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Appadurai Mudali and anr. Vs. Murugappa Mudali and Two ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai
Decided On
Reported inAIR1926Mad772; (1926)51MLJ12
AppellantAppadurai Mudali and anr.
RespondentMurugappa Mudali and Two ors.
Cases ReferredBrahmayya v. Ramiah
Excerpt:
- - in the grounds of appeal to the lower appellate court the defendants for the first time set up that their partnership was illegal and opposed to public policy and that the plaintiff having admitted in his evidence that the abkari license stood only in the names of the defendants 2 and 3 instead of all the three partners must fail as he knew of the illegal nature of the business when he advanced the money on the promissory note. it was a perfectly legal business by which the inclusion of the and defendant became inoperative as a partnership. as i have said, i am not satisfied that, that has been done in this case......time it was borrowed he, the plaintiff, knew that their object was to carry on this business. the learned judge of this court, from whose judgment this letters patent appeal is taken, on that alleged admission, holds that the business was illegal and that the plaintiff was, according to the decisions, particeps crimims in this illegal business that was being carried on. in my opinion the business was not illegal at all. it was no doubt controlled by the conditions not only set out in section 24 of the abkari act to which we have been referred, but also by something in the abkari rules to which we have not been referred or in the conditions to the grant of the license itself. the license is not before us. but even supposing that the condition of the license is that all the names of the.....
Judgment:

Odgers, J.

1. This is an appeal from the judgment of Mr. Justice Devadoss whereby he remanded an appeal for trial after raising a fresh issue as to whether the plaintiff is entitled to recover the suit amount as it was lent to a partnership which was illegal. The plaint sets up the promissory note sued on. The defendants 1 and 3 say that they (defendants1 to 3) took the contract of sale of arrack in certain shops in Vaniyambadi for the year 1916-17. They borrowed the money for the purpose of that business and they plead a discharge by payment, i. e., that under certain arrangements made between themselves and the plaintiff, the latter had a surplus sufficient to cover the amount of the promissory note in his hands. The 2nd defendant pleaded that the arrangement was that the plaintiff should appropriate to discharge the pro-note the sale proceeds which he received on behalf of the defendants for the last 80 days of the year 1916-17. Two issues were framed, namely (1) as to whether there was a discharge as pleaded by defendants 1 and 3, i. e., by their deposit of the daily sale proceeds of the toddy with the plaintiff, and (2) was the 2nd defendant discharged by reason of the plea raised by him that the plaintiff should pay himself up the sale proceeds of the last 80 days of the Abkari year?

2. The District Munsif found the first issue in favour of the plaintiff and held that there was no evidence on the second issue. He therefore decreed the suit in favour of the plaintiff. In the grounds of appeal to the Lower Appellate Court the defendants for the first time set up that their partnership was illegal and opposed to public policy and that the plaintiff having admitted in his evidence that the Abkari license stood only in the names of the defendants 2 and 3 instead of all the three partners must fail as he knew of the illegal nature of the business when he advanced the money on the promissory note. That is a plea set up for the first time in the Lower Appellate Court, and based on the so-called admissions of the plaintiff in his evidence in which he said that the money was borrowed for the purpose of the Abkari business and at the time it was borrowed he, the plaintiff, knew that their object was to carry on this business. The learned Judge of this Court, from whose judgment this Letters Patent Appeal is taken, on that alleged admission, holds that the business was illegal and that the plaintiff was, according to the decisions, particeps crimims in this illegal business that was being carried on. In my opinion the business was not illegal at all. It was no doubt controlled by the conditions not only set out in Section 24 of the Abkari Act to which we have been referred, but also by something in the Abkari rules to which we have not been referred or in the conditions to the grant of the license itself. The license is not before us. But even supposing that the condition of the license is that all the names of the licensees or persons concerned in that particular business by way of partnership, etc., must appear on the face of the license, it is a question whether on the evidence of the plaintiff he can be said to be particeps criminis in the carrying on of the illegal trade. As the Court of Queen's Bench said in Waugh v. Morris (1873) L.R. 8 Q.B. 202 a contract lawful in itself, is illegal when it is entered into with the object that the law should be violated, if it is done for the very object of satisfying any illegal purpose, or, for the express purpose of a violation of the law. It is admitted by the learned Vakil for the respondents before us that the onus is on him to show that the plaintiff was particeps criminis in this matter. In Brahmayya v. Ramiah (1919) 38 M.L.J. 123 the license to sell arrack contained a restriction. In the course of the judgment in a suit to recover a loan advanced to the partnership, the learned judges say that the partnership is illegal by reason of the fact that the licensee took a partner without first obtaining permission. There, on the facts, they also held that the plaintiff had notice of the illegality of the partnership. The learned Judges there-adopted a passage from Lindley on Partnership, 8th Edition, page 127 which runs:

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 eriminis, 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

and they conclude by saying:

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 the decisions as to illegal transactions have no application.

3. As to the matter under consideration by the learned Judges in Brahmayya v. Ramiah (2) they held:

It was a perfectly legal business by which the inclusion of the and defendant became inoperative as a partnership.

4. The plaintiff was held entitled to recover part of the amount he sued for. 1 am therefore constrained to differ from the conclusion arrived at by the learned Judge in both respects, namely, that I do not think the issue should have been framed at all, nor do I think that the plaintiff can be said to have had a guilty knowledge such as would bring him within the purview of the cases so as to make him particeps criminis in the transaction and that his. so-called admissions do not establish this against him. Assuming that there is a prohibition in the terms of the license there is no evidence that the plaintiff ever knew of it. It seems to me that the learned Judge was wrong in raising this issue in second appeal which had never been raised by the parties in the first Court and which the Lower Appellate Court had refused to raise on appeal. I therefore think that we must allow the appeal and set aside the order of remand and restore the decree of the Subordinate Judge with costs in the Letters Patent Appeal and Second Appeal.

Madhavan Nair, J.

5. I entirely agree. In the absence of the license, it is impossible to say that the partnership between the defendants in this case was illegal. Prima facie there is nothing illegal in such a partnership under the Abkari Act, and no rule issued under the Act has been brought to our notice to show that the arrangement is illegal. The decision in Brahmayya v. Ramiah (1919) 38 M.L.J. 123 as regards the legal nature of the partnership in that case depended on the terms of the license issued to the parties.

6. The learned Judge quotes a passage from the evidence of the plaintiff to show that he knew that he was lending money to a contract which was illegal. With all deference I think that inference does not necessarily follow from the evidence unless in the first instance it is proved that the contract itself is illegal. As I have said, I am not satisfied that, that has been done in this case. 1 do not think that the plaintiff can be said to have known about the illegality of the contract when he lent the money. In this view, the principle applicable to this case is what is contained in the passage quoted by my learned brother from Lindley on Partnership, 8th Edition, page 127.

7. I also think that the learned Judge, with due deference, was wrong in having allowed the parties to raise an issue which was not raised or argued before the District Munsif. The learned Subordinate Judge refused to allow arguments to be addressed on the new issue.

8. Under these circumstances, I agree with my learned brother that this Letters Patent Appeal should be allowed and the Subordinate Judge's decree should be restored with, costs throughout.


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