JUDGMENT
Ramratna Singh, J.
1. These two appeals and a third appeal, viz . First Appeal 164 of 1959 were preferred against the judgment of an Additional Subordinate Judge of Chapra. governing three suits, which were tried and heard together, relating to an undertaking for the generation and supply of electric energy to consumers in the town of Chapra Originally, the late Shri Mahendra Prasad obtained a license under the Indian Electricity Act of 1910 and started an undertaking, known as “Chapra Electric Supply Works”, in 1932. After his death, his son Shri Janardan Prasad Varma became the licensee in 1935 Subsequently, the undertaking was transferred to a limited company, known as ”Chapra Electric Supply Works Limited”, which was incorporated under the Indian Companies Act, 1913. The aforesaid license and the undertaking were transferred to this company by Shri Janardan Prasad Varma with the consent of the State Government, accorded under Sub-section (2) of Section 9 of the Act. by a notification dated the 10th December. 1937. This company went into voluntary liquidation in 1944. and Shri Chandradeo Narain, an Advocate of Chapra, was appointed liquidator The liquidator put the undertaking to public auction on the 15th September, 1944. and the highest bid of Murli Prasad at Rs 4.10.000 was accepted.
By a letter dated the 20th April, 1945 (Ext C-1), the State Government gave its consent to this sale to Murli Prasad and also to the assignment of the license to him A statutory notification under Section 9 (2) of the Act to the same effect was made on the 30th April, 1945. But really Murli Prasad had bid at the auction sale on behalf of a partnership created orally sometime before the 15th September, 1944. This partnership was constituted by Murli Prasad–4 annas share, Ayodhya Prasad Gupta–8 annas share, Parasnath Prasad –2 annas share, Gharbharan Sah–1 anna share, and Nandkishore Prasad–1 anna share. The sale price was paid to the liquidator in three instalments, viz., Rs. 1,00,000 on 28-11 1944, Rs. 60,000 on 3-2-1945 and Rs. 2,50,000 on 13-7-1945. A deed of partnership was executed by the aforesaid five partners on the 10th July, 1945, and it was registered on the 11th July, 1945. By that date only Rs. 1,60,000 was paid, the amounts paid by the different partners being Murli Prasad–Rs. 59,000, Ayodhya Prasad Gupta–Rs. 1000, Parasnath Prasad–Rs. 50,000, Gharbharan Sah–Rs. 25,000 and Nandkishore Prasad–Rs. 25,000. Out of the remaining amount of Rs. 2,50,000 Rs. 43,500 was to be paid by Murli Prasad, Rs. 2,04,000 by Ajodhya Prasad Gupta, Rs. 1250 by Parasnath Prasad, Rs. 625 by Gharbharan Sah and Rs. 625 by Nandkishore Prasad. The different co-partners paid their quotas to the account of Murli Prasad in the Central Bank at Chapra, and on the 13th July, 1945, the liquidator received a cheque for Rs. 2,50,000 from Murli Prasad and delivered possession of the undertaking to him on the same date vide Ext. C (5)-1.
Nandkishore Prasad transferred his one anna share to Gharbharan Sah and withdraw from the Partnership since 31-3-1947, This transfer was accepted by all the partners at a meeting held on 28-8-1950. On that very day Parasnath proposed to dispose of his one anna out of two annas share, and Murli Prasad also proposed to dispose of one anna out of his four annas share. Ayodhya Prasad Gupta agreed to purchase the same, and thus his share was enhanced to ten annas, and the same was distributed amongst the members of his family like this.
Ayodhya Prasad Gupta–3 annas 9 pies.
Ram Saran Sah Gupta–3 annas 9 pies.
Brahmadeo Prasad Gupta–1 anna 3 pies.
and Ramagya Prasad Gupta–1 anna 3 pies.
The remaining three annas share of Murli Pra-sad was also divided amongst the members of his family like this:
Murli Prasad–1 anna.
Dharnidhar Prasad–1 anna.
Chandreshwar Prasad Gupta–6 pies.
Kamleshwar Prasad Gupta–6 pies.
This meeting had been held particularly to arrange for a sum of Rs. 1,50,000 in order to take delivery of a new plant lying at the railway station, and these eight persons as also Parasnath and Gharbharan agreed to contribute amounts proportionate to their shares On account of this change in the partners and their shares, the said ten persons executed another deed of partnership on the 31st August, 1950, which was registered the same day. By this document, Ramyagya Prasad Gupta was appointed as the managing partner to manage the partnership business, subject to certain restrictions. A copy of this document was forwarded by this managing partner to the Electrical Inspector, Government of Bihar, with a letter dated the 12/13th December, 1950. On the 15th November, 1952, an application was made by all the ten partners to the Registrar of Firms for the registration of this partnership firm; and a certificate of registration was granted by the Registrar on the 13th June, 1953, and it was registered as firm No. 88 of 1953. After sometime there was some difference between the parties; and on the 4th September, 1953, Shri J. D. Sahai, the same Electrical Inspector of the Govcrnment of Bihar, intimated through a letter to Murli Prasad that the State Government did not recognise any partnership for running the Chapra electrical undertaking and that the action of the licensee having taken partners was illegal and void under Section 9 of the Indian Electricity Act. In the same letter, he also called for an explanation from Murli Prasad in respect of the unsatisfactory working of the company, particularly, on account of the lack of financial and administrative control. On the 11th March, 1954, Parasnath served a notice of dissolution of the partnership. There was no dispute about all these facts in this Court.
2. On the 22nd May, 1954, Parasnath Prasad instituted Title Suit 68 of 1954, impleading the aforesaid partners as defendants. Some of these partners died during the pendency of the suit, and their heirs were impleaded. In this suit Parasnath sought for a declaration that the partnership was dissolved by notice of dissolution served by him on the first nine defendants on the llth March, 1954, and for rendition, of accounts from the 3Ist August, 1950, up to the date of institution of the suit or in the alternative, for dissolution of the partnership by an order of the Court and for rendition of accounts. Thereafter, he made an application for the appointment of a receiver. Defendant Ramagya Prasad contested this application and prayed that he should be allowed to continue as a managing partner, inasmuch as the partnership could not be said to have been dissolved by a mere notice. The State Government also intervened at this stage and stated that, inasmuch as many of the duties under the Electricity Act had to be performed with its approval, the receiver should be its nominee. The learned Subordinate Judge thought it to be a fit case for the appointment of a receiver and directed the management of the undertaking to be made over to the State Government, which would nominate its own men for running the undertaking. Against this order, Ramagya came to this Court; and by its order dated 19-3-1955 this Court directed the Subordinate Judge to appoint one or more persons of his own choice or even a nominee of the Government as receiver. In pursuance of this order, the Subordinate Judge appointed Mr. S.N. Sinha, the then Additional District Magistrate of Saran, as the receiver. On 19-5-1955 the Government, however, revoked the license and decided to purchase the undertaking; on 20-10-1955 the Government took possession of the undertaking under Section 7-A of the Act and deposited a sum of three lacs of rupees, being a part of the purchase money.
3. Most of the defendants filed written statements in the suit in 1957-58. The minor defendant filed a formal written statement through a pleader guardian ad litem; Ramagya Gupta and two heirs of Ayodhya Prasad Gupta deceased resisted the reliefs sought by the plaintiffs. But Gharbharan, Brahmadeo, Nandkishore and Thakur Prasad merely claimed their respective shares in the assets of the partnership business, Nandkishore claiming one anna out of two annas share claimed by Gharbharan. Murli (defendant 8) claimed the entire property as the sole licensee and purchaser. The suit was decreed.
4. On the 5th November. 1956 Murli instituted Title Suit No. 94 of 1956. All the partners or their heirs and the State of Bihar were impleaded in this suit. Murli, who claimed to have paid the entire sale price of the auction sale, prayed for a declaration that he was the sole licensee and owner of the undertaking and that he was entitled to the entire compensation money payable by the Government. Most of the partners filed written statements disputing the claim of Murli Prasad to the exclusive ownership of the undertaking or to the compensation money. Thus, Title Suit 68 of 1954 and Title Suit 94 of 1956 were cross suits in respect of the assets of the undertaking, known as “Chapra Electric Supply Works Limited”. First Appeals 160 and 161 arise, respectively, out of Title Suit 94 of 1956 and Title Suit 68 of 1954; and both of them have been preferred by Murli Prasad alone, because it was held by the learned Subordinate Judge that all the partners were entitled to the assets in proportion to their shares.
5. On the 21st September 1957, Nandkishore Prasad instituted Title Suit 113 of 1957, impleading all the partners, on the allegation that the plaintiff of Title Suit 68 had falsely set up a case of partnership with effect from the 31st August, 1950, and disputed the allegation of that plaintiff, namely, Parasnath, that Nandkishore had transferred his one anna share to Gharbharan or that he had retired from the original partnership. He, therefore, prayed for a declaration that he was a contributory partner to the extent of one sixteenth share of the aforesaid undertaking in the name of Murli Prasad till the dissolution of the partnership on the 20th October, 1955, and was thus entitled to receive his proportionate compensation money deposited by (he State of Bihar. which was also impleaded as a defendant. This prayer of plaintiff Nandkishore was disallowed, and his suit was dismissed by the learned Subordinate Judge. Hence, he preferred First Appeal 164 of 1959.
6. All the three appeals were heard together; but, before the completion of the arguments, Nandkishore withdrew First Appeal 164, and it was accordingly dismissed for non-prosecution. Hence the present judgment will govern only First Appeals 160 and 161.
7. It appears from order No. 49 dated the 19th December, 1963, in first Appeal 160 that respondent No. 16 (Sita Devi) corresponding to defendant No. 3 (g) of the lower Court, was expunged from the memorandum of appeal. But it was conceded at the bar that this fact did not affect the appeal, inasmuch as this respondent did not claim any interest in the subject-matter of the suit, and even in the decree of the Court below no interest is given to her.
8. Mr. Balbhadra Prasad Singh, who appeared for the appellant, Murli Prasad, in both the appeals, submitted that the claims for dissolution of partnership or rendition of accounts cannot be sustained, inasmuch as they arise out of an illegal contract. In support of this submission, he relied on Section 23 of the Indian Contract Act, which lays down that a contract which is forbidden by law or which is of such a nature as would defeat the provisions of any law or which is opposed to pub-lie policy is void. He cited certain English decisions to indicate the principles embodied in this section. The principles contained in ihose decisions are these:
(1) When a transaction is forbidden, the grounds of prohibition are immaterial. Courts cannot take note of any difference between mala prohibita (that is, things which, if not forbidden by positive law, would not be immoral) and mala inse (that is. things which are so forbidden as being immoral)– Bensley v. Bignold, (1822) 106 ER 1214 at p. 1216 and Brightman & Co. v Tate. (1919) 1 KB 463 at pp. 467-68.
(2) The absence of a penalty in a statute will not prevent the Court from giving effect to a substantive prohibition–Montreal Trust Co, v. Canadian National Rly Co.. (1939) AC 613.
(3) When conditions are prescribed by a statute for the conduct of any particular business or profession, and such conditions are not observed, agreements relating to such business or profession are void, if it appears by the context that the object of the legislature in imposing the conditions was the maintenance of public order or safety.–Mahmoud and Ispahani. In re. (1921) 2 KB 716.
(4) An agreement is void and unlawful when it could not he performed without doing some act unlawful in itself, or the performance is in itself lawful, but on grounds of public policy is not allowed to be made a matter of conract–Anderson. Ltd v. Daniel (1924) 1 KB 138.
(5) What the law forbids to be done directly cannot be made lawful by being done indirectly.–Sykes v. Bcadon, (1879) 11 Ch D 170, and Phillips v. Innes. (1837) 7 ER 90.
These principles were not dispuled by Mr. Lalnarain Sinha who appeared for respondents Gharbharan Sah, Musammat Suka Devi, Ramagya Prasad Gupta and Ramesh Chandra Gupta. Mr. S.P Mukharji, who appeared for respondents Brahmdeo Prasad Gupta and Rampati Devi, and Mr. C. B. Belwariar, who appeared for respondenl Parasnath Prasad, adopted the arguments of Mr. Sinha on all the points involved.
9. Then, Mr. Balbhadra Prasad Singh referred to the different provisions of the Indian Electricity Act and submitted that its objects mainly are : (1) to control and regulate the supply of electricity in order to protect the public from any injury to persons and premises: (2) to ensure supply to the consumers of an essential commodity on a fair and reasonable charge as also on a regulated basis; and (3) to ensure against preponderance of monopolistic tendency in private persons. An undertaking under the Act being for the benefit of the public, even a licensee under the Act is given certain statutory powers and duties. For instance, powers are given to the licensee, who undertakes a public undertaking, to construct his works, his plant, service mains, etc. and to maintain them; and certain duties are imposed on him for the safetv of public or individuals. A further duty imposed on him is to supply energy to any person, who wants to take a supply of energy, subject to certain conditions laid down either in the body of the Act or in the schedule which is incorporated in the license, subject to any condition or modification which the Government may make. The licensee cannot show undue preference to any particular consumer in the matter of rates; subject to this, he is empowered to regulate his regulations by agreement with his consumer; but even here there arc restrictions imposed. The scheme of the Act, therefore, shows that it was enacted in the public interest, and consequently any contract in violation of the provisions of the Act would be contrary to public policy. In view of these well-settled principles. Mr. Singh submitted that the partnership agreement in question was unlawful, as it violated the provisions of Sections 9 and 28 of the Act, as they stood during the relevant period and before the amendment of the Act in 1959. These two sections read as follows :
“9. (1) The licensee shall not, at any time without the previous consent in writing of the State Government, acquire, by purchase or otherwise the license or the undertaking of, or associate himself so far as the business of supplying energy is concerned with, any person supplying or intending to supply, energy under any other license. and. before applving for such consent, the licensee shall give not less than one month’s notice of the application to every local authority, both in the licensee’s area of supply, and also in the area or district in which such other person supplies or intends to supply energy.
