Facts

The members of two Joint Hindu families entered into a partnership for carrying on  business. Each family had  half share in  that business. The  capital of the partnership consisted, among other things, of some lands belonging to the families as well as lands later acquired by the firm. The members of one family filed suit in 1949 for dissolution of the partnership and the taking of accounts.    The members of the second family raised the defense that the partnership was already dissolved in 1936 and that accounts were then settled between the two families. In support of that plea, they relied upon an unregistered document, which showed that the partnership had come to an end. It was contended by the appellants, that since the partnership assets included immovable property and the document recorded the relinquishment by the members of the plaintiff family of their interest in those assets, the document was compulsorily registerable under Section 17(1)(c) of the Registration Act, 1908 and that since it was unregistered,     it was inadmissible as evidence to prove the dissolution as well as the settlement   of accounts.

Issue

The question which arose for consideration was 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 Section 17(1) of the Registration Act, 1908?

Held

The concept of partnership is to embark upon a joint venture and for that purpose   to bring in as capital, money and/or property including immovable property. Once that is done, whatever is brought in would cease to be the asset of the

person who brought it in. It would be the asset of the partnership in which all     the partners would have interest in proportion to their share in 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 had 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. His right during the subsistence of the partnership was to get his  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 the value of his share in the net partnership assets as on the date of dissolution or  retirement  after a deduction of liabilities and prior charges. It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by

1. 29(1), that is to say, the right to receive the share of profits of the assignor and accept the account of profits agreed to by the partners.

The karar executed in favour of one of the families, only recorded the fact that the partnership had come to an end. It could not be said to convey any immovable property by a partner to another, expressly or by necessary implication, nor was there any express reference to any immovable property, except a recital of an event which had taken place earlier. Therefore, the unregistered deed of release    by one family of its share in the partnership was admissible as evidence, even though the partnership owned immovable property.

The interest of a partner in partnership assets, comprising of movable as well as immovable property, should be treated as movableproperty. Right of a partner during the subsistence of the partnership, was to get his share of the profits from time to time, as was agreed upon among the  partners, and on  the  dissolution  of the partnership, or retirement from the partnership, right of the partner is toreceive the money value of his share in the net partnership assets. During the subsistence of the partnership, no partner could deal with any portion of the firm’s property as his own. Nor could he assign his interests in a specific item        of the partnership property to anyone though the same may be in his/her name. During subsistence of partnership, a partner does not have right on any specific asset and his right is only a movable property even if the partnership owns immovable property too.

Reference was made to judgment of the Hon’ble Madras High Court in Chitturi Venkataratnam  v.  Siram Subba Rao (1926) Appeal No. 42 & 43 of 1925 (Mad),  in which judgment, after discussing certain English decisions and the decisions in Sudarsanam Maistri v. Narasimhulu Maistri (1902) ILR 25 Mad 149 and Gopala Chetty v. Vijayaraghavachariar I.L.R. 45 Mad. 378 (P.C.) [1922] A.C.1 and the opinion of Jardine J in Joharmal’s case I.L.R. 17 Bom. 235, it was held that an

unregistered deed of release by a partner of his share in the partnership business   is admissible as evidence, even where thepartnership owns immovable property.

Editorial: This is one of the oft referred to judgments for understanding the concept of partnership, assets of partnership and rights of partners in property of the partnership.

Reference can also be made to the decision of Hon’ble Supreme Court in S.V. Chandra Pandian v. S.V. Sivalinga Nadar (1995) 212 ITR 592 (SC) where considering the above decision, the Supreme Court held that share of a partner in property of the firm, whether immovable or movable, should be treated as movable property. Partners cannot deal with the firm’s property in their personal capacity, even though for sake of convenience it is standing in their individual name.

“What is true of the individual will be tomorrow true of the whole nation, if individuals will but refuse to lose heart and hope.”

– Mahatma Gandhi