1963 (7) TMI 94 - HC - Indian Laws

Partnership void for illegal business under licensing law. Public policy bars enforcement. Dissolution suit not maintainable.

V. Basavayya Versus N. Kottayya

The suit partnership was found to be void as it involved conducting business under a license granted to one partner, which was deemed illegal under the ... - Issues Involved:1. Whether the suit partnership is void.2. Whether the suit is not maintainable on that ground.Detailed Analysis:Issue 1: Whether the suit partnership is void.The plaintiff filed a suit for the dissolution of a partnership and for accounts, claiming that he and the defendant were partners in a business from 1944 to 1947. The defendant contested the suit, leading to the framing of an additional issue on whether the suit partnership was void. The lower courts held that the partnership was illegal, void, and unenforceable, leading to the dismissal of the suit.The partnership was formed for carrying on business in sundry articles and cloth. The plaintiff obtained a license under the Madras Cloth (Dealers) Control Order, 1944 (M.C.D.C. Order). The license was a personal privilege granted to the plaintiff, and any business conducted under it by the partnership would amount to a transfer of the license to the partners other than the plaintiff, which is not permissible.The M.C.D.C. Order, enacted under Rule 81(2) of the Defence of India Rules, regulated the business of cloth dealers. Clause 4 of the M.C.D.C. Order required that no person shall carry on business as a dealer except under and in accordance with the terms of a license granted under the Order. The term 'dealer' included any person carrying on the business of selling or storing cloth for sale, whether on their own account or as a commission agent.The lower courts relied on the decision in Pisupati Rama Rao v. Tadepalli Papayya, which held that a partnership conducting business under a license issued to one partner was illegal. The courts found that the principles laid down in that case applied to the present case, as the partnership involved the use of a license by persons other than the licensee, which was prohibited.The Supreme Court's decision in Govinda Rao v. Nathmal further supported the view that a partnership formed for conducting business under a license issued to one partner was illegal. The Supreme Court held that the object of such a partnership was illegal, and the suit for accounts of the dissolved firm was not maintainable.Issue 2: Whether the suit is not maintainable on that ground.The suit was not maintainable because the partnership was void. The formation of the partnership amounted to a transfer of the license, which was not allowed under the M.C.D.C. Order. The license was a personal privilege granted to the plaintiff, and its use by the partnership constituted a violation of the conditions of the license.The decision of the Supreme Court in Govinda Rao v. Nathmal was binding and directly applicable to the present case. The Supreme Court held that a partnership formed for conducting business under a license issued to one partner was illegal, and a suit for accounts of such a dissolved partnership was not maintainable.The absence of an express prohibition of transfer of the license in the M.C.D.C. Order did not make a material difference. The prohibition could be implied from the provisions of the Order. The formation of the partnership was against the public policy underlying the enactment, which was to ensure that only approved persons specifically licensed should be allowed to conduct the business.Conclusion:The suit partnership was void, and the suit was not maintainable. The judgment of the lower courts was upheld, and the second appeal was dismissed with costs.