Skip to content


J.D. Italia Vs. D. Cowasjee and ors. - Court Judgment

LegalCrystal Citation
Subjectcivils
CourtChennai
Decided On
Reported inAIR1944Mad295
AppellantJ.D. Italia
RespondentD. Cowasjee and ors.
Cases ReferredRama Moopan v. Mutha Moopan
Excerpt:
.....should be registered and the plaintiff authorised to represent it that they decided that they would only recognise the plaintiff. expressed strong dissent. the partners had failed to comply with the conditions which the revenue authorities required to be fulfilled for the issue of permanent licences to the partnership and consequently they decided that they would not recognise the partnership at all. he has made it perfectly clear that he wants an account for the whole year or not at all, the reason being, of course, that an account up to 18th may 1938 will not help him......not recognise the partnership at all. nevertheless it continued to do business under the temporary licences issued to the plaintiff, but in doing so it offended against the principles which we have quoted from pollock, principles which have received full recognition from this court.8. the plaintiff is entitled to an account up to 18th may 1938, but he refused an account on this basis in the trial court and he has refused it in this court. he has made it perfectly clear that he wants an account for the whole year or not at all, the reason being, of course, that an account up to 18th may 1938 will not help him. he cannot have an account until the end of the year, because the partnership was an unlawful one from 18th may 1938 and therefore his appeal fails. the respondent is entitled to his.....
Judgment:

Leach, C.J.

1. The appellant sued on the original side of this Court for a declaration that a partnership between him and the defendant was dissolved on 80th September 1988 and for an order directing that the accounts of the partnership be taken from 1st October 1937 to 30th September 1988. No oral evidence was given as the parties had agreed that the action should be tried on the correspondence and certain other documents. It is common ground that the partnership commenced before 23rd August 1937. The record does not disclose the exact date of the agreement; but this is not material. The partnership was formed for the purpose of acquiring licences for the carrying on of a retail business in toddy in shops in the City of Madras. Licences were obtained, but they were only issued in the name of the plaintiff. The defence was that as the licences stood in the name of the plaintiff alone, the partnership was illegal and therefore the suit was not maintainable. This plea was accepted by Krishnaswami Ayyangar J., who tried the action, and consequently he non-suited the plaintiff who has appealed. During the pendency of the appeal the respondent died and his legal representatives have been made parties in his place. The situation disclosed is an unusual one and it is necessary to set out the course of events. For the year commencing 1st October 1937, the Collector called for tenders in respect of toddy shops in Madras and on 23rd August 1937 the plaintiff submitted a tender on behalf of the partnership, but in his own name. The plaintiff had already informed the Secretary of the Board of Revenue of the partnership and it may be taken that the revenue authorities were fully aware of the arrangement at all material times. On 28th August 1937 the tender was withdrawn but two days later the letter of withdrawal was withdrawn. On 3lst August the tender was accepted in respect of 14 toddy shops, but subsequently two other shops were included. On 2nd September formal notice of the partnership was given by the plaintiff in a letter addressed to the Commissioner of Excise. The plaintiff added that the shops would remain in his name. The defendant took exception to the issue of the licences to the plaintiff alone and consequently on 11th September the plaintiff wrote to the Collector asking that the licences for the shops should be issued in the joint names of 'J. D. Italia and D. Cawasji', or in the name of 'J. D. Italia and Co.', whichever the Collector might think fit. On 24th September pending the decision on the question of the issue of the licences in the joint names, the Collector issued a temporary licence in the name of the plaintiff. On 20th October the plaintiff again wrote asking that the licences be issued in the joint names of himself and the defendant. It was not until 10th March 1988 that the Collector replied, and the reply was to the effect that the request could not be granted. As the plaintiff had made a full disclosure of the position before his tender was accepted, he naturally asked for the reconsideration of this decision. On 11th April the Collector wrote inquiring whether the plaintiff was prepared

to register a company Italia and Co., with himself and Mr. D. Cawasji as partners and with himself authorised to act in the name of the company.

Although he used the word 'company' the Collector was obviously inquiring whether the plaintiff was prepared to register the partnership under the Partnership Act. The plaintiff had to communicate with the defendant, who was resident in Bombay, and this occasioned delay. On 30th April the Collector called for a reply within one week and stated that otherwise the licences would be issued in the plaintiff's name only. The plaintiff asked for time to reply until 1st June, but this was not granted. On 18th May the Collector wrote to the plaintiff informing him that the licences of the 16 toddy shops would be issued in his name only and that he should produce security to the extent of Rs. 15,000 in the place of the Government promissory notes belonging to the defendant which had been deposited as part of the required security. At the outset each partner had furnished half of the security.

