Judgment:
P.L.N. Sarma, J.
1. The plaintiff is the appellant in L.P.A. No. 92 of 1983 while the first defendant is the appellant in L.P.A. No. 7 of 1985. Both the appeals are filed against the judgment of the learned single judge in A.S. No. 1234 of 1980. While the plaintiff filed the appeal, L.P.A. No. 92 of 1983, against the rejection of the relief prayed for by him for dissolution of partnership and rendition of accounts on the ground that the same is illegal and opposed to public policy, the first defendant filed the other appeal, L.P.A. No. 7 of 1985, against the relief granted to the plaintiff for payment of the money said to be outstanding to his credit in the account.
2. The relevant facts are as follows :
For the purpose of convenience, the parties are referred to in this judgment as they are arrayed in the suit.
3. The suit was filed for partition of the plaint schedule properties into 100 equal shares and for allotment of 33 such shares to the plaintiff and for subsequent interest, profits, etc. The suit is based on the ground that the plaintiff as well as defendants Nos. 1 and 2 were related to each other and that they conceived the idea of constructing a temporary theatre at Seethanagaram and also to run a business in exhibition of cinemas in the said area. For the said purpose, they purchased the site in the name of the first defendant for the sake of convenience and contributed their respective shares of the consideration. The first defendant obtained licences under Forms A and B under the A.P. Cinemas (Regulation) Act, 1955 (Act 4 of 1955) (hereinafter referred to as 'the Act'). The first defendant was to be the managing partner of the partnership and he should manage the affairs of the cine exhibition, maintain accounts and keep the common income with him. The partnership business was started on October 11, 1970, after purchasing the necessary equipment. It was alleged that the share of the first defendant was Rs. 0.55 and that of the plaintiff was Rs. 0.33 and the share of the second defendant was Rs. 0.12 and all the three contributed their share capital accordingly. All the monies belonging to the partnership business are with the first defendant and the profits and losses were being divided in the said ratio every year. It was also mentioned that, on January 15, 1976, a written partnership deed was executed by all the three, viz., the plaintiff and defendants Nos. 1 and 2 and the partnership business was being run in the name and style of Sri Venkateswara Touring Talkies. In view of the fact that the licence for exhibiting cinema films under rule 12 and the A.P. Cinemas (Regulation) Rules, 1970 (hereinafter referred to as 'the Rules'), issued under Act 4 of 1955 was in the name of the first defendant and not in the name of the firm, the parties are relegated to the status of co-owners as distinct from that of partners and, therefore, the provisions of the Indian Partnership Act relating to the dissolution of the firm and rendition of accounts cannot be resorted to. Therefore, the plaintiff and defendants are co-owners or co-sharers in respect of the schedule mentioned property and that the plaintiff is entitled to Rs. 0.33 out of hundred paise and that the first defendant was appropriating the entire profits for himself without giving the respective shares either to the plaintiff or to the second defendant and that he obtained huge profits during the years 1975-76, 1976-77 and 1977-78 by exhibiting films in the theatre and he is liable to account as a co-sharer. In spite of the requests to render accounts relating to the profits of the said years, the first defendant refused to do so. Therefore, the suit is filed for partition of the schedule mentioned property into 100 equal shares and for recovery of 33/100th share, etc.
4. The suit was resisted by the first defendant mainly on the ground that it was not maintainable in the present form. It was admitted that they entered into a partnership to run the business and stated that it is obligatory on the members of the firm to get the partnership dissolved to obtain the relief by way of rendition of accounts. He also stated that he is an agent of the other partners on behalf of the partnership and vice versa and, therefore, the suit filed on the ground that they are co-owners or co-sharers is unsustainable. It was also mentioned in the written statement that until the dissolution of the partnership firm, the parties are partners and subsequent to dissolution, they become co-owners and, therefore, the suit is not maintainable in law. With regard to the profit amounts for the three years mentioned in the plaint, it was stated that the same were settled up to November 7, 1976, and a full satisfaction receipt dated September 3, 1977, was given which operates as an accord and satisfaction under the provisions of the Indian Contract Act. It was further mentioned that, on the allegations in the plaint, as admitted in the written statement, the partnership was formed for running the business of exhibiting the cinemas and it is illegal and forbidden by law and it contravenes the provisions of the Cinematograph Act, 1964. The terms and conditions of the licence do not permit any person/persons from doing business except the licensee and the partnership entered into by the parties for doing business under the licence issued in Form B is illegal and, therefore, the suit is not maintainable even on that basis.
5. The second defendant, in his separate written statement, contended that they together constituted a partnership for the purpose of running the business of exhibition of cinemas and that, if the court comes to a conclusion that the properties are liable to be partitioned, he has no objection to giving away the value of the plaintiff's share in the firm after the same is determined by the court.
