(Prayer: Petition (disposed of on 16-12-1949) under S. 25 of Act IX of 1887 praying the High Court to revise the decree of the District Munsifs Court, Ambasamudram dated 12-10-1946 in S.C.S. No. 325 of 1946.)

Subba Rao, J.

The point that arises for consideration in this case is whether a partnership that was entered into for the purpose of exploiting a licence for an arrack shop before the license was obtained is void ab initio and therefore a suit based upon such partnership for settlement of accounts is not maintainable.

The facts are these. On the 8th March 1943, plaintiff, defendant, Arjunam Pillai, and Ramaswami Mudaliar agree that the licence for the Kallidaikurichi arrack shop should be taken in the name of the defendant but that the profits from the shop should be equally divided between the four members. There was a settlement of account on 9th April 1944 where under the defendant had to pay a sum of Rs. 260-4-6 to the plaintiff. On that day itself the defendant paid Rs. 130-4-

6. The suit was filed for the recovery of the balance due to the plaintiff. The defendant raised various contentions one of them being that the suit was not maintainable in view of the Rules under the Madras Abkari Act I of 188

6. The learned District Munsif held that the plaintiff was not a partner but a mere financier and there was no question of any transfer of a right to vend. Following the decision of Wadsworth, J., in Rama Moopan v. Muthu Moopan (A.I.R. (1940) Mad. 705) [LQ/MadHC/1939/180] the learned Munsif held that the suit was maintainable.

The finding of the learned District Munsif is obviously not based on the evidence in the case. Indeed he did not say on what evidence he came to that conclusion. P.W. 1, the plaintiff, in unambiguous terms stated in his evidence as follows:

As per the agreement the four persons agreed that if an arrack shop was taken in auction the capital as well as the profits are to be divided between us. The Kalidaikurichi licence was taken in the name of the defendant in March 1943. The licence was for one year from April 1st. The business was carried on for one year. At the end of the year on 9th January 1944, we four persons settled the accounts. For my share I was entitled to get Rs. 260-4-6 from the defendant on that day.

This evidence leaves no doubt in my mind that the plaintiff was a partner along with the three persons for the purpose of bidding at the auction and exploiting the arrack license. On this finding the question for consideration is whether the partnership is void.

There are conflicting decisions on this question. It really turns upon the construction of Clause (a), R. 27 promulgated under the Madras Abkari Act. It reads as follows:

No privilege of supply or vend shall be sold, transferred or sub-rented without Collectors previous permission

Venkatasubba Rao, J., in Satyala Sanyasi v. Bhogavalli Sanyasi (69 M.L.J. 490=42 L.W. 840) held that if at the time when the person bid, the partnership had come into existence and it was only subsequently he became a successful bidder, there was no transfer involved in the transaction which would be against R. 27 of the Excise Manual. This view was accepted and followed by Venkataramana Rao, J. in Ramaswami Pillai v. Narayanaswami Naicker (70 M.L.J. 691). In Rama Moopan v. Muthu Moopan (A.I.R. (1940) Mad. 705) [LQ/MadHC/1939/180] Wadsworth, J., made observations contrary to those made by the other two learned Judges. In that case the alleged partnership agreement was entered into after one of the partners successfully bid for the shop at the auction. Though the point to be decided now did not arise directly in that case, the learned Judge incidentally stated as follows:

I may observe that to my mind it makes no difference whether the partnership agreement was entered into before the bid at the auction or after the bid at the auction, provided that the bid was not made in the names of the partners as and for the partnership.