(2) The licensee shall not at any time assign his license or transfer his undertaking, or any part thereof, by sale, mortgage, lease, exchange or otherwise without the previous consent in writing of the State Government.
(3) Any agreement relating to any transaction of the nature described in Subsection (1) or Sub-section (2), unless made with, or subject to, such consent as aforesaid shall be void.”
“28. (1) No person, other than a licensee, shall engage in the business of supplying energy except with the previous sanction of the State Government and in accordance, with such conditions as the State Government may fix in this behalf, and any agreement to the contrary shall be void:
Provided that such sanction shall not be given within the area for which a local authority is constituted without that local authority’s consent, or within the area of supply of any licensee reduce without that licensee’s consent, unless the State Government considers that consent has been unreasonably withheld.
(2) Where any difference or dispute arises as to whether any person is or is not engaging, or about to engage, in the business of supplying energy within the meaning of Sub-section (i), the matter shall be referred to the State Government, and the decision of the State Government thereon shall be final.”
It may be noticed that Section 9 makes certain contracts void, though no specific penalty is imposed for such a contract. Violation of the provisions of Section 28 is, however, made penal by Section 41, which embodies penalty for unauthorised supply of energy by non-licensees, in contravention of the provisions of Section 28, read with the rules made under Section 37 of the Act. The restrictive provisions of the Act have to be liberally construed so as to advance the remedy and prevent the mischief. The principle of construction is that if two alternative constructions of the statute are possible, that construction must be adopted which would promote the object intended, by the framers of the Act, and the alternative construction must be rejected which would frustrate the object. The intent of the legislature has to be collected from the cause and necessity of the Act being made from a comparison of its several parts and from extraneous circumstances so far as they can justly be considered to throw light upon the subject (see Mineral Development Ltd. v. Union of India, ILR 33 Pat 198: (AIR 1954 Pat 340) ) On the interpretation of the word ‘otherwise’ occurring in Sub-section (2) of Section 9, there was some difference at the bar in the lower Court. On behalf of Murli Prasad, it was contended that the word meant “in any manner whatsoever”. On behalf of the contesting respondents, however, it was submitted that the word ‘otherwise’ must be read ejusdem generis with the preceding words. But the language of Sub-section (2) does not justify this interpretation; and Mr. Sinha frankly conceded that he did not rely on the ejusdem generis rule The other interpretation, namely that the word ‘otherwise’ meant a transfer in any manner whatsoever must be accepted. This interpretstion is supported by a decision of the Privy Council in Manmohan Das v. United Provinces, 77 Ind App 137: (AIR 1950 PC 85).
A company to whom a license for the distribution and supply of electrical energy had been assigned, made an issue of debentures for securing a sum of Rs. 3 lacs, the appellant being the holder of the bulk of the debentures. Before making the issue the company did not obtain the written consent of the Provincial Government in accordance with the provisions of Section 9 of the Indian Electricity Act, 1910. The debentures were secured by a debenture trust deed made between the company and two trustees, by which the com pany mortgaged to the trustees specific assets, including the benefits arising from the license, and Clause (6) created a floating charge on all the assets of the company. The security was to be enforceable on the happening of various events, including the making of an order for the winding up of the company. An order for the winding up of the company having been made, the appellant contended that although the specific mortgage of the license purported to be created by the trust deed was void under Section 9 of the Act for want of consent, the floating charge embraced the undertaking and all the assets of the company not specifically and effectively mortgaged, and that such charge was not within the prohibition imposed by the seclion and was valid. The question was whether the charge was a transfer within the meaning of Sub-section (2) of Section 9 of the Act. This question was first raised in the Allahabad High Court in U. P. Government v. Manmohan Das, AIR 1941 All 345 (KB); and a Full Bench of that Court decided that the charge is a transfer within the meaning of that Sub-section. On appeal, their Lordships of the Privy Council said: “This question depends entirely on the construction of the Act and their Lordships without committing themselves to the whole of the reasoning of the learned Judges of the Full Bench, think that they have come to the right conclusion in this matter.”
10. The meaning of the word ‘transfer’ is also important. In Section 5 of the Transfer of Properly Act. 1882, “transfer of property” is defined to mean an act, by which a living person conveys property, in present or in future, to one or more other living persons, or to himself. or to himself and one or more other living persons. In Ma Kyin Hone v. Ong Boon Hock. AIR 1937 Rang 47 a single Judge of the Rangoon High Court said that the word ‘transfer’ is a word of very wide meaning and includes every transaction whereby a party divests himself or is divested of a portion of his interesl. that portion subsequently vesting or being vested in other party. This meaning of the word ‘transfer’ is supported by the aforesaid definition thereof in the Transfer of Property Act. It is not necessary to cite any decision, because such a meaning of the word seems to be well settled; but I have referred to the Rangoon decision, as there also the question was raised with reference to the provisions of Sub-sections (2) and (3) of Section 9 of the Indian Electricity Act. 1910. In that case, a person got a license under the Act for the supply of electricity to a particular town. As he had not enough capital to carry out the necessary expenditure, he took other persons into partnership and ultimately a partnership agreement was executed between him on the one hand and a number of other people on the other. The money to be contributed by the various partners was specified, but the person who had obtained the license did not contribute any money at all. One of the partners was appointed president and cashier and another partner was appointed manager and vice-president, while the person who had obtained the license became the chief engineer. These partners got salary from the partnership. The person who had obtained the license was to get ten per cent of the profits, and there was a proviso in the agreement that in the event of his death, his heirs were to withdraw the money as long as the company was in existence; but if there were no profits he was not liable for losses. The proportions in which the other partners were to divide the remainder of the profits were also laid down in the agreement Then, there was a clause :
“The buildings and machines of the Electric Supply Company which has been established and miscellaneous things and the license for electric lighting and registers, books and papers are the properties of the present partners who have agreed to it.”
The partner who had obtained the license died and bis heirs did not get any payment from the company. So they filed a suit for a dcclaration that they were entitled to ten percent of the annual profits of the company and for payment of such sum as may be found out on taking full accounts. The defendants, who were respondents, comes ted the claim on the ground that the deed of partnership fell within the mischief of Section 9 of the Act; and this plea was upheld by the trained District Judge, on appeal who dismissed the suit. His Lordship held that. inasmuch as the license transferred a part of his undertaking within the meaning of Section 9 (2) of the Act and this transaction was without the previous consent of the Local Government, it was void. In this connection, a bench decision of the Madras High Court in Nalain Padmanabham v. Sait Badrinath Sarda. (1912) ILR 35 Mad 582 was also cited. Two persons 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. But, in fact, without the sanction of the Collector, they entered into an agreement with a third person, by which they admitted him as a partner in the opium business. That third person brought a suit for dissolution and winding up of the business. If was held that this contract of partnership was unlawful and void, because the effect of the contract was to enable the third person to sell opium without a license–an act directly forbidden by Section 1 of the Opium Act and made penal by Section 9 thereof. The contract was also held to he illegal on the ground that it amounted to a transfer by the two licenses of their privilege to a third person, in violation of the condition against transfer subject to which the license was granted. Their Lordships further said that, inasmuch as the license was a personal privilege, it could not be transferred. Dealing with the question whether a contract of partnership amounted to a transfer or not, their Lordships said:
“Thus if two persons agree to start a business in partnership and to contribute capital therefor, there is no transfer involved in the transaction. But if one person carrying on a trade and possessing stock and capital, admits another into partnership with himself, making the stock and capitals, the .joint property of both, it is impossible to contend that there is not a transfer in such a case. The word transfer’ says James, L. J., in (1881) 17 Ch D 1, is ‘one of the widest terms that can be used’ and according to Lush, L. J., in the same case the word ‘transferable’ is ‘a word of the widest import and includes every means by which the properly may be passed from one person to another’ ”
Mr. Lalnarain Sinha did not challenge the view expressed in this passage.
11. It is also necessary to know what is the meaning of the word–‘undertaking’ used in Section 9 of the Electricity Act, 1910. In the aforesaid Rangoon case, it was held that the undertaking would include all lands, buildings, machinery, lines of supply, goodwill, etc., in fact, everything which appertains to the supply of electricity under the license. To appreciate the meaning of the word ‘undertaking’, it is necessary to refer to certain provisions of the Act. Section 5 provides for the consequences where the license of a licensee is revoked. One of the consequence is that the undertaking is sold on payment of the value of all lands, buildings, works, materials and plant of the licensee suitable to, and used by him for, the purposes of the undertaking, other than a generating station declared by the license not to form part of the undertaking for the purpose of purchase, such value to be, in case of difference or dispute, determined by arbitration, in accordance with the provisions contained in Section 7. It is, therefore, manifest that everything appertaining to a running concern dealing with distribution and supply of electrical energy taken together, except of course the two exceptions mentiqned above, constitutes the undertaking; and, therefore, the meaning assigned to the word in the Rangoon case is, if I may say so with respect, substantially correct. But at the same time it is also clear that, if the concern is not a running one, then the plant, machinery, building and other materials constituting the undertaking become ordinary goods. It need not be emphasised that the difference between the value of these materials, when they appertain to such a concern is important.
12. In Section 2 (h) of the Electricity Act, as it stood during the relevant period, a ‘licensee’ is a person (which would include a body of persons) licensed under Part II of the Act to supply energy; and Section 3 of that Part lays down in what manner, under what conditions and to whom a license may be granted. Rules 11 and 13, made under the Act, which speak of the requisites of an application for a license and the contents of a license are also important. Rule 13, read with the form of a license referred to in Rule 14, shows that the description of the licensee must contain, in the case of a firm, the names of all the directors or partners of the firm. Hence, in the instant case, in the absence of the names of the partners or partnership in the license, Murli became the sole licensee of the undertaking when it was assigned to him with the previous consent of the State Government. The provisions of the Act do not contemplate any person making an application for license or being shown as the licensee in the license, on behalf of (sic) as benamidar for, any other person or body of persons; and, therefore, the partnership in question or any partner other than Murli cannot be treated as a licensee in the instant case. Consequently, the management of the undertaking by Ajodhya Gupta or Ramagya Gupta on behalf of the partnership was a clear violation of Section 28 of the Act. It will be recalled that this section read with Section 41 prohibits a non-licensee from engaging in the business of supplying energy to the public without the previous sanction of the Government; and any agreement to the contrary is void.
Mr. Sinha contended that a partnership as such is not within the prohibition, because Section 28 speaks of a ‘person’, i.e., an individual. But such an interpretation is against the conclusion drawn earlier from Sections 2 (h) and 3, read with Rules 11, 13 and 14 and it would defeat the object of the law, inasmuch as the act of a body of individuals constituting a partnership for engaging in the business of supplying energy would be without any control and result in mischief to the public interest. For the same reason, I am unable to appreciate the argument of Mr. Sinha that the grant of license to Murli was tantamount to the grant of license to all the partners. In the instant case, the assignment of the license and the transfer of the undertaking could easily have been in the names of all the partners carrying on business in the name and style of the partnership, as in the case of Roy brothers in Hemendra Lal v. Indo-Swiss Trading Co., AIR 1955 Pat 375, provided that the partners had not planned from the very beginning to purchase the undertaking and obtain the license in the name of Murli only but to carry on the business through other partners, as is evident from the evidence of Parasnath and Ramagya to which I shall presently refer.
The terms of the oral agreement amongst the partners also find place in the partnership deed dated 10-7-1945. Therein it is stated that the partners had agreed before the auction sale that Murli would bid at the sale on behalf of all the partners and, in fact, Murli did so and the sale was knocked down in his name and all the partners “have now become the owners of the said concern”. Then, the partners say in the deed that they “agree and bind ourselves to carry on the said business” on the terms incorporated thereafter. By one of the terms, Ajodhya Prasad Gupta was appointed the managing agent to “manage the business in proper and efficient manner”. By the second partnership deed dated 31-8-1950, Ramagya Gupta was appointed the managin partner to manage the business. In short, the oral agreement was reduced to writing on 10-7-1945 with additional terms regarding the managing agent and other details. The second partnership deed was substantially in respect of the same partnership by adjustment of shares, inasmuch as Gharbharan Sah had purchased the shares of Nandkishore and the shares of Ajodhya Gupta and Murli were distributed amongst the members of their families, and by appointing Ramagya Gupta in place of Ajodhya Gupta to manage the business as the managing partner. It is evident, therefore, that Ajodhya and Ramagya, who admittedly managed the business, one after another, did so on behalf of the partnership, but not on behalf of the licensee. Murli, or in their personal capacities.
13. Of course, it may be said that at the time the oral agreement was made, it was decided only to bid at the sale in the name of Murli on behalf of all the partners; but the subsequent conduct of the partners make their intention very clear. As was rightly submitted by Mr. Singh, in such a case, the substance of the transaction has to be looked into (see Man Singh v. Maharani Nawlakhbati. ILR 2 Pat 607: (AIR 1923 Pat 492) affirmed by Man Singh v. Nowlakhbati, 53 Ind App 11: (AIR 1920 PC 2); (1879) 11 Ch D 170 at p. 197 and Law v. Deamley, (1950) 1 KB 400) and, in the case of a transfer with the consent of Government, the license should be deemed to be a part of the undertaking, inasmuch as the owner of the undertaking develops it on the strength of the license and treats the acquisitions and wherewithals along with the license as his undertaking. The agreement among the partners was in respect of a running concern and the partners held out Murli as the purchaser, inasmuch as he paid the entire purchase money to the liquidator, though contributed by all the partners: and the undertaking along with the license was allowed, with the previous consent of Government, to be transferred to Murli alone, though, with the object of keeping control over him. some other partner was to be in charge of the business. Thus, there was a secret arrangement among the partners to carry on the business in an illegal manner, and, therefore, it was an illegal transaction–(see Armstrong v. Lewis. 149 ER 763 and Armstrong v. Armstrong, (1834) 40 ER 18).
