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Addanki Narayanappa and anr. Vs. Bhaskara Krishtappa and 13 ors. - Court Judgment

LegalCrystal Citation
CourtSupreme Court of India
Decided On
Reported inAIR1966SC1300; [1966]3SCR400
ActsRegistration Act, 1908 - Sections 17(1); Indian Partnership Act
AppellantAddanki Narayanappa and anr.
RespondentBhaskara Krishtappa and 13 ors.
Cases ReferredRam Sahay v. Bishwanath
.....court ofandhra pradesh the question which arises for consideration is whether theinterest of a partner in partnership assets comprising of movable as well asimmovable property should be treated as movable or immovable property for thepurposes of s. leach clearly decidedin three cases that there was conversion out and out :and sir l. shadwell, inthe last case before him, clearly decided in the same way. now it appears to me that,irrespective of authority, and looking at the matter with reference toprinciples well established in this court, if partners purchase land merely forthe purpose of their trade, and pay for it out of the partnership property,that transaction makes the property personalty, and effects a conversion out andout. ' 8. he then observed :this principle is clearly laid..........observed : 'these sections require that the debts andliabilities should first be met out of the firm property and thereafter theassets should be applied in ratable payment to each partner of what is due tohim firstly on account of advances as distinguished from capital and, secondlyon account of capital, the residue, if any, being divided ratably among all thepartners. it is obvious that the act contemplates complete liquidation of theassets of the partnership as a preliminary to the settlement of accounts betweenpartners upon dissolution of the firm and it will, therefore, be correct to saythat, for the purposes of the indian partnership act, and irrespective of anymutual agreement between the partners, the share of each partner is, in thewords of lindley : 'his proportion of the.....

Mudholkar, J.

1. In this appeal by special leave from a judgment of the High Court ofAndhra Pradesh the question which arises for consideration is whether theinterest of a partner in partnership assets comprising of movable as well asimmovable property should be treated as movable or immovable property for thepurposes of s. 17(1) of the Registration Act, 1908. The question arises in thisway. Members of two joint Hindu families, to whom we would refer forconvenience as the Addanki family and the Bhaskara family, entered intopartnership for the purpose of carrying on business of hulling rice,decorticating groundnuts etc. Each family had half share in that business. Thecapital of the partnership consisted, among other things, of some landsbelonging to the families. During the course of the business of the partnershipsome more lands were acquired by the partnership. The plaintiffs who are twomembers of the Addanki family instituted a suit in the court of SubordinateJudge, Chittor on March 4, 1949 of the following reliefs :

'(a) for a declaration thatthe suit properties belong to the plaintiffs and defendants 10 to 14 anddefendants 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 intotwo equal shares to be delivered to the plaintiffs and the defendants 10 to 14jointly;

(b) or in the alternativedissolving the partnership between the plaintiffs an defendants 10 to 14 on theone hand and defendants 1 to 9 on the other hand directing accounts to betaken;

(c) directing the defendants 1 to9 render accounts of the income of the suit properties;

(d) directing the defendants 1 to9 to pay the costs of the suit to the plaintiffs;

(e) and pass such further reliefas may be deemed fit in the circumstances of the case.'

It may be mentioned that in their suit the plaintiffs made all the membersof the Bhaskara family as defendants and also joined those members of theAddanki family who had not joined as plaintiffs. We are concerned here onlywith the defence of the members of the Bhaskara family. According to them thepartnership was dissolved in the year 1936 and accounts were settled betweenthe two families. In support of this plea they have relied upon a kararexecuted in favour of Bhaskara Gurappa Setty, who was presumably the karta ofthe Bhaskara family, by five members of the Addanki family, who presumablyrepresented all the members of the Addanki family. Therefore, according to theBhaskara defendants, the plaintiffs had no cause of action. Alternatively theycontended that the suit was barred by time. In the view which we take it wouldnot be necessary to consider the second defence raised by the Addanki family.

