1. These are two connected Regular First Appeals Nos. 1 and 2 of 1955 filed by the defendants, arising out of two suits (Nos. 23 and 22 of 1954) which were consolidated in the Court below and were disposed of by one judgment. The entire proceedings were recorded in suit No. 23 of 1954, Firm Bishan Das-Shankar Das v. Shiv Dayal and others.
2. Plaintiffs in suit No. 23 of 1954 prayed for the recovery of Rs. 6,712/12/- while in suit No. 22 of 1954, Shadi Lal Ohri Dharam Arth Trust v. Shiv Dayal and others, plaintiffs claimed Rs. 7,950/11/-. It was alleged in both the plaints that in February or March, 1951, contracts for the sale of opium and poppy heads for various Places in the District of Hoshiarpur were auctioned by the Government, that in order to get these contracts, the three defendants, namely, Shiv Dayal, Chaman Lal and Devi Das, entered into a secret agreement of partnership and obtained the contracts in different names for different places, that according to the rules of the Excise Department they had to deposit in the treasury a part of the contract money for which they required funds, that with a view to procure funds the defendants made a representation to the plaintiffs that they would get their names entered along with them as contractors in the official papers of the Excise Department and would later on duly execute a partnership deed, that on the basis of the said representation the plaintiffs in suit No. 23 of 1954 paid a sum of Rs. 16,505/6/6 and the plaintiffs in suit No. 22 of 1954 paid Rs. 16,500/- to the defendants on various dates beginning from the 22nd March, 1951, that the defendants neither got the names of the plaintiffs entered in the official papers of the Excise Department as contractors along with item nor were they entitled to get the same done according to law, that they even failed to put in an application for the purpose to the Excise Department or get the partnership deed referred to above duly executed, that thereafter on repeated demands by the plaintiffs, the defendants returned on different dates Rs. 11,298/1/9 in suit No. 23 of 1954, and Rs. 10,200/- in suit No. 22 of 1954, leaving balances of Rs. 5,207/4/9 and Rs. 6,300/- in suits Nos. 23 and 22 of 1954 respectively, that the plaintiffs demanded the balances due from the defendants several times through letters as well as orally but the defendants did not pay the same and instead verbally agreed to pay interest thereon, and that the defendants had neither paid the amounts due from them nor performed their part of the contract and therefore the plaintiffs had a right to recover the principal amount due together with interest thereon. It was also alleged in the plaints that the plaintiffs maintained regular books of account in which all these transactions hadbeen duly entered and copies from the same had been attached with the plaints.
3. The suits were resisted by the defendants who pleaded that contracts regarding opium and poppy heads had been auctioned by the Government in the month of February, 1951, that several people were present at the time of auction, that! it was settled that they should form a pool for the purpose of bidding for the contracts so that by entering into mutual partnership the contracts might be obtained at low bids, that it was generally thought that on that basis there would be a profit of about Rs. 1,00,000/-, that the defendants being millionaires the question of taking loans from plaintiffs for depositing contract money in the treasury did not arise, that the following persons entered into the said partnership with their shares noted against their names:
(1) Shiv Dayal defendant---/3/5 in a rupee,
(2) Chaman Lal defendant-- /4/9 in a rupee,
(3) Devi Das defendant--/3/2 in a rupee,
(4) Dwarka Nath, proprietor of Firm Shadi Lal Dwarka Nath, and trustee of Shadi Lal Ohri Dharam Arth Trust, Hoshiarpur-/1/7 in a rupee,
(5) Shankar Das, proprietor of Firm Bishan Das-Shankar Das, Ohri, Hoshiarpur-- -/1/7 in a rupee,
(6) Tek Chand-- -/-/9 in a rupee,
(7) Jiwan Ram -- -/-/9 in a rupee,
(8) Ram Lubhaya --- He withdrew from the partnership before the work was actually started by accepting Rs. 1,500/- as share of the anticipated profits;
that it was agreed that a general partnership of the above mentioned persons be formed but so far as the contracts of Tehsils Garhshankar and Dasuya were concerned, the persons in whose names the auction for any contract was not concluded or other persons should be made to join as parties in the business along with the aforesaid general partnership in order to avoid competition, that accordingly a general partnership was formed under which one partnership in respect of the business at Tehsil Dasuya and another partnership in respect of the business at Tehsil Garhshankar were formed, that it was neither agreed that the names of the plaintiffs would be got entered in the official papers of the Excise Department, nor was it agreed that any partnership deed would be executed nor could their names be added in the business according to law that the plaintiffs did not give the various amounts to the defendants on the basis of the alleged representations made in the plaints, but these amounts were paid as capital money as partners for the purposes of business, that after some time the partners thought that it would be better if writings were made in respect of all