SUPREME COURT OF INDIA
Before :- A.K. Sarkar, K.N. Wanchoo and J.R. Mudholkar, JJ.
Civil Appeal No. 299 of 1961. D/d. 21.1.1966.
For the Appellant :- M/s. Alladi Kuppuswami and R. Gopalakrishnan, Advocates.
Addanki Narayanappa and another - Appellant
Bhaskara Krishnappa, (dead) and thereafter his heirs and others - Respondent
For the Respondents Nos 4, 7 and 8 :- M/s. N. C. Chatterjee and S. G. Patwardhan, Senior Advocates, (Mr. S. Balakrishnan, Advocate and Mr. Thiagarajan, Advocate, for Mr. N. S. Mani, Advocate
Mudholkar, J. - In this appeal by special leave from a judgment of the High Court of Andhra Pradesh the question which arises for consideration is whether the interest of a partner in partnership assets comprising of movable as well as immovable property should be treated as movable or immovable property for the purposes of Section 17(1) of the Registration Act, 1908. The question arises in this way. Members of two joint Hindu families, to whom we would refer for convenience as the Addanki family and the Bhaskara family, entered into partnership for the purpose of carrying on business of hulling rice, decorticating
groundnuts etc. Each family had half share in that business. The capital of the partnership consisted, among other things, of some lands belonging to the families. During the course of the business of the partnership some more lands were acquired by the partnership. The plaintiffs who are two members of the Addanki family instituted a suit in the court of Subordinate Judge, Chittoor on March 4, 1949 for the following reliefs:
- "(a) for a declaration that the suit properties belong to the plaintiffs and defendants 10 to 14 defendants 1 to 9 equally, for a division of the same into four equal shares, one share to be delivered to the plaintiffs or for a division of the same into two equal shares to be delivered to the plaintiffs and the defendants 10 to 14 jointly;
- (b) or in the alternative dissolving the partnership between the plaintiffs and defendants 10 to 14 on the one hand and defendants 1 to 9 on the other hand directing accounts to be taken;
- (c) directing the defendants 1 to 9 to render accounts of the income of the suit properties;
- (d) directing the defendants 1 to 9 to pay the costs of the suit to the plaintiffs;
- (e) and pass such further relief as may be deemed fit in the circumstances of the case."
2. The relevant portion of the karar reads thus:
- "As disputes have arisen in our family regarding partition, it is not possible to carry on the business or to make investment in future. Moreover, you yourself have undertaken to discharge some of the debts payable by us in the coastal parts in connection with our private business. Therefore, from this day onwards we have closed the joint business. So, from this day onwards, we have given up (our) share in the machine etc., and in the business, and we have made over the same to you alone completely by way of adjustment. You yourself shall carry on the business without ourselves having anything to do with the profit and loss. Herefor, you have given up to us the property forming our Venkatasubbayya's share which you purchased and delivered possession of the same to us even previously. In case you want to executed and deliver a proper document in respect of the share which we have given up to you, we shall at your own expenses, execute and deliver a document registered." This document on its face shows that the partership business had come to an end and that the Addanki family had given up their share in the "machine etc., in the business" and had made it over to the Bhaskara family. It also recites the fact that the Addanki family had already received certain property which was purchased by the partnership presumably as that family's share in the partnership assets. The argument advanced by Mr. Alladi Kuppuswami is that since the partnership assets included immovable property and the document records relinquishment by the members of the Addanki family of their interest in those assets, this document was compulsorily registrable under Section 17(1)(c)of the Registration Act and that as it was not registered it is inadmissible in evidence to prove the dissolution of the partnership as well as the settlement of accounts.
- "In settling the accounts of a firm after dissolution the following rules shall, subject to agreement by the partners, be observed:
- (a) Losses, including deficiencies of capital, shall be paid first out of profits next out of capital and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.
- (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:
- (i) in paying the debts of the firm to third parties;
- (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;
- (iii) in paying to each partner rateable what is due to him on account of capital; and
- (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits."
- "What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged. This it is, and this only which on the death of a partner passes to his representatives, or to a legatee of his share ........ and which on his bankruptcy passes to his trustee."
