Madras High Court
Sachin Tantia vs The Registrar Of Firms Cum District ... on 27 March, 2012
Author: Vinod K.Sharma
Bench: Vinod K.Sharma
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 27.03.2012
CORAM:
THE HONOURABLE MR. JUSTICE VINOD K.SHARMA
W.P.No.29565 of 2011 and M.P.No.1 of 2011
1 Sachin Tantia
2 Shanti Tantia
3 Ratanlal Tantia
4 Bharat Kumar Tantia
5 Richa Tantia
6 Renu Tantia
7 Shyamlal Tantia ... Petitioners
Vs.
1 The Registrar of Firms cum District Registrar,
Coimbatore.
2 Laxmi Chand Gupta ... Respondents
Writ petition filed under Article 226 of the Constitution of India, praying for the issuance of a Writ in the nature of Certorari, to quash the proceedings No.Roc.1383/A2/2011 dated 13.10.2011, as illegal, incompetent, irregular and without jurisdiction.
For Petitioner : Mr.V.Raghavachari
For Respondent-1 : Mr.R.Ravichandran, A.G.P.
For Respondent-2 : Mr.T.V.Ramanujam,
Sr. Counsel for
Mr.R.Bharath Kumar
*******
O R D E R
M/s.India Re-rolling Mill is a partnership firm manufacturing M.S.Rounds, M.S.Flats etc. The deed of partnership was duly registered with the Registrar of Firms vide registration No.95/1972. On account of heavy loss incurred by the firm, some of the partners sold their shares in favour of the petitioners for valuable considerations. The assignment of shares is not disputed, the transfer is more than 10 years old. The respondent No.2 also did not raise any objection to sale of shares.
2 The partnership firm is having a property which was let out to the petitioners. The petitioners are paying property tax, electricity charges, telephone bills and complied with other statutory obligations.
3 The documents executed in favour of the petitioners in support of handing over of shares in the firm are as under:
(i) The general power of Attorney of Mahendar Kumar Gupta and Padam Kumar Gupta executed sale deed dated 26.10.2003 in respect of the 14% shares.
(ii) The Power of Attorney Mr.Brij Mohan Gupta followed by sale deed dated 20.08.2007 transferring 9% shares in the account.
(iii) Some of the partners have executed a deed of assignment dated 14.08.2004 followed by the sale deed dated 20.07.2007 with respect to 6% shares in the firm.
(iv) The legal heirs of Rajesh Gupta also assigned 6% shares in favour of the third petitioner.
(v) The assignment deed by Mr.Padam Kumar Gupta with respect to 7% shares in favour of the 4th petitioner on 04.12.2006.
(vi) A deed of assignment was executed by Mrs.Uma Devi with respect to 6% shares in the firm.
(vii) A Power of Attorney Mr.Shankarlal Fatehpuria executed Power of Attorney assigning 6.25% shares in favour of the 7th petitioner for valuable consideration.
4 The petitioners claim that they are holding 72% share in the firm. The submission of the petitioner is that recognising their right and change of ownership, the transferor signed Form V for altering the entry in the Register of firms. The Registrar on being satisfied with the requirement stipulated under the statute, recognised the petitioners as partners of the firm on various dates. This fact was within the knowledge of the second respondent.
5 The firm filed a suit for recovery of possession against the petitioners by treating them to be a tenants of the property. The petitioners contested the suit for possession wherein the firm accepted the assignment but tacitly raised other defences. The person not authorised by the firm represented the partnership firm to dispute the rights of the petitioners. In the suit, subsequent reconstitution and the approval of the reconstitution by the Registrar of firms was challenged in O.S.No.243 of 2004 in Fast Track Court, Coimbatore. The suit was decreed against which the petitioners have filed an appeal vide A.S.No.245 of 2011, in this Court where execution of the decree has been stayed.
6 The submission of the petitioners is that when the subject matter was pending in this Court, the second respondent mischievously moved "a willing officer, who was ready to pass orders without appreciating that he had no authority or jurisdiction in the matter as the matter was pending before the civil Court. The allegations of malafide against respondent No.1 cannot be looked into, as the officer is not impleaded in person.