the partnerships and accordingly stamp papers for all the three partnerships were purchased and drafts were also got prepared by the Income-tax Adviser but later on the idea of reducing the partnerships to writing was given up, because it was thought that the Government might consider these partnerships to be objectionable and that would affect the procurement of similar contracts in future, that the plaintiffs were estopped by their conduct from instituting these Suits, that in addition to the various amounts admitted to have been received by the plaintiffs from the defendants, each of the plaintiffs in the two suits were given Rs. 1412/9/3 in cash and khashkhash (poppy seeds) weighing 13 maunds 36 seers and 151/2 chhataks valuing Rs. 556/15/6, on the 31st March, 1952, that the defendants neither incurred any debt nor did they agree to give any interest, and nor were the plaintiffs legally entitled to the same, that the plaintiffs had been contributing and receiving money according to their shares in the partnership, that the partnership agreement had been acted upon and on the 31st March, 1952, a balance-sheet was also prepared that the plaintiffs had intentionally made false entries in their account books, that the suit was not maintainable in the present form and that the plaintiffs could have only brought a suit for dissolution of partnership and rendition of accounts.
4. In replication, the plaintiffs denied the allegations made by the defendants in their written statements, and asserted that no Settlement for forming a pool for the contracts was made by the plaintiffs with the defendants or other persons that it was not known that the contracts were auctioned at a low bid or any settlement with regard to the same was made, that as the agreement regarding partnership did not come into existence and no partnership as alleged by the defendants could be formed according to law, the plaintiffs were entitled to get back the various amounts paid by them to the defendants, and that as regards the item of khashkhash, the plaintiffs in suit No. 23 of 1954 pleaded that its price, after payment of brokerage in respect thereof, had already been adjusted in the amounts mentioned in their plaint, while the plaintiffs in suit No. 22 of 1954 denied the allegations of the defendants with regard to this item.
5. Before framing issues, statements of the parties were recorded. Devi Das defendant stated that the partnership was formed before the various payments were made by the plaintiffs, that all the partners had to invest money in the partnership, that after the end of the term the goods left over were distributed amongst the various partners, that all the partners had been taking part in the partnership, that when the partnership ended loss was found to be due from the various partners, that the Oral agreement regarding the partnership was entered into in February, 1951, but the business had commenced from the 1st April. 1951, and it had to end on the 31st March, 1952 and that stamp paper was purchased for writing the partnership deeds three or four months later but those deeds were not written because there were too many partners.
6. Shankar Das plaintiff stated that an oral talk took place that partnership would be entered into but this did not materialise that the various amounts were paid not as loan but as partnership money which was taken in order to make them partners, that no agreement was entered into to pay interest but the same was being charged as their money had been used by the defendants, that Devi Das defendant had sent to him 12 bags of poppy seeds, but these bags did not include any share of Dawarka Nath, and that Rs. 1412/9/3 had not been received by him from the defendants as stated by them in their written statement.
7. Dwarka Nath plaintiff stated that he neither received Rs. 1412/9/3 as deposed to by the defendants nor did he get six bags of poppy seeds, that it was decided to enter into partnership but no partnership deed was executed, andthat the various amounts were not paid as loan but it was a contribution towards the contemplated partnership.
8. On the pleadings of the parties, the following issues were settled:
1. Was there a valid partnership between the parties to the present suit and Tek Chand and Jiwan Ram and therefore the present suits are not competent and there should have been suits for dissolution of partnership and rendition of accounts?
2. In case issue No. 1 is not proved, are the plaintiffs entitled to get back the balance of the moneys paid to the defendants?
3. Are the plaintiffs entitled to interest for the moneys used and if so, at what rate?
4. Have the defendants paid Rs. 1412/9/3 to each of the plaintiffs in cases Nos. 22 and 23 of 1954?
9. The trial Court found all the issues in favour of the plaintiffs and decreed both the suits with costs. The defendants have filed two separate appeals (Nos. 1 and 2 of 1955) in this Court which will be disposed of by this judgment.
10. The following four points were arguedbefore us by the learned counsel for the parties:
1. Whether any partnership did in fact come into existence between the parties to this litigation?
2. If it had come into existence, was it a valid partnership?
3. If it was not a valid partnership are the plaintiffs entitled under the law to the return of the amounts found due to them from the defendants?