All these judgments were reviewed by Leach, C.J., and Lakshmana Rao, J. in Italia v. Cowasjee (1944) 1 M.L.J. 97 = 57 L.W. 93) where the facts briefly are these. The Collector called for tenders in respect of toddy shops in Madras city. The plaintiff, a partner, submitted a tender on 23rd August 1937, on behalf of the partnership but in his own name. The plaintiff had already informed the Secretary to the Board of Revenue of the partnership and the Revenue authorities were fully aware of the arrangement at all material times. On 31st August the tender was ultimately accepted. Later, on 11th April 1938 the Collector insisted upon the plaintiff registering the partnership and as more time was asked for, the Collector on 18th May 1938 wrote to him informing that the license would be issued in his own name only. It is therefore clear that till 18th May 1938, the Revenue authorities were agreeable to the business being carried on in partnership and as the plaintiff was not able to comply with the suggestion to register the partnership, the authorities decided that they would recognize only the plaintiff and would issue a permanent license in his favour. The suit was filed for a declaration that the partnership was dissolved on the 30th September 1938 and for accounts. The learned Judges held that the plaintiff was entitled to an account up to the 18th May 1938 and from that date he was not entitled to an account as in their view the partnership was unlawful from 18th May 1938. The ratio decidedness of the decision is that the partners had failed to comply with the conditions which the Revenue Authorities required to be fulfilled for the issue of a permanent license to the partnership and consequently they decided that they would not recognize the partnership at all. The partnership became illegal from the date when the conditions imposed were not accepted by the partners. In the learned Judges view the partnership was valid till that date as the full facts were disclosed to the Revenue Authorities. If in this case any conditions imposed by the Revenue Authorities were contravened, I would be bound by this decision. But the only rule that is alleged to have been contravened is R. 27 of the Abkari Rules. On that question, this decision is not a binding authority on me. There are no doubt certain observations in the course of the judgment questioning the correctness of the judgment of Venkatasubba Rao, J., in Satyala Sanyasi v. Bhogavalli Sanyasi (69 M.L.J. 490 = 42 L.W. 840). At page 101 the learned Chief Justice observed:

The appeal was heard by Venkatasubba Rao, J., who distinguished the case from Nalin Padmanabhan v. Sait Badrinath Sarda (35 Mad. 582) [LQ/MadHC/1911/113] , on the ground that the partnership had been formed before the auction and therefore there was no transfer of an interest in the license. The wider question of public policythe necessity of controlling all those who hold liquor licenses in the interests of the publicwas not discussed by Venkatasubba Rao, J. Where a partnership is entered into before the auction and one of the partners is deputed to bid for and obtain the license in his own name on behalf of the partnership, it may be that in law ther e is no transfer of an interest in the license, but it does not follow that the partnership would be a lawful one. There are other factors to be considered. The judgment of Venkatasubba Rao, J., was followed by Venkataramana Rao, J., in Rangasami Pillai v. Narayanasami Naicker (70 M.L.J. 691), but in Rama Moopan v. Muthu Moopan (A.I.R. (1940) Mad. 705) [LQ/MadHC/1939/180] , Wadsworth, J., expresses strong dissent.

These observations are not fair to Venkatasubba Rao, J. The learned Judge did consider other factors based upon public policy. In Satyla Sanyasi v. Bogavalli Sanyasi (69 M.L.J. 490 = 42 L.W. 840) the learned Judge states at page 495.

The defendants learned Counsel contends that even if it be held that the contract is not illegal, it is in any event opposed to public policy. I am afraid I cannot accede to this contention. What is public policy with reference to an enactment, except what is manifested by its provisions The Abkari Act lays down that it is illegal to sell, transfer or sub-rent the privilege. To attempt to discover a policy with a view to make illegal, things not expressly prohibited, seems unwarranted. The argument in effect is, that although only three acts are in terms forbidden, the Courts must somehow infer some kind of policy, which would render illegal other acts, though not so specified.

In the present case, as aforesaid, no other condition of the Abkari Act or the Rules framed thereunder are shown to have been contravened or otherwise infringed by the partners. The only rule which is alleged to have been contravened is R. 27 of the Abkari Rules. As the learned Judges who considered this point expressed different views, I think this is a fit case for being posted before a Bench.

(In pursuance of the aforesaid Order of Reference to the Bench, this petition coming on for hearing before Satyanarayana Rao and Govinda Menon, JJ. the Court made the following):

ORDER OF REFERENCE TO A FULL BENCH Dated, 1-2-1949.

(Pronounced by SATYANARAYANA RAO, J. )



1. This civil revision petition has been referred to a Full Bench, because of a supposed deep cleavage of opinion in the decisions of this Court on the sole question of law that arises in this civil revision petition, i. e., whether a partner in a partnership entered into for the purpose of vending arrack can file a and for the balance due on settlement of accounts when only one of the partners has obtained a license under the Abkari Act for the vending of arrack. It was found by the District Munsif that the suit did not contravene the provisions of the Madras Abkari Act (I [1] of 1886); and so he decreed the suit i for a sum of Rs. 56-19 9 with further interest at six per cent. per annum and costs. The matter came in revision under Section 25, Provincial Small Cause Courts Act before Subba Rao J. who in view of a conflict of opinion referred the matter to a Bench. When the matter came before Satyanarayana Rao and Govinda Menon JJ., many cases other than those cited before Subba Rao J. were referred to, some of them being Bench decisions; and so they referred the matter to a Full Bench.



