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P. Ananda Rao and anr. Vs. G. Raja Rao and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 648 of 1972 and C.M.P. No. 9849 of 1975
Judge
Reported inAIR1974AP256
ActsPartnership Act, 1932 - Sections 42 and 69(1)
AppellantP. Ananda Rao and anr.
RespondentG. Raja Rao and ors.
Appellant AdvocateK. Raghava Rao, Adv.
Respondent AdvocateC.R. Babu, Adv. ;P. Sitarama Raju, Adv. for ;T. Govindayya, Adv.
Excerpt:
.....favour of someone other than partner - petitioner alleged such a transfer was contrary to terms of partnership deed - petition resisted under section 60 of act - petitioner claim was contrary to section 60 of act in capacity of partner - petitioner had no ground to sue as co-owner as he was not party to partnership deed to which plaintiff was a party - petitioner sought amendment at this stage - court found such amendment not feasible as capable of ensuing complications - held, in light of above stated provisions and circumstances petitioner had no good claim. - - it is clearly a suit to enforce a right arising from out of the contract instituted by a person suing as a partner in a firm against a person alleged to be or to have been a partner in that firm. this submission is clearly..........on 5th january, 1970, however the plaintiffs came to know that the first defendant had executed a sale deed in respect of his half share in the cinema hall in favour of defendants 2 and 3. the plaintiffs thereupon objected to the registration of the sale deed, but in site of their objections the registration was effected. the plaintiffs came to know that there was a recital in the sale-deed that the first defendant had offered to sell his share to the plaintiffs' father, but the plaintiffs' father was not agreeable to purchase his share and he therefore gave a letter dated 9-9-1968 to the first defendant that he may sell his share to outsiders. the plaintiffs filed the present suit praying for a decree directing the defendants to execute a registered-sale deed in their favour and for.....
Judgment:

Alladi Kuppuswami, J.

1. The plaintiffs in O.S. 12/79, Sub-Court, Parvathipuram have filed this appeal against the judgment and decree dismissing their suit with costs. They are the sons of the Pydi Narasimha Apparao (referred to shortly in this judgment as Apparao who died and one Papainaidu entered into a partnership for the purpose of running a cinema hall at Palakonda. They started the business in 1947. At the time the licence for running the cinema was in the name of Apparao. On 12th February 1950 a formal partnership deed was executed. Each of the partners was to have a one-third share in the business. Once of the clauses in the deed was that if any of the partners desired to sell his share, he should sell it to the other two partners or any one of them for a reasonable price and it is not permissible for him to sell the share to others. Even if he effected such a sale, it would not be valid. The case of the plaintiffs as stated in the plaint was that in accordance with this provision Papainaidu sold his share in favour of the other partners on 16-5-1959 and thereafter their father Apparao and the first defendant continued the partnership each being entitled to half a share.

On the 9th April 1960 the plaintiffs after executed a will whereby he bequeathed his half share to the plaintiffs though as members of a joint Hindu family they were already entitled to the share. Almost immediately after the will there was a partition among the members of the family and under that partition the half share in the cinema hall was allotted to the plaintiffs to the full knowledge of the other partners. The plaintiff and the first defendant were thereafter continuing the business as partners on the same terms as contained in the original deed of partnership. On 5th January, 1970, however the plaintiffs came to know that the first defendant had executed a sale deed in respect of his half share in the cinema hall in favour of defendants 2 and 3. The plaintiffs thereupon objected to the registration of the sale deed, but in site of their objections the registration was effected. The plaintiffs came to know that there was a recital in the sale-deed that the first defendant had offered to sell his share to the plaintiffs' father, but the plaintiffs' father was not agreeable to purchase his share and he therefore gave a letter dated 9-9-1968 to the first defendant that he may sell his share to outsiders. The plaintiffs filed the present suit praying for a decree directing the defendants to execute a registered-sale deed in their favour and for other reliefs. The plaintiffs contended that the alleged letter stated to have been executed by their father is a rank forgery he was never asked whether he would purchase the half share and he never gave any letter that he would not purchase it. The sale in favour of defendants 2 and 3 was in violation of the terms of the partnership deed and was absolutely null and void. The sale-deed also referred to an alleged agreement of sale dated 29-9-1968. This agreement also is an ante-dated document brought into existence at or about the time of the sale-deed.