- "When a debt due to a firm is got in no partner has any definite share or interest in that debt; his right is merely to have the money so received applied, together with the other assets, in discharging the liabilities of the firm, and to receive his share of any surplus there may be when the liquidation has been completed."
- "The result then of the authorities may be this stated: Lord Thurlow was of opinion that a special contract was necessary to convert the land into personality; and Sir W. Grant followed that decision. Lord Eldon on more than one occasion strongly expressed his opinion that Lord Thurlow's decision was wrong. Sir J. Leach clearly decided in three cases that there was conversion out and out; and Sir L. Shadwell, in the last case before him clearly decided in the same way. That is the state of the authorities.
He then observed:
- "This principle is clearly laid down by Lord Eldon in Crawshay v. Collins, (1808) 15 Ves 218 and by Sir W. Grant in Featherstonhaugh v. Fenwick (1810) 17 Ves 298 and the right to each partner to insist on a sale of all the partnership property, which arises from what is implied in the contract of partnership, is just as stringent as a special contract would be. If then, this rule applies to ordinary stock-in-trade, why should it not apply to all kinds of partnership property ? Suppose that partners, for the purpose of carrying on their business, purchase, out of the funds of the partnership, lease-hold estate, or take a lease of land, paying the rent out of the partnership funds, can it be doubted that the same rule which applies to ordinary chattels would apply to such leasehold property ? I do not think it was ever questioned that, on a dissolution, the right to each partner to have the partnership effect sold applies to leasehold property belonging to the partnership as much as to any other stock-in-trade. No one partner can insist on retaining his share unsold. Nor would it make any difference in whom the legal estate was vested, whether in one of the partners or in all; this Court would regulate the matter according to the equities. And Sir W. Grant so decided in (1810) 17 Ves 298"
- "From the principle that a share of a partner is nothing more than his proportion of the partnership assets after they have been turned into money and applied in liquidation of the partnership, whether its property consists of land or not, must, as between the real and personal representatives of a deceased partner, be deemed to be personal and not real estate, unless indeed such conversion is inconsistent with the agreement between the parties. Although the decisions upon this point were conflicting, the authorities which were in favour of the foregoing conclusion certainly preponderated over the others, and all doubt upon the point has been removed by the Partnership Act, 1890, which contains following section:
- 22. Where land or any heritable interest therein has become partnership property, it shall, unless the contrary intention appears, be treated as between the partners (including the representative of a deceased partner), and also as between the heirs of a deceased partner and his executors or administrators, as personal or moveable and not real or heritable estate."
- "That was not the question: it was whether there was a partnership. The subject being an agreement for land, the question then is whether there was a resulting trust for that partnership by operation of law. The question of partnership must be tried as a fact, and as if there was an issue upon it. If by facts and circumstances it is established as a fact that these persons were partners in the colliery, in which land was necessary to carry on the trade, the lease goes as an incident. The partnership being established by evidence upon which a partnership may be found, the premises necessary for the purposes of that partnership are by operation of law held for the purposes of that partnership."
