sanction of the Government was obtained to these transfers. But it is a little odd that Thiruvengadam who had once transferred the lease on October 31, 1954, to Raja Venkatarama Chetty, again made a second assignment on February 11, 1955, as if he still continued to be the lessee and there had yet been no transfer by him. It has been explained to us that the second assignment became necessary on account of certain technical defects and it is obvious that it must be so, as can be seen from the two powers of attorney executed by Thiruvengadam in which the recital is that the powers of attorney became necessary to overcome certain technical difficulties.

28. However that may be, Thiruvengadam handed over possession of the mine to Venkatarama Chetty and Venkatarama Chetty was in possession of the mine carrying on mining operations in it at all relevant times. It is seen from the statement of the case that at least two application were presented to the concerned authorities for recognition of the assignment and the second assignment became necessary since the first was not in proper form. Anyhow, on neither of these applications was any order made at any time. The endeavours made by the transferee to secure the sanction sought by him is summed up by the Tribunal in its statement of the case thus :

'It was learnt subsequently that the application made to Geological Department was not in proper form and had not been in strict compliance lessee executed another assignment deed in favour of Raja Venkatarama Chetty and the lessee state that he no longer had any rights or claim in respect of the leases in question and that he had transferred all the rights from that date onwards in respect of the leases in question. On the same day, i.e., on February 11, 1955, an application was made in the required for, after depositing the required fee for the same, to the Director of Geology to transfer the right title and interest of the lessee in the contract of leases in question in favour of Raja Venkatarama Chetty... As mentioned in the assignment deed dated February 11, 1955, the lessee had no interest at all in the leases in question and Raja Venkatarama Chetty had become absolutely entitled to the same and, as before, the latter carried on the business of mining on his own responsibility and on his own account and at his own cost... Therefore, the Geological Department in its letter dated December 1/2, 1955, asked the lessee to clarify the position as to why Raja Venkatarama Chetty was signing the papers. The lessee asked Raja Venkatarama Chetty to clarify the position to the department. Raja Venkatarama Chetty sent a reply to the Geological Department on December 20, 1955, informing the department as to why he was signing the papers... Thereafter, the Geological Department wrote a letter to the lessee and also to Raja Venkatarama Chetty to inform the department as to who was meeting the expenses of the mining business that was being carried on in the areas covered by the mining leases in question. The original lessee replied to the department on February 20, 1956, informing it that Raja Venkatarama Chetty was meeting all the expenses. On March 10/13, 1956, as stated in paragraph 3 above, Raja Venkatarama Chetty who wrote to the department that he was meeting the expenses of the mining operation pending the completion of the assignment. In the applications for assignments addressed to the Geological Department, in addition to mining leases, three prospecting licences also were the subject-matter of the deed of assignment dated February 11, 1955. A portion of this prospecting licence area was converted as a mining area and the State Government has written to Raja Venkatarama Chetty directly in this connection on April 17, 1958. On October 20, 1958, Raja Venkatarama Chetty submitted another petition to the State Government requesting them to expedite the assignment proceedings after detailing there in the difficulties and inconveniences he was experiencing by reason of the assignment proceedings not being completed and requested that the same may be completed early. He also sent two more reminders on December 3, 1956, and February 6/12, 1959, to the same effect. On March 3, 1959, the State Government wrote to Raja Venkatarama Chetty that the question of the assignment of the prospecting licences and the mining leases in question was 'under the consideration of the Government'. Thereafter, further correspondence took place in this matter and interviews had with the Chief Minister and other Ministers and, thereafter, with the Director of Geology. In the course of an interview by the lessee with the Director of Geology, the latter asked the original lessee to write to him he had reaffirmed the assignments in question in favour of Raja Venkatarama Chetty. Accordingly, the original lessee wrote to the Director of Mines and Geology in Mysore, Bangalore, on March 9, 1960, informing the department through a letter of.... consent reaffirming his original assignment application requesting transferring mineral concessions standing in his name in favour of Raja Venkatarama Chetty. In spite of it and although the matter was agitated subsequently, the State Government has not chosen to send a formal communication to Raja Venkatarama Chetty or the original assignee rejecting the assignment application.'

29. It will, therefore, be seen that from February 11, 1955, till March 9, 1960, the matter was under some king of a triangular correspondence between the lessee, the transferee and the concerned authorities and, at one stage, the Director of Geology, in one of the interviews which he had with the lessee, directed him to reaffirm the assignment in favour of the transferee and that he did so.