7 The respondent No.1 issued a notice to the petitioners to appear for enquiry along with documents, in view of the complaint lodged by the respondent No.2, Sulochana and Birj Mohan.
8 The Sulochana and Brij Mohan again have not been impleaded, as parties to this writ petition.
9 It is pleaded case of the petitioners that an objection was raised to the jurisdiction of the respondent No.1 to deal with the issue. It is pleaded that other persons benefited through sale transaction also joined hands with the complainants, which according to the petitioners is fraudulent.
10 It is the case of the petitioners that the complainants had no locus standi to question reconstitution of the firm or challenge the right of the subsequent inducted partners.
11 The petitioners immediately sent a letter requesting the first respondent to adjourn the proceedings for filing suitable reply, as due to bereavement in the family, the petitioners were not able to file reply in time.
12 The petitioners also informed the respondent No.1 that subject matter of the complaint was also subject matter in A.S.No.245 of 2011 pending in this Court.
13 The stand of the petitioners is that they informed the respondent No.1, that they will not take part in the proceedings as it involves duplication of proceedings.
14 The respondent No.1 however, directed the petitioners to file reply as he had to close the file. In pursuance thereto, the petitioners filed reply statement specifying the transactions with respect to firm and properties, and also pointed out that the respondent No.2 was no longer a partner, therefore, had no authority to question the reconstitution of the firm. Similarly, the Sulochana Gupta had no right under partnership deed to represent the firm.
15 According to the petitioners, the allegation made in the complainant was that the petitioners forged the signatures of erstwhile partners while filing Form V. The authority of respondent No.1 to go into this question, was challenged as he was neither expert nor could be termed as Judge under law to adjudicate the question of forgery.
16 The submission of the petitioners is that the respondent should have rejected the application being without justification as the question raised were complicated question of fact and law, which could be gone into by civil Court only.
17 It is submitted by the petitioners that there was no explanation forthcoming for the delay of considerable period in filing the application as the sale was completed in the year 2004 itself, therefore, the complaint on the face of it was motivated with malafide intention.
18 It is the case of the petitioners that judgments quoted by the first respondent were of no relevance. The respondent No.1 accepted the application at the instance of the respondent No.2.
19 The stand of the petitioners is that Sec.31, 32, 33 of the Partnership Act on which reliance was placed were not applicable to the facts of the present case.
20 The impugned order is challenged firstly on the ground that the respondent No.1 had no jurisdiction to adjudicate the civil dispute, therefore the order passed is without any authority of law.
21 The ground raised by the petitioners is also that the respondent No.1 could only correct clerical error, but not adjudicate the dispute. The petitioners have also challenged the finding of the respondent No.1 with regarding attempt to delay the proceedings.
22 The writ petition is contested by the second respondent, by filing counter wherein primary objection has been raised, that the petitioners have not approached this Court with clean hands, as they suppressed the material and vital facts, to get undue advantage.
23 It is the submission of the respondent No.2 that the impugned order is not an ex-parte order but was passed after hearing both sides.
24 The stand of the respondent No.2 is that the respondent No.1 by oversight failed to mention the participation of the counsel Mr.A.Sanjiv Kumar who represented the petitioners in the enquiry proceedings.
25 It is the submission of the respondent No.2, that the petitioners 1 to 3 in the suit took a stand that there was an oral agreement dated August 1998, between them and M/s.India Rerolling Mills to purchase the suit property. In the suit, it was not claimed that the petitioners are partners of the firm M/s. India Rerolling Mills rather had admitted in paragraph 4 of the written statement, that they were tenants. The suit was decreed in favour of the firm.
26 In the suit, the following issues were framed;
(a) Whether the plaintiff is entitled to possession of suit properties from the defendants ?
(b) Whether the plaintiff is entitled to claim compensation of Rs.5,60,000/- as also Rs.28,000/- per month from defendants in respect of suit A schedule property ?