2. The first defendant contended that the suit was not maintainable as the partnership was not registered under the Partnership Act. The recital in the sale-deed executed by him that an offer was made to Apparao whether he would purchase the half share, and that he executed a letter consenting to the sale by the 1st defendant to the outsiders was true. The agreement of sale mentioned in the sale-deed was true and was not ante-dated. It was further contended that after the sale of Papinaidu's share to other partners, the original partnership ceased to exist and the partnership deed was no longer in operation and hence the plaintiffs are not entitled to rely on any of the clauses and ask for specific performance of the agreement contained in those clauses. After the death of the plaintiffs' father the plaintiffs also became co-owners along with the first defendant as there was no partnership. Even if it is assumed that the partnership continued as between Apparao and the first defendant and thereafter the plaintiffs and the first defendant the suit was not maintainable as the partnership was not registered under Partnership Act. It was also contended that the plaintiffs are not parties to the deed of 12-2-1950 and therefore they cannot enforce the agreement contained in one of the clauses. It was however, contended that the sale-deed executed by him in favour of defendants 2 and 3 is invalid as it was a sale without the permission of the Collector as required under clause 12 of the license granted to the defendant.

Defendants 2 and 3 filed a common written-statement. They also contended that the suit was not maintainable as the partnership was not registered under the Partnership Act. They stated that the first defendant had offered his share to Apparao, but he declined to purchase the same and gave a letter dated 9-9-1968 and therefore, the first defendant was entitled to sell his share to defendants 2 and 3. They further contended that the plaintiffs were not entitled to sue on the basis of the partnership deed as the original partnership was superseded by successive partnership namely, the partnership, between Apparao and the first defendant and later on the partnership between the plaintiffs and the first defendant. They also contended that the agreement contained in the clause relied on was void.

3. The learned Subordinate Judge held that the letter of consent alleged to have been written by Apparao before his death permitting the first defendant to sell his share was a faked up document not executed by him. He also held that the plaintiffs' father effected the partition among the members of the family and the half share of the cinema hall was allotted to the plaintiffs in that partition. He however, dismissed the suit on the ground that the Supreme Court was barred under Section 60 of the Partnership Act as the partnership was not registered. He also held that on the death of Apparao the original partnership was dissolved and the plaintiffs as either legatees co-owners of Apparao cannot claim to be partners under the original partnership deed. They no doubt have half interest in the suit cinema hall and they are co-owners along with the first defendant but as they were not parties to the original partnership they cannot enforce one of the clauses of that deed. The plaintiffs have preferred this appeal against the said judgment and decree.

4. The main question for consideration is whether the suit is barred under Section 60 of the Partnership Act. Under Section 69(1) no suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm. It is however argued by the learned counsel for the appellant that the plaintiffs were not suing as partners. It is submitted first that there is no partnership in existence on the date of suit. The original partnership between the plaintiffs' father, the first defendant and Papinaidu had become dissolved on the death of the plaintiffs' father. Thereafter, the plaintiffs and the first defendant were only in the position of co-owners and there is no partnership between them. It cannot, therefore, be said that the plaintiffs are suing as partners. In any event, it is submitted that even if a partnership is said to exist as between the plaintiffs and the first defendant, they are only co-owners without he first defendant as regards the immovable property, namely, the cinema house. It is therefore open to them to enforce the pre-emption clause contained in the original agreement, Ex. A-7 as co-owners. The court below was wrong in holding that such a claue was invalid as it violated the rule of perpetuities.

5. It is therefore first to be seen whether there is any relationship of the partners between the plaintiffs and the first defendant. The first partnership was between the plaintiffs' father, the first defendant and Papinaidu. After Papinaidu retired from the partnership selling his share to the other two partners in accordance with the provisions of the deed of partnership, Ex. A-7 the plaintiffs' father and the first defendant continued as partners. On the death of the plaintiffs' father, the partnership stood dissolved under Section 42 of the Partnership Act. It is no doubt true that it is open to the partners to provide by agreement that the partnership will not be dissolved on the death of a particular partner, but there is no such provision in the deed of partnership. Further, as the Supreme Court pointed out in Commissioner of Income-tax v. G.S. Mills : [1965]57ITR510(SC) if a firm consists of two partners only, the firm automatically comes to an end on the death of one of them. While in the case of a partnership where there are more than two partners, if there is a contract to the contrary the firm may be continued by the surviving partners, if there are only two partners and one of them dies, there is no partnership for a third party to be introduced. An agreement between the two partners on the death of any one of them that the legal heir or nominee would take the place of the deceased partner, will not have the effect of automatically making such heir or nominee a partner of the firm. It is however, open to the surviving partner to enter into a new partnership with the heir of the deceased partner, but that would constitute a partnership.

