Full Judgment Text
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PETITIONER:
S.V. CHANDRA PANDIAN AND ORS.
Vs.
RESPONDENT:
S.V. SIVALINGA NADAR AND ORS.
DATE OF JUDGMENT11/01/1993
BENCH:
AHMADI, A.M. (J)
BENCH:
AHMADI, A.M. (J)
PUNCHHI, M.M.
RAMASWAMY, K.
CITATION:
1993 SCR (1) 58 1993 SCC (1) 589
JT 1993 (1) 278 1993 SCALE (1)141
ACT:
Arbitration Act 1940:
Sections 14, 17, 30 and 33--Arbitration Award--Assests of
partnership firm allocated to partners on
dissolution--Assets comprising of immovable
properties--Whether award to be registered under the
Registration Act.
Indian Partnership Act, 1932:
Sections 18, 22, 29 and 48--Partnership--Dissolution
of--Settlement of accounts--Distribution of residue to
partners--Assets comprising of immovable properties--Whether
attracts Section 17 of Registration Act.
HEADNOTE:
Six brothers, viz. the four appellants and respondents 1 and
2, were carrying on the business in partnership. Disputes
arose between the six brothers in regard to the business run
by them. They entered Into an arbitration agreement to
resolve the disputes and referred the disputes to. three
arbitrators. The arbitrators entered upon the reference and
after giving opportunity of hearing to the parties,
circulated a draft award. After considering the reaction of
the disputants, final award was made by the arbitrators by
which various properties were allotted to each of the six
brothers.
Some of the disputants filed a petition praying for a
direction to the arbitrators to file their award in court.
They also filed another petition requesting the court to
pass a decree in terms of the award. Two other disputants
flied a petition under Section 30 of the Arbitration Act to
set aside the award. A Single Judge heard these matters.
It was contended before him that having regard to the
allotment of partnership properties including immovable
properties under the award, It was Incumbent that the award
should have been registered as required by Section 17(1) of
the Registration Act and since it lacked registration, the
Court had no jurisdiction to make it the rule of the Court
and grant a decree In terms
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thereof. The Single Judge directed taking steps for getting
the award registered.
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In the meantime, one of the arbitrators passed away. At the
request of some of the parties, the surviving arbitrators
presented the award to the Registrar for registration.
Thereupon one of the brothers served a notice on the
Registrar not to register the document.
Against the order of the Single Judge, an appeal was
preferred to Division Bench and it reversed the finding of
the Single Judge. It held that the award required
registration under section 17(1) of the Registration Act;
and in the absence of registration there was no valid award
and the Court had no jurisdiction to grant a decree in terms
of the award. Being aggrieved by this order, the present
appeals were flied by four of the six brothers.
On the question whether the award required registration
under section 17(1) of the Registration Act:
Allowing the appeals, this Court
HELD: 1.1. When a dissolution of a partnership takes
place and the residue is distributed among the partners
after settlement of accounts there is no partition, transfer
or extinguishment of interest attracting section 17 of the
Registration Act. [79F,G]
1.2. Regardless of its character the property brought into
the stock of a firm or acquired by a firm during its
subsistence for the purposes and in the course of its
business shall constitute the property of the firm unless
the contract between the partners provides otherwise. On
the dissolution of the firm each partner becomes entitled to
his share in the profits, if any, after the accounts are
settled in accordance with section 48 of the Partnership
Act. In the entire asset of the firm all the partners have
an interest, albeit in proportion to their share and the
residue, If any, after the settlement of accounts on
dissolution would have to be divided among the partners in
the same proportion in which they were entitled to a share
in the profit. Thus during the subsistence of the
partnership a partner would be entitled to a share in the
profits and after its dissolution to a share in the residue,
if any, on settlement of accounts. The mode of settlement
of accounts is clearly set out in section 48. It is obvious
that the
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residue would in the eye of law be movable property i.e.
cash, and hence distribution of the residue among the
partners in proportion to their shares in the profits would
not attract section 17 of the Registration Act. Moreover, a
partnership is not a legal entity but is only a compendious
name and each and every partner has a beneficial interest in
the property of the firm even though he cannot lay a claim
on any earmarked portion thereof as the same cannot be
predicated. Therefore, when any property is allocated to
him from the residue it cannot be said that he had only a
definite limited interest in that property and that there is
a transfer of the remaining interest in his favour within
the meaning of section 17 of the Registration Act. [75C-H,
76A]
1.3. Since no partner can claim a definite or earmarked
interest in one or all of the properties of the firm because
the interest is a fluctuating one depending on various
factors, such as, the losses incurred by the firm, the
advances made by the partners as distinguished from the
capital brought in, it cannot be said unless the accounts
are settled in the manner Indicated by section 48 of the
Partnership Act, what would be the residue which would
ultimately be allocable to the partners. In that residue,
which becomes devisable among the partners, every partner
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has an interest and when a particular property is allocated
to a partner in proportion to his share in the profits of
the firm, there is no partition or transfer taking place nor
is there any extinguishment of interest of other partners in
the allocated property in the sense of a transfer or
extinguishment of interest under section 17 of the
Registration Act. [76A-E]
Addanki Narayanappa & Anr. v. Bhaskara Krishtappa & 13 Ors.,
[1966] 3 SCR 400; Commissioner of Income Tax, West Bengal,
Calcutta v. Juggilal Kamalapat, [1967] 1 SCR 784; CIT Madhya
Pradesh v. Dewas Cine Corporation, [1968] 2 SCR 173; CIT.