(c) Whether the plaintiff is entitled to claim compensation at the rate of Rs.20,000/- from the defendants for use of suit A schedule property ?
(d) Whether Mr.Vinod Kumar Fatepuria is entitled to represent the firm M/s.India Rerolling Mills ?
27 The stand of the respondent No.2 is that issues framed hereinabove, show that suit or appeal has no relevance to the present proceedings.
28 Even in the evidence, the stand of the petitioner No.1 was that the petitioners had purchased some shares from some of the partners.
29 The stand of the respondent No.1 is that M/s.India Rerolling Mill was originally constituted in the year 1971 with the following partners.
1 Sri. Haridwarilal Gupta 2 Sri Ajithkumar Gupta 3 Sri Pawankumar Gupta 4 Sri Radheshyam 5 Sri Shivakumar 6 Sri R.Durai 7 Sri Athmaram 8 Ms.Uma 9 Mr.Vilayatiram Gupta 10 Mr.Mansaram 30 Thereafter, firm was reconstituted twice and lastly on 15.01.1992. But the reconstitution was not intimated to the first respondent, therefore, the records maintained by the respondent No.1 continued to show that the original partners.
31 Five of the partners retired subsequently and in the place of the retired partners, other partners were inducted, and as per the assessment order during the period 1985-86, the following persons were shown partners of the firm;
1 Sri. Haridwarilal Gupta 2 Sri Lakshmichand Gupta (Respondent No.2) 3 Sri Brijmohan Gupta (the other complainant) 4 Sri Ramnivas Gupta 5 Mrs.Sulochana Agarwal (also known as Sulochana Gupra;
yet another complainant) 6 Mr.Mahendrakumar Gupta 7 Mr.Padamkumar Gupta 8 Mr.Vilayatiram Gupta 9 Sri Ajithkumar Gupta 10 Sri Pawankumar Gupta 11 Ms.Uma 12 Mr.Maheshkumar Fathepuria 13 Mr.Vinodkumar Fathepuria 14 MrShankarlal Fathepuria 32 The firm was thereafter reconstituted as per the reconstituted partnership deed dated 15.01.1992. But before the reconstitution, Haridwarilal Gupta died and therefore, his son Shivdayal Gupta was inducted as a partner, with some other partners.
33 According to the respondent, as on 15.01.1992, the following were the partners of the firm:
1 Sri Brijmohan Gupta (complainant) 2 Sri Ramnivas Gupta 3 Ms.Sulochana Agarwal (also known as Sulochana Gupra; yet another complainant) 4 Mr.Mahendrakumar Gupta 5 Mr.Mr.Padamkumar Gupta 6 Mr.Maheshkumar Fathepuria 7 Mr.Vinodkumar Fathepuria 8 Mr.Shankarlal Fathepuria 9 Ms.Umadevi 10 Mr.Pawankumar Gupta 11 Mr.Ajithkumar Gupta 12 Mr.Shivdayal Gupta 13 Mrs.Saroj Gupta (daughter-in-law of the Respondent-2) 14 Mr.Rajeshkumar Thereafter, there was no reconstitution of the firm.
34 The case of the respondent No.2 is that the petitioners were spreading rumours, that they are the partners of the firm, therefore, suspecting foul play, the firm approached the Registrar of Firms and verified the records and on finding out the fraud, they moved the application for correction of register.
35 The stand of the respondent No.2, is that as per Sec.29(1) of the Partnership Act, the assignee gets no rights for interest in the main partnership except to receive the part of the profits of the firm referable to the assignment. Similarly, an assignee or a transferee of a partner can never get a right to do business of the partnership, thus, the petitioners had no right to file Form V, on the basis of assignment of shares.
36 The stand of the respondent No.2 is also that form V filed was fraudulent, therefore, petitioner could not be entered as partners in the absence of reconstitution of the partnership firm, merely on the basis of assignment. The allegations of the petitioners are denied in the counter.
