IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOMAS P.JOSEPH FRIDAY, THE 9TH APRIL 2010 / 19TH CHAITHRA 1932 SA.NO. 339 OF 2001() -------------------- AS.11/1995 OF V ADDL. DISTRICT COURT, ERNAKULAM OS.282/1992 OF THE ADDITIONAL SUB COURT,KOCHI .................... APPELLANT – APPELLANTS 2, 4 TO 12 – DEFENDANT NOS.2 & LRS. OF DEFENDANT NOS.1: -------------------------------------------------------------------------------------- 1. V.J. GEORGE, S/O. LATE V.V. JOSEPH, VARIAMPARAMBIL, ERATTUKULANGARA PACHALAM, REPRESENTED BY HIS POWER OF ATTORNEY HOLDER, SHRI V.J. JOHNY (4TH 4TH APPELLANT HEREIN) VARIAMPARAMBIL, ERATTAKULANGARA, PACHALAM. 2. V.J. ANONTY, S/O. LATE V.V. JOSEPH, VARIAMPARAMBIL, ERATTAKULANGARA, PACHALAM. 3. V.J. PAUL, DO. DO. DO. 4. V.J. JOHNY, DO. DO. DO. 5. SANTHA, D/O. DO. DO. 6. ANNIE, DO. DO. DO. 7. RITA, DO. DO. 8. RANI, DO. DO. DO. 9. ALEKUTTY, DO. DO. DO. 10. CICILY, DO. DO. DO. (APPELLANT NOS.6 TO 10 ARE REPRESENTED BY THEIR POWER OF ATTORNEY HOLDERS AND BROTHERS S/SHRI V.J. PAUL, V.J. ANTONY AND V.J.JOHNY, APPELLANTS 2 TO 4 HEREIN) BY ADV. SRI.S.V.BALAKRISHNA IYER, SENIOR ADVOCATE SRI.P.B.KRISHNAN RESPONDENT(S) – RESPONDENT 1, 2, 4 & S5 PLAINTIFF & DEFENDANT 3, 5,& 6: ----------------------------------------------------------------- 1. V.V. GEORGE, S/O. LATE V.O. VAKKAN, ASSISTANT MANAGER, NEW INDIA ASSURANCE COMPANY, RESIDING AT 28/819, KONTHURUTHUY, KOCHI (DIED) 2. V. GOPALAKRISHNAN PRABHATH GOLD COVERING, C.C. XVI/1467, THOPPUMPADY, KOCHI – 5. 3. NARAYANA KAMMATH, NETHAJI CAFE, 16/1468, THOPPUMPADY, KOCHI – 5. 4. K.T. JOSEPH, COCHIN FLOWER HOUSE & BOOK CENTRE, THOPPUMPADY (DIED) ADDITIONAL RESPONDENTS IMPLEADED: -------------------------------------------------------- 5. CATHERINE, W/O. LATE V.V.GEORGE, VARIAMPARAMBIL, B.M.C. OLD POST OFFICE ROAD, THRIKKAKKARA, KOCHI – 21. 6. GEORGE VARGHESE @ VAKKAN, S./O. DO. DO. 7. MARIA @ MARY ANN LOUIS, D/O.DO. DO. ADDITIONAL RESPONDENT NOS.5 TO 7 ARE IMPLEADED AS THE LRS OF DECEASED R1 VIDE ORDER DATED 3.11.2008 IN I.A. NO.1419 OF 208. 8. LILLY JOSEPH, W/O. LATE K.T. JOSEPH, COCHIN FLOWER HOUSE & BOOK CENTRE, THOPPUMPADY, KOCHI – 5. 9. JICKSON JOSEPH, S/O. DO. DO. DO. 10. LICKSON JOSEPH, S/O. DO. DO. ADDITIONAL RESPONDENT NOS.8 TO 10 ARE IMPLEADED AS THE LEGAL REPRESENTATIVES OF DECEASED RESPONDENT NO.4 VIDE ORDER DATED 3.11.2008 IN I.A. NO.1421 OF 2008. ADV. SRI.T.KRISHNANUNNI, SENIOR ADVOCATE FOR R1 SRI.SAJU S.A FOR R5 TO 7 THIS SECOND APPEAL HAVING BEEN FINALLY HEARD ON 09/04/2010, ALONG WITH SA NO. 429 OF 2001 THE COURT ON 9.4.2010 DELIVERED THE FOLLOWING: “C.R.” THOMAS P.JOSEPH, J. ================================= S.A. Nos.339 & 429 of 2001 ================================= Dated this the 9th day of April, 2010 J U D G M E N T The substantial questions of law framed for a decision are: i. On a true construction of Ext.B2, was not the suit property and other items included in Annexures I to III thereof thrown into the firm by the retiring partners with an intention to henceforth treat the same as property of the partnership as newly constituted and in view of Section 14 of the Indian Partnership Act (for short, “the Act”) is the said document compulsorily registerable under the Indian Registration Act (for short, “the Registration Act”)? ii. Is not a mere intention to treat individual properties as partnership properties sufficient to treat such properties as having been transferred to the partnership firm and is it legally necessary to execute any formal conveyance? S.A. Nos.339 & 429 of 2001 -: 2 :- iii. Are not the covenants in Ext.B2 to execute conveyances, powers of attorney or to subscribe signatures by the retiring partners at some future point of time as and when called upon to do so by the continuing partners by way of abundans cautela non nocet, so as to ensure utilization of individual properties of the outgoing partners for purposes of the business of the firm, represented by the continuing partners? 