U.P. v. Bankey Lal Vaidya, AIR 1971 SC 2270 and Malabar
Fisheries Co., Calicut v. CIT Kerala, [1980] 1 SCR 696,
relied on.
Ajudhia Pershad Ram Pershad v. Sham Sunder, AIR 1947 Lahore
13, referred to.
2. The award read as a whole makes it absolutely clear
that the arbitrators had confined themselves to the
properties belonging to the two firms and had scrupulously
avoided other properties in regard to which they did not
reach the conclusion that they belonged to the firm. It
seeks
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to distribute the residue after settlement of account on
dissolution. While distributing the residue the arbitrators
allocated the properties to the partners and showed them in
the Schedules appended to the award. On a true reading of
the award as a whole, there is no doubt that it essentially
deals with the distribution of the surplus properties
belonging to the dissolved firms. Ile award, therefore, did
not require registration under section 17(1) of the
Registration Act. [79E-G]
3. The matters are remanded to the Division Bench for
answering the other contentions which arose in the appeal
before it but which were not decided in view of its decision
on the question of registration of the award. The award
which is pending for registration may be registered by the
Sub-Registrar notwithstanding the objection raised by one of
the partners, if that is the only reason for withholding
registration. [79H, 80A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 17491752
of 1992.
From the Judgment and Order dated 13.11.91 of the Madras
High Court in O.S.A. No. 191 of 1988, O.P. No. 230/84 and
Application No. 3505 of 1984 and dated 27.1.1992 in O.S.A.
No. 9 of 1992.
WITH
Special Leave Petition No. 9408 of 1992.
A.K. Sen, A.T.M. Sampath and Sitharanjandas for the
Appellants.
T.S.K. Iyer, S. Sivasubramaniam, R. Thamodharan, Dr. A.F.
Julian (For M/s Arputham, Aruna & Co.) and A. Mariarputham
for the Respondents.
The following Judgment of the Court was delivered by
AHMADI, J. The four appellants and respondents 1 and 2 are
brothers. They were carrying on business in partnership in
the name and style of Messers Sivalinga Nadar and Brothers
and S.V.S. Oil Mills, both partnerships being registered
under the Partnership Act, 1932. Most of the properties
were acquired by the firm of Sivalinag Nadar and Brothers.
The firm of Messers S.V.S. Oil Mills merely had leasehold
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rights in the parcel of land belonging to the first-named
firm on which the superstructure of
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the oil miff stood. Both the partnerships were of fixed
durations. Disputes arose between the six brothers in
regard to the business carried on ’in partnership in the
aforesaid two names. For the resolution of these disputes
the six brothers entered into an arbitration agreement dated
8th October, 1981, which was as under :
"We are carrying on business in Partnership
together with other partners under several
partnership names. We are also holding shares
and Managing the Public Limited Company,
namely. The Madras Vanaspati Ltd., at
Villupuram. Disputes have arisen among us
with respect to the several business concerns,
immoveable and moveable properties standing in
our names as well as other relatives.
We are hereby referring all our disputes, the
details of which would be given by us shortly
to you, namely, Sri B.B. Naidu, Sri K.R.
Ramamani and Sri Seatharaman.
We agree to abide by your award as to our
disputes."
All the three arbitrators were fairly well-conversant with
the business carried on in different names by the aforesaid
two partnership firms; the first two being their Tax
Consultants and the third being their Chartered Accountant.
The parties, therefore, had complete faith and trust in
their objectivity and impartiality
The arbitrators accepted and entered upon the reference and
after giving the disputants full and complete opportunity to
place their rival points of view before them, circulated a
draft award and after considering the response and reaction
of the disputants thereon made their final award on 9th
July, 1984. The concluding part of the award reads as under
:
"We hereby direct that each of the parties be allotted the
schedule of properties mentioned in the various schedules A
to F annexed to this award.
1. S.V. Sivalinga Nadar- Schedule ’A’
2. S.V. Harikrishnan- Schedule ’B’
3. S.V. Chandrapandian- Schedule ’C’
4. S.V. Kasilingam Schedule ’D’
5. S.V. Ramchandran- Schedule ’E’
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6. S.V. Natesan Schedule ’F
We direct that the firms of M/s Sivalinga Nadar & Bros. and
M/s S.V.S. Oil Mills and also the joint house property Rent
Account be dissolved as at the close of business on 14th
July, 1984."
The arbitrators then proceed to set out the properties
belonging to or claimed to belong to the aforesaid two firms
in paragraphs 6 to 24 of their award. Paragraph 25 is ’a
residuary clause which says that any asset left out or
realised hereafter or any liability found due other than
those reflected in the account books, shall, likewise, be
divided and/or borne equally among the disputants.
Paragraphs 26 and 27 deal with the use of the firm names.
Paragraph 28 refers to the claim of Smt. C. Kanthimathi,
sister of the six partners, with which we are not concerned
in these appeals. Paragraph 29 refers to the business
carried on by the relatives of the disputants in the names
of Sri Brahmasakthi Agency and Srimagal Finance Corporation.
The arbitrators have recognised the fact that even though
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the said business is not carried on by the disputants it
would be desirable to dissolve the said firms also we.f.