37 In support of the impugned order, the respondents, relied upon Rule 7 of the Madras Partnership (Registration of Firms) Rules, 1951 which reads as under:
"7 Protest against entries in Register Where any partner or other person interested makes a protest in writing to the Register disputing any entry made in the Register of firms.
Rule 7A of the Madras Partnership (Registration of Firms) Rules, 1951 grants power to the Registrar to conduct inquiry and also to investigate the complaints given under Rule 7.
Rule 7A reads as follows:
7A. The Registrar's powers of inquiry and investigation The Registrar may in case of dispute, institute such inquiries or make such investigation as may in his opinion be necessary for the proper performance of his duties under the Act.
38 It is also the stand of the respondent No.2 that under Sec.64 of Indian Partnership Act, 1932, the Registrar has power to rectify the mistake. Sec.64 of Partnership Act, 1932 reads as under:
"RECTIFICATION OF MISTAKES.
(1) The Registrar shall have power at all time to rectify any mistake in order to bring the entry in the Register of Firms relating to any firm into conformity with into documents relating to that firm filed under this Chapter.
(2) On application made by the all parties who have signed any document relating to a firm filed under this Chapter, the Registrar may rectify any mistake in such document or in the record of note thereof made in the Register of Firms."
39 The submission of the respondent No.2, is that the Registrar can even suo motto rectify any mistake in order to bring entry in the register of the firms in consonance with the documents relating to the firm.
40 At the time of motion hearing, the learned counsel for the petitioners, vehemently contended that the respondent No.1 proceeded with the matter inspite of stay granted by this Court, against judgment and decree passed in favour of the respondent No.2. It was in view of this positive stand that direction was issued to the respondent No.1, to file counter, though under normal circumstances, he being a quasi judicial authority was not required to file any counter.
41 In the counter filed by the respondent No.1, is stated that stay granted by this Court was against eviction and damages which had no connection with the subject matter in the enquiry proceedings. He further submitted that he had no intention to disobey the order passed by this Court.
42 In the affidavit, it has been admitted, that the matter was contested by the learned counsel for the petitioners, but by oversight, the appearance of the petitioners' counsel was not marked in the order. Taking advantage of the omission, this writ petition has been filed falsely contending that the order is an ex-parte order.
43 The learned counsel for the petitioners explained, that the stand taken at the time of motion hearing was that the impugned order is contrary to the stay granted by this Court on account of the fact, that the dispute regarding induction of partners was discussed in the judgment passed in the civil suit filed by the firm against tenants for eviction and damages.
44 It may be noticed that there was no issue with regard to the constitution of firm, mere observation made by the Court cannot be treated to be a findings to bar subsequent proceedings. Furthermore, the civil suit against which appeal is pending was not filed by the respondent No.2, but filed by the firm against the tenants.
45 The respondent No.1 was right in recording a finding that the stay granted by this Court against decree of eviction and damages, had no relevance to the question raised before him.
46 The Hon'ble Supreme Court of India in The Commissioner of Income-tax vs. Sunil J.Kinariwala (AIR 2003 SUPREME COURT 668) was pleased to lay down as under:
"There is a clear distinction between a case where a partner of a firm assigns his share in favour of a third person and a case where a partner constitutes a sub-partnership with his share in the main partnership. Whereas in the former case, in view of Section 29(1) of the Indian Partnership Act, the assignee gets no right or interest in the main partnership, except of course, to receive that part of the profits of the firm referrable to the assignment and to the assets in the event of dissolution of the firm, but in the latter case, the sub-partnership acquires a special interest in the main partnership. Hence, when in the instant case, the assessee partner assigns 50% of his share in certain partnership firm in favour of a trust, the case of such assignment cannot be treated as one of a sub-partnership, though in view of Section 29(1) of the Indian Partnership Act, the Trust, as an assignee, becomes entitled to receive the assigned share in the profits from the firm. The said entitlement is not as a sub-partner because no sub-partnership came into existence but as an assignee of the share of income of the assigner-partner.
