1. This appeal arises out of a contract connected with a toddy shop lease. The plaintiff, who is appellant here, bases his suit on allegations that he along with the defendant and one Senniandi entered into an agreement that one or more shops should be taken in auction in 1932-33, that the defendant having experience should manage all the affairs relating to the sale and maintain the accounts, that he should render account to his partners, who should obey his directions and that out of the profits each partner should get a share proportionate to their investments. It is alleged that the plaintiff subscribed Rs. 400, Senniandi Rs. 200 and the defendant Rs. 500 and the defendant held the money. In pursuance of this agreement the defendant took a shop in auction and the licence was obtained in his name and the shop was run in partnership. Shortly afterwards Senniandi withdrew and on the date when he withdrew, 2nd November 1932, the plaintiff signed a memorandum of the agreement in the shop account. The plaint alleges that the defendant had failed to account for the profits and that in accordance with the terms of the agreement the plaintiff is entitled to the return of his capital and the fixed sum of Rs. 100 specified in the agreement or alternatively to an account of the profits of the business. The written statement of the defendant alleges that the defendant took the shop in auction for himself only, that there had been no definite partnership agreement before the sale, that the partnership came into being a month after the sale and that the agreement was that the plaintiff himself should manage the shop and keep the accounts. The defendant pleads ignorance of the memorandum of 2nd November 1932 and alleges that the partnership is illegal being opposed to the Abkari Rules. The trial Court decreed the suit. The learned Subordinate Judge has held that the partnership is illegal as being opposed to Rule 27 of the Sales Notification. He has also found that the date of the partnership agreement must have been either the date of the actual auction or shortly thereafter, that both the plaintiff and the defendant took part in the management of the shop, that the plaintiff must be held responsible for the suppression of accounts and that the partnership ended in a loss. He therefore dismissed the plaintiff's suit. The important question is whether the partnership, the existence of which both sides admit, was illegal. Rule 27 of the General Sales Notification says:
No privilege of supply or vend shall be sold, transferred or subrented without the Collector's previous permission.
2. It is common ground in this case that the bid at the auction and the licence granted in pursuance thereof were both in the name of the defendant alone, that the Collector's permission for a transfer was not obtained and that the capital with which the shop was run was provided by three partners, the plaintiff, defendant and Senniandi, who after a while withdrew. The finding of fact by the Subordinate Judge as to the date of the partnership agreement binds me in second appeal. I may observe that to my mind it makes no difference whether the partnership agreement was entered into before the bid at the auction or after the bid at the auction, provided that the bid was not made in the names of the partners as and for the partnership. I am aware that this view is somewhat at variance with that expressed in certain cases to which I shall refer. But the position seems to me to be this. When there is a partnership for running a toddy shop capital is required substantially for two main purposes. One is to make the deposit of advance rentals required by the Government and the other is to make the advances necessary to the owners of the tree and the tappers who are to supply the toddy.
3. There are, I think, four likely ways in which persons may be associated for the purpose of financing such a trade. There is the simple case in which A and B form a partnership, take a shop at auction in their joint names, get a joint licence and run the shop jointly. Provided that the revenue authorities have no objection to the joint licence, there is nothing objectionable in such a partnership. Secondly, there is the case in which B purchases the right to a licence in auction with funds supplied by A, agreeing to return to A the money advanced together with interest or a fixed share of the profits, A having no proprietary right in the business and no concern therein except the remuneration for the advance which he has made. In such a case A is not a partner, but a mere financier and there is no question of any transfer of a right to vend. Then there is the case in which A and B agree together that B shall bid for a shop and get a licence in his name but work it for the partnership of A and B who shall be joint proprietors of the shop and shall share profit and loss. It seems to me that in such a case even though the partnership be formed before the auction, the agreement necessarily implies a transfer of an interest in the right to vend from B to whom it has been granted by the Collector to the partnership of A and B and I cannot myself see how the fact that the partnership was formed before the bid for the shop makes any difference; for that which B gets is what has been granted to him and the proprietary right vests in the person to whom the grantor makes the grant; and if the right so vested by virtue of a private agreement becomes the property of two persons in partnership, there must necessarily be a transfer from the grantee to the partnership.