In support of these submissions, he referred to Sections 5, 6 and 7 of the Electricity Act, 1910, as they stood at the time of the transaction in question. These sections provide for the consequences of the revocation of the license by the State Government. One of the consequences is that there is a transfer of both the undertaking and the license to the statutory purchaser; but if no purchase has been effected, the licensee shall have the option of disposing of all lands, buildings, works, materials and plant “belonging to the undertaking”, that is, the chattels as distinguishing (Sic). Mr. Singh also referred to the evidence of Ramagya Gupta that Sri Chandradeo Narain disfavoured the idea of Ajodhya Gupta bidding at the sale on behalf of the partners, as he was one of the directors of the supply company which was under liquidation. Parasnath (P. W. 3) has said that the talk of partnership took place for the first time in December, 1944. and the matter was finalised after several sittings amongst the partners, including Ajodhya Prasad Gupta, after they had consulted lawyers whether it would he lawful for them to enter into a partnership in a concern purchased by Murli. This, Mr. Singh, submitted indicates the premeditated contrivance on the part of the partners, even though, strictly speaking, there was no legal bar to any of the partners, including Ajodhya Gupta, bidding at the auction sale. These submissions are well founded. Mr. Sinha, however, said that Murli could not take advantage of the aforesaid statements of Parasnath and Ramagya, as illegality on this ground was not pleaded in his plaint; and, in this connection, he referred to paragraphs 8 and 9 of that plaint. But in fact these paragraphs contain two alternative pleas. Paragraph 8 speaks of a fraud based on misrepresentation and inducement by the other partners, as a result of which Murli became a party to the agreement; while paragraph 9 speaks of the intrinsic illegality of the agreement on account of the violation of the statute.
14. In view of the foregoing discussions, it must be held that the partnership agreement in question was contrary to the positive provision in Section 28 (1) of the Electricity Act and, therefore, an agreement forbidden by law and void under Section 23 of the Contract Act.
15. The next question is whether the transaction of the partnership is hit by Section 9 of the Act. It was conceded at the bar that Sub-section (1) of that section, which prohibits association in the business between two licensees, is not attracted in the instant case. But Mr. Singh contended that the provisions of the other two sub-sections of Section 9 were contravened. The transaction in question must be divided into two parts–(1) auction sale by the liquidator to Murli, and (ii) the partnership agreement amongst Murli and others. It is obvious that the first part of the transaction is not hit by either. The liquidator sold the undertaking to Murli ultimately in July, 1945 after obtaining the consent of the Government to the transfer of the undertaking as well as the assignment of the license to Murli. It is true that, as an advocate Shri Chandradeo Narain advised Ajodhya Prasad Gupta that he could not legally purchase the undertaking, in view of the fact that he was a director of the company; but this act of his would not affect his conduct in selling the undertaking to Murli alone as liquidator and there is no material to show that Shri Chandradeo Narain was aware of the secret understanding between Murli and others about the partnership. This understanding amongst the partners, however, amounts to transfer of some interest in the undertaking by Murli to the other partners or that the absence of previous consent of the Government contravened Sub-section (2) of Section 9. It also contravenes Sub-section (3) of the section, because it will be seen later that consent of Government to this transaction was never obtained even subsequently.
16. Mr. Sinlia, however, submitted that really all the partners were the auction purchasers in the name of Murli and there was no question of Murli transferring any interest to the other partners; and he relied on some sentences at pages 342-43 of Lindley’s book on Partnership (Twelfth Edition), which say that the utmost good faith is due from every member of a partnership towards every other member and that a partner acts as an agent of the remaining partners. But in the same hook, the learned author has also said that the partnership is illegal, if its object is one the attainment of which is contrary to law (see page 132), and that a partnership is illegal, if formed for a purpose forbidden by statute, although independently of the statute there would be no illegality (sec pages 135-36). The most important consequence of illegality in a contract of partnership is that the members of the partnership have no remedy against each other for contribution or apportionment in respect of the partnership dealings and transactions (see page 152).
Then Mr. Sinlia relied on the doctrine of Keech v. Sanford mentioned at page 237 of Halsbury’s Modern Equity (Seventh Edition). In that case a lessee of the profits of Romford Market had devised the lease to a trustee for an infant. The landlord refused the trustee’s request for a renewal on behalf of the infant. The trustee thereupon took a lease for his own benefit. Lord King though imparting no blame to him. held that he must hold it in trust for the infant. This decision illustrates the rule which debars a trustee from making any profit out of the trust: and Mr. Sinha submitted that Murli Prasad was in a position of a trustee so far as his co-partners were concerned, and, therefore, he could not appropriate the partnership. Mr. Sinha also referred to Section 1050 at pages 108-109 of Pomeroy’s Equity Jurisprudence (Fifth Edition), Volume 4. which deals with renewal of leases by partners and other fiduciary persons. This section also speaks of the aforesaid principles; and the same comments would, therefore, apply. Of course, Murli was bound in view of the oral partnership, to bid for all the partners at the auction sale; but he was not to blame, if the actual transfer of the undertaking or the assignment of the license was made in his name only. It was for the liquidator to move the Government in the matter; and the liquidator could not suggest to the Government to give its consent to the transfer of the undertaking or the assignment of the license to all the partners, unless he showed all the partners as purchasers. The liquidator cannot also he blamed, because from the evidence of Ramagya Prasad Gupta and Parasnath, two of the partners, it appears that under a wrong legal advice they decided to purchase the undertaking in the name of Murli alone, as Ajodhya Prasad Gupta, the major partner. could not be a purchaser on account of the fact that he was a director of the electric supply company under liquidation.
17. Mr. Sinlia then submitted that, at the time when the oral partnership was created and Murli bid at the auction sale on behalf of the partners, there was no sale, inasmuch as a registered document would be necessary for the sale of the undertaking which was worth more than Rs. 100; and, therefore, Sub-section (2) of Section 9 was not attracted. He argued that the transaction was a pure executory contract for sale which was covered by Sub-section (3) of the section and, therefore, ‘subject’ to the consent of the Stale Government to be obtained before the execution and registration of the sale deed–which has not been done as yet. But the auction sale, when completed after the payment of the full purchase money resulted in the transfer of the undertaking in favour of Murli and he could hold the same with the license against anybody in the world, except the liquidator or his represenlatives. even though no sale deed was executed: and the partnership agreement amounted to the transfer of some interest in the undertaking and the license to the partners.
Mr. Sinlia conceded that a partnership agreement may be even oral and no document is required in law for the same. He also conceded that a partnership might involve the contravention of Sub-section (2) but added that it depends upon whether the title in the undertaking–a dynamic object of the means of creating and distributing energy–vested in the licensee and the same was transferred to the other partners. It is manifest, however, that the undertaking could not he a dynamic object for the purpose of generation and supply of energy without a license under the Electricity Act; and the provision for the assignmenl of license with the consent of the government makes it a transferable commodity in the commercial market. In other words, the sale of an undertaking even under a registered sale deed under the general law without the assignment of the license under this Act cannot enable the purchaser to run the undertaking; whereas a purchaser without a sale deed but with a license in his name, with the consent of the Government, can carry on the business. Of course. the seller and his represenlalives-in-interest may question the title of such a purchaser and then get the license in the name of the purchaser revoked by the Government, but none else can question the purchaser’s title in the running undertaking; and when this purchaser lakes in partners to run the business without the consent of the Government, his action amounts to the unlawful transfer of a part of his interest in the running undertaking.
18. Mr. Sinha. then, submitted that it was the duty of the liquidator to obtain the consent of the Government to the sale in favour of all the partners on account of an implied covenant; and in support of this submission he relied on a decision of the Priv Council in Motilal v. Nanhelal, AIR 1930 PC 287. The appeal before the Privy Council arose out of a suit for specific performance of contract. The seller in that case was a proprietor: and under the relevant provision of the Central Provinces Act of 1920. if such a proprietor desires to transfer the proprietary rights in any portion of his Sir land without reservation of the right of occupancy, he may apply to a Revenue Officer and, if such Revenue Officer was satisfied that the transferor was not wholly or mainly an agriculturist, or that the property was self-acquired, or had been acquired within the twenty years last preceding, he shall sanction the transfer. Their Lordships said, in view of this provision, that the proprietor having agreed to transfer the cultivating rights in sir land, there was an implied covenant on his part to do all things necessary to effect such transfer, which would include an application to the Revenue Officer to sanction the transfer.
But this decision does not help Mr. Sinha, as in the instant case the liquidator did obtain the consent of Government to the transfer of the undertaking to the auction purchaser at the appropriate lime Murli paid to the liquidator Rs. 1,60,000 by the 3rd February, 1945 and Rs. 2,50,000 on the 13th July. 1945. After the 3rd February, 1945. the liquidator moved the Government for permission to transfer the undertaking and assign the license to Murli. On receipt of the reply from the Government he wrote to Murli on the 17th March, 1945, quoting the relevant passage from the reply and requesting him to intimate to him the answers to the queries of the Government for further action. By this passage Murli was required to furnish evidence in support of his capacity to manage and operate such an undertaking and to request his hankers to furnish to the Electrical Engineer and Electric Inspector. Bihar, a confidential report on his financial and business status. In other words, the Government wanted to know about Murli Prasad’s financial and business status and his capability of managing and operating the undertaking in question. This information was required apparently because of the responsibility of the Government to act in accordance with the Electricity Act.
19. There is no material on the record to show what information Murli Prasad actually supplied to the liquidator in reply to the latter’s letter dated the 17th March. 1945. On this ground, Mr, Sinha adversely commented on the conduct of Murli, because he did not disclose in his evidence the contents of the reply that he sent, though the same was within his special knowledge, in the absence of the liquidator who died before the institution of these suits. Unfortunately, no question was put to Murli on this point either in exa-mination-in-chief or in cross-examination; and therefore, all the parlies were responsible for this lacuna. Of course, Murli made a false claim in his examination-in-chief that he had paid the entire purchase money and he was the sole purchaser of the undertaking; bul in cross-examination he admitted the partnership as also the receipt of moneys from the partners in proportion to their shares. On this ground, however, the clients of Mr. Sinha cannot take any advantage. inasmuch as it is possible from the documents on the record to find out what reply Murli must have given to the liquidator. The queries made by the Government related only to financial and managing capacities of Murli. who was the ostensible auction purchaser, and, therefore, it is obvious that the reply must have contained facts relevant to the queries. If Murli did not–as the probability is–disclose in his reply the names of the real purchasers, he merely acted in accordance with the agreement arrived at by all the partners after obtaining legal advice.
It will be recalled that the Government’s sanction for the transfer of the undertaking and assignment of the license to Murli had been obtained in April, 1945; and this sanction must have been given after the government had been satisfied on the report of the liquidator about his financial and managing capacities. On the 27/28th May, 1945 the liquidator wrote to him informing him that he had received the government’s permission to transfer the license to him; but at the same time he warned him that he would cancel the bid and forfeit the amount of Rs. 1,60,000 already paid and re-sell the undertaking, if he did not pay him the balance of the purchase money by the 31st May, 1945. As stated earlier, this balance money was paid on the 13th July, 1945 on which date possession of the undertaking was also delivered to Murli. All the actions of the liquidator were, therefore, lawful. It is remarkable that the partners acquiesced in all these acts of the liquidator. The partners, other than Murli, could easily have made an application to the liquidator stating the real facts, when the oral agreement was reduced to writing on 10-7-1945: and requested him to move the government to revise its earlier order and give its consent to the transfer of the undertaking and the license to all the partners.
20. On the other hand, the act of the partners was unlawful inasmuch as they suppressed the real fact: and their secret agreement became manifest, when in confirmalion of the oral agreement of partnership, the written agreement was executed on the 10th July, 1945. By that time, the government had issued the notification on the 30th April, 1945 giving consent to the assignment of the licence and the transfer of the undertaking to Murli. Even on the 13th July 1945 Murli paid Rupees 2,50,000 to the liquidator after obtaining money from the other partners. This amount (minus Rs. 43,500, which was the quota of Murli out of this amount) was contributed by the other partners to Murli by the 13th July. In this connection, it will be sufficient to refer to Ext. F-1, the receipt granted by Murli to Ajodhya Prasad Gupta whose share was eight annas, on the 13th July, 1945 in respect of the amounts contributed by the latter. These partners could very well have refused to contribute any further sum after the 30th April, 1945 or even after the liquidator’s letter dated the 27/28th May, 1945 and thus enable the liquidator to cancel the bid, so that they might take back the respective contributions minus the penally that the liquidator might charge. But these partners did not do so and instead allowed Murli to continue as the licensee and transferee of the undertaking. It is. therefore, reasonable to infer that this transaction of partnership was entered into with the object of defeating the provision of law contained in Sub-section (2) of Section 9. I am unable to agree with Mr. Sinha that Murli became the licencee on behalf of all these partners within the meaning of the word ‘licensee’ in Section 9 and other provisions of the Electricity Act, because, as stated earlier, a license is granted to a firm only if the names of the directors or partners thereof are mentioned in the license.
