Krishna Menon v. Narayana Ayyar And Others

The Judgment of the Court was delivered by

Ansari, C.J:— This appeal by the plaintiff is against the decree, dismissing his claim to recover money from four persons. The appellant had on November 28, 1948, entered into an agreement with the father and his three sons, whereby the licence for the Foreign Liquor Tavern, Emakulam which was held by the appellant, was agreed to be transferred in favour of the 2nd defendant in the case, who is one of three sons. The parties further agreed that the aforesaid four persons were to conduct the tavern from the date of the agreement, and in consideration pay Rs. 11,655-13-2 in daily instalments. There were also promises for payment by them of the kist to the Government and the rent of the building, in which the tavern was housed. As the agreement is important, we would extract below its relevant parts.

“xxxxx

(1) The Foreign Liquor Tavern, Ernakulam, auctioned for the year 1124, by Mr. Krishna Menon, for Rs. 9100/-, and situated in Mr. Kopramban's buildings, Jews Street, Ernakulam, is to be, from this date, conducted by Mr. Lakshmana Iyer.

(2) The license standing in the name of the former is to be transferred to the name of the latter.

(3) Mr. M. Krishna Menon is to be paid rupees eleven thousand, six hundred and fifty-five, annas thirteen and pies two (Rs. 11,655-13-2) by Messrs L. Narayana Iyer, N. Lakshmana Iyer, N. Neelakanta Iyer and N. Kalyana Rama Iyer, in daily instalments equivalent to half the amount of the day's total sales in the tavern, and the whole amount of Rs. 11,655-13-2 to be completely paid by the end of Medom 1124.

(5) All the four persons, viz., Mr. L. Narayana Iyer, N. Lakshmana Iyer, N. Neelakanta Iyer and N. Kalyana Rama Iyer, are jointly and separately liable for the amounts due to Mr. Krishna Menon.

(8) The trade is to be conducted properly by the aforesaid four persons.

(9) The amount of three months' Kist, viz., Rs. 2,275-0-0 deposited by Mr. M. Krishna Menon, is to be still in deposit, and can be utilised by the aforesaid four persons after the contract is over.

(10) Mr. M. Krishna Menon will have the light, power and authority to enter the tavern premises, and also in respect of stocks, furniture, etc., and he will also have the right, power and authority to scrutinize and check account books and cash so long as the amounts due to him are outstanding.

(11) Mr. M. Krishna Menon is always to have power to revoke this agreement and to do business himself whenever any of the conditions mentioned herein above are violated.”

2. It is common ground that when the aforesaid agreement was entered into, the Cochin Abkari Act, No. 1 of 1077 (M.E) was operative, and Section 15 of the said Act prohibited sale of liquor or intoxicating drugs without licence. Moreover, S. 22 of the same enactment directed that the assignee should not exercise his rights until the grantee of the licence had applied to the Commissioner for a licence to he given to the assignee and such assignee should receive the same. Further, Rule 13 of the Rules framed by the Government provided:

“…….. Under no circumstances shall any licence obtained under this notification be sold, transferred or sub-rented without the previous sanction of the Commissioner.”

3. It is also not disputed that the authority concerned had refused to sanction the alienation notwithstanding efforts to get the transfer sanctioned. The appellant later found that the bargain about the payment of the consideration was not being fully carried out, though the Tavern was being conducted by the defendants, and Rs. 7,334-10-1 was still due to him under the agreement. Consequently, he filed the suit to recover the arrears so due, and defendants 1, 3 and 4 pleaded the agreement to be contrary to the provisions of the Cochin Abkari Act, to be illegal, unenforceable, and the suit not maintainable because the licence was not transferred in the name of the 2nd defendant. The last mentioned person pleaded that he was only a paid servant under the appellant, the accounts of the business was still not settled and his letter referred to in the plaint was obtained through fraud and misrepresentation. The trial court framed 11 issues; but the parties agreed to the first issue in the case being decided early, which was done after the appellant had been examined. That issue is whether the agreement was illegal for the grounds mentioned in the defence of the suit and the suit was not maintainable; and the trial court has held that the contract transferring the plaintiff's interests in the Foreign Liquor Tavern being without the Commissioner's sanction, was illegal and void, and the suit based on the same was not maintainable. The issue having been thus decided, in favour of the defendants, the suit was dismissed. There against, the appeal before us has been filed, and because the question of law in another case similar to the one arising in the appeal had been already referred to a Full Bench, this appeal was also referred. The case, in which the aforesaid point had been raised, has been earlier disposed of on other grounds, with the result that this Bench has to adjudicate the legal issue arising in this appeal.

