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K. Viswanathan Vs. Namakchand Gupta and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai High Court
Decided On
Case NumberO.S. Appeal No. 44 of 1952
Judge
Reported inAIR1955Mad536; (1954)IIMLJ782
ActsPartnership Act, 1932 - Sections 4; Contract Act, 1872 - Sections 23; Cinematograph Act, 1918 - Sections 8; Specific Relief Act, 1877 - Sections 39 and 41
AppellantK. Viswanathan
RespondentNamakchand Gupta and anr.
Appellant AdvocateT.R. Srinivasa Iyengar, Adv.
Respondent AdvocateC. Srinivasachari, Adv.
Cases ReferredVcnkataswami v. Venkatasub
Excerpt:
cinematograph act (ii of 1918), section 8 and rules 7 and 9--scope of--licence issued under act--prohibition, of transfer of licence allowing another person to exhibit films--licence in favour of only one partner--agreement providing licence to enure for partnership--entire partnership illegal, as contravening prohibition--contract violation of statute--no penalty provided--test to determine if contract illegal--licence under cinematograph act--public bebefit--contract in breach of--illegal contract--party not aware of illegality when contracting--relief not to be denied--specific relief act (1 of 1877), sections 39 and 41--suit for cancellation--compensation--plaintiff when liable;an agreement of partnership relating to the business of running a theatre as a cinema house, which provided.....1. this is an appeal by the plaintiff against the judgment of balakrishmt aiyar j., dismissing his suit c. section no. 29 of 1931 on the file of the original side of this court. the plaintiff is a person with considerable experience in cinema business. sometime prior to 26-2-1949 he entered into an agreement with the owner of a theatre called the chitra talkies in komaleswaranpet, madras, for taking it on lease for a period of four years with an option to renew the same for a further period of four years. in pursuance of this agreement he actually entered into possession of the theatre on 1-4-1949 and equipped it with the talkie machinery, electric fittings, furniture and so forth so as to make it suitable for exhibiting films. meantime on 26-2-1949 the plaintiff and the defendants had.....
Judgment:
1. This is an appeal by the plaintiff against the judgment of Balakrishmt Aiyar J., dismissing his suit C. Section No. 29 of 1931 on the file of the original side of this court. The plaintiff is a person with considerable experience in cinema business. Sometime prior to 26-2-1949 he entered into an agreement with the owner of a theatre called the Chitra Talkies in Komaleswaranpet, Madras, for taking it on lease for a period of four years with an option to renew the same for a further period of four years. In pursuance of this agreement he actually entered into possession of the theatre on 1-4-1949 and equipped it with the talkie Machinery, electric fittings, furniture and so forth so as to make it suitable for exhibiting films. Meantime on 26-2-1949 the plaintiff and the defendants had entered into a contract, Ex. P. 1 whereby they agreed to run the theatre in partnership.

It is provided in Ex. P. 1 that the plaintiff was to obtain a registered lease deed for the premises and also a licence for running the theatre as a talkie house and that thereafter a regular partnership deed should be executed. The capital for the firm consisting of equipments and the furniture was fixed at Rs. 1,30,000 and the defendants paid the plaintiff a sum of Rs. 65,000 for their half share thereof. It was expressly provided in the agreement that "the benefits of the lease and of the furniture and fittings and other equipments and machinery and goodwill of the theatre together with the benefits of the licences obtained therefor should be the properties of the partnership." On the the same day the defendants agreed as per Ex. D. 7 to pay the plaintiff a further sum of Rs. 60,000 -in consideration of "all the pains and troubles taken and to be taken by him thereafter for the purposes of improving, equipping and furnishing the theatre". The plaintiff obtained a registered lease deed for the premises, Ex. P. 3 dated 19-5-1949 and a licence for running the talkie on 11-8-1949, both of them in his own name and a formal partnership deed, Ex. P. 2, was also executed on 5-9-1949.

2. As appears from paragraph 5 of the plaint and paragraphs 6 and 8 of the written statement, the affairs of the partnership did not progress smoothly. On 16-12-1949 it was decided by this court in -- 'Velu Padayachi v. Sivasooriain', (FB) (A), that a term of the licence that it should not be assigned or transferred or sub-let would be violated if the licencee entered into partnership with reference to the subject-matter of 'the licence and that such a partnership would be illegal and void. This decision was reported in the unoificial journals sometime in March 1950. Vide '1950-1 Mad LJ 315 and 63 Mad LW 234 (A).' It is suggested by the defendants that taking advantage of this decision and the fact that the licence stood in his name, the plaintiff was anxious to throw up the partnership.

