1984 Supreme(AP) 519

Andhra Pradesh High Court
Judges : P.RAMACHANDRA RAJU, PUNNAIAH
Chennuru Ramarao - Appellant
Versus
Gowri Sankar Talkies, Tekkali - Respondent
Decided On : 12-28-84

Headnote:

Partnership agreement for running business under a license standing in the name of one of the partners is not illegal or opposed to public policy.

Fact of the Case:

Plaintiff and defendants entered into an agreement to construct a cinema hall at Gopinthapuram near Tekkali in Srikakulam District under the name and style as "gowri Shankar Talkies" and to do joint cinema business with a total share capital of Rs. 1,04,500-00. Later on, a partnership deed under Ex. B-2 dated 18-8-1951 was entered into by 9 partners, namely, (1) Sri Chennuru Sambasiva Rao (D-2), (2) Chennuru Ramarao (Plaintiff), (3) S. Iswarappa Chowdary, (4) L. Kameswara Rao, (D-3), (5) P. Lakshminarasamma, (6) Chennuru Lakshmana Murthy. (7) M. Appa Rao (D-4) (8) s. Suryanarayana (D-5) and (9) T. Tulasidas. According to the terms of Ex. B-2, the second defendant, who is the Managing Partner, should manage the business. This partnership business continued till 1952. In that year the second defendant acquired the shares of S. Ishwaraya Chowdary, Ch. Lakshmana Murty, Lakshiminarasamma and Tulasi Das and introduced Koppala Jagannaikulu (D-6) as a new partners. Hence, another partnership deed Ex. B. 3 dated 2-3-1952 was executed with six partners, namely, (1) Ch. Ramarao (Plaintiff), (2) Ch. Sambasivarao (D-2) (3) Lopinti Kameswara Rao (D-3) (4) Madugala Apparao (D-4), and (6) Koppala Jagannaikulu (D-6), the first defendant being the Gowri Shankara Talkies. This partnership under Ex. B. 3 was again dissolved in the year 1959 and a new registered partnership deed. Ex. B. 4 dt. 30-9-1959 was executed with the second defendant continuing as the managing partner. None of these partnership deeds mentions in whose name the license should be obtained. But it was admitted by the plaintiff and the 2nd defendant and others that the licence for running the cinema hall was obtained in the name of the plaintiff. The licence was renewed every year by the plaintiff for running the cinema. Disputes arose between the plaintiff and the second defendant in connection with the salt business at Nowpada, which was said to have been entrusted by the second defendant to the plaintiff from 1-4-1957 to 31-3-1967 and the plaintiff was said to be due to him about Rs. 28,000. 00 in the salt business. The plaintiff, of course, admits that he was looking after the salt business of the second defendant but denies that it was completely entrusted to him and also denies the allegation of the second defendant that he was due to him in a sum of Rs. 28,000. 00 in salt business. The plaintiff contends that though the second defendant was carrying on the business as the managing partner of the first defendant-firm, the second defendant was not showing the accounts to him or the other partners and he was postponing on some pretext or other and had not given any share in the profits to the plaintiff in spite of repeated demands. Thus the disputes that had arisen on account of the failure on the part of the second defendant to show the accounts and to give any share in the profits to the plaintiff and other partners were referred to the arbitrator under the arbitration agreement Ex. B. 7, dt. 27-9-1969. The plaintiff admitted that the disputes were referred to the arbitrator under the arbitration agreement, Ex. B. 7. The second defendant submitted an application before the Collector requesting him to renew the licence in his name; but not in the name of the plaintiff. The Collector refused to renew the licence in the name of the second defendant. In view of the dispute raised by the second defendant the plaintiff also did not submit his application for the renewal of the licence. The Collector, while refusing to renew the licence in the name of the second defendant, stated in his order that the grant of renewal of licence would be considered when the application would be submitted by the plaintiff after fulfilling the requirements under the Cinematograph Act and the Rules framed thereunder.

Finding of the Court:

The learned Subordinate Judge held that the licence for running the cinema hall was obtained in the name of the plaintiff, that as cl. 12 of the conditions of the licence provides that the licensee shall not without the permission of the licensing authority assign, sub-let or otherwise transfer the licence or the licenced premises nor shall the licensee without permission as aforesaid allow any other person during the period of currency of the licence to exhibit films in the licenced premises and as S. 11 of the A. P. Cinemas (Regulation) Act. , 1955, provides that the Government may be notification make rules for carrying out purposes of this Act and as the rules relating to the terms and conditions and restrictions for grant of licence are framed by the Government for carrying out the purposes of the Cinematograph Act and as any violation of the conditions of the licence is made a continuing offence under S. 9 of the Act and as the Full Bench of the Madras High Court held in Velu Padayachi v. Siva Sooriam, AIR 1950 Mad 444 that a partnership entered into for the purpose of conducting a business in arrack or toddy on a licence granted to one of the partners is void ab initio, and as the second defendant, one of the partners, was carrying on the cinema business while the licence was in the name of the plaintiff and hence the partnership amounts to a transfer and it is, therefore, prohibited by cl. 12 of the conditions of the licence. The learned Subordinate Judge also held that the ruling in Velu Padayachis case was approved and followed by the High Court of Andhra Pradesh in K. R. Prasad v. T. V. Subba Rao, (1970) 2 Andh WR 218 in which it was held that a suit for accounts is not maintainable as the partnership is illegal and is hit by S. 23 of the contract Act inasmuch as the partnership for carrying on the business with permit standing in the name of another is opposed to S. 59 (1) of the Motor Vehicles Act. The learned Subordinate Judges also held that this Court considered in K. R. Prasad v. T. V. Subba Rao the decision of the Privy Council in Gordhan Das Messowji v. Champsey Dossa, AIR 1921 PC 137 and distinguished it by holding that the partners therein took no part in the manufacture of salt and therefore it was held that forming partnership with others did not infringe the provisions of the licence or of S. 11 of the Bombay Salt Act. The learned Subordinate Judge also held that the suit cannot be proceeded with when the matter is referred to the Arbitrators. The learned Subordinate Judge also held that the suit is barred by limitation in as much as it was not filed with in the period of three years from the date of receipt of Ex. A. 1 notice.

Issues: Whether the partnership agreement is hit by S. 23 of the Contract Act ?

Ratio Decidendi: The formation of a partnership by a licensee partner does not amount to a transfer of the licence and hence the partnership formed by a licensee under the A. P. Exercise Act and Rules framed thereunder with others cannot be said to be illegal.

Final Decision: Appeal allowed.