2. After the question of law that arises in this civil revision petition had been fully discussed, Mr. S. Ramachandra Aiyar for the plain, tiff contended that the licence granted to the defendant had not been produced and that there was no evidence to show either that those partners who had not been granted a licence were partners not only for the sharing of the profits but for the vending of arrack also or that the licence issued to the defendant contained conditions similar to those found in Rule 27 of the Rules framed under the Abkari Act. If that had been so, these matters should have been brought to the attention of Subba Rao J. who, if satisfied that important questions of fact necessary four the proper disposal of the civil revision petition had not been decided, would have called for findings. Nothing seems to have been said either before him, or before the Bench, which suggested that the license might not have been granted exclusively to the defendant, or that the license did not contain a clause that the right in it should not be transferred, or that the other parties to the partnership were not in the fullest sense of the word partners for the vending of the arrack. As these points have been taken before us for the first time, we are not prepared to consider them. The disposal of this civil revision petition must proceed on the footing that the parties to the partnership agreement sold arrack themselves or through other partners as their agents, on a license granted to the defendant alone, in which there was a term prohibiting him from transferring his rights.

3. The relevant provisions of the Abkari Act are Sections 15, 55 and 56 and Rule 27 framed under the Act. Section 15 runs:

"No liquor or intoxicating drug shall be sold without a license from the Collector ....." Section 65 makes punishable, with respect to the subject of the various sub clauses, including the selling of liquor or any intoxicating drug, any "contravention of this Act, or of any rule or order made under this Act, or of any licence or permit obtained under this Act."

Section 66 makes punishable a contravention of any term of a license or permit granted under the Act which is not covered by S. 55 or any other provisions of the Act. Rule 27 says:

"No privilege of supply or vend shall be sold, transferred or sub rented without the Collectors previous permission."

The decisions dealing with the question whether it is a contravention of the terms of a license granted to an individual if he enters into a partnership either before or after the license was granted have been discussed so often and so fully in the very many cases cited before us that we feel that it is unnecessary to reconsider them here in the same detail. The learned advocate for the petitioner (defendant) relies on Marudamuthu v. Rangasami, 24 Mad. 401, Thithi Pakurudasu v. Bheemudu, 26 Mad. 430 [LQ/MadHC/1902/89] , Padmanabhan v. Badrinath, 35 Mad. 582 [LQ/MadHC/1911/113] :(10 I. C. 126), Namasivaya v. Subramania, 34 I. C. 927:(A.I.R. (4) 1917 Mad. 852), Brahmayya v. Ramiah, 43 Mad. 141 [LQ/MadHC/1919/179] : (A.I.R. (7) 1920 Mad. 270), Santhanarama Mudaliar v. Sami Karuppundar, 14 M. L. W. 226 at p. 227 : (A. I. R. (8) 1921 Mad. 455) [LQ/MadHC/1920/202] , Ramanayudu v. Seetharamayya, 58 Mad. 727 [LQ/MadHC/1934/455] : (A. I. R. (22) 1935 Mad. 440 [LQ/MadHC/1934/455] F. B.), Rama Moopan v. Muthu Moopan, A. I. R

. (27) 1940 Mad. 705 [LQ/MadHC/1939/180] : (1940 M. W. N. 516), Narasimhalu Naidu v. Nagareddi, A. I. R. (28) 1941 Mad. 64: (193 I. C. 827), Ifalia v. Cowasjee, 1944-1 M. L. J. 97 : (A. I. R. (81) 1944 Mad. 295) [LQ/MadHC/1943/306] , Chinnayya v. Janikamma, 1944-1-M. L. J. 434 : (A. I. R. (31) 1944 Mad. 415 [LQ/MadHC/1944/29] and Venkatasubbayya v. Attar Sheik, 1948 2 M. L. J. 1981 (A.I.R

. (36) 1949 Mad. 252) [LQ/MadHC/1948/104] . The earliest of these cases is the important, because it dealt with a case where, as in the present case, a partnership was formed before the licences were granted. Two persons entered into a contract for the sale of toddy and arrack. One partner took a license in toddy and the other in arrack, and by conducting the two businesses in partnership they contravened the rule that an arrack vendor should not have an interest in toddy and vice versa. It was held that the suit based on the partnership would not lie for two reasons, that the partnership was void as initio, because it offended against public policy, and secondly that the partnership was illegal because it purported to carry on business by non licensees, which was against the spirit of the Act. The principle laid down in this decision has never, as far as we have seen, been departed from; and it will be useful to state the principle there laid down in the words of the learned Judges:

