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P.N. Dorairaj and ors. Vs. N.G. Rajan - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberAppeal No. 696 of 1968 against decree of Sub-J., Kumbakonam in O.S. No. 46 of 1967
Judge
Reported inAIR1977Mad243; (1977)1MLJ198
ActsCinematograph Act; Madras Cinema (Regulation) Act 1955 - Sections 3, 5(6) and 9(2); Indian Contract Act - Sections 23 and 65; Madras Abkari Act; Central Excises Act
AppellantP.N. Dorairaj and ors.
RespondentN.G. Rajan
Cases ReferredIn Viswanatha v. Namakchand Gupta
Excerpt:
.....disputed their liability in reply notice, he is entitled to claim the amount due under the promissory note as the amount represented his hare capital given to the defendants is acceptable. in the present case the parties were ignorant of the legal position from the commencement of the partnership. the parties seem to have entered into the business under the licence issued in the name of the second defendant completely unaware of the legal position that the partnership itself might be considered to be hit by section 23 of the contract act. since the promissory note amount represented the amount paid by the plaintiff to the defendants, the defendants are bound to return the money under section 65 of the contract act.; in the case of parties to the agreement coming to know that the..........did not adduce any oral evidence and the only documents that were filed were the promissory note, the licence issued under the cinematograph act and the notices exchanged between the parties.4. the trial court held that the evidence does not establish the existence of a partnership prior to the execution of the suit promissory note and that in any case it was not shown that they entered into the partnership with the full awareness of the illegality of the partnership. the trial court also held that the plaintiff was not to be blamed on any ground and that therefore he could not be denied the relief by the court on any ground and that therefore he could not be denied the relief by the court on any ground of illegality of the partnership. it also held that the promissory note was.....
Judgment:
1. Defendants are the appellants. The suit was filed by the respondent-plaintiff for recovery of a sum of Rs. 11.048-26 on the foot of a promissory note dated 21-10-1966 executed by the defendants. The facts leading to the execution of the promissory note are as follows. The plaintiff and defendants 1 to 3 entered into a partnership. But the terms of the partnership were not reduced to writing. The parties also had not let in any oral evidence to show as to what was the object of business of the partnership. But it is seen from the notices exchanged between the parties and the licences issued under the Cinematograph Act, they were running a touring cinema under the name and style 'Shanthi Talkies'. The licence issued under the Madras Cinema (Regulation) Act 1955 was in the name of the second defendant and is dated 11-12-1965 and the licence covered a period from 13-2-1965 to 18-2-1966. Though the licence is in the name of the second defendant the cinema business was run by the partnership consisting of the plaintiff and defendants. It appears that the parties carried on the business till the expiry of the period of the licence and they had to shift the camp to a different site and obtain a fresh licence. The licence for the new site was obtained on 15-6-1966 and the licence itself came into force on 19-9-1966. It appears the plaintiff did not want to continue as a partner in the new camp and insisted that he should be allowed to get out of the partnership with his share of the partnership capital. The defendants agreed ultimately for the plaintiff getting out of the partnership and towards due to the plaintiff the defendants executed a promissory note for a sum of Rs. 10,590. The suit has been filed for this sum with interest due thereon, on default of the defendants to pay the principal and interest when demanded.

2. The defence was that the plaintiff procured the cinema licence in the name of the second defendant as sole proprietor of the business but caused the business, to be run in partnership consisting of the plaintiff and defendants 1 to 3. Such a partnership is illegal, opposed to public policy and would defeat and circumvent the provisions and the rules and regulations relating to touring cinema business. The promissory not was executed in respect of the amount alleged to be due to the plaintiff from the said illegal partnership towards his share of the business without any dissolution of the partnership or without looking into accounts and that therefore it was void and unenforceable under S. 23 of the Indian Contract Act. It was further contended by the defendants that they were not agreeable to the plaintiff getting out of the partnership before the end of the period of the subsequent licence, but they were forced and coerced to execute the promissory not on threat of legal proceedings without even looking into the accounts of the partnership. Since there was no dissolution of the partnership as such and the business was not wound up the plaintiff was not entitled to recover any amount recited in the promissory note.

3. The parties did not adduce any oral evidence and the only documents that were filed were the promissory note, the licence issued under the Cinematograph Act and the notices exchanged between the parties.

4. The trial court held that the evidence does not establish the existence of a partnership prior to the execution of the suit promissory note and that in any case it was not shown that they entered into the partnership with the full awareness of the illegality of the partnership. The trial court also held that the plaintiff was not to be blamed on any ground and that therefore he could not be denied the relief by the court on any ground and that therefore he could not be denied the relief by the court on any ground of illegality of the partnership. It also held that the promissory note was not illegal or void. In the result, the suit was decreed as prayed for. Hence the present appeal by the defendants.

5. Before setting out the arguments of the learned counsel for the appellants in the appeal, it is necessary to set out some of the relevant provisions of the Madras Cinemas (Regulation) Act 1955. Section 3 says-

"Save as otherwise provided in this Act, no person shall give an exhibition by means of a cinematograph elsewhere than in a place licensed under this Act or otherwise than in compliance with any conditions and restrictions imposed by such licence."