24th July, 1984 in the larger interest of peace and amity
among the disputants and their relatives. Paragraph 30
refers to the properties standing in the name of the father
of the six disputants, i.e., partners of the two firms in
question. It is stated that although initially the
disputants had shown an inclination to refer the dispute
concerning the properties owned by their father to the
arbitration of the three arbitrators but when it was noticed
that the deceased had left a will disposing of the
properties the need for resolution of the dispute through
arbitration did not survive. In paragraph 31 the
arbitrators have determined their fees and have directed the
disputants to bear them equally. At the end of the award
the properties falling to the share of the disputants have
been set out in detail in Schedules A to F referred to
earlier.
After the award was made on 9th July, 1984, O.P. No. 230 of
1984 was filed by S.V. Chandrapandian & Ors. for a direction
to the arbitrators to file their award in Court which was
done. Thereupon, the applicants S.V. Chanrapandian and
others filed a Misc. Application No. 3503 of 1984
requesting the Court to pass a decree in terms of the award.
Before orders could be passed on that application, O.P. Nos.
247 & 275 of 1984 were
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filed by S.V. Sivalinga Nadar and S.V. Harikrishnan
respectively under section 30 of the Arbitration Act to set
aside the award. The said applications came up for hearing
before a learned Single Judge of the High Court. Various
points were raised and decided by the learned Single Judge
but it would be sufficient for our purpose to refer to the
one which we are called upon to decide in these group of
appeals. That is to be found in paragraph 71 of the
judgment of the learned Single Judge. The contention urged
was that having regard to the allotment of partnership
properties under the award, it was incumbent that the award
should have been registered as required by Section 17(1) of
the Registration Act and since it lacked registration, the
Court had no jurisdiction to make it the rule of the Court
and grant a decree in terms thereof.
The learned Single Judge answered the aforesaid contention
in paragraph 72 of his judgment as under :
"The learned counsel for the respondents also
contended that Award falls under Schedule I
Article 12 of the Stamp Act and the allocation
of properties owned by partnership firm on
dissolution to the erstwhile partners is not
partition of immoveable properties. In this
connection, learned counsel for the
respondents placed reliance in the decision
reported in AIR 1959 Andhra Pradesh P.380 (FB)
which decision has been confirmed in AIR 1966
SC 1300 = 1966 (2) MLJ 60 SC. Addanki
Narayanappa V. Bhaskara Kiishnappa. It was
submitted by the learned counsel for the
respondents that the contentions with regard
to stamp and registration put forward by the
petitioner cannot be accepted. It is to be
pointed out that the Award has been submitted
for registration long ago on 27-10.1984 itself
and it is stamped and if there is any
deficiency, the Registering Authority could
direct proper stamp to be affixed and
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therefore I feel there could be no impediment
for the Award being made a rule of the Court
and a decree being passed in terms of the
Award as contended by the learned counsel for
the respondents."
The learned Single Judge thereafter proceeded
to make the final order in paragraph 78 of the
judgment in the following terms :
"Thus on a careful consideration of the
materials available and
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the contentions of either side it has to be
decided that Application No. 3505 of 1984 in
O.P. No. 230/84 filed by the petitioners
therein praying for a decree in terms of the
arbitration Award dated 9.7.1984 has to be
allowed and O.P. Nos. 247 and 275 of 1984 and
the application filed in. those two petitions,
i.e., Application Nos. 3474, 3476, 5030, 5031,
5032, 2827, 2828,3773, 3762, 3874 of 1984 and
4886 and 4887 of 1985, are dismissed. The
petitioner in O P. No. 230/84 and the
applicants in Application No. 3503/84 are
directed to take steps for getting the Award
registered. The parties in all these
proceedings are directed to bear their own
costs."
It may here be mentioned that after the making of the award
one of the arbitrators Sri B.B. Naidu passed away on 20th
October, 1984. At the request of some of the parties the
surviving arbitrators presented the award before the
District Registrar, Madras, for registration on 27.10.84.
Even though. the signature of the deceased arbitrator was
identified by the surviving arbitrators the document was
kept pending for registration. In the meantime, on 23rd
January, 1987, advocate for Sivalinga Nadar served notice on
the Registrar not to register the document and threatened to
take proceedings in Court if the document was registered.
It will thus be seen that the registration of the document
was blocked by one of the disputants Sivalinga Nadar on the
premise that the High Court had in O.P. No. 247/84 granted a
stay against the operation of the award on 5th September,
1984.
Against the judgment of the learned Single Judge, the matter
was carried in appeal to a Division Bench of the High Court
of Madras. The Division Bench of the High Court reversed
the aforesaid finding recorded by the learned Single Judge
and came to the conclusion that the award required
registration under section 17(1) of the Registration Act.
In this view that it took, it did not think it necessary to
go into the other contentions dealt with by the learned
Single Judge. It held that since the award required
registration and was in fact not registered no proceeding
for making the award the rule of the Court could be
entertained because in the absence of a valid award the
Court had no jurisdiction to grant a decree in term of the
award. It, however, took note of the fact that the award
was presented for registration but on account of the conduct
of one of the disputants it could not be registered as the
Registering Authority was threatened with civil
consequences. The correspondence in this behalf was
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sought to be placed on record as additional evidence but the
Division Bench though that would not alter the situation
since the fact remained that the award was not registered
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even on the dated of its judgment. It, therefore, made the
following observation in paragraph 46 of the judgment:
"It, however, does not mean that if the award
is validly registered and presented to be made
a rule of the Court in accordance with law,
the Court cannot entertain the same."
In this view of the matter the Division Bench allowed the
appeal and set aside the impugned judgment of the learned
Single Judge and held that as the award was not registered
it could not be made the rule of the Court. It made no
order as to costs. It is against this decision of the
Division Bench of the High Court that present appeals by
special leave (we also grant special leave in S.L.P. No.
