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S. Venkataratnam Vs. Y. Venkataratnam - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1944Mad394
AppellantS. Venkataratnam
RespondentY. Venkataratnam
Cases ReferredNarasimhalu Naidu v. Nagappa
Excerpt:
.....to do an illegal act. 2 nor under the madras salt act, is a sub-partner like the plaintiff prevented from claiming a share in the profits to which one of the partners would be entitled in respect of the partnership business. 1 were given up and the fresh lease was executed in respect of the other property as well......prohibited the licensee from subletting the whole or part of the privilege a transfer of the lease or license under which the transferee had no right to manufacture or vend salt but is only entitled to share in the profits, it would not amount to subletting or alienation of the privilege. the case was taken up to the privy council in appeal and the ruling of the bombay high court was confirmed : vide gordandas v. champsey dossa a.i.r. 1921 p.c. 137. similarly, in nazaralli v. babamiya : air1915bom244 which was a case in connexion with a license granted by a forest officer under the forest act, it was held that an agreement to share profits was valid even though the license issued by the forest officer prohibited assignments and subleases without the permission of that officer.4......
Judgment:

Kuppuswami Ayyar, J.

1. This appeal arises out of a suit for settlement of accounts and for recovery of the plaintiff's one-fifth share. The appellant is defendant 1. He along with defendants 5 and 6, had obtained certain lands on lease from the Government on 11th September 1918 for a period of 25 years for the purpose of manufacturing salt. Subsequently, on 17th November 1918, there was an agreement between the plaintiff in the suit and defendant 1 under which it was agreed that the plaintiff should have one-fifth share out of the one-third share which defendant 1 had in the business, and subject to the terms of the lease deed and the conditions which the Government and its officers might lay. In accordance with the said agreement defendant 1 agreed that the profits and losses will be borne in the shares as stated above. Subsequently some of the lands demised under Ex. 1 were not suitable for the purpose for which the lease was taken and hence there was a subsequent lease under Ex. 2 for the unexpired portion of the lease term, viz., for a period of 22 years. It is the plaintiff's case that this lease was only a modification of the lease of 11th September 1918 and therefore he was entitled to the benefits of the same. He therefore sued for a settlement of accounts between himself and defendant 1. Defendants 2 to 4 are the sons of defendant 1. Various pleas were raised of which it is necessary to state only two. One was that the agreement between the plaintiff and defendant 1 was invalid as being illegal and opposed to public policy and that the plaintiff could not enforce any rights under the agreement. The second was that the agreement was enforceable if at all only in respect of the rights under Ex. 1 and therefore no claim could be made in respect of the rights conferred under the lease deed, Ex. 2. The issues relating to these two pleas were tried as preliminary issues and. the District Munsif dismissed the suit upholding the contention of defendant 1. On appeal the learned District Judge of Kistna disallowed both the pleas, found that the agreement was valid and legal and was enforceable and that the contract must be construed to relate to the subsequent lease under Ex. 2 also. He therefore allowed the appeal and remanded the suit for disposal on the other issues. Hence this appeal.

2. The only two points for consideration are : (1) whether the agreement evidenced by Ex. A is illegal and opposed to public policy and is not enforceable and (2) whether the plaintiff is entitled to enforce the agreement even in respect of the rights conferred under Ex. 2. Before dealing with the contentions of the appellant we should bear in mind what the legal relationship between the parties is. Exhibit 1 shows that defendants 1, 5 and 6 obtained a lease from the Government in respect of certain lands with all the salt pans and brine pans in them. The lease was for 25 years and the parties were at liberty to determine the cease after giving notice which will have effect at once and six months time was allowed for the removal of the salt by the lessees. The land was to be exclusively used for the manufacture, storage and sale of salt and works connected with it. The lessees were not to erect any dwelling houses nor remove brine in unmanufactured state. The lessees were to pay the land tax, assessment and all taxes. It was further stated that the lessees shall be granted a modified excise license for manufacturing salt and they should observe the terms of such license or any statutory modifications thereof which the Government of Madras might in its discretion make. There was another provision that the lessees shall not,/except with the written consent of the lessor assign, sublet or part with the possession of the leased land or any portion thereof and shall not transfer by sale or otherwise the powers granted to them. There was also a proviso that nothing contained therein shall prevent the lessees at any time from taking any partner or partners into the business carried on by them under the lease who may be approved by the commission. The lease itself was in connexion with partnership arrangement as between defendant 1 and defendants 5 and 6. Each of them was entitled to one-third share in it. Under the agreement evidenced by Ex. A it is only defendant 1 that took the plaintiff in partnership. It is therefore clearly a case of sub-partnership and that was what was urged for respondent 1 before me. As a matter of fact even in the appeal memorandum ground No. 2 the relationship is described as a sub-partnership.