4. Are the plaintiffs entitled to any interest from the defendants?
(His Lordship after discussing the facts and circumstances on the first point in Paras 11 to 27, concluded :)
28. In view of all the facts and circumstances mentioned above, I am of the opinion that partnership did in fact come into existence between the parties to this litigation.
29. Coming to the second point as to whether the partnership was a valid one or not, two-objections have been raised by the learned counsel for the plaintiffs-respondents. In the first place he submitted that this partnership contravened the provisions of Section 23 of the Indian. Contract Act and the various Rules framed under the Opium Act, No, 1 of 1878. In the second place, he contended that there could not be a valid partnership of such a kind under the provisions of the Indian Partnership Act.
30. As regards the first objection our attention was invited to the provisions of Section 23 of the Indian Contract Act and to the various Rules made by the Governor of Punjab under Section 5 of the Opium Act No. 1 of 1878. These Rules are called the Punjab Opium Orders, 1956. Particular reference was made to Order 59, the relevant portion of which runs as under:
'59 (1) Any license, permit or pass granted under these orders may, at any time be forthwith revoked, cancelled or suspended by the Deputy Excise Taxation Commissioner (a) if it is transferred or sublet by the holder thereof without the permission of the Deputy Excise and Taxation Commissioner : or
* * *
31. Learned counsel for the respondent submitted that the contract being in the name of the defendants as licencees they could not make the plaintiffs partners by getting money from them and permitting them to share the profit and loss in this business. Such a partnership was in contravention of Section 23 of the Indian Contract Act and Order 59 mentioned above.
32. After hearing the learned counsel for the parties and going through the relevant law and Rules on the subject, 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 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.
33. Almost similar matter came up for decision in Shiam Bihari Lal v. Malhi, ILR 33 All 107 : (AIR 1917 All 54 (1). In that case, after the defendants obtained a licence from the Government to sell drugs, they entered into a contract with the plaintiff that in consideration of the plaintiff advancing some money, the defendants would give the plaintiff the profiles derived to the extent of one anna out of six annas and in the event of there being a loss, the plaintiff would suffer the loss to the extent of one anna. The lower appellate Court reversed the decree of the trial Court and held that the contract was illegal, having regard to the provisions of the Excise Act and the Rules made thereunder. According to it, the Rule which was violated was Rule 82, which was in these terms :
'Transfers and sub-leases of licences are not permitted, except under sanction of the Collector. The Collector shall not allow a transfer or sublease unless good and sufficient reason be shown to his satisfaction and unless the transferee or sub-lessee is in his opinion fit and qualified to hold such licence.'
A Division Bench of the Allahabad High Court set aside the decision of the lower appellate Court and held :
'The contract alleged by the plaintiff does not seem to us to be either a 'transfer' or a 'sublease' of the licence. The alleged contract would not entitle the plaintiff to sell any goods of any sort or 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.'
34. Shiam Bihari Lal's case, ILR 39 All 107: (AIR 1917 All 54 (1)) was followed by another Division Bench of the Allahabad High Court in Radhey Shiyam v. Mewa Lal, AIR 1929 All 210, in which it was observed as under :
'Where an agreement is entered into between the licensee and a third person in consideration of money, contributed by the latter, and the former agrees to give him certain benefits in the share of the profits arising from the business and the latter also takes upon himself the liability arising from losses accruing from the said business it cannot be said that the transaction amounts to a transfer or sub-lease of the liquor contract.'
It was further held that such an agreement does not contravene the provisions of Rule 82 of the Rules framed under the United Provinces Excise Act or Section 23 of the Contract Act.
35. It was also held by the Full Bench of the Allahabad High Court in Gauri Shankar v. Mumtaz Ali Khan, ILR 2 All 411, as follows :
'M took a lease for three years of a Government ferry and covenanted with the Magistrate, who granted the lease, not to underlet or assign the lease, without the leave or license of the Magistrate. M subsequently admitted B as his partner to share with him equally in the profits to be derived from the lease. Held that such partnership was not void by reason of the covenant not to underlet or assign the lease.'
A similar view was taken by a Division Bench of the Bombay High Court in Karsan. Sadashiv v. Gatlu Shivaji reported as 19 Ind Cas 442 (Bom), where it was held :
'A obtained a license to sell liquor under the provisions of the Bombay Abkari Act. One of the conditions of the license was that he would not sell, transfer or sub-let his right to sell liquor. He, subsequently, joined B as a partner in the business and was sued by him for an account of the partnership and for recovery of what might be found due to him. Held, that the contract of partnership was not forbidden by law or opposed to the policy of the Excise Act.'