9408 of 1992) have been filed.
Before we examine the contention based on section 17 of the
Registration Act we may notice a few relevant provisions
bearing on the interest of partners in partnership property
as found in the Partnership Act, 1932. Section 4 defines
partnership a,-, a relationship between persons who have
agreed to share the profit of a business carried on by all
or any of them acting for all. Section 14 provides that
subject to contract between the partners, the property of
the firm includes all property and rights and interests in
property originally brought into the stock of the firm, or
acquired, by purchase or otherwise, by or for the firm, or
for the purposes and in the course of the business of the
firm, and includes also the goodwill of the business. It is
also clarified that unless the contrary intention appears,
property and rights and interest in property acquired with
money belonging to the firm shall be deemed to have been
acquired for the firm. Section 15 says that the property of
the firm shall be held and used by the partners exclusively
for the purposes of the business subject of course to
contract between the partners. Says section 18, subject to
the provisions of the Act, a partner is the agent of the
firm for the purposes of the business of the firm. Under
section 19 the act of a partner which is done to carry on,
in the usual way, business of the kind carried on by the
firm, shall bind the firm. This authority to bind the firm
is termed as "implied authority". Section 22 lays down that
in order to bind a firm, an act or instrument done or
executed by a partner or other person on behalf of the firm
shall be
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done or executed in the firm name, or in any other manner
expressing or implying an intention to bind the firm.
Section 29 deals with the rights of transferee of a
partner’s interest. Sub-section (1) thereof provides that
such a transferee will not have the same rights as the
transferor-partner but he would be entitled to receive the
share of profits of his transferor on the account of profits
agreed to by the partners. Sub-section (2) next provides
that upon dissolution of the firm or upon a transferor-
partner ceasing to be a partner, the transferee would be
entitled against the remaining partners to receive the share
of the assets of the firm to which the transferor-partner
was entitled and will also be entitled to an account as from
the date of dissolution. Section 30 deals with the case of
a minor admitted to the, benefits of partnership. Such a
minor is given a right to his share of the property of the
firm and also a right to share in the profits of the firm as
may be agreed upon business share is made liable for the
acts of the firm though he would not be personally liable
for the same. Sub-section (4), however, debars a minor from
suing the partners for an account or for his share of the
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property or profits of the firm except when he severe his
connections with the firm, in which case for determining his
share the law requires a valuation of his share in the
property of the firm to be made in accordance with Section
48. Sections 31 to 38 relate to incoming and outgoing
partners. Section 32 deals with the consequences of
retirement. Sub-sections (2) and (3) of Section 32 deal
with the consequences of retirement while Sections 36 and 37
speak about the rights of an outgoing partner to carry on
competing business and in certain cases to share subsequent
profits. Chapter VI deals with the dissolution of a firm.
Section 40 provides that a firm may be dissolved with the
consent of all the partners or in accordance with the
contract between the partners. Sections 41 and 42 deal with
dissolution on the happening of certain events while Section
43 permits a partner to dissolve a firm by notice if it is a
partnership at will. Section 44 speaks of dissolution
through Court. Section 48 indicates the mode of settlement
of accounts between the partners on dissolution while
Section 49 posits that where there are joint debts due from
the firm, and also separate debts due from any partner, the
property of the firm shall be applied in the first instance
in payment of the debts of the firm, and, if there is any
surplus, then the share of each partner shall be applied in
payment of his separate debts or paid to him. The separate
property of any partner shall be applied first in the
payment of his separate debts, and the
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surplus (if any) in the payment of the debts of the firm.
Chapter VII deals with the registration of firm, etc,. and
Chapter VIII contains the saving clause.
The above provisions make it clear that regardless of the
character of the property brought in by the partners on the
constitution of the partnership firm or that which is
acquired in the course of business of the partnership, such
property shall become the property of the firm and an
individual partner shall only be entitled to his share of
profits, if any, accruing to the partnership from the
realisation of this property and upon dissolution of the
partnership to a share in the money representing the value
of the property. It is well-settled that the firm is not a
legal entity, it has no legal existence, it is merely a
compendious name and hence the partnership property would
vest in all the partners of the firm. Accordingly, each and
every partner of the firm would have an interest in the
perperty or asset of the firm but during its subsistence no
partner can deal with any portion of the property as
belonging to him, nor can be assign his interest in any
specific item thereof to anyone. By virtue of the implied
authority conferred as agent of the firm his action would
bind the firm if it is done to carry on, in the usual way,
the business of the kind carried on by the firm but the act
or instrument by which the firm is sought to be bound must
be done or executed in the firm name or in any other manner
expressing or implying an intention to bind the firm. His
right is merely to obtain such profits, if any, as may fall
to his share upon the dissolution of the firm which remain
after satisfying the liabilities set out in the various sub-
clauses (i) to (iv) of clause (b) of section 48 of the Act.
In the present case the six brothers who were carrying on
business in partnership fell out on account of disputes
which they could not resolve inter se. The partnership
being of fixed durations could not be dissolved by any
partner by notice. As they could not resolve their disputes
they decided to resort to arbitration. The three
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arbitrators chosen by them were men of their confidence and
they after giving the partners full and complete opportunity
took care to first circulate a proposed award to ascertain
the reaction of the disputants therein. The letter written
to the arbitrators by S.V. Sivalinga Nadar dated 16th
February, 1983 indicates that he was quite satisfied with
the hearing given by the arbitrators. He was also by and
large satisfied with the proposed award but thought it
warranted certain adjustments to make it acceptable and
rationale. He was of the view that the
69
award should provide for the reallocation of the
shareholdings of Madras Vanaspati Ltd., whereas Brahmaksthi
Tin Factory owned by his sons should be kept out of the
purview of the arbitrators since it was not the subject
matter of arbitration. Then he raised some objection as to
the percentage of his share and the amount found due to him.