Also, the share of the income of the assessee assigned in favour of the Trust has to be included in the total income of the assessee. Under the law of partnership, it is the partner and the partner alone who is entitled to profits and that a stranger, even if he were an assignee, do not have and cannot have nay direct claim to the profits. Thus, when a third person becomes entitled to receive the amount under an obligation of an assessee even before he could lay claim to receive it as his income, there would be diversion of income by overriding title; but when after receipt of this income by the assessee, the same is passed on to a third person in discharge of the obligation of the assessee as in the instant case, it will be a case of application of income by the assessee and not of diversion of income by overriding title."
47 The Hon'ble High Court of Gujarat in Rajnikant Hasmukhlal Golwala and others vs Natraj Theatre and others. (A.I.R. 2000 GUJARAT 80) was pleased to lay down as under:
"20. After hearing the learned Advocates and upon perusal of the relevant documents, it appears that the following legal issues have arisen in this appeal from order. The first and the foremost issue is with regard to the right of an assignee or a transferee of a partner's interest. If an assignee or a transferee of a partner's interest has no right to do the business or to participate in the management of business, defendant No. 12, who is an assignee of the right and interest of defendants Nos. 1 to 11 shall not have any right to enter Natraj Theatre for the purpose of doing the business of the firm. If defendant No. 12 has no right to do the business as an assignee of some of the partners of the firm, defendant No. 13, who is an agent of defendant No. 12, cannot have any right to do the business on behalf of defendant No. 12. Section 29 of the Act is the relevant section which deals with the rights of a transferee of a partner's interest. It reads as under :
"29. Rights of transferee of a partner's interest. -- (1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners.
(2) If the firm is dissolved or if the transferring partners ceases to be a partner, the transferee is entitled against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution."
On a bare perusal of the said section it is crystal clear that a transferee of a partner's interest in the firm cannot have a right to interfere in the conduct of the business but he can have a limited right to receive the share of profits of the transferring partners during the continuance of the firm. Thus, Section 29 makes it abundantly clear that the rights of the transferee are on distinctly lower plane than those of his transferor. The transferee is not entitled to participate in the business but he has to content himself by receiving the share of profits which might be calculated on the basis of accounts agreed upon by the existing partners, which he is bound to accept. Looking to the provisions of Section 29 of the Act, he cannot even question the correctness of the amount offered to him. Even if the other partners of the firm are managing the business in a hopelessly bad manner, the transferee cannot do anything. He cannot even move for dissolution if the properties of the firm are being wasted or the business is running into losses. Up to the time of dissolution of the firm, his right is limited right to get profits which the transferor partner is entitled to. The transferee would get some right in the assets of the firm only in the event of dissolution of the firm and in that event he becomes entitled as against the remaining partners to receive the share of partnership property to which his transferor was entitled to and only in that event he is entitled to ask for an account - but that too from the date of the dissolution. It is pertinent to note here that such a right to get share in the properties of the firm or to have an account will commence only from the date on which the firm is dissolved. Admittedly, in the instant case, the firm has not been dissolved yet. Thus, looking to the provisions of Section 29 of the Act, the transferee cannot acquire any interest in the partnership property till the firm is dissolved and as stated hereinabove, he cannot have any right to interfere in the management of the business.
21. The logic behind this section is very clear. A partnership is founded upon trust and confidence which the partners of the firm have in each other. One of the important elements of the partnership is the principle of agency. A person would never make another person his agent unless he has full faith in the person. Only for this reason, without consent of all the partners, an outsider cannot be admitted to partnership. The reason is very simple. The moment a person becomes a partner, in the course of business, he acts on behalf of the firm as well as on behalf of all the partners of the firm. If an assignee or a transferee of a partner's interest is given a right to do the business on behalf of the firm, he automatically becomes an agent of all the partners. If an assignee or a transferee of a partner's interest is given a right to do business on behalf of the firm, as stated hereinabove, he acts on behalf of the firm and thereby he acts on behalf of other partners as an agent of other partners. If such a thing is permitted, a person or a principal would have an agent in whom he may not have any trust. Due to this reason, Section 29 prohibits a transferee of a partner's interest to do business on behalf of the firm.
