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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • V.V Chowdary and G.S Venkatarama Ayyar for respondents.
  • V. Govindarajachari for petitioner.
Judges
  • Sir Owen Beasley
  • Kt., C.J
  • Ramesam
  • King, JJ.
Acts
  • provisions of the Abkari and Opium Acts
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • V.V Chowdary and G.S Venkatarama Ayyar for respondents.
  • V. Govindarajachari for petitioner.
Judges
  • Sir Owen Beasley
  • Kt., C.J
  • Ramesam
  • King, JJ.
Acts
  • provisions of the Abkari and Opium Acts
See more information ...
Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

This was a suit on a promissory note brought by the plaintiff, Chava Ramanayudu, against four defendants for Rs. 907-13-0. The first defendant admitted the claim but pleaded non-liability on the ground that the plaintiff had exonerated him. The third defendant was ex parte. Defendants 2 and 4 pleaded that the promissory note represented advances to be made by the plaintiff for carrying on a toddy shop which the plaintiff and the defendants had agreed to work as partners after the first defendant had already become the successful bidder for the year 1927–1928, and that the partnership was illegal.

The learned Subordinate Judge found as facts that: (a) the promissory note was executed for advances to be made for the partnership; (b) the plaintiff was a partner; and (c) the first defendant, who obtained the license, was not shown to have obtained the Collector's permission to work the shop in partnership. On those findings the learned Subordinate Judge dismissed the suit.

Relevant chronological facts found in the opinion: the first defendant was the successful bidder at the auction on 30 July 1927; the promissory note is dated 17 August 1927; a deposit of Rs. 140 was paid by the first defendant about 20 August 1927; the license was issued on 1 October 1927; evidence showed that after the license issuance the partnership carried on the business and that the plaintiff himself was collecting business money and keeping accounts.

Legal Issues Presented

  1. Whether the partnership was formed for the purpose of doing something which was either illegal or opposed to public policy, in particular whether a partnership carrying on an abkari (toddy/arrack) business without the Collector's previous permission (Clause 27 of the General Sales Notification under the Abkari Act) was void or illegal.

Arguments of the Parties

Plaintiff's Position

  • The plaintiff sued on a promissory note for Rs. 907-13-0. (The opinion records the claim and the fact that the plaintiff was a partner and that he collected money and kept accounts.)

Defendants' Positions

  • First defendant: admitted the claim on the promissory note but pleaded non-liability on the ground of exoneration by the plaintiff.
  • Defendants 2 and 4: pleaded that the promissory note was for advances to be made by the plaintiff for carrying on a toddy shop which they and the plaintiff agreed to work as partners, and that the partnership was an illegal partnership because the Collector's permission required by Clause 27 of the General Sales Notification was not obtained.
  • Third defendant: proceeded ex parte (no defence presented in the opinion).

Petitioner's / Appellant's Arguments (as recorded)