2. The defendant refused to comply with the suggestion of the Collector that the partnership should be registered and the plaintiff be authorised to represent the partnership. His reason for doing so is obvious. The business was being carried on at considerable loss and the defendant wished to avoid his agreement with the plaintiff, if he could possibly do so. The plaintiff objected to the requirements of the Collector that he should provide fresh security in the place of that furnished by the defendant, and a number of letters passed, between the plaintiff and the Collector and the defendant and the Collector. In a letter dated 4th August 1938 the plaintiff wrote to the Collector objecting to the promissory notes for Rs. 15,400 which the defendant had deposited being handed over to him. In this letter the plaintiff said:

The notes have been deposited by me under a covering letter signed by me, and I shall hold you responsible if the notes were handed over to anyone without my authority. You have accepted the partnership in the beginning, and on your acceptance the notes were deposited. Mr. D. Cawasji is trying to get out of this, which in law is impossible.

The revenue authorities insisted on the plaintiff furnishing fresh security, which he eventually did. The defendant's Government promissory notes were returned to him by the Collector on 31st March 1939, six months after the expiry of the period for which the partnership was formed. It is common ground that the defendant controlled the management of the shops from 1st February 1938 until 19th June 1938 and that he was contributing his share of the funds required for the carrying on of the business till 13th July 1938. Altogether he contributed Rs. 1,37,422-10-7.

3. Throughout the year only temporary licences were issued. These licences throughout stood in the name of the plaintiff and were renewed every fort-night. There can be no doubt that up to 18th May 1938, these temporary licences, although issued in the plaintiff's name alone, were intended to apply to the partnership. Up to that date, the revenue authorities appeared to be agreeable to the business being carried on in partnership and it was only when the partners failed to follow the suggestion of the Collector that the partnership should be registered and the plaintiff authorised to represent it that they decided that they would only recognise the plaintiff.

4. Section 15, Madras Abkari Act, prohibits the sale of intoxicating liquor without a licence, and Section 55 states that whoever sells intoxicating liquor in contravention of the Act shall, on conviction before a Magistrate, be punished for each offence with fine which may extend to one thousand rupees, or with imprisonment for a term which may extend to six months, or with both. There is nothing in the Act or in the rules promulgated thereunder with regard to the sale of Abkari privileges to prevent a firm holding a licence. Rule 1 of the conditions with regard to sales by auction expressly recognises the acceptance of a bid on behalf of a company or firm. The rule prohibits a shop being knocked down in the names of two or more persons, but it provides that in the case of a recognised company or firm an agent duly authorised by a power of attorney, or any office-bearer empowered by the articles of association or similar rules, may bid for an act on behalf of the company or firm. Clause (a) of Rule 27 states:

No privilege of supply or vend shall be sold, transferred or sub-rented without the Collector's or in the case of a supplier under the contract distillery supply system, the Board's previous permission.

Clause (b) of this rule says that the transfer of a privilege will take effect from the date of issue of a licence to the transferee. Section 23, Contract Act, states that the consideration or object of an agreement is lawful, unless it is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of a law, or is fraudulent, or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is unlawful and the agreement is void. The rules laid down in Bensley v. Bignold (1822) 5 B. & Ald. 335 have bearing here. They are conveniently stated in Pollock's 'Principles of Contract,' Edn. 10, at p. 329 in these words:

(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 (i. e., things which if not forbidden 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 specific act or omission is prima facie equivalent to an express prohibition.

At p. 331 of this authoritative work are these relevant statements of law:

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 if it 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 those 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.

There are numerous decisions of this Court relating to partnerships entered into with regard to the exploitation of Abkari privileges and it will now be convenient to refer to those which have been most stressed in the course of the arguments. In Marudamuthu Pillai v. Rangasami Moopan (1901) 24 Mad. 401, the Court held that a partnership was unlawful in these circumstances. One of the partners held a licence for the sale of toddy while the other held a licence for the sale of arrack. They formed the partnership to carry on the business of selling both arrack and toddy. A rule had been framed under the Abkari Act prohibiting a person having a licence for the sale of toddy from being interested in the sale of arrack, or a person having a licence for the sale of arrack from being interested in the sale of toddy. The holder of the toddy licence sued for a decree for the dissolution of the partnership and for the recovery of money due to him from the partnership. The Court considered that the agreement was void ab initio on the ground that it was opposed to public policy. The rule prohibiting a person selling both arrack and toddy had not been framed merely for the protection of the revenue. It had also been framed for the regulation of the liquor traffic in the interests of the public. In Thithi Pakurudasu v. Beemudu (1903) 26 Mad. 430 the plaintiff, who was the holder of a licence to sell arrack, sub-let his shop to the defendant without the Collector's permission. It was held that this agreement was unlawful and therefore the plaintiff could not sue upon it. In Nalam Padmanabhan v. Sait Badrinath Sarda (1912) 35 Mad. 582 two persons, who held a licence for the sale of opium, without the sanction of the Collector admitted a third person as a partner. The third person brought a suit for the dissolution and winding up of the business. It was held that the suit did not lie, because the agreement was void. The Court considered that the agreement was illegal for the same reasons as those given in Marudamuthu Pillai v. Rangasami Moopan (1901) 24 Mad. 401 and also because the admission of the plaintiff to the partnership amounted to a transfer to him of an interest in the licence, which was prohibited by law.

