# SETH BADRI PRASAD AND OTHERS v. SETH N AGARMAL AND OTHERS '

- **Citation:** [1959] Supp. 1 S.C.R. 769
- **Court:** Supreme Court of India
- **Decided:** 1958-10-28
- **Case number:** Civil Appeal No. 125 of 1955
- **Bench:** Jafer Imam, s. K. DAS, J. L. Kapur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/seth-badri-prasad-and-others-v-seth-n-agarmal-and-others-1630
- **Pages:** 10

## Headnote

Maintainability of Suit-Unregistered company-Suit 'by members for accounts-New point-Rewa Companies Act, z955, s. 4(2)
-Indian Partnership Act, z932 (IX of z932), s. 69(3)(a).
When cloth control was introduced in Rewa State, ~5 cloth
dealers of BudQ.ar, including the thirteen appellants, formed
themselves into an Association to collect the quota of clqth to be
allotted to them and to sell it on profit. The Association functioned through a President and a pioneer worker; they kept
accounts and distributed profits. After cloth had beeri decontrolled and the work of the Association had come to an end, the
appellants filed a suit against the first respondent for rendition
of accounts for a portion of the period that he had been President
of the Association and for realisation of the amount fo~nd due
with interest. The suit was decreed by the trial Court but was,
on appeal, dismissed by the Judicial Commissioner. In appeal
before the Supreme Court, the first respondent raised, for the first
time, a preliminary objection that the suit was not main~ainable
as the Association consisting of more than 20 persons was not
registered as required by s. 4(2) of the Rewa State Companies
Act, 1935, and that consequently the members of the Assqciation
had no remedy against each other in respect of its dealings and
transactions. The appellants objected to the. raising of tl;i.e new
plea and contended that, nevertheless, the suit was maintainable.
Held; that the suit was not maintainable. In view of s. 4(2)
of the Act the Association was illegal. The reliefs claimed for
rendition of accounts in enforcement of the illegal contract of
partnership necessarily implied recognition by the Court tliiat the
Association existed of which accounts were to be taken
The
Court could not assist the plaintiffs in obtaining their s~are of
the profits made by the illegal Association.
U. Sein Pov. U. Phyu, (1929) I.L.R. 7 Rang. 540, not ;i.pplicable.
Held further, that the new point ought to be allowe<l to be
raised. The question was a pure question of law and did not
require the investigation of any facts.
The objection rested on
the provisions of a public statute which no court could exclude
from its consideration.
Surajmull Nargoremull v. Triton Insurance Company Ltd.,
(1924) L.R. 52 I.A. 126; Sri Sri Shiba Prasad Singh v. Maharaja
Srish Chandra Nandi, (1949) L.R. 76 I.A. 244, followed.
The analogy of s. 69(3)(a) of the Indian Partnership Act,
1932, did not apply, an under that Act an unregistered firllll was
97
Dec~mbar 9.
770
SUPREME COURT REPORTS [1959] Supp
r958
not illegal. Besides, the suit was not one for accounts of a
-
dissolved firm but of an illegal Association which was in existence
Seth Barlri Prasad at the relevant time.
and Others
Y.
Seth Nagarmal
and Olliers

## Text

\
(1) S.C.R. SUPREME COURT REPORTS
769
SETH BADRI PRASAD AND OTHERS
v.
SETH N AGARMAL AND OTHERS '
(JAFER IMAM, s. K. DAS and J. L. KAPUR, J"J.)
Maintainability of Suit-Unregistered company-Suit 'by members for accounts-New point-Rewa Companies Act, z955, s. 4(2)
-Indian Partnership Act, z932 (IX of z932), s. 69(3)(a).
When cloth control was introduced in Rewa State, ~5 cloth
dealers of BudQ.ar, including the thirteen appellants, formed
themselves into an Association to collect the quota of clqth to be
allotted to them and to sell it on profit. The Association functioned through a President and a pioneer worker; they kept
accounts and distributed profits. After cloth had beeri decontrolled and the work of the Association had come to an end, the
appellants filed a suit against the first respondent for rendition
of accounts for a portion of the period that he had been President
of the Association and for realisation of the amount fo~nd due
with interest. The suit was decreed by the trial Court but was,
on appeal, dismissed by the Judicial Commissioner. In appeal
before the Supreme Court, the first respondent raised, for the first
time, a preliminary objection that the suit was not main~ainable
as the Association consisting of more than 20 persons was not
registered as required by s. 4(2) of the Rewa State Companies
Act, 1935, and that consequently the members of the Assqciation
had no remedy against each other in respect of its dealings and
transactions. The appellants objected to the. raising of tl;i.e new
plea and contended that, nevertheless, the suit was maintainable.