On 4-4-1950 the plaintiff received a notice from the Income-tax Department Ex. P. 4 that the partnership with reference to Chitra Talkies was illegal and void 'ab initio' under the Full Bench decision in ' (A)', and the plaintiff would alone he considered as the sole proprietor of the concern.

The defendants contend not without reason that the plaintiff himself must have manoeuvoured to get this notice with the object of repudiating the partnership. Armed with Ex. P. 4 the plaintiff sent on 7-4-1950, a notice to the defendants, Ex. P. 5 that as there could be no transfer of the licence relating to Chitra Talkies the partnership was void 'ab initio' and that the plaintiff was the sole proprietor of it. The defendants maintained in their reply Ex. P. 7 dated 20-4-1950 that the partnership was not illegal, that it continued to subsist and that the plaintiff could not claim exclusive rights in the business. They also applied to the Commissioner of Police by Ex. P. 6, dated 19-4-1950 that the licence might be renewed in the name of the partnership. On 24-4-1950 the Commissioner of Police sent a memo, Ex. P. 8 to the plaintiff drawing his attention to the fact that by taking a partner he had broken condition No. 7 of the licence, and calling upon him to show cause why the licence should not be cancelled or in the alternative why it should not be renewed in the name of the partnership;

The plaintiff replied on 27-4-1950 by Ex. P. 9 that the partnership was illegal and void 'ab initio' and that accordingly the licence might be renewed in his own name and it was also staled that the matter was sub judice. On 17-5-1950, the Commissioner of Police passed an order Ex. P. 10 cancelling the licence altogether. Thereupon the plaintiff instituted the suit out of which this appeal arises for a declaration that the partnership was illegal and void 'ab initio' as being in contravention of condition No. 7 of the licence and for an injunction restraining the defendants from interfering with the rights of the plaintiff as the sole proprietor of the business. The defendants resisted the suit on several grounds. They pleaded that the partnership was not illegal, that even if the partnership was illegal that did not affect their rights in the theatre premises furniture and fittings, that_ the declaration prayed for should be refused as the object of the plaint-tiff was to defraud the defendants of large sums of money paid for the purpose of the partnership and that in any event the grant of relief should be made conditional on the plaintiff repaying to the defendants all the sums paid by them with interest.

3. On these pleadings the following issues were framed:

1. Is the partnership deed dated 5-9-1949 entered into between the plaintiff and defendants illegal and void 'ab initio'?

2. Is the plaintiff disentitled to claim any relief on the footing of the illegality at or invalidity of his own deed?

3. Are the defendants entitled in any event to the Theatre premises and the fittings and furniture therein?

4. Are the defendants entitled to claim reimbursement of all monies paid by them with interest before any relief could be granted to the plain-tiff?

5. To what relief are the parties entitled? The suit was tried by Balakrishna Aiyar J. He held on issues 1 and 3 that the partnership in so far as it related to carrying on of the business of exhibiting films was in contravention of condition No. 7 of the licence and was therefore void; that the partnership was legal in respect of other matters comprised in Ex. P. 2, such as the lease of the premises, the furniture and the equipment and the contracts with the Electricity Department and the Commercial Credit Corporation and so forth. Under issue No. 2, he held that as the grant of declaration was a matter of discretion with the court we should refuse the same to the plaintiff as his action was fraudulent.

On issue No. 4 he held that if the plaintiff was to get declaration it can only be on condition-that he repays all the monies received from the defendant on account of the partnership, and that as the parties were not agreed on the figure the matter would have to be referred to the Official Referee for its ascertainment. But in the view which he took on issue No. 2 he did not consider it necessary to refer the matter to the Official Referee and he dismissed the suit with costs.

The plaintiff appeals and contends that on the finding that the partnership in so far as it related to carrying on of the cinema business under the licence was illegal it should have been held to bo illegal in its entirety and that the declaration ought to have been granted as prayed for. In support of the decision, the respondents questioned the correctness of the finding on issue No. 1 that the partnership was illegal with reference to the business covered by the licence.

