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Smt. Vraj Kuwar Bai and ors. Vs. Kunjbiharilal Krishnachandra and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty;Commercial
CourtMadhya Pradesh High Court
Decided On
Case NumberLetters Patent Appeal Nos. 31 and 34 of 1963
Judge
Reported inAIR1971MP109; 1971MPLJ44
ActsProvincial Insolvency Act, 1920 - Sections 2(1); Partnership Act, 1932 - Sections 14 and 15; Code of Civil Procedure (CPC) , 1908 - Order 30, Rule 1; Transfer of Property Act, 1882 - Sections 52
AppellantSmt. Vraj Kuwar Bai and ors.
RespondentKunjbiharilal Krishnachandra and ors.
Appellant AdvocateJ.V. Jakatdar, Adv.
Respondent AdvocateH.L. Khaskalam, Adv. (for No. 1) and ;R.S. Dabir, Adv. (for No. 4)
DispositionAppeal dismissed
Cases ReferredLaxminarayan v. Dwarkaprasad
Excerpt:
.....of the partnership in the..........we will, therefore, first take up the question as to what is the interest of the partners in the firm property. the next question for consideration appears to be whether a decree against partnership property can be passed without all the partners being joined as defendants by name in the decree. the third question would be whether execution can proceed against the partnership property without joining all the partners to the execution. lastly, it would be noted as to what is the position of the insolvency court or the insolvency receiver, in whom the share of a partner has vested, with regard to the disposal of property by the solvent partners in the course of winding up of the partnership affairs.5. lindley, on partnership, 12th edition, has brought out the distinction between.....
Judgment:

Bishambhar Dayal, C.J.

1. This order shall also govern the disposal of Letters Patent Appeal No. 34 of 1963.

2. These Letters Patent Appeals arise out of a suit for specific performance filed by Kunjbeharilal against three partners Bechar Bhai, Rupchand and Brijdas of firm Diamond Trading Company, Raipur. The case of the plaintiff was that the partners of the firm, on behalf of the firm, agreed to sell malik makbuza rights in half share of certain fields which were partnership property, by agreement dated 22nd January, 1947. The document was executed by Rupchand, one of the partners, on behalf of the firm. On 4th November, 1947, Brijdas another partner of the firm, confirmed the agreement. The plaintiff alleged that he was always willing to perform his part of the contract, but that the defendants failed to execute the sale deed in spite of service of registered notice. The plaintiff, therefore, claimed that the defendants be directed to execute a sale deed on payment of the balance of price i.e., Rupees 7743/4/-, or any other amount that may be found payable. This suit was filed on 26th October, 1950. On 19th March, 1952, Bechar Bhai, one of the partners, mortgaged the whole of this property with the Allahabad Bank Ltd., claiming himself to be the owner thereof. On 22nd March, 1952, that is within a few days of this mortgage, one of the creditors of Bechar Bhai applied for adjudicating Bechar Bhai as an insolvent. On 24th September, 1955, Bechar Bhai was adjudicated insolvent. No receiver was appointed. The plaintiff did not take any steps in his suit for specific performance to join the Insolvency Court as representing the estate of the insolvent. On 3rd April, 1958, the two partners Rupchand and Brijdas entered into a compromise with the plaintiff Kunjbeharilal and agreed to a decree being passed in his favour. On 23rd April, 1958, a decree for specific performance was passed in favour of Kunjbeharilal on compromise by two of the partners and ex parte against Bechar Bhai. On 23rd June, 1958, Kunjbeharilal deposited the money as consideration for execution of the sale deed and applied for execution of the decree. On receipt of a notice from the executing court asking him to execute a sale deed in favour of the plaintiff, Bechar Bhai filed an objection on 19th December, 1960, informing the Court that he had been adjudicated insolvent; that the decree having been passed without impleading the Insolvency Court as a party, the decree was a nullity and that the sale deed could not be executed. A similar objection was also filed on behalf of the Allahabad Bank, now respondent No. 4. The Additional District Judge on 3rd April, 1962, held that the decree was a nullity and could not be executed. He, therefore, dismissed the application for execution. Against that order the plaintiff filed an appeal in this Court and the learned Single Judge by order dated 10th October, 1963, reversed that order and directed the Court below to proceed with the execution of the decree according to law. Against that order of the learned Single Judge, the present Letters Patent Appeals have been filed by Bechar Bhai and the Allahabad Bank Ltd.

3. The contention of learned counsel for the appellants is that a firm has no legal personality of itself. It is merely a compendious name indicating all the partners of the firm and consequently the property of the firm is in reality the joint property of all the partners. All the partners have, therefore, a share in the property and the suit for specific performance could not be decreed in respect of the whole of the joint property after one of the partners had been adjudicated insolvent and the Insolvency Court, in which the insolvent's property vested, had not been made a party The decree was, therefore a nullity. It was also further contended that in any case the decree was wholly inexecutable as no sale deed for the whole of the property could be executed either by the two solvent partners or by the two solvent partners along with the insolvent who had no interest in the property left. The insolvency Court not having been made a party could not be forced to execute a sale deed. It was further contended that under Section 28 of the Provincial Insolvency Act no proceedings against the estate of the insolvent could be taken without the prior permission of the Insolvency Court and hence the execution proceedings were invalid.

