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Facts

The members of two different Joint Hindu households got together and formed a partnership so that they could go into business together. Every family had a fifty percent stake in the company. The capital of the partnership was comprised, in part, of some of the estates that belonged to the families involved, in addition to holdings that were subsequently bought by the company. In 1949, members of a single-family brought a lawsuit demanding the dissolution of the partnership and the completion of the accounting.

The members of the second family have put up the defense argument that the partnership was already dissolved in 1936 and that finances were then resolved between the two families at that time. They based their argument on a document that had not been registered with the appropriate authorities, which demonstrated that the partnership had been dissolved. The appellants argued that because 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 because it was unregistered, it was inadmissible as evidence to prove the dissolution of the partnership as well as the settlement of accounts. Since the document was not registered, the appellants argued that it was inadmissible as evidence to prove the dissolution as well as the settlement of accounts.

Issue

For Section 17(1) of the Registration Act of 1908, the issue that arose for consideration was whether the interest of a partner in partnership assets, comprised of moveable as well as immovable property, should be classified as movable or immovable property.

Legal

1. 12, 14, 15, 29, 31, 48, Indian Registration Act, 1908
2. Section 17(1)(c) of the Registration Act, 1908
3. Section 5 of The Indian Partnership Act, 1932

Held

The idea of forming a partnership is to begin a business endeavor along with another party and, to do so, to contribute capital in the form of money and/or property, including immovable property. As soon as that step is completed, whatever is brought in will no longer be considered an asset of the person who brought it in. It would be an asset owned by the partnership, in which each partner would have a stake that was proportional to the amount of profit they contributed to the partnership’s overall company.

Hence, the individual who brought it in would not be allowed to claim or exercise any exclusive right over any property that he had brought in, let alone any other partnership property. This would also apply to any other property that the partnership owned. Even to the extent of his ownership stake in the company, he would be unable to exercise his right to participate in the partnership’s activity.

After the dissolution of the partnership or upon his retirement from the partnership, he will be entitled to the value of his share in the net partnership assets as of the date of dissolution or retirement, after liabilities and prior charges have been subtracted. This right will remain in effect for as long as the partnership remains in existence. During that time, he will be entitled to receive his share of profits periodically, as may be agreed upon by the partners. Even though the partnership is still active, a partner can transfer his or her portion of the business to another person.

In such a scenario, all that the assignee would obtain is the right to receive the share of profits that the assignor is entitled to and to accept the account of profits that have been decided upon by the partners. This is the sole benefit that is authorized under Section 29(1).

The karar that was carried out in favor of one of the families just documented the fact that the partnership had been dissolved then. It was not possible to say that it transferred any immovable property from one partner to another, either directly or by necessary inference. In addition, there was no express reference to any immovable property, except a recital of an occurrence that had occurred previously. Even though the partnership controlled immovable property, the unregistered deed of release that one family used to get rid of its stake in the partnership may still be presented in court as evidence because of this rule.

It is appropriate to consider a partner’s share of the partnership’s assets, which may include both moveable and immovable property, to be part of the partner’s personal property. The 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. The right of a partner upon the dissolution of the partnership or retirement from the partnership is to receive the monetary value of his share in the net partnership assets. During the subsistence of the partnership, the right of a partner was to get his share of the profits from time to time, as was agreed upon among the partners. Throughout the time that the partnership was active, none of the partners were allowed to treat any piece of the company’s property as if it were their own. Nor may he convey his rights in a particular piece of the partnership property to anybody else, even though the item may be registered in his or her name.

Even though the partnership possesses immovable property as well as moveable property, a partner’s sole right is to movable property while the partnership is still in existence while in existence, the partner does not have a claim to any particular asset.

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Judgement Reviewed by Jay Kumar Gupta