4. It would be convenient first to consider whether the partnership is illegal as contended for by the plaintiff as that goes to the root of the matter. That contention is based on the decision of the Full Bench of this court in ' (A)'. . There four persons entered into partnership. The defendant was to obtain the licence for running an arrack shop and the profits were to be shared equally among the partners. The defendant obtained the requisite licence and the business was conducted by the partners for the period of the licence Accounts were then settled between them and the suit was by one of the partners for recovery of money due to him under that settlement. The suit-was contested on the ground that the partnership was in contravention of It. 27 which is as follows: "No privilege of supply or vend shall be sold, transferred or subrented without the Collector's previous permission."

There was a conflict of authority in this court as to whether a licence could be said to be transferred under this rule when there is first a partnership and then a licence obtained in the name of one of the partners. It was held by the Full Bench-to adopt the headnote, that

"a partnership entered into for the purpose of conducting a business in arrack or toddy on a licence granted or to be granted to only one of them is void 'ab initio' whether the conduct of the partnership was entered into before the licence was granted or afterwards."

In this case Clause 7 of the licence runs as follows;

"The licencee shall not, without the permission of the licencing authority, assign, sublet or otherwise transfer the licence or the licenced premises; nor shall the licencee, without the permission as aforesaid allow any other person, during the period of currency of the licence, to exhibit films in the licenced premises."

As this clause is substantially in the same terms as Rule 27 it should follow on the authority of the decision in ' (A)',

that the suit partnership is illegal in so far as it relates to the business which is subject-matter of the licence. That was the decision of Balakrishna Aiyar J.

Mr. C. Srinivasachari, the learned advocate for the respondents sought to distinguish the decision in ' (A)', on several

grounds. Firstly he contended that the agreement of partnership, Ex. P. 1 dated 26-2-1949 expressly provides that the licence should be obtained by the plaintiff for the benefit of the partnership and that by reason of this agreement the licence became, when obtained, the property of all the partners by virtue of Section 88 of the Trusts Act and that there could be no question of what belonged to them being transferred to them. But then this is the very question that was decided in ' (A)', and this is what the court observed with reference to the contention urged by Mr. C. Sri-nivasachari at pages 446-447.

"The general argument of Mr. Ramachandra Aiyar is that there a partnership is entered into 'before the licence is granted, no transfer is involved; because in accordance with the principle, underlying Section 88 of the Trusts Act, the licence becomes the property of the partnership as soon as it is acquired. We do not however agree; for this equitable principle merely requires that the partner acquiring the asset should hold it for the partnership. Even when immoveable property is acquired, the legal ownership would be in the partner who had purchased the property, though equity would require that he should hold it on behalf of the partnership. A 'fortiori, when a licence, which is a personal privilege to vend, is acquired by one partner it is certainly his licence and not the licence of the partnership. Since it was granted to him on the express understanding that it was to be used by him and by him alone, its use by the partnership would involve a transfer in precisely the same way as it would if the partnership were entered into after the licence was issued.

'On the question of public policy it is difficult to see any difference between the object of a partnership entered into before the licence was granted and one entered into after it was granted. In either case, the partnership would be entered into for the purpose of bringing about a result prohibited by law, i. e., the vending of arrack by a person who had no licence to do so."

5. In coming to this conclusion, the learned Judges followed the decision of this court, in - "Marudamuthu Pillai v. Rangaswami Moopan', 24 Mad 401 (B), where it was observed

"We should hold that the contract was invalid also On the ground that the licence in each case was to be obtained by only one of the partners. The provisions of the Abkari Act, as a whole, show clearly (hat every person carrying on abkari business as a principal must be licenced under the Act. The reason is obvious that, unless he were licensed, there could be no control over him. To hold that a person who has not got a lictence could still he partner with one who had a licence and as such partner, carry on the business with or with- out the other would enable the unlicensed partner to evade the liabilities intended by the law to be cast on persons carrying on abkari business." The facts in 'Nalan Padhmanabhan v. Sait Badri-nath', 35 Mad 582 (C), were also similar and the decision was that the partnership was illegal. In 'Ramanaidu v. Seetaramiah', AIR 1935 Mad 440. (FB) (D), there was firstly an auction sale in which the defendant became the successful bidder; then he entered into a partnership with reference to the business - with the plaintiff & the licence itself was actually issued in the name of the defendant after the formation of the partnership. It was held that the partnership was illegal. In view of these autherities this - contention must be overruled.