In the subsequent letter written on 9th September, 1983 he
has reiterated these very objections while raising certain
questions regarding valuation of partnership properties.
Even the application filed under Sections 30 and 33 of the
Arbitration Act in the High Court the objections to the
award as enumerated in paragraph 15 mainly concerned (i) the
conduct of the arbitrators who, it is alleged, acted
negligently, with bias and against principles of natural
justice (ii) deliberate act in leaving out certain proper-
ties from consideration e.g., shareholdings of Madras
Vanaspati Ltd., stock-in-trade and cash deposits, the
properties of Velayudha Perumal Nadar, etc., and (iii)
failure to grant him a higher share to which he was
entitled. No contention was raised regarding the want of
registration of the award. However, being a question of
law, the learned Single Judge entertained the plea and
rejected it but it found favour with the Division Bench.
We now think it convenient to reproduce the relevant part of
Section 17 of the Registration Act :
"17(1) The following documents shall be
registered, if the property to which they
relate is situate in a district in which, and
if they have been executed on or after the
date on which, Act, No. XVI of 1864, or the
Indian Registration Act, 1866 (20 of 1866), or
the Indian Registration Act, 1871 (8 of 1871),
or the Indian Registration Act, 1877 (3 of
1877), or this Act came or comes into force,
namely
(a) instruments of gift of immoveable
property;
(b) other non-testamentary instruments which
purport or operate to create, declare, assign,
limit or extinguish, whether in present or in
future, any right, title or interest, whether
vested or contingent, of the value of one
hundred rupees and upwards, to or in
immoveable property;
(c) non-testamentary instruments which
acknowledge the receipt or payment of any
consideration on account of the
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creation, declaration, assignment, limitation
or extinction of any such right, title or
interest; and
(d) leases of immoveable property from year
to year, or for any terms exceeding one year,
or reserving a yearly rent;
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(e) non-testamentary instruments
transferring or assigning any decree or order
of a Court or any award when such decree or
order or award purports or operates to create,
declare, assign, limit or extinguish, whether
in present or in future, any right, title or
interest, whether vested or contingent, of the
value of one hundred rupees and upwards, to or
in immoveable property."
The submission made in this behalf before the Courts below
was that the award involved a partition of immoveable
properties as a consequence of dissolution of the firms and
since the value of the immoveable properties which are the
subject matter of the award indisputably exceed the value of
Rs. 100, the award was compulsorily registrable in view of
the mandatory nature of the language of Section 17(1) which
uses the expression ’shall be registered’. On the mandatory
character of the provision there is no dispute. The
question which requires determination is whether on the
dissolution of the partnership the distribution of the
assets of the firm comprising both moveable and immoveable
properties after meating its obligations on settlement of
accounts amongst the partners of the firm in proportion to
their respective shares amounts to a partition of immoveable
properties or a relinquishment or extinguishment of a share
in immoveable property requiring registration under Section
17 of the Registration Act if the allocation includes
immoveable property of the value of Rs. 100 and above? In
other words the question to the considered is whether the
interest of a partner in partnership assets is to be treated
as moveable property or both moveable and immoveable
depending on the character of the property for the purposes
of Section 17 of the Registration Act? This question has
been the subject matter of decision in a few cases.
In Addanki Narayanappa & Anr. v. Bhaskara Krishtappa & 13
Ors., [1966] 3 SCR 400 the members of two Joint Hindu
families, the Addanki family and the Bhaskara family, had
entered into partnership for carrying on business of hulling
rice, etc.; each family having half share in that business.
The capital of the partnership comprised, among other
things,
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certain lands belonging to the two families. The firm
acquired more lands in the course of business. Differences
arose whereupon two members of the Addanki family filed a
suit for dissolution of the partnership and accounts. All
the members of the two families were made parties to the
suit either as plaintiffs or as defendants. The Bhaskara
family contended in defence that the partnership was
dissolved in 1936 and accounts were settled between the two
families under a karar executed in favour of Bhaskara
Gurappa Setty, the karta of the Bhaskara family, by five
members of the Addanki family representing that family. The
defendants, therefore, contended that the plaintiffs had no
cause of action and the suit for dissolution of partnership
and accounts was not maintainable. The relevant part of the
agreement Karar reads as under :
"As disputes have arisen in our family
regarding partition, it is not possible to
carry on the business of to make investment in
furture. Moreover, you yourself have
undertaken to discharge some of the debts
payable by us in the coastal parts in connec-
tion with our private business. Therefore,
from this day onwards we have closed the joint
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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 have
purchased and delivered possession of the same
to us even previously. In case you want to
execute and deliver a proper document in
respect of the share which we have given to
you, we shall at you own expense, execute and
deliver a document registerd."
Ex-facie this document disclosed that the partnership
business had come to a halt and 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 that
the Addanki family had already received certain properties
purchased by the partnership as its share in the partnership
assets. The submission was that since the partnership
assets included immovable property and the document recorded
relinquishment by the members of the Addanki family of their
interest therein which exceeded Rs. 100 in value, the
document required registration under Section 17(1) (c) of
the
72
Registation Act. After referring to the provisions of law,
treatise and the case law, both of English and Indian
Courts, this Court reproduced the following passage from the
decision in Ajudhia Pershad Ram Pershad v. Sham Sunder, AIR
1947 Lahore 13 with approval:
"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 ratable 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 ratably 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."