Held; that the suit was not maintainable. In view of s. 4(2)
of the Act the Association was illegal. The reliefs claimed for
rendition of accounts in enforcement of the illegal contract of
partnership necessarily implied recognition by the Court tliiat the
Association existed of which accounts were to be taken
The
Court could not assist the plaintiffs in obtaining their s~are of
the profits made by the illegal Association.
U. Sein Pov. U. Phyu, (1929) I.L.R. 7 Rang. 540, not ;i.pplicable.
Held further, that the new point ought to be allowe<l to be
raised. The question was a pure question of law and did not
require the investigation of any facts.
The objection rested on
the provisions of a public statute which no court could exclude
from its consideration.
Surajmull Nargoremull v. Triton Insurance Company Ltd.,
(1924) L.R. 52 I.A. 126; Sri Sri Shiba Prasad Singh v. Maharaja
Srish Chandra Nandi, (1949) L.R. 76 I.A. 244, followed.
The analogy of s. 69(3)(a) of the Indian Partnership Act,
1932, did not apply, an under that Act an unregistered firllll was
97
Dec~mbar 9.
770
SUPREME COURT REPORTS [1959] Supp
r958
not illegal. Besides, the suit was not one for accounts of a
-
dissolved firm but of an illegal Association which was in existence
Seth Barlri Prasad at the relevant time.
and Others
Y.
Seth Nagarmal
and Olliers
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
125 of 1955.
Appeal from the judgment and decree dated November 20, 1951, of the former Court of Judicial Commissioner, Vindhya Pradesh, in Civil First Appeal No.
47 of 1951, arising out of the judgment and decree
dated June 4, 1951, of the Court of Additional Di8trict
Judge, Umaria, in Civil Original Suit No. 17/19/17 of
1950.
Sardar Bahadur, for the appellants.
Achhru Ram, B. C. Misra and P. K. Chakravarty,
for the respondents.
1958. December 9.
The Judgment of the Court
was delivered by
s. K. Das J.
S. K. DAS, J.-This is an appeal on a certificate
granted by the erstwhile Judicial Commissioner of
Vindhya Pradesh, which is now part of the State of
Madhya. Pradesh. On behalf of respondent no .. 1,
Na.gar Ma.I, who was defendant no. 1 in the suit, a
preliminary objection has been taken to the effect that
the suit was not maintainable by reason of the provisions of s .. 4 of the Rewa State Companies Act, 1935,
and the appeal filed by the plaintiffs must, therefore,
be dismissed. As this preliminary objection was not
taken in any of the two courts below, learned counsel
for the appellants wanted time to consider the point.
Accordingly, on October 28, 1958, we adjourned the
hearing of the appeal for about a month. The appeal
was then heard on November 27, 1958.
As we are of tho opinion that the preliminary objection must succeed, it is necessary to state the facts
only in so far as they have a bearing on it.
When
cloth control came into force in Rewa State, the cloth
dealers of Budhar a town in that State, formed themselves into an Association to collect the quota of cloth
to be allotted to them and sell it on profit wholesale
and retail. The Association at Budhar consisted of
25 members who made contributions to the initial
(1) S.C.R.
SUPREME COURT REPORTS
771
capita.I of the association which was one lac of rupees.
1958
No formal Articles of Association were writteh; nor
-
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h Seth Badri Prasad
wa.s 1t .reg1stere .
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ssoc1a. ion unc 10ne t roug
and Others
a President and a pioneer worker; they kept accounts
v.
and distributed the profits. Respondent no. 1, Nagar Seth Nagarmal
Mal, was the President of the said Association from
and Others
January 1946 to June 26, 1946.
Before that, Seth
Badri Prasad, one of the plaintiffs-appellants' before
s. K. Das J.
us, was the President. Nagar Mal ceased to be President after June 26, 1946, and Seth Badri Prasad again
became President. The Association worked till :February 1948 ; then cloth was decontrolled a.nd the work
of the Association came to an end. On June 25, 1949,
thirteen members of the Association out of the twentyfive brought a suit, and in the plaint they alleged that
respondent no. 1, who was President of the ,Association, from January 1946 to June 1946, had gilven an
account of income and expenditure for the months of
January, :February and March, 1946, but had given
no accounts for the months of April, May and June,
1946. They, therefore, prayed -
'
(a) that defendant no. 1 (Na.gar Mal) be ordered
to give the accounts of the Cloth Association, Budhar,
from the beginning of the month of April 1946 to June
2(i, 1946;
(b) that defendant no. 1 be ordered to pa.y the
amount, whatever is found due to the plaintiffs on
account being done, along with interest at the rate of
annas 12 per cent. per month ; and
1
(c) that interest for the period of the suit $.nd till
the realisation of the dues be allowed.
