SETH BADRI PRASAD AND OTHERS v. SETH NAGARMAL AND OTHERS
Citation: [1959] SUPP. 1 S.C.R. 769; 1958 INSC 112
Court: Supreme Court of India
Bench: SYED JAFFER IMAM , S.K. DAS, J.L. KAPUR
Judgment date:
Case summary
1958 INSC 112. Supreme Court of India judgment dated 1958-12-09. SETH BADRI PRASAD AND OTHERS v. SETH NAGARMAL AND OTHERS. Read the judgment and case...
Judgment text
\ (1) S. C. R. SUPREME COURT REPORTS 769 SETH BADRI PRASAD AND OTHERS v. SETH N AGARMAL AND OTHERS ' (JAFER IMAM, s. K. DAS and J. L. KAPUR, J"J. ) Maintainability of Suit-Unregistered company-Suit 'by mem- bers for accounts-New point-Rewa Companies Act, z955, s. 4(2) -Indian Partnership Act, z932 (IX of z932), s. 69(3)(a). When cloth control was introduced in Rewa State, ~5 cloth dealers of BudQ. ar, including the thirteen appellants, formed themselves into an Association to collect the quota of clqth to be allotted to them and to sell it on profit. The Association func- tioned through a President and a pioneer worker; they kept accounts and distributed profits. After cloth had beeri decon- trolled and the work of the Association had come to an end, the appellants filed a suit against the first respondent for rendition of accounts for a portion of the period that he had been President of the Association and for realisation of the amount fo~nd due with interest.
The suit was decreed by the trial Court but was, on appeal, dismissed by the Judicial Commissioner. In appeal before the Supreme Court, the first respondent raised, for the first time, a preliminary objection that the suit was not main~ainable as the Association consisting of more than 20 persons was not registered as required by s. 4(2) of the Rewa State Companies Act, 1935, and that consequently the members of the Assqciation had no remedy against each other in respect of its dealings and transactions. The appellants objected to the. raising of tl;i. e new plea and contended that, nevertheless, the suit was maintainable. Held; that the suit was not maintainable. In view of s. 4(2) of the Act the Association was illegal.
The reliefs claimed for rendition of accounts in enforcement of the illegal contract of partnership necessarily implied recognition by the Court tliiat the Association existed of which accounts were to be taken The Court could not assist the plaintiffs in obtaining their s~are of the profits made by the illegal Association. U. Sein Pov. U. Phyu, (1929) I. L. R. 7 Rang. 540, not ;i. pplic- able. Held further, that the new point ought to be allowe s. 4 and Others which is in these terms :- v. "4(2). No company, association or partnership Seth Nagarnzal consisting of more than twenty persons shall be 1 form- and Others e r the appellants has relied on U. Sein Po v. U. Phyu ( 2 ).
That was a case in which three members of an associa- tion formed for carrying on a rice business claimed a decree (i) declaring the respective shares of the sub- scribers to that association and (ii) directing that the plaintiffs be repaid their shares after reconvertimg the property of the association into cash and after payment of all debts and liabilities. The association, it was found, consisted of twenty-seven members; it wa. s not registered and its formation was in contravention of sub-s. (2) of s. 4 of the Indian Companies Act. The lower court granted the decree asked for and this was affirmed in appeal by the High Court. The leii. rned Judges referred to the decision in Sheppard v. Oxen- ford ( 3 ) and Butt v. Monteaux ( 4 ), and rested their deci- sion on the following passage of " Lindley on Partner- ship" (the learned Judges quoted the passage at p. 145 of the 9th edition but the same passage "'ill be found at pp. 148-149 of the 11th edition): (1) (1949) L. R. 76 I. A.
244. (2) (1929) I. L. R. 7 Ran. 54\l· (3) (1855) I K. & J. 491; 69 E. R. 552. (4) (1854) 1 K. & J. 98; 69 E. R. 345· S. K. Das]. 776 SUPREME COURT REPORTS [1959) Supp. z95B " Although, therefore, the subscribers to an illegal - company have not a. right t. o an account of the dea. l- S11h Badri Prasad • d · f h d f h d Oth mgs an transact10ns o t e company an o t e an v. "' profits made thereby, they have a right to have their Seth Nagarmal subscriptions returned; and the necessary account and Others ta. ken; and even though the moneys subscribed have. been la. id out in the purchase of land and other things s. /(. Das f. for the purpose of the company the subscribers are entitled to have thiit land and those things reconvert- ed into money, and to have it applied as far as it will go in payment of the debts and liabilities of the con- cern, and then in repayment of the su bsoriptions. In such cases no illegal contra.