36. Similar matter came up before the Punjab Chief Court in Basheshar Das v. Gobind Ram, 114 Pun Re 1906, where a person, being the holder of a license under the Excise Act for wholesale vend of liquor, entered into an agreement of partnership with two other persons in the business carried on under the licence. One of the conditions subject to which the license was granted, was, 'No license is transferable'. It was held by Chitty, J. that under the circumstances of the case there had been no transfer of the license within the meaning of the rules and that the contract was not void as opposed to public policy, but was capable of being enforced by one partner against the others. During the course of the judgment, the learned Judge observed :
''Transfer' in the ordinary sense means a making over to another,.......
There has been no attempt made by the plaintiff, by the agreement or otherwise to directly make over the license to the defendants or either of them. He still remains the sole licensee and as such personally responsible to the authorities... ....
This license is for wholesale vend and (unlike some licenses in other parts of India) does not provide that the licensee alone shall personally attend to the sale. Indeed Clause 7 of the license clearly contemplates the employment of servants or agents in the business.
....The taking of a partner in the business is not very different in its effects from the employment of a servant, who is to be remunerated, by a share of the profits. I do not think it amounts to a transfer of the license as forbidden by the rules.
. . . .This agreement cannot per se be regarded as opposed to public policy, in the sense that it is in itself immoral or improper. The only way of bringing it under that clause of Section 23 of the Indian Contract Act would be to show that it directly infringes some positive rule of law or is calculated to defeat its provisions, see Jai Narain v. Sultan Muhammad Khan, 96 Pun Re 1902. There is nothing, so far as I am aware, in the Excise Act of 1896, the license itself, or the condition under which it was granted to prohibit such an agreement.
....... The result of the rulings appears to be that where there is some express prohibition by law, or rule having the force of law, against the action of the contracting parties, the contract will be held void, where there is no such prohibition, it will be upheld......'
37. So far as the Madras High Court is concerned, reference may be made to the decision in Satyala Sanyasi v. Bhogavalli Sanyasi, AIR 1935 Mad 895, wherein Venkatasubba Rao, J., held as under:
'A partnership for the sale of liquor is not per se illegal. What the Rule prohibits is the transferring of the privilege and not the entering into of partnership in regard to it and there is nothing opposed to public policy in entering into such a partnership.''
38. Their Lordships of the Privy Council in Gordhandas Kessowji v. Champsey Dossa. AIR 1921 PC 137, approved of the decision of the Bombay High Court, in which it was held :
'A licensee of salt manufacture cannot be said to contravene the terms of his license where-by he is prohibited from alienating the interest, simply because he admits members of his family and others as partners, who however do not actually take part in the manufacture, nor is there any document directly transferring the right of manufacture to such partners.'
39. Learned counsel for the respondents relied on a Full Bench decision in Velu Padayachi v. Sivasooriam Pillai, AIR 1950 Mad 444. But this ruling is distinguishable On facts. It seems that in that case the revision petition proceeded on the footing that the parties to the partnership agreement sold arrack themselves or through other partners as their agents on a license granted to the defendant alone, in which there was a term prohibiting him from transferring his rights.
In the instant case, however, firstly the license granted to the defendants has not been produced to show which terms thereof were being infringed by the licensee-partners (defendants) and secondly, it has neither been alleged nor proved that the non-licensee (plaintiffs) were either buying or selling opium or poppy heads or doing any other act in contravention of the provisions of Section 4 of the Opium Act No. 1 of 1878. They had merely contributed towards the capital of the business and had an interest in the profit or loss of the partnership. Thirdly, the Wordings of Rule 27 of the Rules framed under the Madras Abkari Act, No. 1 of 1886, are different from Those of Order 59 referred to above.
40. He further relied on a Single Benchdecision in Govindaraj v. Kandaswami Goundar, MR 1957 Mad 186, wherein the learned Judge observed:
''The crucial test is whether or not the partnerswould be guilty of an offence under the Excise Act if they had carried on the business in partnership with the licensee. If the answer is in affirmative it establishes the illegality of the partnership.'
41. In the instant case the non-licensee-partners would not be guilty of any offence under the Opium Act because they themselves were not doing anything in contravention of the provisions of the Act or the Rules made thereunder.