30. Mr. Rajasekhara Murthy stated that whatever may be the many vicissitudes through which the application for sanction passed, the fact remains that there was no sanction, and that the transfer was not proceeded by such sanction. It was argued that since the partnership was formed for the purpose of carrying on the mining operations under a transfer which had not been sanctioned by the State Government, the partnership was one which was forbidden by law or was of such a nature that, if permitted, it would defeat the provisions of the law within the meaning of section 23 of the Contract Act.

31. Mr. Visvanatha Iyer for the assessee placed before us the submission that we should not spend any time on the question whether there was a proper or legal partnership since the Income-tax Officer himself had assessed the assessee on the basis that it was an unregistered firm. In the assessment made in that way, according to Mr. Iyer, was implicit the recognition of a good and valid partnership and excluded any investigation into the question whether there was any such partnership.

32. We do not think that Mr. Iyer can derive much substance from the fact that the Income-tax Officer made an assessment on an unregistered firm, since the question with which we are concerned in the reference before us is whether the partnership was prohibited by the relevant statutory provisions so its registration was not possible under section 26A. Whatever may be the form in which the assessment was made, we cannot ignore the question referred to us and so, it will be our duty to address ourselves to the validity of the postulate urged by Mr. Rajasekhara Murthy that the partnership was forbidden by law or was of such a nature that, if permitted, it would defeat the provisions of the law which forbade the transfer and which rule 37 incorporates. The question, therefore, is whether that rule forbids the partnership with which we are concerned or would be defeated if the partnership was recognised.

33. The 37th rule, as can be seen from its language, does not concern itself with the formation of a partnership such as the one before us, and its principal purpose is to provide for the transfer of a lease granter under the provisions of the Rules. It is in the nature of an enabling provision which authorises a transfer by the lessee to a person who has a certificate of approval, and directs that such transfer could be made with the previous sanction of the Government subject to the other conditions with which we are not concerned. There is a distinction between a statutory provision which contains an express prohibition against the performance of a certain act and one which enables its performance subject to prescribed conditions. While in the former case, there will be no difficulty in coming to the conclusion if nothing else could be said about it that the absolute prohibition against the performance of the act is what is forbidden by law, the same could not be said if the matter falls within the second category. Now the 37th rule does not, in express terms, forbid a transfer but authorities a transfer with the previous sanction of the Government and subject to other conditions.

34. Considerable argument was expended before us over the question whether a rule of that nature was an imperative rule or whether it is merely directory and it was maintained that if it was merely a directory provision, its infringement did not necessarily lead to the nullification of what it refers to or regulate. Our attention was asked to the other provisions of the Act and of other statutes which contain a clear prohibition against the performance of an act or against the formation of a contract which those provisions in terms forbid. It was urged that while transgression of such statutory provisions would attract the 23rd section of the Contract Act and would make the agreement void, such would not be the case where a transfer is made under rule 37, which does not contain any express or absolute prohibition against a transfer of the lease. In support of this argument, it was submitted that while section 4 of the Act expressly declares that a lease granted in violation of the provisions of the Act or in contravention of the provisions of the Mineral Concession Rules shall be void, there was no similar provision in respect of a transfer not made in strict conformity with the provisions of rule 37.

35. Our attention was also asked to clauses 15 and 16 of rule 41 which contain statutory provisions which must be included in every mining lease, Clause (xv) of rule 41 created power in the State Government to determine the lease in the event of a breach by the lessee or his transferee or his assignee of the conditions specified in clauses 1 to 10 of that rule. None of those clauses speaks to a breach of the conditions of rule 37. On the contrary, it was pointed out that clause (xvi) states that in the case of a breach by the lessee or his transferee or assignee of any of the conditions of the lease, the State Government may require the lessee to pay a penalty not exceeding an amount equivalent to twice of the annual deed rent. We were asked to say that all that could happen in a case where a lessee transfers his lease without the previous sanction, or in disobedience to the other conditions of rule 37, would be the imposition of a penalty by the Government on the lessee and not the invalidation of the transfer.