5. It seems to us that looking to the scheme of the Indian Act no other view can reasonably be taken. The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges. It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by Section 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners. There are not many decisions of the High Courts on the point. In the few that there are the preponderating view is in support of the position which we have stated. In Joharmal v. Tejaram Jagrup, (1893) ILR 17 Bom 235 which was decided by Jardine and Telang, JJ., the latter took the view that though a partner's share does not include any specific part of any specific item of partnership property, still where the partnership is entitled to immovable property, such share does include an interest in immovable property and, therefore, every instrument operating to create or transfer a right to such share requires to be registered under the Registration Act. In coming to this conclusion he mainly purported to rely upon an observation contained in the fifth edition of Lidley on Partnership at p. 374. This observation is not to be found in the present edition of Lindley's Partnership nor in the 9th or 10th editions which were brought to our notice. The 5th edition, however, is not available. The learned Judge after quoting an earlier statement which is that the "doctrine merely amounts to this that on the death of a partner his share in the partnership property is to be treated as money, not as land" says: "This obviously would not affect matters either during the lifetime of a partner - Lindley, L. J., says in so many words that it has no practical operation till his death (p. 348) - or as against parties strangers to the partnership, e. g., the firm's debtors." While it is true that the position so far as third persons are concerned would be different it may be pointed out that in Forbes v. Steven, (1870) 10 Eq 178, James V. C., has, as quoted by the learned Judge, said: "It has long been the settled law of this Court that real estate bought or acquired by a partnership for partnership purposes (in the absence of some controlling agreement or direction to the contrary) is, as between the partners and as between the real and personal property, and devolves and is distributable and applicable as personal estate and as legal assets." Telang J., seems to have overlooked, and we say so with great respect, the words "as between the partners" which precede the words "and as between the real and personal representative of the partner deceased" and to have confined his attention solely to the latter. We have not found in any of the editions of Lindley's Partnership an adverse criticism of the view of the Vice-Chancellor. But, on the contrary, as already stated, the view expressed is in full accord with these observations. Jardine J., has discussed the English authorities at length and after referring to the documents upon which reliance was placed on behalf of the defendant stated his opinion thus:
- "To lay down that the three letters in question, which deal generally with the assets, moveable and immoveable, without specifying any particular mortgage or other interest in real property require registration, would, I incline to think, in the present state of the authorities go too far. It may be argued that such letters are not 'instruments of gift of immovable property but rather disposals of a share in a partnership of which the business is money lending, and the mortgage securities merely incidental thereto."
- "But it does not seem to me to follow that an agreement for the dissolution of such of partnership need not be expressed in writing, or rather that there need not be a memorandum of the agreement for dissolution when one of the terms of the agreement, either expressly or by necessary implication, is that the party sought to be charged must part with and assign to others an interest in land. That seems to me to give rise to entirely different consideration. In the one case you prove the partnership by parol; you prove the object, the terms of the partnership, and so on. But in the other case it is one of the essential terms of the agreement that the party to be charged shall convey an interest in land, and that seems therefore, to bring it necessarily within the 4th section of the Statute of Frauds."
6. We may also refer to the decision of a Full Bench in Ajudhia Pershad Ram Preshad v. Sham Sunder, AIR 1947 Lahore 13 (FB) in which Cornelius, J. has discussed most of the decisions we have earlier referred to, in addition to several others and reached the conclusion that while a partnership is in existence, no partner can point to any part of the assets of the partnership as belonging to him alone. After examining the relevant provisions of the Act, the learned Judge observed:
- "These sections require that the debts and liabilities should first be met out of the firm property and thereafter the assets should be applied in rateable payment to each partner of what is due to him firstly on account of advances as distinguished from capital and, secondly on account of capital, the residue, if any, being divided rateably among all the partners. It is obvious that the Act contemplates complete liquidation of the assets of the partnership as a preliminary to the settlement of accounts between partners upon dissolution of the firm and it will, therefore, be correct to say that, for the purposes of the Indian Partnership Act, and irrespective of any mutual agreement between the partners, the share of each partner is, in the words of Lindley: "his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabilities have been paid and discharged'."
7. Mr. Kuppuswamy then referred us to two decisions of English courts in In re: Fullur's Contract, 1933 Ch 652 and Burdett-Cutts v. Inland Revenue Commissioners, 1960-1 WLR 1027 and on the passage at pp. 394 and 395 in Lendley's Partnership under the head "Form of Transfer" in support of his argument. Both the cases relied upon deal with contracts with third parties and not with agreements between partners inter se concerning retirement or dissolution. The passage from Lindley deals with a case where there is an actual transfer of immovable property and is, therefore, not in point.
8. Mr. Chatterjee brought to our notice some English decisions in addition to those we have adverted to in support, which agree with the view taken in those cases. He has also referred to the decisions in Prem Raj Brahmin v. Bhani Ram Brahmin, ILR (1946) 1 Cal 191 and Firm Ram Saheymall Rameshwar Dayal v. Bishwanath Prasad, AIR 1963 Pat 221. We do not think it necessary to discuss them because they do not add to what we have already said in support of our view.
9. For these reasons we uphold the decree of the High Court and dismiss the appeal with costs.
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