21. In this connection, two English decisions are important, viz., Nash v. Stevenson Transport, Ltd. (1936) 2 K. B. 128; and Chai Sau Yin v. Liew Kwee Sam, (1962) A. C. 304. In the first case, the plaintiff was entitled by virtue of a provision in an Act to obtain as of right a certain class of license in respect of goods vehicles. He did not wish to use these vehicles himself but entered into an agreement with the defendants, whereby, in consideration of a money payment, the defendants were to be entitled to operate the vehicles in the plaintiff’s name under his licenses which could not, by another provision of the Act, be transferred or assigned by him. An action was brought by him to recover the sum payable under the agreement, and the claim failed, inasmuch as the agreement was held to be illegal. The reason for this decision was that the agreement constituted a transaction with an illegal object. In the second case, the respondent, a rubber grower, sold a quantity of smoke sheet to a partnership of which the appellant was a member. Only one member of the partnership–not the appellant–held the requisite license to purchase rubber, and none of the other partners’ names were inserted in the license issued to the holder. The respondent knew that that member had a license and had partners but took no steps to find out whether the other partners’ names were included in the license. On a claim by the respondent for the balance of the price of the rubber, the appellant, who had never held a license, contended that the license was personal to the partnership, and that any purchase by the appellant was prohibited by the enactment and, therefore, illegal and unforceable. The Privy Council accepted this contention, holding on the basis of the provisions contained in Sections 5, 16 and 32 of the Rubber Supervision Enactment, 1937, that the license was personal and not assignable, the names of the partners not having been included in the license was prohibited by law, a prohibition made in the public interest, which would be enforced notwithstanding that the appellant had to rely on his own illegality, and, accordingly the respondent could not recover.
In this decision, their Lordships distinguished an earlier decision in Gordhandas Kcssowji v. Champsev Dossa, AIR t921 P. C. 137, wherein it was held that a licensee of salt manufacture cannot be said to contravene the terms of his license whereby he was prohibited from alienating the interest, simply because he admitted members of his family and others as partners, who however did not actually take part in the manufacture, nor was there any document directly transferring the right of manufacture to such partners. In the case of Chai Sau Yin 1962 AC 304, their Lordships said that the question decided in the case of Gordhandas Kessowji AIR 1921 P C. 137 was whether an agreement contained a provision for the alienation of the privilege of manufacturing salt granted by a license under the Bombay Act II of 1890 and whether such a provision would have been valid notwithstanding a prohibition contained in the Act.
22. Mr. Sinha, however, relied on a bench decision of this court in Commissioner of Income-tax, Patna v. K. C. S. Reddy, AIR 1960 Pat 398. The facts of that case were these. K. obtained a dealer’s license under the provisions of Bihar Mica Act, 1947, and was assessed as an individual on his income from the business in mica. Subsequently, he made a claim that the business had been taken over by a firm consisting of himself and four others and claimed registration of the firm under Section 26A on the basis of a partnership deed, under which he was the managing partner. The partnership empowered K, who had a dealer’s license, to purchase, sell transport or consign for sale all the mica produced by the partnership. It was held that the partnership was not unlawful and was, therefore, entitled to registration under Section 26A. Their Lordships referred to Section 4 (1) (d) of the Bihar Act and said that it does not require a partnership as such to take out a dealer’s license before carrying on the business of dealing in mica, the reason being that the partnership is not a person in the eye of law and the provisions enacted by Section 4 (1) (d) cannot therefore, apply to a partnership as such. But the distinguishing feature of this case from that of the instant case is evident from an observation of their Lordships which reads thus:
“The important point to be noticed is that there is no express prohibition in the Bihar Mica Act that a partnership cannot carry on the business of dealing in mica provided of course that the person who actually purchases and who actually is in possession of the mica has the dealer’s licence required under Section 4 (1) fd) of the Act”.
This decision could have been of some assistance to Mr. Sinha in the instant case, if the partners, other than Murli, did not take any active part in the running and management of the electrical undertaking in question; but the facts are otherwise. A clause in the partnership deed daled the 10th July, 1945 shows that Ajodhya Prasad Gupta was appointed the managing agent, and his duty, inter alia, was to manage the business of the undertaking in a proper and efficient manner. In fact, he did work as the managing agent since the very beginning, until the execution of the second partnership agreement dated the 31st August, 1950 by which Ramagya Prasad Gupta was appointed managing partner to manage the partnership in a proper and efficient manner, subject to certain powers conferred and restrictions imposed upon him. In this document, the past history of the partnership is given along with the statement that, with the permission of the Government, the liquidator transferred the license and undertaking to Murli Prasad. It is further mentioned therein that, on account of the retirement of Nandkishore Prasad, one of the original partners, as also on account of the transference of the shares to several other persons, this document was being executed. It is nobody’s case that Murli was ever in charge of the management of the undertaking. These facts are sufficient to distinguish the instant case from the case of AIR 1960 Pat 398.
23. On the other hand, in Hadibandhu Behera v. Gopal Sahu, AIR 1943 Pat 374, it was held that an agreement by the appellant, a licensee of two excise shops under the Bihar and Orissa Excise Act, 1945, whereby the entire charge of the shops was given to the defendants respondents on the latter agreeing to pay the former the advance license fee which he had paid and the price of the stock of the opium, ganja and bhang which he had purchased, besides some profit every month, amounted to a transfer within the meaning of Rule 143 of the rules made under Section 89 of the Act. This rule reads as follows:
“No transfer or sub-lease (whether entire or partial) of a licence shall he made except with the previous permission of the Collector.”
Their Lordships further held that the agreement was void being contrary to Rule 143 and was also punishable as a crime under Section 57 (c) of the Act. This decision is apparently more appropriate to the instant case than the decision in the case of AIR 1960 Pat 398, and it supports the view that the partnership agreement in question was a ‘transfer’ within the meaning of Section 9(2) of the Electricity Act.
24. Mr. Sinha then relied on a bench decision of this court in AIR 1955 Pat 375, which deals directly with the provisions of Section 9 of the Electricity Act, In order to appreciate the decision, it is necessary to state the salient facts of that case. The appellants were three brothers called Roy brothers and their firm described as Lalji and Co. On 14-1-1928 Lalji and Co. applied to the Government of Bihar for grant of a license to supply electric energy at Giridih. On the enquiry by the Government as to how the applicant proposed to run the undertaking, Roy brothers replied that they intended to float a limited liability company, the shares of which would be subscribed by them and others, and, if necessary, they would finance the limited liability company to enable it to run the undertaking. Eventually, on 9-7 1929 the Government granted to Roy brothers, carrying on business in the name and style of Messrs Lalji and Co., the requisite license. Soon after Lalji and Co. floated a limited liability company, which may be called for the sake of brevity as the corporation, for the supply of electric energy under the said license.
It was mentioned in the prospectus of this corporation that the license would be work ed by it and that Lalji and Co. would be appointed the managing agents of the corporation. Thereafter on 14-9-1929 two agreements were entered into between the corporation and Lalji and Co., and, in order to know the relevant terms thereof, we have looked into the brief of First Appeal 60 of 1947, in which the above decision was given. These agreements provided, inter alia, that Lalji and Co. shall, subject to the permission of the Government assign, and the corporations shall accept as from the time of such assignment of the license, the whole of the undertaking; the corporation shall thereafter exercise the powers and perform the obligations given to or imposed upon Lalji and Co. under the license; until the said permission was granted, the corporation shall carry out and execute all the compulsory works that had to be carried out and executed according to the terms of the said license in the name of Lalji and Co., which shall be treated as agent of the corporation until the assignment to the latter of the license; and on such assignment, Lalji and Co. shall grant, assign, convey and deliver to the corporation all the plants, machineries, buildings and other properties which shall be laid, constructed and erected at the cost and expenses of the corporation but shall in the meantime remain in the name of Lalji and Co. which would be the managing agents of corporation.
As managing agents, Lalji and Co. placed orders for the supply of electric equipments with two companies. The plants, machineries and transmission lines etc. were thus procured and set up, and the supply of electric energy was commenced under the license granted to Roy brothers. In 1932 and 1933 the two creditor companies obtained compromise decrees in respect of the dues against the appellants. On 12-9-1933, Lalji and Co. resigned from the managing agency of the corporation. Subsequently, Roy brothers carrying on a partnership business in the name and style of Messrs Lalji and Co. were adjudged insolvents on 17-7-1934; and under the orders of the Official Assignee, the power house, plants, etc., of the electric undertaking were released in favour of the official liquidator as properties of the corporation.
On 10-1-1944 a suit was instituted against the appellants and others for a declaration that the plaintiff respondent was the owner of the undertaking and the assets thereof. The trial court decreed the suit in part and restrained permanently the appellants from taking possession of the undertaking and the assets’ thereof. One of the contentions raised before their Lordships, on behalf of the appellants, was that, if by Ext. 23 the undertaking was agreed to he a property of the corporation, then that agreement was void within the purview of Sub-sections (2) and (3) of Section 9 of the Electricity Act. It was submitted on their behalf that, wilhoul the sanction of the Government of Bihar, Lalji and Co. had no authority to assign their inlerest in the undertaking in favour of the corporation; aad if they did so by the agreement, then that agreement was void. On the above facts. their Lordships said:
“In our view the arrangement between the corporation and the licensee did not attract the operation of Section 9 (2) and (3) of the Act. Section 9 (1) of the Act does not debar a licensee’s association in the business of supplying energy with a person who intends to supply electric energy under the same license.”
But this observation was made with reference to the peculiar facts of that case. It will be noticed that the license was never transferred to the corporation and, though the plants, buildings, etc., were constructed at the cost of the corporation, the same were to remain in the name of Lalji and Co.. which worked as managing agents of the corporation. In the instant case, however, the machineries, plants, buildings, etc., appertaining fo the undertaking became, with effect from 13-7-1945. at the latest, the property of the partnership, according to Mr. Sinha and two partners, who were not licensees, were exclusively in charge of the management, one after the other.
25. On the other hand, there are some Madras decisions which support the view that I have taken; and no decision to the contrary has been cited. In Velu Padayachi v. Sivasooriam, AIR 1950 Mad 444 (FB), it was held by a full bench that a partnership entered into for the purpose of conducting a business in arrack or toddy on a license granted or to be granted to only one of them is void ah initio, whether the contract was entered into before the license was granted or afterwards, in that it either involves a transfer of the license, which is prohibited under Rule 27 and punishable under Section 56, or a breach of Section 15. Abkari Act, punishable under Section 55, because the unlicensed partner, by himself or through his agent, the other partner, sells without a license. It was further held that, if a partnership is lawful at its inception, because it is not intended to infringe any provision of the Contract Act, it nevertheless becomes unlawful when it intends to conduct the business jointly on a license granted to one only of the partners. Their Lordships discussed a large number of earlier decisions, some of which arc relevant in the instant case.
In Ramanayudu v. Seetharamayya, AIR 1935 Mad 440 (F. B.) a partnership was entered into after the auction sale, both before the license was granted, between the defendant, the successful bidder at the auction, and the plaintiff, who advanced money for conducting the business by both the partners. It was held by the full bench that the partnership was an illegal one and that therefore, no suit lay on the promissory note executed by the defendant for the money lent by the plaintiff. The learned Judges also said that it was immaterial whether the partnership was entered into before or after the license was issued. In J. D. Italia v. D. Cowasjce, AIR 1944 Mad 295, the learned Judges found that the contract was initially a valid one: because it contemplated the securing of licenses in the names of both the partners. The revenue aulhorities granted temporary licenses to one of the partners, knowing that the business would be worked by two partners and tacitly approving of its being worked by both of them. The revenue authorities later insisted on a registration of the partnership as a condition precedent to the recognition of the partnership and refused to issue license in their joint names As the partners failed to register themselves as a company, the license was issued in the name of one partner only. Both partners nevertheless continued the business. It was held that from the date on which the revenue authorities definitely refused to issue a license in the names of both, the partnership became an illegal one. The case of J D. Italia, AIR 1944 Mad 295 was also in respect of a partnership for acquiring licenses to carry on toddy shops under the Madras Abkari Act. If I may say so with respect, the principles laid by the learned Judges of the Madras High Court in both the decisions are correct.
26. Mr. Sinha. however, submitted that the aforesaid Madras decisions and the Patna decision in the case of Hadibandhu Behera, AIR 1943 Pat 374 were based on Acts which contained some penal provisions against the transactions constituted by the partnerships whereas there is no penal provision in the Electricity Act for violation of the provisions of Section 9. It will be recalled that Sub-section (2) of Section 9 prohibits a transfer of the undertaking and assignment of the license, whereas Subsection (3) lays down that any agreement relating to any transaction of the nature described in Sub-section (2) shall, in certain circumstances be void. Mr. Sinha submitted that, in the absence of a penal provision for violation of the provisions of Section 9. the partnership in question cannot be held to be unlawful; and he relied on a Full Bench decision of the Allahabad High Court in Dip Narain Singh v. Nageshwar Prasad, AIR 1930 All 1 (FB). In that case the question of law to consider was as to the legal effect of including non-transferable occupancy land in a registered mortgage deed. Their Lordships referred to the relevant provisions of the Agra Tenancy Act, which provided that the interest of an occupancy tenant was not transferable and that such a tenant shall not, therefore, be competent to transfer his holding. Their Lordships said that the language of the relevant sections did not justify the inference that such a transfer had been expressly forbidden and prohibited by law, nor was such a transfer opposed to public policy. In this connection. Sulaiman. J. observed:
“There is a clear distinction between an agreement which may be forbidden by law and one which is merely declared to be void. In the former case the legislature penalises it or prohibits it. In the latter case, it merely refuses to give effect to it. If a void contract has been carried out and consideration has passed the promisor may not in equity be allowed to go back upon it without restoring the benefit which he has received. But if the promisee comes to Court to enforce it he would receive no help from a Court of law.”
