Dwarka prasad, J. - (1.) THIS is a reference by the Tribunal, Jaipur Bench, Jaipur by which the following questions of law were referred to this Court for its opinion : "1. Whether on the facts and in circumstances of the case, the Tribunal was right in holding that the firm was not valid and that the object of the agreement was of such a nature that, if permitted, it would defeat the public policy as contained in the provisions of Rajasthan Excise Act 1950 ? 2. If the answer to the above is in the affirmative, whether the Tribunal was justified in holding that the firm was not valid and, therefore, not entitled to registration under s. 185 of the IT Act, 1961 ?"
(2.) THE Government of Rajasthan granted a licence for the retail sale of country liquor during the year 1966-67 at Bhilwara, including the shops situated at Bhupalganj, Gulmandi, and Dhanmandi in the joint names of Motilal, Chunnilal and Bhanwarlal son of Motilal. It appears that with a view to carry on the aforesaid business of retail sale of country liquor, the aforesaid licensees entered into a partnership with five other persons and constituted the firm Motilal chunnilal, Bhilwara consisting of the following eight partners : 1. Motilal, 2. Chunnilal, 3. Bhanwarlal, 4. Smt. Vijaylaxmi wife of Satishchandra, 5. Poonamchand son of Gangaram, 6. Bhuralal son of Devilal, 7. Ram Nath son of Magniram, and 8. Smt. Kamla wife of Mkangilal. On the basis of the deed of partnership dt. 8th Aug., 1966 entered into by the aforesaid eight persons, the assessee Motilal Chunnilal applied for registration of the firm. However, registration of the firm was refused by the ITO on the ground that the partnership was not legal as it violated the provisions of cl. (3) of the terms of the licence issued by the Excise Department of the State. Clause (3) of the licence translated into English runs as under : "The licence holder shall not be entitled to transfer the licence of the shop to any person without the written permission of the officer granting the licence and shall not be entitled to take a partner and such permission shall not be given till such time as the licence holder pays all dues outstanding against him." During the course of enquiry, the ITO found that the licence holders had not obtained the permission in writing from the authorities of the Excise Department of the State for entering into a partnership with five other persons. Thus, the ITO held that the failure on the part of the licence holders to take permission in writing from the excise authorities to form the partnership amounted to violation of the conditions of the licence and the provisions of the Rajasthen Excise Act and, therefore, the contract of partnership was hit by s. 223 of the Indian Contract Act. The AAC confirmed on appeal the order passed by the ITO. On further appeal by the assessee, the Tribunal held that there was a clear prohibition in cl. (3) of the licence in respect of the formation of a partnership by the licence holders without the prior permission of the excise authorities., Thus the provisions of the Excise law have been violated as there was public policy involved in the provision of the Excise Act and Rules and the agreement of partnership was entered into tin violation of such public policy and should, therefore be held to be invalid. The Tribunal thus dismissed the appeal and maintained the order of refusal of registration of the assessee-firm. It was submitted before us by the ld. counsel for the assessee that no public policy was involved in incorporating cl. (3) in the licence and that the violation o the provisions of cl. (3) would not automatically mean that the contract was volatile of the provisions of s. 23 of the Indian Contract Act or were void ab initio. It was urged that the object of imposition of penalty and provision for cancellation or suspension of licence in the case of breach of any terms or conditions of the licence have been provided to safeguard the excise revenue and not for the purpose of protection of the public generally or a section of the public. Ld. counsel for the assessee relied upon a decision of a division bench of this Court in Durga Madira Sangh vs. CIt (1985) 44 CTR (Raj) 266 in support of his contention. On the other hand, ld. counsel for the Revenue submitted that entering into a partnership with strangers is prohibited as s. 54 of the Rajasthan Excise Act provides penalty for contravention of the provisions of the licence granted under the Act and s. 34(c) provides for cancellation or suspension of the licence for breach of the conditions thereof, with the view of protecting public health and not merely safeguarding excise revenue. The question which really arises in the present case is as to whether there is a prohibition either by the provisions of the Rajasthan Excise Act or the Rules made thereunder or by the terms of the licence against the holder of the licensee entering into a partnership with third parties. If there is a prohibition, the partnership entered into in contravention of the prohibition would ipso facto become illegal or unlawful. We have to determine whether the imposition of a condition upon the licence holder of obtaining the written permission or the competent Excise authority before entering into partnership with third parties would amount to prohibition, particularly when the breach of such condition exposes the licence holder to imposition of penalty and also to the cancellation of the licence. In Durga Madira Sangh's case (supra), a Bench of this Court, after quoting condition No. 3 of the licence held that even the aforesaid condition of the licence did not "totally" prohibit that the licensee cannot enter into a partnership but it only requires that the, licence should obtain a written permission for entering into a partnership. Thus, partnership was held to be permissible but with the written permission. It was thus held that the business carried on by the partnership form for and on behalf of the partners, including the persons in whoos names the licence was granted, cannot be held to be illegal or void as it was neither forbidden by law nor was in contravention of the provisions of s. 23 of the Contract Act, as there is nothing immoral or against public policy in taking some more persons as partners in the firm. Lindley in his treatise on the Law of Partnership, Fifteenth Edition summed up the law on the subject as under : "although a statute may in terms apparently prohibit an act or omission, and affix a penalty in case of disobedience, it does not necessarily follow that all transactions to which the penalty attaches are illegal. They are so if the statute is really prohibitory as is the case if the penalty is imposed for the protection of the public, but they are not so if the true construction of the statute is that the penalty is, as it were, the price of a licence for doing what the statue apparently forbids."
(3.) THE law on the point has been summed up in Halsbury's Laws of England, III Edition, Vol. VIII, paragraph 245 at page 141, as follows : "where a penalty is imposed by statute upon any person who dose a particular act, this may or may not imply a prohibition of that act. It is a question of construction in each case whether the legislature intended to prohibit the doing of the act altogether or merely to make the person who did it liable to pay the penalty. If the penalty is recurrent, that is to say, if it is imposed not merely once for all but as often as the act is done, this amounts to a prohibition. Where the object of the legislature in imposing the penalty is merely the protection of the Revenue, the statute will not be considered as prohibiting the act in respect of which the penalty is imposed ; but where the penalty is imposed with the object of protection the public, though it may also be for the protection of the Revenue, the act must be taken to be prohibited, and no action can be maintained by the offending party on a contract which is made in contravention of the statue. {Emphasis, italicised in print, supplied}. There appears to be sharp divergence of Judaic opinion on the question as to whether the licensee enters into a partnership with strangers without obtaining the permission of excise authorities readers such a partnership illegal and the firm is not entitled to registration, under the IT Act. In Gordandas Kessowji vs. Champsey Dossa & Ors. AIR 1921 PC 137 it was held by their Lordships of Privy Council that a licensee of salt manufacture cannot be said to contravene the terms of the licence or the provisions of s. 11 of the Bombay Salt Act, 1890 whereby he is prohibited from "alienating the interest" simply because the licensee admitted members of his family and others as partners for sharing the profits of the business. ;