In Commissioner of Income-Tax, West Bengal, Calcutta v.
Juggilal Kamalapat, [1967] 1 SCR 784 = AIR 1967 SC 401 the
facts were that three brothers and one J. entered into a
partnership business. The firm owned both moveable and
immoveable properties. Sometime thereafter the three
brothers created a Trust with themselves as the first three
trustees and simultaneously executed a deed of
relinquishment relinquishing their rights in and claims to
all the properties and assets of the firm in favour of J and
of themselves in the capacity of trustees. Thereafter a new
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partnership firm was constituted between J and the Trust
with specified shares. The Trust brought a sum of Rs.
50,000 as its capital in the new firm. The new firm applied
for registration under Section 26-A of the Income Tax Act,
1922 but the application was rejected by the authorities.
The Tribunal held that the deed of relinquishment being
unregistered could not legally transfer the rights and the
title to the immoveable properties owned by the original
firm to the Trust. Since the immoveable properties were not
separable from the other business assets it held that there
was no legal transfer of any portion of the business assets
of the original firm in favour of the Trust. A
73
reference was made to the High Court on the question whether
the new partnership legally came into existence and as such
should be registered under Section 26-A. The High Court
held that there was no impediment to its registration. The
matter was brought in appeal before this Court. This Court
pointed out that the deed of relinquishment was in respect
of individual interests of the three brothers in the assets
of the partnership firm in favour of the Trust and
consequently, did not require registration, even though the
assets of the partnership included immoveable property. In
taking this view reliance was placed on the decision,
Ajudhia Pershad’s case (supra) as well as the decision of
this Court in Addanki Narayanappa & Anr. (Supra).
Again in CIT Madhya Pradesh v. Dawas Cine Corporation,
[1968] 2 SCR 173 = AIR 1968 SC 676 the partnership firm was
dissolved and on dissolution it was agreed between the
partners that the theaters should be returned to their
original owners who had brought them into the books of the
partnership as its assets. In the books of accounts of the
partnership the assets were shown as taken over on October
1. 1951 at the original price less depreciation, the
depreciation being equally divided between the two partners.
In the proceedings for the assessment year 1952-53 the firm
was treated as a registered firm. The Appellate Tribunal
held that restoration of the two theaters to the original
owners amounted to transfer by the firm and the entries
adjusting the depreciation and writing off the assets at the
original value amounted to total recoupment of the entire
depreciation by the partnership and on that account the
second proviso to section 10(2)(vii) of the I.T. Act, 1922
applied. The High Court in reference upturned the decision
of the Tribunal and held in favour of the assessee against
which the Revenue appealed to this Court. This Court after
referring to sections 46 and 48 of the Partnership Act held
that on the dissolution of the partnership each theatre must
be deemed to be returned to the original owner in
satisfaction partially or wholly of his claim to a share in
the residue of the assets after discharging the debts and
other obligations. In law there was no sale or transfer by
the partnership to the individual partners in consideration
of their respective share in the residue. In taking this
view reliance was once again placed on the decision of this
court in Addanki Narayanappa & Anr. (supra)
In CIT. U.P. v. Bankey Lal Vaidya, AIR 1971 SC 2270 this
court pointed out that on dissolution of partnership the
assets of the firm are
74
valued and the partner is paid a certain amount in lieu of
his share of the assets, the transaction is not a sale,
exchange or transfer of assets of the firm and the amount
received by the partner cannot be taxed as capital gains.
In taking this view reliance was placed on the decision of
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this Court in CIT. Madhya Pradesh v. Dewas Cine Corpn.,
(supra).
Again in Malabar Fisheries Co. Calicut v. CIT. Kerala,
[1980] 1 SCR 696 = AIR 1980 SC 176 the facts were that the
appellant firm which was constituted on April 1. 1959 with
four partners carried on six different businesses in
different names. The firm was dissolved on March 31, 1963
and under the deed of dissolution the first business concern
was taken over by one of the partners, the remaining five
concerns by two of the other partners and the fourth partner
received his share in cash. It appears that during the
assessment years 1960-61 to 1963-64 the firm had installed
various items of machinery in respect of which it had
received Development Rebate under Section 33 of the I.T.
Act. 1961. On dissolution, the Income Tax officer took the
view that section 34(3)(b) of the Act applied on the premiss
that there was a sale or transfer of the machinery by the
firm whereupon he withdrew the Development Rebate earlier
allowed to the firm by amending the orders in that behalf.
The appeal filed on behalf of the dissolved firm was
dismissed by the Appallate Assistant Commissioner but was
allowed by the Tribunal. At the instance of the Revenue a
reference was made to the High Court and the High Court
allowed the reference holding that there was a transfer of
assets within the meaning of section 34(3)(b). The
dissolved firm approached this court in appeal. This court
after referring to the definition of the expression
’transfer’ in section 2(47) of the Act and the case law on
the point concluded as under :
"Having regard to the above discussion, it
seems to us clear that a partnership firm
under the Indian Partnership Act, 1932 is not
a distinct legal entity apart from the
partners constituting it and equally in law
the firm as such has no separate rights of its
own in the partnership assets and when one
talks of the firm’s property or firm’s assets
all that is meant is property or assets in
which all partners have a joint or common
interest. If that be the position, it is
difficult to accept the contention that upon
dissolution the firm’s rights in the
partnership assets are extinguished. The firm
as such has no separate rights of its own
75
in the partnership assets but it is the
partners who own jointly in common the assets
of the partnership and, therefore, the
consequence of the distribution, division or
allotment of assets to the partners which
flows upon dissolution after discharge of
liabilities is nothing but a mutual adjustment
of rights between the partners and there is no
question of any extinguishment of the firm’s
rights in the partnership assets amounting to
a transfer of assets within the meaning of s.