But the provisions of the Eleclricily Act justify the inference that the violation of Subsection (2) or Sub-section (3) of Section 9 would amount to an act forbidden by law. Lord Halsbury L. C. said in Quinn v. Leathern. (1901) AC 495:
“. . .every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what il actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer musl acknowledge that the law is not always logical at all.”
In Sales Tax Officer v. Kanhaiyalal Mukundlal Saraf, (1959) SCR 1350: (AIR 1959 SC 135), the Supreme Court discussed several decisions conlaining rules of interpolation of the statute and said that, in order to ascertain the true meaning and intent of the provisions, the Courts have got to turn to the very terms of the statute itself, divorced from all considerations as to what was the state of the previous law or the law in England or elsewhere at the time when the statute was enacted; and where the terms of the statute do not admit of any ambiguity, it is the clear duty of the Courts to construe the plain terms of the statute and give them their legal effect. I have summarised earlier the main objects of the Indian Electricity Act, which are all in the public interest. It is sufficient here to refer to the provisions of Sections 3 and 4, Section 3 requires an application in the prescribed form on payment of the prescribed fee for the grant of a license; and the Government cannot grant a license to the applicant until objections received from the members of the public or a local authority after the publication of a notice of the application are considered and disposed of by it.
Rule 11 of the Electricity Rules prescribes the form and other details of the application as also the publication of a notice of the application for license. This section also speaks of the condition to be attached to a license granted by the Government which shall be empowered to modify, alter and add to the said conditions. A perusal of these conditions as also the details required in the application for license and the manner of publishing the notice of the application will show why the Government made the aforesaid enquiries regarding Murli Prasad from the liquidator. Section 4 lays down that the Government may, if in its opinion the public inleresl so requires, revoke a license in any of the several circumstances meniioned therein: namely (1) the licencee makes wilful and unreasonably prolonged default in doing anything required of him by or under the Act; (2) the licensee breaks any of the terms or conditions of his license the breach of which is expressly declared by such license to render it liable to revocation; (3) the licensee fails within a certain period to show, to the satisfaclion of the Government, that he is in a position fully and efficiently to discharge the duties and obligations imposed on him or to make the deposit or furnish the security required by his license: and (4) the licensee is, in the opinion of the Government, unable, by reason of his insolvency, fully and efficiently to discharge the duties and obligations imposed on him by his license. These provisions also require enquiries to be made regarding the financial and managing capacities of the would-be licensee. It does not require repetition that all these provisions in the two sections and the relevant rules have been made in the public interest.
27. Certain principles as to when a provision of law would amount to a prohibition are well seltled. I have summarised them in an earlier part of this judgment. It will, however, be profitable to refer to some of them as contained in Pollock’s Principles of Contract (Thirteenth Edition) al pages 275-276:
(1) “The imposition of a penally by the legislature on any specific act or omission is prima facie equivalent to an express prohibition .”
(2) “Conversely, the absence of a penalty, or the failure of a penal clause in the particular instance will not prevent the Court from giving effect to a substantive prohibition.”
(3) “When conditions are prescribed by statute for the conduct of any particular business or profession, and such conditions are not observed, agreements made in the course of such business or profession-
(e) are void if it appears by the context that the object of the legislature in imposing the condition was the maintenance of public order or safety or the protection of the persons dealing with those on whom the condition is imposed:
(f) are valid if no specific penalty is attached to the specific transaction, and if it appears that the condition was imposed for merely administrative purposes, e.g., the convenient collection of the revenue.”
At page 346 of the book the learned author has aiso said:
“The omission of statutory requisites in carrying on a partnership business is consistent with the contract of partnership itself being lawful; but if it is shown as a fact that there was from the first a secret agreement to carry on the business in an illegal manner, the whole must be taken as one illegal transaction.”
In view of the policy of the legislature underlying the Electricity Act, there is, in my opinion, no doubt that Sub-sections (2) and (3) of Section 9 contain a substantive prohibition, even though there is no penal provision for violation of the same. This view is also supported, by a Bench Decision of this Court in Jharia Coal-field Electric Supply Co. Ltd. v. Kaulram Agarwala, AIR 1951 Pat 463 in respect of an agreement entered into in violation of certain provisions of the Electricity Act in a letters patent appeal by the defendant. The Plaintiff in that case carried on a business for charging batteries on a commercial basis. The defendant was a licensee and supplied electrical energy in the locality. The license contained the rates at which the energy could be supplied by the licensee to consumers for domestic and power purposes. On 6-7-1942 the Bihar Electricity Control Order, 1942 was published; and Clause (3) thereof laid down the limits of supply of energy to industrial undertakings. In January, 1943 the Plaintiff filed three requisitions for the supply of electrical energy, (1) for domestic purposes; (2) for a flour mill, and (3) for battery charging. Though no supply for battery charging was sanctioned by the Government, the licensee provided the plaintiff with electricity for the three different purposes regulated by three different matters, for which he had to pay at three different rates. The instructions of the Electrical Engineer and Electric Inspector, Government of Bihar, to the licensee were that, if consumers wished to utilise energy for battery charging, they should do so from the energy supplied for ‘domestic’ purposes and within the limits imposed by the Control Order. The licensee then published a general notification in a local newspaper that consumers would be charged at seven annas per unit for battery charging, radios and other unessential purposes. The protest of the plaintiff against the increased rate had no effect, and then he brought a suit for recovery of Rs. 646 as a refund of the excess payments with interest, inasmuch as the payments were made under protest.
In the appeal it was urged on behalf of the defendant appellant that the plaintiff was not entitled to the refund of money realised by the licensee at the increased rate for the supply of energy for battery charging nor to the refund of the surcharge levied thereon. The argument advanced on behalf of the appellant was that, as the money was paid under an illegal agreement and the illegal purpose had been carried out, the plaintiff was not entitled to seek the aid of the Court for the relief. The Court accepted this contention, holding that the parties entered into the bargain in contravention of the provisions of Clause (3) of the Control Order and they knew that they were entering into an illegal agreement, the object of which was obviously opposed to law as well as public policy.
28. There is also a Bench Decision of the Madras High Court in Viswanathan v. Namakchand, AIR 1955 Mad 536, dealing with the provisions of an Act which did not contain any penal clause for the violation of a certain provision. In that case the Plaintiff appellant, with considerable experience in cinema business, entered into an agreement with the owner of a theatre called Chitra Talkies for taking it on lease for a certain period. In pursuance of this agreement, he actually entered into possession of the theatre on 1-4-1949 and equipped it with the lalkie machinery, electric fittings, furniture, etc., so as to make it suitable for exhibiting films. Meanwhile, on 26-2-1949 the parties had entered into a contract, whereby they agreed to run the theatre in partnership. It was provided in this agreement that the plaintiff was to obtain a registered lease for the premises and also a license for running the theatre as a talkie house and that thereafter a regular partnership deed should be executed. The capital for the partnership was fixed at Rs. 1,30,000 and the defendants paid the plaintiff a sum of Rs. 65,000 for their half share thereof. It was also provided in the agreement that the benefits of the lease and of the furniture and fittings and other equipments and machinery and good-will of the theatre together with the benefits of the licenses obtained therefor should be the properties of the partnership. The plaintiff obtained a registered lease deed for the premises and a license for running the talkie in May and August, 1949, respectively, both of them in his own name, and a formal partnership deed was also executed on 5-9-1949.
In May or June, 1950 the plaintiff instituted a suit for a declaration that the partnership was illegal and void ab initio as being in contravention of condition No. 7 of the license and for an injunction restraining the defendants from interfering with the rights of the plaintiff as the sole proprietor of the business. The license had been granted under the Cinematograph Act, 1918. Clause 7 of the license read thus:
“The licensee shall not, without the permission of the licencing authority, assign, sublet or otherwise transfer the licence or the licenced premises; nor shall the licensee, without the permission as aforesaid allow any other person, during the period of currency of the licence, to exhibit films in the licenced premises.”
Their Lordships referred to the earlier decisions and held that the partnership was illegal by reason of the provision contained in Clause 7 of the license, even though it might not be punishable under Section 8 of the Act. In support of this view, their Lordships relied on the aforesaid principles contained in Pollock’s book on ‘Contract’ and said:
“. . . . .When there is no penalty imposed for the transgression of a rule the question whether a contract is illegal should be determined on a consideration of the purpose behind the legislation. There are provisions enacted for the purpose of revenue and in the interests of administration. In such cases, the matter is one between the Government and the licensees and no question of illegality will arise but when the provision is enacted in the interests of the public and for promotion of its welfare a contravention thereof must be held to be illegal.”
Thereafter, their Lordships cited a Bombay case as an instance of a statute for the purpose of revenue and in the interests of administration only. It may be incidentally mentioned that some of the decisions of different High Courts, showing the difference between statutory provisions and conditions in licenses or leases made in the public interest, and those made for the purpose of revenue and administration, are mentioned in the Bench Decision of the Bombay High Court in Bhagwant Genuji v. Gangabisan Ramgopal, AIR 1940 Bom 369. Regarding the contention that the non-licensee partner may be treated as an agent, inasmuch as the Cinematograph Act, especially, recognised that the licensee might be an agent in charge of the business, their Lordships of the Madras High Court said that in the context an agent is a person different from the licensee: whereas in a partnership every partner fills a dual capacity of both a principal who will be bound by the acts of his partners and an agent who can bind them as principals.
29. In view of the foregoing discussions, I am unable to agree with Mr Sinha that the violation of Sub-section (2) or Sub-section (3) of Section 9 of the Electricity Act did not, in the absence of a penal provision, amount to an act forbidden by law. Besides, the partners also violated the provision of Section 28 thereof; and, as stated earlier, Section 41 of the Act penalised the contravention of the provisions of Section 28.
30. It is admitted in the instant case that sanction of the Government was not obtained in any manner whatsoever in 1945 or thereabout, though it is stated on behalf of the partners, other than Murli, that subsequently the Government gave consent to the same. It is well settled that, where the statute requires the consent or sanction of an authority previous to a transaction, any consent or sanction given subsequent to the transaction cannot overcome the lacuna; and it will be sufficient to refer to a decision in support of this principle. In Shyam Behari Singh v. Rame-shwar Prasad. ILR 20 Patna 904: (AIR 1942 Pat 213), a Bench of this Court had to construe the effect of Section 12-A of the Chota Nag-pur Encumbered Estates Act, 1876. Subsection (1) of which provided that in certain circumstances a person, who was the holder of the property which had been restored to him under a provision of that Act, shall not be competent, without the previous sanction of the Commissioner, to alienate such property, or any part thereof, in any way, or to create any charge thereon extending beyond his lifetime, and that, under Sub-section (3) thereof, every alienation and charge made or attempted in contravention of Sub-section (1) shall be void.
In that case, one Jageshwar Bux Rai and two others of the same family had executed the mortgage bond in suit. Sanction of the Commissioner had not been obtained for executing this mortgage bond, though subsequent to the mortgage such sanction had been obtained. It was found that Jageshwar was a holder of the estate prohibited from alienating or charging it without the previous sanction of the Commissioner. The Subordinate Judge was of the opinion that the sanction given by the Commissioner, after the mortgage was executed, was sufficient to validate it even assuming that the mortgage was not valid when actually executed. Their Lordships, however, held that, inasmuch as by the express words of the statute the sanction must precede the alienation or charge, the transaction in question was void in terms of Subsection (3) of Section 12-A, and on the analogy that a subsequent ratification by a person who was incompetent to contract cannot validate a void contract, which is a nullity, entered into by him, a subsequent sanction, unless expressly provided by the statute, cannot transform what was a nullity into a valid and binding agreement. In this connection, their Lordships relied on the decision of the Privy Council in Gaurishankar Balmukund v. Chinnumiya, ILR 46 Cal 183: (AIR 1918 PC 168).
While dealing with the question whether a transfer made in contravention of the provisions of paragraph 11 of the Third Schedule, Code of Civil Procedure, was or was not void, their Lordships approved a Full Bench decision of the Judicial Commissioner’s Court at Nagpur in Mt. Salu Bai v Bajaf Khan. 42 Ind Cas 200: (AIR 1917 Nag 215). The relevant paragraph of the Third Schedule lays down that the judgment debtor or his representative in interest shall, in certain circumstances, be incompetent to mortgage charge, lease or alienate certain property or part thereof except with the written permission of the Collector. It will be noticed that the word ‘previous’ does not occur before the words ‘written permission”; nevertheless, a majority of the Full Bench held that a transaction made without the written permission of the Collector was absolutely void. Hence, it must be held that the partnership transaction in the instant case was void and unlawful at least since the 10th July, 1945.
31. Even assuming that the partnership in the instant case was not a transfer within the meaning of Sub-section (2) of Section 9 of the Electricity Act and that it was an agreement relating to a transaction referred to in Subsection (3) thereof, it must be held to be void on account of the provision contained in Subsection (3), inasmuch as the consent of the State Government was not given even subsequent to the agreement Of course, the learned Subordinate Judge has held that such a consent was given subsequent to the agreement; hut I am unable to agree with him. In support of his finding, the learned Judge as well as Mr. Sinha relied on certain documents Exhibits X series are four balance sheets of the Chapra Electric Supply Works dated the 3ist December of each of the years 1948, 1949, 1950 and 1951, which contain the names of all the partners, their shares and the capital invested. The learned Judge has said that these balance sheets used to be sent to the State Government; but there is nothing on the record to support this statement. A large number of letters between the manager or managing partners of the Chapra Electric Supply Works and the Electrical Engineer and Electric Inspector, Government of Bihar, have been printed; but there is only one letter dated 20-1-1949, Ext. D (6), that was sent by the Chapra Electric Works to the Under Secretary to the Government, and there is nothing therein about the balance sheets or the partnership.