"..... we should hold that the contract was invalid also on the ground that the license in each case was to be obtained by only one of the partners. The provisions of the Abkari Act, as a whole, show clearly that every person carrying on abkari business as a principal must be licensed under the Act. The reason is obvious that, unless he were licensed, there could be no control over him. To hold that a person who has not got a license could still be partner with one who has a license and as such partner carry on the business with or without the other would enable the unlicensed partner to evade the liabilities intended by the law to be cast on persons carrying on abkari business. Thithi Pakurudasu v. Bheemudu, 26 Mad. 430 [LQ/MadHC/1902/89] followed Marudamuthu v. Rangasami, 24 Mad. 40

1. In Padmanabhan v. Badrinath, 35 Mad. 582 [LQ/MadHC/1911/113] : (10 I. C. 126), the learned Judges were concerned with an opium licence which was worked by a partnership entered into before the licence was issued. They pointed out that the licence was a personal privilege granted to the licensee and that the agreement to work the business in partnership amounted to a transfer, approving and following Marudamuthu v. Rangasami, 24 Mad. 401, Namasivaya v. Subramania, 34 I. C. 927: (A. I. R. (4) 1917 Mad. 852), a decision of a single Judge, followed, the above decisions. Brahmayya v. Ramiah, 43 Mad. 141 [LQ/MadHC/1919/179] : (A. I. R. (7) 1920 Mad. 270) was in respect of a suit by a person who had lent money to a partnership, and two questions were raised: (1) whether the partnership was an illegal one, and (2) whether the plaintiff was aware of the illegality of the partnership. The learned Judges followed Marudamuthu v. Rangasami, 24 Mad. 401, Thithi Pakurudasu v. Bheemudu, 36 Mad. 430 and Padmanabhan v. Badrinath, 35 Mad. 582 [LQ/MadHC/1911/113] : (10 I. C. 126) and held that the partnership was illegal and mala in se. Santahunarama Mudaliar v. Sami Karuppundar, 14 M. L. W. 226: (A. I. R. (8) 1921 Mad. 456) [LQ/MadHC/1921/230] , a decision of a single Judge, followed the above decisions. The learned Judge held that the partnership was void under Section 28, Contract Act, because it necessitated the commission of offences punishable under the Act. Ramanayudu v. Seetharamayya, 58 Mad. 727 [LQ/MadHC/1934/455] : (A. I. R. (22) 1938 Mad. 440 F. B.) is a decision of a Full Bench. There, 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 the conducting of the business by both the partners. It was held 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. Mr. Ramachandra Iyer contends that the case dealt with by the Full Bench must be classified amongst those cases where the partnership is entered into after the license is granted and which should be distinguished, it is said from the category of cases where the partnership comes into existence before the license is granted; for, it is contended the issue of a license to the auction purchaser is a mere formality. We cannot agree that the issue of a license is a formality. If the Collector had considered that the highest bidder was an undesirable person to hold a license, he would undoubtedly have refused to grant, him a license. However, the discussion of the principles of law involved showed that the learned Judges considered it immaterial whether the partnership wag entered into before or after the license was issued.



4. After the Full Bench decision, the question was prominently raised whether any distinction could be drawn between a partnership entered into before the licence was granted and one entered into after the licence was granted Venkatasubba Rao J. in Satyala Sanyasi v. Bhogavalli Sanyasi, 69 M. L. J. 490: (A. I. R. (22) 1936 Mad. 895) [LQ/MadHC/1936/174] and Venkataramana Rao J. in Rangaswami v. Narayanasami, 70 M. L. J. 691: (A. I. R. (23) 1936 Mad 557) [LQ/MadHC/1935/490] held that such a distinction could be drawn, and that a partnership entered into before the Act was legal. The same question was raised before Wadsworth J. in Rama Moopan v. Muthu Moopan, A.I.R

. (27) 1940 Mad 705 [LQ/MadHC/1939/180] (1940 M. W N 516) and in his judgment he expressed strong dissent from the decision of Venkatasubba Rao and Venkataramana Rao JJ. as did King J in Narasmihalu Naidu v. Nagareddi, A. I. R. (28) 1941 Mad. 64 (193 I. C. 827). In Italia v. Cowasjee, 1944-

1. M. L. J. 97 (A. I. R. (31) 1944 Mad 295) [LQ/MadHC/1943/306] , which was a decision on appeal from the judgment of Krishnaswami Aiyangar J. in C. S No. 201 of 1939, the learned Judges agreed with Wadsworth J. and overruled the decisions of Venkataramana Rao and Venkatasubba Rao JJ. on the ground that Venkatasubba Rao J. had overlooked the wider question of public policy. In the course of his judgment, the learned Chief Justice cited, as embodying the relevant principles governing the matter the following passage from Bensley v. Bignold, (1922) 5 B. & Ald. 335; 24 R. R. 401:

"(a) When a transaction is forbidden, the grounds of the prohibition are immaterial. Courts of Justice cannot take note of any difference between mala prohibit and mala in se.