Sub-s. (6) of S. 5 provides-

"Every licence under this Act shall be personal to the person to whom it is granted and no transfer or assignment thereof whether absolute or by way of security or otherwise shall be valid unless approved in writing by the licensing authority."

Section 9 (2) confers on the licensing authority a jurisdiction to revoke or suspend the licence if he is satisfied that the licencee without reasonable cause failed to comply with any of the provisions of the Act or the rules made thereunder or any of conditions or restrictions upon or subject to which the licence has been granted.

6. The learned counsel for the appellants contended that thought he licence is in the name of the second defendant and as such personal to him and the transfer and assignment of the licence without the approval of the licensing authority is illegal, the second defendant permitted the partnership to use the licence; the partnership itself, though it did not have a licence of its own, carried on the business of touring cinema with the licence granted in favour of the second defendant. Therefore, the partnership itself is illegal. opposed to public policy and intended to defeat and circumvent the provisions of the rules and regulations relating to cinema business. The suit promissory note being in respect of the share of capital of the plaintiff in the illegal partnership, the promissory note itself is void and unenforceable. In this connection, the learned counsel relied on S. 23 of the Indian contract Act and number of decisions rendered under the Abkari Act.

7. In Marudamuthu Pillai v. Rangaswami Moopan (1901) ILR 24 Mad 401, which is the earliest in the series of cases cited, the plaintiff entered into an agreement with the defendant that they should be partners in the business of vending attack and toddy, the plaintiff having a licence for toddy and the defendant having a licence for attack. At the time this contract was entered into the rules provided that no person having a toddy licence should be interested in arrack business and vice versa. It was held that the rule was not merely for the protection of revenue but also to regulate the liquor traffic in the interest of the public and the contract entered into in contravention of that was therefore void ab initio as being opposed to public policy. The Bench also held that the provisions of the Act clearly contemplated that every person carrying on abkari business as a principal must be licensed and "to hold that a person who has not got a licence could still be partner with one who has a licence and as such partner carry on the business with or without the other would enable the unlicensed partner to evade the liabilities intended by the law to be case on persons carrying on abkari business". This decision was followed and approved in a number of cases including the Full Bench of this Court in Velu Padayachi v. Sivasooriam Pillai,

(FB), arising under the Madras Abkari Act.

8. The learned counsel for the respondent relying on the decision of the Supreme Court in Viswanatha v. Shanmugham, and

the decisions in Ramanatha Chetti v. C. I. T., (1970) 1 Mad LJ 432 and Kothandapani Naidu v. Venkatachala Gounder, which

purported to follow the Supreme Court judgment, advanced an argument that a partnership business could be carried on benami in the name of one of its partners and that on the facts and circumstances of this case, the partnership shall be deemed to have held that licence benami in the name of the second defendant, one of its partners. There was nothing in the Cinemas (Regulations) Act which expressly or by implication bars such benami partnership business.

9. Under S. 23 of the Indian Contract Act, and agreement is lawful unless it is forbidden by law of the court regards it as opposed to public policy. As pointed out in Lindley on Partnership, 13th Edn., pages 130-131. 'although a statute may in terms apparently prohibit an act or omission, and affix a penalty in case of disobedience, it does not necessarily follow that all transactions to which the penalty attaches are illegal. They are so if the stature is really prohibitory as is the case if the penalty is imposed for the protection of the public but they are not so if the true construction of the statute is that the penalty is, as it were, the price of a licence for doing what the statute apparently forbids". Brown v. Duncan, 10 B and C 93, was cited as authority. Thus. when an unlawful agreement is brought before the court, it would be necessary to find out the exact scope of the statutory prohibition. It is a matter of construction of the particular statute in each case. Except in cases where the law forbids it with a view to the protection of the public normally the court may enforce the contract. For instance, in Bhikanabai v. Hiralal, (1900) ILR 24 Bom 622, when a contractor of tolls transferred the contract to a third party where such transfers have been prohibited under the conditions of the lease, the court held that the prohibition under the Tolls Act is made only with a view to the security of the revenue and as far as the right between the contractor and the third party is concerned, the contract was enforceable. Similarly in Abstract was enforceable. Similarly in Abdulla v. Mammod, (1903) ILR 26 Mad 156, where a contractor sued his sub-contractor on a sub-lease in respect of a right to ply ferries, the question arose whether under the Ferries Act such an assignment was valid. It was held that though the transfer may be invalid as against the Government, it was valid as between the parties. A similar view was taken in Nazaralli v. Babamiya, ILR 40 Bom 64: (AIR 1915 Bom 244), a case arising under the Ferries Act. It may be pointed out that the decisions under the Abkari Act proceeded on the basis that the prohibition of assignment was made in the interest of the public and the conduct of the particular trade. Therefore, the decision as rendered under the Abkari Act could not be applied without regard to the statutory prohibition in each particular case. But it is not necessary for us to go into the question as to whether the object of prohibiting the assignment was a regulation of the business in the interest of the public and that therefore the assignment will have to be declared as void as being opposed to public policy, in view of the fact that we are accepting the alternative contention of the learned counsel for the respondent that in any case he is entitled for a decree in the suit. For the same reason, we are also not going into the question whether the licence was held by the partnership benami in the name of the second defendant and whether the partnership business can be carried on benami.