In this letter R.P. Gupta, the manager of the Works requested the Government to allow them to continue to impose 20 per cent. surcharge on electrical energy consumed by the consumers at least for two years with effect from the 1st April, 1949. Of course, in Ext. D (6) the words ‘we’ and ‘us’ have been used; but they cannot by themselves indicate partnership, and they were apparently used for the Chapra Electric Supply Works. Then, there are two income-tax assessment orders for the years 1946-47 and 1947-48, which show the partnership; but these documents had nothing to do with the Government.
The learned Judge has placed much importance on two letters, viz., Exts. D (7) dated the 18th April, 1949 and Ext. D (8) dated the 21st April. 1949 Exhibit D (7) is a letter signed by the manager, R P. Gupta on behalf of the said Chapra Electric Works to the Electric Inspector Nothing is said in this letter about any partnership or partners, though it is stated that the liquidator obtained permission from the Government to sell the whole undertaking and transfer the license “in our favour as we purchased the concern on auction bid” and also that “the undertaking is in our possession” Then, some difficulties about the condition of the plant are mentioned, and ultimately a request has been made “to kindly accord sanction as required under Section 9 (2) of the Indian Electricity Act for raising loan”.
It will be noticed that the sanction was asked for for the purpose of raising loan. The Electric Inspector, Mr. B. B. Lal, in reply to Ext. D (7) asked the manager of the Works in Ext. D (8) to intimate the amount of loan and the rate of interest with the details of the different purposes The subject-heading of Ext. D (8) also speaks of an application under Section 9 (2) of the Indian Electricity Act “for raising loan”. The learned Subordinate Judge has observed that, if really Murli was the only licensee known to the Government, he could not understand how the Inspector could know of the manager and of the Chapra Electric Supply Works. This observation betrays the ignorance of the learned Judge that even a sole proprietor can name his business like Messrs Chapra Electric Supply Works and even a sole proprietor can appoint a manager in charge of the business. Moreover, the Electric Inspector could know the manager and the name of the Works, as he was sending a reply to Ext. D (7).
Exhibit D (9) is a letter dated 14-10-1950 written by the Electric Inspector addressed to the managing agent. Chapra Electric Supply Works, in which the former said that the new generating plant was of no use until the substation was installed and recommended that the work of both generating stations and substations be taken up simultaneously. Exhibit D (12) is a letter dated the 2nd February, 1951 from the managing partner, R.P. Gupta, to the Electric Inspector, forwarding the statutory account for the year ending 31st December. 1949 in duplicate with shareholders’ report. Of course, in this letter the word ‘partner’ is used and the statutory account would also indicate the partner; but there is nothing to show that the Government consented to or sanctioned the carrying of business by the several partners. Again, Ext. D (10) dated the 12/l3th December, 1950 is a letter from the managing partner, R.P. Gupta, to the Electric Inspector, forwarding a copy of the partnership deed executed by the ‘licensee’ in favour of the partners and the firm for the addressee’s record and information. It was stated in this letter that according to the terms and conditions laid down, the work of the undertaking would be carried on by the managing partner, though it is not mentioned whether a copy of the first or second partnership was forwarded by this letter; the learned Subordinate Judge has rightly presumed that it was a copy of the second partnership deed which is dated 31-8-1950. It is remarkable that in this letter the managing partner admitted that the licensee had executed this document in favour of the partners. There is nothing on the record to show that even the Electric Inspector, not to speak of the State Government accepted the partners as the persons entitled to carry on the business.
Then, the learned Subordinate Judge has referred to several other letters either from the managing partner to the Electric Inspector or vice versa, written in 1951. in connection with the supply of electrical energy to certain new consumers. There is also some corres pondence between the above two in 1952 asking for the statutory accounts in duplicate for certain years. Exhibit D (44) is a letter from the Chief Electrical Engineer dated 19-3-1951 addressed to the managing agent of the Chapra Electric Supply Co. from which it appears that the former inspected the works of the company, pointing out some defects and warning the managing agent that he would be reluctantly obliged to recommend to Government to revoke “your license”. This last clause indicates that even the Chief Engineer had not the powers of the Government for the revocation of a licence; and, therefore, he or the Electric Inspector could not have the power to grant a license or give consent or sanction required under Section 9 or Section 28 of the Electricity Act. The orders or rules under Article 166 of the Constitution for the conduct of business of the State Government do not contain any provision indicating that the Chief Electrical Engineer or the Electric Inspector had the powers of the Government mentioned in Sections 9 and 28; nor could Mr. Sinha point out any provision in the Electricity Act or any order of the Government to show that it had delegated such powers to the Chief Engineer or to the Electric Inspector. The mere fact that in some correspondence to the Chief Engineer or the Electric Inspector something has been said about the partnership cannot justify the inference that the Government, had, by implication, given its consent or sanction, as required in Sections 9 and 28.
It appears from paragraph 46 of the judgment of the learned Subordinate Judge that after R.P. Gupta had suspended Narba-deshwar Prasad (P. W 4), an employee of the Chapra Electric Supply Works, and lodged a criminal proceeding against him. Murli and his relation Paras Nath felt dissatisfied and wanted to end this partnership. Consequently, Murli forcibly entered the premises of the Chapra Electric Works in order to take charge of the business, and this resulted in a proceeding under Section 144 of the Code of Criminal Procedure. From Exts. D series it appears that Murli began to send some complaints to the authorities concerned he being the real licensee was ignored. Thereupon, on the 29th June, 1954 the Electric Inspector wrote to Murli asking him to see him in his office in connection with the Chapra Electric Supply Works. Thereafter, the Electric Inspector ask ed him in a letter dated the 18th August, 1953 as to why statutory accounts for the year 1949-50 had not been submitted and that statutory accounts for 1961-52 were also long overdue, though the same Inspector had in hii letter dated 25-4-1953 reminded the managing partner for the submission of statutory accounts for the year ending on the 31st December, 1951. He again wrote a letter on the 21st January, 1954 to the licensee of Chapra Electric Supply Co, Ltd., complaining that statutory accounts for a number of years had not been submitted by the licensee; and on the 3rd September. 1954 Murli was asked to explain his conduct, inasmuch as he had introduced R.P. Gupta as a managing partner under the partnership deed dated 31-8-1950, and that action was void under Section 9 of the Electricity Act. The learned Subordinate Judge has adversely commented on this conduct of the Electric Inspector; but whatever his conduct might have been, it does not justify an inference that, by implication. the Government as such has given its consent’or sanction required under Section 9 or 28. Hence, the finding of the learned Judge that sanction or c.onscnl had been given by the Government cannot be sustained.
32. Still, the question remains whether the partners other than the licensee, are entitled to get any share out of the purchase money deposited by the Government on revocation of the license. But before taking up that question it is necessary to refer to certain arguments of Mr. Sinha in respect of the suit instituted by Murli The first ground of attack by Mr. Sinha was that the appeal of Murli was barred by res judicata on account of his having failed to prefer any appeal in respect of the decree resulting from the dismissal of Nandkishore’s suit and the subsequent withdrawal of First Appeal 164 of 1959. In this connection, he referred to certain well settled principles. It will be recalled that in all the three suits all the partners were parties, and thus Murli was a defendant in Nandkishore’s suit. In connection with the question of res judicata, the following points have to be considered, viz.. (l) whether the decision in Nand Kishore’s suit did or did not substantially involve the question of legality of the partnership (2) whether the question of legality of the partnership was or was not heard and decided in that suit: and (3) if there was such a decision, whether it ceased to operate as res judicata. on the ground that Nand-kishore’s suit itself was dismissed and Murti was a defendant in that suit.
A judgment operates by way of estoppel as regards all the findings which are essential to sustain the judgment In other words, it has to be seen whether the result in the second suit would be inconsistent with the essential ground-work of the previous decision and destructive of the position maintained by necessary implication in that litigation, (see Aghore Nath Mukherjee v Smt Kamini Debi, (1910) 11 Cal U 461). The question whether a party is aggrieved by a decree is a question of fact to be determined in each case according to its peculiar circumstances. In some cases a suit may be dismissed as against the defendant and vet the latter may have a right of appeal. It is not because the suit is formally dismissed as against the defendant that no appeal lies, but because such dismissal is ordinarily not merely no grievance but an actual benefit to the defendant. There is in such cases nothing to complain of. If there is, then notwithstanding that the suit is dismissed against him he may appeal. If the decree, although apparently, and so far as it goes, is favourable to the defendants but when read in the light of the record, is really unfavourable and may prove injurious to them, then the defendants being aggrieved by it and having every interest to appeal, may appeal,–(see Krishna Chandra Goldar v. Mohesh Chandra Saha, (1905) 9 Cal WN 584 (588)). A decision in a previous suit on a matter raised and actively contested between co-defendants in such suit will operate as res judicata in a subsequent suit in which such co-defendants arc arrayed as plaintiff and defendant, (see Yusuf Sahib v. Durgi, (1907) ILR 30 Mad 447). To the same effect is the decision in Parmeshwar Pandcy v. Ramdhari. AIR 1937 Pat 27.
If a plaintiff cannot get his right without trying and deciding a case between co-defendants, the Court will try and decide that case, and the co-defendants will be bound. Rut if the relief given to the plaintiff does not require or involve a decision of any (question?) between co-defendants, the co-defendants will not be bound as between each other by any proceeding which may be necessary only to the decree the plaintiff obtains,- (see Ganga Prosad Chowdhary v. Kuladananda Roy, 44 Cal LJ 399 at p. 403: (AIR 192B Cal 568 at p. 570) ). It is unnecessary to cite other decisions in support of these principles, as Mr. Ralbhadra Prasad Singh accepted them as correct.
33. In his suit (Title Suit 113 of 1957), Nandkishore prayed for a declaration that he continued to be a partner to the extent of one-sixteenth share in the undertaking purchased in the name of Murli and was entitled to receive the value thereof proportionate to his share, on dissolution of the partnership, out of the money deposited by the State of Bihar (defendant 13). In the body of the plaint he gave the history of the partnership and the purchase and denied the statement of Gharbharan Sah in Title Suit 68 of 1954 that he had transferred his share to Gharbharan. Only Ramagya Prasad Gupta. Gharbharan and the heirs of Ajodhya Prasad Gupta, who died during the pendency of the suit, appeared and filed written statements in Title Suit 113 of 1957 and all of them supported the transfer of Nandkishore’s share to Gharbharan Murli or any other defendant did not appear. Neither in the plaint nor in the written statements anything was said about the legality or the illegality of the partnership. It is, thus, obvious that there was really no dispute in Nandkishore’s suit about the legality or otherwise of the partnership transaction, inasmuch as the real question to be decided there was whether Nandkishore’s one-sixteenth share in the original partnership had been transferred In Gharbharan Sah or not.
But Mr. Sinha submitted that the question of legality or otherwise of the partnership was decided in that suit also. In this connection, he referred to issue No. 5, viz., whether the partnership contravened the Electricity Act and was void, one of the several common issues framed in the three suits.
It appears that the evidence in the other two suits began on the 18th November. 1958; and by that time no issue had been framed in Title Suit 113 of 1957 on the ground that summons on all the parties had not been served on them. Subsequently, however, summonses were served on the remaining defendants; and on the 24th November, 1958 a petition was filed to make this suit analogous with the other two suits and. with the consent of the parties, it was also decided that the issues and the evidence already recorded in the other two suits would also be used for the purpose of Title Suit 113 of 1957. In these circumstances, it cannot be said that common issue No. 5 arose out of the plaint and written statements of the said title suit as well. One test is whether, if that suit had been tried separately from the other two suits, that issue would have been necessary; and I think the answer to this question must be in the negative. Again, can it be said that the decision in the other two suits would he inconsistent with the essential groundwork of the decision in Nandkishore’s suit? 1 think, the answer In this question also must he in the negative.
34. Assuming, however, that the legality or otherwise of the partnership was impliedly a question to he decided in Nandkishore’s suit also. I do not Ihink, the failure of Murli, who did not appear in Title Suit 113 of 1957, to prefer an appeal against the decree dismissing Nandkishore’s suit, would operate as res judicata. In this connection Explanation I to Section 11 of the Civil Procedure Code is important. According to this explanation, the expression “former suit” shall denote a suit which has been decided prior to the suit in question whether or not it was instituted prior thereto. A question has, therefore, frequently arisen whether, when several connected suits involving common issues are disposed of by one judgment, different decrees being passed in each, but only one decree is appealed from, the matter decided in the decrees not appealed from becomes res judicata or nol. A majority of the High Courts, including the Lahore High Court, have answered this question in the negative on the ground that the suits being disposed of simultaneously by one judgment, no suit can be said to be a “former suit” in relation to the other. A contrary view has, however, been taken by a few High Courts, including the Patna High Court.