5. The decisions in Marudamuthu Pillai v. Rangasami Moopan (1901) 24 Mad. 401 and Nalam Padmanabhan v. Sait Badrinath Sarda (1912) 35 Mad. 582 were approved of in Ramanayudu v. Seetharamayya A.I.R. 1935 Mad. 440 which was decided by a Full Bench of this Court. In that case a successful bidder at an auction held for the sale of a toddy shop licence agreed with another to carry on the business in partnership. When this agreement was entered into, the licence had not been issued. The successful bidder executed a promissory note in favour of his partner in respect of money advanced by him for the carrying on of the business. The Collector's permission to this arrangement was not sought. The holder of the promissory note sued on it; but it was held that as the partnership was illegal the suit did not lie. In all these cases the partnership had commenced after the bid had been accepted or after the licence had been issued.

6. After the decision of the Full Bench a case came before the Court where the partnership commenced before the auction: Satyala Sanyasi v. Bhogavalli Sanyasi A.I.R. 1935 Mad. 895. There five persons agreed to carry on business in partnership in respect of a toddy shop and the partners arranged that the plaintiff should bid on behalf of all and obtain a licence in his name, which he did. On the date of the partnership agreement one of the partners executed a promissory note in favour of the plaintiff for his share of the capital. The appeal was heard by Venkatasubba Rao J. who distinguished the ease from Nalam Padmanabhan v. Sait Badrinath Sarda Mad. 582 on the ground that the partnership had been formed before the auction and therefore there was no transfer of an interest in the licence. The wider question of public policy-the necessity of controlling all those who hold liquor licences in the interests of the public- was not discussed by Venkatasubba Rao J. Where a partnership is entered into before the auction and one of the partners is deputed to bid for and obtain the licence in his own name on behalf of the partnership, it may be that in law there is no transfer of an interest in the licence, but it does not follow that the partnership would be a lawful one. There are other factors to be considered. The judgment of Venkatasubba Rao J. was followed by Venkataramana Rao J. in Rangasami Pillai v. Narayanasami Naicken : AIR1936Mad557 but in Rama Moopan v. Mutha Moopan : AIR1940Mad705 Wadsworth J. expressed strong dissent. He considered that the Full Bench decision covered even the case of a partnership agreement anterior to the bid.

7. There can be no doubt that on the decisions of this Court, the partnership between the plaintiff and the defendant would have to be declared unlawful ab initio if a full disclosure of the position had not been made to the revenue authorities, but that is not the case. The partnership was entered into before the plaintiff submitted his first tender. The revenue authorities had full knowledge of the situation from the very beginning, and until 18th May 1938 had indicated no objection to the business being carried on in partnership, although they had on 10th March 1938 said that the licences could not be issued in the joint names. They were, however, prepared to reconsider that decision, as the Collector's letter of 11th April 1938 shows. In these circumstances it cannot, in our judgment, be said that the partnership before 18th May 1938 was an unlawful one. But then there was a material change in the situation. The partners had failed to comply with the conditions which the revenue authorities required to be fulfilled for the issue of permanent licences to the partnership and consequently they decided that they would not recognise the partnership at all. Nevertheless it continued to do business under the temporary licences issued to the plaintiff, but in doing so it offended against the principles which we have quoted from Pollock, principles which have received full recognition from this Court.

8. The plaintiff is entitled to an account up to 18th May 1938, but he refused an account on this basis in the trial Court and he has refused it in this Court. He has made it perfectly clear that he wants an account for the whole year or not at all, the reason being, of course, that an account up to 18th May 1938 will not help him. He cannot have an account until the end of the year, because the partnership was an unlawful one from 18th May 1938 and therefore his appeal fails. The respondent is entitled to his costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //