PETITIONER:<\/p>\n
SETH BADRI PRASAD AND OTHERS<\/p>\n
Vs.<\/p>\n
RESPONDENT:<\/p>\n
SETH NAGARMAL AND OTHERS<\/p>\n
DATE OF JUDGMENT:<\/p>\n
09\/12\/1958<\/p>\n
BENCH:
\nDAS, S.K.
\nBENCH:
\nDAS, S.K.
\nIMAM, SYED JAFFER
\nKAPUR, J.L.<\/p>\n
CITATION:
\n1959 AIR 559 1959 SCR Supl. (1) 709
\nCITATOR INFO :
\nR 1965 SC 304 (4)
\nR 1979 SC1165 (15)
\nD 1988 SC1531 (185)
\nACT:
\nMaintainability of Suit-Unregistered company-Suit by members
\nfor accounts-New Point-Rewa Companies Act, 1955, s. 4(2)
\nIndian Partnership Act, 1932 (IX of 1932), s. 69(3)(a).<\/p>\n
HEADNOTE:
\nWhen cloth control was introduced in Rewa State, 25 cloth
\ndealers of Budhar, including the thirteen appellants, formed
\nthemselves into an Association to collect the quota of cloth
\nto be allotted to them and to sell it on profit. The
\nAssociation functioned through a President and a pioneer
\nworker; they kept accounts and distributed profits. After
\ncloth had been decontrolled and the work of the Association
\nhad come to an end, the appellants filed a suit against the
\nfirst respondent for rendition of accounts for a portion of
\nthe period that he had been President of the Association and
\nfor realisation of the -amount found due with interest. The
\nsuit was decreed by the trial Court but was, on appeal,
\ndismissed by the judicial Commissioner. In appeal before
\nthe Supreme Court, the first respondent raised, for the
\nfirst time, a preliminary objection that the suit was not
\nmaintainable as the Association consisting of more than 20
\npersons was not registered as required by S. 4(2) Of the
\nRewa State Companies Act, 1935, and that consequently the
\nmembers of the Association had no remedy against each other
\nin respect of its dealings and transactions. The appellants
\nobjected to the raising of the new plea and contended that,
\nnevertheless, the suit was maintainable
\nHeld, that the suit was not maintainable. In view of S.
\n4(2) of the Act the Association was illegal. The reliefs
\nclaimed for rendition of accounts in enforcement of the
\nillegal contract of partnership necessarily implied
\nrecognition by the Court that the Association existed of
\nwhich accounts were to be taken. The Court could not assist
\nthe plaintiffs in obtaining their share of the profits made
\nby the illegal Association.
\nU.Sein Po v. U. Phyu, (1929) I.L.R. 7 Rang. 540, not
\napplicable.
\nHeld further, that the new point ought to be allowed to be
\nraised. The question was a pure question of law and did not
\nrequire the investigation of any facts. The objection
\nrested on the provisions of a public statute which no court
\ncould exclude from its consideration.
\nSurajmull Nargoremull v. Triton Insurance Company Ltd.,
\n(1924) L.R. 52 I.A. 126; Sri Sri Shiba Prasad Singh v.
\nMaharaja Srish Chandra Nandi, (1949) L.R. 76 I.A. 244,
\nfollowed.
\nThe analogy of s. 69(3)(a) of the Indian Partnership Act,
\n1932, did not apply, an under that Act an unregistered firm
\nwas
\n97
\n770
\nnot illegal. Besides, the suit was not one for accounts of
\na dissolved firm but of an illegal Association which was in
\nexistence id at the relevant time.<\/p>\n
JUDGMENT:
\nCIVIL APPELLATE JURISDICTION: Civil Appeal No. 125 of 1955.
\nAppeal from the judgment and decree dated November 20, 1951,
\nof the former Court of Judicial Commissioner, Vindhya
\nPradesh, in Civil First Appeal No. 47 of 1951, arising out
\nof the judgment and decree dated June 4, 1951, of the Court
\nof Additional District Judge, Umaria, in Civil Original Suit
\nNo. 17\/19\/17 of 1950.
\nSardar Bahadur, for the appellants.
\nAchhru Ram, B. C. Misra and P. K. Chakravarty, for the
\nrespondents.