In support of this view, Mr. Sinha cited the decisions in Mrs. Gertrude Gates v. Mrs. Millicent D’Silva, AIR 1933 Pat 78 and Ramkishan Lal v. Abu Abdullah, (1935) 156 Ind Cas 998 (All), both of the Patna High Court. The majority view has. however, been supported by a decision of the Supreme Court in Narhari v. Shanker, AIR 1953 SC 419, This case was decided by four Hon’ble Judges, of whom three were from the Hyderabad Stale and the fourth was Mahajan. J. (as he then was) of the Supreme Court. That decision is described by some as a decision of the Supreme Court of Hyderabad; and on this ground a Bench of the Orissa High Court refused to follow it in Sumi Debi v. Pran-krushna Panda, AIR 1956 Orissa 68. But the said deciaton in the case of Narhari, AIR 1953 SC 419 has been referred to with approval in a subsequent decision of the Supreme Court in Badri Narayan v. Kamdeo Prasad, AIR 1962 SC 338. In the case of Narhari. a .”ull Bench decision of the Lahore High Court in Ml. Lachhmi v. Mt. Bhulli. AIR 1927 Lah 289 (FB) was approved.
36. in the suit out of which the appeal in the case of Narhari aforesaid arose, the plaintiff claimed possession of two-third share of a plot of land, of which one-third was in possession of one set of defendants and the other one-third in possession of another set of defendants. The suit was decreed by the trial Court. Each set of defendants then filed an appeal claiming one-third of the plot. The first appellate Court allowed both the appeals & dismissed the suit by one judgment & ordered a copv of the judgment to be placed on the file of the other connected appeal. Naturally, it decided the one point of contention common to both the appeals. The plaintiff thereafter filed two appeals to the High Court, one against each of the two sets of defendants. One of these appeals was filed beyond limitation and the High Court refused to condone the delay, and the appeal was dismissed as not maintainable. In the other appeal, it was argued that it was barred by the principle of res judicata on account of the dismissal of the first appeal on the ground of limitation. The High Court accepted this contention. Then, the plainliffs filed two appeals to the Judicial Committee of the Hyderabad State, and ultimately they were disposed of by the Supreme Court in view of Article 374 (4) of the Constitution of India; and that is why in the case of Badri Naravan, AIR 1962 SC 338 the decision in the case of Narhari has been described as that of the Supreme Court itself. The appeal of the plaintiffs was allowed by the Supreme Court consisting of Mahajan J. and three other Hon’ble Judges following the Full Bench decision of the Lahore High Court. In Badri Narayan’s case, AIR 1962 SC 338 two passages from that decision were referred to. One of those passages is relevant to the instant case and it reads as follows:
“The question of res judicata arises only when there are two suits. Even when there are two suits it has been held that a decision given simultaneously cannot be a decision in the former suit. When there is only one suif. the question of res judicata does not arise at all and in the present case, both the decrees are in the same case and based on the same Judgment, and the matter decided concerns the entire suit. Is such ‘here is no question of the application of the principle of res judi cata.”
The above observation was not disapproved in the case of Badri Narayan, AIR 1962 SC 338; but their Lordships said that they do not apply to cases which are governed by the general principles of res judicata–the case before their Lordships related to an election dispute, being one of this class of case.
36. On account of the aforesaid observation in the case of Narhari, the decisions of some of the High Courts, including the Patna High Court, are no longer good laws. As in the instant case also the decrees are based on the same judgment, and the decision on issue No. 5 governs all the three suits, according to Mr. Sinha, there is no question of the application of the principle of res judicata laid down in Section 11 of the Code of Civil Procedure, which applies to suits and appeals arising therefrom. Murli’s appeals are. therefore, not barred by res judicata.
37. Mr. Sinha urged several other grounds to non-suit Murli. With reference to paragraphs 8, 9 and 10 of the plaint of Murli’s title suit, in which he alleged that, though he was the real owner and licensee of the undertaking and Ramagya was merely his servant in charge of the undertaking, he was misled by the other partners to enter into the unlawful partnership agreement as also the denial of the other partners in their written statements of all these allegations. Mr. Sinha submitted that Murli cannol now be allowed to turn round and throw over board his case in the pleadings and sav that he was in conspiracy with others to enlcr into an illegal partnership. But Murli said in paragraph 9 that the partnership agreement was illegal and void ab initio; and the mere fact that some of his statements in the plaint are found by the Court to be untrue cannot do away with the consequence of the unlawful partnership agreement. His claim is based in the plaint as well as in evidence on the transfer of the undertaking and the license, with the consent of the Government, by the liquidator to him. It may be recalled that his suit was instituted after the license was revoked and the Government took possession of the undertaking. In that suit. the relief claimed by him is for declaration that he was the sole licensee and the exclusive owner of the Chapra electric concern, that the other partners had no right to the same and that he is the only person entitled to receive the purchase monev from the State of Bihar.
38. The next argument of Mr. Sinha was that Murli’s suit must fail on the ground that he did not acquire, under the general law, the complete title to the undertaking which he claims and the State Government took possession of the undertaking from the receiver, who had in his turn taken possession thereof from Ramagya, the partner in charge of the undertaking, in this connection, he relied on a decision of a Bench of this Court in Govind Dutta v Jsignarain Dutta, AIR 1952 Pal 314, wherein it was held that possession is good title against all but the true owner and a person in peaceable possession of land has. as againsl every one but the true owner, an interest capable of being inherited, devised or conveyed. But the special law, i.e.. the Electricity Act in the instant case must prevail over the general law; and, as found earlier. Murli was the purchaser as well as the sole licensee of the undertaking under that special law. That is why the license was revoked by giving notice to Murli alone; and one of the grounds for revocation in the relevant notification dated 19-5-55 (Ext. F-1) was that he had allowed others to join in partnership for running the undertaking, without the previous consent in writing of the State Government and thereby surrendering effective control over the undertaking. The other ground was that, inasmuch as Murli was not in possession of the hooks and documents relating to the undertaking, he had failed to discharge the obligations imposed upon him by the license. According to this notification, the revocation was to come into effect from the 1st October, 1955. By a subsequent notification dated 28-9-1955 (Ext. F (i)-1). this date was extended to the 20th October, 1955. The Government Pleader of Chapra filed a petition in Title Suit No. 58 of 1954 on the 28th September. 1955 stating therein the fact of revocation of the license standing in the name of Murli and requesting the Subordinate Judge to direct delivery of possession of the undertaking by the receiver to an officer of the government. On the 1st October, the Government Pleader filed another petition making the same request after stating therein that (1) the notice of revocation “was sent to the licensee Murli and the Chairman of the Chapra municipality”: (ii) the Government had decided to purchase the undertaking under Sections 5 (d) and 7 (2) of the Electricity Act: (iii) “pending the purchase of the undertaking, the State Government requires the licensee to deliver possession of the same to an officer appointed by the Government, as provided in Section 7-A” inserted in Bihar Act 29 of 1950; and (iv) the delivery of possession to Government shall be effected “without prejudice to the right of the licensee to obtain payment of the value of the undertaking, as required by Section 7-A (2)” of the said Bihar Act.
It may be mentioned here that there was no provision in the Central Act during the relevant period for delivery of possession to the government-purchaser before the actual purchase and this lacuna was removed by Section 7A inserted by the Bihar Act. It was also provided in this section that, on failure of the licensee to deliver possession of the undertaking before the actual purchase, the State Government may forthwith take possession of the undertaking, without prejudice to the right of the licensee to the payment of the value of the undertaking. It is remarkable that Section 7A does not provide that on the delivery of possession by the licensee to the government the undertaking shall vest in the latter; and. therefore, the fact that the government took possession from the receiver does not assist Mr. Sinha. The general law is that a receiver is in charge of a property on behalf of the court which holds it for the person who may be found ultimately to be the true owner; and, but for the special provisions in the Electricity Act, it might be said that all the partners in the instant case were entitled to the undertaking and consequently to the compensation and price payable by the Government. For the purposes of the Electricity. Act, however, the person, to whom the undertaking is transferred and the license is assigned with the consent of the government, becomes the licensee and owner of the undertaking; and, therefore, the court was in custody of the same on behalf of Murli. That is why the court directed the receiver to hand over possession of the undertaking to the government after the latter had given notice of the revocation to only the licensee, Murli.
39. Another argument of Mr. Sinha was that the transaction with the liquidator being actually on behalf of the partners the bid and payment having been made by Murli on behalf of the partners the sanction to the transfer of the undertaking and assignment of the license obtained by Murli from the government in his individual capacity amounted to a gross concealment of the true state of affairs, making the sanction and the license a nullity; and the impact of that on the suit of Murli will be that, apart from apportionment of blame, Murli at least was a party to the Illegality like the other partners, and he cannot give himself a right or cause of action by concealing true facts from the court in the plaint and by pretending that he bid for himself and with his own money. Estoppel, therefore, operates against Murli in his own suit and the effect of the estoppel is to prevent the court giving any relief to him. In support of this argument, Mr. Sinha relied on a decision of the Calcutta High Court in Ramandas v Nilmadhab. AIR 1917 Cal 515.
That case was for arrears of rent on the basis of a lease, wherein the plaintiffs, who were really occupancy raiyats, were described as tenure holders and the defendants lessees as under-tenure holders. The defendants, who continued in possession till the date of tht suit on the basis of the lease resisted the claim on the ground that the plaintiffs were only occupancy raiyats and the permanent lease in their favour was void as contravening the provisions of Section 85 of the Bengal Tenancy Act. It was in these circumstances that estoppel was applied against the defendants who, as tenants, could not be allowed to deny the title which they had admitted to exist in the landlords. This decision is clearly distinguishable on facts. In the instant case, it was not for Murli to make an application before the government for sanction of the transfer of the undertaking on the assignment of the license. The liquidator obtained the sanction of the government on the basis of the auction sale in Murli’s name and there was no question of concealment of facts from Government by Murli rather, it was at the instance of all the partners, who did not want to disclose the existence of the partnership on account of a wrong legal advice, that Murli bid at the auction sale. The cause of action for Murli’s suit is, as stated earlier, not based on a partnership but on the purchase of the undertaking by the government after revocation of the license standing in the name of Murli alone.
The same comments apply to Mr. Sinha’s argument that by his conduct before and after the sanction Murli represented to the partners that he obtained sanction on behalf of all the partners. In fact, there was no question of such a representation by Murli to the partners. In view of the finding that the partnership was void ab initio, the purchase made in the name of Murli was in his individual capacity. The partnership having not come into existence at any time in the eye of law, Murll had no advance in his hands on account of the partnership and there was no acquisition by the partnership of the undertaking and the license; and the source from which he paid the consideration money of the bargain betwen him and the liquidator would not clothe the creditors with the title to the undertaking and the license or to the benefit of the purchase. The money lent by the partners to Murli may, of course, be recoverable, subject to the law of limitation, but not the property acquired with the money, since no fiduciary obligation in the eyes of law could arise as between him and the various lenders. The argument of Mr. Sinha. therefore, fails.
40. Now. the question is : who is entitled to the purchase money–a part of which is in deposit in court–from Government? It is well-settled that, where the object of a contract is illegal, the whole transaction is tainted with illegality and no right of action exists in respect of anything arising out of the transaction; the test for determining whether an action lies is to see if the plaintiff can make out his claim without relying on the illegal transaction to which he was a party.
41. In Kedar Nath Mohanti v. Prahlad Rai, (1960) 1 SCR 861 :(ATR 1960 SC 213), their Lordships of the Supreme Court observed as follows:
“The correct position in law, in our opinion, is that what one has to see is whether the illegality goes so much to the root of the matter that the plaintiff cannot bring his action without relying upon the illegal transaction into which he had entered. If the illegality be trivial or venial, as stated by Williston and the plaintiff is not required to rest his case upon that illegality, then public policy demands that the defendants should not be allowed to take advantage of the position. A strict view, of course, must be taken of the plaintiff’s conduct, and he should not be allowed to circumvent the illegality by resorting to some subterfuge or by misstating the facts. If, however, the matter is clear and illegality is not required to be pleaded or proved as part of the cause of action and the plaintiff recanted before the illegal purpose was achieved, then, unless it be of such a gross nature as to outrage the conscience of the Court, the plea of the defendant should not prevail.”
In the instant case, the illegality is not trivial or venial and the partnership was completely illegal and void ab initio; and the claim of Parasnath in Title suit no. 68 of 1954 is based solely on this partnership, whereas the claim of Murli in Title Suit no. 94 of 1956 is based on the revocation of his license and delivery of possession to government of the undertaking which he acquired at the auction sale, along with the license with the previous consent of Government. Hence, Murli’s claim should succeed.
42. Then, Mr. Sinha relied on the decision of the Madras High Court in AIR 1944 Mad 295, referred to earlier, in support of his contention that all the partners are entitled to the amount in the instant case. The plaintiff and the defendant formed a partnership for the purpose of acquiring licenses for the carrying on of a retail business in toddy in shops in the city of Madras. The plaintiff submitted a tender on behalf of the partnership, but in his own name, after informing the Secretary of the Board of Revenue and other revenue authorities of the partnership. The tender of the plaintiff was accepted by the Collector on the 31st August. Pending the decision on the question of the issue of the license in the joint names, the Collector issued a temporary license in the name of the plaintiff alone. Ultimately, the Collector informed him on the 18th May, 1938 that the licenses of the toddy shops would be issued in his name only. Nevertheless, the partnership continued to do business under the temporary licenses issued to the plaintiff. Subsequently, the plaintiff sued for a declaration that the partnership was dissolved on the 30th September, 1938 and for an account up to that date. Their Lordships held that the partnership would have to be declared unlawful ab initio, if a full disclosure of the position had not been made to the revenue authorities; but, as the partnership was entered into before the plaintiff submitted his first tender with the knowledge of the revenue authorities who had not, until the 18th May, 1938 indicated any objection to the business being carried on in partnership, it could not be said that the partnership before the 18th May 1938 was an unlawful one. But thereafter the partnership became illegal, inasmuch as the parlies did not comply with the conditions for the issue of licenses to the partnership and the revenue authorities derided not to recognise the partnership at all.
