PERUMAL v. DHARMALINGAM

004-SLLR-SLLR-1981-1-PERUMAL-v.-DHARMALINGAM.pdf


Sri Lanka Law Reports
(198D1S.LR.
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PERUMAL
v.DHARMALINGAM
SUPREME COURT.
ISMAIL, J.. SHARVANANDA, J. AND WANASUNDERA, J.
S. C. APPEAL No. 8/80—C.A. (S.C.) APPLICATION No. 1360/79O.C. COLOMBO No. 1785/Spl.
NOVEMBER 27 AND 28.1980.
Companies (Special Provisions) Law, No. 19 of 1974, sections 2, 6—Contract ofpartnership with parson not a citizen of Sri Lanka—Whether contract prohibited byStatute—Is carrying on of such business tendered illegal?- Intention of legislatureas expressed Inenactment—Constructionso as to avoid injustice and
absurdity-Interpretation of Statutes.
The question that arose in this appeal was whether trie provisions of section 2 of theCompanies (Special Provisions) Law, No. 19 of 1974, rendered a partnership betweenthe plaintiff and the defendant illegal. The Court of Appeal had held that in view of thesaid Law the partnership was deemed to have ceased to exist on or after 1st January,1975, which was the appointed date in terms of section 2. The defendant in this actionhad filed objections pleading, inter alia that the partnership between the parties was oneprohibited by section 2 as the plaintiff was not a either of Sri Lanka and th.it accordinglythe plaintiff could not have and maintain this action or obtain any relief whatsoever onthe basis of the deed of partnership between the parties. The plaintiff's action had beenfor a declaration that the partnership business stood dissolved from a certain date; foran order of winding up, and appointment of a receiver and for an interim and permanentinjunction restraining tho defendant from entering the premises where the business wascarried on.
Held (Wananindera, J. dissenting)
The effect of section 2 has to be determined by examining the law as a whole and thefundamental question is whether the statute means to prohibit the contract. In such acase the contract would be invalid and no right of action can arise out of the breach ofthe law. An examination of the scheme of the law reveals that the object of theprohibition in section 2 was not to render the carrying on of such business illegal and didnot mean to forbid the continued subsistence of companies which did not comply withthe requirements of section 2. The object of the prohibition was to make such refractorycompanies liable to hsve their undertakings compulsorily acquired by means of a vestingorder made by the Minister under section 8 of the Law.
Per Wananindara, J. (dissenting)
"The prohibition in the present case is in categorical terms end is the main device forsecuring the objects intended by the Law. To assert that transactions contravening themprovisions are not illegal or invalid would be to give the words containing thisprohibition a meaning exactly apposite to what it normally means. The main thrust ofthis legislation is to bring all foreign companies within the control of the State as part ofour national policy. If the Law is to interpreted at to suggest that incorporation of such
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companies under our law is not compelling, then such a view will have the effect offrustrating the entire purpose of this legislation and rendering it nugatory."
Cases referred to
Canada Sugar Refining Company v. R., (1898) A.C. 735: 79 L. T. 146.
Mellis v. Shirley Local Board. (1885) 16 Q.B.D. 446:53 L. T. 810;2 T.L.R. 360.
Trans-African Bank v. Union Guarantee and insurance. (1963) 2 S.A.L.R. 92.
Cornellius v. Phillips, (1918) A.C. 199; 118 L.T. 228;54 T.L .R 116.
St. John Shipping Corporation v. Joseph Rank Ltd., (1956) 3 A.E.R. 683: (1957)/ Q.B. 267; (1956) 3 W.L.R. 870.
APPEAL from a judgment of the Court of Appeal.
C. Thiagalingam, Q.C., with H. L. de Silva. S. Mahenthiran and A. Gnanathssan. for theplaintiff-appellant.
K. fit. Choksy, with K. Sivanathan and S.A. Parathalingam, for the defendant-respondent.
Cur. adv. vult.
February 5,1981.
ISMAIL, J.
I have had the advantage of having read the conflictingjudgments of my brothers Sharvananda, J. and Wanasundera, J.I shall refer for the purpose of the short order i propose to makein this case to certain provisions of Law No. 19 of 1974. Thepreamble to this Law reads:
"A Law to prohibit companies from owning property orcarrying on any undertakings in Sri Lanka after a specified dateunless they are incorporated under the Companies Ordinance orare exempted companies and to enable the acquisition on behalfof the Government of the whole or any part of the undertakingsof companies which are not so incorporated or exempted, forwhich compensation is payable, to appoint a Tribunal for theassessment of such compensation, and to provide for mattersconnected therewith or incidental thereto."
Section 2(1) states that from the appointed date no company
shall have any interest in any property in Sri Lanka whetheras owner, co-owner, lessee, mortgagee or otherwise or (b) shallcarry on any undertaking in Sri Lanka, unless such company isrecognised as an "existing company", or is incorporated under theprincipal enactment, or is an exempted company. Property whichis referred to in sub-section 2{1A), is defined in section 27 asmovable or immovable property but does not include shares in a
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company or choses in action. Conceivably therefore companieswhich are not "existing companies" or are not incorporated underthe principal enactment or is an exempted company would be freeto continue to transact business in shares in companies or inchoses in action. Therefore the definition of property does notseem to indicate that a blanket prohibition has been imposedon the activities of companies that contravene the provisions ofsection 2, or render activities of such companies after theappointed date illegal, but seems to impose certain restrictions onthe activities of such companies and render such companies liableto be requisitioned in whole or with regard to certain of theirundertakings.
The question that emerges for consideration is whether theprovisions of section 2 render companies which fall within thedescription of that section illegal with effect from the appointeddate or whether certain restrictions are imposed on suchcompanies.