36. It must be admitted that neither in the Act nor in the Rules and not even in the statutory conditions to be incorporated in a mining lease under rule 41, is there any provision for the nullification of the transfer of a lease for disobedience of the requirements of rule 37. Even on the assumption that clause (xvi) of rule 48 is attracted in a case where there is such disobedience - and we not consider it necessary to express any final opinion on that matter - what the State Government can do is to impose a penalty upon the lessee who made such transfer. Our attention was not invited under which it would be possible for the State Government to refuse to recognise a transfer which was made in disobedience to rule 37.

37. It that be the true position emerging from the relevant statutory provisions which we have discussed, it may be a little difficult for us to accede to the contention that rule 37 is imperative and not merely directory. But it is, however, not necessary of us to proceed to express any very definite view on this aspect of the matter since, in our opinion, our answer to the questions before us can be founded on another ground.

38. In our opinion the real question on which we should focus our attention is, whether as contended by Mr. Rajasekhara Murthy, the partnership agreement is forbidden by rule 37 or whether it is of such a nature that, if permitted, it would defeat its provisions. It is at once clear that since that rule does not contain any terms forbidding any agreement, it would not be possible to sustain the argument that the partnership agreement with which we are concerned is so forbidden. It is one thing to say that the transfer of a lease can be made only in accordance with rule 37 and quite another to suggest that a partnership, which may be formed for the exercise of rights under a transfer which can be so made, is also forbidden unless the transfer itself is properly made. While the rule regulates only the mode of transfer, it does not speak of any contract or agreement for the exercise of a right under the transfer by one or more persons who may wish to take a mining lease under such transfer.

39. The three principles which emerge from section 23 of the Contract Act are these : The first is that an agreement is void if it is statutorily prohibited. The second is that, when the intention of the parties to the agreement when they enter into it, is to disobey the law of to commit an illegal act, the agreement is void. The third is that, if the performance of the act to which the agreement relates is impossible except by disobedience to statutory provisions, the agreement is again void. This was the clear enunciation made by the Court of Appeal in England in St. John Shopping Corporation v. Joseph Rank Ltd., in which Devlin J. said this :

'There are two general principles. The first is that a contract which is entered into with the object of committing an illegal act is unenforceable. The application of this principle depends upon proof of the intent, at the time the contract was made, to break the law; if the intent is mutual that contract is not enforceable at all, and, if unilateral, it is unenforceable at the suit of the party who is proved to have it... The second principle is that the court will not enforce a contract which is expressly of impliedly prohibited by statute. If the contract is of this class, it does not matte what the intent of the parties is; if the statute prohibits the contract it is unenforceable whether the parties meant to break the law or not. A significant distinction between the two classes is this. In the former class you have only to look and see what acts the statute prohibits; it does not matte whether or not it prohibits a contract; if a contract is deliberately made to do a prohibited act, that contract will be unenforceable. In the latter class, you have to consider not what acts the statute prohibits, but what contracts it prohibits; but you are not concerned at all with the intent of the parties; if the parties enter into a prohibited contract, that contract is unenforceable.'

40. It was pointed out by this court in Neminath Appayya v. Jamboorao that the effect of the pronouncement in the above case and that in Waugh v. Morris yields the third principle that while the purpose of a contract, though not illegal at the inception, cannot be performed except by violation of the law, the contract is void.

41. We can accede to the argument advanced before us by Sri Rajasekhara Murthy only if we can say that the contract is void for any one of these three reasons. Since the contract is not a prohibited contract in the sense that neither rule 37 nor any other rule prohibits it, the argument cannot be sustained that the contract of partnership is forbidden by law and is, therefore, void under section 23 of the Contract Act. On the contrary, the 37th rule on which Mr. Rajasekhara Murthy depends, enables the transfer of a lease and so enables the formation of a partnership for working a mine in respect of which a mining lease had been granted through a transfer which could be secured under that rule.

So, the question is whether the partnership was formed with the intention of committing an act prohibited by the statute or whether the partnership cannot function except by disobedience to the law. If it could be said that the intention of the parties was to break the law when they entered into the partnership, it would be easy to say that the partnership was void. But it is not the finding of either the Tribunal or of any one else that Venkatarama Chetty and his son intended to break the law when they entered into a partnership. Mr. Rajasekhara Murthy did not also ask us to say that such was the intention of the two partners; nor is there any material on which we can transport ourselves to the conclusion that such was the intention when the contract of partnership was entered into.

