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IN THE HIGH COURT OF ALLAHABAD
Deoki Nandan, J.
RAM SEWAK - Appellant
Versus
RAM CHARAN - Respondents
Second Appeal 509 Of 1970
Decided On : 11/27/1981
PARTNERSHIP - DISSOLUTION - CONCEALED PROFITS - RECOVERY - PUBLIC POLICY - VOID AGREEMENT - SECTION 23 OF THE CONTRACT ACT, 1872.
Fact of the Case:
Plaintiff and defendant were partners in a business. They agreed to conceal some part of their business activity and would not enter certain items in the books of account maintained by them, in order to evade payment of Income-tax and sales tax. Plaintiff filed a suit for accounts and for recovery of the amount found due to him on the taking of accounts.
Finding of the Court:
The trial court decreed the suit for recovery of Rs. 17,695. 78 from defendants Nos, 1 and 3, but the lower appellate Court has dismissed the same. The court found that the agreement between the parties in so far as it related to earning of concealed profits, or concealment of the profits earned by falsification of accounts, was wholly void and no court could enforce the agreement by directing an enquiry into the amount, or the destination, of the concealed profits in order to enforce the recovery of the share therein of one party from another.
Issues: Whether an agreement to carry on business in partnership with the object of concealing profits and evading taxes is void?
Ratio Decidendi: The court held that the agreement between the parties was void under Section 23 of the Contract Act, 1872, as its object was forbidden by law and defeated the provisions of the tax laws. The court further held that evasion of taxes is opposed to public policy and that the court could not enforce an agreement that is void.
Final Decision: The appeal was dismissed with costs.
( 1 ) THIS is a plaintiffs second appeal in a suit for accounts and for recovery of the amount found due to the plaintiff on the taking of accounts. The trial Court decreed the suit for recovery of Rs. 17,695. 78 from defendants Nos, 1 and 3, but the lower appellate Court has dismissed the same. Ram Charan aud Damordar Das. defendants Nos. 3 and 4, are father and son and members of a hindu joint family. They carry on Kerana business. Ram Sewak, the plaintiff and Madan Lal, the first defendant were their servants and looked after the business. In Nov. , 1953 Ram Charau decided to close the business. On the request of Ram Sewak and Madan Lal, Ram Charan handed over the business to them with the stock worth Rupees 40,125/- which was treated as a loan repayable with interest by them to Ram Charan. Ram Sewak and Madan Lal carried on the business as equal partners. It was decided that out of the profits one Anna in a rupee would be given for charity in favour of a temple of Rashik Siroman Ji Maharaj Biraj-man. The deity was impleaded as the second defendant in the suit through Ram Charan. The business continued in partnership till Nov. , 1958 when difference arose between the parties and the plaintiff brought the suit giving rise to the present second appeal with the allegations that Madan Lal and Ram charan had in collusion with each other taken possession over the shop, the stocks and cash therein, and had turned him out, and with effect from 11th Nov. 1958 Madan Lal and Ram charan were carrying on the business to his exclusion.
( 2 ) THE defence was that Ram Sewak the plaintiff had by an agreement dissolved the partnership and handed back the business to Ram Charan after accounting, as a result of which it was found that the stock-in-trade amounted to Rs. 45,500/-, the cash in hand to Rs. 2,793/-, the debts due from other per sons to Rs. 31,758/-, and Miscellaneous items to, Rs. 639/- + Rs. 42/ -. and that whiic a sum of Rs. 5,779/- was due from the plaintiff, the sum of Rs. 1,067/- was due from the first defendant; and the liability of the business to Ram Charan equalled the total of these amounts. It was further alleged that Ram Sewak thereupon voluntarily retired from the business, promising to pay the sum of Rupees 5,000/- and odd that was due from him. Madan Lal and Ram charan brought a suit for recovery of that amount, being Suit No. 45 of 1959.
( 3 ) IT appears that after the institution of the suit giving rise to the present second appeal, the plaintiff Ram Sewak got a commission issued. An inventory was prepared on 41h Feb. , 1959 which disclosed that the value of the goods in the shop was Rs. 54, 117/ -.
( 4 ) THE suit was decreed. The preliminary decree declared and directed-- (1) that the firm was dissolved on 10th of Nov. , 1958; (2) that Ram Sewak had not been turned out and that the business had been closed by mutual consent; (3) that no accounting was done; (4) that Ram sewak, that is, the plaintiff himself, and not Madan Lal, that is, the first defendant, was the accounting party. It was also found that the keys of the safe used to remain with Ram Sewak and it was he who handled cash.
( 5 ) A Commissioner was appointed to take the accounts. He found that apart from the profits disclosed by the books, there were concealed profits amounting to Rs. 27,000/-or Rs. 29,000/ -. According to the finding of the trial Court, the amount of the concealed profit was Rs. 27,000/ -. The trial Court further found that the concealed profits remained either in the safe or were given to Ram Charan. After making certain enquiry, the trial Court found that the plaintiffs share after adjusting the amount drawn by him came to Rs. 17,695. 78 and passed the final decree for recovery of that amount from defendants Nos. 1 and 3.
( 6 ) A perusal of the judgment of the lower appellate Court shows that there was no dispute between the parties about the result or the determination of the amounts due or not due on the basis of
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