1958 (12) TMI 16 - SC - Companies Law

Whether the suit was not maintainable by reason of the provisions of section 4 of the Rewa State Companies Act, 1935, and the appeal filed by the plaintiffs must, therefore, be dismissed? Held that - The first contention that respondent No. 1 should not be allowed to raise an objection of the kind which he has now raised at this late stage can be disposed of very easily. The objection taken rests on the provisions of a public statute which no court can exclude from its consideration. The question is a pure question of law and does not require the investigation of any facts. Admittedly, more than twenty persons formed the association in question and it is not disputed that it was formed in contravention of section 4(2) of the Rewa State Companies Act, 1935. The appellants herein have not asked for a return or refund of their subscriptions; on the contrary, they have asked for a rendition of accounts in enforcement of an illegal contract of partnership. The reliefs they have asked for necessarily imply a recognition by the court that an association exists of which accounts ought to be taken. When the association is itself illegal, a court cannot assist the plaintiffs in getting accounts made so that they may have their full share of the profits made by the illegal association. The preliminary objection succeeds. The appeal is accordingly dismissed.

Issues Involved:
1. Maintainability of the suit under Section 4 of the Rewa State Companies Act, 1935.
2. Legality of the association formed by the cloth dealers.
3. Entitlement to accounts and profits from the association.
4. Applicability of Section 69(3)(a) of the Indian Partnership Act, 1932 by analogy.

Detailed Analysis:

1. Maintainability of the suit under Section 4 of the Rewa State Companies Act, 1935:
The preliminary objection raised was that the suit was not maintainable due to the provisions of Section 4 of the Rewa State Companies Act, 1935. The court noted that this objection was not raised in the lower courts, leading the appellants to request time to consider the point. The court adjourned the hearing and later determined that the preliminary objection must succeed. The court emphasized that Section 4(2) of the Rewa State Companies Act, 1935, prohibits the formation of any association or partnership consisting of more than twenty persons for the purpose of carrying on a business aimed at the acquisition of gain unless registered as a company or formed pursuant to a charter from the Durbar. The court concluded that the Cloth Association at Budhar was not a legal association as it was not registered and was formed in contravention of Section 4(2).

2. Legality of the association formed by the cloth dealers:
The court found that the association formed by the cloth dealers of Budhar was illegal because it was not registered under the Rewa State Companies Act, 1935, and consisted of more than twenty persons engaged in a business for profit. The court held that the illegality of the association rendered any contract of partnership among its members void, and thus, the members had no remedy against each other for contribution or apportionment in respect of the partnership dealings and transactions.

3. Entitlement to accounts and profits from the association:
The appellants sought a decree for the rendition of accounts and payment of profits from the association. The court held that since the association was illegal, the plaintiffs were not entitled to an account of the dealings and transactions of the association or the profits made thereby. The court cited legal principles from Lindley on Partnership, emphasizing that members of an illegal partnership cannot seek an account and payment of profits in a court of justice. The court concluded that the plaintiffs' claim for accounts was untenable as it implied a recognition of the illegal association.

4. Applicability of Section 69(3)(a) of the Indian Partnership Act, 1932 by analogy:
The appellants argued that by analogy to Section 69(3)(a) of the Indian Partnership Act, 1932, they should be allowed to bring a suit for accounts of the dissolved association. The court dismissed this argument, pointing out that the Indian Partnership Act does not render an unregistered firm illegal, whereas the association in question was illegal under the Rewa State Companies Act. Additionally, the suit was not for accounts of a dissolved firm but for accounts of an illegal association. The court concluded that the analogy was not applicable and did not support the appellants' claim.

Conclusion:
The court upheld the preliminary objection, concluding that the suit was not maintainable due to the illegality of the association under Section 4(2) of the Rewa State Companies Act, 1935. Consequently, the appeal was dismissed, and the parties were directed to bear their own costs for the hearing in the Supreme Court.

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