4. These contentions of learned counsel, it appears to us, are not based on settled principles on which partnership property is held by the partners of the firm. We will, therefore, first take up the question as to what is the interest of the partners in the firm property. The next question for consideration appears to be whether a decree against partnership property can be passed without all the partners being joined as defendants by name in the decree. The third question would be whether execution can proceed against the partnership property without joining all the partners to the execution. Lastly, it would be noted as to what is the position of the Insolvency Court or the insolvency receiver, in whom the share of a partner has vested, with regard to the disposal of property by the solvent partners in the course of winding up of the partnership affairs.

5. Lindley, on Partnership, 12th Edition, has brought out the distinction between partnership property and other joint property at pages 57 and 58. As many as eight points of distinction have been noted; but for our purpose points Nos. 3, 4, 5 and 6 are relevant and are as follows:--

'3. One co-owner can, without the consent of the others, transfer his interest, or in the case of land his equitable interest, to a stranger, so as to put him in the same position as regards the other owners as the transferor himself was before the transfer, except that in the case of a transfer by a joint tenant the stranger will become a tenant in common, or in the case of land a tenant in common in equity with the other owners. A partner cannot do this.

4. One co-owner is not as such the agent, real or implied, of the others. A partner is.

5. One co-owner has no lien on the thing owned in common for outlays or expenses, nor for what may be due from the others as their share of a common debt. A partner has.

6. Before the changes in the law brought about by the Law of Property Act, 1925, one co-owner of land was entitled to have it divided between himself and co-owners, but not (except by virtue of the Partition Acts) to have it sold against their consent. A partner has no right to partition in specie, but, speaking generally, is entitled, on a dissolution, to have the partnership property, whether land or not, sold, and the proceeds divided.'

It will, therefore, be seen that although partnership property is in one sense joint property between the partners, the rights of the partners really do not extend to a share in each partnership property.

6. This question has been dealt with in the Halsbury's Laws of England, 3rd Edition Vol. 28, at page 534, paragraph 1032, as follows:

'The share of a partner is his proportion of the joint assets after their realisation and conversion into money, and after payment and discharge of the joint debts and liabilities.'

Lindley on Partnership, same Edition, at page 375 has summarized the share of a partner thus:

'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, which under the old law was considered as bona notabilia; and which on his bankruptcy passes to his trustee.'

7. Dealing with the right of a trustee on bankruptcy of one of the partners, Lindley speaks again at pages 689-690 as follows:--

'When one of several partners is adjudicated bankrupt his trustee becomes entitled to all his separate property, and to all his interest in the joint property; ..... Consequently the trustee can claim nothing as the bankrupt's share until all the joint creditors have been paid and the partnership accounts have been duly taken and adjusted.'

Again, the learned author at pages 715-716 summarizes the law as follows:--

'The trustee, as has already been observed, does not become a partner in the firm. The solvent partners are entitled to get in the joint assets; and unless there be some misconduct on the part of the solvent partners, or unless the solvent partners are dead or abroad, the trustee has no right to interfere in the winding up or management of the partnership business.'

At page 717 of the same book it has further been stated:

'The power of the solvent partners to wind up the affairs of the partnership is, however, personal to themselves, and arises from the confidence which was originally placed in them by the bankrupt, and which is continued to be placed in them by the court so long as there is no reason to the contrary.'

8. The effect of bankruptcy of one of the partners has been considered in Halsbury's Laws of England, 3rd Edition, Vol. 2, paragraph 841, at page 423, and it has been stated:

'If the bankrupt before his bankruptcy has contracted to sell or mortgage property, the trustee takes the property subject to an obligation to fulfil the contract.'

At page 426, paragraph 846, of the same volume it has been so stated:

'If the bankrupt has carried on business in partnership with other persons, the partnership is dissolved by bankruptcy, but the trustee is entitled to the value of the share of the bankrupt partner and to an account.'

9. The law in India on this subject is exactly the same and has been borrowed from the English law. Sections 14 and 15 of the Indian Partnership Act restrict the rights of the partners which they would normally have as joint owners. Section 14 lays down what property is to be deemed to be partnership property. This would indicate that all property in which the partners are jointly interested is not partnership property but only that property is partnership property which answers the description given in Section 14. Section 15 then provides:

'Subject to the contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.'

Thus, partnership property cannot be used by any partner for his personal benefit Under Section 16 if any partner derives any personal benefit from the partnership property, he has to account for it and pay it to the firm. The definition of 'property' in the Provincial Insolvency Act is given in Section 2(1)(d) of the Act and is as follows:--

' 'property' includes any property over which or the profits of which any person has a disposing power which he may exercise for his own benefit.'