4. The appellant's learned advocate has urged that having regard to Section 22 of the Cochin Abkari Act, the transfer of the licence would not be illegal, and the benefit under such an agreement would be claimable by the person who still has the ownership of the property. In support of the argument the learned advocate has relied on decisions wherein the partnership, in contravention of the direction to do the business only under a licence, has been held not to he void, and the benefits thereunder have been held claimable by the persons entitled to such benefits under the agreement. In particular, he has relied on Gherulal Parakh v. Mahadeodas, AIR 1959 SC 781 where void transactions have been held not to taint collateral bargains, and courts have been cautioned against holding contracts void on grounds of public policy.

5. The appellant's learned advocate has further argued that the respondents were the appellant's employees and, therefore, liable, to account for money got by sale of the appellant's properties. In this connection he has drawn our attention to the admission by the 2nd defendant of his being a mere employee. The last Part of the argument in support of the appeal is that the 2nd defendant had Written promising that contracts would be executed by the other respondents and the failure to comply with such a collateral agreement would justify the appellant being given damages. He has also argued that the appellant should be given an opportunity to amend the plaint and the on the collateral security contained in the letter by the 2nd defendant. The position taken up by the respondent's learned advocate is that an agreement, whose object defeats any provision of law, is void and in this case the agreement has permitted the business of selling liquor being done by persons who had no licence, that such an agreement is void, and the claim to recover the balance of consideration for doing such a business cannot be entertained because of the maxim “in pari delicto potior est conditio defendentis”.

6. It would be of advantage to begin with some decisions covering the question before us and the earliest is Judoonath Shaha v. Nobin Chunder Shaha, 21 Suth WR 289. There a suit was brought by the owners of a wine shop, who had a licence and had let the shop to the defendant on condition of the latter paying an annual profit of Rs. 26 as well as the monthly rent to the owners of the godown in which the shop was situated. It was held that the intention of the Act, under which the licence was given, was that the one, who had the licence shall keep the management and control of the shop, so that a contract allowing another the benefit of the licence of the shop was contrary to the policy of the law, was illegal, and could not be enforced.

7. The next case Boistub Chum Naun v. Wooma Churn Sen, ILR 16 Cal 436 where the plaintiff had not taken out a licence for the sale of fermented liquors under Bengal Act VII of 1878, had sold certain quantity to the defendant, and has sued for the price. It was held that the Act was not framed for the protection of the revenue alone, but embraced other important objects of public policy, the agreement entered into was void, and the money under it could not be recovered. The same view has been taken in Marudamuthu Pillai v. Rangasami Moopan, ILR 24 Mad 401 where the plaintiff had entered into an agreement with the defendant that they should be partners in the business of vending arrack and toddy, the plaintiff having a licence for arrack. At the time the contract was entered into, there existed a rule by the State Government under the Abkari Act that no person having a toddy licence should be interested in the sale of arrack and vice versa. In such circumstances, the court held the contract to be void following the Calcutta decision referred to earlier.

8. In Behari Lall Shaha v. Jogodish Chandra Shaha, ILR 31 Cal 798, a suit was filed to recover money on basis of an agreement. The plaintiff alleged that he was carrying on the business of vending liquor and on being desirous of relinquishing the business in a particular shop, has entered into an agreement to sell the stock-in-trade of the shop; and thereafter the defendant had carried that business, but some money agreed upon was not paid and also certain debts were not discharged, which tile plaintiff had to pay. The suit was filed to recover the amounts, and it was dismissed on the ground that the contract was void, because the prohibition by the Excise Act relating to the sale of liquor without a licence was based upon the principle of public policy and was not confined to the protection of the revenue.

9. In Ramanayudu v. Seetharamayya, ILR 58 Mad 727 : (AIR 1935 Mad 440 FB) a promissory note was executed by a person, after he had become the successful bidder at a toddy shop auction, for advances to be made by another to carry the toddy shop business, which they had agreed to work as partners. The licence was later issued in the bidder's name, and the business was carried in partnership as well as the money covered by the promissory note was lent to the partnership. The successful bidder, however, had not obtained the permission of lie Collector to work the toddy shop in partnership and it was held that inasmuch as Section 27 of the Abkari Act, which provided that no privilege of supply or vend should be sold, transferred or surrendered without the Collector's previous permission, nor should any agent be appointed for the management of any such privilege without the Collector's previous approval, had been contravened, the partnership was formed for an illegal purpose and no suit could be filed on the promissory note.

