1. This is a reference under Section 55 of the Kerala Stamp Act 1959 (hereinafter referred to as the 'Act') by the Board of Revenue for a decision as to whether Ext. P-l dated 14-9--1972 is to be viewed as a conveyance (Article 21), as a release (Article' 48 (b)) or as deed of dissolution of partnership (Article 43-B). According to the Board of Revenue, Ext. P-l cannot be treated as a mere agreement under Article 5 (c) of the Schedule to the Act.
2. The first respondent, S. S. Sankara-norayana Reddiar and one Ananthanara-yana Reddiar were conducting a partnership business named and styled as 'Good-morning Stores' and 'Namaste Stores' at Palayam, M. G. Road, Trivandrum as per agreement dated 14-7-1955. Anantha-narayana Reddiar died on 6-7-1972 leavin behind his widow and children, who are respondents 2 to 5 herein, as his legal representatives. The partnership business terminated on the death of Ananthanaryana Reddiar. The respondents amicably arranged for the distribution of the surplus assets of the erstwhile partnership business. An agreement, Ext. P-l dt/- 14-9-1972 was entered into by them. The first respondent presented the documentfor registration before the Sub-Registrar, Trivandrum, who was of the opinion that the document must be stamped as 'conveyance' and since it was not so stamped, he impounded it and forwarded it to the District Registrar, Trivandrum for adjudication. The latter, as per Ext. P-2 order adjudicated Ext. P-l as 'conveyance for Rs. 82,343.95 and required 1st respondent to pay additional stamp duty and penalty. The first respondent thereupon preferred an appeal petition, Ext. P-3, before the Board of Revenue, Trivandrum. The Board of Revenue was of the opinion that Ext. P-l cannot be regarded as a mere agreement, but wanted a decision by this court under Section 55 of the Act as to whether it is to be treated as a 'conveyance', 'release' or 'deed of dissolution of partnership'.
3. The learned Advocate-General contended that Ext. P-l operated as conveyance of the rights of the heirs of the deceased partner in the assets of the partnership and that this is particularly so since they are in the position of tenants-in-common with the surviving partner. The learned counsel for the respondents contended that Ext. P-l does not convey any rights, that it is only a record of distribution of the surplus assets of the partnership on dissolution which had already taken place and as such it can be regarded only as an agreement; alternatively, learned counsel submitted that it may either be a deed of release or a deed of dissolution of partnership. The learned Advocate-General rebulled this contention and further urged that if Ext. P-l is treated as a deed of release, since a release cannot convey title, it must be treated as conveyance.
4. It would be useful to have in view principles governing the rights of partners and legal representatives in the assets of a Firm. These principles can be gathered from the provisions of the Act (Sections 4, 11, 14, 40 to 44, 46 and 481 and Lindley on Partnership 13th Edition (at pages 366, 384, 385, 578, 615, 616, 618 and 620). Partnership is a relation between persons, who have agreed to share profits of a business carried on by all or any of them acting for all. Their mutual rights, duties and liabilities are determined by the provisions of the Indian Partnership Act subject to contract to the contrary between them. Property of the firm includes all property originally brought into the stock of the firm or acquired by or for the firm, or for the purpose of and in the course of the businessof the firm and includes the goodwill of the business. The firm itself has no separate legal personality apart from that of the partners. The property of the firm vests in all the partners. During the subsistence of the partnership, no partner can deal with the property of the firm as his own or claim separate right in any particular item of property, though he has a right over the entire assets of the firm. He cannot assign his share in any particular item of property, though he can assign his share in the partnership. His right is to obtain such profits, if any, as fall to his share from time to time.
5. A partnership firm can be dissolved in several ways. On dissolution, a partner is entitled to have his share in the surplus assets of the firm, after realisingthe assets, adjusting the losses,. praying debts, paying off advances made by partners and paying the amounts due as capital to the partners. This process consists of general sale, winding up and distribution.
6. When a partner dies, subject to any contract to the contrary, partnership is dissolved. If there are more than two partners, they may agree to the continuance of the partnership on the death of any one of them. If there are only two partners, there must necessarily be a dissolution on the death of any one of them. A legal representative may also transfer his rights to the surviving partner. In the normal course there must be a general sale and winding up followed by a distribution of the surplus.