\n1958. December 9. The Judgment of the Court was delivered
\nby
\nS.K. DAS, J.-This is an appeal on a certificate granted
\nby the erstwhile Judicial Commissioner of Vindhya Pradesh,
\nwhich is now part of the State of Madhya Pradesh. On behalf
\nof respondent no. 1, Nagar Mal, who was defendant no. 1 in
\nthe suit, a preliminary objection has been taken to the
\neffect that the suit was not maintainable by reason of the
\nprovisions of s. 4 of the Rewa State Companies Act, 1935,
\nand the appeal filed by the plaintiffs must, therefore, be
\ndismissed. As this preliminary objection was not taken in
\nany of the two courts below, learned counsel for the
\nappellants wanted time to consider the point. Accordingly,
\non October 28, 1958, we adjourned the hearing of the appeal
\nfor about a month. The appeal was then heard on November
\n27, 1958.
\nAs we are of the opinion that the preliminary objection must
\nsucceed, it is necessary to state the facts only in so far
\nas they have a bearing on it. When cloth control came into
\nforce in Rewa State, the cloth dealers of Budhar a town in
\nthat State, formed themselves into an Association to collect
\nthe quota of cloth to be allotted to them and sell it on
\nprofit wholesale and retail. The, Association at Budhar
\nconsisted of 25 members who made contributions to the
\ninitial
\n771
\ncapital of the association which was one lac of rupees. No
\nformal Articles of Association were written; nor Se was it
\nregistered. The Association functioned through a President
\nand a pioneer worker; they kept accounts and distributed the
\nprofits. Respondent no. 1, Nagar Mal, was the President of
\nthe said Association from January 1946 to June 26, 1946.
\nBefore that, Seth Badri Prasad, one of the plaintiffs
\nappellants before us, was the President. Nagar Mal ceased
\nto be President after June 26, 1946, and Seth Badri Prasad
\nagain became President. The Association worked till Febr-
\nuary 1948 ; then cloth was decontrolled and the work of the
\nAssociation came to an end. On June 25, 1949, thirteen
\nmembers of the Association out of the twenty-five brought a
\nsuit, and in the plaint they alleged that respondent no. 1,
\nwho was President of the Association, from January 1946 to
\nJune 1946, had given an account of income and expenditure
\nfor the months of January, February and March, 1946, but had
\ngiven no accounts for the months of April, May and June,
\n1946. They, therefore, prayed –
\n(a)that defendant no. 1 (Nagar Mal) be ordered to give the
\naccounts of the Cloth Association, Budhar, from the
\nbeginning of the month of April 1946 to June 26, 1946;
\n(b)that defendant no. 1 be ordered to pay the amount,
\nwhatever is found due to the plaintiffs on account being
\ndone, along with interest at the rate of annas 12 per cent.
\nper month; and
\n(c)that interest for the period of the suit and till the
\nrealisation of the dues be allowed.
\nBesides Nagar Mal the other eleven businessmen, who were
\nmembers of the Association, were joined as proforma
\ndefendants, some of whom later filed an application to be
\njoined as plaintiffs. Though the plaint did not mention any
\nparticular transaction of the Association during the period
\nwhen Nagar Mal was its President, the judgments of the
\ncourts below show that the real dispute between the parties
\nrelated to the sale of cloth of a consignment known as the
\nGwalior consignment. It appears that in April 1946 a
\nconsignment of 666 bales of cloth had come from Gwalior
\n772
\nand an order was passed by the Cloth Control Officer that
\nthe consignment would be allotted to Nagar Mal who would
\ngive the Association an option of taking over the
\nconsignment; if the Association did not exercise the option,
\nthe consignment would be taken over by Nagar Mal. It
\nappears that there was some dispute as to whether the other
\nmembers of the Association were willing to take over the
\nconsignment of Gwalior cloth. We are not concerned now with
\nthe details of that dispute because we are not deciding the
\nappeal on merits. It is enough if we say that ultimately
\nthere was an order to the effect that only 390 bales should
\nbe allotted to the Association out of which Nagar Mal had
\ngiven the Association benefit of the sales of 106 bales, and
\nthe dispute related to the share of profits made on the
\nremaining 284 bales.
\nRespondent No. 1, Nagar Mal, raised various points by way of
\ndefence, his main defence being that none of the members of
\nthe Association were entitled to any share in the profits on
\nthe sales of 284 bales of Gwalior cloth.