  • The petitioner (the party seeking revision) relied upon several precedents (Appadurai Mudali v. Murugappa Mudali; Nanna Vashmumi Mudali v. Nathamuni; Narayanamurthi v. Subrahmanyam) to argue that the partnership in question was not necessarily illegal and that the plaintiff should not automatically be regarded as having "guilty knowledge" of an illegality in all circumstances.
  • In particular, reliance was placed on authorities where (i) a lender who was a stranger to the partnership was held not to have been a particeps criminis because there was no evidence he knew of any prohibition; and (ii) where courts had refused to hold a partnership illegal where there was no proof that it was entered into for an illegal purpose or where procedural issues (such as failure to produce a license at an earlier stage) affected the finding.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Nalain Padmanabham v. Salt Badrinadh Sarda (1911) I.L.R. 35 Mad. 582 : 21 M.L.J. 425 The agreement to admit a partner without Collector's permission was held void; provisions of the Abkari and Opium Acts are based on public policy and prohibit enabling an unlicensed person to sell opium (i.e., partnership to evade licensing prohibitions). The court relied on this decision to show that Clause 27 prohibits partnerships in abkari business unless the Collector's previous permission is obtained and that such agreements may be void as against public policy.
Marudamuthu Pillai v. Rangasami Mooppan (1901) I.L.R. 24 Mad. 401 Proposition that every person carrying on abkari business as a principal must be licensed; a partnership which enables an unlicensed person to evade liabilities intended by law is objectionable. Cited to support the proposition that the Abkari Act regime requires licensing and that partnerships which enable evasion of statutory liabilities are impermissible.
Behari Lall Shaha v. Jagodisk Chunder Shaha (1904) I.L.R. 31 Cal. 798 No specific rule or principle from this case is detailed in the provided opinion; it is listed as another case "in point." Included among earlier authorities bearing on the legality of partnerships in an abkari context; the opinion does not elaborate its precise use beyond citing it as a case in point.
Raghunath Lalwian v. Nathu Hirji Bhate (1894) I.L.R. 19 Bom. 626 No specific rule or principle from this case is detailed in the provided opinion; it is listed as another case "in point." Cited as an authority relevant to the legal context; the opinion does not state the precise holding or its detailed application here.
Appadurai Mudali v. Murugappa Mudali (1925) 23 L.W. 709 Held that a plaintiff who was a stranger (a lender) to a partnership might not be a particeps criminis and that the business was not necessarily illegal on the available evidence; lack of evidence of plaintiff's knowledge of a prohibition was important. The court distinguished this case from the present one on the ground that in Appadurai Mudali the plaintiff was a stranger lending money, whereas in the present case the plaintiff was a partner and thus could not deny guilty knowledge if the partnership's object was illegal.
Nanna Vashmumi Mudali v. Nathamuni (1929) 122 I.C. 342 Illustrates the importance of proof: the absence of proof that the partnership was entered into for an illegal purpose led to a finding that the partnership could not be held illegal; procedural issues such as production of the license affected the findings in the earlier stages of the case. The court regarded this decision as turning on the absence of proof of illegality; distinguished it because, in the present case, there was evidence that the partnership was formed after the first defendant had become the successful bidder and that no permission was obtained.
Narayana-murthi v. Subrahmanyam (1928) 114 I.C. 655 Although a partnership entered in contravention of a license rule is void and a licensee cannot legally take a partner without sanction, it is not illegal for persons to enter into a partnership to bid at a toddy shop auction and, if successful, obtain a license later—provided they intend to obtain the license in the names of all partners. The court accepted the principle but held it inapplicable on the facts: here the partnership was formed after the first defendant had become the successful bidder, the license was issued in his name, no permission was sought or obtained to include partners on the license, and the partnership carried on the business in contravention of Clause 27.

Court's Reasoning and Analysis

The court's central analytical task was to determine whether the partnership was formed for an illegal purpose or one opposed to public policy by reference to Clause 27 of the General Sales Notification under the Abkari Act, which forbids sale, transfer or sub-rental of privileges (and the appointment of agents for management) without the Collector's previous permission; and by reference to Clause 37 which provides penalties for infraction of license conditions.

The court proceeded as follows:

  1. Identified Clause 27 as part of the abkari license conditions and explained its legal effect: a partnership in an abkari business is prohibited unless the Collector's previous permission is obtained.
  2. Relied upon earlier authorities (notably Nalain Padmanabham and Marudamuthu Pillai) to show that agreements admitting partners without required permission may be void and that the Abkari/Opium Acts' prohibitions are rooted in public policy and intended to prevent unlicensed persons from evading statutory liabilities.
  3. Considered authorities relied on by the petitioner (Appadurai Mudali, Nanna Vashmumi Mudali, Narayanamurthi) and analysed factual differences: in Appadurai Mudali the plaintiff was a stranger/lender and there was insufficient material to hold the business illegal or to impute guilty knowledge to the lender; in Nanna Vashmumi the absence of proof of illegality was determinative; in Narayanamurthi the court had held that entering into a partnership to bid for a license in future was not inherently illegal if the intention was to obtain the license in the partners' names.
  4. Applied the facts of the present case to these principles: the partnership here was formed after the first defendant had already become the successful bidder (30 July 1927) and the promissory note and advances followed that event (note dated 17 August 1927; deposit about 20 August 1927); the license was issued in the first defendant's name (1 October 1927); no application for permission to transfer or to have the license in the partners' names was made; and evidence showed that the partnership actually carried on the business with the plaintiff collecting money and keeping accounts.
  5. From those facts the court drew the inference (described in the opinion as "the only fair inference") that the object of the partnership was to carry on the business in the name of the first defendant alone and thereby to operate in contravention of Clause 27. Given that the plaintiff was an active partner, the court held he could not claim lack of guilty knowledge as a stranger would.
  6. Concluded that an illegal partnership was actually being carried on on the facts of this case, and that the Subordinate Judge (District Munsif) had properly decided the case by dismissing the suit. Accordingly, the Civil Revision Petition was dismissed with costs.

Holding and Implications

Holding: The Civil Revision Petition was dismissed with costs.