4. Fourthly, there is the still stronger case with which we are now concerned, in which after B has successfully bid for a shop at the auction, but before the sale has been confirmed and the licence has been issued, B, for the purpose of financing the business, enters into a partnership with A, whereby A and B shall be joint owners of the business, sharing the profit and loss, B being responsible for the actual management of the shop. Here again it seems to me to be apparent that the Government makes a grant of the right to vend to an approved bidder B. and to nobody else. This right to vend rests only in the person to whom the Government makes the grant. In order that the partnership shall become the proprietor of the business, the main asset of which is this licence, there must necessarily be an unauthorized transfer which is obviously opposed to Rule 27 of the Sales Notification.
5. On the findings in the present case it must be held that the defendant made the bid on his own account and that the Government granted the licence to the defendant personally. Before this licence had been granted the defendant had entered into a partnership with the plaintiff and another, and though the precise terms of that partnership may be to some extent in doubt, I do not think there can be any doubt that it was a partnership conferring upon the partners a right to proportionate-shares in the profit and the liability to proportionate shares in the loss and a proprietary right in the assets of the business. It is argued that from the terms of Ex. A the memorandum executed by the plaintiff and Senniandi nearly a month after the licence had been issued, it must be inferred that the defendant was solely in management of the shop. It seems to me that this memorandum does indicate that the defendant was in charge of the shop and remunerated by the partnership for his work therein. At the same time the memorandum clearly indicates that the other partners had duties which are not stated and it also clearly indicates that they were joint proprietors of the business. They could only become proprietors of the main asset of the business, namely, the licence by means of a transfer which is illegal.
6. The matter seems to me to be entirely covered by the decision of the Full Bench in Rama Naidu v. Seetharamayya A.I.R. (1935) Mad. 440, which was also a case in which the partnership agreement was made after the auction and before the issue of the licence. There the learned Chief Justice points out that though it is not illegal to form a partnership with the idea at a future date to get an abkari licence in the names of all the partners, it is illegal if a person who has successfully bid at an auction con-tracts that the licence which he hopes subsequeutly to obtain shall be made the asset of a partnership which is formed to finance the business, without the permission of the Collector. My attention has been drawn to the decision of Venkataramana Rao J. in Kangaswami Pillai v. Narayanaswami Naicken : AIR1936Mad557 , wherein it was held that when there is a partnership formed before the date of the grant of a licence to sell toddy and there is no proof that any person not mentioned in the licence actually interfered in the business of the toddy shop the partnership is not illegal. With the greatest respect to the learned Judge, I find myself unable to agree with the reasoning of this decision, nor to understand the way in which the Full Bench decision just referred to has been distinguished.
7. The learned Judge states the Full Bench decision is only authority for the position that where a partnership is entered into subsequent to the grant of the licence it would be illegal. This seems to me to be a misreading of the facts which formed the basis of the Full Bench decision. It appears from p. 733 of the Full Bench decision that the auction in that case was held on 30th July 1927. The promissory note issued in connexion with the partnership agreement is dated 17th August 1927 and the licenoe was issued on 1st October 1927. So it is clearly a case of a partnership agreement entered into after the auction and before the licence. Moreover I am of opinion, that the reasoning of the Full Bench covers even the case of partnership agreement anterior to the bid. If the bid is in the name of one individual with the intention that the licence shall be granted to that individual and the licence is granted to that individual, even if he has by an anterior agreement undertaken that the licence shall be the property of a partnership, there must be a transfer of the ownership of the licence in order to fulfil the terms of the partnership. We are, however, in the present case not actually concerned in view of the findings of the Court below with a partnership agreement anterior to the auction. In the view that I take, the partnership agreement which is contemporaneous with or subsequent to the auction, contemplating that the proprietary interest in the business carried on by virtue of the licence shall become the property of a partnership, necessarily implies a transfer which is opposed to Rule 27 of the Sales Notification and is therefore illegal. I agree with the learned Subordinate Judge and dismiss the appeal with costs. Leave refused.