(2012) 261 KLR 006

IN THE HIGH COURT OF KERALA AT ERNAKULAM 

PRESENT:- THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN 

MONDAY, THE 16TH DAY OF JULY 2012/25TH ASHADHA 1934 

A.S.No.389 of 1998 

-------------------------------------- 

[AGAINST THE DECREE AND JUDGMENT IN O.S.NO.629 OF 1992 DATED 29.1.1997 OF THE COURT OF THE PRINCIPAL SUB JUDGE, NORTH PARAVUR] 

------------------------------- 

APPELLANT/DEFENDANT:- 

---------------------------------------- 

N.P.VIJAYAKUMAR, S/O.PARAMESWARAN PILLAI, YADAVAM, PALOOR P.O., PIRAVAM, THROUGH POWER OF ATTORNEY HOLDER - K.S.SURESH, SON OF SANKARAN, KOVILVATTOM DESOM, ' ERNAKULAM. 

BY ADVS.SRI.R.D.SHENOY (SENIOR ADVOCATE) SRI.S.SACHITHANANDA PAI. 

RESPONDENT/PLAINTIFF:- 

--------------------------------------- 

NARAYANIKUTTY AMMA, WIFE OF RAMAKURUP, LAKSHMI MANDIRAM, N.A.D. P.O. ALUVA. 

BY ADVS.SRI.M.RAMESH CHANDER SMT.PREETHI 

THIS APPEAL SUITS HAVING BEEN FINALLY HEARD ON 03-07-2012, THE COURT ON 16-07-2012 DELIVERED THE FOLLOWING:- 

"C.R." 

Thottathil B.Radhakrishnan & K.Vinod Chandran, JJ. 

----------------------------------- 

A.S.No.389 of 1998 

----------------------------------- 

Dated this, the 16th day of July, 2012 

Head Note:-

Securities Contracts (Regulation) Act, 1956 - Partnership - Share Broking Business - Cochin Stock Exchange - Articles of Association - Clause 23 -  The membership in Cochin Stock Exchange can only be for an individual or a Company or the statutory Corporations referred to in clause 6. A partnership can never obtain a membership in the Cochin Stock Exchange. 

J U D G M E N T 

K.Vinod Chandran,J: 

The appeal arises from a suit for dissolution of partnership and rendition of accounts. The defendant, a relative of the plaintiff, is in appeal. The plaintiff alleged that the defendant having returned jobless from abroad, approached her to commence a share broking business in partnership. Necessary agreements having been entered into and also a room on rent having been taken out at Aluva, the defendant took out a membership in the name of "Gee Vee Associates", with the Cochin Stock Exchange. Accounts were opened at the Indian Bank at Aluva and also Syndicate Bank, Ernakulam. The verification of accounts on 31.12.1988 revealed a profit of Rs.1= lakhs disclosed, which was again invested in the business. The defendant was all-through operating the accounts and managing the affairs of the partnership and on difference of opinion having arisen in 1989, the plaintiff demanded settlement of accounts and the due share in the profits. The plaintiff also contended that during that time the share business had ended troubled waters and both the plaintiff and defendant were faced with legal proceedings initiated by the customers. The dispute having been referred to a Chartered Accountant, nothing could be done due to the incomplete accounts. The plaintiff claimed rendition of accounts and dissolution of the firm and valued the suit at Rupees ten lakhs, being the profit share of Rupees one lakh, and Rupees nine lakhs being one-half share for the alleged sale of membership card with the Cochin Stock Exchange. 

2. The defendant raised the contention that the suit itself was not maintainable for the reason that the membership acquired with the Cochin Stock Exchange was his individual membership, which he was permitted to operate under the trade name "Gee Vee Associates". The business carried on by the defendant at the Cochin Stock Exchange under the trade name assigned to him also was his personal business. However, the son of the plaintiff having expressed his interest in share broking business and being unable to participate directly due to his employment; wanted the defendant to establish a service centre at Aluva, for which the plaintiff was offered as a partner. The Aluva service centre was the sole responsibility of the son of the plaintiff and was not connected with the business of stock broking carried on by the defendant in the Cochin Stock Exchange under an individual membership. The Aluva centre, it was alleged, was only a service centre managed by the plaintiff's son, for whom business was carried on at the Cochin Stock Exchange by the defendant. 