2. The relevant portion of the karar reads thus : 'As disputes havearisen in our family regarding partition, it is not possible to carry on thebusiness or to make investment in future. Moreover, you yourself haveundertaken to discharge some of the debts payable by us in the coastal parts inconnection with our private business. Therefore, from this day onwards we haveclosed 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 sameto you alone completely by way of a adjustment. You yourself shall carry on thebusiness without ourselves having anything to do with the profit and loss.Herefor, you have given upto us the property forming our Venkatasubbayya'sshare which you have purchased and delivered possession of the same to us evenpreviously. In case you want to execute and deliver a proper document inrespect of the share which we have given up to you, we shall at your ownexpense, execute and deliver a document registered.'

3. This document on its face shows that the partnership business had come toan 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 Bhaskarafamily. It also recites the fact that the Addanki family had already receivedcertain property which was purchased by the partnership presumably as thatfamily's share in the partnership assets. The argument advanced by Mr. AlladiKuppuswami is that since the partnership assets included immovable property andthe document records relinquishment by the members of the Addanki family oftheir interest in those assets, this document was compulsorily registerableunder s. 17(1)(c) of the Registration Act and that as it was not registered itis inadmissible in evidence to prove the desolation of the partnership as wellas the settlement of accounts.

4. Direct cases upon this point of the courts in India are few but before weexamine them it would be desirable to advert to the provisions of thePartnership Act itself bearing on the interest of partners in partnershipproperty. Section 14 provides that subject to contract between the partners theproperty of the firm includes all property originally brought into the stock ofthe firm or acquired by the firm for the purposes and in the course of thebusiness of the firm. Section 15 provides that such property shall ordinarilybe held and used by the partners exclusively for the purposes of the businessof the firm. Though that is so a firm has no legal existence under the Act andthe partnership property will, therefore, be deemed to be held by the partnersfor the business of the partnership. Section 29 deals with the rights of atransferee of a partner's interest and sub-s. (1) provides that such atransferee will not have the same rights as the transferor partner but he wouldbe entitled to receive the share of profits of his transferor and that he willbe bound to accept the account of profits agreed to by the partners.Sub-section (2) provides that upon dissolution of the firm or upon atransferor-partner ceasing to be a partner the transferee would be entitled asagainst the remaining partners to receive the share of the assets of the firmto which his transferor was entitled and will also be entitled to an account asfrom the date of dissolution. Section 30 deals with the case of a minoradmitted to the benefits of partnerships. Such minor is given a right to hisshare of the property of the firm and also a right to a share in the profits ofthe firm as may be agreed upon. But his share will be liable for the acts ofthe firm though he would not be personally liable for them. Sub-section (4)however, debars a minor from suing the partners for accounts or for his shareof the property or profits of the firm save when severing his connection withthe firm. It also provides that when he is severing his connection with the firmthe court shall make a valuation of his share in the property of the firm.Sections 31 to 38 deal with incoming and outgoing partners. Some of theconsequences of retirement of a partner are dealt with in sub-ss. (2) and (3)of s. 32 while some others are dealt with in Section 36 and 37. Under s. 37 theoutgoing partner or the estate of a deceased partner, in the absence of acontract to the contrary, would be, entitled to at the option of himself or hisrepresentatives to such share of profits made since he ceased to be a partneras may be attributable to the property of the firm or to interest at the rateof six per cent. per annum on the amount of his share in the property of thefirm. The subject of dissolution of a firm and the consequences are dealt within chapter VI, Section 39 to 55. Of these the one which is relevant for thisdiscussion is s. 48 which runs thus.

'In setting the accounts ofa firm after dissolution the following rules shall, subject to agreement by thepartners, be observed.

(a) Losses, includingdeficiencies of capital, shall be paid first out of profits, next out ofcapital and, lastly, in necessary, by the partners individually in theproportions 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 ofcapital, shall be applied in the following manner and order :-

(i) in paying the debts of thefirm to third parties;

(ii) in paying to each partnerratably what is due to him from the firm for advances as distinguished fromcapital;

(iii) in paying to each partnerratable what is due to him on account of capital; and

(iv) the residue, if any, shallbe divided among the partners in the proportions in which they were entitled toshare profits.'

5. From a persual of these provisions it would be abundantly clear thatwhatever may be the character of the property which is brought in by thepartners when the partnership is formed or which may be acquired in the courseof the business of the partnership it becomes the property of the firm and whata partner is entitled to is his share of profits, if any, accruing, to thepartnership from the realisation of this property, and upon dissolution of thepartnership to a share in the money representing the value of the property. Nodoubt, since a firm has no legal existence, the partnership property will vestin all the partners and in that sense every partner has an interest in the propertyof the partnership. During the subsistence of the partnership, however, nopartner can deal with any portion of the property as his own. Nor can he assignhis interest in a specific item of the partnership property to anyone. Hisright is to obtain such profits, if any, as fall to his share from time to timeand upon the dissolution of the firm to a share in the assets of the firm whichremain after satisfying the liabilities set out in clause(a) an sub-cls. (i),(ii) and (iii) of clause(b) of s. 48. It has been stated in Lindley onPartnership, 12th ed. at p. 375 :

'What is meant by the share of a partner is hisproportion of the partnership assets after they have been all realised andconverted into money, and all the partnership debts and liabilities have beenpaid and discharged. This it is, and this only which on the death of a partnerpasses to his representatives, or to a legatee of his share...................... and which on this bankruptcy passes to histrustee.'

6. This statement of law is based upon a number of decisions of the Englishcourts. One of these is Rodriguez v. Speyer Bros. (1919) A.C. 59 it has been observed. :

'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 havethe money so received applied, together with the other assets, in dischargingthe liabilities of the firm, and to receive his share of any surplus there maybe when the liquidation has been completed.'

7. No doubt this decision was subsequent to the enactment of the EnglishPartnership Act of 1890. Even in several earlier cases, as for instance, Darbyv. Darby 61 E.R. 992, the same view has been expressed. That was a case wheretwo persons purchased lands on a joint speculation with their joint monies forthe purpose of converting them into building plots and reselling them at aprofit or loss. It was held by Kindersley V.C. that there was a conversion ofthe property purchased put and out and upon the death of one of the partnershis share in the part of the unrealised estate passed to his personalrepresentatives. After examining the earlier cases the learned Vice-Chancellorobserved at p. 995 :

'The result then of theauthorities may be thus stated :- Lord Thurlow was of opinion that a specialcontract was necessary to convert the land into personality and Sir W. Grantfollowed that decision. Lord Eldon on more than one occasion strongly expressedhis opinion that Lord Thurlow's decision was wrong. Sir J. Leach clearly decidedin three cases that there was conversion out and out : and Sir L. Shadwell, inthe last case before him, clearly decided in the same way. That is the state ofthe authorities.

Now it appears to me that,irrespective of authority, and looking at the matter with reference toprinciples well established in this Court, if partners purchase land merely forthe purpose of their trade, and pay for it out of the partnership property,that transaction makes the property personalty, and effects a conversion out andout.'

8. He then observed :

'This principle is clearly laid down by Lord Eldonin Crawshaw v. Collins 15 Ves. 218, and by Sir W. Grant in Featherstonhaughv. Fenwick 17 Ves. 298, and the right of each partner to insist on a sale ofall the partnership property, which arises from what is implied in the contractof partnership, is just as stringent as a special contract would be. If, then,this rule applies to ordinarily stock-in-trade, why should it not apply to allkinds of partnership property Suppose that partners, for the purpose ofcarrying on their business, purchase, out of the funds of the partnership,leasehold estate, or take a lease of land, paying the rent out of thepartnership fund, an it be doubted that the same rule which applies to ordinarychattels would apply to such leasehold property I do not think it was everquestioned that, on a dissolution, the right of each partner to have thepartnership effects sold applies to leasehold property belonging to thepartnership as much as to any other stock-in-trade. No one partner can insiston retaining his share unsold. Nor would it make any difference in whom thelegal estate was vested, whether in one of the partners or in all; this Courtwould regulate the matter according to the equities. And Sir W. Grant sodecided in Featherstonhaugh v. Fenwick. 17 Ves. 298'

9. We have quoted extensively from this decision because of the argumentthat the decision in Rodriguez's case (1919) A.C. 59, would have beenotherwise but for s. 22 of the English Act. Adverting to this Lindley has said:

'From the principle that ashare of a partner is nothing more than his proportion of the partnershipassets after they have been turned into money and applied in liquidation of thepartnership, whether its property consists of land or not, must, as between thereal and personal representatives of a deceased partner, be deemed to bepersonal and not real estate, unless indeed such conversion is inconsistentwith the agreement between the parties. Although the decision upon this pointwere conflicting, the authorities which were in favour of the foregoingconclusion certainty preponderated over the others, and all doubt upon thepoint has been removed by the Partnership Act, 1890, which contains the followingsection :

22. Where land or any heritableinterest therein has become partnership, property it shall, unless the contraryintention appears, be treated as between the partners (including therepresentative of a deceased partner), and also as between the heirs of adeceased partner and his executors or administrators, as personal or movableand not real or her

itable estate.'

10. Even in a still earlier case Foster v. Hale 5 Ves. 308, a personattempted to obtain an account of the profits of a colliery on the ground thatit was partnership property and it was objected that there was no signedwriting, such as the Statute of Frauds required. Dealing with it the LordChancellor observed :

'That was not the question : it was whether therewas a partnership. The subject being an agreement for land, the question thenis whether there was a resulting trust for that partnership by operation oflaw. The question of partnership must be tried as a fact, and as if there wasan issue upon it. If by facts and circumstances it is established as a factthat these persons were partners in the colliery, in which land was necessaryto carry on the trade, the lease goes as an incident. The partnership beingestablished by evidence upon which a partnership may be found, the premisesnecessary for the purposes of that partnership are by operation of law held forthe purposes of that partnership.'

11. It is pointed out by Lindley that this principle is carried to itsextreme limits by Vice-Chancellor Wigram in Dale v. Hamilton 369 2 Ph. 266. Even so, it is pointed out that it must be treated as abinding authority in the absence of any decision of the Court of Appeal to thecontrary.

12. It seems to us that looking to the scheme of the Indian Act no other viewcan reasonably be taken. The whole concept of partnership is to embark upon ajoint venture and for that purpose to bring in as capital money or evenproperty including immovable property. Once that is done whatever is brought inwould cease to be the exclusive property of the person who brought it in. Itwould be the trading asset of the partnership in which all the partners wouldhave interest in proportion to their share in the joint venture of the businessof partnership. The person who brought it in would, therefore, not be able toclaim or exercise any exclusive right over any property which he has broughtin, much less over any other partnership property. He would not be able toexercise this right even to the extent of his share in the business of thepartnership. As already stated, his right during the subsistence of thepartnership is to get his share of profits from time to time as may be agreedupon among the partners and after the dissolution of the partnership or withhis retirement from partnership of the value of his share in the netpartnership assets as on the date of dissolution or retirement after adeduction of liabilities and prior charges. It is true that even during thesubsistence of the partnership a partner may assign his share to another. Inthat case what the assignee would get would be only that which is permitted bys. 29(1), that is to say, the right to receive the share of profits of theassignor and accept the account of profits agreed to by the partners. There arenot many decisions of the High Courts on the point. In the few that there arethe preponderating view is support of the position which we have stated. InJoharmal v. Tejram Jagrup I.L.R. 17 Bom. 235, which was decided by Jardineand Telang JJ., the latter took the view that though a partner's share does notinclude any specific part of any specific item of partnership property, stillwhere the partnership is entitled to immovable property, such share doesinclude an interest in immovable property and, therefore, every instrumentoperating to create or transfer a right to such share requires to be registeredunder the Registration Act. In coming to this conclusion he mainly purported torely upon an observation contained in the fifth edition of Lindley on partnershipat p. 347. This observation is not to be found in the present edition ofLindley's Partnership nor in the 9th or 10th editions which were brought to ournotice. The 5th edition, however, is not available. The learned Judge afterquoting an earlier statement which is that the 'doctrine merely amounts tothis that on the death of a partner his share in the partnership property is tobe treated as money, not as land' says : 'This obviously would notaffect matters either during the lifetime of a partner-Lindley, L.J., says inso many words that it has no practical operation till his death (p. 348) - oras against parties strangers to the partnership, e.g., the firm'sdebtors.' While it is true that the position so far as third persons areconcerned would be different it may be pointed out that in Forbes v. Steven,L.R. 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 oracquired by a partnership for partnership purposes (in the absence of somecontrolling agreement or direction to the contrary), is, as between thepartners and as between the real and personal representatives of partnerdeceased personal property, and devolves and is distributable and applicable aspersonal estate and as legal assets.' Telang J., seems to have overlooked,and we say to with great respect, the words 'as between the partners'which precede the words 'and as between the real and personalrepresentative of the partner deceased' and to have confined his attentionsolely to the latter. We have not found in any of the editions of Lindley'sPartnership an adverse criticism of the view of the Vice-Chancellor. But, onthe contrary, as already stated, the view expressed is in full accord withthese observations. Jardine J., has discussed the English authorities at lengthand after referring to the documents upon which reliance was placed on behalfof the defendant stated his opinion thus :

'To lay down that the three letters in question,which deal generally with the assets, movable and immovable, without specifyingany particular mortgage or other interest in real property requireregistration, would, I incline to think, in the present state of theauthorities, go too far. It may be argued that such letters are not'instruments of gift of immovable property' but rather disposals of a share ina partnership of which the business is money lending, and the mortgagesecurities merely incidental thereto.'

13. The view of Telang J., was not accepted by the Madras High Court inChitturi Venkataratnam v. Siram Subba Rao I.L.R. 49 Mad. 738. The learnedJudges there discussed all the English decisions as also the decision inSudarsanam Maistri v. Narasimhulu Maistri I.L.R. 1925 Mad. 149, and GopalaChetty v. Vijayaraghavachariar I.L.R. 45 Mad. 378 =(1922) A.C. 1, andthe opinion of Jardine J., in Joharmal's case I.L.R. 17 Bom. 235, held thatan unregistered deed of release by a partner of his share in the partnershipbusiness is admissible in evidence, even where the partnership owns immovableproperty. The learned Judges pointed out that though a partner may be aco-owner in the partnership property he has no right to ask for a share in theproperty but only that the partnership business should be wound up includingtherein the sale of immovable property and to ask for his share in theresulting assets. This decision was not accepted as laying down the correct lawby a Division Bench of the same High Court in Samuvier v. Ramasubier I.L.R. 55 Mad. 72. The learned Judges there relied upon the decision in Ashworth v. Munn(1880) 15 Ch. D. 363, in addition to the opinion of Telang J., and alsoreferred to the decision Gray v. Smith 43 Ch. D. 208, in coming to aconclusion contrary to the one in the earlier case.

14. It may be pointed out that the learned Judges have made no reference tothe decision of the Privy Council in Gopla Chetty's case I.L.R. 45 Mad. 378 = 1922) A.C. 1 though that was one of the decision relied upon byPhillips J., in the earlier case. In so far as Ashworth's case 1880) 15 Ch. D. 363 is concerned that was a case which turned on the provisions of theMortmain Acts and is not quite pertinent for the decision on the point whichwas before them and which is now before us. In Gray v. Smith Kakewich J., heldthat an agreement by one of the partners to retire and to assign his share inthe partnership assets including immovable property, is an agreement to assignan interest in land and falls within the Statute of Frauds. The view ofKekewich J., seems to have received the approval of Cotton L.J. one of theJudges of the Court of Appeal, though no argument was raised before itchallenging its correctness. It may, however, be observed that even accordingto Kekewich J., the authorities (Foster v. Hale 5 Ves. 308 and Dale v.Hamilton 369 2 Ph. 266, establish that one may have anagreement of partnership by parol, notwithstanding that the partnership is todeal with land. He, however, went on to observe :