ct is sought to be enforced; on the contrary, the continuance of what is illegal is sought to be prevented. " We do not think that the decision aforesaid, be it correct or otherwise, is of any help to the appellants in the present case. The appellants herein have not asked for a. return or. refund of their subscriptions; on the contrary, they have asked for a rendition of ac· . counts in enforcement of an illegal contract of partner- ship. The reliefs they have asked for necessarily imply a. recognition by the court that an association exists of which accounts ought to be taken. When the associa- tion is itself illegal, a court cannot assist the plaintiffs in getting accounts ma. de so that they may have their full share of the profits ma. de by the illegal association. The principles which must apply in the present case a. re those referred to in the following passage at p. 145 of Lindley on Partnership (I I th edition) : "The most important consequence, however, of illegality in a.
contract of partnership is that the mem- bers of the partnership have no remedy against each other for contribution or apportionment in respect of the partnership dealings and transactions. How- ever ungracious and morally reprehensible it may be for a. person who has been engaged with another in various dealings and transactions to set up their illegality as a. defence to a. claim by that other for an account and payment of his share of the profits made thereby, such a. defence must be allowed to prevail in (1) S. C. R. SUPREME COUJtT REPORTS 777 a court of justice. Were it not so, those who-ex hypo- z95B thesi:-have ? een guilty o~ a breac~ of the law, would Seth Badri Prasad. obtam the aid of the law m enforcmg demands arising aud Others out of that very breach ; and not only would all laws v. be infringed with impunity, but, what is worse, their Seth Nagarmal very infringement would become a ground for ob.
tain- and Others ing relief from those whose business it is to enforce h F h h c d f , S. K. Das ]. t em. or t ese reasons, t ere1ore, an not rom any greater favour to one party to an illegal transaction than to his companions, if proceedings are instituted by one member of an illegal partnership against another in respect of the partnership transactions, it is competent to the defendant to resist the proceedingi;i on the ground of illegality". It is true that in order that illegality may be a defence, it must affect the contract on which the plaintiff is compelled to rely so as to make out his right to what he asks. It by no means follows that whenever money has been obtained in· breach of some law, the person in possession of such money is entitled to keep it in his pocket.
If money is paid by A to B to be applied by him for some illegal purpose, it is competent for A to require B to hand back the money if B has not already parted with it and the illegal purpose has not been carried out: see Greenberg v. Cooperstein ( 1 ). The case before us sta. nds on a different footing. It is a claim by some members of an illegal as~ociation against another member on the footing that the association should be treated as legal in order to give rise to a liability to render accounts in respect of the transac- tions of the association. Such a claim is clearly unten- able. Where a plaintiff comes to court on allegations which on the face of them show that the· contract of partnership on which he sues is illegal, the only course for the courts to pursue is to say that he is not entitled to any relief on the allegations ma. de as the courts cannot adjudicate in respect of contracts which the law declares to be illegal (Senaji Kapurchand v. Pannaji Devichand ( 2 ) ).
The same view, which we (I) [1926} I Ch. 657. (2) A. I. R. 1930 P. C. 300. 98 778 SUPREME COURT REPORTS [1959] Supp. z95B think is correct, was expressed in Kumaraswami v. -. Ohinnathambi (' ). Sith Bud" P•asaa As to the last contention of learned counsel for the and ~:h"' appellants, based on the analogy of s. 69(3)(a) of the Sith Naxa•mal Partnership Act, it is enough to point out that under and Othm the Indian Partnership Act, 1932, an unregistered firm is not illegal ; there is no direct compulsion that a s. K. Das J. partnership firm must be registered, though the disabi- lities consequent on non. registration may be extremely inconvenient. Moreover, the suit before us was not ·one for accounts of a dissolved firm, but for accounts of an illegal association which was in existence at the relevant period for which accounts were asked. We do not think that the argument by analogy is of any help to the appellants; in our opinion, the analogy does not really apply.
For the reasons given above, we hold that the pre- liminary objection succeeds. The appeal is accord- ingly dismissed. As the preliminary objection was taken at a very late stage, we direct that the parties must bear their own costs of the hearing in this Court. Appeal dismissed. (1) I. L. R. [1951J Mad. 593.
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