3. The trial Court framed issues, as to whether there was in existence any partnership business, and whether such business was liable to be dissolved and the defendant's liability to account for the income on such dissolution as also the amounts entitled to the plaintiff. The plaintiff examined herself as P.W.1, the landlord of the room in which Aluva service centre was run as P.W.2, the employee at that service centre as P.W.3, the auditor as P.W.4 and the Managers of Indian Bank, Aluva and Syndicate Bank, Ernakulam Branch as P.Ws.5 and 6 and the General Manager of the Cochin Stock Exchange as P.W.7. Defendant did not examine anyone; but marked Exhibits B1 to B5 documents through the plaintiff and her witnesses. 

4. The trial Court placed reliance on Exhibit A5, a rent receipt, and the deposition of the Chartered Accountant, P.W.4, to hold that there was in existence a partnership business between the plaintiff and the defendant. It was also found that though the son of the plaintiff was also engaged in the business, that cannot in any manner lead to discredit the plaintiff's status as a partner. Exhibit X1, being the form for opening an account in the Indian Bank Aluva, indicates both the plaintiff and defendant having signed as partners. Exhibit X3, evidencing the account in Syndicate Bank in the name of "Gee Vee Associates", however, indicates the same as a proprietary concern of the defendant. The documents called for from the Deputy Superintendent of Police as also the Consumer Disputes Redressal Forum ("CDRF" for short), Ernakulam disclosed the business having sailed into bad weather, resulting recovery and penal action being taken by the customers. On an appreciation of the totality of the circumstances and the evidence on record, the trial Court considered the unfortunate circumstance in which the plaintiff's deposition before the CDRF was relied on to discredit her case. The trial Court found that the said admission was only for escaping the liability before the CDRF and despite the membership in the Cochin Stock Exchange being shown as an individual membership, went on to hold that there was in fact a partnership agreement between the plaintiff and the defendant with respect to the firm "Gee Vee Associates" as alleged in the plaint and held the defendant to be liable to account for the income from the said firm to the plaintiff. Hence, a preliminary decree for dissolution of partnership and rendition of accounts was passed, finding that the plaintiff is entitled to recover the amount found to be her share of settlement of accounts with interest at the rate of 12% per annum from the date of suit till realization from the defendant and his assets. 

5. Sri. R.D.Shenoi, learned Senior Counsel for the appellant/defendant took us through the entire evidence to contend that if at all there was a partnership, it could only be confined to the one at Aluva and the membership of the defendant with the Cochin Stock Exchange cannot at all be mixed up with this. To buttress his argument, he would also take us through the Memorandum of Association and Articles of Association of Cochin Stock Exchange to contend that a partnership between a member and non-member is in fact prohibited by Article 23. The learned Senior Counsel for the appellant/defendant, however, would support the findings of the trial Court and contend that the evidence would clearly indicate a partnership, that too of the membership with the Cochin Stock Exchange. 

6. The respondent/plaintiff has not pleaded anywhere as to the amounts expended by her on commencement of partnership. But for the mere assertion that the membership in the Cochin Stock Exchange was taken as an individual membership only to reduce the expenses, the plaintiff does not say as to the exact amounts expended by her or contributed by her at the commencement of the alleged business. Admittedly, the partnership was not a registered one and despite the claim that an agreement was executed between the plaintiff and the defendant, no such agreement has been produced nor has the terms of the agreement been pleaded or spoken to by P.W.1. P.W.1 would contend that the agreement was kept with the defendant and no copies were issued to her. P.W.1 also does not speak of the exact amount of investment or the terms of the agreement in the box, but merely claims one-half profit share on the alleged profit of Rupees one lakh as also the proceeds received on sale of membership card, which she puts at Rs.18 lakhs. 