7. In all cases of dissolution, assets of the firms have to be realised and converted into money. No one can insist on retaining his share unsold. Liquidation of assets and realisation by sale is the normal feature of winding up. The value can be realised on the footing of an actual sale or a notional sale as is made clear by Supreme Court in Commissioner of Income-tax, M. P., Nagpur and Bhandara v. Dewas Cine Corporation, (AIR 1963 SC 676). In the case of notional sale specific items of properties can be allotted to one of them and the money value to the other. This distribution is only part of the adjustment of the rights between these persons. Such distribution and adjustment of rights is a necessary consequence of dissolution of the partnership and cannot in law amount to a transfer.
8. Conveyance is defined in Section 2 (d) of the Act as including 'a conveyance on sale and every instrument by which theproperty is transferred inter vivos and which is not otherwise specifically provided for by the Schedule'. 'Gift' and 'Settlement' are otherwise provided for by the Schedule. In other words, a conveyance is a transfer for consideration not otherwise provided for. As we have stated already, distribution of surplus as-sets of an erstwhile partnership is only an adjustment of rights of parties and, does not involve a transfer of title from one party to the other. It is also significant to note that for such a distribution there is no consideration. Hence distribu-tion of assets following dissolution can-not be treated as 'conveyance'. Full Bench of the Madras High Court in Board of Revenue v. V. M. Murugesa Mudaliar, (AIR 1955 Mad 641) and in the Board of Revenue v. T. M. Mandalal Nadar & Co., (AIR 1968 Mad 254), the Andhra Pradesh High Court in K. R. Mallesha v. Ramnath Gajanand, (AIR 1974 Andh Pra 53), Full Bench of the Karnataka High Court in K. Azra Jabeen v. State of Karnataka, (1981) 1 Kant LJ 570 : (AIR 1981 Kant 17) have taken the view that the process by which distribution of surplus assets takes place between partners inter se or between a partner and representative of a deceased partner, does not involve a transfer or conveyance. Supreme Court in the Commissioner of Income-tax, U. P. v. Bankey Lal Vaidya, (AIR 1971 SC 2270) and Commissioner of Income-tax, M. P., Nagpur and Bhandara v. Dewas Cine Corporation, (AIR 1961 SC 676) has approved this view.
9. The learned Advocate-General, however, placed reliance on the decisions reported in In re Hiralal Nawalram, (1908) 10 Bom LR 730 (FB) and in P. L. A. Pala-niappa Chettiar v. V. L. A. R. Veerappa Chettiar, (AlR 1918 Mad 238) to support the proposition canvassed by him. Tn Hiralal Nawalram's case, assignees from the legal representatives of a deceased partner in turn assigned their rights for consideration in favour of the surviving partner. Such a document was held to be a conveyance by the Bombay High Court. This decision does not affect the proposition stated earlier, viz., that the process by which the surplus assets of a partnership business are distributed among persons entitled thereto does not amount to a transfer. Hiralal Nawalram's case dealt with a transaction entered into by the parties under which one party assigned his rights in favour of the other for consideration. It was not intended to be a mere adjustment of the rights of theparties in regard to the surplus assets in the process of winding up the partnership business. The intention of parties was to transfer rights for consideration. In P. L. A. Palaniappa Chettiar's case, during winding up proceedings, some of the partners entered into a deed of composition with a debtor-firm. The legal representative of the deceased partner sought from the debtor recovery of his share of the outstanding dealt with under the composition deed. It was held that even after the dissolution of partnership business by death, the surviving partners can give release of a claim, that the legal representative of the deceased partner is not in the position of a partner, but in the position of a tenant-in-common with the surviving partners regarding the assets of the partnership business and therefore he cannot question the release or composition, but, however, can sue for damages, if he is damnified in any way. These decisions are of no assistance to come to a conclusion that the process of distribution of partnership assets involves a transfer for consideration.
