Case: Shadi Lal Vs. Nagin Chand &amp; Ors

3. The appellant and the respondents are partners. They carried on hosiery business in Ludhiana under the name of Jain Bodh Hosiery. The three persons were partners in the aforesaid business. On 31st March 1959 the partnership was dissolved. After the dissolution the three partners started hosiery business separately and individually. Shadi Lal carried on the hosiery business under the name and style of Jain Bodh Hosiery4. Under the deed of dissolution of partnership the entire business assets of the firm alongwith goodwill and liabilities were taken over by Shadi Lal5. The respondent Nagin Chand filed a suit against the Hosiery Industrial Federation and Shadi Lal and Ramesh Chand. The Federation was authorised by the Government to distribute woollen yarn amongst the members of the Federation. The parties proceeded on the admitted procedure of allotment of quota. In order to be eligible for quota a manufacturer is required to be a member of any of the five associations registered with the Hosiery Industry Federation. The quota is to be allotted to the manufacturer members on the basis of figures of consumption of woollen yarn by the members during the years 1956 to 1959 called the basic period6. The respondent Nagin Chands cause of action was this. The three person carried on hosiery business in co-partnership. The partnership business was entitled to quota of woollen yarn on the figures of consumption in the years 1956 to 1959. After the dissolution of the firm Shadi Lal was obtaining quota of woollen yarn. The quota was allotted on the consumption figure of the years 1956 to 1959. Nagin Chand along with his partners consumed woollen yarn during those years. After the dissolution Shadi Lal was drawing quota of woollen yarn on the basis of consumption figure of the firm during the years 1956 to 1959 when the three persons were co-partners. Quota is not part of goodwill. Nagin Chand was therefore entitled to 1/3rd share of the quota given to the business named Jain Bodh Hosiery7. It may be stated here that Ramesh Chand filed a suit against Shadi Lal and the other parties on a similar cause of action8. Both the suits were tried together. The trial Court dismissed the suits9. The first Appellate Court decreed the suits and declared that each of the plaintiffs was entitled to 1/3rd share of the quota allotted in the name of Jain Bodh Hosiery10. The learned Single Judge of the High Court on second appeal set aside the decree granted by the first Appellate Court and dismissed the suits11. The High Court in Letters Patent Appeal accepted the appeal and decreed the suits in terms of the decree of the first Appellate Court. The High Court arrived at these conclusions. The basis of allotment was consumption of woollen yarn during the years preceding the date of dissolution of partnership.The three partnership after dissolution carried on their individual business. The claim to quota on the basis of consumption during partnership was not lost by the dissolution. The partners had the right to do hosiery business in their individual capacity12. Therefore, they were each entitled to draw 1/3rd of the quota.

Court's reasoning:
16. Shadi Lal obtains quota by reason of his business. The quota enables him to obtain raw material. Raw material is converted into finished products. These goods are marketed17. After the dissolution of partnership the three partners carried on hosiery business separately. Each is entitled to ask for quota of woollen yarn in accordance with the provisions of the Woollen Yarn Control Order. The grant of quota is within the power and discretion of the Textile Commissioner. The quota which is granted to an applicant is in his individual business right and it is his property. If the partnership had continued the partners would have been entitled to quotas as partners. The fact that quota is granted in the name of Jain Bodh Hosiery does not convert the quota into a partnership asset. The business name belongs to the appellant under the deed of dissolution18. It was said by counsel for the respondents that the past performance during the years 1956 to 1959 was important because during the partnership the quota was earned by Joint labour. Therefore, after seperation it was said that the quota to Jain Bodh Hosiery was given to three persons. This contention is unsound. The appellant after dissolution carried on business in the name of Jain Bodh Hosiery. He is entitled to apply for quota in that business name. Quota that is granted in that business name is his separate property. Neither Nagin Chand nor Ramesh Chand has any proper proprietary right in that quota19. It must be recognised that quota attaches to the owner of a business at the point of time the quota is granted. It is the business at the relevant time which obtains quota. Therefore, quota enures to the benefit of the business20. Quota was not and could not be an asset of the partnership. Assets are divisible among partners. Quota could not be divided. Quota is a matter of privilege and the grant of it lies with the Textile Commissioner. Quota is a licence for a particular time for a particular quantity. Quota is worked out by getting the raw material represented by the Quota22. If the respondent by virtue of his individual business is entitled to make an application for grant that application will merit its own consideration. The relevant merits and demerits of the appellant or of the respondents will be a matter for the relevant authorities granting quota. The respondent claimed 1/3rd share of the appellants quota. The respondent has no proprietary claim to the appellants quota. The appellants quota is not an asset in that items of partnership. A fortiori it is not an after acquired asset of the partnership23. The High Court was in error in decreeing the suits on the consideration that the respondent was entitled to 1/3rd quota. A declaration can be founded only on a legal right. The respondent has none.