42. He then referred to a Single Bench decision of Gruer, J., in Nandlal Khajanmal Chhatri v. Thomas, J. William, AIR 1937 Nag 250. But in that authority an agreement of partnership was clearly prohibited by Rule 6 made under Section 62 of the Central provinces Excise Act No. 2 of 1915. There is, however, no such prohibition in the Punjab Rules.
43. Learned counsel for the respondents then relied on two authorities reported as Ram Lal Misra v. Rajendra Nath Sanyal, AIR 1993 Oudh 124 and Parduman Chand v. Bawa Kashmira Singh, AIR 1943 Lah 100, for the proposition that an agreement between persons not to bid against one another at an auction sale is unlawful as being opposed to public policy, because it causes loss to the person who intends to sell his property by auction.
44. This view of law is erroneous as appears from Maung Sein Htin v. Chee Pan Ngaw, AIR 1925 Rang 275, Doorga Singh v. Sheo Pershad Singh, ILR 16 Cal 194, Hari Balkrishna v. Naro Moreshvar, ILR 18 Bom 342, Mahomed Mira v. Sawasi Vijaya Raghunadha, ILR 23 Mad 227, Nanda Singh v. Sunder Singh, 37 Pun Re 1901, Nand v. Bhagat Singh, AIR 1932 Lah 32, Mahommad Isack v. Doddapaneni Sreeramulu, AIR 1949 Mad 289 and Mohafazul Rahim v. Babulal, AIR 1949 Nag 113. It would be clear from these authorities that the agreement of the nature with which we are concerned, cannot be held to be unlawful or opposed to public policy. Reference may be made to the decision in P. Ramalingaiah v. N. Subbarama Reddi, AIR 1951 Mad 380, where it was held as under;
'An agreement not to bid against each other in an auction is not illegal under the common law. In England it would appear that there had been an enactment of a statute to remedy the evil of 'a knock out' combination like this. There is no similar statute in India. Such an agreement is not invalid on the ground of public policy and does not invalidate the auction sale.'
45. From the above discussion it would be apparent that the partnership in the present case does not offend against the provisions of Section 23 of the Indian Contract Act or any of the Rules framed under the Opium Act, No. 1 of 1878.
46. Coming to the second objection, namely, that the partnership of this kind is not valid under the Indian Partnership Act, our attention was invited by the learned counsel for the respondents to the provisions of Sections 4 to 6 of the Act and the rulings reported as Debi Parshad v. Jai Ram Dass, AIR 1952 Punjab 284 and Mohammad Musa v. Mohammed Ghouse Sahib, AIR 1959 Mad 379. but great stress was laid on Meenakshi Achi v. P. S. M. Subramanian Chettiar, AIR 1957 Mad 8. wherein it was held :
'As the definition shows, a partnership consists of three essential elements: (i) it must be the result of an agreement between several persons,(ii) the agreement must be to share the profits of a business and (iii) the business must be carried on by all or any of them acting for all. All the three above essentials must exist before a partnership can come into existence; and there must be an intention to become partners.'
47. The three essential elements laid down above are present in the instant case. The partnership in question was the result of an agreement between several persons including the parties to this litigation to share the profits of the business, which had to be carried on by the licencee-partners (defendants) acting for all the other partners including the plaintiffs. It may be noted, that the plaintiffs, who did not possess any licence, were not carrying on the business in the present case.
On the other hand, the defendants, who had a regular licence in their favour, were carrying on the business of the partnership on behalf of the other partners. Had the plaintiffs been carrying on the business, then perhaps an argument could have been raised that being non-licencees they could not do so and could not act as agents of the defendants and other partners. I would, therefore, hold that the partnership in question was valid under the Indian Partnership Act.
48. After hearing the learned counsel for the parties I am of the view that it has not been shown in the present case that the partnership in question offended the provisions of any Act or statutory rules or any term and condition of the licence. The same was, therefore, valid.
49. Since I have held that the partnership did in fact come into existence between the parties to this litigation and that it was a valid partnership; points Nos. 3 and 4 do not arise and no finding need be given thereon. The proper remedy for the plaintiffs was to file a suit for dissolution of partnership and rendition of accounts. The suit as framed is not maintainable and is liable to be dismissed.
50. In the result, I would accept this appeal and Appeal No. 2 of 1955, set aside the judgments and decrees of the Court below and dismiss the plaintiffs' suits. In the peculiar circumstances of these cases, however, I would leave the parties to bear their own costs throughout.
51. I agree.