\nThe learned District Judge, who dealt with the suit in the
\nfirst instance, passed a preliminary decree in favour of the
\nplaintiff-appellants. The decree directed Nagar Mal to
\nrender accounts of the Cloth Association at Budhar from
\nApril 1, 1946 to June 26, 1946, and it further directed that
\nleaving out 106 bales of Gwalior cloth which Nagar Mal gave
\nto the Association, an account should be rendered of the
\nrest of the 390 bales and the profits on the sale thereof
\nshall be according to the capital shares of the members of
\nthe Association. Nagar Mal preferred an appeal to the
\nlearned Judicial Commissioner of Vindhya Pradesh, who
\nreversed the finding of the learned District Judge and came
\nto the conclusion that the other members of the Association
\nwere not entitled to participate in the profits made on the
\nsale of 284 bales of the Gwalior cloth and inasmuch as Nagar
\nMal had rendered accounts with regard to all other
\ntransactions, the suit for accounts must fail. He
\naccordingly allowed the appeal and dismissed the suit.
\nThe preliminary point taken before us is founded on
\n773
\nthe provisions of s. 4 of the Rewa State Companies Act,
\n1935. Sub-section (1) of s. 4 relates to banking business.
\nWe are concerned with sub-s. (2) of s. 4 which is in these
\nterms:-
\n” 4(2). No company, association or partnership, consisting
\nof more than twenty persons shall be formed for the purpose
\nof carrying on any other, business that has for its object
\nthe acquisition of gain by the company, association or
\npartnership, or by the individual members thereof, unless it
\nis registered as a company under this Act, or is formed in
\npursuance of a Charter from the Durbar.”
\nMr. Sardar Bahadur, who has appeared on behalf of the
\nappellants and who took time to consider the point, has now
\nconceded before us that the aforesaid provision was in force
\nin the Rewa State at the relevant time when the Association
\nwas formed at Budhar and he, has further conceded that the
\nsaid provision was in force till the Indian Companies Act
\ncame into force in the said area in 1950. We must,
\ntherefore, decide the preliminary point on the basis of the
\nprovision in
\ns. 4(2) of the Rewa State Companies Act, 1935. Now, the
\npreliminary point taken on behalf of respondent no.1 is
\nthis. It is contended that by reason of s. 4(2) aforesaid,
\nthe Cloth Association at Budhar was not a legal Association,
\nbecause it was formed for the purpose of carrying on a
\nbusiness which had for its object the acquisition of gain by
\nthe individual members thereof and further because it was
\nnot registered as a Company under the Rewa State Companies
\nAct, 1935; nor was it formed in pursuance of a charter from
\nthe Durbar. It has been contended before us on behalf of
\nrespondent no.1 that by reason of the illegality in the
\ncontract of partnership the members of the partnership have
\nno remedy against each other for contribution or
\napportionment in respect of the partnership dealings and
\ntransactions. Therefore, no suit for accounts lay at the
\ninstance of the plaintiffs-appellants, who were also members
\nof the said illegal Association.
\nWe consider that this contention is sound and must be
\nupheld. On behalf of the appellants, Mr. Sardar
\n774
\nBahadur has urged the following points in answer to the
\npreliminary objection: firstly, he has contended that we
\nshould not allow the preliminary objection to be raised at
\nthis late stage; secondly, he has contended that even though
\nthe Association was in contravention of s. 4(2) of the Rewa
\nState Companies Act, 1935, the purpose of the Association
\nwas not illegal and a suit was maintainable for recovery of
\nthe contributions made by the appellants and also for
\naccounts; thirdly, he has contended that on the analogy of
\ns. 69(3)(a) of the Indian Partnership Act, 1932, it should
\nbe held that the appellants had a right to bring a suit for
\naccounts of the Association which was dissolved in February
\n1948.
\nWe proceed now to consider these contentions of learned
\ncounsel for the appellants. The first contention that
\nrespondent no. 1 should not be allowed to raise an objection
\nof the kind which he has now raised at this late stage can
\nbe disposed of very easily. The objection taken rests on
\nthe provisions of a public statute which no court can
\nexclude from its consideration. The question is a pure
\nquestion of law and does not require the investigation of
\nany facts. Admittedly, more than twenty persons formed the
\nAssociation in question and it is not disputed that it was
\nformed in contravention of s. 4(2) of the Rewa State
\nCompanies Act, 1935. A similar question arose for
\nconsideration in Surajmull Nargoremull v. Triton Insurance
\nCompany Ltd. (1). In that case sub-s. (1) of s. 7 of the
\nIndian Stamp Act (11 of 1899) was pleaded as a bar before
\ntheir Lordships of the Privy Council, the section not having
\nbeen pleaded earlier and having passed unnoticed in the
\njudgments of the courts below. At p. 128 of the report Lord
\nSumner said:,, The suggestion may be at once dismissed that
\nit is too late now to raise the section as an answer to the
\nclaim. No court can enforce as valid that which competent
\nenactments have declared shall not be valid, nor is
\nobedience to such an enactment a thing from which a court
\ncan be dispensed by the consent of the parties, or by a
\nfailure to plead or to argue the
\n(1)(1924) L.R. 52 I.A. 126, 128.