2. M/s.V.O.Vakkan & Sons (for short, “the firm”) is a registered partnership firm which was engaged in the business of manufacturing, buying, selling and exporting coir, coir fibre, coir products, etc. While so as per Ext.B2, unregistered deed dated 08.09.1967 three of its partners - M/s.V.V.Antony, V.V.George and V.V.Job retired from the partnership with effect from that day and while making arrangements regarding liability of the retiring partners, made certain arrangements with respect to a few items of immovable properties (referred to in Annexures I to III of Ext.B2) which belonged to the retiring partners. In accordance with that arrangement the said S.A. Nos.339 & 429 of 2001 -: 3 :- properties were put in the possession of M/s.V.V.Joseph and V.J.George who continued as partners of the said firm. The said V.V.Joseph and V.J.George were authorised to deal with the said properties and if necessary encumber the same provided, no personal liability was created on the retiring partners. Accordingly, the said properties were subjected to an equitable mortgage in favour of the Syndicate Bank, Alappuzha (for short, “the Bank”) on 16.10.1968 for a loan availed by the firm. The Bank filed O.S.No.120 of 1972 in the Sub Court, Kochi against the firm, its then partners, M/s.V.V.Antony, V.V.George, V.V.Job and others for realisation of money by sale of the mortgaged properties. The Bank obtained a decree in its favour. In the course of execution of that decree the executing court permitted Shri V.V.Joseph to effect private sale of the said properties and liquidate the decree debt. Certain items of the said properties were sold and liability of the Bank was discharged. Shri V.V.Joseph and V.V.George applied to the executing court to direct the Bank to deliver to them Ext.B2 and the title deeds relating to the immovable properties subjected to the equitable mortgage. There were counter claims also for custody of the title deeds. The executing court as per order S.A. Nos.339 & 429 of 2001 -: 4 :- dated 17.06.1989 directed that the title deeds and Ext.B2 be delivered to the firm and its partners, Shri V.V. Joseph and V.J. George making it clear that dispute regarding title to the properties shall be decided in appropriate proceeding. On 08.05.1992 Shri V.V. Joseph filed O.S. No.120 of 1992 in the vacation court (District Court, Ernakulam to be filed in the Sub Court, Kochi) against Shri V.V. George (one of the partners who retired from the firm as per Ext.B2 dated 08.09.1962) seeking a decree for prohibitory injunction against alienation of the suit property (which is included in Annexures I to III of Ext.B2), inducting strangers or disturbing peaceful enjoyment of the said property claiming title and possession of the said property. Shri V.V.George filed O.S. No.282 of 1992 in the Sub Court, Kochi against Shri V.V. Joseph, V.J George and others for recovery of possession of the said property and for mandatory injunction on the strength of title claimed by him. Both the suits were tried jointly. Trial court allowed O.S. No.282 of 1992 while O.S. No.120 of 1992 ended in dismissal. Trial court took the view that title to the suit property remained with Shri V.V. George as Ext.B2, dated 08.09.1967 involved only an agreement to transfer the suit property in favour of Shri V.V.Joseph and Shri S.A. Nos.339 & 429 of 2001 -: 5 :- V.J. George and that plea of Shri V.V. Joseph and others that they are entitled to protect their possession under Section 53A of the Transfer of Property Act (for short, “the TP Act”) and at any rate perfected title by adverse possession and law of limitation cannot be sustained. Shri V.V.Joseph and others took up the matter in appeal. In the meantime Shri V.V. Joseph expired and his legal heirs were impleaded. First appellate court observed that Ext.B2 cannot convey title over immovable properties without obtaining a formal sale deed, hence Shri V.V. Joseph could not become absolute owner of the suit property, and confirmed other findings, judgment and decree of the trial court. Hence these appeals. 3. Shri S.V. Balakrishnan Iyer, learned Senior Advocate appearing for appellants argued that finding of the courts below that Ext.B2 did not confer title of the suit property in favour of the late V.V.Joseph is not sustainable in law or on facts. According to the learned Senior Advocate it is a case where the suit property was brought into the partnership at a time when Shri V.V. George (referred to hereinafter as the respondent) and the two others continued to be its partner and hence it became S.A. Nos.339 & 429 of 2001 -: 6 :- property of partnership as understood in Sec.14 of the Act. Learned Senior Advocate would contend that when property, moveable or immovable is brought into the common stock of the partnership and converted as its property, it did not require registration under the Registration Act. Learned Senior Advocate, Shri T.Krishnanunni appearing for respondent would contend that Ext.B2 only created an agreement for sale of the suit property in favour of the late V.V. Joseph and Shri V.J. George (appellant No.1) in their individual capacity and not even as partners of the firm. According