6. It is next contended that even if the suit partnership is in contravention of Clause 7 of the licence, it should nevertheless be held not to be illegal on the authority of ' (A)', as that was a decision under the Abkari Act and that there was material difference between that Act and the Cinematograph Act (2 of 1918).

7. It was argued that while under the Abkari Act there was in addition to Rule 27 which prohibited the transfer of a licence a provision, Section 55 making it an offence to sell intoxicating liquor in contravention of the Act, there is nothing corresponding to that provision in the Cinematograph Act making an exhibition of a film by a non-licencee an offence; that while a transfer of the licence under the Abkari Act would involve the commission of an offence under Section 55 no such consequence would follow by a transfer in violation of, Clause 7 of the licence under the Cinematograph Act; that the partnersehip formed in breach of Clause 7 would, therefore, be not illegal though the licence itself might be liable to be cancelled under Clause 7. The contention of the plaintiff on the other hand, is that the transfer of a licence in contravention of Clause 7 would be an offence punishable under Section 8(1) of the Act which is as follows:

"If the owner or person in charge of a cinematograph uses the same or allows it to be used, or if the owner or occupier of any place permits that place to be used in contravention of the provisions of this Act or the rules made thereunder, or of the conditions and restrictions upon, or subject to which any licence has been granted under this Act, he shall be punishable with fine which may extend to one theusand rupees."

Mr. C. Srinivasachari argues that on its true construction Section 8 has no application when the conditions of a licence are broken, that under Section 3 of the Act it is the premises that have to be licenced; that under Section 8 it is the use of the premises, in contravention of the provisions of the Act or the rules that is made punishable and that a transfer of a licence in violation of Clause 7 is outside its purview. He relied on the following observations of Avory J., in -- 'Bruce v. Me Manus', 1915-3 KB 1 at p. 8 (F,), on the corresponding provision of the English Act:

"The section provides that two persons may be guilty of offence; first the owner of the apparatus if he allows it to be used in contravention of the provisions of the Act and secondly the occupier of the premises if he allows the premises to be used in contravention of the provisions of the Act. I think it was intended there to hit the occupier of the premises quite apart from the question whether he is the holder of the licence or not." It is argued on the basis of these observations that Section 8 is concerned only with actions of persons in possession of the premises and that questions relating to the breach of the conditions of the licence are outside its scope.

The decision in '1915-3 KB 1 (E)', does not when examined, lend support to the wide contention urged by the respondents. The facts of that case were that a company was the owner of a cinema house and a licence for a period of one year had been issued for the premises on 5-4-1914 in the name of one Rankin who was then its manager on 20-6-1914. Kankin ceased to be the manager of the company and one Bruce was appointed in his stead. The licence was transferred in his name on 12-8-1914. He was prosecuted under Section 3 of the English Act, corresponding to Section 8 as an occupier for allowing the premises to be used between 20-6-1914 and 12-8-1914 for exhibitng films when there was no licence holder though the promises themselves were licenced for the period, It was decided that Bruce was not an occupier within (he meaning of Section 3 because he was only an employee of the company which owned the premises and that the legal position was that the company alone was the occupier and not Bruce. This decision is an authority only on the meaning of the word "occupier"; it is no authority on the question whether the breach of the condition of the licence is an offence under that section. It is true that Lush J., made a passing observation that, as exhibitions were not given at premises which were not duly licenced there was no offence committed but he added that it was unnecessary to decide the point. And it is noteworthy that as Bruce was charged for having permitted the use of the premises while the licence stood in the name of Kankin the fact of the premises being licenced could not have been thought of as a simple answer to the prosecution.