\n775
\npoint at the outset: Nixon v. Alibion Marine Insurance Co.,
\n(1867) L. R. 2 Ex. 338. The enactment is prohibitory. It
\nis not confined to affording a party a protection, of which
\nhe may avail himself or not as he pleases “.
\nIn Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra
\nNandi (1), the provisions of s. 72 of the Indian Contract
\nAct were overlooked by the High Court; the section was only
\nmentioned in passing by the Subordinate Judge and it appears
\nthat the bar of s. 72 of the Indian Contract Act was not
\nargued or only faintly argued before the Subordinate Judge
\nor in the High Court. In these circumstances, their
\nLordships of the Privy Council held that they were unable to
\nexclude from their consideration the provisions of a public
\nstatute. In our view, the same principle applies in the
\npresent case and s. 4(2) of the Rewa State Companies Act,
\n1935, being prohibitory in nature cannot be excluded from
\nconsideration even though the bar of that provision has been
\nraised at this late stage.
\nOn his second contention learned counsel for the appellants
\nhas relied on U. Sein Po v. U. Phyu (2). That was a case in
\nwhich three members of an association formed for carrying on
\na rice business claimed a decree (1) declaring the
\nrespective shares of the subscribers to that association and
\n(ii) directing that the plaintiffs be repaid their shares
\nafter reconverting the property of the association into cash
\nand after payment of all debts and liabilities. The
\nassociation, it was found, consisted of twenty-seven
\nmembers; it was not registered and its formation was in
\ncontravention of sub-s. (2) of s. 4 of the Indian Companies
\nAct. The lower court granted the decree asked for and this
\nwas affirmed in appeal by the High Court. The learned
\nJudges referred to the decision in Sheppard v. Oxenford(3)
\nand Butt v. Monteaux (4), and rested their decision on the
\nfollowing passage of ” Lindley on Partnership ” (the learned
\nJudges quoted the passage at p. 145 of the 9th edition but
\nthe same passage will be found at pp. 148-149 of the 11th
\nedition):
\n(1) (1949) L.R. 76 I.A. 244. (2) (1929) I.L.R. 7 Ran. 540.
\n(3) (1855) 1 K. & J. 491 ; 69 E.R. 552.
\n(4) (1854) 1 K. & J. 98; 69 E.R. 345.
\n776
\nAlthough, therefore, the subscribers to an illegal company
\nhave not a right to an account of the dealings and
\ntransactions of the company and of the profits made thereby,
\nthey have a right to have their subscriptions returned; and
\nthe necessary account taken; and even though the moneys
\nsubscribed have been laid out in the purchase of land and
\nother things for the purpose of the company the subscribers
\nare entitled to have that land and those things reconverted
\ninto money, and to have it applied as far as it will go in
\npayment of the debts and liabilities of the concern, and
\nthen in repayment of the subscriptions. In such cases no
\nillegal contract is sought to be enforced; on the contrary,
\nthe continuance of what is illegal is sought to be
\nprevented.”