7. P.W.1 does not claim having conducted any business; but admits to have merely participated in opening the accounts in Indian Bank, Aluva and Syndicate Bank, Ernakulam. As noticed above, though the account in the Indian Bank, Aluva has been shown to be opened by the plaintiff and the defendant in partnership, the account at Syndicate Bank, Ernakulam is in the individual name of the defendant. The plaintiff also does not speak of when the partnership commenced, but merely states that on 31.12.1988, when the books were verified, there was a profit of Rs.1= lakhs. There is nothing on evidence to ascertain the said determination of profit. Further, Exhibit X1 opening form of the account by the alleged partnership in Indian Bank, Aluva is itself dated 22.12.1988. What determination of profits could have happened in nine days later? The plaintiff also admits to the defendant having two outlets of business at Guruvayoor and Piravom; which, even according to her, was the own business of the defendant. The plaintiff also has no claim of profit sharing in the said business outlets. We asked ourselves the question as to; if the businesses at Guruvayoor and Piravom were also in pursuance of the share broking business carried on with the membership of the defendant at the Cochin Stock Exchange, what prevents the plaintiff from claiming a share of those businesses too? 

8. P.W.2 was the landlord of the alleged partnership business at Aluva and P.W.3 was the person employed thereon for a short spell. Both of them are not aware of the exact business relationship between the plaintiff and the defendant and has only a vague understanding as to the partnership between them. Even the auditor, P.W.4, who was approached by the plaintiff and the defendant as a mediator, does not speak of any partnership agreement regarding the membership of the Cochin Stock Exchange. P.W.4 says that while the defendant was a member of the Cochin Stock Exchange, he had sub-centres at two or three places, one of which was at Aluva, which was carried on as a partnership. The accounts, it is categorically deposed by P.W.4, were brought by both persons and was incomplete. The accounts due to the same being incomplete, the auditor was incapacitated from examining it or auditing. In cross examination, he also admits that the accounts were brought to him by the son of the plaintiff and the defendant. P.Ws 5 and 6 were Branch Managers of Banks at Ernakulam and Aluva respectively, who again were not aware of the nature of business carried on by the plaintiff and the defendant. P.W.7, the General Manager of the Cochin Stock Exchange, produced documents to show that the membership was applied for by the defendant in his personal capacity and the same was allowed to be carried on under the trade name "Gee Vee Associates". 

9. The defendant places reliance on Exhibits B1 to B5, which were marked at the instance of the defendant. Exhibit B1 is the deposition of the plaintiff in O.P.No.469 of 1990 before the CDRF, Ernakulam. As per Exhibit B1 (extract of deposition), she contends that though there was a suggestion to make her a partner, she was never made one. Exhibits B2 and B3, again extracts of the deposition, were to the effect that she had not engaged in share business. Exhibit B4 was the written statement filed before the CDRF by the plaintiff. What is discernible from the evidence so far scrutinized is that the defendant had been a member of the Cochin Stock Exchange, entitled to trade in shares on the floor of the Exchange and had been carrying on service centres at three places. The service centre at Aluva was operated through an account opened by the plaintiff and the defendant, styling themselves as partners. In addition to the service centre at Aluva, defendant had two other service centres at Guruvayoor and Piravom, against which the plaintiff has absolutely no claim. One-half of the membership at the Cochin Stock Exchange though claimed by the plaintiff, there is nothing to show any investment by the plaintiff towards that end. The membership, in any event, is of an individual, i.e., the defendant. 

10. In considering the claim of one-half share of the membership card in the name of the defendant, with the Cochin Stock Exchange, Exhibit B5 assumes significance. Exhibit B5 is the Memorandum of Association and Articles of Association of the Cochin Stock Exchange. The Memorandum, by clause III-A-2, propounds the objects, inter alia, to apply for and obtain from the Government of India, recognition of the Exchange as a recognised Stock Exchange within the meaning of the Securities Contracts (Regulation) Act, 1956. The Security Contracts (Regulation) Act, by section 2(g) defines "rules" as "with reference to the rules relating in general to the constitution and management of a stock exchange, includes, in the case of stock exchange which is an incorporated association, its memorandum and articles of association". By Section 4, the Act stipulates recognition of only those exchanges whose rules and bye-laws are in conformity with such conditions as may be prescribed with a view to ensure fair dealing and to protect investors. Section 4 (2)(i) also deals with the conditions which the Central Government may prescribe for the qualification of membership of stock exchange. The Articles of Association of the Cochin Stock Exchange also defines "rules" by clause 1(d) as 'including Memorandum and Articles of Association'. Clause 6 of the Articles of Association lists out the persons eligible for applying for membership as being individuals and companies defined in the Companies Act, 1956 as also certain statutory Corporations. Clause 23 of the Articles of Association specifically prohibits partnerships for the business in the Exchange except between two or more members of the Exchange. The clauses of the Memorandum and Articles of Association referred to above clearly indicates that there could not have been a membership as claimed by the plaintiff in the suit. The membership in Cochin Stock Exchange can only be for an individual or a Company or the statutory Corporations referred to in clause 6. A partnership can never obtain a membership in the Cochin Stock Exchange. A partnership is only contemplated between two members. 