3. Under Section 29, Partnership Act, '(1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners. (2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as-against the remaining partners, to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.' Thus it will be seen that a sub-partner like the plaintiff has got only a right to receive a share of the profits of the transferring partner. He has no right to interfere with the conduct of the business or even to inspect the accounts of the firm. In short he has nothing to do with the business except a claim to a share in the profits which his transferor will be entitled to. This has to be borne in mind in considering the pleas raised by defendant 1. Defendant 1's case is that under the terms of the leases Exs. 1 and 2 the lessees can take only a partner who is approved by the commissioner, and as no such approval had been obtained in this case the partnership agreement runs counter to one of the conditions provided in Clause (11) of the lease, and as by the transfer the plaintiff will have all the powers which defendant 1 has he would be exercising all the privileges of a licensee without getting one arid consequently such a transfer is illegal and opposed to public policy. The first Court held that as the terms of the lease directed the approval of the Commissioner before any partner is taken and as Ex. A the agreement in question was entered into subject to the conditions of the lease and the previous sanction or ratification has not been obtained the suit is not maintainable. The learned District Judge on appeal pointed out that all that the plaintiff did in this case was to advance money, that he had nothing to do with the manufacture of salt, that he did not interest himself in the manufacture, that defendant 1 himself as D. W. 1 did not say that the effect of Ex. A was to assign or sub-let the demised premises or to confer upon the plaintiff any control over the manufacture of the salt and that consequently Ex. A was not opposed to public policy and that it did not violate any terms of the lease. Thus it will be seen that from the nature of the agreement evidenced by Ex. A, viz., a sub-partnership and from what actually happened it was clear that the plaintiff had nothing to do with the business of the manufacture of salt and all that he did was to advance . money to defendant 1 for the business and that all that he sought was a share in the profits which defendant 1 will be entitled to get. As pointed out by the learned District Judge the inclusion of an unqualified person on a business or trade who is prohibited by the statutes from carrying on that particular business or trade would not be within the mischief of the statutes prohibiting such persons from carrying on the trade when such person has nothing more than a claim to a share in the profits arising from the trade or business : vide Lindley on Partnership, .Edn. 8, p. 114. As a matter of fact, in Champsay Dossil v. Gordhandas A.I.R. 1917 Bom. 250 it was pointed out that where a license prohibited the licensee from subletting the whole or part of the privilege a transfer of the lease or license under which the transferee had no right to manufacture or vend salt but is only entitled to share in the profits, it would not amount to subletting or alienation of the privilege. The case was taken up to the Privy Council in appeal and the ruling of the Bombay High Court was confirmed : vide Gordandas v. Champsey Dossa A.I.R. 1921 P.C. 137. Similarly, in Nazaralli v. Babamiya : AIR1915Bom244 which was a case in connexion with a license granted by a forest officer under the Forest Act, it was held that an agreement to share profits was valid even though the license issued by the forest officer prohibited assignments and subleases without the permission of that officer.