8. Balakrishna Aiyar J., was of the opinion that if a licencee admitted partners into his business in contravention of Clause 7, 'that would be punishable under Section 8. According to the decision in '1915-3 KB 1 (E) all persons who have the right to control will be occupiers for the purpose of the section and it does seem arguable that when a licencee occupier takes a partner he thereby clothes him with authority to exercise control and as that amounts to conferring on a non-licencee the rights of an occupier, that would bo a violation of Section 8(1) of the Act. In - 'Theatre De Luxe (Halifax) Ltd. v. Gledhill, 1915-2 KB 49 at p. 56 (F), it was observed by Itowlett J., at page 56 that the user prohibited by the section was not user by the public who are admitted for the shows but by the management. If that is so, the participation in the management by an unautherised person would appear to bo an olfence under Section 8.

But it is unnecessary to decide this point as we are of opinion that the partnership was illegal by reason of the prohibition contained in Clause 7 of the licence, even though it may not he punishable under Section 8. The assumption underlying the contention of the respondents is that it is not sufficient to render a transaction illegal, that it is in contravention of some provision of law or rule but that it must, further appear that it was the intention of the Legislature to prohibit the transaction altogether and that such an inference could be drawn when the contravention is made punishable but not otherwise. That, however, is not the correct position. The following statement of law in Pollocks Principles of Contract, 10th Edn. at p. 329, was quoted with "approval by, a Bench of this court in -- 'It alia v. Cowasjee', AIR 1944 Mad 295 at p. 297 (G).

"(a) When a transaction is forbidden the grounds of the prohibition are immaterial, Courts of Justice cannot take note of any difference between" 'mala prohibita' (things which if not for- bidden by positive law would not be immoral) and 'mala in se' (i. e., things which are so forbidden as being immoral), (b) The imposition of a penalty by the Legislature on any specitic act or omission is prima facie equivalent to an express prohibition."

It will be seen from this that when a penalty is imposed for contravention of a provision of law that can be taken as an indication that the transaction is prohibited but it does not follow from this that where there is no penalty imposed the transaction may not be illegal. The true legal position is thus stated by the same learned author at page 331:

"When conditions are prescribed by statute for the conduct of any particular business or profession and such conditions are not observed, agreements made in the course of such business or profession-

are void it if appears by the context that the object of the Legislature in imposing the condition was the maintenance of public order or safety or the protection of the persons dealing with these on whom the condition is imposed;

are valid if no specific penalty is attached to the specific transaction and if it appears that the condition was imposed for merely administrative purposes, e.g., the convenient collection of the revenue."

Thus when there is no penalty imposed for the transgression of a rule the question whether a contract is illegal should be determined on a consideration of the purpose behind the legislation. There are provisions enacted for the purpose of revenue and in the interests of administration. In such cases, the matter is one between the Government and the licencee and no question of illegality will arise but when the provision is enacted in the interests of the public and for promotion of its welfare a contravention thereof must be held to be illegal.

The decision in -- 'Nazaralli Sayed Imam v. Babamiya Dureyatinsha', AIR 1915 Bom 244 (H) relied on by the respondents falls under the former category. It was a case under the Forests Act. In pursuance of an agreement of partnership, the defendant became the successful bidder at a Government auction of grass in nine forest coups and a licence was issued in his name. Rule 2 of the licence provided that "without previously obtaining the permission of the Divisional Forest Officer this contract in whole or in part of it or any interest in it should not be sublet or assigned to any man." The question was whether the agreement of partnership entered" into in breach of this rule was void under Section 23 of the Contract Act. In holding that it was not, the Court observed:

"We are unable to find any provision of statute law which makes it obligatory upon the parties to observe the conditions of the licence. Of course, the licence can be revoked by the Forest Officer if the licencee disregards the terms of it. It does not follow from this that an agreement to share profits which would contravene the terms of the licence as between the Forest Officer and the licensee is forbidden by law or would defeat the provisions of any law."

9. It will be seen that when the Government granted a licence for removing grass from their forests they were merely acting in management of their own properties and no question of public interest is involved. The licence of a cinema house stands entirely on a different fooling. It is intended for the protection of the public who resort to the cinema house. That is the prime object of all regulations contained in the licence and a breach of these rules must accordingly he held to be illegal.