to the learned Senior Advocate Ext.B2 cannot be taken as a conveyance of the suit property in favour of said V.V. Joseph and V.J. George. Any rate, even if it is assumed that Ext.B2 is a conveyance in favour of the said persons so far the property is not brought into the common stock of the partnership consisting of respondent also question of treating the said property as partnership property under Sec.14 of the Act did not arise and hence since Ext.B2 is not registered as required under the Registration Act it cannot affect right, title and interest of respondent in the suit property. S.A. Nos.339 & 429 of 2001 -: 7 :- 4. Section 14 of the Act reads, “The property of the firm.-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 business of the firm, and includes also the goodwill of the business. Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.” Lindley on “The Law of Partnership”, 14th Edition at page 444 states as under: “The expressions partnership property, partnership stock, partnership assets, joint stock, and joint estate, are used indiscriminately to denote everything to which the firm, or in the other words all S.A. Nos.339 & 429 of 2001 -: 8 :- the partners composing it, can be considered to be entitled as such. The qualification “as such” is important; for persons may be entitled jointly or in common to property, and the same persons may be partners, and yet that property may not be partnership property; e.g. if several persons are partners in trade, and land is devised or a legacy is bequeathed to them jointly or in common, it will not necessarily become partnership property and form part of the common stock in which they are interested as partners. Whether it does so or does not, depends upon circumstances which will be examined hereafter.” At page 445 it is stated, “it is competent for partners by agreement amongst themselves to convert what is the joint property of all into the separate property of some one or more of them and, vice versa. It is also stated that whatever at the commencement of a partnership is thrown into the common stock and whatever has from time to time during S.A. Nos.339 & 429 of 2001 -: 9 :- the continuance of the partnership been added thereto or obtained by means thereof can be treated as partnership property. At page 457 it is stated, “It is competent for partners by agreement amongst themselves to convert that which was partnership property into the separate property of an individual, or vice versa. And the nature of the property may be thus altered by any agreement to that effect; for neither a deed nor (save where the property consists of land) even writing is absolutely necessary. Thus where an asset the title to which is vested solely in one partner is shown in the balance-sheet as an asset of the partnership, this would be evidence to show an agreement to treat that asset as partnership property. However, so long as an agreement is dependent upon the unperformed condition, the ownership of the property will remain unchanged.” At page 458 the Author states, S.A. Nos.339 & 429 of 2001 -: 10 :- “conversion of joint property into separate property or vice versa most frequently takes place when a firm and one of its partners carry on distinct trades; or when a change occurs in a firm either by retirement of some or one of its members or by introduction of a new partner”. 5. Halsbury's “Laws of India” (Volume 4) at page 214 states, “the property of the firm, subject to contract between the partners, includes all property and rights and interests in the property originally brought into the stock of the firm, or acquired by purchase or otherwise, by or for the firm or for the purpose and in the course of the business of the firm and includes also the goodwill of the business. Partners may convert that which was partnership property into the separate property of an individual partner or vice versa by agreement, express or implied”. S.A. Nos.339 & 429 of 2001 -: 11 :- S.T.Desai's “The Law of Partnership in India” (7th Edition)at page 123 states, “that the expression property of the firm also referred to as partnership property, partnership assets, joint stock, common stock or joint estate denotes all property rights and interests to which the firm, i.e. all the partners as such, may be said to be entitled and that Section 14 furnishes a useful guide in determining and what is and what is not property of the firm but, the question must ultimately depend on the real intention and agreement of the partners”. At page 124 the Author states, “the general rule stated in the Section (Section 14) is applicable subject to contract between the partners. It is open to the partners to agree themselves as to what is to be treated as the property of the firm and what is to be the separate property of one or more of the partners. S.A. Nos.339 & 429 of 2001 -: 12 :- Such an agreement need not be express but may be implied from the facts and circumstances of the case”. At page 125 it is stated, “the whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest”. 