2(47) of the Act."
From the foregoing discussion it seems clear to us that
regardless of its character the property brought into stock
of the firm or acquired by the firm during its subsistence
for the purposes and in the course of the business of the
firm shall constitute the property of the firm unless the
contract between the partners provides otherwise. On the
dissolution of the firm each partner becomes entitled to his
share in the profits, if any, after the accounts are settled
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in accordance with section 48 of the Partnership Act. Thus
in the entire asset of the firm all the partners have an
interest albeit in proportion to their share and the
residue, if any, after the settlement of accounts on
dissolution would have to be divided among the partners in
the same proportion in which they were entitled to a share
in the profit. Thus during the subsistence of the
partnership a partner would be entitled to a share in the
profits and after its dissolution to a share in the residue,
if any, on settlement of accounts. The mode of settlement
of accounts sat out in section 48 clearly indicates that the
partnership asset in its entirety must be converted into
money and from the pool the disbursement has to be made as
set out in clause (a) and sub-clauses (i), (fi) and (iii) of
clause (b) and thereafter if there is any residue that has
to be divided among the partners in the proportions in which
they were entitled to a share in the profits of the firm.
So viewed, it becomes obvious that the residue would in the
eye of law be moveable property i.e. cash, and hence
distribution of the residue among the partners in proportion
to their shares in the profits would not attract section 17
of the Registration Act. Viewed from another angle it must
be reaslised that since a partnership is not a legal entity
but is only a compendious name each and every partner has a
beneficial interest in the property of the firm even though
he cannot lay a claim on any earmarked portion thereof as
the same cannot be predicated. Therefore, when any property
is allocated to him from the residue it cannot be said that
he had only a definite limited interest in that
76
property and that there is a transfer of the remaining
interest in his favour within the meaning of section 17 of
the Registration Act. Each and every partner of a firm has
an undefined interest in each and every property of the firm
and it is not possible to say unless the accounts are
settled and the residue of surplus determined what would be
the extent of the interest of each partner in the property.
It is, however, clear that since no partner can claim a
definite or earmarked interest in one or all of the
properties of the firm because the interest is a fluctuating
one depending on various factors, such as, the losses
incurred by the firm, the advances made by the partners as
distinguished from the capital brought in the firm, etc, it
cannot be said, unless the accounts are settled in the
manner indicated by section 48 of the partnership Act, what
would be the residue which would ultimately be allocable to
the partners. In that residue, which becomes divisible
among the partners, every partner has an interest and when a
particular property is allocated to a partner in proportion
to his share in the profits of the firm, there is no
partition or transfer taking place nor is there any
extinguishment of interest of other partners in the
allocated property in the sense of a transfer or
extinguishment of interest under section 17 of the
Registration Act. Therefore, viewed from this angle also it
seems clear to us that when a dissolution of the partnership
takes place and the residue is distributed among the
partners after settlement of accounts there is no partition,
transfer or extinguishment of interest attracting section 17
of the Registration Act.
Strong reliance was, however, placed by the learned counsel
for the respondents on two decisions of this court, namely
(1) Ratan Lal Sharma v. Purshottam Harit, [1974] 3 SCR 109
and (2) Lachman Das v. Ram Lal andanr, [1989] 3 SCC 99.
Insofar as the first mentioned case is concerned, the facts
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reveal that the appellant and the respondent who had set up
a partnership business in December 1962 soon fell out. The
partnership had a factory and other moveable and immoveable
properties. On August 22, 1963, the partners entered into
an agreement to refer the dispute to the arbitration of two
persons and gave the arbitrators full authority to decide
their dispute. The arbitrators made their award on
September 10. 1963. Under the award exclusive allotment of
the partnership assets, including the factory, and
liabilities was made in favour of the appellant and it was
provided that he shall be absolutely entitled to the same in
consideration
77
of a sum of Rs. 17,000 plus half the amount of realisable
debts of the business to the respondent. The arbitrators
filed the award in the High Court on November 8, 1963. On
September 10, 1964, the respondent filed an application for
determining the validity of the agreement and for setting
aside the award. On May 27, 1966, a learned Single Judge of
the High Court dismissed the application as barred by time
but declined to make the award the rule of the court because
in his view the award was void for uncertainty and created
rights in favour of the appellant over immoveable property
worth over Rs. 100 requiring registration. The Division
Bench dismissed the appeal as not maintainable whereupon
this Court was moved by special leave. Before this Court it
was contended (i) that the award is not void for
uncertainty-, (ii) that the award seeks to assign the
respondent’s share in the partnership to the appellant and
therefore does not require registration; and (iii) that
under section 17 of the Arbitration Act, the court was bound
to pronounce judgment in accordance with the award. This
court while reiterating that the share of a partner in the
assets of the partnership comprising even immoveable
properties, is moveable property and the assignment of the
share does not require registration under section 17 of the
Registration Act. The legal position is thus affirmed.
