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SUPREME COURT OF INDIA
A.M. Ahmadi, M.M. Punchhi and K. Ramaswamy, JJ.
Civil Appeal Nos. 1749-1752 of 1992 with Special Leave Petition No. 9408 of 1992
Decided On: 11.01.1993
S.V. Chandra Pandian and Ors. Appellants
Vs.
S.V. Sivalinga Nadar and Ors. Respondent
Counsels:
For Appellant/Petitioner/Plaintiff: A.K. Sen, Senior Adv., A.T.M. Sampath and Sitharanjandas, Advs.
For Respondents/Defendant: T.S.K. Iyer and S. Sivasubramaniam, Senior Advs., R. Thamodharan, A.F. Julian, Advs. for Arputham, Aruna & Co. and A. Mariarputham, Adv.
Partnership Act,1932 - Sections 4,14,15,18,19,22,29(1),29(2),30,31,32,33,34,35,36,37,38,41,42,32(2),32(3),49,48 - Registration Act - Section 17,17(1),17(1)(c) - Stamp Act - Article 12 - Arbitration Act - Section 30 - Partnership deed - Carrying on business in partnership in name and style of Mes-sers Sivalinga Nadar & Brothers and S.V.S Oil Mills both partnerships being registered under Partnership Act - Most of properties were acquired by firm of Sivalinga Nadar & Brothers - Firm of Messrs S.V.S Oil Mills merely had leasehold rights in parcel of land belonging to first-named firm on which superstructure of oil mill stood - Both partnerships were of fixed durations - Disputes arose between six brothers in regard to business carried on in partnership in aforesaid two names - Arbitrators accepted and entered upon reference and after giving disputants full and complete opportunity to place their rival points of view before them circulated a draft award and after considering response and reaction of disputants thereon made their final award - Arbitrators then proceed to set out properties belonging to or claimed to belong to aforesaid two firms in paragraphs of their award - Paragraph is a residuary clause which says that any asset left out or realised hereafter or any liability found due other than those reflected in account books shall likewise be divided and/or borne equally among disputants - Paragraphs deal with use of firm names - Paragraph refers to claim of sister of six partners with which Court are not concerned in these appeals - Paragraph refers to business carried on by relatives of disputants in names of Agency and Srimagal Finance Corporation - Whether in present or in future any right title or interest whether vested or contingent of value of one hundred rupees and upwards to or in immovable property - Whether in present or in future any right title or interest whether vested or contingent of value one hundred rupees and upwards to or in immovable property - Whether on dissolution of partnership distribution of assets of firm comprising both moveable and immovable properties after meeting its obligations on settlement of accounts amongst partners of firm in proportion to their respective shares amounts to a partition of immovable properties or a relin-quishment or extinguishment of a share in immovable property requiring registration under Section 17 of Registration Act if allocation includes immovable property of value of and above? - Whether interest of a partner in partnership assets is to be treated as moveable property or both moveable and immovable depending on character of property for purposes of Section 17 of Registration Act? - Whether new partnership legally came into existence and as such should be registered under Section 26-A - Held, Regardless of its character property brought into stock of firm or acquired by firm during its subsistence for purposes and in course of business of firm shall constitute property of firm unless contract between partners provides otherwise - On dissolution of firm each partner becomes entitled to his share in profits if any after accounts are settled in accordance with Section 48 of Partnership Act in entire asset of firm all partners have an interest albeit in proportion to their share and residue if any after settlement of accounts on dissolution would have to be divided among partners in same proportion in which they were entitled to a share in profit - During subsistence of partnership a partner would be entitled to a share in profits and after its dissolution to a share in residue if any on settlement of accounts - Mode of settlement of accounts set out in Section 48 clearly indicates that partnership asset in its entirety must be converted into - Money and from pool disbursement has to be made as set out in clause and sub-clauses of clause and thereafter if there is any residue that has to be divided among partners in proportions in which they were entitled to a share in profits of firm So viewed it becomes obvious that residue would in eye of law be moveable property i.e. cash and hence distribution of residue among partners in proportion to their shares in profits would not attract Section 17 of 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 property of firm even though he cannot lay a claim on any earmarked portion thereof as same cannot be predicated - Therefore when any property is allocated to him from residue it cannot be said that he had only a definite limited interest in that property and that there is a transfer of remaining interest in his favour within meaning of Section 17 of Registration Act - Each and every partner of a firm has an undefined interest in each and every property of firm and it is not possible to say unless accounts are settled and residue or surplus determined what would be extent of interest of each