Implications:

  • The direct effect is that the trial court's dismissal of the plaintiff's suit on the promissory note was upheld: the plaintiff, being a partner in a partnership carried on in contravention of Clause 27 of the General Sales Notification (i.e., without the Collector's permission), could not recover on the note in the circumstances recorded.
  • The court relied on established authorities concerning the illegality of partnerships formed so as to evade licensing requirements under the Abkari/Opium statutory regime and distinguished conflicting authorities on precise factual grounds (e.g., whether the plaintiff was a stranger or a partner; whether the partnership was entered into prior to a license being obtained and with an intention to obtain the license in all partners' names).
  • The opinion does not purport to lay down a new legal principle beyond applying existing authorities to the facts; it treats the decision as an application of established precedent to the case at hand. (No broader implications or new precedent are articulated in the provided opinion.)

Judges: Ramesam, J. delivered the judgment; King, J. and another judge recorded their agreement ("I agree.").

Show full summary ...

    Chava Ramanayudu v. Suryadevara Seetharamayya

    1. This was a suit on a promissory note.; The plaintiff was one Chava Ramanayudu and there were four defendants. The amount claimed was Rs. 907-13-0. The first defendant admitted the claim but pleaded non-liability on the ground that the plaintiff exonerated him. The third defendant was ex parte. Defendants 2 and 4 pleaded that the suit promissory note was for advances to be made by the plaintiff for carrying on a toddy shop which they (the defendants and the plaintiff) agreed to work as partners after the first defendant had already become the successful bidder for the year 1927-1928 and that the partnership was an illegal partnership. The learned Subordinate Judge finds as a fact that the promissory note was executed for advances to be made by the plaintiff for the partnership, that the plaintiff was a partner and that the first defendant who obtained the license was not shown to have obtained the Collector's permission to work the shop in partnership. In view of these findings he dismissed the suit.

    2. The question before the learned Subordinate Judge was and before us is whether the partnership was formed for the purpose of doing something which was either illegal or opposed to public policy. The General Sales Notification issued annually by the Commissioner of Excise under the Abkari Act laying down the general conditions applicable to all abkari and opium licenses by Clause 27, provides:

    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.

    3. This condition is one of those which is set out in the abkari license. Clause 37, provides for the penalties to be inflicted on the infraction of any of the conditions of the license by a licensee or by any person in his employment. The effect of Clause 27 is that a partnership in an abkari business is prohibited unless the previous permission of the Collector has been obtained. In Nalain Padmanabham v. Salt Badrinadh Sarda (1911) I.L.R. 35 Mad. 582 : 21 M.L.J. 425 the facts were that A and B were farmers of opium revenue under Government. They obtained a license from the Collector for the sale of opium subject to the condition, among others, that they should not sell, transfer or sub-rent their privileges without the permission of the Collector (similar to Clause 27 in this case). A and B, without the sanction of the Collector, entered into an agreement with C, by which they admitted him. as a partner in the opium business. C having brought a suit for dissolution and winding up of the business, it was held that the agreement was void and the suit was not maintainable,, the effect of the agreement between A and B on the one hand and C on the other being to enable C to sell Opium without a license, an act directly forbidden by the opium Act and made penal by it, that the contract being intended to enable C to do-what was forbidden by law was unlawful and void, that the provisions of the Abkari and Opium Acts are not intended, merely to protect public revenue but the prohibitions contained in them are based on public policy and that the agreement was also illegal as it amounted to a transfer by A and B of their privilege to C in violation of the condition against transfer subject to which the license was granted. In the course of the judgment reference was made to Marudamuthu Pillai v. Rangasami Mooppan (1901) I.L.R. 24 Mad. 401 where it was said:

    The provisions of the Abkari Act, as a whole, show clearly that every person carrying on abkari business as a principal must be licensed, and hold that a person who has not got a license could still be a partner with one who has a license and as such partner carry on the business with or without the other would enable the unlicensed partner to evade the liabilities-intended by the law to be cast on persons carrying on abkari business.

