Case Note & Summary
The appeal arose from a suit filed by thirteen of twenty-five members of an unregistered cloth association at Budhar in Rewa State against the former president and other members. During cloth control, twenty-five cloth dealers formed an association to collect allotted cloth quotas and sell them for profit; the association had a capital of one lakh rupees, no formal articles, and was not registered under any law. It functioned through a president and a pioneer worker, maintained accounts, and distributed profits. The first respondent served as president from January 1946 to June 26, 1946, after which one of the plaintiffs again became president. The association operated until February 1948 when cloth was decontrolled. On June 25, 1949, thirteen members sued for rendition of accounts for April 1, 1946 to June 26, 1946, alleging that the president had rendered accounts for January to March 1946 but not for April to June. The real dispute concerned a consignment of 666 bales of Gwalior cloth, of which 390 bales were allotted to the association; the president had given the association the benefit of sales of 106 bales, leaving 284 bales in dispute. The trial court passed a preliminary decree directing accounts, but the Judicial Commissioner of Vindhya Pradesh reversed and dismissed the suit, holding that other members were not entitled to profits from the 284 bales and that accounts for all other transactions had been rendered. In appeal before the Supreme Court, the first respondent raised for the first time a preliminary objection that the suit was not maintainable because the association consisted of more than twenty persons and was not registered as required by section 4(2) of the Rewa State Companies Act, 1935. The appellants objected to the new plea but conceded the provision was in force at the relevant time. The Supreme Court held that the objection could be raised at that stage because it rested on a public statute and was a pure question of law, following Surajmull Nargoremull v. Triton Insurance Company Ltd. and Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi. On the merits of the objection, the Court held that the association was illegal under section 4(2), since it was formed for acquisition of gain by more than twenty persons without registration or charter. The reliefs for rendition of accounts and share of profits necessarily implied recognition of the illegal association, and the court could not assist the plaintiffs in obtaining profits made by an illegal association. The Court rejected the analogy of section 69(3)(a) of the Indian Partnership Act, 1932, because an unregistered firm under that Act is not illegal, and the suit was not one for accounts of a dissolved firm but of an illegal association in existence at the relevant time. Accordingly, the Supreme Court dismissed the appeal and held the suit not maintainable.
Headnote
A) Civil Procedure - Preliminary Objection at Appellate Stage - Public Statute and Pure Question of Law - Rewa State Companies Act, 1935, Section 4(2) - Respondent raised for the first time in Supreme Court that the suit was not maintainable because the association was formed in contravention of Section 4(2); the Court allowed the new objection since it rested on a public statute and involved only a question of law, following Surajmull Nargoremull v. Triton Insurance Company Ltd. (1924) L.R. 52 I.A. 126 and Sri Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi (1949) L.R. 76 I.A. 244. Held that no court can enforce as valid that which competent enactments have declared shall not be valid, and failure to plead earlier did not bar the point (Paras Not mentioned). B) Company Law - Illegal Association - Section 4(2) of Rewa State Companies Act, 1935 - Association of more than twenty persons formed for acquisition of gain without registration is illegal - The Cloth Association at Budhar consisted of 25 members, had no formal articles and was not registered; the suit for rendition of accounts and share of profits necessarily implied recognition of an illegal association. Held that the members had no remedy against each other in respect of partnership dealings and the suit was not maintainable (Paras Not mentioned). C) Partnership Law - Applicability of Section 69(3)(a) of Indian Partnership Act, 1932 - Analogy Rejected - Section 69(3)(a) Indian Partnership Act, 1932 - Appellants argued that by analogy they could sue for accounts of a dissolved firm; Court held the analogy did not apply because an unregistered firm under the Partnership Act is not illegal, whereas the association was illegal under the Rewa State Companies Act, and the suit was not for accounts of a dissolved firm but of an illegal association in existence at the relevant time; U Sein Po v. U. Phyu (1929) I.L.R. 7 Rang. 540 not applicable. Held that the suit was not maintainable (Paras Not mentioned).
Issue of Consideration
Whether the suit by members of an unregistered association of more than twenty persons for rendition of accounts was maintainable under section 4(2) of the Rewa State Companies Act, 1935; whether a preliminary objection based on a public statute could be raised for the first time before the Supreme Court; whether section 69(3)(a) of the Indian Partnership Act, 1932 applied by analogy.
Final Decision
The Supreme Court allowed the preliminary objection raised by respondent no. 1, held that the suit was not maintainable because the Cloth Association was an illegal association under section 4(2) of the Rewa State Companies Act, 1935, and dismissed the appeal.
Law Points
- Legal points not extracted
- No court can enforce as valid that which competent enactments have declared shall not be valid
- an association formed in contravention of section 4(2) of Rewa State Companies Act
- 1935 is illegal
- members of an illegal association have no remedy against each other for accounts or profits
- a preliminary objection based on a public statute can be raised at any stage
- analogy of section 69(3)(a) of Indian Partnership Act
- 1932 does not apply to illegal associations.