Besides Nagar Mal the other eleven businessmen, who
were members of the Association, were joined as proforma defendants, som('l of whom later filed an· application to be joined as plaintiffs. Though the plaint
did not mention any particular transaction of the
Association during the period when Nagar Mal was its
President, the judgments of the courts belovt show
that the real dispute between the parties related to the
sale of cloth of a consignment known as t.he Gwalior
consignment. It appears that in April 1946 a consignment of 666 bales of cloth had come from <(j-walior
772
SUPREME COURT REPORTS [1959] Supp.
z95B
and an order was passed by the Cloth Control Officer
Seth n::; Prasad that the consignment woul? ~e allotted t? Nagar ~al
and Othm
who would give the Assomat10n an opt10n of takmg
v.
·
over the consignment; if the Association did not exerseth Nagarmal cise the option, the consignment would be taken over
and Othus
by N agar Mal. It appears that there was some dispute as to whether the other members of the Associas. K. Das J.
f
tion were willing to take over the consignment o
Gwalior cloth.
We a.re not concerned now with the
details of that dispute because we are not deciding the
appeal on merits. It is enough if we say that ultimately there was an order to the effect that only 390
.bales should be allotted to the Association out of
which Nagar Mal had given the Association benefit of
the sales of 106 bales, and the dispute related to the
share of profits made on the remaining 284 bales.
Respondent No. 1, Nagar Mal, raised various points
by way of defence, his main defence being that none
of the members of the Association were entitled to any
shi.re in the profits on the sales of 284 bales of Gwalior
cloth.
·
The learned District Judge, who dealt with the
suit in the first instance, passed a preliminary decree in
favour of the plaintiff-appellants. The decree directed
N agar Mal to render accounts of the Cloth Association
at Budhar from April 1, 1946 to June 26, 1946, and it
further directed that leaving out 106 bales of Gwalior
cloth which Nagar Mal gave to the Association, an
account should be rendered of the rest of the 390 bales
and the profits on the sale thereof shall be according
to the capital shares of the members of the Association.
Nagar Mal preferred an appeal to the learned Judicial
Commissioner of Vindhya Prai:lesh, who reversed the
finding of the learned District Judge and came to the
conclusion that the other members of the Association
were not entitled to participate in the profits made on
the sale of 284 bales of the Gwalior cloth and inasmuch as Nagar Mal had rendered accounts with
regard to all other transactions, the suit for accounts
must fail.
He accordingly allowed the appeal and
. dismissed the suit.
The preliminary point taken before us is founded on
(I) S.C.R. SUPREME COURT REPORTS
773
the provisions of s. 4 of the Rewa State Com~anies
I958
Act, 1935. Sub-section (1) of s. 4 relates to banking 5. 1, B-d
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s. 4
and Others
which is in these terms :-
v.
"4(2). No company, association or partnership
Seth Nagarnzal
consisting of more than twenty persons shall be
1formand Others
e<l for the purpose of carrying on any other business
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S. ~i. Das ].
that as ior its object the acquisition of gain by the
company, association or partnership, or by the i•1dividual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of a
Charter from the Durbar."
Mr. Sardar Bahadur, who has appeared on behalf of
the appellauts and who took time to consider the point,
has now conceded before us that the aforesaid pro~ision
was in force in the Rewa State at the relevant time
when the Association was formed at Budhar apd he
has further conceded that the said provision \Vas in
force till the Indian Compauies Act came into force
in the said area in 1950. \Ve must,, therefore, decide
the preliminary point on the basis of the provision in
s. 4(2) of the Rewa State Companies Act, 1935.
Now, the preliminary point taken on behalf Qf respondent no. 1 is this. It is contended that by ~eason
of s. 4(2) aforesaid, the Cloth Association at Budhar
was not a legal Association, because it was formed for
.the purpose of carrying on a business which had for
its object the acquisition of gain by the individual
members thereof and fort.her because it was not registered as a Company under the Rewa State Companies
Act, 1935; nor \ms it formed in pursuance of a
charter from the Durbar. It has been contend:ed before us on behalf of respondent no. 1 that by reason
of the illegality in the contract of partnership the
members of the partnership have no remedy ,gainst
each other for contribution or apportionment n respect of the partnership dealings and transactions.
