Illegality of underlying partnership bars enforcement of the debt, equitable recovery, and surety liability.

A partnership formed to purchase and run a lorry under a permit standing in one partner's name was held to be illegal because the vehicle was operated contrary to the Motor Vehicles Act and without the required transfer approval. A promissory note arising from settlement of that partnership's accounts was therefore unenforceable, as a contract forbidden by statute or performable only illegally cannot be enforced. The plaintiff was also denied equitable recovery of the amount advanced, since the funds had been absorbed into the illegal venture and no equitable basis was shown. The sureties were likewise not liable because a surety's obligation cannot survive where the principal debt is itself unenforceable.

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Issues: (i) Whether the suit promissory note, having arisen out of the settlement of accounts of a partnership formed and carried on in contravention of the Motor Vehicles Act, was unenforceable; (ii) whether the plaintiff could nevertheless recover the amount advanced as an equitable relief; and (iii) whether the sureties could be made liable when the principal debtor's liability was unenforceable.

Issue (i): Whether the suit promissory note, having arisen out of the settlement of accounts of a partnership formed and carried on in contravention of the Motor Vehicles Act, was unenforceable.

Analysis: The arrangement was found to be a partnership for purchase and running of a lorry with a permit standing only in one partner's name. The vehicle was used by the partnership without the permit being transferred in accordance with the statutory scheme. The use of a transport vehicle otherwise than in conformity with the permit conditions and without the required transfer approval amounted to a statutory contravention. A contract which is forbidden by statute or can be performed only illegally is unenforceable.

Conclusion: The partnership was illegal, and the suit claim arising out of settlement of its accounts was not enforceable.

Issue (ii): Whether the plaintiff could nevertheless recover the amount advanced as an equitable relief.

Analysis: The plaintiff had not sought a declaration or relief within the framework that would attract the compensatory provisions relied on in earlier cases. The money had been merged into the business capital and used in the illegal venture. The parties had entered the arrangement with knowledge of the legal position, and the Court found no basis to work out an equity in favour of the plaintiff. The authorities relied on by the respondent were distinguished on their facts.

Conclusion: The plaintiff was not entitled to recover the amount advanced on an equitable basis.

Issue (iii): Whether the sureties could be made liable when the principal debtor's liability was unenforceable.

Analysis: The liability of a surety under the Contract Act is ancillary to a valid obligation of the principal debtor, subject to special circumstances not present here. Where the principal debt itself is unenforceable because the underlying contract is illegal, the surety's liability cannot survive independently. The cases treating surety liability as one of indemnity were distinguished.

Conclusion: The sureties were not liable once the principal debtor's liability was held unenforceable.

Final Conclusion: The decree in favour of the plaintiff was set aside and the trial court's dismissal was restored, with costs awarded to the appellants.

Ratio Decidendi: A claim arising from a contract or partnership that is illegal or can be performed only in violation of statute is unenforceable, and a surety's liability cannot be enforced where the principal obligation itself is void or unlawful.

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