6. The trial court, on the respective contentions of the parties, framed the following issues and additional issues.
1. Whether the suit for partition of the suit property is not maintainable under law
2. Whether the plaintiff is entitled to accounts
3. Whether the cause of action mentioned in the plaint is correct
4. Whether the plaintiff if entitled to physical partition of the cinema-hall and its machinery and the site under the provisions of the Partnership Act
5. To what relief
7. Additional issues :
1. Whether the suit is not maintainable as it is hit by section 69 of the Indian Partnership Act
2. Whether the suit partnership is illegal and opposed to public policy and hit by section 23 of the Indian Contract Act
8. The learned trial judge, on consideration of the entire material placed before him, held that the suit partnership is illegal and opposed to section 23 of the Indian Contract Act and that the suit is not maintainable in the present form and that, in view of the fact that they are partners and not co-owners, the suit is not maintainable. In view of the above findings, the learned judge dismissed the suit holding that the plaintiff is not entitled to ask for partition and accounts.
9. Aggrieved at the aforesaid decree and judgment of the learned trial judge, the plaintiff filed A.S. No. 1234 of 1980 in this court. During the pendency of the appeal, an application for amendment of the plaint under Order 6, rule 17, Civil Procedure Code, was filed by the plaintiff in C.M.P. No. 13330 of 1980. The relief that was sought by way of amendment is to convert the suit to one for dissolution of partnership and for rendition of accounts.
10. The learned single judge held that the defendants will not be prejudiced by allowing the amendment as they have already, in their written statements, raised the required defence. In fact, the plaintiff himself stated that they are not co-owners, but that they are partners and, therefore, the suit on the basis of being co-owners is not maintainable. In view of the above, the learned single judge allowed the amendment of the plaint in C.M.P. No. 13330 of 1980. The application was allowed while disposing of the appeal. Therefore, the result was that the suit which was filed for partition on the basis of parties being co-owners was converted into one for dissolution of the partnership and for accounts on the basis that they are partners in the partnership firm.
11. Having allowed the application for amendment, the learned single judge proceeded to dispose of the appeal. The learned single judge came to the conclusion that the partnership is illegal and opposed to public policy and, therefore, a decree for dissolution of partnership and for settlement of accounts cannot be granted. The learned single judge also held that the case is only with reference to a partnership which is illegal and the parties cannot be termed as co-owners and, therefore, the suit as originally framed is also not maintainable. However, the learned judge granted a decree in favour of the plaintiff for the amounts outstanding to the credit of the plaintiff in the books as on April 1, 1978, viz., Rs. 28,826.12 with interest at 12 per cent. per annum calculating the same at the said rate of interest till the date of filing of the suit, a decree was granted for Rs. 31,000 in favour of the plaintiff with subsequent interest at 12 per cent. annum on Rs. 28,826.12.
12. The plaintiff filed L.P.A. No. 92 of 1983 against that part of the judgment and decree of the learned single judge dismissing the suit for the relief of dissolution of the partnership and for accounts, while the first defendant filed L.P.A. No. 7 of 1985 questioning the decree granted in favour of the plaintiff for a sum of Rs. 31,000 with subsequent interest at 12 per cent. per annum from the date of the suit till the date of realisation.
13. Sri B. Adinarayanarao, learned counsel for the plaintiff, contended that the partnership firm with the first defendant as the managing partner for conducting the business of exhibition of cinemas under the licence granted in Form B under the Act 4 of 1955 and the rules made thereunder in the name of the first defendant is not illegal and that it is not opposed to public policy and, therefore, the judgment of the learned single judge is unsustainable. Learned counsel elaborated the contention by submitting that forming a partnership by the licensee for doing business under the licence issued to him does not violate any of the provisions of the Act or the Rules made thereunder and will not certainly amount to a transfer of the licence within the meaning of rule 12(2) of the conditions of licence as obtaining at the relevant time (rule 12(2) was subsequently omitted by G.O.Ms. No. 620 (Home), dated December 31, 1983). In support of the said contention, learned counsel placed reliance on two Bench judgments of this court, viz., CIT v. Nalli Venkataramana : [1984]145ITR759(AP) and Chennuru Ramarao v. Gowri Sankar Talkies : AIR1986AP84 . The judgment in the first case was rendered on consideration of the provisions of the A.P. Excise Act. The said case arose out of a reference under the Income-tax Act. The assessee in that case was a partnership firm consisting of about 11 partners. The partnership was evidenced by a deed. It commenced with effect from October 1, 1973, ending up to September 30, 1974. One of the partners was the successful bidder at an auction conducted under the A.P. Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969, which were framed under the A.P. Excise Act, 1968, and he obtained a licence to carry on the business of buying in bulk and selling in retail. The licensee required manpower and also for raising the required capital; he entered into a partnership with others. The assessee-firm applied for registration under section 185 of the Income-tax Act. 1961, and filed an application in the required form. The Income-tax Officer came to the conclusion that the firm was not a genuine one and also observed that the partnership was formed illegally and, therefore, void ab initio. In coming to the conclusion, he referred to rule 19(1) of the A.P. Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969, which prohibits the transfer of the licence by the licensee to any other person. The Income-tax Officer also referred to section 15 of the A.P. Excise Act, 1968, which prohibited the selling or buying of any intoxicant by any person except under authority and in accordance with the terms and conditions of a licence granted in that behalf. Therefore, the Income-tax Officer refused registration of the assessee-firm under section 185 of the Income-tax Act. The assessee-firm preferred an appeal to the Appellate Assistant Commissioner who came to the conclusion that the firm was a genuine one and that the formation of a partnership by the licensee was not prohibited even though the licence was in the name of one of the partners. Aggrieved at the order of the Appellate Assistant Commissioner, the Department filed an appeal to the Income-tax Appellate Tribunal. The Tribunal agreed with the order of the Appellate Assistant Commissioner that there was no prohibition for forming a partnership. However, the Tribunal referred the matter for decision of the High Court.
