Source: https://law.geekupd8.com/2014/07/Agreement-for-entering-into-partnership-business-Document-remaining-unregistered-Partnership-coming-to-an-end-One-party-giving-up-its-share-favouring-the-other-thereof-adjustment-subsequent-suit-for-its-dissolution.html
Timestamp: 2019-04-21 13:00:57+00:00

Document:
Before :- A.K. Sarkar, K.N. Wanchoo and J.R. Mudholkar, JJ.
Civil Appeal No. 299 of 1961. D/d. 21.1.1966.
For the Appellant :- M/s. Alladi Kuppuswami and R. Gopalakrishnan, Advocates.
(e) and pass such further relief as may be deemed fit in the circumstances of the case."
It may be mentioned that in their suit the plaintiffs made all the members of the Bhaskara family as defendants and also joined those members of the Addanki family who had not joined as plaintiffs. We are concerned here only with the defence of the members of the Bhaskara family. According to them the partnership was dissolved in the year 1936 and accounts were settled between the two families. In support of this plea they have relied upon a karar executed in favour of Bhaskara Gurappa Setty, who was presumably the karta of the Bhaskara family by five members of the Adanki family, who presumably represented all the members of the Addanki family. Therefore, according to the Bhaskara, defendants, the plaintiffs had no cause of action. Alternatively they contended that the suit was barred by time. In the view which we take it would not be necessary to consider the second defence raised by the Addanki family.
"As disputes have arisen in our family regarding partition, it is not possible to carry on the business or to make investment in future. Moreover, you yourself have undertaken to discharge some of the debts payable by us in the coastal parts in connection with our private business. Therefore, from this day onwards we have closed the joint business. So, from this day onwards, we have given up (our) share in the machine etc., and in the business, and we have made over the 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 purchased and delivered possession of the same to us even previously. In case you want to executed and deliver a proper document in respect of the share which we have given up to you, we shall at your own expenses, execute and deliver a document registered." This document on its face shows that the partership business had come to an end and that the Addanki family had given up their share in the "machine etc., in the business" and had made it over to the Bhaskara family. It also recites the fact that the Addanki family had already received certain property which was purchased by the partnership presumably as that family's share in the partnership assets. The argument advanced by Mr. Alladi Kuppuswami is that since the partnership assets included immovable property and the document records relinquishment by the members of the Addanki family of their interest in those assets, this document was compulsorily registrable under Section 17(1)(c)of the Registration Act and that as it was not registered it is inadmissible in evidence to prove the dissolution of the partnership as well as the settlement of accounts.
(a) Losses, including deficiencies of capital, shall be paid first out of profits next out of capital and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.
(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits."
"What is meant by the share of a partner is 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. This it is, and this only which on the death of a partner passes to his representatives, or to a legatee of his share ........ and which on his bankruptcy passes to his trustee."
"When a debt due to a firm is got in no partner has any definite share or interest in that debt; his right is merely to have the money so received applied, together with the other assets, in discharging the liabilities of the firm, and to receive his share of any surplus there may be when the liquidation has been completed."
"The result then of the authorities may be this stated: Lord Thurlow was of opinion that a special contract was necessary to convert the land into personality; and Sir W. Grant followed that decision. Lord Eldon on more than one occasion strongly expressed his opinion that Lord Thurlow's decision was wrong. Sir J. Leach clearly decided in three cases that there was conversion out and out; and Sir L. Shadwell, in the last case before him clearly decided in the same way. That is the state of the authorities.
Now it appears to me that, irrespective of authority, and looking at the matter with reference to principles well established in this Court, if partners purchase land merely for the purpose of their trade, and pay for it out of the partnership property, that transaction makes the property personalty, and effect a conversion out and out."
"This principle is clearly laid down by Lord Eldon in Crawshay v. Collins, (1808) 15 Ves 218 and by Sir W. Grant in Featherstonhaugh v. Fenwick (1810) 17 Ves 298 and the right to each partner to insist on a sale of all the partnership property, which arises from what is implied in the contract of partnership, is just as stringent as a special contract would be. If then, this rule applies to ordinary stock-in-trade, why should it not apply to all kinds of partnership property ? Suppose that partners, for the purpose of carrying on their business, purchase, out of the funds of the partnership, lease-hold estate, or take a lease of land, paying the rent out of the partnership funds, can it be doubted that the same rule which applies to ordinary chattels would apply to such leasehold property ? I do not think it was ever questioned that, on a dissolution, the right to each partner to have the partnership effect sold applies to leasehold property belonging to the partnership as much as to any other stock-in-trade. No one partner can insist on retaining his share unsold. Nor would it make any difference in whom the legal estate was vested, whether in one of the partners or in all; this Court would regulate the matter according to the equities. And Sir W. Grant so decided in (1810) 17 Ves 298"
22. Where land or any heritable interest therein has become partnership property, it shall, unless the contrary intention appears, be treated as between the partners (including the representative of a deceased partner), and also as between the heirs of a deceased partner and his executors or administrators, as personal or moveable and not real or heritable estate."
