A S.V. CHANDRA PANDIAN AND ORS.

v.

r:.:

S.V. SIVALINGA NADAR AND ORS.

· JANUARY 11, 1993

B

(A.M. AHMADI, M.M. PUNCHHI AND K. RAMASW~, JJ.)

Arbitration Act 1940:

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Sections 14, 17, 30 and 33-Arbitration Award-Assests of pa11nership

c

fimi allocated to partners on disso/utiorr-Assets comprising of immovable

properties-Whether

award to be registered under the Registration Act. -

Indian Partnership Ac4 1932:

Sections 18, 22, 29 and 48-Partnership-Disso/ution of-Settlement of

D accounts-Distribution of residue to partners-Assets comprising of immov-

able properties-Whether attracts Section 17 of Registration Act.

Six brothers, viz. the four appellants and respondents 1 and 2, were

carrying on the business in partnership. Disputes arose between the six

E

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 or hearing to the parties, circulated a

draft award.

After considering the reaction or the disputants, final award was made by

the arbitrators by which various properties were allotted to each or the six

F brothers.

Some or the disputants filed a petition praying for a direction to the ..,,--

arbitrators to Ille their award in court. They also filed another petition

requesting the court to pass a· decree in terms or the award. Two other

G

disputants filed a petition under Section 30 or 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 or partnership properties

including immovable properties under the award, it

was incumbent that

the award should have been registered as required by

Section 17(1) or the

_,---

I

Registration Act and since it lacked registration, the Court had no Juris-

H diction to make it the rule or the Court and grant a decree In terms

58

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CHANDRA PAND!AN v. SIVALINGA NADAR 59

thereof. The Single Judge directed taking steps for getting the award A

registered.

In the meantime, one of me arbitrators passed away. At the request

of some of the parties, the surviving arbitrator:s 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 J.udge. It held that

the award required registration under section 17(1) of the Registration

B

Act; and in the absence of registration there was no valid award and the C

Court had no jurisdiction to grant a decree in

terms of the award. Being

aggrieved by this order, the present appeals were filed by four of the six

brothers.

-

---! On the question whether the award required registration under

section 17(1) of the Registration

Act: D

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

rmn

unless the contract between the partners provides otherwise. On the dis­

solution 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

E

F

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 G

the partners in the same praportion in which they were entitled to a share

lo 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 H

60 SUPREME COURT REPORTS [1993] 1 S.C.R.

A 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 AcL

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

B

c

of the firm eventhough he cannot

lay a claim on any earmarked portion

thereof as the same cannot

he 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 seciton

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

D 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 divisable 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

E 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.

F Juggilal Kamalapat, [1967) 1 SCR 784; CIT Madhya Pradesh v. Dewas Cine

Corporatio11, [1968) 2 SCR 173; CIT,. U.P. v. Ba11key Lal Vaidya, AIR 1971

SC 2270 and Malabar Fisheries Co., Calicut v. CIT. Kera/a, [1980) 1 SCR

696, relied on.

G

referred to.

Ajudhia Pershad Ram Pershad v. Sham Su11der, AIR 1947 Lahore 13,

2. The award read as a whole makes it absolutely clear that the

arbitrator5 had confined themselves to the properties belonging to the two _,,.

firms and had scrupulously avoided other properties in regard to which

H they did not reach the conclusion that they belonged to the firm. It seeks

;

CHA.'IDRA PANDIAN v. S!VALINGA NADAR [AHMADI, J.] 61

to distribute the residue after settlement of account on dissolution. While A

~-r

distributing the r;esidue 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. The award, therefore, did not require registration under

B

section 17(1) of the Registration Act. [79E-G]

,,

3. The matters are remanded to the Division Bench for answering the

j other contentions which arose in the appeal before it but which were not

decided in

view of its decision on the

questiqn of registration of the award.

The award which is pending for registration may be registered

by the

c

Sub-Registrar notwithstanding

tbe objection raised by one of the partners, if

that is the only reason for withholding registration. [79H, 80A-B]

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1749-

1752 of 1992.

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D

From the Judgment and Order dated 13.11.91 of the Madras High

Court

in

O.SA. No.191of1988, 0.P. No. 230/84 and Application No. 3505

of 1984 and dated 27.1.1992 in O.S.A. No. 9 of 1992.