14. It is clear from the facts of the said case that this very point which is urged before us was directly in point before the learned judges of the Division Bench, though it arose under the Excise Act. The learned judges extracted section 15 of the A.P. Excise Act, 1968, as well as rule 19(1). The said rule is almost similar to clause 12(2) of the conditions of licence in Form B, issued under the A.P. Cinemas (Regulation) Rules, 1970. For comparison and better appreciation of the case, the said rule 19(1) as well as clause 12(2) of the conditions of licence issued under the rules are being extracted below :
Rule 19 of the A.P. Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969 :
'19. Transfer of licences - The licensee shall not transfer the licence for the sale of arrack or toddy to any other person.' Clause 12(2) of Form B of the A.P. Cinemas (Regulation) Rules, 1970. '12. Conditions of licence. - ... (2) The licensee shall not without the permission of the licensing authority, assign, sub-let or otherwise transfer the licence or the licensed 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 licensed premises.'
The Division Bench referred to a number of authorities which considered similar enactments and the Rules made thereunder for the purpose of deciding the point. The learned judges referred, among others, to the U.P. Excise Rules, 1910, the Madras Abkari Act, the Motor Vehicles Act, the Berar Food Grains Control Order, 1945, and the Betting and Gaming Act. The conclusion of the learned judges was stated in para 39 of the judgment which is as follows (at page 776 of 145 ITR) :
'The legal position can be summarised as follows :
(1) Rule 19(1) of the Rules directs that a licensee shall not transfer the licence to any other person. However, when a licensee enters into a partnership with others for sharing the profits or losses arising out of the use of the licence, there is, in the eye of law, no transfer of the licence. Consequentially there is no contravention of rule 19(1). The position cannot be compared with a situation where the licensee partner actually transfers the licence in favour of a third party.
(2) Section 15 of the Act, no doubt, requires that no person shall sell or buy and intoxicant except under the authority and in accordance with the terms and conditions of a licence granted in that behalf. But section 15 does not use the words licence 'granted to him' nor is there any other specific provision either requiring the partnership to take out a licence or making the formation of a partnership illegal.'
The learned judges, in coming to the said conclusion, relied upon the judgment in Jer and Co. v. CIT : [1971]79ITR546(SC) , and held that the judgment relied upon by the Revenue, viz., Velu Padayachi v. Sivasooriam Pillai : AIR1950Mad444 [FB] is deemed to have been impliedly overruled by the judgment of the Supreme Court in Jer and Co. v. CIT : [1971]79ITR546(SC) . The same conclusion was also arrived at by the learned judges in view of the judgment of the Supreme Court in Viswanatha Pillai v. Shanmugham Pillai : [1969]2SCR896 . The Supreme Court, in the said case, held that a stage carriage could be plied lawfully by the owner even though the permit was in the name of a benamidar. While coming to the said conclusion, the learned judges stated that the judgment of the Madras High Court in Varadarajulu v. Thavasi Nadar : AIR1963Mad413 , is erroneous, relying as it did upon the decision referred to in Velu Padayachi v. Sivasooriam Pillai : AIR1950Mad444 [FB]. In that view of the matter, the learned judges of the Division Bench came to the conclusion that the judgment in Velu Padayachi v. Sivasooriam Pillai : AIR1950Mad444 [FB], is deemed to have been overruled. The learned judges came to the conclusion that where a person in whose name the licence was granted enters into a partnership with others for doing the business for which the licence was granted, it would not amount to a transfer of the licence. Such a partnership does not contravene rule 19 of the A.P. Excise Rules. It cannot be said that the said partnership is either illegal or opposed to public policy and, therefore, the authorities are bound to register the same. The learned judges also held that, in any event, the partnership is valid between the parties whatever may be the rights of the department.