(b) The imposition of a penalty by the legislature on any specific act or omission is prima facie equivalent to an express prohibition."

On the facts, 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 authorities granted temporary licenses to one of the partners, knowing that the businesses 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 licenses 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. The learned Judges held that from 18th May 1938, the date on which the Revenue authorities definitely refused to issue a license in their joint names, the partnership became an illegal one. This decision is important; because the partnership was held to be valid at its inception and became invalid only when the partnership decided to do something forbidden by law, i.e., to vend toddy on a license granted to one of them only. Venkatasubbayya v. Attar Sheik, 1948-2 M. L. J 198 : (A.I.R

. (36) 1949 Mad. 252) [LQ/MadHC/1948/104] was a Letters Patent Appeal against the judgment of Shahabuddin J. affirming it and following Italia v. Cowasjee, 1944-1 M. L. J. 97 : (A. I. R. (31) 1944 Mad. 295) [LQ/MadHC/1943/306] .



5. The general argument of Mr. Ramachandra Iyer is that where a partnership is entered into before the license is granted, no transfer is involved; because in accordance with the principle underlying Section 88 Trusts Act, the license becomes the property of the partnership as soon as it is acquired. We do not however agree; for this equitable principle merely requires that the partner acquiring the asset should hold it for the partnership. Even when immoveable property is acquired, the legal ownership would be in the partner who had purchased the property, though equity would require that he should hold it on behalf of the partnership. A fortiori, when a license, which is a personal privilege to vend, is acquired by one partner, it is certainly his license and not the license of the partnership Since it was granted to him on the express understanding that it was to be used by him and by him alone, its use by the partnership would involve a transfer in precisely the same way as it would if the partnership were entered into after the license was issued. On the question of public policy, it is difficult to see any difference between the object of a partnership entered into before the license was granted and one entered into after it was granted In either case the partnership would be entered into for the purpose of bringing about a result prohibited by law, i e., the vending of arrack by a person who had no license to do so. It is true that it is not always possible to say that a partnership entered into before the issue of a license was void as initio; but we agree with the learned Judges in Italia v. Cowasjee, 1944-1-M. L J. 97 : (A. I. R. (31) 1944 Mad. 295) [LQ/MadHC/1943/306] , that it would become illegal the moment it decided to conduct a business on a license issued in the name of one of them only.



6. It has been argued by Mr. Ramachandra Iyer for the respondent that Rule 27 prohibiting a transfer of a license is not a rule framed under the rule making cowers of the Government and has therefore no statutory effect. That to us seems of no importance, even if true, because the clear policy of the Act is that no unlicensed person should vend arrack. There would indeed be no purpose in issuing a license to a person authorizing him to vend arrack if some other person could vend arrack without a license. As already pointed out, Section 15 expressly prohibits the vending of arrack by an unlicensed person, and Section 55 of the Act punishes such contravention. If the conducting of the business by the partnership be regarded as involving a transfer and therefore the infringement of a condition of the license then it would be punishable under Section 66 of the Act. Mr. Ramchandra Iyer has argued that Section 15 does not expressly prohibit, as Section 9, Opium Act does, the vending by an unlicensed person. The only difference as far as we can gee between the two provisions is that while Section 9, Opium Act is in the active voice Section 16, Abkari Act is in the passive voice Mr. Ramachandra Iyer seeks support for his contention from an observation to be found in Padmanabhan v. Badrinath, 35 Mad 582 [LQ/MadHC/1911/113] : (10 I. C. 126), where the learned Judges had to consider Natla Bapiraju v. Achuta Rajajee, 20 M. L. J. 837 : (5 I. C. 466), in which it appears to have been held that Section 18, Abkari Act does not prohibit a person having no licence from holding an interest in the manufacture or vend of liquor jointly with a Hennaed manufacturer or vendor. In Padmanabhan v Badrinath, 35 Mad. 582 [LQ/MadHC/1911/113] : (10 I. C. 126), the learned Judges clearly did not wish to discuss the earlier case in detail; and so found it convenient to distinguish it as dealing with the effect of Section 13, Abkari Act, in which the wording was different from that found in Section 9, Opium Act. We cannot read into the judgments in Padmanabhan v. Badrinath, 35 Mad. 582 [LQ/MadHC/1911/113] : (10 I. C. 126) an expression of opinion that the wording of Section 15, Abkari Act did not prohibit the sale of intoxicating liquor by an unlicensed person.