10. Ext. P-l starts by mentioning how the partnership business was started and conducted, the subsequent death of one of the 2 partners and the inheritance of the rights of the deceased by respondents 2 to 5. It recites that the assets, liabilities and outgoings of the partnership business were determined and it was found that a net amount of Rs. 83,343.95 was due to the share of the deceased partner in the surplus assets, that the first respondent agreed to pay this amount in full settlement of the claims of the other respondents and that the first respondent shall conduct the business as his own. Ext. P-l further recites that a sum of Rs. 30,000 has been paid as per receipt dated 25-8-1972, a sum of Rs. 20,000 as per receipt dated 28-8-1972 and the balance amount will be paid without interest on or before 25-8-1973. Respondents 2 to 5 affirmed that they have no other rights in the business or its management and that the 1st respondent shall have the right to run the business on proprietary title. The document is inscribed on stamp paper worth Rs. 3.20.
11. Exhibit P-l does not purport to convey rights of respondents 2 to 5 to the first respondent. The document only records the events which transpired prior to the execution of the document. The realisation of the assets and the determination of the money value of the share of respondents 2 to 5 in the assets of thepartnership, etc, are mentioned in Ext. P-l. It must have been done on the basis of a notional sale. Respondents 2 to 5 were entitled to be paid such money value as legal representatives of the deceased partner. The payments made and the promise to pay the balance cannot be treated as 'consideration' for the transaction. The fact that the document incidentally mentioned that with the distribution already decided upon by the parties, respondents 2 to 5 agreed that they have no further rights in the business and that the business shall be conducted by the first respondent in his proprietary title, will not change the character of the transaction and convert it into a conveyance. Ext. P-l does not convey or transfer any right. We, therefore, hold that Ext. P-l cannot be treated as a conveyance.
12. It is open to a partner to convey his share or for his legal representative to convey his rights in the partnership business, subject to any contract to the contrary. If the intention is to part with such rights for consideration in favour of the surviving partner, such a transaction could be arranged in the form of a release also. See Board of Revenue v. V. M. Murugesa Mudaliar of Gudiyatham, (AIR 1955 Mad 641) and Brothers Trading Syndicate v. Champalesseri Brothers (1974 Ker LT 523). But that is wholly different from a transaction under which parties distribute surplus assets. Whether a particular transaction is a release or not, will largely depend on the intention of the parties as evidenced by document itself and the legal effect of the terms entered into by them. Ext. P-l, in this case, mentions only a prior act of determination of the money value of the assets (evidently by a notional sale) and the share due to respondents 2 to 5 out of it and the part payments already made and the promise to pay the balance due in future. No feature of a release is present in Ext. P-l.
13. Dissolution of a partnership can be effected by or under a document. In such a case the document has to be treated as a deed of dissolution. See the Board of Revenue v. T. M. Mandala Nadar and Company, (AIR 1958 Mad 254), K. R. Mallesha v. Ramnath Gajanand, (AIR 1974 Andh Pra 53) and K. Azra Jabeen v State of Karnataka, (1981) 1 Kant LJ 570: (AIR 1981 Kant 17). But, if the dissolution of a partnership is followed by the amicable winding up and distribution of the surplus assets of the part-nership business and subsequently a document or agreement is entered merely reciting what has already taken place, such a document cannot be treated as a deed of dissolution since dissolution and distribution are not effected by or under the document as in the above cases. Before Ext. p-1 was executed in this case there was already a dissolution followed by distribution of surplus assets. Ext. P-l jonly recites what has happened prior I thereto. The adjustment of the rights and the distribution of the assets are not made by or under Ext. P-l. Therefore, it cannot be treated as a deed of dissolution The process of distribution in this case consisted of payment of certain sums and promise to pay the balance in future to respondents 2 to 5 and allotment of the properties of the partnership to 1st respondent. Ext. P-l only makes a record of it. It could, therefore, be treated only as an agremeent and nothing more.
We, therefore, hold that Ext. P-l cannot be treated as a deed of conveyance, or a deed of release or a deed of dissolution of partnership. It can only be treated as an agreement. The reference is answered accordingly. A copy of this order, under the seal of this Court, and the signature of the Registrar, will be sent to the Referring Authority.