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Petitioner: S.V. CHANDRA PANDIAN and others VS Respondent: S.V. SIVALINGA NADAR and others
Court Name: Supreme Court of India Judge(s): K. Ramaswa my, A. M. Ahmadi, M. M. Punchhi Title: S.V. CHANDRA PANDIAN and others vs S.V. SIVALINGA NADAR and others Case No.: Civil Appeals Nos. 1749 to 1752 of 1992 Date of Judgment:1993-01-11 Reported As: 1996 PTD 521 Result: Appeals allowed
JUDGMENT
JUDGMENT A.M. AHMADI, J.---The four appellants and respondents Nos. 1 and 2 are brothers. They were carrying on business in partnership in the name and style of Messrs Sivalinga Nadar and Brothers and S.V.S. Oil Mills, both partnership being registered under the Partnership Act, 1932. Most of the properties were acquired by the firm of Sivalinga Nadar and Brothers. The firm of Messrs 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 the oil mill stood. Both the partnerships were of fixed durations. Disputes arose between the six brothers in regard to the business carried on in partnership in the aforesaid two names. For the resolution of these disputes the six brothers entered into an arbitration agreement, dated October 8, 1981, which was as under: "We are carrying on business in partnership together with other partners under several partnership names. We are also holding shares and managing the public limited company, namely, the Madras Vanaspati Ltd., at Villupuram. Disputes have arisen among us with respect to the several business concerns, immovable and movable 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 Seetharaman. 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 accountant. The parties, therefore, had complete faith and trust in their objectivity and impartiality.
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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 July 9, 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 Schedules ' A' to 'F' annexed to this award: 1. S.V. Sivalinga Nadar Schedule 'A' 2. S.V. Harikrishinan Schedule 'B' 3. S.V. Chandrapandian Schedule 'C' 4. S.V. Kasilngam Schedule ' D' 5. S.V. Ramchandran Schedule 'E' 6. S.V. Natesan Schedule 'F' We direct that the firms of Messrs Sivalinga Nadar and Bros. And Messrs. S.V.S. Oil Mills and also the joint house property rent account be dissolved as at the close of business on July 14, 1984." The arbitrators then proceed to set out the properties belonging to 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 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 recognized the fact that even though the said business is not carried on by the disputants it would be desirable to dissolve the said firms also, with effect from July 24, 1984, in the larger interest of peace and amity among the disputants and their relatives. Paragraph 30 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 is stated that although initially the disputants had shown an inclination to refer the dispute 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 arbitrators have 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 July 9, 1984, Original Petition No, 230 of 1984 was filed by S.V. Chandrapandian and others for a direction to the arbitrators to file their award in Court which was done. Thereupon, the applicants, S.V. Chandrapandian and others, filed Miscellaneous 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 Original Petitions Nos. 247 and 275 of 1984 were 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 applications 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 upon to decide in these groups 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 e allotment of partnership properties under the award, it ,was incumbent that the award should have been registered as required 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.
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The learned Single Judge answered the aforesaid contention in paragraph 72 of his judgment as under: "The learned counsel for the respondents also contended that the award falls under Schedule Article 12 of the Stamp Act and the allocation of properties owned by a partnership firm on dissolution to the erstwhile partners is not partition of immovable properties. In this connection, learned counsel for the respondents placed reliance in 'the decision reported in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1959 AP 380, which decision has been confirmed in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300; (1966) 2 MU 60 (SC). It was submitted by 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 October 27, 1984, itself and it is stamped and if there is any deficiency, the registering authority could direct proper stamps to be affixed and, therefore, I feel there could be no impediment to 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 paragraph 78 of the judgment in the following terms: "Thus on a careful consideration of the materials available and the contentions of either side it has to be decided that Application No, 3505 of 1984 in Original Petition No, 230 of 1984 filed by the petitioners therein praying for a decree in terms of the arbitration award, dated July 9, 1984, has to be allowed and Original Petitions Nos. 247 and 275 of 1984 and the applications filed in those two petitions, i,e, Applications Nos. 3474, 3476, 5030, 5031, 5032, 2827, 2828, 3773, 3762, 3874 of 1984 and 4886 and 4887 of 1985, are dismissed. The petitioner in Original Petition No, 230 of 1984 and the applicants in Application No, 3505 of 1984 are directed to take steps for getting the award registered. The parties in all these proceedings are directed to bear their own costs." It may here be mentioned that after the making of the award one of the arbitrators Sri B.B. Naidu passed away on October 20, 1984. At the request of some of the parties, the surviving arbitrators presented the award before the District Registrar, Madras, for registration on October 27., 1984. Even though the signature of the deceased arbitrator was identified by the surviving arbitrators the document was kept pending for registration. In the meantime, on January 23, 1987, the Advocate for S vialing Nadar served notice on the Registrar not to register the document and 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 disputants Sivalinga Nadar on the premise that the High Court had in Original Petition No, 247 of 1984 granted a stay against the operation of the award on September 5, 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 by the learned Single Judge and came to the conclusion that the award required registration under section 17(1) of the Registration Act. In this view that it took, it did not think it necessary to go into the other contentions dealt with by the learned Single Judge. It held that since the award required registration and was in fact not registered no proceeding for 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 in terms of the a. Ward. 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 it could not be register .Ed as the registering authority was threatened with civil consequences. The correspondence in this behalf was sought to be placed on record as additional evidence but the Division Bench thought that would not alter the situation since: the fact remained that the award