7. The earliest case relied on by the learned advocate for the respondent is Jayanti Bhimappa v. Seshanna, 3 I. C. 951 : (6 M. L. T. 340). There, when the question of legality of a partnership was raised, it was pointed out that one of the conditions of the licence had not been legally introduced, and that its infringement did not therefore render the partnership unlawful. Natla Bapiraju v. Achuta Rajajee, 20 M. L. J. 337: (5 I. C. 456), the next case relied on by the respondent, was much to the same effect, for the learned Judges said :

"The decision in S. A. No. 870 of 1906 Jayanti Bhimappa v. Seshanna, 3 I. C. 951 : (6 M. L. T. 340) evidently proceeded on the view which we take; it was there held that a partnership entered into before the provision in the conditions of a license of a legal prohibition against transfer and sub-letting, could not be held to be an illegal partnership."

Neither this decision, nor Jayanti Bhimappa v. Seshanna, 3 I. C. 951 : (6 M. L. T. 340) which it followed, therefore affords any support for the contention of the respondent that the partnership in the case before as was a lawful one. In Appadurai v. Murugappa, A. I. R. (13) 1926 Mad. 772 [LQ/MadHC/1925/402] : (96 I. C. 91), money had been lent to a partnership which was entered into for the purpose of conducting a business in the sale of arrack; and the principal question that the learned Judges had to decide was whether the plaintiffs knew that the license had not been granted, to all the partners. It was held that there was no evidence that the plaintiff had such knowledge. On that ground alone, the case could have been decided. The learned Judges, however, incidentally referred to the question whether the partnership was an illegal one or not; but they did not discuss the question, nor did they refer in any detail to the authorities bearing on the subject. Odgers J. said;

"In my opinion, the business was not illegal at all. It was no doubt controlled by the conditions not only set out in Section 24, Abkari Act, to which we have been referred, but also by some thing in the Abkari Rules to which we have been referred or in the conditions to the grant of the license itself."

He then went on to say that the licence was not before them. No further discussion of this point is found. He then referred to Brahmayya v. Ramiah, 43 Mad 141 [LQ/MadHC/1919/179] : (A. I. R. (7) 1920 Mad 270) in which it had been held that the partnership was illegal and in which a decree had been passed in favour of the person advancing money as against the share of the person who had obtained a licence, not on the question whether the partnership was illegal, but on the question whether the person advancing money was particeps criminus with the partners carrying on an illegal trade. The learned Judge distinguished that case on the ground that there the plaintiff had notice of the illegality of the partnership. Madhavan Nair J. in a separate judgment said with regard to the question of the illegality of the partnership only this :

Prima facie there is nothing illegal in such a partnership under the Abkari Act, and no rule issued under the Act has been brought to our notice to show that the arrangement is illegal. The decision In Brahmayya, v. Ramiah, 43 Mad. 141 [LQ/MadHC/1919/179] : (A. I. R. (7) 1920 Mad. 270) as regards the illegal nature of the partnership in the case depended on the terms of the license issued to the parties."

He then went to say :

"I do not think that the plaintiff can be said to have known about the illegality of the contract when he lent the money."

Such remarks as may be found in this judgment supporting the argument of the respondent must therefore be regarded as obiter. In Gangadhara v. Swaminadha, A. I. R. (13) 1926 Mad. 218 [LQ/MadHC/1925/83] : (92 I. C. 112), Srinivasa Aiyangar J. was considering the case of a partnership entered into in the Mysore State for the vending of intoxicating liquor. During the course of his judgment, he expressed an opinion that the observations found in Marudamuthu v. Rangasami, 24 Mad. 401, were obiter and disapproved of them. He distinguished Padmanaban v. Badrinath, 35 Mad. 582 [LQ/MadHC/1911/113] : (10 I. C. 126) as dealing with a case under the Opium Act and dissented from Brahmayya v. Ramiah, 43 Mad. 141 [LQ/MadHC/1919/179] : (A. I. R. (7) 1920 Mad. 270) although that was a decision of a Bench which he was bound to follow. The decision, of Srinivasa Aiyanger J. must, however, be considered together with the appellate judgment against his decision in O. S. A. No. 72 of 1925, in which the learned Judges disposed of the matter, not on a consideration of the Madras cases, but on the ground that the law of Mysore, as a foreign State, was a question of fact, and that the defendant had failed to adduce any evidence worth the name as to the law in Mysore or of the terms of the license issued. The Commissioner of Income-tax, Madras v. Mohideen Sahib, 58 M. L. J. 719: (A. I. R