    4. Other cases in point are Behari Lall Shaha v. Jagodisk Chunder Shaha (1904) I.L.R. 31 Cal. 798 and Raghunath Lalwian v. Nathu Hirji Bhate (1894) I.L.R. 19 Bom. 626. For the petitioner, however, reliance was placed upon the following cases, viz., Appadurai Mudali v. Murugappa Mudali (1925) 23 L.W. 709, Nanna Vashmumi Mudali v. Nathamuni (1929) 122 I.C. 342 and Narayana-murthi v. Subrahmanyam (1928) 114 I.C. 655. In the first case, which is a decision! of Odgers and Madhavan Nair, JJ., plaintiff lent a sum of money on a promissory note to a partnership. The partnership consisted of defendants 1 to 3 and took a contract of sale of arrack in certain shops and borrowed money from the plaintiff for the purpose of that business. First of all, in the opinion of Odgers, J., the business was not an illegal one on the ground that there was no sufficient material for the Court to so decide E and even on the supposition that the condition of the license was that all the names of the licensees or persons concerned in that particular business by way of partnership must appear on the face of the license it was a question whether on the evidence of the plaintiff he could be said to be particeps criminis in the carrying on of the illegal trade because, assuming that there was a prohibition in the terms of the license, there was no evidence that the plaintiff ever knew of it. The important distinguishing feature in that case is that the plaintiff was not a member of the partnership but was a stranger lending money to it. In the present case, the plaintiff was a partner and, if the partnership had for its object the carrying on of an illegal business, the plaintiff as a member of that partnership cannot be heard to deny that he had guilty knowledge. In the second case, which is a decision of Anantakrishna Aiyar, J., the plaintiff was a partner and sued for the taking of the partnership accounts between him and defendants 1 and 2 and for the recovery of the amount to be found due to him on the taking of the accounts. The suit was decreed but on appeal the Subordinate Judge reversed that decree and remanded the suit to the District Munsif for a fresh trial and whilst doing so suggested that the District Munsif might at the retrial consider a new ground pressed before him, namely, that the partnership was illegal. At the retrial, the first defendant put in an additional written statement contending that the partnership in question was illegal and opposed to public policy. The District Munsif found that the contract of partnership was illegal and opposed to public policy. The District Judge on appeal reversed the decision and the case came up on second appeal before Anantakrishna Aiyar, J. The facts were that the first defendant held a license to sell toddy in a shop and according to him took the plaintiff as a partner in respect of that business. The license was not produced by the first defendant. The District Judge held that since the license relating to the year in question had not been produced, there were no grounds for saying that the contract of partnership was illegal. The license, however, was produced in second appeal and was sought to be admitted in evidence* but Anantakrishna Aiyar, J. refused to allow it to be admitted in evidence at that stage. Anantakrishna Aiyar, J, held that it was essential that the license granted to the first defendant should be produced and that the view of the District Judge was correct in stating that at the time the partnership was formed the first defendant had not begun to trade in toddy and had no stock which he made the joint property of all the three partners. In this view the partnership could not be held to be illegal as there was nothing prima facie illegal in such a partnership under the Abkari Act. The decision in this case appears to me to have turned on the absence of proof that the partnership was entered into for an illegal purpose. In the last case, which is a decision of Reilly, J. it was held that although a partnership entered into in contravention of a. license or of any rule under the Abkari Act is void and the licensee of a toddy or arrack shop cannot legally take a partner without sanction, yet it is not illegal for several persons to' enter into a partnership for the purposes of bidding at a toddy shop auction and if successful in the auction of obtaining a. license and of carrying on a toddy shop business. Reilly, J. holds, that it is not illegal for persons to enter into a partnership for the purpose of carrying on a toddy shop business or one for which they hope at a future date to obtain a license-That is quite true if it is intended at a future date to get a license in the names of all the partners. That is not the fact here as a few dates will show. The first defendant was a successful bidder at the auction on 30th July, 1927 and it was in his name that the license was issued on 1st October, 1927. The promissory note is dated 17th August, 1927 and the money was therefore lent to the partnership after the first defendant had become the successful bidder at the auction and was the person in whose name the license would be issued. The first defendant in his evidence said that the two months' deposit of Rs. 140 was paid by him about the 20th August. After the license was-issued it is plain from the evidence that the partnership carried on the business. The permission of the Collector required by Clause 27 of the General Sales Notification was neither obtained nor applied for and there is evidence that the plaintiff himself was collecting the money of the business and keeping accounts.

    5. One thing, therefore, is perfectly clear, namely, that an illegal partnership was actually being carried on; but it is contended that at the date of the commencement of the partnership it has not been shown that it was formed for an illegal purpose. The plaintiff in his evidence did not say that it was intended to apply for the Collector's permission for. a transfer of the license or to carry on the business in partnership nor was there any cross-examination of the defence witness with regard to this point. The question is whether the learned trial Judge was right in drawing the inference from the facts that it was the intention of the partnership to carry on the business in the name of the first defendant alone. In my view, that is the only fair inference. The partnership was formed after the first defendant had become the successful bidder. The license would, therefore, be issued in his name. No application had been made for the issue of the license in the names of the partners. In fact no such license was ever asked for nor was the permission of the Collector obtained and the fair inference is that the object of the partnership was to do that which it did in fact do, namely, carry on the business in contravention of Clause 27. On the facts of this case, I am satisfied that the District Munsif properly decided this case; and in the result this Civil Revision Petition must be dismissed with costs.

    Ramesam, J.

    6. I agree.

    King, J.

    7. I agree.

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    Comments

    Chava Ramanayudu v. Suryadevara Seetharamayya
    (Dec 19, 1934)