It is necessary to notice in this connection that the judgment in Varadarajulu v. Thavasi Nadar : AIR1963Mad413 , relied upon not only the decision in Velu Padayachi v. Sivasooriam Pillai, : AIR1950Mad444 [FB], but also on the decision of the Division Bench of the Madras High Court in Viswanathan v. Namakchand Gupta [1954] 2 MLJ 782, in coming to the conclusion which it did. The case of Viswanathan v. Namakchand Gupta [1954] 2 MLJ 728 directly arose under the Cinematograph Rules as in the present case. The facts in that case were that the plaintiff therein entered into an agreement with the owner of a theatre called Chitra Talkies for taking it on lease after obtaining a lease deed and licence. Thereafter, a partnership agreement was executed between the plaintiff and the others. Due to disputes, a suit was filed by the plaintiff for a declaration that the partnership was illegal and void ab initio as being in contravention of the conditions of licence. The contentions raised therein are similar to the contentions raised before us. The licence was obtained in the name of the plaintiff therein. A Division Bench of the Madras High Court in the said case held that the partnership was void ab initio. The said judgment was relied upon by another Bench of the Madras High Court in Varadarajulu v. Thavasi Nadar : AIR1963Mad413 , while considering the provisions of the Motor Vehicles act. The Supreme Court in Viswanatha Pillai v. Shanmugham Pillai : [1969]2SCR896 , has categorically held that the decision in Varadarajulu v. Thavasi Nadar : AIR1963Mad413 , is erroneous. Therefore, in our opinion, the decisions relied upon by the Bench of the Madras High Court in Varadarajulu v. Thavasi Nadar : AIR1963Mad413 , must be deemed to have been overruled by the decision of the Supreme Court in Viswanatha Pillai v. Shanmugham Pillai : [1969]2SCR896 , more particularly, the decision referred to under the Cinematograph Rules, i.e., Viswanathan v. Namakchand Gupta [1954] 2 MLJ 782.
15. The Bench decision referred to above (CIT v. Nalli Venkataramana : [1984]145ITR759(AP) ) again came up for consideration before another Division Bench, consisting Punnayya and Ramachandra Raju JJ., in the case referred to in Chennuru Ramarao v. Gowri Sankar Talkies : AIR1986AP84 . It is significant to notice that the judgment under appeal before us was rendered by Ramachandra Raju J., who was one of the judges who constituted the Bench which rendered the judgment referred to, viz., Chennuru Ramarao v. Gowri Sankar Talkies : AIR1986AP84 . The case arose directly under the A.P. Cinemas (Regulation) Act, 1955 (Act 4 of 1955). The facts in the present case are similar to those in the case disposed of any the learned judges of the Division Bench. The facts which arose in the Division Bench case are that the plaintiff therein, the second defendant and seven others entered into an agreement of partnership to construct a cinema hall and to do cinema business jointly under the name and style of Gowri Sankar Talkies. Later on, a partnership deed was also executed by all the nine persons. Subsequently, another partnership was executed with six partners and, thereafter, a new partnership deed was executed and the same was registered. However, the licence for exhibiting films in the cinema hall was obtained in the name of the plaintiff and the same was being renewed every year. In view of the disputes, the suit was filed by the plaintiff for rendition of accounts of the dissolved partnership and for taking an account in respect of the plaintiff's share, alternatively, for dissolution of the partnership firm and for rendition of accounts, etc. It is clear that the facts in this case are similar to the facts in the case decided by the Division Bench in the decision referred to (Chennuru Ramarao v. Gowri Sankar Talkies, : AIR1986AP84 ). The suit was dismissed by the trial judge on the ground that carrying on cinema business in partnership when the licence was in the name of one of the partners, amounts to a transfer which is prohibited under clause 12(2) of the conditions of licence and, therefore, illegal and void ab initio. In coming to the said conclusion, the learned trial judge relied upon the decision in Velu Padayachi v. Sivasooriam Pillai : AIR1950Mad444 [FB], as well as the decision in K. R. Prasad v. T. V. Subbarao [1970] 2 A WR 218 which followed the judgment of the Full Bench referred to above. The learned trial judge held that the suit for dissolution and for accounts is not maintainable as the partnership is illegal and is hit by section 23 of the Indian Contract Act.