. (14) 1927 Mad. 1052 [LQ/MadHC/1927/348] S. B.) dealt with an income-tax reference by the Commissioner of Income-tax. The judgment is a very short one. After setting out the question referred to them, the learned Chief Justice said:

"The Income-tax Commissioner finds that there was a body of seven persons who formed a sort of partnership. Of these seven persons, four bid and obtained leases of four toddy shops, and the profits from those four toddy shops were shared between the seven persons; apparently also all the seven assisted in the working and financing of those shops. On this finding he holds that this association of persons was not an illegal association under the Akbari rules. Here the petitioners vakil questions that finding and contends that his client and others have offended against the law in that they have contravened the provisions of Rule 27 of the general conditions of those licenses .... There is no evidence that the license-holders have either sold, transferred or sub-rented the shops which they have taken on lease. It is not, therefore, apparent how that rule has been contravened and, certainly, we cannot presume illegality, in the absence of any evidence of such illegality."

It is clear from this short judgment that no question of law was decided, that the question whether there was any illegality was considered to be a question of fact, and that there was no evidence that there had been an illegal transfer or sub-renting of the shops. The Commissioner had given a finding that it was an illegal partnership on certain facts; but the correctness of that finding was questioned before the learned Judges. No principle was laid down in that case, except that the illegality of contracts has to be affirmatively proved. Reilly J, in Narayanamurthi v. Subramanyam, A. I. R. (15) 1928 Mad. 1197 [LQ/MadHC/1928/182] : (114 I. C. 655) said that Marudamuthu v. Bangaswami 24 Mad. 401; Thithi Pakuridasu v. Bhimudu, 26 Mad. 430 [LQ/MadHC/1902/89] and Brahmayya v. Ramiah, 43 Mad. 141 [LQ/MadHC/1919/179] : (A. I. R. (7) 1920 Mad. 270) laid down the principle that a partnership entered into in contravention of a licence or any rule under the Abkari Act is void and that a licences of a toddy or arrack shop cannot legally take a partner without sanction, but that these decisions did not go so far as to hold that it was illegal for persons to enter into a partnership for the purpose of carrying on a toddy shop business; for which they hoped at a future date to obtain a licence. There is nothing in this statement to which objection can be taken provided, as pointed out by the learned Chief Justice in the Full Bench decision, Ramanayudu v. Seetharamayya, 58 Mad. 727 [LQ/MadHC/1934/455] : (A. I. R. (22) 1935 Mad. 440) [LQ/MadHC/1934/455] that "it is intended at a future date to get a licence in the names of all the partners." Much reliance has been placed by Mr. Ramachandra Aiyar, as well as by Venkatasubba Rao J. in Satyala Sanyasi v. Bhogavalli Sanyasi, 69 M. L. J. 490: (A. I. R. (22) 1935 Mad. 895) [LQ/MadHC/1935/204] , on the judgment of Ananthakrishna Aiyar J. in Vazhmuni v. Nathamuni, A. I. R. (17) 1930 Mad. 361 [LQ/MadHC/1929/264] : (122 I. C. 342), in particular the passage in which he approved of an opinion expressed by the District Judge, the passage of the District Judges judgment being in these words :

"As I understand the evidence, the case is not one of the respondent having a going toddy trade and taking the other two (plaintiff and defendant 2) into partnership. So far as I can gather, each of the three parties contributed an equal share of money and the business was started, the license being taken in the name of defendant

1. It seems to be clear that at the time the partnership was formed he had not begun the trade in toddy and had no stock which he made the joint property of all the three."