WITH

E

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 Mis Arputham, Arona & Co.) and A. Mariarputham for the Respon- F

dents.

----...,

The following Judgment of the Court was delivered by

AHMADI,

J. The four appellants and responde'lts 1 and 2 are

G

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

1.

properties were acquired by the firm of Sivalinag Nadar and Brothers. The

firm

of Messers

S.V.S. Oil Mills merely had leasehold rights in the parcel

of land belonging to the first-named firm on which the superstructure of H

62 SUPREME COURT REPORTS (1993) 1 S.C.R.

A the oil mill stood. Both the partnerships were of fixed durations. Disputes

arose between the

six brothers in regard to the business carried on

ill

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 :

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"We are carrying on business in Partnership together with other

partners under severaJ partnership names. We are also holding

shares and Managing the Public Limited Company, namely.

The Madras Van

as pa ti 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

E Accountant. The parties, therefore, had complete faith and trust in their

objectivity and impartiality

F

G

H

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 schedulas 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'

y

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CHANDRA PANDIAN v. SIVALINGA NADAR [AHMADI, J.] 63

~

6. S.V. Natesan Schedule 'F A

~

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."

B

The arbitrators then proceed to set out the properties belonging to

_ _,J

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 c

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 the

D

said business is not carried on by the disputants it would be desirable to

dissolve the said firms also

w.e.f. 24th July, 1984 in the larger interest of

peace and amity among the disputants and their relatives.

Paragraph 30

I 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 js stated that E

although initially the disputants had shown an inclination to refer the

disp_ute 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 arbitratros have

F

----..,_

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

G

was filed by S.V. Chandrapandian & Ors. for a direction to the arbitrators

-'I 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 H

64 SUPREME COURT REPORTS (1993] 1 S.C.R.

A 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 applica­

tions 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

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E

F

G

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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 focumbent that the award should have been registered as

req•1ired 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 para­

graph 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

immove­

able 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 AJR

1966

SC 1300 = 1966 (2) Ml.J 60 SC. Ad­

danki Narayanappa v. Bhaskara Krishnappa. 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 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

paragrnph 78 of the judgment in the following terms :

'Thus on a careful consideration of the materials available and

'·

CHANDRA PANDIAN v. SIVALINGA NADAR [AHMADI, J.) 65

the contentions

of either side it has to be decided that Applica- A

-r tion 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 aod

O.P. Nos. 247 aod 275 of

1984 aod the application filed in· those two petitions, i.e.,

Application Nos. 3474, 3476, 5030, 5031, 5032, 2827, 2828,3773,

B

3762, 3874 of 1984 and 4886 and 4887 of 1985, are dimissed.

The petitioner in O,.P. No. 230/84 and the applicaots in Ap-

plication No. 35G:.;84 are directed to take steps for getting the

Award registered. The parties in all these proceedings

are

directed to bear their own costs."

c

It may here be mentioned that after the making of the award one of

ihe 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

D~trict Registrar, Madras, for registration on 27.10.84. Even

though. the signature

of the deceased arbitrator was identified by the

D

surviving arbitrators the document was kept pending for registration. In the meantime, on 23rd Jaouary, 1987, advocate for Sivalinga Nadar served

notice on the Registrar not to register the document aod 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 disputaots

......

Sivalinga Nadar on the premise that the High Court had in O.P. No. 247/84 E

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

F

--"""'(

by the learned Single Judge aod came to the conclusion that the award

required registration wider section 17(1) of the Registration Act. Jn this

view that it took, it did not think it necessary to go into the other conten-

tions dealt with

by the learned

Single Judge. It held that since the award

required registration and was in fact not registered no proceeding. for

G

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

1

in terms 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

ii could not be registered as the Registering Authority was

threatened with civil consequences. The correspondence in this behalf was

H

66 SUPREME COURT REPORTS [1993] 1 S.C.R.

A 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 even

on the dated of its judgment. It,

therefore, made

the following observation in paragraph 46 of the judgment:

B

"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

~ame.'

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

C 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. 94('.S of 1992) have been filed.

D Before we examine the contention based on section 17 of the

E

F

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 as 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

G the Act, a partner is the agent of the firm for the purposes of the business

of the firm. U oder 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".