16. The learned judges of the Division Bench, in the case referred to in Chennuru Ramarao v. Gowri Sankar Talkies : AIR1986AP84 , after referring to the contentions raised on both the sides and, after considering all the cases cited before them, ultimately came to the conclusion that the licence granted in Form B and in particular clause 12(2) of the conditions of licence does not prohibit the holder of the licence from entering into a partnership with any other person or persons for doing cinema business. Entering into partnership with others by the licensee will not amount to assignment or sub-letting or otherwise transferring of the licence by the licensee and that, therefore, the partnership is neither illegal nor opposed to section 23 of the Indian Contract Act. In that view of the matter, the learned judges allowed the appeal and set aside the judgment of the trial court. In fact, the learned judges during the course of the judgment in para 38 referred to the judgment which is impugned in this Letters Patent appeal and stated as follows (at page 96) :
'At this juncture, it is necessary for us to refer to a decision rendered by one of us (Ramachandra Raju J.), (who) while disposing of A.S. No. 1234 of 1980 on September 20, 1982, relied upon the decision of the Full Bench of the Madras High Court in Velu Padayachi's case, : AIR1950Mad444 , and the decision of the Bench of the same High Court in Viswanathan (K.) v. Namakchand Gupta [1954] 2 MLJ 728. My learned brother did not accept the contention of counsel for the appellant that the decision in Viswanathan (K.) v. Namakchand Gupta [1954] 2 MLJ 728, should be deemed to have been overruled by the decision of the Supreme Court in Viswanatha Pillai v. Shanmugham Pillai, : [1969]2SCR896 . But a Bench of this court in CIT v. Nalli Venkataramana : [1984]145ITR759(AP) , held that as the Supreme Court in Viswanatha Pillai v. Shanmugham Pillai, : [1969]2SCR896 , expressly dissented from the judgment of the Madras High Court in Varadarajulu Naidu v. Thavasi Nadar, : AIR1963Mad413 , it is deemed that the said decision of the Madras High Court has been overruled. The Bench of this court further observed :
'What we have stated about the result of the reversal of the Allahabad judgment in Jer and Co. v. CIT : [1966]60ITR335(All) equally applies to the Madras judgment in Varadarajulu Naidu's case, : AIR1963Mad413 , and it must follow that the dissent extended to Velu Padayachi's case : AIR1950Mad444 [FB] which was followed in Varadarajulu Naidu's case, : AIR1963Mad413 . The result of this ruling is that the decision of the Madras High Court in Viswanathan (K.) v. Namakchand Gupta [1954] 2 MLJ 728is deemed to have been overruled along with the decision in Varadarajulu Naidu's case, : AIR1963Mad413 , by the ruling of the Supreme Court in Viswanatha Pillai's case : [1969]2SCR896 . Consequently, the unreported decision of my learned brother, P. Ramachandra Raju J. in A.S. No. 1234 of 1980, dated September 20, 1982, should also be deemed to have been impliedly overruled.'
17. Therefore, the Division Bench, considering the provisions of the Act and the Rules made thereunder as well as the conditions of licence in clause 12(2), came to the conclusion that the partnership formed by a licence-holder with others will not amount to a transfer and that such a partnership is not illegal and it is certainly not opposed to section 23 of the Indian Contract Act. The learned judges also clearly held that, to that extent, the judgment under appeal is also incorrect and is deemed to have been overruled. The Division Bench judgment of this court (Chennuru Ramarao v. Gowri Sankar Talkies : AIR1986AP84 ) was rendered after considering the very same provisions of the Act and the Rules made thereunder as well as the conditions of licence in clause 12(2). It is, therefore, binding on us to the extent it categorically stated that the judgment under appeal should be deemed to have been overruled in so far as the validity of the partnership is concerned. The learned judges exhaustively dealt with all the cases and in particular referred to the judgment of this court in CIT v. Nalli Venkataramana : [1984]145ITR759(AP) and came to the same conclusion as that of the Division Bench in the said case. In view of the decisions of the two Division Benches referred to above, we feel that it is not necessary to refer to all the decisions cited before us.
18. Learned counsel for the plaintiff also referred to us the provisions of the Act 4 of 1955, viz., sections 3, 4 and 9, as well as the Rules made thereunder in support of his above contention that the formation of partnership is not prohibited under the Act and the Rules. He particularly referred to rule 4 where it is stated that the firm also can obtain a licence. We feel it is unnecessary to refer to those contentions and the sections as well as the Rules mentioned above in the view we have taken.
19. Sri T. Anantababu, learned counsel for the first defendant, contended that as per section 12 of the Partnership Act, every partner is entitled to take part in the conduct of the business and, therefore, entering into a partnership by the licensee with others will amount to conferring rights on other persons to use the licence and, therefore, it should be held to be illegal. It was further contended that the partnership may not be a legal entity under the Partnership Act but, under the Act 4 1955, as well as certain other Acts, it is a juridical person and if a licensee enters into a partnership and allows the partnership to conduct the business, it will be illegal as it amounts to transfer of the licence to a juridical person. In any event, such an act violates the second limb of clause 12(2) of the conditions of licence. Learned counsel elaborated his argument to the effect that even if forming a partnership is construed as not amounting to transfer of the licence, it will fall under the prohibition contained in the second limb of clause 12(2) which is as follows :
'12(2) ... 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.'