In this case we are of the view that on the death of the plaintiffs' father though the old partnership was dissolved a new partnership was constituted between the plaintiffs and the defendant. Though there is no express agreement to that effect, such an agreement could not implied from the circumstances of the case. The plaintiffs and the first defendant carried on the business as a partnership for a number of years after the death of the plaintiffs' father. Even the sale deed executed by the first defendant in favour of the second defendant, proceeds on the footing that the plaintiffs and the first defendant were partners. If so, it follows that the plaintiffs, when they filed the suit, were partners in the newly constituted partnership between them and the first defendant. The submission made by the learned counsel for the appellant that there was no partnership at all in existence, is completely at variance with the stand taken in the plaint. In the plaint it is categorically stated that the partnership continued without being dissolved even after the death of the plaintiffs' father. In paragraph 3 (d)it is stated that the plaintiffs were continuing the business as owners and partners on the same terms of the partnership and ownership, the plaintiff having a half share and the first defendant having the other half share. It is no doubt true that the first defendant in is written statement sought to contend that the plaintiffs are only in the position of co-owners with the defendant and they were never partners with the defendant at any time either before or after the death of their father. Even after the sale by Paninaidu of his share to the plaintiffs' father, Apparao and defendant were only co-owners in respect of the property. Thus, it is seen that both taking a stand contrary to what they took in the plaint and in the written statement respectively. In such a case the duty of the court is to ascertain the correct position. In this case, the true position s that after the death of the plaintiffs' father, the partnership stood dissolved, but the plaintiffs and the first defendant continued their business under a new partnership.

6. The next question is whether the new partnership is also governed by Ex. A-7, the old partnership deed between the plaintiffs' father, the first defendant and Papinaidu. When a new partnership is formed after the death of one of the partners by the surviving partner and the legal representatives of the deceased partner, it is open to them to carry on the new partnership under the same terms as the old partnership. The question whether they have agreed to do so, or whether they entered into a fresh agreement depends upon the circumstances of the case. In this case, no fresh agreement was entered into. On the other hand, the sale-deed Ex. A-8 by the first defendant in favour of defendants 2 and 3 proceeds on the footing that the agreement, Ex. A-7 applies to the partnership also. That is why an effort was made to state that Apparao was requested by the first defendant to buy his share, that he refused and that he permitted the first defendant to sell his share to whomsoever he pleases. It is no doubt true that the letter alleged to have been written by Apparao permitting the first defendant to sell his share to strangers has been held to be fabricated and this finding is not questioned by the respondent, but the fact that the first defendant himself tried to justify the alienation in favour of the stranger by seeking to rely on the alleged consent by the plaintiffs' father, shows that he proceeded on the footing, shows that the agreement, Ex. A7 applies to the new partnership also.

7. If this is the legal position it would follow that the suit is barred under Section 69(1) of the Partnership Act as it is admitted that the partnership is not registered. The plaintiffs are suing as partners to enforce the terms of the partnership agreement, Ex. A-7 which, as stated above is also the agreement governing the new partnership. The learned counsel for the appellant relied upon the decision in Shriram Shaligram Shop v. Laxmi Bai, (AIR 1951 Nag 143). In that case one of the partners executed an agreement in favour of the other partners agreeing to transfer his share in favour of the other partners. The transferee sought to enforce this agreement. It was held that when there is an agreement between the partners by which some right is created which is capable of enforcement independently and without resort to general account of the unregistered partnership it furnishes entirely a different cause of action and the suit of a parent based on that is not barred as he cannot be described there as 'suing as a partner'. It is not every suit that is barred but only a suit brought 'as a partner'. The section must be construed strictly. It was therefore, held that section 69(1) of the Partnership Act was not a bar to the maintainability of the suit. In this case, the position is entirely different. The plaintiffs are not seeing to enforce an independent agreement. The presumption clause is contained in the agreement of partnership Ex. A-7 itself. It is clearly a suit to enforce a right arising from out of the contract instituted by a person suing as a partner in a firm against a person alleged to be or to have been a partner in that firm.