'But it does not seems to me to follow that anagreement for the dissolution of such a partnership need not be expressed inwriting, or rather than there need not be a memorandum of the agreement fordissolution when one of term of the agreement, either expressly or by necessaryimplication, is that the party sought to be charged must part with and assignto others an interest in land. That seems to me to give rise to entirelydifferent considerations. In the one case you prove the partnership by parol; youprove the object, the terms of the partnership, and so on. But in the othercase it is one of the essential terms of the agreement that the party to becharged shall convey an interest in land, and that seems therefore to bring itnecessarily within the 4th section of the Statute of Frauds'.

15. In the case before, us also in Samuvier's case I.L.R. 55 Mad. 72, thedocument cannot be said to convey any immovable property by a partner toanother expressly or by necessary implication. If we may recall, the documentexecuted by the Addanki partners in favour of the Bhaskara partners records thefact that the partnership business has come to an end and that the latter havegiven up their share in 'the machine etc., and in the business' andthat they have 'made over same to you along completely by way ofadjustment.' There is no express reference to any immovable propertyherein. No doubt, the document does recite the fact that the Bhaskara familyhas given to the Addanki family certain property. This, however, is merely arecital of a fact which had taken place earlier. To cases of this type theobservations of Kekewich J., which we have quoted do not apply. The view takenin Samuvier's case I.L.R. 55 Mad. 72. seemed to commend itself toVardachariar J., in Thirumalappa v. Ramappa but he was reversed in Ramappa v.Thirumalappa A.I.R. 1939 Mad. 884.

16. We may also refer to the decision of a Full Bench in Ajudhia Pershad RamPershad v. Sham Sunder & Ors. A.I.R. 1947 Lah. 13. In which Cornelius J.,has discussed most of the decisions we have earlier referred to in addition toseveral others and reached the conclusion that while a partnership is inexistence, no partner can point to any part of the assets of the partnership asbelonging to him alone. After examining the relevant provisions of the Act, thelearned judge observed :

'These sections require that the debts andliabilities should first be met out of the firm property and thereafter theassets should be applied in ratable payment to each partner of what is due tohim firstly on account of advances as distinguished from capital and, secondlyon account of capital, the residue, if any, being divided ratably among all thepartners. It is obvious that the Act contemplates complete liquidation of theassets of the partnership as a preliminary to the settlement of accounts betweenpartners upon dissolution of the firm and it will, therefore, be correct to saythat, for the purposes of the Indian Partnership Act, and irrespective of anymutual agreement between the partners, the share of each partner is, in thewords of Lindley : 'his proportion of the partnership assets after theyhave been all realised and converted into money, and all the partnership debtsand liabilities have been paid and discharged.' This indeed is the viewwhich has commended itself to us.

17. Mr. Kuppuswamy then referred us to two decision of English courts in Inre Fuler's Contract (1933) Ch.D. 652, and Burdett-Coutts v. Inland RevenueCommissioners (1960) 1 W.L.R. 1027, and on the passage at pp. 394 and 395 inLindley's Partnership under the head 'Form of Transfer' in support ofhis argument. Both the cases relied upon deal with contracts with third partiesand not with agreements between partners inter se concerning retirement ordissolution. The passage from Lindley deals with a case where there is anactual transfer of immovable property and is, therefore, not in point.

18. Mr. Chatterjee brought to our notice some English decisions in additionto those we have adverted to in support, which agree with the view taken inthose cases. He has also referred to the decisions in Prem raj Brahmin v. BhaniRam Brahmin I.L.R. (1946) Cal. 191, and firm Ram Sahay v. Bishwanath : AIR1963Pat221 . We do not think it necessary to discuss them becausethey do not add to what we have already said in support of our view.

19. For these reasons we uphold the decree of the High Court and dismiss theappeal with costs.

20. Appeal dismissed.

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