- (1.) In this appeal by special leave from a judgment of the High Court of Andhra Pradesh the question which arises for consideration is whether the interest of a partner in partnership assets comprising of movable as well as immovable property should be treated as movable or immovable property for the purposes of S. 17(1) of the Registration Act, 1908. The question arises in this way. Members of two joint Hindu families, to whom we would refer for convenience as the Addanki family and the Bhaskara family, entered into partnership for the purpose of carrying on business of hulling rice, decorticating groundnuts etc. Each family had half share in that business. The capital of the partnership consisted, among other things, of some lands belonging to the families. During the course of the business of the partnership some more lands were acquired by the partnership. The plaintiffs who are two members of the Addanki family instituted a suit in the court of Subordinate Judge, Chittoor on March 4, 1949 for the following reliefs: "(a) for a declaration that the suit properties belong to the plaintiffs and defendants 10 to 14 defendants 1 to 9 equally, for a division of the same into four equal shares, one share to be delivered to the plaintiffs or for a division of the same into two equal shares to be delivered to the plaintiffs and the defendants 10 to 14 jointly; (b) or in the alternative dissolving the partnership between the plaintiffs and defendants 10 to 14 on the one hand and defendants 1 to 9 on the other hand directing accounts to be taken; (c) directing the defendants 1 to 9 to render accounts of the income of the suit properties; (d) directing the defendants 1 to 9 to pay the costs of the suit to the plaintiffs; (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.
(2.) The relevant portion of the karar reads thus: "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 S. 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.
(3.) Direct cases upon this point of the courts in India are few but before we examine them it would be desirable to advert to the provisions of the Partnership Act itself bearing on the interest of partners in partnership property S. 14 provides that subject to contract between the partners the property of the first includes all property originally brought into the stock of the firm or acquired by the firm for the purposes and in the course of the business of the firm. Section 15 provides that such property shall ordinarily be held and used by the partners exclusively for the purposes of the business of the firm. Though that is so a firm has no legal existence under the Act and the partnership property will, therefore, be deemed to be held by the partners for the business of the partnership. Section 29 deals with the rights of a transferee of a partner's interest and sub-section (1) 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 and that he will be bound to accept the account of profits agreed to by the partners. Sub-section (2) provides that upon dissolution of the firm or upon a transferor-partner ceasing to be a partner the transferee would be entitled as against the remaining partners to receive the share of the assets of the firm to which his transferor was entitled and will also be entitled to an account as from the date of dissolution Section 30 deals with the case of a minor admitted to the benefits of partnership. Such minor is given a right to his share of the property of the firm and also a right to a share in the profits of the firm as may be agreed upon. But his share will be liable for the acts of the firm though he would not be personally liable for them. Sub-section 4. however, debars a minor from suing the partners for accounts or for his share of the property or profits of the firm save when severing his connection with the firm. It also provides that when he is severing his connection with the firm the court shall make a valuation of his share in the property of the firm. Sections 31 to 38 deal with incoming and outgoing partners. Some of the consequences of retirement of a partner are dealt with in sub-sections (2) and (3) of S. 32 while some others are dealt with in Ss. 36 and 37. Under S. 37 the outgoing partner or the estate of a deceased partner, in the absence of a contract to the country, would be entitled to at the option of himself or his representatives to such share of profits made since he ceased to be a partner as may be attributable to the property of the firm or to interest at the rate of six per cent, per annum on the amount of his share in the property of the firm. The subject of dissolution of a firm and the consequences are dealt with in Ch. VI Ss. 39 to 55. Of these the one which is relevant for this discussion is S. 48 which runs thus: "In settling the accounts of a firm after dissolution the following rules shall, subject to agreement by the partners, be observed: (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. (b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order: (i) in paying the debts of the firm to third parties; (ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; (iii) in paying to each partner rateable what is due to him on account of capital; and (iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits." From a persual of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in Cl. (a) and sub-Cls. (i), (ii) and (iii) of Cl. (b) of S. 48. It has been stated in Lindley on Partnership, 12th ed. at p. 375: "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." This statement of law is based upon a number of decisions of the English Courts. One of these is Rodriguez v. Speyer Bros., 1919 AC 59 where at p. 68 it has been observed: "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." No doubt this decision was subsequent to the enactment of the English Partnership Act of 1890. Even in several earlier cases, as for instance, Darby v. Darby, (1856) 61 ER 992 the same view has been expressed. That was a case where two persons purchased lands on a joint speculation with their joint monies for the purpose of converting them into building plots and reselling them at a profit or loss. It was held by Kindersley V. C. that there was a conversion of the property purchased out and out and upon the death of one of the partners his share in the part of the unrealised estate passed to his personal representatives. After examining the earlier cases the learned Vice-Chancellor observed at p. 995: "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." He then observed: "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";