However, since the award did not seek to assign the share of
the respondent to the appellant but on the contrary made an
exclusive allotment of the partnerShip asset including the
factory and liabilities to the appellant, thereby creating
an absolute interest on payment of consideration of Rs.
17,000 plus half the amount of the realisible debts, it was
held to be compulsorily registrable under section 17 of the
Registration Act. The Court did not depart from the
principle that the share of a partner in the asset of the
partnership inclusive of immoveable properties, is moveable
property and the assignment of the share on dissolution of
the partnership did not require registration under section
17 of the Registration Act. The decision, therefore, turned
on the interpretation of the award in regard to the nature
of the assignment made in favour of the appellant. So far
as the second case is concerned, we think it has no bearing
since that was not a case of assignment of partnership
property under a dissolution deed. In that case, the
dispute was between two brothers in 2-1/2 killas of land
situate in Panipat, Haryana. The said land stood in the
name of one brother the appellant. The respondent
contended that he was a banamidar and that was the dispute
which was referred to arbitration. The arbitrator made his
78
award and applied to the court for making it the rule of the
court. Objections were filed by the appellant raising
various contentions. The award declared that half share of
the ownership of the appellant shall "be now owned by Shri
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Ram Lal, the respondent in addition to his half share owned
in those lands". Therefore, the award transferred half
share of the appellant to the respondent and since the value
thereof exceeded Rs. 100, it was held that it required
registration. It is, therefore, obvious that this case has
no bearing on the point in issue herein.
In the present case, the Division Bench of the High Court
concluded that the award required registration because of an
erroneous reading of the award. The Division Bench after
extensively reproducing from the Schedules A to F of the
award proceeded to state in paragraph 39 that the allotments
are exclusive to the brothers and they get independent
rights of their own under the award in the properties
allotted under the schedule and hence it is not a case
purely of assignment of the shares in the partnership but it
confers exclusive rights to the allottees. On this line of
reasoning it concluded that the award required registration.
The court next pointed out in paragraph 42 of the judgment
that the award also partitions certain immoveable properties
jointly owned by the disputants. In this connection it has
placed reliance on paragraph 10(c) of the award which reads
as under :
"(c) Other Lands and Buildings and House
properties belonging to S.V. Sivalinga Nadar &
Bros. standing in the name of the firm and or
otherwise jointly owned by the disputants.
These have been allotted by us to one or other
or jointly to some of the disputants as per
schedules annexed hereto."
The reasons which weighed with the Division Bench of the
High Court in concluding that the award requires
registration appear to be based on an erroneous reading of
the award. We have carefully read the award and it is
manifest therefrom that the arbitrators had confined
themselves to the properties belonging to the two firms in
question and scrupulously avoided dealing with the
properties not belonging to the firm. This is manifest from
paragraphs 15 to 18 of the award. However, properties
standing in the names of disputants, individually or
jointly, and others as benamidars but belonging to the firm
also came to be included in the
79
distribution of the surplus partnership asset under the
award. That is the purport of paragraph 10(c) extracted
hereinabove. When on settlement of accounts the residue is
required to be divided among the partners in proportions in
which they were entitled to share profits under sub-clause
(iv) of clause (b) of section 48, the properties will have
to be allocated to the partnes as falling to their share on
the distribution of the residue and, therefore, the
arbitrators indicated in the schedules the, properties
falling to the share of each brother. Mere statements that
a certain property win now exclusively belong to one partner
or the other, as the case may be, cannot change the
character of the document or the nature of assignment
because that would in any case be the effect on the
distribution of the residue. The property failing to the
share of the partner on the distribution of the residue
would naturally then belong to him exclusively but so long
as in the eye of law it is money and not immoveable property
there is no question of registration under section 17 of the
Registration Act. Besides, as stated earlier, even if one
looks at the award as allocating certain immoveable property
since there is no transfer, no partition or extinguishment
of any right therein there is no question of application of
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section 17(i) of the Registration Act. The reference to
other land and buildings and house properties jointly owned
by the disputants in clause (c) of paragraph 10 of the award
merely indicates that certain properties belonging to the
firm stood in the names of individual partners or in their
joint names but they belonged to the firm and, therefore,
they were taken into account for the purpose of settlement
of accounts under section 48 of the partnership Act and
distributed on the determination of the residue. The award
read as a whole makes it absolutely clear that the
arbitrators had confined themselves to the properties
belonging to the two firms and had scrupulously avoided
other properties in regard to which they did not reach the
conclusion that they belonged to the firm. On a correct
reading of the award, we are satisfied that the award seeks
to distribute the residue after settlement of accounts on
dissolution. While distributing the residue the arbitrators
allocated the properties to the partners and showed them in
the Schedules appended to the award. We are, therefore, of
the opinion that on a true reading of the award as a whole,
there is no doubt that it essentially deals with the
distribution of the surplus properties belonging to the
dissolved firms. The award, therefore, did not require
registration under section 17(1) of the Registration Act.
For the above reasons, we allow these appeals and set aside
the
80
impugned orders of the Division Bench and remit the matters
to the Division Bench for answering the other contentions
which arose in the appeal before it but which were not
decided in view of its decision on the question of
registration of the award. We also make it clear that the
award which is pending for registration may be registered by
the Sub-Registrar notwithstanding the objection raised by
one of the partners S.V. Sivalings Nadar through his lawyer
if that is the only reason for withholding registration.
The appeals are allowed accordingly with costs.
G.N. Appeals allowed.
81