6. The Property of the partnership includes all property, rights and interests in property originally brought into the stock of the partnership or acquired by purchase or otherwise by or for the partnership or for its purposes in the course of its business. When a partner brings in his personal asset into the partnership as his contribution to the capital, an asset which till then was subject to the absolute ownership of that partner becomes subject to the rights of all the partners in S.A. Nos.339 & 429 of 2001 -: 13 :- the firm to share the profits of that asset and at the time of winding up of the partnership to sell the asset and claim share in the resultant asset if any (See Sujan Suresh Sawant v. Kamalakant Shantaram Desa, AIR 2004 Bombay 446). Partners may convert which was property of the partnership, moveable or immovable into separate property of the individual partner or property of the individual partners into property of the firm by agreement which may be express or implied. What is relevant is the intention of the partners. For such conversion no document, registered or otherwise is necessary. There must be some evidence to prove that intention. Such intention may even be proved by a course of conduct, for eg., by entries in the partnership books. The term 'partnership property' is generally used to denote everything to which the firm, i.e., all the partners qua the partners can be considered to be entitled. The partners may be entitled jointly or in common to some property, and the same persons may happen to be partners, yet the property may not be partnership property. In Morris v. Barret (1829) 148 E.R. 1228) it is stated that a legacy may be made in favour of persons who are partners in a business, those persons are jointly entitled to the legacy but the legacy will not on that account S.A. Nos.339 & 429 of 2001 -: 14 :- become partnership property. There should be some evidence of an intention to treat the property as part of the capital of the business. In Exparte Ruffin (See Vesey's report, Vol. VI. Page 119) in June 1797, Thomas Cooper took James Cooper into the partnership. It was dissolved on November 3rd, 1798. Thomas Cooper assigned the buildings, premises, stock in trade, debts and effects to James Cooper. Lord Chancellor was of the opinion that joint creditors had no equity attaching upon partnership effects remaining in specie (The Nagpur High Court in Jamnadas v. Ramadtar and Others, AIR 1922 Nagpur 70 has also taken the view that any disposition of the (partnership) property by agreement of partners is effective unless made with a view to defraud the creditors). In Exparte John Owen – In Re John Bowers (See De Gex And Smale's (Vol.IV) 1850-51 at Page 351) a sole trader, possessed of stock in trade and household furniture took two partners without any agreement that they were to participate in the profits of the concern. They brought in no capital and paid no premium. No deed or agreement was also executed. The firm became bankrupt. Question arose whether the properties were of the partnership. The Vice Chancellor held that the just inference is S.A. Nos.339 & 429 of 2001 -: 15 :- that there was an agreement between the three, express or implied that all the stock in trade should become property of the three. In Pilling v. Pilling (See De Gex Jones and Smith's Reports, Page 162) a father took his two sons into partnership under articles by which it was agreed that the business should be carried on with the father's capital which should remain his and that yearly stock taking should be made. The partnership lasted for ten years. It was held that the mode of keeping the accounts and division of profits according to it evidenced a new agreement between the parties and that the account must be taken on that footing and not on the footing of the articles. The properties were treated as property of the partnership. But property belonging to a partner as his personal property in the absence of any agreement does not ipso facto become property of the partnership for the mere