22. In view of the above discussion, it is very clear that an assignee or a transferee of a partner's interest can never have a right to do business of the partnership firm.
23. Another important issue is with regard to a partner's right to transfer immovable property belonging to the firm. Section 19 of the Act deals with the implied authority of the partner as an agent of the firm. Relevant portion of the said section reads as under:
19. Implied authority of the partner as agent of the firm.-
(1) xxx xxx xxx xxx (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to -
(g) transfer immovable property belonging to the firm.
The said section clearly provides that in absence of any usage or custom of trade to the contrary, the implied authority of a partner would not empower him to transfer immovable property belonging to the firm. In the instant case, defendants Nos. l to 11 have not only assigned their interest in the partnership firm to defendant No. 12, but they have also sold immovable property of the firm to defendant No.12. A partner has a right to do business and in the course of business he can deal with the property of the firm. But this right would not enable him to deal with partnership property as his own property. Moreover, in any case he has no right to deal with any of the immovable properties of the partnership firm. Here, looking to the facts of the case, it is clear that defendants Nos. 1 to 11 have made an effort not only to transfer their interest In the firm to defendant No. 12 but they have tried to sell the entire property which belongs to the partnership firm. My attention has been drawn to the documents at Mark 3/32 to 3/ 42 whereby it appears that defendants Nos. 1 to 11 have sold property wherein Natraj Theatre is situated. The said documents have been placed on record by the plaintiffs. They have submitted that they were unable to procure the sale deeds as the sale deeds were executed by defendants Nos. 1 to 11 in favour of defendant No. 12 and therefore they were not in a position to have copies of the sale deeds but on the basis of the information received from the extract of relevant register of the office of the Sub-Registrar, they could show to the Court that the entire immovable property of the firm was sold by defendants Nos. 1 to 11 in favour of defendant No. 12.
26. A partner cannot deal with any portion of the partnership property as his own property for the reason that he is not like a co-owner of the property. A co-owner, without the consent of other co-owners, can transfer his interest to a third party and in that event, the third party shall have the same rights which the transferor had and the transferor shall be put in the same position as regards the other co-owners as the transferor himself was before the transfer. By virtue of the provisions of Section 29 of the Act, position of a transferee of a partners interest would not be the same as a transferee of a co-owner's interest. Thus, there being a difference in the partnership and co-ownership, defendant No. 12 shall not have any right which his transferee (transferor) partners had in the partnership property."
48 The Hon'ble Supreme Court in Addanki Narayanappa & another vs Bhaskara Krishnappa and 13 others (A.I.R. 1966 SC 1300) was pleased to lay down as under:
"From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is 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. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in cl. (a) and sub-cls.. (i), (ii) and (iii) of cl.(b) of s. 48. It has been stated in Lindley on Partnership, 12th ed. at p. 375"
49 The Hon'ble Rajasthan High Court in Mangilal vs Bhanwarlal and others (A.I.R. 1963 RAJASTHAN 153) was pleased to lay down as under:
"There can however be no objection at law to a partner assigning his right, title and interest in a partnership to another as was done in this case. But such a person by virtue of the provisions contained in Section 29 cannot interfere in the conduct of the business of the firm or require accounts or inspect the books of accounts of the firm during the continuance of the partnership, that is, until dissolution has been brought about, and ail that the assignee is entitled during the continuance of the partnership is to receive the share of profits of the transferring partner, and the transferee must accept the amount of profits agreed to by the partners. The point that deserves to be noted is that the assignment during the continuance of a partnership does not give the assignee a right to claim accounts or to sue for dissolution, in other woras, the assignor continues to remain the partner and the assignee is only entitled to receive the share of the profits due to the assignor. It is only if and when dissolution occurs that the transferee would be entitled as against the remaining partners to ask for accounts as from the date of the dissolution and to receive his share of the assets of the firm to which the transferring partner was entitled on that footing."
