1. The main facts of the case are not in dispute. The first defendant obtained a license to sell arrack. The principal condition in it with which this second Appeal is concerned is in these terms, 'Para 16. The privilege of supply and vend shall not, without the permission of the Collector previously obtained, be sold, exchanged or sub-leased, nor, if the Collector has ordered, can an agent be appointed, without his permission first previously obtained, for exercise of any such privilege,' The first defendant took the second defendant as his partner without obtaining the, Collector's sanction, Plaintiff had dealings with both the defendants and the suit is for money due on those dealings.
2. The first question is whether the partnership became illegal by the second defendant joining the business. Mr. A. Krishna swami Aiyar, Vakil for the respondent argued that as the license does not in terms prohibit a partnership and as the word 'transfer' is not to be found in it, the transaction was not illegal. He relied on Karsan v. Gatlu Shivaji I.L.R.(1913) Bom. 320 and on Natla Bapiraju v. Puran Achutharajajee (1910) M.W.N. 549. In the latter case the learned Judges based their decision on the fact that the license was not before them;. In Karsan v. Gatlu Shivajee I.L.R.(1913) Bom. 320 the learned Judges say that the omission of certain words in the new license issued by the Government of Bombay indicated a change of intention on the part of the executive not to treat partnership as illegal. We are not in a position to gather the intention of the Madras Government on this subject. We must therefore give to the language of the clause in the license its ordinary meaning. The clause prohibits a sale by a stranger and the employment of an agent. In our opinion the taking of a partner has the effect ordinarily of selling a portion of the business to him. It has certainly the effect of making him an agent for the sale of liquor. As these are prohibited, we think that the partnership is illegal. Nalam Padhmanabham v. Sait Badri Nath Sirdar I.L.R.(1912) Mad. 582. Thithi Pakurudasu v. Bheemudu I.L.R.(1903) Mad. 430 and Maruda Muthu Pillai v. Rangaswami Moopan I.L.R.(1901) Mad. 401 have consistently adopted this view in this Court.
3. The next question is whether the plaintiff had notice of the illegality of the partnership. Mr. Krishnaswami Aiyar relied on the observation of Bowen, L.J., in Hire Purchase Furnishing Company v. Richens (1887) 20 Q.B.D 387 for this purpose. The learned Lord justice had before him a case which would be governed in this country by Section 263 of the Contract Act, It was held that where the carrying on of the business which is prima facie legal becomes malum prohibited under certain circumstances, the burden of proving that the prohibition was known to the lessor was on him. Waugh v. Morris (1873) L.R.8 Q. B. cas 202 is also to the same effect. But these decisions do not affect the present case, As admitted by the plaintiff in his plaint, he knew that the first defendant alone had the license; he knew that the 2nd defendant was taken as a partner and that the partner carried on the business. Under these circumstances it was incumbent upon him to have made enquiries as to whether the Collector permitted the 2nd defendant to join in the business. The burden was on him and we must hold that he has failed to discharge it. We must take it that the plaintiff had knowledge of the illegality of the contract.
4. Now comes the third question which was argued with great insistence by Mr. Narayanamoorthy, Vakil for the appellants. The question is whether, if the transaction is illegal by virtue of the fact that an unauthorised person was included in it, the plaintiff can have no cause of action for dealings he carried on even against the first defendant. It is not denied that the first defendant could have legitimately carried on the business. Nor is it denied that if the plaintiff lent to the first defendant he could have recovered. Does he lose his rights altogether because the second defendant has joined in it? In other words where the transaction is not malum in se but malum prohibitum to a certain extent, is a third party to have no relief? We adopt the statement of law contained in Lindley on Partnership page 127. It is in these terms: 'The illegality of a partnership affords no reason why it should not be sued. It cannot indeed be effectually sued by any person who, being aware of all the facts, seeks to enforce a demand arising out of a transaction tainted with the illegality which affects the firm; but the illegality of the firm does not per se afford any answer to a demand against it, arising out of a transaction to which it is a party, and which transaction is legal in itself. Unless the person dealing with the firm is particeps criminis, there can be no turpis causa to bring him within the operation of the rule ex turpi causa non oritur actio; and he, not being implicated in any illegal act himself cannot be prejudiced by the fact that the persons with whom he has been dealing are illegally associated in partnership.' The cases to which Mr. Narayanamoorthi drew our attention, notably Bani Muncharam v. Regina Stanger I.L.R.(1908) Bom. 581 are cases of transactions being unusual or illegal in themselves. In such cases the person who deals with the defendant is believed to have been particeps criminis and as such not entitled to recover anything. See also Upfill v. Wright (1911) 1 K.B. 506. But where there is nothing illegal or opposed to public policy in the business itself and there is nothing which touches the conscience of the lender, these decisions have no application. It was a perfectly legal business which by the inclusion of the 2nd defendant became inoperative as a partnership. The last question is whether theplaintiff is entitled to recover the whole amount. Mr. A. Krishnaswami Aiyar relied on Jamna Bat v. Vasanta Rao (1916) I.L.R. 39 Mad. 409. P.C. for the position that the first defendant should pay the whole amount. That was a case of a void contract. Here the question is to what extent was the first defendant alone benefitted. Section 45 does not help us in such a case. We think the presumption is that he was benefitted by half the loan. In modification of the decree of the Courts below, we give the plaintiff a decree for half the amount sued for with costs against the first defendant. The second defendant will bear his own costs.