reason that it was used for business of the partnership (See Firm Ram Sahay v. Bishwanath, AIR 1963 Patna 221, Sudhansu v. Manindra Nath, AIR 1965 Patna 144 and Sujan Suresh Sawant v. Kamalakant Shantaram Desa, supra). The Act does not prescribe any particular mode by which property S.A. Nos.339 & 429 of 2001 -: 16 :- whether moveable or immovable is to be brought into the common stock of the partnership. As soon as the partners intend that their individual property should become property of the partnership and that property is treated as property of the partnership, then, by virtue of Sec.14 of the Act it becomes property of the partnership. Conversion takes place by operation of law under Sec.14 of the Act once the intention is expressed and the property is treated as such. The same view is taken in Sahaya Nidhi (Virudha Nagar Ltd. v. Subramania Nadar, AIR 1951 Madras 209 and L.J.J. Rebello v. Chief Controlling Revenue Authority in Mysore, AIR 1971 Mysore 318. The Supreme Court in Sunil v. I.T. Commr, Ahmedabad (AIR 1986 SC 368) has stated that there is no 'transfer' in the general sense of that item when a partner brings his personal asset into the firm as his contribution to its capital (i.e., to the common stock). When a partner brings in his personal asset into the capital of the partnership firm as his contribution to the partnership he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm. While he does not lose his S.A. Nos.339 & 429 of 2001 -: 17 :- rights in the asset altogether what he enjoys is an abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it was brought into the partnership. What was the exclusive interest of a partner in his personal asset is, upon its introduction into the partnership firm as his share to the partnership capital transformed into a shared interest with the other partners in that asset. 7. Even when conversion of individual immovable property of the partner into property of the partnership is made as per a written instrument, it does not require registration compulsorily. A deed of release of his share in the partnership by a partner even though the partnership owns immovable property is not required to be registered as an instrument under Sec.17(1)(b) of the Registration Act. That is because even though a partner may be a co-owner of partnership property, he has no right to ask for a share in that property, but only that the partnership business be wound up including sale of the immovable property and to ask for his share in the resultant assets. That interest of a partner in the partnership assets, of moveable or immovable property is not a right, title or interest in S.A. Nos.339 & 429 of 2001 -: 18 :- immovable property within the meaning of Sec.17(1)(b) of the Registration Act. The Madras High Court took that view in Venkataram v. Subba Rao, (1949) 49 Madras 738 which has been approved by the Supreme Court in Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300. The Supreme Court in Commissioner of Income-tax, West Bengal, Calcutta v. Juggilal Kamalapat, AIR 1967 SC 401 held that when partners relinquished their individual interest in moveable or immovable assets of partnership in favour of new partners by a deed of relinquishment it did not require registration as an instrument under Sec.17(1)(b) of the Registration Act. In Gangadhar Madhavrao Bidwal v. Hanmantrao Vyankatrao Mungale (1995) 3 SCC 205) there was an unregistered deed of dissolution of partnership which indicated that land was in joint ownership of both the partners. On facts it was held that property at the time of dissolution of partnership was partnership property and hence the deed of dissolution was not required to be registered and the recital in the document is admissible in evidence even in the absence of registration. S.A. Nos.339 & 429 of 2001 -: 19 :- 8. It is within the power of partners to bring their individual property, moveable or immovable into the partnership and convert it into the common stock either at the time of formation of the partnership or during the continuance of that partnership and for the said purpose it is not necessary that there must be a written instrument. What is relevant is the intention of partners which could be proved even by a course of conduct. If the partners intended that property which hitherto was individual property of the partners be brought into the partnership as its asset so that individual right of partners qua partners over the property is lost and it becomes shared rights of the partners and the property is treated as such,