50 The Hon'ble Andhra Pradesh High Court in Reddi Veerraju vs Chittori Lakshminarasamma and others (A.I.R. 1971 A.P. 266) was pleased to lay down as under:
"10. According to Mr. Subbarayan, what is mortgaged is only in interest in the partnership to the extent of the share of the mortgagors viz., one Anna and not the property of the partnership. We are unable to agree with Mr. Subbrayan that what is mortgaged is the undivided interest of one anna's share of the mortgagors and not the property of the partnership. Under Section 15 of the Partnership Act, the property of the firm subject to any contract between the parties, shall be held and used by the partners exclusively for the purpose of the business. Therefore, no partner can say or treat any item of the property so long as the partnership subsists. In other words, as held by a Full Bench of the Lahore High Court in Ajudhia Pershad Ram Pershad v. Sham Sunder, AIR 1947 Lah 13 at p.20 (FB) while a partnership is in existence, no partner can point to any part of the assets of the partnership as belonging to him alone. It should be borne in mind that notwithstanding the dissolution of the firm. The partners continue to be liable by any one of them which would have been an act of the firm, if done before dissolution, until public notice is given of the dissolution. The assets or the property of the firm on dissolution have to be applied in the first instance to the payment of liabilities of the firm; and it is only then that a partner or his representative will be entitled for the distribution of the surplus.
It is thus clear that until the dissolution and payment of the debts and liabilities of the firm, the question of any share in what is left over of remains, does not arise. In other words, no partners can lay his hands on any item of the partnership property claiming any exclusive rights over it as all the members of the partnership property. As has been pointed out in Lingen v. Simpson, ( (1924) Simons and Stuarts Reports, Case in Cancery, 600), no partner can claim an exclusive right in any article of the partnership property. But upon a dissolution any part of the partnership property may be contract of the partners, be converted into the separate individual property of either. To the same effect, it was pointed out by Romer, J. in Re Ritson, Ritson v. Ritson, (1898) 1 Ch 667) that "The debts of the partnership are not the testator's debts. Neither are the assets of the partnership the testator's assets."
It, therefore, follows that, so long as there is a partnership in existence, no partner has any right to take any portion of the partnership property, or to say that it belongs to him exclusively so as to assign or transfer the partnership property. The right that he possesses in the partnership property is his right as a member of the partnership and not a right which he can claim in his individual capacity.
13. What is meant by a share of a partner, as put by Lindley (Chapter 17 at p. 375) is his proportion of the partnership assets after they have been all risked and converted into money, and all the partnership debts and liabilities have been paid and discharged.
14. The Supreme Court in construed the scope and applicability of Section 29 of the Partnership Act where it was observed:
"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 the exclusive property 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."
Section 29(1) only permits transfer by a partner of his interest in the firm, either absolute or by mortgage or by the creation of a charge on such interest. But such a transfer will not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm. This sub-section only entitled a transferee to receive the share of profits of the transferring partner, and he shall accept the account of profits agreed to by the partners. It is manifest that, not until the dissolution of the firm, the tranfferee will be entitled as against the remaining partners to receive a share of the assets to the extent the tranferring partner was entitled to' and for that purpose an account as from the date of dissolution will have be taken."
51 The pleadings in the writ petition itself shows that the petitioners are claiming right in the partnership on the basis of assignment and sale by the partners of their shares in the partnership firm. Therefore, it was not open to the Registrar to make entries showing petitioners as the partners of the firm.
52 The Registrar under Rule 7 and 7A of the Madras Partnership (Registration of Firms) Rules, 1951 as also under Sec.64 of the Partnership Act is competent to rectify the mistake, in order to bring entry in the register of Firms relating to any firm in conformity with the documents relating to the form filed under the Chapter. This is precisely what has been done by the respondent No.1.
53 The learned counsel for the petitioners has challenged the impugned order on the ground that the exercise of jurisdiction by the respondent No.1 was not in accordance with law, as under Sec.64 of the Act, rectification could be ordered only in case all the applicants jointly move the application for rectification and not otherwise. In this case, the forms were admittedly filed by the petitioners and other partners and therefore, it was not open to the respondent No.2 or the other complainant to invoke the jurisdiction under Sec.64 of the Act for correction of the entries.