So, what remains to be considered by us is whether the partnership can be denounced as void for the reason that the performance of that contract was impossible except by violation of law. It is obvious that such denunciation is not possible. The partnership, for the reasons we have already mentioned, was a good partnership at the inception, firstly, because it was not prohibited by law and, secondly, because it is not the case of any one that the intention of the partners when they entered into a partnership was to break the law. If that be so, and, the partnership, when it was formed, was a good partnership, it is not possible for anyone to suggest, having regard to the provisions of the 37th rule, that the performance of the partnership contract was impossible except by disobedience to the law.

42. The object of the partnership was to work the mine of which Thiruvengadam was the lessee. No one has suggested that it was the intention of Raja Venkatarama Chetty when he became the transferee or that it was his and his son's intention when they formed themselves into a partnership to work the mine without a proper transfer under the 37th rule. Now, if, therefore, the contract of a partnership was a good partnership when it was the contract of partnership in obedience to the 37th rule. It was possible for them to obtain a transfer from the original lessee under that the rule with the previous sanction of the Government, especially since Raja Venkatarama Chetty, one of the partners who was the assignee from Thiruvengadam, had obtained a certificate of approval under rules 6 and 7. Even on the supposition that the assignment should have been preceded by the sanction of the Government required by the 37th rule, it was possible for the partnership or for Raja Venkatarama Chetty, as the case may be to obtain another assignment from Thiruvengadam with the previous sanction of the Government. It was open to the partners to desist from working the mine until there was a transfer which was preceded by the sanction of the Government and to desist from carrying on the mining operation until there was a proper transfer.

43. The possibility of the partnership securing a proper transfer under the 37th rule clearly excludes the supposition that the working of the mine or the performance of the partnership contract was not possible except in disobedience to the law, and that, in our opinion, is what concludes the matter.

44. The fact the Venkatarama Chetty and his partners did proceed to operate the mines before obtaining the previous sanction of the State Government is not, in our opinion, material. The contract of partnership, when it was made, did not suffer from the vice of illegality and was, therefore, not an illegal contract. The formation of the partnership, without, in the first instance, securing the sanction of the State Government for the transfer has no impact on the legality of the contract. That that is so was enunciated in Marls v. Philip Philiptrant & Sons Ltd. in which the Court of Appeal emphasised the distinction between the illegality of the contract and illegality in its performance. The principle emerging from that decision is that a contract which is not illegal when made does not become illegal by reason of illegality in performance.

45. The argument that the partnership contract, if permitted, would defeat the provisions of the 37th rule does not, in our opinion, rest upon a sound interpretation of section 23 of the Contract Act. The words 'if permitted it would defeat the provisions of any law' occurring in the third paragraph to that section refer to performance without such transgression the agreement is not invalid. This view receives support from Archbolds (Freightage) Ltd. v. Spanglett (S.) Ltd. in which Devlin L. J. said thus :

'It is similar principle of law that if a contract can be performed in one of two ways, that is, legally of illegally, it is not an illegal contract though it may be unenforceable at the suit of a party who chooses to perform it illegally. That statement of the law is meaningful if the contract is one which is by its terms open to two modes of performance; otherwise, it is meaningless.'

46. In our opinion, our answer to the 2nd, 3rd and the 4th questions should therefore be in favour of the assessee.

47. It will be remembered that we have already observed that the first question should be answered against the assessee.

48. Our answer to the four questions which are before us are these :

(1) Our answer to the first question is that it is open to the Tribunal to reject the application for registration of the partnership deed date November 1, 1954, on the ground that the application for its registration was not made within the time prescribed. It should, however, be made clear that this answer has relevance only to the period of three months commencing from April 1, 1955.

(2) Our answer to the second question is that the first partnership by Raja Venkatarama Chetty and his six partners on November 1, 1954, and the second partnership formed on July 1, 1955, by Venkatarama Chetty and his son on the assignment by Thiruvengadam who held a valid lease from the State Government are not hit by the Mines and Minerals (Regulation and Development) Act and the Rules made thereunder.

(3) Our answer to the third question is that those partnerships were entitled to registration.

(4) Our answer to the fourth question is that the partnerships are neither illegal nor forbidden by law.

49. As the assessee has not fully succeeded we make no directions in regard to costs. But we make a direction that there shall be refund of Rs. 400 deposited by the assessee with the Tribunal when the four applications out of which reference arises were made to it.


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