Research › Search › Judgment

Kerala High Court · body

2018 DIGILAW 637 (KER)

State of Kerala v. V. D. Vincent, S/o. Devassy

2018-08-03

A.K.JAYASANKARAN NAMBIAR, HRISHIKESH ROY

body2018
JUDGMENT : A.K. JAYASANKARAN NAMBIAR, J. 1. The State of Kerala and the Officials of its Revenue Department, who were the respondents in the writ petitions, are the appellants before us in these writ appeals. They are aggrieved by the common judgment dated 28.03.2018 of the learned Single Judge that finds that the writ petitioners, who were partners in a Firm, were entitled to a transfer of registry of the properties accruing to them consequent to the dissolution of the Firm, without there being a registered document, transferring the interest of the partner, who had the ownership of the property, prior to it being brought into the stock of the Firm. 2. The writ petitioners were partners of a registered Firm named “Universal Builders and Developers” that was constituted on 18.12.2010 but registered only in 2015. The partners brought their individual properties into the common stock of the Firm and, after carrying on business for a little over five years, the Firm was dissolved by a Deed of dissolution dated 01.03.2016. By the said deed, the properties of the Firm have been distributed among the partners, and in the process, the properties brought in by the partners at the time of formation of the partnership, have been exchanged amongst them. When the partners approached the revenue authorities, seeking a transfer of the registry, of the property obtained by them consequent to dissolution of the Firm, in their names, the same was refused stating that there was no registered document executed in their favour evidencing a transfer of title in the respective item of property, to them. 3. The learned Single Judge relied on the decisions reported in M/s. Malabar Fisheries Co. v. The Commissioner of Income-tax, Kerala - [ AIR 1980 SC 176 ] and N. Khadervali Saheb (Dead) By LRS. And Another v. N. Gudu Sahib (Dead) And Others–[(2003) 3SCC 229], to find that a partnership firm is only a compendious personality of the partners, that is not distinct from the persons who constitute it, and in terms of Section 14 of the Partnership Act, the property of the Firm will have to be understood as the property belonging to the partners for the exclusive purpose of business. It was thereafter held that, inasmuch as this Court had in George V.J. and Others v. V.V. Georgeand Others-[ 2010 (2) KHC 674 ] and S.V. Chandra Pandian and Others v. S.V. Sivalinga Nadar and Others - [1993 KHC 1150] held that when partners convert individual property into the property of the Firm, no registration is required in terms of the Registration Act, it followed, as a corollary, that such registration was not required when the partnership is dissolved and the properties distributed among the partners. 4. The appellant State would contend that, the registered original partnership deed dated 18.12.2010 was one in which one Joseph @ Ouseph was a partner. He died on 20.02.2011. Thereafter, on 01.05.2015, the wife of the deceased partner–Smt. Sabina–was inducted as a partner, and a fresh partnership deed was executed on identical terms. This newly constituted Firm was registered on 22.12.2015, and was dissolved through the deed dated 01.03.2016. Thus, the Firm that was dissolved existed only for 70 days. It is contended, based on Section 5 of the Transfer of Property Act, that the term “living-person” included a body of individuals, and in that sense, a partnership is also recognized as a “living-person” for the purposes of the Transfer of Property Act. Referring to Section 17 of the Registration Act, it is contended that a non-testamentary instrument which 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 immovable property, has to be compulsorily registered. It is pointed out, therefore, that the transfer of property under the Transfer of Property Act can only be effected through a registered deed which conveys the property, and not through a dissolution deed. It is pointed out, therefore, that the transfer of property under the Transfer of Property Act can only be effected through a registered deed which conveys the property, and not through a dissolution deed. The distinction between Section 239 of the Contract Act, as it stood prior to the enactment of the 1938 Partnership Act, and the provisions of the latter Act is highlighted to suggest that, while under the erstwhile provisions of the Contract Act, a partnership contemplated the combination of property, labour or skill of the partners in the conduct of business by the Firm, under the provisions of the 1938 Act, the combination of property, labour or skill is done away with, and it would suffice if the partners have an agreement to share the profits of the business venture. The contention of the appellants is essentially that, although the dissolution deed may indicate the rights of the partners in the properties of the Firm, consequent to its dissolution, the dissolution deed itself will not suffice to effect a transfer of title in the property, from the erstwhile owner to the one who was allotted the property under the dissolution deed. 5. We have heard Sri. K.V. Sohan, the learned State Attorney for the appellants as also Sri. M. Narendra Kumar, the learned counsel for the respondents in all the Writ appeals. 6. On a consideration of the facts and circumstances of the case as also the submissions made across the bar, we find that the issue that arose for consideration in the writ petitions was essentially as to whether the petitioners, who were partners in a Firm, were entitled to a transfer of registry in respect of the properties that were allotted to them under the deed of dissolution of the Firm. The learned Single Judge found that, inasmuch as no registration was required when the partners had converted their individual properties into the property of the Firm, no registration was required in terms of the Registration Act when the partnership deed was dissolved and the properties distributed among the partners. This view might perhaps have received our approval had it been a case where the property, that was originally brought in to the partnership by any particular partner had, upon dissolution of the Firm, gone back to the same partner. That, however, is not the case in these proceedings. 7. This view might perhaps have received our approval had it been a case where the property, that was originally brought in to the partnership by any particular partner had, upon dissolution of the Firm, gone back to the same partner. That, however, is not the case in these proceedings. 7. In the instant cases, the dissolution deed, while effecting a distribution of the partnership assets, allotted particular items of immovable property to partners other than those who had brought the property into the partnership. In such a factual situation, one has to examine the nature of the interest that is acquired by a partner, consequent to the dissolution of the partnership. In this regard, it would be apposite to notice the decisions of the Supreme Court in Addanki Narayanappa and Another v. Bhaskara Krishtappa and 13 Others - [ AIR 1966 SC 1300 ] and in S.V. Chandra Pandian and Others v. S.V. Sivalinga Nadar and Others - [ (1993) 1 SCC 589 ]. In Addanki Narayanappa's case (supra), speaking on the nature of the interest that is acquired by a partner consequent to a dissolution of the Firm, it was observed as follows in paragraph 7: “7. …................ 