It was on these findings that the plaintiff was held to be entitled to an account only up to the 18th May, 1938. In the instant case, however, the facts are completely different and the authorities were informed of the partnership long after, and thereupon government refused to recognise the partnership. Hence, it is not possible to accept the contention of Mr. Sinha that there was a tacit approval by the government of this partnership.
43. Unfortunately, the decision in the case of Viswanathan. AIR 1955 Mad 536 also does not help the partners, other than Murli. The facts of this Madras case have been stated earlier. After having found that the entire partnership was illegal and must he declared void ab initio, their Lordships considered the question as to what reliefs the parties were entitled. They agreed with the court below that if the matter were to be regarded solely from the standpoint of the plaintiff, the relief should be refused and the suit should be dismissed; but the consequence of the dismissal of the suit would be that the receivership would terminate and the defendants could not sue io work out their rights as partners on account of the illegality of the partnership. Then, their Lordships noted that it was not a case where the plaintiff entered into a contract with any knowledge of its illegality; and it was only subsequently when the decision in the Full Bench case of Velu Padayachi, AIR 1950 Mad 444 was reported that the plaintiff became aware of the illegality of the transaction. In these circumstances, their Lordships decided to grant to the plaintiff a declaration that the partnership was illegal and void ab initio on the condition that he repaid to tha defendants all the amounts received from them on account of the partnership.
In the opinion of their Lordships, the suit, was, in substance, for cancellation of the deed of partnership under Section 39 of the Specific Relief Act; and the court could, therefore, require the plaintiff under Section 41 of that Act to make such compensation as the justice of the case demanded, as part of the adjudication. Hence, in the interests of justice, their Lordships directed that on the payment of the amounts advanced by the defendants with Interest at 6 per cent, per annum, the plaintiff would be granted a declaration that the partnership was void. This decision also does not help the partners, other than Murli, because none of the suits before us was, by any stretch of imagination, for the cancellation of any instrument. Morever, in the Madras case, the suit had been instituted within the period of three years from the date of the partnership agreement, whereas the present suits were Instituted long after three years from the date of the partnership agreement and, therefore, as I shall show presently, the claim of Parasnath and other partners in respect of the money advanced by them to Murli was time-barred.
44. The question of limitation arises, as Mr. Balbhadra Prasad Singh conceded that Parasnath and other partners could recover the amounts advanced by them to Murli for the auction purchase, subject to the law of limitation. He relied on Article 62 of the Limitation Act of 1908, which would apply in the Instant case. This article provides a limitation of three years, for a suit to recover money payable by the defendant to the plaintiff for money received by the defendant for the plaintiffs use, from the date when the money is received. He submitted that in the instant case the partners who had lent money in the shape of contributions to Murli could recover the same through a suit instituted within three years from the date when the contributions were made, i.e. at the latest within three years from the 13th July. 1945. On the other hand, Mr. Lalanarain Sinhn submitted that, if the question of limitation arises at all, Article 97 of the Act would be attracted. This article prescribes a period of three years, for a suit for recovery of money paid upon an existing consideration which afterwards fails, from the date of the failure. But this article applies only to a case where there was a legal contract. This view is supported by a bench decision of this court in Laljl Singh v. Ramrup Singh, ILR 13 Pat 192 :(AIR 1934 Pat 148), wherein their Lordships said that Article 97
“deals with a case where the contract may have been a good and valid contract, but where that which is to pass from one con trading party to the other can no longer, by reason of circumstances since the contract, pass to the other party and, therefore, the plaintiff calls upon the defendant to fulfil the term of his contract, either express or implied, that he will in such circumstances return anything which has been already paid on account of the contract.”
On the other hand, Mr. Singh relied on some decisions of the Privy Council. In Annads Mohan Roy v. Qour Mohan Mullick, 50 Ind App 239 :(AIR 1023 PC 189), it was held that Article 62 of the Limitation Act would ordinarily apply to recover the money payable under Section 66 of tht Contract Act. In that case there was a contract by a Hindu to sell immoveable property of which he was the then nearest reversionary heir, expectant upon the death of a widow in possession, and to transfer it upon possession accruing to him. This contract was held to be void ab initio under Section 6 (a) of the Transfer of Property Act, 1882. It was held by their Lordships that the time when such an agreement is discovered to be void, so that a cause of action to recover the consideration arises under Section 65 of the Contract Act in the absence of special circumstances, is the date of the agreement. Their Lordships distinguished their earlier decision in the case of Harnath Kuarv. Indar Bahadur Singh 50 Ind App 69 : (AIR 1922 PC 403). In the latter case, a Hindu while next reversioner to an Oudh estate obtained a decree declaring that a will, which authorised the widows of the last holder to adopt a son, was invalid, and that he was entitled to the estate upon the death of the last surviving widow. Prior to that event he purported to sell half estate in consideration of Rs. 26,000 advanced to him, declaring by the sale deed that, when he would succeed to the estate, he could put the vendor in proprietary possession. After the death of the last surviving widow of the holder of the estate, the widow of the vendee sued the vendor for possession, or alternatively to recover the purchase monev with interest. It was held by their Lordships that there was no effectual transfer of the villages, since the vendor had only an expectancy, the decree not creating any greater interest in him, but that under Section 65 of the Contract Act, 1872 the purchase money was recoverable with interest from the date of the suit; the period of limitation did not run until the supposed rights of the vendee were discovered to be unenforceable, which was not earlier than when possession was resisted, and within the statutory period. But in this case the period of limitation was held to run from the date when possession was resisted because of a special circumstance, as will appear from the following paragraph of the judgment of their Lordships:
“Whatever the view that may once have prevailed, it is now established that under the Oudh Estates Act the succession to collaterals opens on the death of the widow just as under the ordinary Hindu law, and it necessarily follows that in January, 1880. Indar Singh had no more than an expectancy, and so had no interest in the villages which he was competent to transfer or bind.”
Their Lordships said: Section 65 of the Con tract Act deals with (a) agreements enforce able by law and (b) agreements not so enforceable; by Clause (g) of Section 2 of the Contract Act an agreement not enforceable by law is said to be void; an agreement, therefore, discovered to be void is one discovered to be not enforceable by law, and, on the language of the section, would include an agreement that was void in that sense from its inception as distinct from a contract that becomes void. It was held, however, that the agreement was manifestly void from its inception, and it was void because its subject-matter was incapable of being bound in the manner stipulated. It was further observed that in the peculiar circumstances of the case there was a misapprehension as to the private rights of Indar Singh in the villages which he purported to sell by the instrument of January 2, 1880, and that the true nature of those rights was not discovered by the plaintiff or Rachpal Singh earlier than the time at which his demand for possession was resisted. That is why the period of three years was counted from the date when possession was resisted.”
In Hansraj Gupta v. Dehra Dun-Mussoorie Electric Tramway Co. Ltd., 60 Ind App 13. : (AIR 1933 PC 63), the decision in the case of Annada Mohan Roy, 50 Ind App 239 :(AIR 1923 PC 189) was followed and it was held that, in the absence of special circumstances, the time at which an agreement is discovered to be void so as to give rise, under Section 65 of the Indian Contract Act, 1872, to a right of suit to recover the consideration paid under the contract, is the date of the agreement. In the instant rase also, there is no special circumstance to prevent the running of the period of limitation from a date subsequent to the date of the partnership agreement or at the latest from the 13th July, 1945. From the interpretation of Section 85 in the case of Harnath Kuar, 60 Ind App 69 :(AIR 1922 PC 403) aforesaid, it will appear that this sec-lion covers the instant case, inasmuch as the partnership agreement was void since its inception: and, therefore, Article 62 of the Limitation Act is attracted.
I have considered also the question whether this case comes within the purview of Section 72 of the Contract Act which lays down that a person to whom money has been paid by mistake (whether of fact or of law: 1959 SCR 1350 : (AIR 1959 SC 135) must repay or return it. It is not the case of any party before us that the payment was made to Murli by the other partners by any mistake of law Of course, on account of a wrong legal advice they entered into the unlawful partnership; but it is not a mistake of law. as contemplated by Section 72 or by Section 21 of the Contract Act. Even if it be deemed to be a mistake of law, it will be a case under Section 21 because the partncrship agreement itself might be said to have been caused by a mistake of law Section 72 does not speak of any agreement on contract at all. It speaks of a payment under a mistake of law. while Section 21 does not speak of such a payment at all. Hence, the instant case is covered by Section 65 of the Contract Act and Article 62 of the Limitation Act; and there was no justification for Parasnath or any other partner to sue Murli for their moneys more than three years after the 13th July, 1946, by which date they were aware of the fact that consent of the government had been obtained to the transfer of the undertaking and license to Murli only. Hence, the claim for the moneys lent to Murli is barred by limitation.
45. In view of the earlier finding, Murli would be entitled as the sole licensee to receive the purchase money from the government. But a doubt arose in my mind whether in the present suits a decree for tbe same could be passed in view of the fact that no sale deed in respect of the undertaking has yet been executed in favour of the government: and the learned counsel for both the parties were again heard.
46. Under Section 5, as it stood then, it was provided that, where the State Government revoked a license under Section 4(1) certain consequence shall ensue; viz.
(a) it shall serve a notice of the revocation upon the licensee and the local authority concerned and, with effect from a certain date to be specified all the powers and liabilities of the licensee shall absolutely cease and determine;
(b) if the local authority agrees to purchase the undertaking, the licensee shall (sell) the same (on payment) of the value of all the undertaking;
(c) if no purchase has been effected under Clause (h), the government may require the licensee to sell the undertaking to any other person;
(d) if no purchase has been effected under Clause (b) or Clause (c), the government shall have the option of purchasing the undertaking and, if the government elects to purchase, the licensee shall sell the undertaking to the government upon the terms and conditions similar to those set forth in Clause (b) ;
(e) where a purchase has been effected under any of the preceding Clauses, (1) the undertaking shall vest in the purchaser free from all incumbrances and (ii) the purchaser shall be deemed to be the licensee, provided that, where the Government elects to purchase sinder Clause (d), the licensee shall, (after purchase, cease to have any further operation;
(f) where no purchase has been effected under any of the foregoing clauses, the licensee shall have the option of disposing of all lands, buildings, etc. of the undertaking i.e. these things shall be disposed of as chattels, as distinguished from a running undertaking.
I have purposely underlined the words ‘sell’, “on payment” and “after purchase” which are, in my opinion, significant. Mr. Singh submitted that no document of sale was required for such sale, as the aforesaid provisions of Section 5 dealt with a situation in which the revocation of the license is a foregone conclusion and the assets of the undertaking are automatically transferred consequent on revocation. He compared these provisions with those of Section 7, which provided for the sale of the undertaking, consequent on the expiry of the period of the license, either to the local authority concerned or to the government, and the licensee was required to (sell) the undertaking (on payment) of an adequate price and on the purchase being effected, the undertaking would vest, free from all encumbrances, in the purchaser who would become the licensee. In this section also the words underlined by me in Section 5 occur. There is nothing, however. in any of these sections to justify the Inference that no document would be required for sale or purchase of the undertaking: rather, the provision for the sale of the undertaking to the purchaser (on payment) of the price indicates that the legislature did not contemplate automatic transfer of the undertaking, as distinguished from the chattels, by the licensee to the purchaser consequent on the revocation of the license or expiry of the period of license, as the case may be.
47. Mr. Sinha, on the other hand, argued that immediately after possession was delivered to the government under Section 7A of the Bihar Act, the undertaking vested in the government and, therefore, the person or persons who were in possession of the undertaking before the delivery of possession to government become entitled to the price even without execution of any document. In this connection he relied on Sections 7 and 5(3), both as amended by a Central Act of 1959. which came into force on the 5th September, 1959, about seven months after the trial court decree. New Section 5(3) is substantially similar to Section 7A of the Bihar Art. Now Section 7, however, contains a new and a very significant provision; it lays down, inter alia, that on the date on which possession of the undertaking is delivered to the intending purchaser under Sub-section (3) of Section 5. the undertaking shall vest in the (intending) purchaser, free from all encumbrances, and the rights and obligations of the licensee under his license shall stand transferred to such purchaser who shall then be deemed to be the licensee. There was no such provision in the Bihar Act or in the Central Act before 1959, But Mr. Sinha submitted that the new Section 7 of the Central Act, which removes a lacuna, should be given a beneficial construction and, if this is done, the language of the new section is wide enough to cover a case like the present, where before the 1959 Act option to purchase had been exercised and possession had been taken by the government. But the principle of beneficial construction is meant to advance the remedy and prevent the mischief, to overcome which a new enactment is made; and it does not contemplate the retrospective operation of the new enactment, in the absence of any provision therein to that effect. The analogy of Article 31 (2) of the Constitution with reference to Section 299 of the Government of India Act. 1935, which Mr. Sinha tried to bring to his aid, does not apply to such a provision. The amendments made in 1959 do not, therefore, affect the instant case.
48. Having considered the relevant provisions of the Electricity Act, I am of the opinion that the licensee, namely, Murli is entitled to get the purchase money (including the amount deposited in court) but only after execution of a sale deed in favour of the government in respect of the undertaking.
49. In the result, the suit of Murli, Prasad (Title Suit No. 94 of 1956) succeeds and he will be entitled to get the purchase money of the undertaking from the State of Bihar after executing a sale deed in respect of the same; the suit of Parasnath Prasad (Title Suit No. 68 of 1954) fails and is dismissed. In the circumstances of the case, the parties will bear their own costs throughout. The judgment and decrees of the trial court are accordingly set aside and both the appeals are allowed.
Bahadur, J.
50. I agree.