partner in property - It is however clear that since no partner can claim a definite or earmarked interest in one or all of properties of firm because interest is a fluctuating one depending on various factors such as losses incurred by firm advances made by partners as distinguished from capital brought in firm etc it cannot be said unless accounts are settled in manner indicated by Section 48 of Partnership Act what would be residue which would ultimately be al-locable to partners - In that residue which becomes divisible among partners every partner has an interest and when a particular property is allocated to a partner in proportion to his share in profits of firm there is no partition or transfer taking place nor is there any extinguishment of interest of other partners in allocated property in sense of a transfer or extinguishment of interest under Section 17 of Registration Act - Therefore viewed from this angle also it seems clear to us that when a dissolution of partnership takes place and residue is distributed among partners after settlement of accounts there is no partition transfer or extinguishment of interest attracting Section 17 of Registration Act - Court have carefully read award and it is manifest therefrom that Arbitrators had confined themselves to properties belonging to two firms in question and scrupulously avoided dealing with properties not belonging to firm - This is manifest from paragraphs of award - However properties standing in names of disputants individually or jointly and others as benamidars but belonging to firm also came to be included in distribution of surplus partnership asset under award - That is purport of paragraph extracted hereinabove - When on settlement of accounts residue is required to be divided among partners in proportions in which they entitled to share profits under sub-clause of clause of Section 48 properties will have to be allocated to partners as falling to their share on distribution of residue and therefore Arbitrators indicated in schedules properties falling to share of each brother - Mere statements that a certain property will now exclusively belong to one partner or other as case may be cannot change character of document or nature of assignment because that would in any case be effect on distribution of residue - Property falling to share of partner on distribution of residue would naturally then belong to him exclusively but so long as in eye of law it is money and not immovable property there is no question of registration under Section 17 of Registration Act - Appeals Allowed Accordingly
No, the arbitration award distributing immovable properties as part of partnership assets upon dissolution does not require registration under Section 17 of the Registration Act. (!) (!) (!) (!) (!) (!)
Partnership property, whether movable or immovable, vests in the firm during its subsistence, with each partner holding an undefined, fluctuating interest in the entire assets, not in any specific portion. (!) [1000316690007][1000316690015][1000316690017]
On dissolution, Section 48 of the Partnership Act requires settlement of accounts: debts and liabilities are first discharged from firm assets, followed by adjustments for advances and capital, leaving a residue (if any) divided among partners proportionate to their profit-sharing ratios. This residue is treated as money (movable property) in law, as firm assets must be realized and converted into cash before distribution. (!) [1000316690007][1000316690010][1000316690011][1000316690015][1000316690017]
Allocating specific properties from this residue to partners constitutes a mutual adjustment of their common interests, not a "transfer," "partition," "creation," "declaration," "assignment," "limitation," or "extinguishment" of any right, title, or interest in immovable property under Section 17(1)(b), (c), or (e) of the Registration Act. No partner has a definite, earmarked share in any immovable property beforehand, so no such change occurs upon allocation. (!) [1000316690015][1000316690016][1000316690017]
The award here confined itself to firm properties (including those benami or standing in partners' names but belonging to the firm), settled accounts, and allocated residue via schedules, without effecting a registrable instrument. (!) (!) [1000316690017][1000316690018]
Thus, the award is valid without registration and can be made a rule of the court. (!) [1000316690018]
JUDGMENT
Ahmadi, J.
The four appellants and respondents 1 and 2 are brothers. They were carrying on business in partnership in the name and style of Mes-sers Sivalinga Nadar & Brothers and S.V.S. Oil Mills, both partnerships being registered under the Partnership Act, 1932. Most of the properties were acquired by the firm of Sivalinga Nadar & 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 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 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.
2. 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. Harikrishnan -- Schedule B
3. S.V. Chandrapandian -- Schedule C
4. S.V. Kasilingam -- Schedule D
5. S.V. Ramchandran -- Schedule E
6. S.V. Natesan -- ScheduleF
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 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 recognised 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 w.e.f. 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 notice
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