10. It was nest argued for the respondents that the word "transfer" in Rule 7 had not the same meaning which it bears in Rule 27 of the Abkari rules; that while the appointment of an agent is prohibited under the Abkari Act, Rule 19 of the rules framed under the Cinematograph Act expressly recognises that a licenee might put an agent in charge of the concern; that as every partner is in law the agent of the other partners, a partnership with reference to cinema licence amounts only to the constitution of agents and that in consequence while a partnership with reference to the Abkari licence would be a transfer prohibited by Rule 27 as held in (A), it will not be so under Rule 7. The contention is that read along with Rule 19, Rule 7 prohibits only transfers which completely divest the licenee of all interests in the concern. We are unable to accept this contention. When Rule 19 provides that,

"the licenee, his servants and agents shall comply with all orders issued by the Chief Electrical Inspector."

it has in contemplation a person appointed by a licensee to perform his functions as his agent. It has no reference to persons who may be regarded in law as agents for certain purposes and under certain conditions. In the context an agent is a person different from the licensee; whereas in a partnership every partner fills a dual capacity of both a principal who will be bound by the acts of his partners and an agent who can bind them as principals. The Act is clearly concerned with one who is an agent in fact and not under a rule of law. We must, therefore, hold that the decision in (A) governs the rights of the parties and the partnership in so far as it relates to the carrying on of the business under the licence must be hold to be illegal and void 'ab initio.'

11. The next point to be decided is whether on this finding the entire partnership is void as contended for by the appellant. The contention of the respondents is that the partnership related to several matters other than Exhibition of films such as acquisition of the lease, the furniture and other equipments, contracts with the Electricity department and so forth and that it was valid and subsisting as regards these matters. This contention was accepted by Balakrishna Aiyar J. who declared that "the defendants would be entitled to the rights of the theatre premises and fittings and the furniture therein" as partners. There can be no doubt that if the partnership consisted of several distinct matters, the illegality of some of them will not render it illegal with reference to the others. This is how the position is stated in Lindley on "Partnership" (llth Edn. at page 119) "Neither' does it by any means follow that because one or more clauses in a contract of partnership are illegal the partnership is itself illegal." Vide also the observations of Willes J. in -- 'Picketing v. IIfra-combe Railway', (1868) 3 CP 235 at p. 250 (I).

If, therefore, the suit partnership comprised matters cither than exhibition of films under the licence it will be valid to that extent. But what are these other matters? They are, it is claimed, the rights in respect of the lease, the furniture, equipments and so forth. Can it be said that the parties stand in the relationship of partners with reference to these matters? There can be a partnership only if there is some business to be carried on under it. Where there is no business to be done there can be no question of partnership. The existence of a business is a-'sine qua non' of partnership. Section 4 of the Indian Partnership Act (9 of 1932) defines "partnership" as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. In - 'Mollwo March & Co. v. Court of Wards', 10 Beng LR 312 at p. 320 (PC) (J), the Privy Council observed "To constitute a partnership, the parties must have agreed to carry on the business and to share profits in some way in common."

In Exs. P. 1 and P. 2 the only business which the patties agreed to do was the exhibition of films. The lease of the theatre was taken only for the purpose of that business; the furniture and other equipments were acquired only for that purpose. These form the capital which was invested in the business and it is on this basis that they were valued at Rs. 1,30,000 and the defendants paid a half of it as their contribution to the capital. Neither the taking of the lease, Ex.' P. 3, nor the purchase of the furniture and equipment can, therefore, be regarded as themselves constituting business; they are only assets with the aid of which business was to be carried on. The true position of the parties with reference to these assets is that they are co-owners thereof each being entitled to a half share therein. Mere co-ownership of property does not amount to partnership though when utilised in business it may become partnership property. As we are of the opinion that the only business contemplated by the agreement was the running of the theatre as a cinema house and that was illegal the entire partnership was illegal and must be declared void 'ab initio.'

12. Then the question is, to what reliefs are the parties entitled? Having held that the partnership was at least in part illegal and void, the learned Judge declined to grant the declaration for the reason-that the grant of such a relief was a matter of discretion with the court and that the plaintiff was disentitled to it by reason of his fraudulent conduct. We agree with the learned Judge that if the matter were to be regarded solely from the standpoint of the plaintiff the relief should be refused. It is clear from the records that after having induced the defendants to invest large amounts in the business as partners under Exs. P. 1 and D. 7 the plaintiff wanted to back out of the agreement and the decision in AIR 1930 Mad 444 (A) furnished him with a convenient weapon to get rid of them. If his fear was that he might be proceeded against on account of the illegality of the agreement, Ex. P. 8 the memo from the Commissioner of Police gave him an excellent opportunity to set the matter right. He, however, declined to do so and commenced this action. In such circumstances, the court should properly refuse to grant what is an equitable relief to one who, having betrayed the confidence which his partners had placed in him, seeks the assistance of the court for defrauding them of their rights.