20. Learned counsel contended that it amounts to allowing any other person to exhibit films. Exhibition of films by the partnership will amount to allowing any other person to exhibit, the partnership being a juridical person. Therefore, it is contended that, in any event, the partnership is illegal and false within the prohibition contained in the second limb of clause 12(2) of the conditions of licence. We are afraid we cannot accept this contention. Every partner is an agent of the other partner(s). In fact, in the written statement of the first defendant, it was clearly mentioned that every one is an agent of the other. Therefore, it cannot be contended that forming a partnership by itself amounts to a transfer of the licence in the name of the partnership. Further, other partners cannot be treated as any other person. They are partners and they are agents of each other. The words 'any other person' occurring in clause 12(2) of the conditions of licence under the Cinematograph Rules in Form B must be construed as a person who has nothing to do with the business, viz., a stranger, but not a partner who is an agent of the other partners. Further, the Division Bench case in CIT v. Nalli Venkataramana : [1984]145ITR759(AP) , dealt with a similar provision which was extracted in the foregoing paras. Rule 19(1) of the Rules made under the A.P. Excise (Lease of Right to Sell Liquor in Retail) Rules, 1969, also contain the words 'any other person'. After considering the same, the Division Bench, in the above case, held that forming a partnership by a person who is a holder of a licence for conducting the business will not amount to transfer of the licence within the meaning of rule 19(1) of the Excise Rules. We respectfully agree with the said view and, accordingly, reject the contention advanced on behalf of the first defendant on this aspect. Even otherwise, when the Division Bench in Chennuru Ramarao v. Gowri Sankar Talkies : AIR1986AP84 , clearly mentioned that the judgment under appeal is overruled on the question of legality, we cannot hold that the judgment is correct on the question of law.
21. Learned counsel strongly relied upon the decision in Brij Mohan v. M.P.S.R.T. Corporation : [1987]1SCR369 , in support of his contention that when the licence is in the name of licensee, no other person can do the business under the licence. We find that this judgment has no application to the facts of the case on hand. In the said case, a permit was granted in favour of the State Road Transport Corporation. However, the State Road Transport Corporation entered into an agreement with a private vehicle owner allowing him to operate his vehicle under the permit obtained by the Corporation as its nominee. The learned judges of the Supreme Court held that it is not valid. The said case has no application to the facts of the present case. It is not a case of forming of a partnership. That is a case where the permit holder completely effaced himself from conducting the business and entrusted the same to a private party for doing the business under the licence.
22. Sri T. Anantababu, learned counsel for the first defendant, tried to persuade us to take a view that 'person' includes partner and that the partnership effects the transfer. We are not persuaded to accept his contention in view of what is stated above and particularly in view of the judgment of the Division Bench of this court in CIT v. Nalli Venkataramana : [1984]145ITR759(AP) . Learned counsel also contended that the judgments rendered by the two Division Benches referred to above are incorrect in holding that the judgment of the Full Bench in Velu Padayachi's case : AIR1950Mad444 , is deemed to have been overruled. For the said purpose, learned counsel referred again to the case of Jer and Co. v. CIT : [1971]79ITR546(SC) , as well as Velu Padayachi's case : AIR1950Mad444 [FB]. We are not persuaded to accept the said contention when the two Division Benches have already taken a view that the Full Bench judgment in Velu Padayachi's case, : AIR1950Mad444 , is deemed to have been overruled.
23. In this connection, it is necessary to refer to the judgment of the High Court of Allahabad in Jer and Co. v. CIT : [1966]60ITR335(All) . The Division Bench, on a consideration of the provisions of the Uttar Pradesh Excise Act, 1910, and the U.P. Excise Rules, 1910, held that the assessee-firm was carrying on business of vending foreign liquor but had no licence in its name and was carrying on the business by virtue of the licence in the name of D and it amounted to a transfer of the licence by D in favour of the partnership and, therefore, it is illegal and not entitled to registration. In coming to the said conclusion, the Allahabad High Court strongly relied upon Velu Padayachi's case, : AIR1950Mad444 [FB]. This judgment of the Allahabad High Court was reversed by the Supreme Court in the case already referred to. The learned judges of the Supreme Court clearly held that the licence in Form FL II did not prohibit the holder from entering into a partnership and that it merely provided that the licence shall not be sub-let or transferred. It was further held by the learned judges of the Supreme Court as follows (at page 548 of 79 ITR) :
'But the licence, it is clear from the record, was in Form FL II issued under the U.P. Excise Manual. The licence does not prohibit the holder from entering into partnership by the holder of the licence : it merely provides that the licence shall not be sub-let or transferred. Since there is no prohibition against entry by the holder of the licence into a partnership, the question whether the partnership was illegal does not arise.'
24. In view of the above, it is clear that the learned judges considered a similar situation. In the present case also, clause 12(2) of the conditions of licence does not prohibit the holder of the licence from entering into a partnership. The only question is whether it amounts to a transfer. When there is no prohibition from entering into a partnership, the question of transfer does not arise on the formation of a partnership. We are bound by the judgment of the Supreme Court rendered in the case referred to (Jer and Co. v. CIT : [1971]79ITR546(SC) ). We entirely agree with the decisions of the two Division Benches referred to (CIT v. Nalli Venkataramana : [1984]145ITR759(AP) and Chennuru Ramarao v. Gowri Sankar Talkies : AIR1986AP84 ), in holding that the judgment of the Full Bench in Velu Padayachi's case, : AIR1950Mad444 , is deemed to have been overruled by the decision of the Supreme Court.