H

I

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

.•.

·--f

.... '

''

--

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-.

CHANDRA PANDIAN v. SJVALJNGA NADAR [AHMADI, J.] 67

done or executed in the firm name, or in any other manner expressing or A

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

:is

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-sec-

tion ( 4), however, debars a minor from suing the partners for an account

B

c

or for his share of the property or profits of the firm except when he D

severes

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

lo 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 conse-E

quenccs

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. Charpter

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 F

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 sJicaks 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, G

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

H

68 SUPREME COURT REPORTS (1993) 1 S.C.R.

A 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.

B

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

C 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 properly 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

D 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

E 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

di5solution of the firm which

remain after satisfying the liabilities set out

in the various sub-clauses (i)

to

(iv) of clause (b) of

secton 48 of the Act.

F 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 arbitrators chosen

by them were men of

their confidence and they after giving the partners

full and complete

G 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 adujust-

H ments to make it acceptable and rationale. He was of the view that the

.....

CHANDRA PANDIAN v. SNALINGA NADAR [AHMADI, J.) 69

award should provide for the reallocation of the shareholdings of Madras A

--(

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 sub-

sequent letter written on 9th September,

1983 he has reiterated these very

B

objections while raising certain questions regarding valuation of partner-

ship properties. Even the application filed under Sections

30 and 33 of the

__ j

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-

c

ties from consideration e.g., shareholdings cf 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

----1

award. However, being a question of law, the learned Single Judge enter-

tained the plea and rejected it but it found favour with the Division Bench.

D

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

E

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

thdndian 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

F

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

G

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

H

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70 SUPREME COURT REPORTS (1993) l S.C.R.

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;

(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 proper­

ty.'

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

D 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

E

F

dissolution of the partnership the distribution of the assets of the firm

comprising both moveable and immoveable properties after mealing its

obligations

011 seltlement of accounts amongst the partners of the firm in

proportion to their respective shares amounts to a partition cif immoveable

properties or a reliquishment 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

G question has been the subject matter of decision

in a few cases.

In Addanki Narayanappa & Anr. v. Bhaskara Krishtappa & 13

Ors.,

[1%6) 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

H business. The capital of the partnership comprised, among other things,

.

._

CHANDRA PANDIAN v. SJV ALINGA NADAR [AHMADI, J.] 71

certain lands belonging to the two families. The firm acquired more lands A

.....,,

in the course ofbusiness. 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

B

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 : c

"As disputes have arisen in our family regarding partition, it is

not possible to carry on the business 01 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-

D

tion 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 com-

pletely

by way of adjustment.

You yourself shall carry on the

,.. business without ourselves having anything to do with the profit E

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

F

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.

G

It also recites that the Addanki family had already received certain proper-

ties purchased by the partnership as its share in the partnership assets. The

submission was that since the partnership assets included immovable

-'I

property and the document raeorded 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 H

72 SUPREME COURT REPORTS (1993) 1 S.C.R.

A Registation Act. After referring to the provisions of law., treatise and the

~

case law, both of English and Indian Courts, this Court reproduced the -4

following passage from the decision in Ajudhia Pershad Ram Pershad v.

Sham Sunder, AIR 1947 Lahore 13 with approval:

B

"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

c the Act contemplates complate 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

~ay that, for the purposes of the Indian

Partnarship Act, and irrespective of any mutual agreement

>-

D

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 dis-

charged."

·~

E

~

In Commissioner of Income-Tax, West Bengal, Calcutta v. Juggi/al

Kamalapa4 (1967j 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

F

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 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

G

applied for registration under Section 'Ui-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 tile immoveable properties were not separable from

the other business assets it held that there

was no legal transfer of any

H portion of the business assets of the original

firm in favour of the Trust. A

y

CHANDRA PANDIAN v. SIVALINGA NADAR [AHMADI, J.] 73

reference was made

to the High Court on the question whether the new A

--f'

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 patnership firm

B

in favour of the Trust and consequently, did not require registration, even

though the assets of the

partn~rship included immoveable property. In

J

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).

c

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 theatres 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

D

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 restora-

tion

of the two theatres to the original owners amounted to transfer by the

firm and the entries adjusting the depreciation

and writing off the assets E

>--,

at the original value amounted to total recoupment of the entire deprecia-

lion by tbe partnership and on that account the second proviso to section

10(2)(vii) of the LT. 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 refer-

F

ring to sections 46 and 48 of the Partnership Act held that on the dissolu-

lion 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 G

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 H

74 SUPREME COURT REPORTS [1993) 1 S.C.R.

A 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 this Court

in

CIT. Madhya Pradesh v. Dewas Cine Corpn., (supra).