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was not registered even on the date of its judgment. It, therefore, made the following observation in paragraph 46 of the judgment-: "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 same." 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 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 the present appeals by special leave (we also grant special leave in S.L.P. No, 9408 of 1992) have been filed. Before we examine the contention based on section 17 of the 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 profits 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 the Act, a partner is the agent of the firm for the purposes of the business of the firm. Under 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". 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 done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm. Section 29 deals with the rights of a transferee of a partner's interest. Subsection (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. Subsection (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 as 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 his share is made liable fbr the acts of the firm though he would not be personally liable for the same. Subsection (4), however, debars a minor from suing the partners for an account or for his share of the property or profits of the firm except when he severs 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 to 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. Subsections (2) and (3) of section 32 deal with the consequences 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. Chapter 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 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 speaks of dissolution through Court. Section 48
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indicates the mode of settlement of accounts between the partners on dissolution while section 49 provides that where there are joint debts due from the firm, 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 surplus (if any) in the payment of the debts of the firm. Chapter VII deals with the registration of firms, etc., and Chapter VIII contains the saving clause. 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 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 property would vest in all the partners of the firm. Accordingly, each and every partner of the firm would have an interest in the property or asset of the firm but during its subsistence no partner can deal with any portion of the property as belonging to him, nor can he 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 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 dissolution of the firm which remain after satisfying the liabilities set out in the various sub-clauses (i) to (iv) of clause (b) of section 48 of the Act. 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 duration 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 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 February 16, 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 adjustments to make it acceptable and rational. He was of the view that the award should provide for the reallocation of the shareholding of Madras Vanaspati Ltd., whereas Brahmaskthi 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 subsequent letter written on September 9, 1983, he has reiterated these very objections while raising certain questions regarding valuation of partnership properties. Even in the application filed under sections 30 and 33 of the 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 acts in leaving out certain properties from consideration, e.g., shareholdings of 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 award. However, being a question of law, the learned Single Judge entertained the plea and rejected it but it found favour with the Division Bench. We now think it convenient to reproduce the relevant part of section 17 of the Registration Act:
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"17(1). The following documents shall be registered, if the 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 the Indian 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 or comes into force, namely,--- (a) instruments of gift of immovable property; (b) other non-testamentary instruments which purport or operate 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; (c) non-testamentary instruments which acknowledge the receipt or payment of any consideration on account pf the creation, declaration, assignment, limitation or extinction of any such right, title or interest; and (d) leases of immovable property from year to year, or for any term 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 immovable property." The submission made in this behalf before the Courts below was that the award involved a partition of immovable properties as a consequence of dissolution of the firms and since the value of the immovable properties 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 dissolution of the partnership the distribution of the assets of the firm comprising both movable and immovable properties after meeting its obligations on settlement of accounts amongst the partners of the firm in proportion to their respective shares amounts to a partition of immovable properties or a relinquishment or extinguishment of a share in immovable property requiring registration under section 17 of the Registration Act if the allocation includes immovable property of the value of Rs,100 and above? In other words, the question to be considered is whether the interest of a partner in partnership assets is to be treated as movable property or both movable and immovable depending on the character of the property for the purposes of section 17 of the Registration Act? This question has been the subject-matter of decision in a few cases. In Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300; (1966) 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 a half share in that business. The capital of the partnership comprised among other things, certain lands belonging to the two families. The firm acquired more lands in the course of business. 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 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 (at page 1302 of AIR 1966): "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
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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 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 your own expenses, execute and deliver a document registered." 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. It also recites that the Addanki family had already received…
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