Andhra HC (Pre-Telangana)
Samyuktha Cotton Trading Company vs Bheemineni Venkata Subbaiah And Ors. on 5 August, 2004
Equivalent citations: AIR2005AP1, 2004(5)ALD497, 2004(5)ALT534, AIR 2005 ANDHRA PRADESH 1, (2004) 5 ANDHLD 497, (2004) 5 ANDH LT 534, (2005) 1 CIVILCOURTC 501
Author: L. Narasimha Reddy
Bench: L. Narasimha Reddy
JUDGMENT L. Narasimha Reddy, J.
1. This is an appeal filed under Sub-rule (4) of Rule 58 of Order 21 CPC, by the claimant in execution proceedings, aggrieved by the rejection of the claim.
2. The 1st respondent filed OS No. 265 of 1987 in the Court of Principal Senior Civil Judge, Narasaraopet, against Respondents 2 to 9, for recovery of a sum of Rs. 2,26,000/- with interest. The suit was decreed ex parte on 16-3-1994. Since the decree was not satisfied even after it became final, he filed E.P. No. 22 of 1995. During the course of execution, he got attached an extent of about Ac.2.00 of land, together with certain structures thereon, belonging to the 7th respondent herein, through orders of the executing Court, dated 28-11-1997. At that stage, the appellant filed E.A. No. 215 of 1998, under Rule 58 of Order 21 CPC, stating inter alia that the 7th respondent joined two other persons, by name, Chundi Venugopal and P. Venkata Prasad, and brought into existence a firm through partnership deed, dated 1-4-1994 (Ex. A-3). It is also their case that about one year thereafter, the 7th respondent retired from partnership through deed of retirement dated 24-4-1995 (Ex.A-4). It is alleged that towards his share, the 7th respondent contributed the attached property, and while retiring from the firm, certain amount was paid to him, towards his share. The appellant-firm is said to have been brought into existence with effect from 24-4-1995, through Ex.A-4, and that it was registered through certificate dated 30-6-1995 (Ex.A-2). The substance of the claim is that the E.P. schedule property does no longer belong to 7th respondent, and that it is the exclusive property of the appellant-firm.
3. Respondents 4 and 6 died. Except Respondent No. 1, rest of them remained ex parte. The 1st respondent contended that the E.P. schedule property exclusively belongs to the 7th respondent. According to him, the whole exercise of bringing into existence of an alleged firm, through the 7th respondent and 2 others, and the alleged retirement of the 7th respondent from the firm, was undertaken with the sole object of keeping the E.P. schedule property away from the execution proceedings. It is his case that the timing of all these alleged acts; lack of bona fides on the part of the 7th respondent and his alleged partners, and lack of genuinity in the alleged transactions, would clearly disentitle the appellant from blocking the proceedings in the E.P. It was also contended that neither the partnership deed nor the retirement deed were registered, and for that reason, the claim itself is barred by Section 69 of the Indian Partnership Act. A further plea was raised to the effect that an immovable property could not have been brought into the fold of the partnership or relinquished thereafter, except in accordance with Section 17 of the Indian Registration Act.
4. Sri M. Chandrasekhara Rao, learned Counsel for the appellant submits that the 7th respondent joined two other persons, by name, Venugopal and Venkata Prasad, as partners, and a firm was brought about. According to him, the 7th respondent contributed the petition schedule property towards his share; whereas the other two persons have arranged for the capital, for running the business. He contends that after the retirement of the 7th respondent, the property continued to be with the appellant-firm, and that the 7th respondent has no right, interest or claim in respect of the firm. According to the learned Counsel, the bar under Section 69 of the Partnership Act, does not operate, since the appellant-firm was registered by the time it submitted the claim. Learned Counsel also submits that registration, as contemplated under Section 17 of the Registration Act, is not necessary, either for contribution of an item of immovable property by one of the partners towards his share, or for leaving it with the firm, while retiring from the firm. In support of his contention, he relied upon several judgments rendered by the Supreme Court as well as this Court. He also contends that the evidence on record is sufficient to establish that the entire transaction of bringing about the firm, retirement of 7th respondent, etc., are genuine.
5. Sri M.V.S. Srinivas, learned Counsel for the 1st respondent, on the other hand, submits that the claim of the appellant is barred under Section 69 of the Partnership Act, since it related to an alleged firm, which was admittedly not registered. He contends that the rights of the 7th respondent, vis-a-vis the petition schedule property, could not have been transferred in favour of the firm either by way of contribution or subsequent relinquishment, except by executing a deed, in accordance with Section 17 of the Registration Act. He contends that the bringing about the alleged firm and the alleged retirement of the 7th respondent firm was only with the sole object of veiling the petition schedule property from the purview of the execution.