54 In view of Sec.64(2) of the Partnership Act, this contention though look attractive on the face of it, but cannot stand the test of reasoning, for the simple reason that under Sec.64(1), the powers with the Registrar is absolute, to rectify at all times any mistake in order to bring entries in the register of firms relating to any firm in conformity with the documents relating to the form filed under this Chapter.
55 The powers are absolute powers with the Registrar which can be even suo motto exercised therefore, the impugned order of the Registrar in ordering correction, cannot be said to be without jurisdiction.
56 It was next contended by the learned counsel for the petitioners that the respondent No.1 had no jurisdiction to carry out the correction after the lapse of so many years, therefore, the application was barred by limitation. As in view of settled law that even void order can be challenged within a period of three years, it was not open to the respondent No.2, to file complaint at belated stage, nor the respondent No.1 could entertain the complaint after lapse of three years.
57 This contention is again misconceived, as reading of Sec.64 of the Act shows, that the power with the Registrar is to correct the mistake at any time, as the wrong entries in register gives a recurring cause of action, for its correction, therefore, exercise of power under Sec.64(1) of the Act, by the respondent No.1, cannot be said to be barred by limitation, as contended by the learned counsel for the petitioners.
58 It was next contended by the learned counsel for the petitioners that the impugned order is without jurisdiction, as the civil Court was seized of the matter, and this fact was duly brought to the notice of the respondent No.1, who inspite of request, proceeded with the matter by wrongly recording that there was no representation on behalf of the petitioners. The contention of the learned counsel that dispute could not be adjudicated by the respondent No.1 being a complicated facts and law also deserves to be rejected, as respondent No.1 has not determined the question of fraud, but has performed his statutory function in correcting the error in the record maintained in office, as on the basis of assignment of share, the petitioners could not be entered as partners.
59 This contention again is misconceived. It is only a matter or issue which is finally decided can bar the subsequent proceedings. The decree admittedly was not regarding the constitution of partnership firm, but was passed in a suit for eviction and damages filed by the firm.
60 The decree of eviction and damages was stayed by this Court. Not only this, the decree was not on the subject matter, as no issue was framed with regard to the induction of petitioners as partners of the firm. There is no issue also framed with regard to petitioners being partners, as in reply, the stand taken was of purchase and that the petitioners are the tenants.
61 The stand of the petitioners therefore, was not correct. It was wrongly stated at the time of motion hearing of this case, that the decree passed in a suit filed by the respondent No.2 was stayed, whereas the suit was filed by the partnership firm, and not respondent No.2 who claims to be a partner.
62 One of the contention raised by the learned counsel for the petitioners was that the respondent No.1 has wrongly recorded that there was no representation whereas the petitioners in fact had appeared.
63 This stand stands clarified by the respondent No.1 in his affidavit. Interestingly, the stand of the petitioners in affidavit is that they were not to participate in the proceedings in view of the pendency of the appeal in this Court.
64 Therefore, the defence of the petitioners is prima facie misconceived, inasmuch as the pleading in the affidavit itself shows that the petitioners were claiming right in the partnership on the basis of deed of assignment and sale of shares, which in view of the settled law could not give them right in the partnership firm.
65 The Registrar by way of the impugned order has only corrected the mistake in the register maintained in office which does not determine the rights of the parties.
66 The parties if aggrieved by denial of any right under sale, can go to the civil Court. No fault can be found with the impugned order, in view of the settled law, which does not call for any interference by this Court in exercise of writ jurisdiction.
67 Consequently, the writ petition is dismissed.
No cost. Connected miscellaneous petition is also dismissed.
27.03.2012 Index : Yes/No Internet : Yes/No vaan To The Registrar of Firms cum District Registrar, Coimbatore.
VINOD K.SHARMA,J.
vaan W.P.No.29565 of 2011 and M.P.No.1 of 2011 27.03.2012