\nWe do not think that the decision aforesaid, be it correct
\nor otherwise, is of any help to the appellants in the
\npresent case. The appellants herein have not asked for a
\nreturn or refund of their subscriptions; on the contrary,
\nthey have asked for a rendition of accounts in enforcement
\nof an illegal contract of partnership. The reliefs they
\nhave asked for necessarily imply a recognition by the court
\nthat an association exists of which accounts ought to be
\ntaken. When the association is itself illegal, a court
\ncannot assist the plaintiffs in getting accounts made so
\nthat they may have their full share of the profits made by
\nthe illegal association. The principles which must apply in
\nthe present case are those referred to in the following
\npassage at p. 145 of Lindley on Partnership (11th edition):
\n” The most important consequence, however, of illegality in
\na contract of partnership is that the members of the
\npartnership have no remedy against each other for
\ncontribution or apportionment in respect of the partnership
\ndealings and transactions. However ungracious and morally
\nreprehensible it may be for a person who has been engaged
\nwith another in various dealings and transactions to set up
\ntheir illegality as a defence to a claim by that other for
\nan account and payment of his share of the profits made
\nthereby, such a defence must be allowed to prevail in
\n777
\na court of justice. Were it not so, those who-ex hypothesi-
\nhave been guilty of a breach of the law, would obtain the
\naid of the law in enforcing demands arising out of that very
\nbreach; and not only would all laws be infringed with
\nimpunity, but, what is worse, their very infringement would
\nbecome a ground for obtaining relief from those whose
\nbusiness it is to enforce them. For these reasons,
\ntherefore, and not from any greater favour to one party to
\nan illegal transaction than to his companions, if
\nproceedings are instituted by one member of an illegal
\npartnership against another in respect of the partnership
\ntransactions, it is competent to the defendant to resist the
\nproceedings on the ground of illegality
\nIt is true that in order that illegality may be a defence,
\nit must affect the contract on which the plaintiff is
\ncompelled to rely so as to make out his right to what he
\nasks. It by no means follows that whenever money has been
\nobtained in breach of some law, the person in possession of
\nsuch money is entitled to keep it in his pocket. If money
\nis paid by A to B to be applied by him for some illegal
\npurpose, it is competent-for A to require B to hand back the
\nmoney if B has not already parted with it and the illegal
\npurpose has not been carried out: see Greenberg v.
\nCooperstein (1). The case before us stands on a different
\nfooting. It is a claim by some members of an illegal
\nassociation against another member on the footing that the
\nassociation should be treated as legal in order to give rise
\nto a liability to render accounts in respect of the transac-
\ntions of the association. Such a claim is clearly unten-
\nable. Where a plaintiff comes to court on allegations which
\non the face of them show that the contract of partnership on
\nwhich he sues is illegal, the only course for the courts to
\npursue is to say that he is not entitled to any relief on
\nthe allegations made as the courts cannot adjudicate in
\nrespect of contracts which the law declares to be illegal
\n(Senaji Kapurchand v. Pannaji Devichand(2)). The same view,
\nwhich we
\n(1) [1926] 1 Ch. 657.
\n(2)A.I.R. 1930 P.C. 300.
\n98
\n778
\nthink is correct, was expressed in Kumaraswami v.
\nChinnathambi (1).
\nAs to the last contention of learned counsel for the
\nappellants, based on the analogy of s. 69(3)(a) of the
\nPartnership Act, it is enough to point out that under the
\nIndian Partnership Act, 1932, an unregistered firm is not
\nillegal; there is no direct compulsion that a partnership
\nfirm must be registered, though the disabilities consequent
\non non-registration may be extremely inconvenient.
\nMoreover, the suit before us was not one for accounts of a
\ndissolved firm, but for accounts of an illegal association
\nwhich was in existence at the relevant period for which
\naccounts were asked. We do not think that the argument by
\nanalogy is of any help to the appellants; in our opinion,
\nthe analogy does not really apply.
\nFor the reasons given above, we hold that the preliminary
\nobjection succeeds. The appeal is accordingly dismissed.
\nAs the preliminary objection was taken at a very late stage,
\nwe direct that the parties must bear their own costs of the
\nhearing in this Court.
\nAppeal dismissed.
\n(1) I.L.R. [1951] Mad- 593.
\n779<\/p>\n","protected":false},"excerpt":{"rendered":"
PETITIONER: SETH BADRI PRASAD AND OTHERS Vs. RESPONDENT: SETH NAGARMAL AND OTHERS DATE OF JUDGMENT: 09\/12\/1958 BENCH: DAS, S.K. BENCH: DAS, S.K. IMAM, SYED JAFFER KAPUR, J.L. CITATION: 1959 AIR 559 1959 SCR Supl. (1) 709 CITATOR INFO : R 1965 SC 304 (4) R 1979 SC1165 (15) D 1988 SC1531 (185) ACT: Maintainability of … Read more<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":""},"categories":[4928],"tags":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/29761"}],"collection":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/comments?post=29761"}],"version-history":[{"count":2,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/29761\/revisions"}],"predecessor-version":[{"id":115552,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/posts\/29761\/revisions\/115552"}],"wp:attachment":[{"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/media?parent=29761"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/categories?post=29761"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.kopykitab.com\/blog\/wp-json\/wp\/v2\/tags?post=29761"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}