Section 3 (2) clearly contemplates the coming into existenceand the functioning of companies in contravention of section 2after the appointed date. If the purpose of section 2 is to rendersuch companies which are not incorporated etc., illegal with effectfrom the appointed date, I cannot see how under section 3f2) ofthis law the Minister can be empowered to grant exemption fromtime to time to such companies formed or established after theappointed date. Under this section it is comprehended that evenafter the appointed date companies in violation of the provisionsof section 2 can come into existence and function thereafter andcould become exempted companies at some future date. If thepurpose of section 2 is to render companies in violation of thatsection illegal as from the appointed date, then there can be noinstance under which section 3 (2) can come into operation. Thissection would therefore be rendered meaningless and would beunenforceable.
The only provisions in this Law providing some sanctionconsequent to violation of the provisions of section 2 is section 6.Under this section the Minister has the power to vest in theGovernment the whole or any part of the undertakings of suchcompanies. There is no other consequential penal or punitaryprovision under this Law. This Law is silent with regard to whathappens to the balance part of such undertaking of such
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companies. It is also to be noted that under section 6 the Ministeris empowered to exercise his powers from time to timein respect of the whole or any part of the undertaking of suchcompanies. This provision seem to lend force to .the argument ofthe appellant's counsel, that the legislature Countenanced thebusiness activities of such companies, and the only penaltyattached would be that such activities by those companies wouldrender the whole of their business or any part of it subject to avesting order to vest it in the government There are no otherpenal consequences with regard to the rest of the business whichare not subject to a vesting order or requisition.
Section 9 is a section dealing with payment of compensation.Under this section notice is to be given to any person who has anyinterest in any business undertaking or part thereof immediatelybefore the date on which such undertaking or part is vestedin the Government, and such person has to make a claim forcompensation payable under the law. Under the provisions of thislaw therefore such person is deemed to have a perfectly legalinterest in such business undertaking, or part thereof even afterthe appointed date until the time of the take-over by theGovernment.
Therefore the scheme of claiming compensation under section 9seems to indicate that no illegality is attached to the contraventionof the provisions of section 2 but only renders such companieswhich continue to function contrary to the provisions of section 2liable to be vested in the Government in whole or in part.
Part I of this Act is under the sub-heading "certain prohibitionson compani.es after a specified date unless they are incorporatedunder the principal enactment or are exempted companies."
In view of my understanding of the provisions of sections 2(1),3(2), 6 and 9 of this Law the use of the phrase "certainprohibitions" in the heading .in part 1 of this Act appears to haveparticular significance. Clearly what is intended under this part isnot a total t>an of the activities, or rendering illegal the functioning,of such companies after the appointed date but the Imposition ofcertain restrictions I am of the opinion that the use of the phrase"certain prohibitions" is clearly indicative of what the Legislaturehad in mind when this law was promulgated. There was nocomplete prohibition according to the. sub-heading. Clearly
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therefore it was not intended that companies which come withinthe description in section 2 (1) should put up their shutters andclose shop and cease all activities. The various sections to whichI have referred seem to indicate that even after the appointeddate if they carry on certain activities than they would render theentirety or portion of their business liable to be requisitioned by avesting order in favour of the Government It appears to me thatit is in that sense that the phrase “certain prohibitions" has beenused in the sub-heading under part 1.
I find that my view on ^ interpretation of this Law coincideswith the views of Sharvananda, J. as set out in his judgment Itherefore agree with his findings and order. I accordingly agreewith the orders he has made in the last paragraph of his judgment
SHARVANANDA. J. :
This appeal raises an important question as to the effect ofcertain provisions of the Companies (Special Provisions) Law,No. 19 of 1974;
The plaintiff-appellant filed this action against the defendant-respondent on the 29th day of January 1979 (a) for a declarationthat the partnership business known as 'Laxmi Jewellers' carriedon by him and the respondent from the 21st day of October1974 stood dissolved with effect from 27th January 1979, (b) foran order to wind up the said business and the appointment of areceiver for that purpose, and (c) for an interim and permanentinjunction restraining the defendant and his servants and agentsfrom entering premises No. 112 and 112/2, Sea Street, Colombo,where the said business was carried on and carrying on the saidpartnership business or any other business in the said premises.The plaintiff pleaded that the contract of partnership between himand the defendant was reduced to writing by indenture ofpartnership No. 1389 dated 9th June 1978 and attested by D. N.Thurairajah & Co.,. Notaries Public. He further stated that thecapital of the said partnership business was Rs. 60.000 that hehad contributed an equal share as the defendant and that the saidpremises No. 112, Sea Street, Colombo, was jointly purchased bythem to run the said partnership business. He also averred that theunderstanding between the parties as to the said premises No. 112,Sea Street, was reduced to notarial agreement No. 1319 dated9th June 1978 and attested by K. Sivanantham, N.P.
The defendant respondent filed objections admitting the
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execution of the indenture of partnership No. 1389 and theagreement No. 1319 but claimed that the partnership between theparties was "expressly prohibited by the provisions of section 2 ofthe Companies (Special Provisions) Law, No. 19 of 1974, readwith the directions dated 18th December 1974 made by theMinister of Foreign and Internal Trade under section 3 (1) of theCompanies (Special Provisions) Law, No. 19 of 1974, inasmuch asthe plaintiff is not a citizen of Sri Lanka" and that in the premisesthe said partnership was illegal and of no force or avail in law andhence the plaintiff could not have and maintain this action orobtain any relief whatsoever on the footing of the said deed ofpartnership No. 1389.
On 15th March 1979, the application for the issue of an interiminjunction alone was taken up for inquiry. After hearing thesubmissions of counsel for both parties, the trial Judge held thatthe partnership business was illegal and that no action could bebased on such a contract; he therefore dismissed the plaintiff'saction. The plaintiff-appellant appealed against the dismissal ofthe action and also moved the Court of Appeal in revision inapplication No. 1360/79. The application in revision was heard bythe Court of Appeal. By its judgment dated 8th November 1979,the Court held:
"(a) that the plaintiff cannot maintain the action in respectof the partnership carried on after 1.1.75 in view of the provisionsof the Companies (Special Provisions) Law, No. 19 of 1974;
that the plaintiff can maintain the action in respect of thebusiness carried on between 21.10.74 and 31.12.74;
that as the partnership business was deemed to haveceased to exist on or after 1.1.75, there was no point in issuingan interim injunction which would relate only to the use of thepremises in respect of which there was a separate action D. C.Colombo 3199/2;"
and set aside the order of the trial Judge and remitted the case fortrial in respect of the partnership carried on from 21.10.74 to31.12.74.
The plaintiff-appellant has preferred this appeal against the saidjudgment of the Court of Appeal.
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The question in issue in this appeal is whether the provisions ofsection 2 of the Companies '(Special Provisions) Law, No. 19 of1974 (hereinafter referred to as the 'Law') render the partnershipbetween the plaintiff and the defendant illegal as from 1.1.75 asheld by the Court of Appeal. The determination of this questioninvolves an examination of the scheme and objects of the Law.
"A statute must, be read as a whole and the constructionmade of all the parts together. The meaning of the statute andthe intention of the legislature enacting it can only beproperly derived from a consideration of the whole enactmentand every part of it in order to arrive, if possible, at a consistentplan. It is wrong to start with some a priori idea of the meaningor intention and to try by construction to work that idea intothe words of the statute in question." (Odgers' Construction ofDeeds and Statutes—5th Edition at p. 237).
As said by Lord Davey in Canada Sugar Refining Company v.
R.(1) at 741:
"Every clause of a statute should be construed with referenceto the context and other clauses of the Act, so as, as far aspossible, to make a consistent enactment of the whole statuteor a series of statutes relating to the subject matter."
Section 2 (1) of the Law provides as follows:
"On and after'the appointed date’,
no Company—
shall have an interest in any property in Sri Lankawhether as owner, co-owner, lessee, mortgagee, orotherwise, or
shall carry on any undertaking in Sri Lanka, unlesssuch Company is recognised as an 'existing Company',or is incorporated under the principal enactment, oris an exempted Company."
Section 27 of the Law defines—
a 'Company' to include any agency house and anybusiness registered under the Business NamesOrdinance;
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an 'Undertaking' in relation to a Company to mean thebusiness carried on by such Company and includes allthe movable and immovable property and other assetsof such Company.
To determine the true effect of section 2 of the Law, it isnecessary to examine the Law as a whole.
The preamble to the Law reads as follows:
"A Law to prohibit Companies from owning property orcarrying on any undertaking in Sri Lanka after a specified date,unless they are incorporated under the Companies Ordinance orare exempted Companies and to enable the acquisition onbehalf of the Government of the whole or any part of theundertaking of Companies which are not so incorporated orexempted, for which compensation is payable, to appoint aTribunal for the assessment of such compensation and toprovide for matters connected therewith or incidental thereto.”
Section 3 :
"(1) Before the appointed date, the Ministry may from timeto time, with the prior concurrence of the Minister incharge of the subject of Finance, issue a written direction,in this part referred to as a 'direction of exemption',exempting from the application of the provisions ofsection 2 any such Company or class or category ofCompanies not incorporated under the principal enact-ment as shall be specified in such direction. The Ministershall cause notice of such direction to be published inthe Gazette.
After the appointed date, the Minister may from timeto time, with the prior concurrence of the Ministerin charge of the subject of Finance, issue a direction ofexemption exempting from the application of theprovisions of section 2 any such Company or class or
* category of Companies formed or established after theappointed date as shall be specified in such direction.The Minister shall cause notice of such direction to bepublished in the Gazette.
The direction of exemption shall, for so long and solong only as it is in force, be final and conclusive and
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shall not be called in question in any Court or Tribunal.
A Company in respect of which or in respect of the classor category to which it belongs, a direction of exemptionis for the time being in force is in this Law referred to asan 'exempted Company'."
Section 4 confers power -on the Minister to revoke a directionof exemption.
Section 6 Part II:
"(1) The Minister may from time to time by order.publishedin the Gazette (in this Part referred to as a "vestingorder') vest in the Government with effect from suchdate as shall be specified in the Order the whole or anypart of the undertaking of any such Company as shall bespecified in the Order, being a Company other than anexempted Company, which, on the appointed date, isnot incorporated uhder the principal enactment.
A vesting order under this Part shall have the effect ofgiving the Government absolute titie to the whole orpart, as the case may be, of the undertaking of any suchCompany to which such order applies as shall be specifiedin such,order with effect from such date as shall bespecified therein and free from all encumbrances."
Section 7 provides for the appointment of a CompetentAuthority and section 8 provides for the Competent Authority totake possession of the whole or any part of the undertaking vestedin the Government by virtue of the operation of a vesting order.
Section 9:
" Where the whole or any part of the undertaking of anycompany is vested in the Government by virtue of the operationof a vesting order under this Part, a Competent Authority shall,by notice published in the Gazette, direct every person who hadinterest in such an undertaking or part thereof immediatelybefore the date on which such undertaking or part thereof wasso vested, to make within a period of two months reckonedfrom the date specified in the notice, a written claim to thewhole or any part of the compensation payable under this Lawin respect of such undertaking or part thereof together with all
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documents relied upon by him in support of his claim, and tospecify in the claim –
his name and address ;
the nature of his interest in such undertaking or partthereof;
the particulars of his claim ; and
how much of such compensation is claimed by him."
Section 10:
"(1) A Competent Authority shall refer to the Tribunal fordetermination the amount of the compensation payablein respect of the whole or any part, as the case may be,of the undertaking of any Company vested in theGovernment by virtue of the operation of a vestingorder under this Part, and shall transmit to such Tribunalail claims made to such compensation, together with all'documents furnished by the claimants in support oftheir claims."
Section 18:
"Where a reference for an award as to compensation is madeto the Tribunal, the Tribunal shall, before making such award –
(a) give every person who has made a claim to compensationan opportunity of being heard either in person or by anagent authorised in that behalf and also of adducingevidence in support of such claim."
Section 19:
"Where a reference for an award as to compensation is madeto a Tribunal in respect of the property of any Company which
is vested in the Government, the Tribunal shall..
make an award determining—/
whether or not each person who has made a claim tocompensation is a person entitled to compensation, and,if so, the capacity in which he is entitled;
the amount of the compensation payable in respect ofsuch property; and
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the apportionment of the compensation among thepersons entitled to compensation:
Provided however that where there is a dispute as tothe persons entitled to such compensation or as to theapportionment of such compensation among the personsentitled to such compensation, the Tribunal shall defermaking an award and shall refer the dispute for decisionto the District Court of Colombo and shall, after suchCourt makes a decision on such dispute, make an awardin accordance with such decision."
Section 20 provides for the payment of compensation to thepersons entitled thereto.
Section 21 provides for deductions from the amount of suchcompensation by way of payment;
to the Commissioner of Inland Revenue any sum duefrom such Company as tax or income from profits or aspersonal tax; and
to the Commissioner of Labour any sum due from suchCompany io any person employed in any such under-taking. •
According to the scheme, ail partners of the Company whichcarried on any undertaking on and after the appointed datewithout being incorporated or exempted are granted compensationfor the undertaking on it being vested in the Government andeach partner will be awarded that share of compensation whichhe, as partner, is entitled to.
The business carried on in partnership between the plaintiffand the defendant under the business name 'Laxmi Jewellers'was registered under the Business Names Ordinance on 12thDecember, 1974. The Certificate of Registration shows that thebusiness was commenced on 21st October 1974 and that theplaintiff is a non-national (an Indian) and the defendant a nationalof Sri Lanka.
The Law was certified on 19th June, 1974, and although section2 of the Law states that the 'appointed date' was the 1st day ofSeptember, 1974, yet the Minister, under the power vested in him
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by section 2 (2) to alter that, altered it to 1st January, 1975 byhis. order published in the Government Gazette ExtraordinaryNo. 123/7 dated 8th August 1974. By virtue of the powers vestedin him by section 3 (1) of the Law, the Minister, with theconcurrence of the Minister of Finance issued a direction publishedin the Gazette No. 142/9 dated 18.12.74 exempting from theapplication of the provisions of section 2 of the Law the class orcategory of Companies and the Companies specified in theschedule thereto. The Schedule specifies any partnership registeredunder the Business Names Ordinance, all the partners of which arecitizens of Sri Lanka. The defendant contends that the exemptiondoes not apply to the partnership in question, as the plaintiffwho is a partner is not a citizen of Sri Lanka.
Mr. Thiagalingam for the plaintiff-appellant contended that thepartnership business that commenced on 21.10.74 was perfectlylegal in its inception and that the Law did not render thecontinued functioning of the partnership after the appointed dateillegal. He pointed to the fact that the word 'prohibit' appearsonly in the preamble to the Law and in the caption of Part I ofthe Law and not in the body of the Law and submitted that thepenalty of nullification did not attach for disobedience of the vetocontained in section 2 of the Law. He argued that according to thescheme of the Law the only consequence of carrying on thepartnership business in breach of section 2 was that the Companyincurred the risk that the Minister might, by means of a vestingorder, vest in the Government, from time to time, the whole orany part of the undertaking of the Company.
On the other hand, Mr. Choksy for the defendant-respondentcontended that the Law placed an absolute prohibition on theCompany ,carrying on business after 1.1.75 and also provided forthe State taking 'over the undertaking of a Company whichinfringed the provisions of section 2 and pay compensation. Hesaid that the prohibition contained in section 2 (1) [b) is expressin terms and that section 2 operated to make a partnership inwhich a non-national is a partner ipso jure illegal after 1.1.75 (theappointed date). He submitted that the object and policy of theLaw was to keep business in the hands of Ceylonese and inCompanies incorporated, in Ceylon, and to promote that objectthe Law had forbidden transactions by Companies which are notso incorporated unless there was a direction of exemption in termsof section 3 (1) and 3 (2) of the Law.
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A Court will not lend its assistance to enforce a contract,expressly or impliedly, prohibited by a statute. The Fundamentalquestion is whether the statute means to prohibit the contract.The true effect and meaning of the statute is the determiningfactor. If the statute means to prohibit the contract, any contractinfringing the prohibition is invalid, whether the prohibition be forthe purpose of revenue or otherwise, and no right of action canarise out of the breach of the law. A contract which involves in itsperformance, either directly or collaterally, the doing of somethingwhich would be in contravention of a statute is invalid andunenforceable. Lord Esher M. R. stated the rule as follows:"Although a statute contains no express words making void acontract which it prohibits, yet, when it inflicts a penalty for thebreach of the prohibition, you must consider the whole Act aswell as the particular enactment in question and come to a decision,either from the context of the subject-matter, whether the penaltyis imposed with intent merely to deter persons from entering intoa contract, or for the purpose of revenue, or whether it is intendedthat the contract shall not be entered into so as to be valid inlaw". (Mel/is v. Shirley Local Board (2) at 451). In the same case,at page 453, Bowen L. J. said : "We have to find out, upon theconstruction of the Act, whether it was intended by the legislatureto prohibit the doing of a certain act altogether, or whether itwas only intended to say that, if the act was done, certain penaltiesshould follow as a consequence. If you can find out that the act isprohibited, then the principle is that no man can recover in anaction founded on that which is a breach of the provision of thestatute." In the case of Trans-African Bank v. Union Guaranteeand Insurance (3) at 103, Theron A. J. stated the principle thus:"The general rule applicable to the construction of a statute isthat every transaction carried out in contravention of a statutoryprohibition should be considered null and void despite the absenceof any express declaration of nullity in the particular statute inquestion, unless it appears from the wording of the statute or froma consideration of its object and its scope that the legislature didnot intend to render the prohibited transaction invalid". ViscountHaldane in CorneUius v. Phillips (4) at 211 referred to the generalrule and to the modification thereof by the context in which theapparently prohibitory words are used: "So standing they (thewords which the legislature has used) are clear and they prohibitand therefore make void any contract which contravenes them…There might have been inserted in the statute a special contextwhich would have modified the application of the general rule".
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Thus, although a statute may in terms apparently prohibit an actor omission and attach a penalty for any disobedience, it does notnecessarily follow that all transactions to which the penajtyattaches are illegal; they would be illegal if the statute is in factprohibitory. But they are not so if on the true construction ofthe statute the penalty is, as it were, the only sanction for doingwhat the statute apparently prohibits. Before one can make outthat a contract is illegal under a statute, one must make outdistinctly that the statute has provided that it shall be so.
The function of a Court is to give effect to the intention of thelegislature as expressed in the language of the enactment underconsideration. If the language is capable of bearing only onemeaning, then the Court is bound to apply that meaning even ifto do so leads to injustice. If, however, the language of theenactment is capable of two meanings, the court is free to decidewhich is the meaning intended by the legislature, having regardto the presumption against intending injustice or absurdity."Whenever the language of the legislature admits of two 'constructions and if construed in one way would lead to obviousinjustice, the Courts act upon the view that such a result could nothave been intended, unless the intention has been manifest inexpress words." (Maxwell—11th Edition at 193). On the generalprinciple of avoiding injustice and absurdity, a construction whichenables a person to defeat or impair the obligation of his contractby his own act, or otherwise profit by his own wrong, should beavoided, unless it is the consequence of the only reasonablemeaning which fits the policy and object of the statute. Generallythe plea of illegality is an unattractive plea, especially wherefiduciary obligations are involved. A Court will be slow to implystatutory prohibition of contracts unless the implication is quiteclear.
The language of section 2(1) apparently prohibits any Companyhaving an interest in any property in Sri Lanka or carrying on anyundertaking on and after the appointed date unless it isincorporated or an exempted Company. If this section alone isconsidered, isolated from the other provisions of the scheme ofthe Law, the language of the section would tend to support thecontention of Mr. Choksy that a contract to carry on a partnershipbusiness in contravention of the prohibition in section 2(1) wouldbe illegal. A partnership is illegal if formed for a purpose which isforbidden by statute, although independently of the statute there
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would be no illegality. And "a partnership is in every casedissolved by the happening of any event which makes it unlawfulfor the business of the firm to be carried on or for the members ofthe firm to carry it on in partnership". (Section 34 of thePartnership Act). Thus, on Mr. Choksy's construction of section 2,it would follow that it became illegal for the firm of LuxmieJewellers to carry on any business in Sri Lanka on and after 1.1.75.If the agreement became illegal, the Court cannot decree itsspecific performance and no action for an account can bemaintained by the plaintiff against the defendant in respect of thedealings and transactions of the illegal partnership—the defendantcould with impunity snap his fingers at the plaintiff and enrichhimself at plaintiff's expense, as no Court will enforce a contractwhich is prohibited by statute or allow itself to be made theinstrument of enforcing obligations arising out of a contract ordealings and transactions of the illegal partnership—the defendantcould with impunity snap his fingers at the plaintiff and enrichhimself at plaintiff's expense, as no Court will enforce a contractwhich is prohibited by statute or allow itself to be made theinstrument of enforcing obligations arising out of a contract ortransaction which is so prohibited.
Ultimately, as Devlin, J. said in St. John Shipping Corporationv. Joseph Rank Ltd. (5) at 690: "The fundamental question iswhether the statute means to prohibit the contract. A statute is tobe construed in the ordinary way; one must have regard to all therelevant considerations, and no single consideration, howeverimportant, is conclusive." The true effect and meaning of thestatute read as a whole is the determining factor.
In my view, though section 2 of the Law e,x facie prohibits thecarrying on of business by the offending Company, yet, anexamination of the scheme of the Law tends to show that theobject of such prohibition was not to render the carrying on ofsuch business illegal but to make such refractory Companiesliable to have their undertakings compulsorily acquired by meansof a vesting order made by the Minister under section 6 of the Law.The following analysis of the several sections of the Lawdemonstrates that the legislature did not intend to prohibit theCompany functioning after the appointed date.
If section 2 is taken at its face value as absolutely prohibitingsuch a Company carrying on any undertaking after the appointed
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date as contended for by Mr. Choksy, such a company cannot, inLaw, be formed or established to carry on any undertaking tnSri Lanka on and after the appointed date, viz. 1.1.75. Butsection 3 (2) of the Law provides for exemption being granted bythe Minister "from time to time" to "any such Company or classor category of Companies formed or established after the appointeddate". This section envisages the coming into existence, after theappointed date, of such Company in violation of the provisions ofsection 2 and its functioning thereafter with the prospect of itbeing made an exempted Company at a future date. A partnershipwhose object is to carry on an activity prohibited by any statutecannot be registered under the Business Names Ordinance. The. argument of illegality thus founders on this point. Section 3 (2) ofthe Law militates against Mr. Choksy's contention of illegality. Itpostulates a Company being formed after the appointed datecarrying on an undertaking in breach of section 2. It signifies thatthe prohibition contained in section 2 does not stamp withillegality the undertaking so conceived or carried on in breachof section 2.
Counsel for the plaintiff-appellant contended that section 6stipulates the only penal consequence for any disobedience of theprohibition contained in section 2. This section empowers theMinister to vest from time to time, in the Government the wholeor any part of the undertaking of any defaulting Company,namely a Company other than an exempted Company which on1.1.75 is not incorporated under the principal enactment. Fromthe fact that the Minister could exercise his power from time totime with respect to the whole or any part of the undertaking ofsuch a Company, it is manifest that the legislature countenancedthe business of the Company being carried on by such Companyuntil a vesting order or orders under the section are made inrespebt of the whole of the undertaking. Under this section theundertaking can be. taken over in parts from time to time. Thoughone part be vested in the Government, the rest of the fabric of theundertaking can continue to function until the final vesting order,if any. This situation can be rationalised only on the hypothesisthat the prohibition against carrying on of the undertaking did notrender illegal the undertaking after the appointed date, viz. 1.1.75.
Section 9 provides for notice being given to every person whohad an interest in such undertaking or part thereof immediatelybefore the date on which such undertaking or part thereof was
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(198D1S.LR.
vested in the Government to make claims to the compensationpayable under the Law. This section thus recognizes every partnercontinuing to have a legally valid interest in the undertaking of thepartnership after the appointed date and being entitled tocompensation therefor. If such an undertaking was an illegalundertaking as'and from .1.1.75, it is inconceivable why thelegislature made provision for the payment of compensation to thepersons who carried on the undertaking in breach of suchstatutory prohibition. This statutory recognition of the right tocompensation repels the suggestion that the Law intended torender illegal the carrying on of the undertaking in breach ofsection 2. In terms of section 9 and the sections following, theparties will be entitled to compensation in respect of the. undertaking or part thereof vested in the Government not onthe value of the assets that existed on 1.1.75 but on the assetsexisting at the time of the vesting. Suppose the assets of thepartnership on 1.1.75 was only Rs. 10,000 and if by the date onwhich such undertaking had come to be vested, its assets had beenaugmented by the parties to Rs. 100,000, the parties would beentitled to compensation in the sum of Rs. 100,000 and thatamount will bo apportioned among the claimants according totheir i especiive shares. This payment of compensation and theapportionment thereof cannot co-exist with the concept ofillegality.
According to Mr. Choksy the Law intended to prohibitnon-nationals carrying on business in Sri Lanka, except in the wayprescribed by section 2 of the Law. But section 2 deals only withagency houses and business registered under the Business NamesOrdinance (vide definition of 'Company' in section 27). It ishowever relevant to note that the Business Names Ordinancedoes not require an individual, whether a non-national or not, ora firm consisting of non-nationals or not, carrying on businessunder a business name which consists of their true full names tobe registered. Section 2 of the Law thus,does not seek to barnon-nationals carrying on business in Sri Lanka under their truefull names. In view of this circumstance, one cannot spell out ofthe provisions of the Law an intention to bar absolutelynon-nationals carrying on business in Sri Lanka.
In my view, the scheme of compensation adopted by the Lawrepels the contention of illegality—compensation is provided foron the basis of the partner being entitled to same, that he has a
SCPervma/v. Dharmalingam (Sharvananda, J.)43
legal right thereto. It lends support to the assumption that aCompany can lawfully carry on its undertaking after theappointed date even though that company does not comply withthe requirements of section 2 of the Law- It appears that the onlypenal consequence of such non-compliance is that such Companyruns the risk of a vesting, order in termj of section 6 of the Lawbeing made in respect of the undertaking. Though section 2detached from its context may incline one to take the view thatthe Law prohibits the partnership between the plaintiff and thedefendant from carrying on business on and after the appointeddate, the other. provisions of the Law militate against suchconstruction. It is a settled rule of construction that an Act shouldbe interpreted as to be consistent with itself, and each andeveryone of its provisions should be given a meaning so as to leadto harmony and not to mutual conflict or repugnance to eachother. If the other construction that the only consequence of thefailure to comply with the requirement in section 2 is, as set out inthe preamble "to enable the acquisition on behalf of theGovernment of the whole or. any part of the undertaking" of thedefaulting company is adopted, the scheme of the Law can berationalised and the various parts of the Law harmonised witheach other. T he latter construction of the section is in accord withequity and has also the merit of avoiding absurdity and injustice.The argument of illegality has thus to be rejected.
. fV*'*
in refutation of Mr. Thiagalingam's argument that section 2 ofthe Law served only to identify the company whose undertakingcould be vested in the Government, Mr. Choksy referred us tosection 2 of the Business Undertakings (Acquisition) Act, No. 35of 1971, which endows the Minister of Finance with sweepingpowers to acquire any business undertaking. He submitted thatsince the Minister of Finance had, under the Act, such unfetteredpower to acquire any business undertaking, there was no purposein enacting section 6 of the Law for the limited object ofrendering the undertaking of Companies which infringe section 2to' be liable to vesting in the government. He relevantly pointedout that in view of the absolute power of acquisition of businessundertakings already existing under section 2 of the 1971 Act,section 2 of the Law of 1974 could not have been enacted only toserve the subsidiary purpose of identifying the Companies whoseundertakings could be acquired under section 6 of the Law.There would have been force in Mr. Choksy's argument if thevesting order made by the Minister of Finance under section 2 of
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the Act and by the Minister of Foreign and Internal trade undersection 6 of the Law have the same legal efficacy. Anexamination of these two sections brings out a significantdifference which invalidates the argument of Mr. Choksy.Subsections (3), (4) and (5) of the Act make the validity of thevesting order made under the Act dependent on the approval ofthe House of Representatives. If the House refuses to approve thevesting order, the order ceases to be valid. But section 6 of theLaw constitutes the Minister the sole authority for making vestingorders, and his exercise of the power is not dependent on theapproval of the House of Representatives or of any otherauthority for its efficacy. In view of this fundamental differencein the authority of the Minister to make operative vesting ordersunder the Act and under the Law, the contention of Mr. Choksyfails.
In my view the Law did not mean to forbid the continuedsubsistence of companies which did not comply with therequirements of section 2 of the Law. it has not rendered thebusiness of Laxmi Jewellers carried on by the plaintiff and thedefendant in partnership illegal from and after 1.1.75. Thelower Courts have misconceived the nature of the prohibitioncontained in section 2(1 Mb) of the Law. In my judgment, theplaintiff can have and maintain this action on the basis that thepartnership between him and the defendant continued to subsistin spite of section 2 of the Law and was dissolved only on 27thJanuary 1979 by the notice of termination given by theplaintiff.
I accordingly set aside both the judgments of the District Courtand of the Court of Appeal and allow the appeal and directinterim injunction (on the terms suggested in the District Court bycounsel for the plaintiff) to issue restraining both parties fromcarrying on any business in the premises referred to in the plaintuntil proper accounting is completed and from doing any actwhich will impede the winding up of the concern. The case isremitted to the District Court for trial to be proceeded withwithout delay. In my view this is eminently a case where a receivershould be appointed. The plaintiff-appellant will be entitled tocosts of the inquiry in the District Court and to costs of therevision application in the Court of Appeal and to costs of thisappeal.
sc
Perumalv. Dhamalingam (Wanasundera, J.)
45
WANASUNDERA, J.
This appeal raises questions that relate to the properinterpretation of an important piece of legislation, namely, theCompanies {Special Provisions) Law, No. 19 of 1974. Its objectwas, as can be seen from the Preamble, to bring under the controlof the Government, business enterprises that were non-national innature, which contained a foreign element. Having regard to theramifications of internal and external trade and business, this wasby no means an easy task. The Legislature has sought to achievethis in the form of a short enactment. The scheme as it appearsfrom the Law is to impose a blanket prohibition on the carryingon of such businesses or such businesses owning property in thiscountry and provides for the authorities to grant to any company,class or category of Company exemption from the application ofthe Law. The exemption orders contained in Gazette No. 142/9dated 18th December 1974 show that they are extensive in nature.This was necessary to prevent the dislocation of the smoothconduct of trade and commerce. It does not however detractfrom the effectiveness of the law which is to get a legal controlover all businesses which otherwise would have operated free ofState control.
This law was enacted on the 19th of June 1974. Althoughsection 2 fixes 1st September 1974 as the "appointed date" forthe coming into operation of the Law, subsection (2) of thissection empowers the Minister to alter this date. This period ofless than three months was apparently considered inadequate forthe purpose of bringing about the fundamental changescontemplated by the Law, namely, changing the character of abusiness from one form to another. Accordingly, the Ministerpushed forward the operative date to the 1st of January 1975,thereby giving. persons adequate time to comply with theprovisions of the Law.
The alleged partnership between the plaintiff and the defendantis a business falling within the ambit of the law. Section 27 definesthe expression "Company" to include any agency house and anybusiness registered under the Business Names RegistrationOrdinance. The plaintiff is a non-national, while the defendant isa citizen of this country. The plaintiff and the defendant hadcommenced business on 21st October 1974 and had applied on29th October 1974 for registration of the business under the
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(1981) tSLR.
Business Names Registration Ordinance. The Certificate ofRegistration was issued on 18th December 1974. The plaintiffclaims that he has contributed a half-share of the capital ofRs. 60,000 of the business and that premises No. 112, Sea Street,Colombo, was jointly purchased by them for the purpose of thebusiness. It would be observed that all these transactions tookplace after the law was passed by Parliament, though before theoperative date, namely, the extended date of 1st January 1975.Even after 1st January 1975, no effort was made by these partnersto comply with the provisions of the Law. The partnershipcontinued until 27th January 1979 in disregard of the Law, whennotice of the dissolution of the partnership was given by thedefendant. Prior to that, when the partnership was in existence, aformal deed of Partnership No. 1369 dated 9th June 1978notarially executed had been signed by the partners. Further, thepartners had on a notarial agreement No. 1319 dated 9th June1978 set out their rights in respect of premises No. 112, SeaStreet.
Consequent on the termination of the partnership on 27thJanuary 1979, the plaintiff filed this action praying-
fa) for a declaration that the partnership business known as"Luxmi Jewellers" carried on by him and the defendantfrom 21stOctober 19/4 stood dissolved;
for an order to wind up the said business and for theappointment of a receiver; and
for an interim injunction and permanent injunctionrestraining the defendant and his servants from enteringpremises No. 112 and No. 112/2, Sea Street.
In the objections filed by the defendant, it was averred that thepartnership was expressly prohibited by the provisions of section2 of the Companies (Special Provisions) Law, No. 19 of 1974, readwith the direction of the Minister dated 18th December 1974, andthat the partnership was of no force or avail in law.
The District Court held an inquiry into the application for theissue of an interim injunction. After hearing the parties the Courtupheld this objection that the partnership contravened theprovisions of the Law and was accordingly illegal. In the result, theDistrict Court dismissed the plaintiff's action.
SCPerumal v.DharmaUngam (Wanasundera, J.)47
On appeal the Court of Appeal took the view that it was inagreement with the District Court that a partnership'which con-travenes the Law is illegal. The. court howeyer held that thisillegality operated only from 1st January 1975 and that an actioncan be maintained in respect of a partnership business prior to thatdate. On this basis the Court of Appeal remitted the case to theDistrict Court to determine the rights of the parties-.on the basis ofa valid partnership that terminated on 31st December 1974, Theplaintiff appeals from that judgment..
The plaintiff's main contention is that the partnership whichcommenced prior to the coming into operation of the Law wasvalid and legal at its inception. It continued to be valid thereafternotwithstanding the imposition of the new ’ Law. The onlysanction for non-compliance With' "the provisions of the Law isthe risk that the business may be taken over by the Government.It does not render the partnership illegal. Accordingly the-plaintiffwas entitled to maintain this action in respect of the partnershipbusiness from its inception in 1974 till the time of dissolution in1979.
My brother Sharvananda has shown agreement with this viewand has in his judgment referred to certain provisions in die Lawwhich he states suggest that construction. I regret that I find itdifficult to subscribe to this view.
It seems to me that the whole object, purpose and the provisionsof the Law, fairly construed, point to an opposite conclusion.The object of this Law is beyond dispute and spelled out in theclearest terms in the Preamble in the following words:
"A Law to prohibit Companies from owning property orcarrying on any undertakings in Sri Lanka after a.specified date,unless they are incorporated under the Companies Ordinance orare exempted companies and to enable the acquisition on behalfof the Government of the whole or any part of the undertakings,of companies which are not so incorporated, or exempted, for:which compensation is payable, to appoint a Tribunal for the.assessment of such compensation, and to provide for mattersconnected therewith or incidental thereto."
In brief,.the object of the Law is—
to prohibit companies owning property dr carrying on
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business in Sri Lanka unless they are incorporated under theCompanies Ordinance,
in the event of such non-corporation and, for that reasononly> a power is given to the Government to acquire anysuch company which contravenes the Law.