25. Further, the first defendant himself entered into the partnership with the plaintiff as well as the second defendant. He himself is the managing partner and is conducting the business. The other two partners are only assisting him as per the terms of the partnership. It is inequitable for such a person to raise the plea that the partnership which he himself entered into is illegal. However, it is not necessary to rest the case on that aspect in view of our decision on the legal aspect.
26. At this stage, it is necessary to refer to the judgment of a Division Bench of this court in P. R. Nancharayya v. P. Sriramamurthy [1987] 1 ALT 33. The said case had to consider the provisions of the Act and the Rules made thereunder and in particular clause 12(2) of the conditions of licence. The facts in that case were as follows :
The first defendant therein and one R. Madhusudana Rao were the owners of a cinema theatre by name Vijayalakshmi Talkies at Guntur. They (owners) entered into an agreement with the plaintiff therein granting a right to exhibit films in the theatre on some terms and conditions and for a particular period. Subsequently, on December 5, 1974, the first defendant therein and R. Madhusudana Rao (owners) obstructed the plaintiff from exhibiting the film Roti Kapada Aur Makan and put up a banner for exhibiting the film Ilarikam. The plaintiff filed a suit for recovery of certain amounts representing cash as well as the value of the articles retained by the defendants and also the amounts representing profits for the rest of the period for which the plaintiff was prevented from exhibiting the film by the owners. The defendants contended that the agreement was void and opposed to section 23 of the Contract Act and as such unenforeable. On a consideration of the rival claims, the learned judges constituting the Division Bench held that the agreement is illegal and opposed to public policy and is in the teeth of the conditions of licence and dismissed the appeal. It is at once evident that the facts of this case have no relevance for the purpose of deciding the present case on hand. It is not a case of partnership. Under the terms of the agreement, the owners of the cinema theatre allowed the plaintiff therein to exhibit the films exclusively for himself. Therefore, the owners completely effaced themselves and allowed the plaintiff therein to conduct the business of exhibiting films under the licence granted to them. In those circumstances, the learned judges of the Division Bench held that it is in the teeth of clause 12(2) of the conditions of licence and, therefore, opposed to public policy. As we have stated above, the facts of this case have no application to the facts of the present case and, therefore, it is distinguishable.
27. However, we are constrained to observe that the judgment was rendered by the Division Bench on February 21, 1986. The two Division Bench judgments in CIT v. Nalli Venkataramana : [1984]145ITR759(AP) and Chennuru Ramarao v. Gowri Sankar Talkies, : AIR1986AP84 , which were rendered on April 18, 1983, and December 28, 1984, were not cited before the learned judges and they have not been referred to in the judgment. On the other hand, the judgment of the Madras High Court in Viswanathan (K.) v. Namakchand Gupta [1954] 2 MLJ 782 was referred to with approval in the said judgment. The said case Viswanathan (K.) v. Namakchand Gupta [1954] 2 MLJ 782, is a case of partnership which was dealt with and referred to by the two Division Benches of this court in CIT v. Nalli Venkataramana : [1984]145ITR759(AP) and Chennuru Ramarao v. Gowri Sankar Talkies, : AIR1986AP84 . We are bound by the two Division Bench judgments which directly dealt with a case of partnership.
28. In fact, para 38 of the judgment of the Division Bench in Chennuru Ramarao v. Gowri Sankar Talkies, : AIR1986AP84 , extracted in the foregoing paras held that the case in Viswanathan (K.) v. Namakchand Gupta [1954] 2 MLJ 782 is deemed to have been overruled along with the decision in Varadarajulu v. Thavasi Nadar, : AIR1963Mad413 , by the Supreme Court in Viswanatha Pillai v. Shanmugham Pillai, : [1969]2SCR896 . This was not brought to the notice of the Division Bench which decided the case in P. R. Nancharayya v. P. Sriramamurthy [1987] 1 ALT 33.
29. Further, the deletion of clause 12(2) of the conditions of licence in Form B issued under the Rules is pointer for holding that the Legislature also never intended that entering into a partnership by the licensee for doing a business under the licence will amount to a transfer.
30. In view of the above discussion, we hold that the suit partnership is not illegal and it is not opposed to public policy and not hit by section 23 of the Indian Contract Act. As between the parties to the partnership, in any event, it is valid and it is binding on them. The suit as amended for dissolution of the partnership and for accounts is maintainable.
31. Sri T. Anantababu, learned counsel for the first respondent, next contended that allowing the amendment of the plaint sought for in C.M.P. No. 13330 of 1980 is illegal and unsustainable and without jurisdiction. The amendment ought not to have been allowed at the appellate stage to cure the defects in the frame of suit and it introduces a new case altogether. On the other hand, learned counsel for the plaintiff contended that the amendment was properly allowed by the learned single judge and no exception can be taken to the same.
32. In this case, by allowing the application in C.M.P. No. 13330 of 1980, the learned single judge allowed the plaintiff to amend the plaint by incorporating a prayer for dissolution of the partnership and for accounts consisting of the plaintiff and defendants Nos. 1 and 2 from one of co-ownership (sic). The plaintiff came to the court, in the first instance, stating that there is a partnership between the parties to the suit and, in spite of repeated demands, accounts are not being rendered by the first defendant. However, it was mentioned in the plaint that the licence to exhibit cinematograph films under the Rules being in the name of the first defendant and not in the name of the firm, the parties are relegated to the status of co-owners from that of partners and, therefore, the provisions of the Indian Partnership Act relating to dissolution of the firm and rendition of accounts cannot be resorted to.
33. The first defendant, in his written statement, clearly admitted the allegations in the plaint that the parties to the suit entered into an agreement of partnership and that it is agreed that the first defendant should act as managing partner. It was further mentioned in the written statement of the first defendant as follows :
'It is obligatory on the members of the firm to get the partnership dissolved to obtain the relief of accounts. This suit which is filed for partition of the partnership properties and for accounts and subsequent profits is not maintainable in law and is liable to be dismissed. A scrutiny of the terms of the partnership deed clearly disclosed that the real relationship between the parties is that of partners.'
34. It was further stated in the written statement as follows :
'Until dissolution, the parties are partners and subsequent to dissolution they become co-owners. The suit is, therefore, not maintainable in law.'
35. In view of the above, it is clear that the first defendant himself contended that the relationship between the parties is that of partners and that a suit for dissolution of partnership and accounts lies and not a suit for partition and accounts on the basis of their being co-owners. By seeking amendment of the plaint before the first appellate court, the plaintiff merely cured the defects in the frame of the suit as pointed out by the first defendant himself. The first defendant was never taken by surprise by the amendment of the plaint. The application for amendment is a sequel to the written statement filed by the first defendant as well as the decision of the trial court. No further evidence nor any additional plea by way of additional written statement is necessary to decide the real question involved in the suit. The application filed for amendment, viz., C.M.P. No. 13330 of 1980, is a bona fide one. It is authoritatively laid down by the Supreme Court in Jai Jai Ram Manohar Lal v. National Building Material Supply : [1970]1SCR22 :
'Rules of procedure are intended to be a handmaid to the administration of justice. A party cannot be refused just relief merely because of some mistake, negligence, inadvertence or even infraction of the rules of procedure. The court always gives leave to amend the pleading of a party, unless it is satisfied that the party applying was acting mala fide, or that by his blunder, he had caused injury to his opponent which may not be compensated for by an order of costs.'
36. It was further held that (at page 1268) :
'However negligent or careless may have been the first omission, and however late the proposed amendment, the amendment may be allowed if it can be made without injustice to the other side.'
37. We are of the opinion that the amendment neither caused prejudice to the first defendant nor caused any injury or any injustice to him. The application for amendment, as stated above, is bona fide.
38. In the decision Seshu Reddi v. Rama Raghavareddy : AIR1964AP118 , a Division Bench of this court held that (headnote) :
'All amendments ought to be allowed which satisfy the two conditions, namely, (a) of not working injustice to the other side, and (b) of being necessary for the purpose of determining the real questions in controversy between the parties.'
39. It was further held that (headnote) :
'An amendment can be allowed for curing the defect in the frame of the suit'.
40. In view of the above, we are of the opinion that allowing the amendment is legal and proper in C.M.P. No. 13330 of 1980.
41. It is next contended by Sri T. Anantababu, learned counsel for the first defendant, that, when once the plaint was allowed to be amended by the learned single judge, the first defendant should have been given an opportunity to file an additional written statement, if any, and also to adduce evidence, if any. As a consequence of the amendment, it is contended that the first defendant is entitled to file an additional written statement. The same was resisted by learned counsel for the plaintiff.
42. While allowing the application for amendment, the learned single judge stated as follows :
'As defendant No. 1 has already in his written statement raised the required defence, as extracted above and that he is aware of the fact that they entered into a partnership and that a suit has to be filed for dissolution of partnership accounts, no opportunity need be given to him to file any additional written statement or lead any additional evidence.'
43. As mentioned above, it is at once seen that all the necessary pleas in respect of partnership were already raised in the written statement of the first defendant and evidence was also adduced. Therefore, agreeing with the learned single judge, we feel that no further opportunity is necessary and any such opportunity will be an empty formality and a time-consuming one. The suit is of the year 1978 and we are in the year 1990. We are not inclined to accept the contention of learned counsel for the first defendant in this regard.
44. For all the above mentioned reasons, we allow both the appeals and set aside the decree and judgment under appeal and there shall be a preliminary decree for the relief of dissolution of partnership and for rendition of accounts. The parties are at liberty to file a separate application for passing the final decree in the trial court. All objections with regard to payments, if any, made to the plaintiff and amounts due, if any, to him and other questions with regard to the amounts due to the respective parties as well as the assets of the partnership will be considered in the final decree proceedings. Each party to bear its own costs throughout.