11. The rules, bye-laws and regulations made by the Exchange were held to have statutory flavour by the Hon'ble Supreme Court in Bombay Stock Exchange v. Jaya I.Shah [(2004) 1 SCC 160]. The relationship of a partnership as alleged in the plaint is clearly prohibited. Though not statutory rules, evidently the Memorandum and Articles of Association have been framed so as to obtain recognition as contemplated under the Securities Contracts (Regulation) Act, 1956. The Act itself was enacted to provide for the regulation of stock exchanges and of transactions in securities dealt in, with a view to preventing undesirable speculation in them. The post-war boom in the stock exchanges all over the world and the inherent instability characterized by frequent crash in markets alerted the Governments of various nations to bring in reformative measures for the safety of investors and controlling wild speculation. The legislation attempted towards this end in India was the Securities Contract (Regulation) Act, 1956. It provides for prior recognition of exchanges and a general control over trading methods and practises. The same has now been supplemented with other enactments; and the public purpose with which the legislations were enacted cannot be shut out by courts. 

12. The specific case put forward by the plaintiff was that she and the defendant were engaged in a partnership for carrying on share broking business in a statutorily recognized stock exchange; when such partnership was expressly prohibited by the Articles of Association; by virtue of which the exchange itself obtained recognition. A Division Bench of this Court in Manmadhan v. Krishnappan Unni [1985 KLT 670] held that if the illegality of an agreement appears from the evidence or is otherwise duly brought to the notice of the court, the court cannot enforce it, whether the illegality is pleaded or not. It was also held that such a question which has a bearing on public policy, can be raised by the court suo motu. That case arose from a decree and judgment for recovery of money on a dishonoured cheque. The plaintiff claimed recovery of the amounts which he claimed to have lent to the defendant, which was repayable with interest. Before the High Court, it was contended that the plaintiff, being a Government servant, was prohibited by Rule 16 of the Government Servants' Conduct Rules from directly or indirectly engaging in the business of money lending. Deprecating the finding of the court below that there was absolutely no necessity to go into the question of violation of Rule 16 since there was no clear evidence to show that the plaintiff was lending money and actually engaging himself in the business of money lending, this Court reversed the said finding and remanded the issue to the trial court. 

13. In the instant case, the plaintiff claims to have entered into an agreement which is specifically prohibited, again in the nature of a public policy. The prohibition is not statutory in nature; but, however, the business said to have been carried on in a statutorily constituted exchange was specifically prohibited by the terms of its constitution, which was a mandate of the statute under which recognition was obtained from the Central Government. The evidence adduced also would go against the plea of the plaintiff regarding sharing in the membership obtained by the defendant at the Cochin Stock Exchange. At best, the plaintiff and the defendant had carried on some business in Aluva. The investment in the said business, the terms of the said business, etc. are not even pleaded by the plaintiff. The accounts of the said business are incomplete and are incapable of any audit or verification. The plaintiff admits to the business having collapsed irretrievably and also having expended some amounts to satisfy disgruntled customers. There is absolutely no scope for any rendition of accounts or dissolution of partnership in the event of the existence and continuance of the partnership itself having not been cogently established. We are, therefore, of the opinion that there is absolutely no merit in the claims made by the respondent-plaintiff and the plaintiff is not entitled to any decree in her favour as prayed for. 

In the result, we set aside the decree and judgment of the court below and allow this appeal by dismissing the suit. The appellant-defendant is awarded costs throughout. 

Sd/- Thottathil B.Radhakrishnan Judge 

Sd/- K.Vinod Chandran Judge. 

vku/- - true copy -