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 trading asset of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated, right during the subsistence of the partnership is to get s share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of value of his share in the net partnership assets as on date of dissolution or retirement after a deduction of liabilities and prior charges.” 8. It was also held, based on the facts in the said case, that the agreement which recorded the fact of dissolution of the partnership business, and the allotment of machines etc. to a particular partner, could not be said to convey any immovable property to the partner either expressly or by necessary implication. Similarly, in S.V. Chandra Pandian's case (supra), where the court was called upon to decide the issue as to whether an arbitration award, that directed dissolution of the partnership firm and provided for distribution of residue or surplus properties of the dissolved firm among partners after settlement of accounts, was required to be registered under Section 17(1) of the Registration Act, while discussing the nature of the rights obtained by partners pursuant to dissolution of the Firm, it observed as follows at paragraph 16 of the judgment: “16. From the forgoing 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 business of the firm shall constitute the property of the firm unless the contract between the partners provides otherwise. 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 Partnership Act. 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 Partnership Act. Thus in the entire asset of the firm all the partners have 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 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 set 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 partners in the proportions in which they were entitled to a share in the profits of the firm. So viewed, it becomes obvious that the residue would in the eye of law be moveable 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 Act. Viewed from another angle it must be realised that since a partnership 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 even though 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 property and that there is a transfer of the remaining interest in his favour within the meaning of Section 17 of the Registration Act. 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 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 or surplus determined what would be the extent of the interest 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 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 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 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 settlement of accounts there is no partition, transfer or extinguishment of interest attracting Section 17 of the Registration Act.” (emphasis supplied) 9. It will be apparent from a reading of the aforesaid decisions that the interest that a partner, who is allotted any item of immovable property towards his share in the assets of the partnership firm, on its dissolution, is only in the monetary value of the immovable property, which represents his share in the assets of the partnership firm on its dissolution. The interest that he obtains is to be treated as movable property, and not immovable property since he does not get an absolute title to the immovable property. It is therefore that it was held in the afore-cited cases that, the instrument of dissolution, which merely alloted items of immovable property to a partner in proportion to his share in the assets of the firm, could not be seen as one that conveyed the title in the immovable property, necessitating a registration under the Registration Act, for its legal validity. As a matter of fact, in the decision in Ratan Lal Sharma v. Purshottam Harit - [ (1974) 1 SCC 671 ], the Supreme Court, while construing the terms of an award by which a partnership firm was dissolved, took note of a specific clause therein which indicated that consideration was to pass from one of the partners to another, in respect of the properties that were exclusively allotted to the said partner, who was also held absolutely entitled to the same under the award. Referring to the nature of the interest obtained by the partner concerned, it was held that the award did not merely transfer the share of the partnership firm to the partner concerned but made an exclusive allotment of the partnership assets, including the factory and liabilities, to the said partner. Emphasis was laid on the phrase “absolutely entitled to the same in consideration of a sum of Rs.17,000/- plus half of the amount of Rs.1924.88/-” to find that the express words of the award purported to create rights in immovable property worth above Rs.100/-, in favour of the partner concerned. The court therefore found that the said award, inasmuch as it created rights in immovable property, was required to be registered under Section 17 of the Registration 10. In the present cases, the dissolution deed merely allocates the items of immovable property to the partners of the dissolved Firm. No doubt, the dissolution deed recognizes the interest of the partner concerned in the assets of the dissolved Firm, proportionate to his share as determined therein. In the present cases, the dissolution deed merely allocates the items of immovable property to the partners of the dissolved Firm. No doubt, the dissolution deed recognizes the interest of the partner concerned in the assets of the dissolved Firm, proportionate to his share as determined therein. The said interest of the partner has, in the absence of any words indicating a conveyance of title in immovable property, to be treated as “movable property” for the purposes of Section 17(1) of the Registration Act as already laid down in Addanki Narayanappa's case (supra) and S.V. Chandra Pandian's case (supra). That being said, the partners in the instant cases, seek rights which are superior to those that they have obtained through the allocation of items of immovable property in the dissolution deed. They seek an absolute title over the properties allocated to them in the dissolution deed. Going by the express provisions of the Transfer of Property Act, as also the Transfer of Registry Rules, their existing rights in relation to the immovable property in question, as recorded in the dissolution deed, can mature into an absolute title over the immovable property in question only if there is a formal conveyance of the title in the immovable property to them either in the deed of dissolution or through a deed of conveyance that is recognized in law. To this extent, we agree with the submission of the learned State Attorney that the registration of a valid deed of conveyance of immovable property would be the medium through which the transfer of immovable property can be effected to the individual partners of the dissolved Firm. 11. A dissolution deed, that merely allocates items of immovable properties to a partner proportionate to his share in the assets of the Firm without conveying a title in the said property to him, does not, in our opinion, confer on the said partner a right to obtain a mutation of the property in his name, under the Transfer of Registry Rules. Consequently only a valid deed, duly registered, can convey the title over immovable property to the writ petitioners, and it is only thereafter that they can seek a transfer of registry in respect of the said items of immovable property. We therefore set aside the impugned judgment of the learned single judge and allow these writ appeals by dismissing the writ petitions.