"That was not the question: it was whether there was a partnership. The subject being an agreement for land, the question then is whether there was a resulting trust for that partnership by operation of law. The question of partnership must be tried as a fact, and as if there was an issue upon it. If by facts and circumstances it is established as a fact that these persons were partners in the colliery, in which land was necessary to carry on the trade, the lease goes as an incident. The partnership being established by evidence upon which a partnership may be found, the premises necessary for the purposes of that partnership are by operation of law held for the purposes of that partnership."
It is pointed out by Lindley that this principle is carried to its extreme limit by Vice-Chancellor Wigram in Dale v. Hamilton (1864) 5 Hare 369 on appeal to (1847) 2 Ph 266. Even so, it is pointed out that it must be treated as a binding authority in the absence of any decision of the Court of Appeal to the contrary.
"To lay down that the three letters in question, which deal generally with the assets, moveable and immoveable, without specifying any particular mortgage or other interest in real property require registration, would, I incline to think, in the present state of the authorities go too far. It may be argued that such letters are not 'instruments of gift of immovable property but rather disposals of a share in a partnership of which the business is money lending, and the mortgage securities merely incidental thereto."
"But it does not seem to me to follow that an agreement for the dissolution of such of partnership need not be expressed in writing, or rather that there need not be a memorandum of the agreement for dissolution when one of the terms of the agreement, either expressly or by necessary implication, is that the party sought to be charged must part with and assign to others an interest in land. That seems to me to give rise to entirely different consideration. In the one case you prove the partnership by parol; you prove the object, the terms of the partnership, and so on. But in the other case it is one of the essential terms of the agreement that the party to be charged shall convey an interest in land, and that seems therefore, to bring it necessarily within the 4th section of the Statute of Frauds."
In the case before us, as also in Samuvier's case the document cannot be said to convey any immovable property by a partner to another expressly or by necessary implication. If we may recall, the document executed by the Addanki partners in favour of the Bhaskara partners records the fact that the partnership business has come to an end and that the latter have given up their share in "the machine etc. and in the business" and that they have "made over same to you alone completely by way of adjustment". There is no express reference to any immovable property herein. No doubt, the document does recite the fact that the Bhaskara family has given to the Addanki family certain property. This, however, is merely a recital of a fact which had taken place earlier. To cases of this type the observations of Kekewich, J., which we have quoted do not apply. The view taken in Samuvier's case, seemed to commend itself to Varadachariar, J. in Thirumalappa v. Ramappa, AIR 1938 Madras 133 but it was reversed in Ramappa v. Thirumalappa, AIR 1939 Madras 884.
"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 rateable 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 rateably 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'."
This indeed is the view which has commended itself to us.
7. Mr. Kuppuswamy then referred us to two decisions of English courts in In re: Fullur's Contract, 1933 Ch 652 and Burdett-Cutts v. Inland Revenue Commissioners, 1960-1 WLR 1027 and on the passage at pp. 394 and 395 in Lendley's Partnership under the head "Form of Transfer" in support of his argument. Both the cases relied upon deal with contracts with third parties and not with agreements between partners inter se concerning retirement or dissolution. The passage from Lindley deals with a case where there is an actual transfer of immovable property and is, therefore, not in point.
8. Mr. Chatterjee brought to our notice some English decisions in addition to those we have adverted to in support, which agree with the view taken in those cases. He has also referred to the decisions in Prem Raj Brahmin v. Bhani Ram Brahmin, ILR (1946) 1 Cal 191 and Firm Ram Saheymall Rameshwar Dayal v. Bishwanath Prasad, AIR 1963 Pat 221. We do not think it necessary to discuss them because they do not add to what we have already said in support of our view.
9. For these reasons we uphold the decree of the High Court and dismiss the appeal with costs.

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