Therefore, no suit for accounts lay at the instaince of
the plaintiffs-appellants, who were also members of the
said illegal Association.
We consider that this contention is sound anq must
be upheld. Ou behalf of the appellants, Mr. Sa.rdar
774
SUPREME COURT: REPORTS [1959) Supp.
1956
Bahadur has urged the following points in answer to
S h B-.
d the preliminary objection: firstly, he has contended
et
adri Poasa th t
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and Others
a we s ou
no a ow
e pre 1mmary o iect10n to
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be raised at this late stage; secondly, he has contendse1h Naga.mal ed that even though the Association was in contrsvenand Othm
tion of s. 4(2) of the Rewa State Companies Act, 1935,
the purpose of the Association was not. illegal and a suit
5 · r<. Das f.
was maintainable for recovery of the contributions
made by the appellants and also for accounts; thirdly,
ho has contended that on the analogy of s. 69(3)(a) of
the Indian Partnership Act, 1932, it should be held
that tho appellants had a right to bring a suit for
accounts of the Association which was dissolved in
February 1948.
We proceed now to consider these conttintions of
learned counsel for the appellants. 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 s. 4(2) of the Rewa State
Companies Act, 1935.
A similar question arose for
consideration in Surajmull Nargoremull v. Triton
Insurance Company Ltd.('). In that case sub-s. (l) of
s. 7 of the Indian Stamp Act (II of 1899) was pleaded
as a bar before their Lordships of the Privy Council,
the section not having been pleaded earlier and having
passed unnoticed in the judgments of the courts
below.
At p. 128 of the report Lord Sumner said:-
" The suggest.ion may be at once dismissed that
it is too late now to raise the section as an answer to
the claim. No court can enforce as valid that which
competent enactments have declared shall not be
valid, nor is obedience to such an enactment ·a thing
from which a court can be dispensed by the consent
of the parties, or by a failure to plead or to (l.rgue the
(t) (1924) i..R. 52 I.A. 126, 128.
(l) S.C.R.
SUPREME COURT REPORTS
775
point at the outset: Nixon v. A!ibion Marine· Insurr95B
ance Co., (1867) L. R. 2 Ex. 338. The enactip.ent is 5
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pro i itory.
t is not con ne
o a or mg It party
and Othm
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a protection, of which he may avail himself o~ not as
v.
he pleases ".
s eth N agamial
In Sri Sri Shiba Prasad Singh v. Maliaraja, Srish
and Others
Chandra N andi (1), the provisions of s. 72 of the .Indian
Contract Act were overlooked by the High Cou~t; the
section was only mentioned in passing by the S1,1bordinate Judge and it appears that the bar of s. 72 of the
Indian Contract Act was not argued or only faintly
argued before the Subordinate Judge or in the High
Court. In these circumstances, their Lordships' of the
Privy Council held that they were unable to exclude
from their consideration the provisions of a public
statute. In om· view, the same principle applies in the
present case and s. 4(2) of the Rewa State Companies
Act, 1935, being prohibitory in nature cannot .be
excluded from consideration even though the bar
of that provision has been raised at this late stage.
On his second contention learned counsel f<!>r the
appellants has relied on U. Sein Po v. U. Phyu (2).
That was a case in which three members of an association formed for carrying on a rice business claimed a
decree (i) declaring the respective shares of the subscribers to that association and (ii) directing that the
plaintiffs be repaid their shares after reconvertimg the
property of the association into cash and after payment
of all debts and liabilities. The association, it was
found, consisted of twenty-seven members; it wa.s not
registered and its formation was in contravention of
sub-s. (2) of s. 4 of the Indian Companies Act. The
lower court granted the decree asked for and this was
affirmed in appeal by the High Court. The leii.rned
Judges referred to the decision in Sheppard v. Oxenford (3) and Butt v. Monteaux (4), and rested their decision on the following passage of " Lindley on Partnership" (the learned Judges quoted the passage at
p. 145 of the 9th edition but the same passage "'ill be
found at pp. 148-149 of the 11th edition):
(1) (1949) L.R. 76 I.A. 244.
(2) (1929) I.L.R. 7 Ran. 54\l·
(3) (1855) I K. & J. 491; 69 E.R. 552.