4. Learned Counsel for the appellant cited a number of rulings which I should think have no application to the facts of this case. In Ismalji v. Raghunath (1909) 33 Bom. 636, the defendant in the suit had obtained a lease of certain salt pans to manufacture salt under a license. Under the terms of the lease deed the lessee was not entitled to sublet the salt pans without the written permission of the Collector. Without such permission he sublet the pans to plaintiff from which he received a sum of Rs. 1000, as security for the performance of the conditions of the sub-lease. The sub-lease was acted upon and the sublessee brought a suit for recovery of the deposit from the other party. The plea raised was that the deposit formed part of the consideration for an agreement which was forbidden by the law. The plea was upheld and the suit was dismissed. But then in that case it was pointed out that, 'The real object and necessary effect of the agreement between the appellant and the respondent was to enable the latter to manufacture salt without a license in the guise of a sub-lease, although, that was forbidden by law and the terms of the license.' Further under the Bombay Salt Act under Sections 11 and 47 no salt can be manufactured and no natural salt and, except under the provisions of Section 14, no salt earth shall be excavated or collected or removed, otherwise than by the authority and subject to the terms and conditions of a license to be granted by the Collector, and contravention of this was punishable with fine or imprisonment. But in this case, being a sub-partner of one of the three partners to whom the lease and license was granted, he was not entitled to interfere in the business by reason of Section 29, Partnership Act, and as a matter of fact in this case he did not take any part in the manufacture of salt. He only advanced money and claimed a share in the profits which fell to the share of defendant 1. Moreover, there is no such prohibition in the Madras Salt Act. Under Section 11, Madras Salt Act, licenses are transferable and may be relinquished, though there is a proviso that no transfer or relinquishment shall have any effect as against the Collector of Salt Revenue unless and until it has been registered or except under such rules as he may from time to time prescribe. The decision of the Full Bench in Rama Naidu v. Seetharamayya A.I.R. 1935 Mad. 440 also has no application to the facts of this case. There a promissory note was executed by the successful bidder of a toddy shop in favour of another for advances made by the latter for carrying on the business which they agreed to work as partners. The suit filed for the recovery of money on the promissory note was dismissed on the ground that the partnership was formed for illegal purposes inasmuch as Section 27, Abkari Act, had been contravened. Section 27, Abkari Act, runs thus : 'No privilege of supply or vend shall be sold, transferred or sub-rented without the Collector's previous permission. Nor, if the Collector so orders, shall any agent be appointed for the management of any such privilege without his previous approval.' Section 37 provides for penalties to be inflicted on the infraction of any of the conditions of the license by the transferee. That was a case of a sole toddy renter taking a partner and such a partner will be entitled to carry on the business under the terms of the Partnership Act. In this case there is not a partnership, but only a sub-partnership that was created under Ex. A. The license was in the names of all the three partners, viz., defendants 1, 5 and 6 and the plaintiff who claims the right under the agreement, Ex. A, being only a sub-partner could not claim a right to interfere in the business of the manufacture of salt.

5. In Nalan Padmanabhan v. Badrinath (1912) 35 Mad. 582, two persons were partners of an opium revenue license by the Government and they obtained the license. Both of them together without the sanction of the Collector entered into an agreement with another by which they admitted him as another partner in the business. A suit for dissolution of that partnership was dismissed on the ground that the agreement was void. That was not a case of sub-partnership. As both the partners together admitted the third he was entitled as a partner to do everything that a partner could do. So that case also has no application to the facts of this case which is one of the sub-partnership. Hadibandhu Behara v. Gopal Sahu : AIR1943Pat374 also was a case of a partnership between a licensee and another and not a case of sub-partnership. Narasimhalu Naidu v. Nagappa : AIR1941Mad64 also was a case of partnership between the licensee of a toddy shop and another. In none of these cases had the question to be considered whether when a person by reason of the assignment or transfer is only entitled' to a share in the profits and had no right to do anything connected with business, or to do any act prohibited by the license or by the Statutes, the agreement could be said to be opposed to public policy or to be illegal. It is only if by reason of the agreement in question the plaintiff is enabled to do without license acts which a person with a license alone could do and is enabled to enjoy privileges which a licensee only could, it could be said that the transfer indirectly enabled the person to do an illegal act. Neither under Ex. 1 or Ex. 2 nor under the Madras Salt Act, is a sub-partner like the plaintiff prevented from claiming a share in the profits to which one of the partners would be entitled in respect of the partnership business. I therefore find that the learned District Judge was justified in finding that the agreement was not illegal inasmuch as the agreement only conferred on the plaintiff a share in the profits which defendant 1 would be entitled to and as Ex. A does not give him a right to interfere with the business of the partnership.

6. The only other question is as to whether Ex. A relates to the lease under Ex. 2 also. This is mainly a question of fact, and the learned District Judge has found that it comprises that also. On the date on which the agreement evidenced by Ex. A was entered into there was only the lease evidenced by Ex. 1, and from the evidence of D. W. 1, and also from the terms of Exs. 1 and 2 it will be seen that some of the items leased under Ex. 1 were given up and the fresh lease was executed in respect of the other property as well. As a matter of fact defendant 1 as D. W. 1 states that a portion of the lands granted under Ex. 1, was taken away and some new lands were added in the lease granted under Ex. 2. The fact that Ex. 2 was only for the unexpired portion of Ex. 1, viz., 22 years, goes to show the connexion between the two and I therefore find that the learned Judge was justified in finding that Ex. 2 was granted in lieu of Ex. 1 and it was therefore an after acquired property of the same partnership of which defendants 1, 5 and 6 were partners. The mere fact that such a partnership acquired fresh property after giving up the property which it originally had, does not disentitle the plaintiff from seeking a share in the profits which defendant 1 will be entitled to in that partnership. I therefore find that the learned District Judge was right in finding that under the terms of Ex. A he will be entitled to a share even in respect of the profits of the lease evidenced by Ex. A. In the result the appeal fails and is dismissed with costs. Leave refused.


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