It will readily be seen that property dealt with under the Provincial Insolvency Act is that personal property of the insolvent over which he has a disposing power for his own benefit and not property which he cannot dispose of for his own benefit. As we have just seen, partnership property is such.Under Section 28(2) of the Provincial Insolvency Act on the adjudication of a person as insolvent his property shall vest in the Court or the receiver. On dissolution of a partnership, Section 46 of the Partnership Act gives the power of winding up of the affairs of the firm to the partners. Section 47 goes on to provide that even after dissolution the power of the partners continues for the purposes of winding up of the affairs of the firm and 'to complete transactions begun but unfinished at the time of the dissolution.' There is a proviso to Section 47 which is as follows:--

'Provided that the firm is in no case bound by the, acts of a partner who has been adjudicated insolvent;.....'

10. We are, therefore, of opinion that the position of partnership property is so different from other property which is in co-ownership of three persons that the principles of co-ownership cannot apply to this case.

11. Under Order 30 of the Code of Civil Procedure, a suit can be filed against a firm without joining all or any of the individual partners by name as defendant and a valid and binding decree can be passed which will be executable against the firm property. The necessity of joining individual partners is only for the purposes of binding a particular partner personally, but for binding the partnership property it is not at all necessary to implead any partner by name. Under Order 21, Rule 50 of the Code of Civil Porcedure, where a decree has been passed against a firm, execution may be granted against any property of the partnership; but it can be granted against the person or personal property of the partners only if they are parties to the suit or permission is obtained to execute the decree against individual partners.

12. Applying these settled principles of law to the facts of the case we find that the agreement with the plaintiff was on behalf of the firm and with respect to property of the partnership. When the plaintiff filed the suit, he made all the partners defendants to the suit. But since he is not executing the decree against any personal property of the partners, the decree is binding upon the firm property even though one of the partners became insolvent and thereafter lost all interest in the partnership. Yet the suit could proceed validly with the two solvent partners representing the firm. It was not at all necessary to join the Insolvency Court as party-defendant. Section 28(2) of the Provincial Insolvency Act merely provides for cases on the basis of debts and liabilities which are provable under the Act. This not being a case of that kind, it was not necessary for the plaintiff to obtain any sanction of the Insolvency Court. What vested in the Insolvency Court was merely the share of the insolvent partner which he would be entitled to get after the affairs of the partnership had been wound up. Since the partnership had already entered into an agreement for the sale of this property, this transaction could be completed by only the two solvent partners on behalf of the partnership firm, and, therefore, the decree passed against the partnership property could be enforced and the two solvent partners were entitled to execute a valid sale deed in respect of the whole property in favour of the plaintiff and pass good title in his favour. Even if these two solvent partners failed to execute the sale deed as directed by the decree, the executing Court can on behalf of the partnership execute a valid sale deed in respect of the whole of the interest of the partnership in the property.

13. There is another aspect of the matter which may be considered here. So far as the Allahabad Bank was concerned, it did not acquire any interest in the mortgaged property because the mortgagor Bechar Bhai had no right to deal with this property as his personal property. This was a partnership property and one partner could not transfer it for his own benefit. Moreover, the transfer having taken place during the pendency of the plaintiff's suit, it was subject to the result of the decree that may be passed in that suit (See Section 52 of the Transfer of Property Act). The Allahabad Bank, therefore, had no locus standi to object to the execution of the decree.

14. In this connection it was contended by learned counsel appearing on behalf of the Bank that the doctrine of lis pendens cannot apply to a case for specific performance of contract. In such a suit the title passes to the plaintiff only after a sale deed has been executed. We are unable to agree with this argument. Whenever a suit is pending in respect of any property, a transfer of that property by a party would be subject to the result of the suit and a suit for specific performance is certainly a suit in respect of immovable property. There is ample authority for this proposition almost in all the High Courts in India. We may merely refer to Gouri Dutt Maharaj v. Sukur Mohammed, AIR 1948 PC 147. In this case, the doctrine was applied to a suit for specific performance which was decreed on compromise.

15. The only other objector in execution was Bechar Bhai, the insolvent himself. He having lost all interest in the property had also no locus standi to file an objection. Both these objectors, therefore, could not object to the execution of the decree and the objections were liable to be dismissed even on that ground.

16. We are supported in this view of law by another Division Bench decision of this Court reported in Laxminarayan v. Dwarkaprasad, AIR 1964 Madh Pra 55. In that case, the auction-sale of partnership property was upheld even though one of the partners had been adjudicated insolvent, and the adjudication was effective from a date before the sale.

17. In the result, therefore, we see no force in these appeals and dismiss the same with costs. Counsel's fee in each appeal is fixed at Rs. 200/-.


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