(4) (1854) 1 K. & J. 98; 69 E.R. 345·
S. K. Das].
776
SUPREME COURT REPORTS [1959) Supp.
z95B
" Although, therefore, the subscribers to an illegal
-
company have not a. right t.o an account of the dea.lS11h Badri Prasad •
d
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f
h
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f
h
d Oth
mgs an
transact10ns o t e company an
o t e
an v. "'
profits made thereby, they have a right to have their
Seth Nagarmal subscriptions returned; and the necessary account
and Others
ta.ken; and even though the moneys subscribed have.
been la.id out in the purchase of land and other things
s. /(.Das f.
for the purpose of the company the subscribers are
entitled to have thiit land and those things reconverted into money, and to have it applied as far as it will
go in payment of the debts and liabilities of the concern, and then in repayment of the su bsoriptions. In
such cases no illegal contra.ct is sought to be enforced;
on the contrary, the continuance of what is illegal is
sought to be prevented."
We do not think that the decision aforesaid, be it
correct or otherwise, is of any help to the appellants
in the present case. The appellants herein have not
asked for a. return or. refund of their subscriptions; on
the contrary, they have asked for a rendition of ac·
. counts 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 ma.de so that they may have their
full share of the profits ma.de by the illegal association.
The principles which must apply in the present case
a.re those referred to in the following passage at p. 145
of Lindley on Partnership (I I th edition) :
"The most important consequence, however, of
illegality in a. contract of partnership is that the members of the partnership have no remedy against each
other for contribution or apportionment in respect
of the partnership dealings and transactions. However ungracious and morally reprehensible it may be
for a. person who has been engaged with another in
various dealings and transactions to set up their
illegality as a. defence to a. claim by that other for an
account and payment of his share of the profits made
thereby, such a. defence must be allowed to prevail in
(1) S.C.R. SUPREME COUJtT REPORTS
777
a court of justice. Were it not so, those who-ex hypoz95B
thesi:-have ?een guilty o~ a breac~ of the law, would Seth Badri Prasad.
obtam the aid of the law m enforcmg demands arising
aud Others
out of that very breach ; and not only would all laws
v.
be infringed with impunity, but, what is worse, their Seth Nagarmal
very infringement would become a ground for ob.tainand Others
ing relief from those whose business it is to enforce
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S. K. Das ].
t em.
or t ese reasons, t ere1ore, an not rom any
greater favour to one party to an illegal transaction
than to his companions, if proceedings are instituted
by one member of an illegal partnership against
another in respect of the partnership transactions, it
is competent to the defendant to resist the proceedingi;i
on the ground of illegality".
It is true that in order that illegality may be a defence,
it must affect the contract on which the plaintiff is
compelled to rely so as to make out his right to what
he asks. It by no means follows that whenever money
has been obtained in· breach of some law, the person
in possession of such money is entitled to keep it in
his pocket. If money is paid by A to B to be applied
by him for some illegal purpose, it is competent for A
to require B to hand back the money if B has not
already parted with it and the illegal purpose has not
been carried out: see Greenberg v. Cooperstein (1). The
case before us sta.nds on a different footing.
It is a
claim by some members of an illegal as~ociation against
another member on the footing that the association
should be treated as legal in order to give rise to a
liability to render accounts in respect of the transactions of the association. Such a claim is clearly untenable.
Where a plaintiff comes to court on allegations
which on the face of them show that the· contract of
partnership on which he sues is illegal, the only course
for the courts to pursue is to say that he is not
entitled to any relief on the allegations ma.de as the
courts cannot adjudicate in respect of contracts which
the law declares to be illegal (Senaji Kapurchand v.
Pannaji Devichand (2) ). The same view, which we
(I) [1926} I Ch. 657.
(2) A.I.R. 1930 P.C. 300.
98
778
SUPREME COURT REPORTS [1959] Supp.
z95B
think is correct, was expressed in Kumaraswami v.
-.
Ohinnathambi (' ).
Sith Bud" P•asaa
As to the last contention of learned counsel for the
and ~:h"'
appellants, based on the analogy of s. 69(3)(a) of the
Sith Naxa•mal Partnership Act, it is enough to point out that under
and Othm
the Indian Partnership Act, 1932, an unregistered firm
is not illegal ; there is no direct compulsion that a
s. K. Das J.
partnership firm must be registered, though the disabilities consequent on non.registration may be extremely
inconvenient. Moreover, the suit before us was not
·one for accounts of a dissolved firm, but for accounts
of an illegal association which was in existence at the
relevant period for which accounts were asked. We
do not think that the argument by analogy is of any
help to the appellants; in our opinion, the analogy
does not really apply.
For the reasons given above, we hold that the preliminary objection succeeds. The appeal is accordingly dismissed.
As the preliminary objection was
taken at a very late stage, we direct that the parties
must bear their own costs of the hearing in this
Court.
Appeal dismissed.
(1) I.L.R. [1951J Mad. 593.