Profit-sharing in a licensed business is not illegal unless the licence right itself is transferred or control is surrendered.

An agreement by a salt licence holder to share profits with partners was not illegal where it did not transfer the licence, sublet the privilege, or divest the licensee of control over salt manufacture. The restrictive licence condition against subletting, sale, mortgage or alienation, and the statutory prohibition, were therefore not breached, so the partnership agreements remained valid and enforceable. On jurisdiction, the agreement was executed in Bombay, the third defendant attended and attested it, and part of the business was carried on there, which was sufficient to sustain jurisdiction against that defendant.

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Issues: (i) Whether the partnership agreements were illegal or unenforceable because admission of partners to share profits from salt manufacture amounted to a prohibited subletting or alienation of the licence rights; (ii) Whether the Court had jurisdiction in respect of the cause of action relating to the third defendant.

Issue (i): Whether the partnership agreements were illegal or unenforceable because admission of partners to share profits from salt manufacture amounted to a prohibited subletting or alienation of the licence rights.

Analysis: The restrictive condition in the salt licences prohibited subletting, sale, mortgage, or other alienation of the privilege granted by the licence. The agreements in question, however, only provided for division of profits from the business and did not transfer the right to manufacture salt or divest Gordhandas of control and management of the licensed activity. A mere sharing of profits, without a transfer of the licence or of any part of the right to manufacture, was not treated as a sublease or alienation. The arrangement therefore did not contravene the licence conditions or the statutory prohibition under Section 11 of Bombay Act II of 1890, nor did it attract illegality under Section 23 of the Indian Contract Act.

Conclusion: The partnership agreements were valid and enforceable, and the plaintiffs were entitled to an account and dissolution relief.

Issue (ii): Whether the Court had jurisdiction in respect of the cause of action relating to the third defendant.

Analysis: The agreement was made in Bombay, the third defendant was present and attested it, and part of the business was carried on in Bombay. On that basis, the objection that the third defendant lived at Bhaynder or did not sign the agreement was insufficient to oust jurisdiction.

Conclusion: The Court had jurisdiction to try the suit against the third defendant.

Final Conclusion: The suit succeeded in substance, the partnership was held to be lawful, and the partnership accounts were directed to be taken with consequential reliefs.

Ratio Decidendi: An agreement by a licensee to share profits with partners does not become illegal merely because the licence forbids subletting or alienation, unless there is an actual transfer of the licensed right or surrender of control over the licensed activity.

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