10. The alternative contention of the learned counsel for the respondent is that even if the partnership were to be held void as opposed to public policy, since the plaintiff and the defendants were not aware of the illegality and the plaintiff came to know of the illegality only after the defendant disputed their liability in their reply notice, he is entitled to claim the amount due under the promissory note as the amount represented his share capital given to the defendants. In this connection he relied on S. 65 of the Indian Contract Act. That section reads-

"65. When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."

In the present case, it is not clear as to when the partnership was entered into. But one thing seems to be clear that the parties were ignorant of the legal position from the commencement of the partnership. In the written statement the defendants have stated that they commenced and continued the business under the licence issued in the name of the second defendant ignorant of the legal position. In fact, this is the finding of the Court below. Therefore, the parties seem to have entered into the business under the licence issued in the name of the second defendant completely unaware of the legal position that the partnership itself might be considered to be hit by S. 23 of the Contract Act. It is only subsequently they must have learnt about the illegality. Both in the promissory note and in the written statement it is stated that the promissory note was executed in respect of the share capital of the plaintiff. It is also admitted in the written statement that even after the plaintiff came out of the partnership the business was carried on by the three defendants. Since the promissory note amount represented the amount paid by the plaintiff to the defendants, the defendants are bound to return the money under S. 65 of the Contract Act.

11. In Ramagya Prasad v. Murli Prasad, , the Supreme Court had to consider a somewhat similar case. In that case, some persons entered into an oral agreement of partnership to purchase an electric undertaking in the name of one Murali Prasad, one of the partners. It was also agreed that the licence will be obtained in the name of Murali Prasad, though each partners will contribute the purchase money in proportion to the respective shares in the partnership. After getting the consent of the State Government. Official Liquidator sold the electric undertaking to Murali Prasad but the partners including Murali Prasad contributed in proportion to their shares towards the purchase money. The oral agreement of the partnership was then reduced to writing. When the Government acquired the electric undertaking and deposited the money in court, Murali Prasad instituted a suit for a declaration that he being the sole licencee was the exclusive owner of the undertaking and as such he was the only person who was entitled to the entire price paid or payable by the Government. This was on the bias that there was some prohibition under the Electricity Act and the rules and regulations made thereunder against assigning a licence by the licencee or transferring his undertaking or any part therefor by sale, mortgage or otherwise without the previous consent in writing of the State Government. The partnership was therefore illegal. The Supreme Court held that there was nothing to suggest that the parties knew or were aware that the partnership was illegal. The illegality, if any, was discovered only after the Government issued a notification revoking the licence and deciding to purchase the undertaking. Therefore, the persons who have contributed the money to provide the capital for the undertaking were entitled to recover the amounts in accordance with their respective shares.

12. In a later case, Kuju Collieries v. Jharkhand Mines. , the Supreme Court held that both in the case of

parties to the agreement coming to know that the agreement in law was not enforceable, subsequent to the agreement, and also in a case where an agreement which was originally enforceable but later became void due to subsequent happenings, any person who has received any advantage under such agreement or contract is bound to restore such advantage or to make compensation to the person from whom he received it.

13. In a case arising under the Central Excises and Sale Act, in Kanniappa Nadar v. Karuppiah Nadar, (FB), this court held that where a partnership agreement has either become impossible of performance by reason of the fact that no joint licence had been obtained in favour of both the partners or by reason favour of both the partners or by reason of the rescission by one party or the other to the contract the party in the position of the appellant will be entitled to restitution's of the moneys paid by him towards the contract.

14. In Viswanatha v. Namakchand Gupta, , when a person who was having a licence filed a suit for a declaration that the partnership entered into by him with the defendant for running a cinema business under the licence issued in his own name was illegal and void ab initio and for an injunction restraining the defendant from interfering with the rights of the plaintiff as the sole proprietor of the business, the defendant contended he had advanced large sums of money for the purpose of the partnership, that even If the partnership was illegal. if the relief of declaration is to be granted to the plaintiff it should be made on condition of the plaintiff refunding to the defendant all the sums paid by him with interest. While agreeing with the plaintiff that the partnership agreement was illegal and void, this court held that the defendant was entitled to be reimbursed of all the moneys paid by him to the plaintiff and a decree was granted to the effect that on payment of the amount found due to the defendant, the plaintiff would be granted a declaration that the partnership was void.

15. These decisions clearly show that whatever may be the legal position of the partnership agreement, the plaintiff is entitled to be repaid his share capital or those moneys advanced or invested. Since the promissory note was executed by the defendants in respect of the share capital of the plaintiff, he is entitled to the decree for the amount prayed for in the suit. The judgment and decree of the court below are therefore confirmed and this appeal is dismissed with costs.

16. Appeal dismissed.


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