B

Again in Malabar Fisheries Co. Calicut v. CIT. Kera/a,

[1980) 1 SCR

6% = 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, 1%3

and under the deed of dissolution the first business concern

was taken over

C 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

1%0-61 "to 1963-64 the firm had installed

various items of machinery

in respect of which it had received Develop­

ment Rebate under

Section 33 of the I.T. Act. 1961. On dissolution, the

D 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 Commis-

E

F

G

H

sioner 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

pf

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

-

.,,

...

CHANDRA PANDIAN v. SJVALJNGA NADAR (AHMADI, J.) 75

in the partnership assets but it is the partners who own jointly A

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."

B

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 C

business of the firm shall constitute the property of the firm unless the

contract between the partners provides oti,erwise. 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

Partner-

ship Act. Thus in the ~ntire asset of the firm all the partners have an D

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),

(ii) 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 fir.n.

So viewed, it becomes obvious

that the residue would in the

eye of law be moveable property i.e. cash,

E

F

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 he reaslised that since a partner-G

ship

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 eventhough 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 H

76 SUPREME COURT REPORTS [1993) 1 S.C.R.

A 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

B 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 settied

in the manner indicated by section

C 48 of the partnership Act, what would be the residue which would

ultimate­

ly be allocable to the partners. Jn 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

D 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 sattlement of accounts there is no

E partition, transfer or extinguishment of interest attracting section 17 of the

Registration Act.

F

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

and

Anr, [1989) 3

SCC 99. Insofar as the first mentioned case is concerned,

the facts 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

G 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

H

J

A.

-

--..,

CHANDRA PANDIAN v. SIVALINGA NADAR [AHMADI, J.] 77

of a sum of Rs. 17,000 plus half the amount of realisable debts of the A

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 B

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 Banch

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 C

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 D

and the assignmenr 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

exclusi<e allotment of the partner-

ship asset including the factory and liabilities to the appellant, thereby

E creating an absolute interest on payment of consideration of Rs. 17,000 plus

half the amount of the realisable 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 F

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 pr!lperty under a dissolution deed. In that case, G

the dispute was between two brothers in 2-112 killas of land situate in

Panipa~ 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

H

78 SUPREME COURT REPORTS [1993) 1 S.C.R.

A 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 appallant shall

'be

now owned by

Shri Ram Lal, the respondent in addition to his half share

owned

in those lands'. Therefore, the award transferred half share of the

B appellant to the respondent and since the value thereof exceeded Rs.

100,

it was held thai 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

C 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

D 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

E reads as under :

F

'( c)

Other Lands and Buildings and House properties belong­

ing 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 jomtly 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

G and it

is manifest therefrom that the arbitrators had confined themselves

to the properties belonging to the

two firms in question and scruplously

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

H benamidars but belonging to

th~ firm also came to be included in the

-r

CHANDRA PANDIAN v. SIVALINGA NADAR [AHMADI, J.] 79

distribution of the surplus partnership asset under the award. That is the A

purport of paragraph lO(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

will

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 falling 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,

B

c

as stated earlier, even if one looks at the award as allocating certain

immoveable property since there

is no transfer, no partition or extinguish-D

ment of any right therein there

is no question of application of section 17(1)

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

E

as a whole makes it absolutely clear that the arbitrators had confmed

themselves to the properties belonging

to the two firms and had

scrupulously avoided other properties in regard to which they did not reach F

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 rasidue 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 G

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 H

•

SUPREME COURT REPORTS (1993) 1 S.C.R.

A 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 re&istered by the Sub-Registrar

B notwithstanding the objection raised by one of the partners S. V. Sivalings

Nadar through his lawyer if that is the only reason for withholding registra­

tion. The appeals are allowed accordingly with costs.

G.N. Appeals allowed.

'y .