8. The learned Judge (Ananthakrishna Aiyer J.) seemed to have considered that the conclusion from these facts that the partnership was a lawful one, whatever its intention, had the approval of Padmanabhan v. Badrinath, 85 Mad. 582 : (10 I. C. 126), contains no support at all for such a conclusion. Whatever might have been the intention of the partners at the time when the partnership was formed, the partnership became illegal as soon as the partners decided to use the license as a privilege common to all the partners. It is however, clear that Ananthakrishna Aiyer J. really disposed of the case on the footing that the license had not been produced; for the learned Judge said that for all they knew, the license might have been granted to all four of the partners. The learned Judge said finally:

"In this view I do not propose to discuss the various decisions cited before me by the learned Advocates on either side in the second appeal."

the cases that he did not propose to discuss including Marudamuthu v. Bangasami, 24 Mad. 401, Thithi Pakurudasu v. Bheemudu, 26 Mad. 430 [LQ/MadHC/1902/89] and Brahmayya v. Ramiah, 43 Mad. 141 [LQ/MadHC/1919/179] : (A. I. R. (7) 1920 Mad. 270). It was because Ananthakrishna Aiyar J, disposed of the case on the ground that the licence had not been produced that the learned Chief Justice in Ramanayudu v. Seetharamayya, 58 Mad. 727 [LQ/MadHC/1934/455] : (A. I. R. (22) 1935 Mad. 440 [LQ/MadHC/1934/455] F. B.) said :

"Ananthakrishna Aiyer J. held that it was essential that the licence granted to defendant 1 should be produced and that the view of the District Judge was correct in stating that at the time the partnership was formed defendant 1 had not begun to trade in toddy and had no stock which he made the joint property of all the three partners. In this view, the partnership could not be held to be illegal as there was nothing prima facie illegal in such a partnership under the Abkari Act. The decision in this case appears to me to have turned on the absence of proof that the partnership was entered into for an illegal purpose."

This cannot be regarded as an approval of the obiter dictum of Ananthakrishna Aiyar J. with regard to the views of the District Judge. On the question whether there was a transfer of the license, Venkatasubba Rao J. cited a passage from Padmanabhan v. Badrinath. 35 Mad. 582 [LQ/MadHC/1911/113] : (10 I. C. 126) to the effect that if two persons agree to start a business in partnership and to contribute capital there for, there is no transfer, and then went on to say that adopting that test no transfer was involved in the partnership under consideration. He then added :

"The facts here disclose that the persons concerned first entered into the partnership with the object of acquiring the right and that the plaintiff on the firms behalf sometime later acquired that right."

There the learned Judge left the matter. There was, of course, no transfer of the original assets of the business; but the subsequently acquired licence granted to one partner had to be transferred if it could be used by both partners. On the question of public policy Venkatasubba Rao J. said :

"To attempt to discover a policy with a view to make illegal, things not expressly prohibited, seems unwarranted."

He then went on to refer briefly to Natla Bapiraju v. Achuta Rajajee, 20 M. L. J. 337 : (5 I. C. 456) and Padmanabhan v. Badrinath, 35 Mad. 582 [LQ/MadHC/1911/113] : (10 I. C. 126) and the difference in the wording of Section 9, Opium Act and Section 15, Abkari Act, and again held that there was no transfer of the licence.. From this he concluded that the argument based on the "so called public policy" was extremely misleading. The learned Judge attempted to distinguish the Full Bench case as one in which the partnership was formed subsequent to the auction sale. It is unnecessary for us to discuss the judgment of Venkataramana Rao J. in Rangasami v. Narayanasami, 70 M. L. J. 691 : (A. I. R. (23) 1936 Mad 657), for there was a finding of fact that it had not been proved that any person in whose name there was no licence ever interfered with the business of the toddy shop.



9. From the above discussion it is evident that there is a long and consistent body of opinion of this High Court from Marudamuthu v. Rangasami, 24 Mad. 401 onwards, with which we agree, 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 as 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. 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.



10. Such differences of opinion as have arisen in connection with this type of transaction are doubtless due to the difficulty of envisaging the legal consequences of the use by a partnership of a license issued in the name of one only of the partners. If the licensee holds his license for the partnership or by an act of volition shares his license with his partner, then there is a transfer which offends Rule 2

7. If it be found that the licensee does not hold the license for the partnership, because it is illegal for him to do so, or because for any other reason the non-licensed partner does not purport to sell, by himself or through his partner, under his partners license, then there is no transfer; but the non-licensed partner would then commit a breach of Section 15 of the Act. In either case, a punishable offence would be committed; and a partnership formed that would lead to a breach of these provisions would be illegal, either because an offence would necessarily be committed or because it would be against the general public policy underlying the enactment that only approved persons, specifically licensed, should be allowed to sell liquor.

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1. The civil revision petition is therefore allowed with costs throughout.