10. The decision is not different in Hadibandhu Behera v. Gopal Sahu, AIR 1943 Pat 374 where it was held that an agreement by a liquor contractor whereby the entire charge of his excise shop had been given to a third person on the latter agreeing to pay the former the advance license fee etc., amounted to transfer, was void, being contrary to Rule 143 framed under Sec. 89, and punishable as a crime under Sec. 57. It was further held that Section 65 of the Contract Act would be of no avail to the liquor contractor, because both the parties to the contract were in pari delicto in procuring the illegality, and hence the plaintiff would not be entitled to claim refund of the advance licence fee and price of the stock.

11. Reference may also be made to Fakirchand v. Bansilal, (S) AIR 1955 Hyd 28 (FB) where provisions in the Hyderabad Abkari Act and the Rules framed thereunder had restricted transfer of business of liquor shops or entering into it partnership without the previous permission of the Government, and these provisions were held not merely for the protection of the State revenue but to be in the interests of the general public, so that the failure to observe them could not be condoned, and contracts made in contravention of these provisions were invalid.

12. Having regard to the aforesaid decisions, it is clear that courts do not decree money claimed as due under agreements which have permitted persons to do business in contravention of the Abkari Rules. The appellant's learned advocate has, however, urged that the provisions of the then Cochin Abkari Act were different, inasmuch as Sec. 22 of the Act did not make the partnership in contravention expressly void and the particular rule forbidding transfer was beyond the delegated authority to frame rules. In support of this argument he relies on Govindan Sankaran… v. Sankaran Achuthan…Counter Petitioner., 17 Cochin 185 and Lonappan v. Ouseph, 27 Cochin 222.

13. If the general policy behind enactments concerning Abkari matters in other States be not merely to secure revenue, but to serve public welfare as well, it would be difficult to hold that similar provisions in the Cochin enactment were framed with a different purpose. Indeed, the several provisions of the Cochin Act, were not different to those of the then adjoining State, and in Nanoo v. Ummini, 21 Trav. LJ 768 the Travancore High Court had followed the decisions of other High Courts by holding a partnership in contravention of the Excise Rules of the State to be void. We feel that Section 24 of the Cochin Contract Act being similar to Section 23 of the Indian Contract Act, there was no necessity to expressly provide that contracts in contravention of the Abkari Act would be void. Agreements calculated to defeat the object of any enactment would be void, and therefore, the absence of any such provision in the enactment I cannot support the legality of the agreements.

14. Nor we are otherwise convinced of the correctness of the view that a party allowing another to do business without licence, which can be carried only under licence, should be allowed to recover money due for doing such a business. It is true that the maxim ‘pari delicto’ has exception and one such exception is that a party can recover money where the unlawful object has not been carried out. But the case before us is not covered by the exception, because the business has been carried without licence by those from whom the money is claimed and the statute says that such business must be done under licence alone. Therefore, we hold the decision by the lower Court to be correct, and the suit to have been rightly dismissed on the ground of the contract being void. The appellant is precluded from claiming any relief from courts because he must show, in order to obtain any relief, doing of something which has been done in contravention of legal rules.

15. The appellant's learned advocate has then relied on AIR 1959 SC 781 and urged that he should be given the benefit of a collateral agreement, even though the bargain be void. But in this case, apart from the agreement of November 28, 1948, which has been carried out and part of the promise to pay the consideration been fulfilled, there is no collateral bargain, an which all the defendants can be made liable. Ext. A is by the 2nd defendant alone and the promise given by one defendant, assuming the promise to be actionable, can only give rise to damages against that defendant. Even then to support such a claim, different averments would be necessary, and permission to amend the plaint cannot now be given because the claim has now become barred.

16. In any case, there is no sufficient evidence to show Ext. A having been proved in the lower court, and to fill lacuna at this late stage would not be a proper exercise of the appellate power. Nor can the agreement of November 28, 1948, be treated as of agency, because the respondents under it were not doing any business for the appellant. Nor the agreement can be of service, because it contains no provision for their carrying the business under the direction and control of the appellant. It is true that he had been given the right to enter and inspect; but such a right is conferred only when the amount due to the appellant be outstanding and, therefore, clarifies his position to be of the creditor. In such circumstances, there is no collateral bargain, and therefore, the authority of the Supreme Court is not of much assistance to the appellant.

17. Lastly, it was argued that the appellant should be allowed return of his properties. But Sujan Singh v. Sardara Ali, (1960) 2 WLR 180 is against the contention, and the appellant cannot still be treated as the owner of the properties.

18. It follows that the suit has been rightly dismissed.

19. Accordingly, the appeal is dismissed; but, having regard to the circumstances of the case, we feel the appellant should not be saddled with the costs in this Court.

IE/D.

20. Appeal dismissed.