8. It was sought to be contended by the learned counsel for the appellant that though the plaintiff and the first defendant may be partners with regard to the business, they are co-owners in respect of the immovable property and the pre-emption clause contained in Ex. A-7 in so far as it applies to the immovable property can be enforced by the plaintiffs as co-owners in respect of the property and Section 69(1) of the Partnership act would not stand in the way. This submission is clearly unsustainable in view of the decision of the Supreme Court in Naraynappa v. Bhaskara Krishnappa : [1966]3SCR400 . In that case after an elaborate discussion of the relevant provisions of the Partnership Act, it was observed that no doubt the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. No partner can deal with any portion of the property as his own during the subsistence of the partnership, nor can he assign his interest in specific item of the partnership property to any one. The right of a partner during the subsistence of a partnership is to get his share of profits from time to time and after dissolution of the partnership or on his retirement from the partnership of the value of his share in the net partnership assets. It was therefore, held that the document relinquishing ones interest as partner in a partnership is not immovable property which is compulsorily registrable even though the partnership assets included immovable property. It cannot therefore, be argued that the plaintiffs are co-owners in respect of the cinema house and in enforcing the right of pre-emption contained in Ex. A-7 they are only suing as owners and not as partners.

9. In this case the plaintiffs are in the horns of a dilemma. If they claim to sue as partners and seek the enforcement of the pre-emption clause in the partnership deed, Section 69 of Partnership Act stands in their way. If, on the other hand, they contend that they are co-owners we do not see how they are entitled to rely on Ex. A-7, the deed of partnership to which the plaintiffs were not parties. It is true, as stated earlier if a partnership is formed, the new partnership may agree to be governed by the terms of the previous partnership deed, but if the case of the plaintiffs is that the partnership came to an end and they became co-owners., it could only be under law and not by reason of any agreement between them. Then it is not possible for them at the same time to contend that they are governed by Ex. A-7 to which they are not parties. As co-owners, therefore, they will not be entitled to enforce a clause contained in the partnership deed, Ex. A-7. In either case the plaintiffs' suit has to fail.

10. It was further contended by the learned counsel for the appellant that when the first defendant transferred, his share to defendants 2 and 3, the partnership between the plaintiffs and the first defendant ceased to exist and therefore, the plaintiffs were not suing as partners. This contention also has no substance in view of the fact that there is no dissolution merely by reason of one of the partners transferring his share to a third party. Under Section 28 of the Partnership act a transfer by a partner of is interest in the form does not entitle the transferee during the continuance of the firm to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner and the transferee shall accept the account of profits agreed to by the partners. In other words, the transferee does not become a partner of the firm, the transferor continuing to be the partner along with the other partners. There is no dissolution of partnership by such transfer. Hence, the argument that by reason of the transfer, the partnership ceased to exist and therefore the plaintiffs cannot be considered to be suing as partners, has to be rejected.

11. The appellant has filed a petition C.M.P. No. 9849 of 1975 praying for amending the plaint by adding a prayer that in the alternative the court may declare that the sale-deed executed on 5-11-1070 by the first defendant in favour of D-2 and D-3 is illegal void and not binding. It is stated that under the Cinematography Act and the rules as well as the condition 12 of the Licence the transfer of premises is prohibited. Under condition 12 of the Conditions of the License, the licensee shall not without the permission of the licensing authority assign, sub-lease or otherwise transfer the licence or the licensed premises. Our attention is also drawn to the decision in Viswanathan v. Namakchand : AIR1955Mad536 where it was held that the partnership entered into with a person, who holds a licence is illegal and void. The provision containing the prohibition of the transfer of licence or the licensed premises is in the interests of the public for promotion of its welfare and hence the contravention thereof must be held to be illegal. It was therefore, argued that this Court may permit the plaintiffs to amend their plaint by asking for a declaration that the transfer is illegal and proceed to grant that prayer. It was also submitted that when it comes to the notice of the court that a particular transfer is illegal, it is the duty of the Court to take note of the illegality even though it is raised for the first time in appeal. We are however not inclined to allow the amendment of the plaint at this late stage. It has already been noticed that the licence originally stood in the name of the plaintiffs' father. The very formation of the partnership with Papinaidu as a partner would be illegal in view of the decision of the Madras High Court. Thereafter the licence was transferred in the name of D-1. It, no doubt, appears that this transfer was made after proper applications were made by Apparao and the first defendant to the authorities concerned. But again, as we have held a new partnership was formed between the plaintiff s and the first defendant in whose name the licence then stood, such a partnership would also be illegal. There is not enough material before us to show how the various partnerships carried on business, the licence standing in the name of one or the other of them. By allowing the amendment, several complications are likely to ensue. Further, if the amendment is allowed, the prayer for a direction to executed a registered sale deed itself is liable to be rejected as such a transfer would according to the plaintiffs be illegal. An amendment which would lead to such a result apart from causing complications cannot be granted.

12. In the result, the appeal is dismissed but in the circumstances without costs.

13. Appeal dismissed.


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