Case: Seth Badri Prasad And Others Vs. Seth Nagarmal And Others

1. This is an appeal on a certificate granted by the erstwhile Judicial Commissioner of Vindhya Pradesh, which is now part of the State of Madhya Pradesh. On behalf of respondent no. 1, Nagar Mal, who was defendant no.1 in the suit, a preliminary objection has been taken to the effect that the suit was not maintainable by reason of the provisions of S. 4 of the Rewa State Companies Act, 1935 and the appeal filed by the plaintiffs must, therefore, be dismissed. As this preliminary objection was not taken in any of the two courts below, learned counsel for the appellants wanted time to consider the point. Accordingly, on October 28, 1958 we adjourned the hearing of the appeal for about a month. The appeal was then heard on November 27, 19582. As we are of the opinion that the Preliminary objection must succeed, it is necessary to state the facts only in so far as they have a bearing on it. When cloth control came into force in Rewa State, the cloth dealers of Budhar a town in that State, formed themselves into an Association to collect the quota of cloth to be allotted to them and sell it on profit wholesale and retail. The Association at Budhar consisted of 25 members who made contributions to the initial capital of the association which was one lac of rupees. No formal Article of Association were written; nor was it registered. The Association functioned through a President and a pioneer worker; they kept accounts and distributed the profits. Respondent no. 1 Nagar Mal, was the President of the said Association from January 1946 to June 26, 1946. Before that, Seth Badri Prasad, one of the plaintiffs-appellants before us, was the President. Nagar Mal ceased to be President after June 26, 1946, and Seth Badri Prasad again became President. The Association worked till February 1948; then cloth was decontrolled and the work of the Association came to an end. On June 25, 1949 thirteen members of the Association out of the twenty-five brought a suit, and in the plaint their alleged that respondent no. 1, who was President of the Association, from January 1946 to June 1946, had given an account of income and expenditure for the months of January, February and March, 1946, but had given no accounts for the months of April, May and June, 1946. They, therefore, prayed(a) that defendant no. 1 (Nagar Mal) be ordered to give the accounts of the Cloth Association, Budhar, from the beginning of the month of April 1946 to June 26, 1946;(b) that defendant no. 1 be ordered to pay the amount, whatever is found due to the plaintiffs on account being done, along with interest at the rate of annas 12 per cent. per month; and(c) that interest for the period of the suit and till the realisation of the dues be allowed. Besides Nagar Mal the other eleven businessmen, who were members of the Association, were joined as pro-forma defendants, some of whom later filed an application to be joined as plaintiffs. Though the plaint did not mention any particular transaction of the Association during the period when Nagar Mal was its President, the judgments of the courts below show that the real dispute between the parties related to the sale of cloth of a consignment known as the Gwalior consignment. It appears that in April 1946 a consignment of 666 bales of cloth had come from Gwalior and an order was passed by the Cloth Control Officer that the consignment would be allotted to Nagar Mal who would give the Association an option of taking over the consignment; if the Association did not exercise the option, the consignment would be taken over by Nagar Mal. It appears that there was some dispute as to whether the other members of the Association were willing to take over the consignment of Gwalior cloth. We are not concerned now with the details of that dispute because we are not deciding the appeal on merits. It is enough if we say that ultimately there was an order to the effect that only 390 bales should be allotted to the Association out of which Nagar Mal had given the Association benefit of the sales of 106 bales, and the dispute related to the share of profits made on the remaining 284 bales4. The learned District Judge, who dealt with the suit in the first instance, passed a preliminary decree in favour of the plaintiff-appellants. The decree directed Nagar Mal to render accounts of the Cloth Association at Budhar from April 1, 1946 to June 26, 1946, and it further directed that leaving out 106 bales of Gwalior cloth which Nagar Mal gave to the Association, an account should be rendered of the rest of the 390 bales and the profits on the sale thereof shall be according to the capital shares of the members of the Association. Nagar Mal preferred an appeal to the learned Judicial Commissioner of Vindhya Pradesh, who reversed the finding of the learned District Judge and came to the conclusion that the other members of the Association were not entitled to participate in the profits made on the sale of 284 bales of the Gwalior cloth and inasmuch as Nagar Mal had rendered accounts with regard to all other transactions, the suit for accounts must fail. He accordingly allowed the appeal and dismissed the suit.

Reasoning:
7. The case before us stands on a different footing.It is a claim by some members of an illegal association 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 transactions of the association. Such a claim is clearly untenable. 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 ant entitled to any relief on the allegations made as the courts cannot adjudicate in respect of contracts which the law declares to be illegal: Senaji Kapurchand v. Pannaji Devichand, A I R 1930 P C 300.The same view which we think is correct, was expressed in Kumaraswami v. Chinuathambi, ILR (1951) Mad 593; AIR 1951 Mad 291  )8. As to the last contention of learned counsel for the appellants, based on the analogy of S. 69(3)(a) of the Partnership Act, it is enough to point out that under the Indian Partnership Act, 1932 an unregistered firm is not illegal;there is no direct compulsion that a partnership firm must be registered, though the disabilities consequent on non-registration may be extremely inconvenient