But then we have to see what the consequence of the dismissal of the suit would be on the rights of the defendants. The partnership being illegal they cannot sue to work out their rights as partners. Apart from the deed of partnership, it is the plaintiff who has the legal title to the leasehold interest and it was he that was in charge of the business until a receiver was appointed pending the suit. The dismissal of the suit would terminate the receivership and the defendants cannot, therefore, derive any benefit from it. The result would the that they would find themselves in a position where it will not be possible for them to get relief in respect of the large investments made by them in the business. In their interest, therefore, it is desirable that the partnership should be declared void 'ab initio' subject to such directions as might be necessary to protect them.

13. It was argued for the respondents that as the claim of the plaintiff vested on an allegation that he was a party to an illegal transaction, no relief could be granted to him by reason of the maxim "Nemo allegans turpitudinem suam est audiendus'. In support of that position reliance was placed on the decision in -- 'Vcnkataswami v. Venkatasub-bayya', AIR 1932 Mad 311 (K), and the following passage in Halsbury's laws of England, Vol. VII, paragraph 248 at pages 173 and 174:

"Where the object of a contract is illegal the whole transaction is tainted with illegality, and no right of action exists in respect of anything arising out of the transaction, In such a case, the maxim "In pari delicto potior est conditio defendant is' applies and the test for determining whether an action lies is to see whether the plaintiff can make out his claim without relying on the illegal transaction to which he was a party."

But it must be noted that this is not a case where the plaintiff entered into a contract with any knowledge of its illegality. The learned Judge was inclined to hold that the plaintiff might have honestly believed in the belief that it was legal or else they would not have provided quite plainly in the agreement that the licence was to be obtained by the plaintiff and that it was to become the partnership property. It was only subsequently when the decision in (A) was reported that the plaintiff must have become aware of the illegality of the transaction. Under the circumstances, relief cannot be denied to the plaintiff on the basis of the maxim 'Nemo allegans turpitudinem suam est audiendus'.

14. Balakrishna Aiyar J. was of the opinion that if the plaintiff was to be granted a declaration it must be on condition that he repays to the defendants all the amounts received from them on ac- count of the partnership. This is a condition which we are entitled to impose before granting the declaration in favour of the plaintiff. If a suit is laid under Section 39 of the Specific Relief Act for cancellation of an instrument which is cither void or voidable the court can require the plaintiff under Section 41 to make such compensation as the justice of the case may require, as part of the adjudication. The plaintiff in this case prays for a declaration that the partnership deed is void and for an injunction restraining the defendants from interfering with the rights of the plaintiff in the business as its sole proprietor. In substance the suit is for cancellation of the deed of partnership. In the interests of justice the plaintiff should be directed as part of the adjudication that the instrument is void, that he should repay all the amounts received by him from the defendants on account of the partnership.

As the exact amount payable to the defendants has not been determined the matter will be re- milled to the Official Referee for ascertainment thereof. The defendants will be entitled to interesat six per cent per annum on the amount advanced by them, interest to run from the date of the several advances. It is stated that considerable amount have been paid to them by the receiver who ha been in charge of the business during the pendency of the action, These payments will go in reduction of the amounts payable to them tinder this decree The plaintiff agrees that the defendants should have a charge on the assets of the partnership of the amounts found due and payable to them. In this view it is not necessary to record any finding on issue 3 because if the defendants get all the amounts invested by them in full there can be no further claim as co-owner over the properties pur- chased with these amounts. Such a claim is also not properly within the scope of the present suit.

15. In the result the decree of the lower com dismissing the suit is set aside and a preliminar decree is passed referring the matter to the Official Referee for ascertaining the amounts due and pay able to the defendants on account of the amounts advanced by them under Exs. P. 1 and D. 7. Oh payment of the amount, so found due the plaintiff will be granted a declaration that the partnership under Ex. P. 2 is void. The defendants will have a charge on the partnership assets for the amounts found payable to them. The costs of both parties here and in the court below will be provided for in the final decree.


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