The absolute nature of the prohibition is also made explicitin the provisions of section 2 which is pivotal to the whole Law.Itreads-
"2. (1) On and after the first day of September, 1974, in
this law referred to as the "appointed date", no company—
shall have an interest in any property in Sri Lanka, whetherasowner,co-owner, lessee, mortgagee, or otherwise, or
shall carry; oh any undertaking in Sri Lanka, unless suchcompany is recognised as an "existing company", or isincorporated under the principal enactment, or is anexempted company."
It is a well established principle of law that a Court will notassist a party to enforce an agreement which is either expresslyor impliedly prohibited by statute. Statutes containing suchprohibitions sometimes expressly state that a contravention ofsuch prohibition entails the nullification of the transaction. Suchwords of nullification however are not always considered necessaryand such a consequence can, in a proper case, be inferred as aresult following from the illegality. The general rule is that atransaction which is in contravention of a prohibition containedin a statute would be considered null and void, although it doesnot expressly state so, unless it can be inferred from a considerationof the whole Act that there was no intention to render theprohibited transaction illegal.
The prohibition in the present case is in categorical terms and isthe main device for securing the objects intended by the Law. Toassert that transactions contravening these provisions are notillegal or invalid would be to give the words containing thisprohibition a meaning exactly opposite to what it normally means.The main thrust of this legislation is to bring all foreign companieswithin the control of the State as part of our national policy. Ifthe Law is so interpreted as to suggest that incorporation of suchcompanies under our Law is not compelling, then such a view will
49
SC
Perumat v. Dharmaiingam (Wanasundera, J.)
have the effect of frustrating the entire purpose of this legislationarid rendering it nugatory.
!ft has been submitted that the only sanction for non-complianceis acquisition by the Government of such a business. It was evensuggested in the course of Argument that this Law merely enactedthe machinery for acquisition of business undertakings. A closeexamination of the relevant provisions shows that these views areclearly untenable. Acquisition can take place only if a Companyfails to incorporate under our laws and in no other circumstance.It will also be seen that such an acquisition or risk of acquisitionis by no means intended to be a sanction. It is hardly conceivablethat the Government would like to be saddled with theresponsibility of taking over all companies that fail to comply withthe Law. The right of acquisition is clearly discretionary. TheGovernment may acquire any such undertaking or may decide notto do so depending On the need for such a business, its viability,the public and national interest involved and the available resourcesof the Government. If we have regard to this Law in practicalterms, the provisions for acquisition can never operate as asanction.
Then the question has also been asked why provisions exist inthe Law for the payment of compensation in respect of a businessthat may be carried on illegally after the operative date, i haveexamined those provisions and I find nothing therein that indicatethe payment of compensation on the basis of an existing de jureCompany. There must be numerous cases of persons whocontinued to do business despite the provisions of this Law, parti-cularly because it contains no criminal sanctions. The present caseis one such example. A law does not have a magical quality toenable it to prevent this kind of action. We must therefore haveregard to the fact that there would be de facto transactionsregardless of the legal provisions.
My understanding of the position i$ that when there is such a diefacto business in existence, the law empowers the Governmentto acquire "the whole or any part of the undertaking of any suchcompany". The term 'undertaking' has been defined "in relationto a Company to mean the business carried .on by such Companyand includes all the movable and immovable property .and otherassets of such Company". Such property would naturally be in thepossession or custody of a particular person or persons. The
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acquisition would be from the possession or custody of suchperson or persons. Compensation will have to be paid because itcannot be expected of any self-respecting Government that itwould resort to plunder and will not pay for property which ittakes from a person or persons. Where such property is acquired,the Law requires that written claims should be called for from''every person who had an interest in such an undertaking or partthereof immediately before the date on which such undertakingor part thereof was so vested", and a person is entitled to preferclaims indicating "the nature of his interest in such undertakingor part thereof'—section 9. The operative date for valuation isthe date of vesting. The valuation would have to be done not onthe basis of a de jure partnership but on a de facto basis. It is alsoto be expected that., there could well be competing claims,especially in the case of a de facto enterprise. Such claims havenecessarily to be decided by a court of law in the last resort andthis is precisely what the Law envisages—vide section 19. In amatter of such a nature, I have no doubt that a court will resolvethe matter on an equitable basis; but having regard to theprovisions of this Law, it is forbidden to do so on the basis of anexisting legal partnership.
The fact that a person is deprived from claiming his rights onthe basis of a de jure transaction seems to me the true sanction inthis Law. I, therefore, see nothing in these provisions which hasthe effect of taking away the equitable rights a person may have torights, interests, or property of such a de facto business, providedthat they oro claimed in a properly constituted action.
Finally it has been suggested that the provisions of section 3appears to contemplate the coming into existence of a companyafter the appointed date and that this is strongly indicative of thefact that a company is enabled to function legally even after theappointed date, though not incorporated under our laws. I do notthink that the bare coming into operation of such a company isprohibited by section 2. As a matter of pure statutory construction,it seems that for the prohibition in the Law to apply the existenceof a company is a pre-requisite and this view in no way contradictsthe provisions of the Law if a reasonable meaning has to be givento its language. Further, it would be seen that what is prohibitedis not the bare existence of the company, but its activities andeven such activities, it seems, are restricted to matters within theconfines of this country and not outside. It is also possible to take
SCPerumal v. Dhamalingam (Wanasundera, J.)■St
the view, if we were to interpret' these provisions in a workablemanner, that they enable new companies to be established withthe prior concurrence of the.Minister so that their establishmentand exemption would be more or less simultaneous. None of theseprovisions in my view are at variance with the. objects of thestatute set out in the preamble, but are only consequentialthereto.
For these reasons I am of view this appeal must fail. As I havealready indicated earlier, there is nothing in this Law to take awaythe equitable rights inter se between parties to a transactionrendered void by this Law.provided they are claimed in a properlyconstituted action. This case should in my view go back to theDistrict Court for inquiry, only into those limited matters indicatedin the judgment of the Court of Appeal. But my brothers howeverhave taken a different view and accordingly their majority opinionwould be entitled to prevail.
Appeal allowed.
Interim injunction directed tn issue.