6. The suit filed by the 1st respondent against respondents 2 to 9 was decreed ex parte on 16-3-1994. It was permitted to become final. The 1st respondent filed the E.P., to realize the suit amount. An item of immovable property, which was held by the 7th respondent, was got attached. At the stage of sale of that property, the appellant came forward with a claim under Rule 58 of Order 21 CPC.
7. The basis of the claim of the appellant is that the 7th respondent constituted a firm along with two other individuals through partnership deed, dated 1-4-1994 (Ex.A-3). He is said to have contributed the petition schedule property towards his share. Nearly one year thereafter, he retired from the firm after setting the accounts. Thereafter, the appellant herein was continued with the remaining two partners, through Ex.A-1, and the petition schedule property continued to be with it. This claim was resisted by the 1st respondent. Before the executing Court, PWs.1 to 5 were examined and Exs.A-1 to A-37 were marked, on behalf of the appellant. On behalf of the 1st respondent, PWs.1 to 3 were examined and Exs.B-1, B2, C-1 to C-3 and Exs.X-1 and X2 were marked. The claim was rejected by the executing Court. It found that the entire exercise undertaken by the appellant and the 7th respondent was only with a view to screen the petition schedule property from the execution.
8. The 1st question that arises for consideration in this appeal is, as to whether the claim is barred by Section 69 of the Partnership Act. It is not in dispute that Ex.A-3 partnership deed, through which a firm, comprising of 7th respondent and two others, said to have been brought into existence, is not registered. Similarly, the deed of retirement, dated 24-4-1995 (Ex.A-4), was also not registered, nor the procedure contemplated under the said Act was followed. It is, however, a matter of record that subsequently the appellant firm, comprising of two individuals, other than the 7th respondent, was registered on 30-6-1995, through Ex.A2. The bar contained under Section 69 of the Partnership Act, applies to filing of the suit by the firm. It does not insist that the transactions, which are subject-matter of the suit, in relation to, or by a firm, shall be those which take place after the firm is registered. Once a firm is registered, there is nothing in law to disable it from brining about claims or from pursuing remedies in a Court of law, in relation to transactions, which preceded such registration.
9. Even where a suit is filed by an unregistered firm, two courses are open to it, for ensuring compliance with the requirement, or overcoming the prohibition contained is Section 69. It can take return of the suit and file it after the firm is registered, or, secure registration even while the suit is pending. The first aspect indicated above, fell for consideration before the Madras High Court in Buhari Trading Company v. Star Metal Company, . After reviewing the judgments rendered by the High Courts of Punjab and Haryana, Nagpur, Lahore and by itself, the Madras High Court held that rejection of a suit filed by a firm, on account of non-registration, is not a bar for filing a fresh suit after securing registration. The matter was examined from various angles, and the view expressed by it was supported by excellent reasoning. It is beneficial to extract the following:
"It may be seen that in all these cases, the latter suit was held not barred though for different reasons. In some cases, the suit was held not barred on the ground that the plaintiff itself was incompetent to file the suit and therefore there is no question of the Court granting permission to the plaintiff to file a fresh suit and in such circumstances, the Court can only dismiss the suit and could not consider even the claim for filling a fresh suit. The other reason found in some of these cases is that the unregistered firm and the registered firm are technically different persons and therefore even an unqualified dismissal of the suit filed by the unregistered firm could not be considered as a bar for the instituting of a fresh suit on the same cause of action. The third line of reasoning was that when the earlier suit was dismissed on the ground that the suit is barred under Section 69(2) of the Partnership Act, there was no determination of the cause of action or the subject-matter of the suit and there was no adjudication finally or otherwise and, therefore, the earlier order could not be considered either as estoppel or res judicata and the subsequent suit is maintainable."
10. So far as the second course of action is concerned, there used to be difference of opinion and an amount of uncertainty existed, till the Supreme Court resolved it through judgment in Raptakos Brett and Company Limited v. Ganesh Property, . Several High Courts as well as the Supreme Court in Shreeram Finance Corporation v. Yasin Khan, , held that registration of a firm during the pendency of a suit does not cure the defect arising out of non-complaince with Section 69 of the Partnership Act. In Raptakos Brett and Company Limited v. Ganesh Property (supra), the Supreme Court discussed the matter at length, in relation to the contentions that subsequent registration of a firm would serve the purpose of Section 69 of the Partnership Act, and would cure the initial defect. It ultimately observed as under:
"........Order 7, Rule 13 of the CPC would permit the filing of a fresh suit on the same cause of action and if the earlier suit is permitted to be continued it would continue in the old number and the parties to the litigation it would be able to get their claim adjudicated on merits earlier while on the other hand if such subsequent registration is not held to be of any avail, all that would happen is that a fresh suit can be filed immediately after such registration and then it will bear a new number of a subsequent year. That would further delay the adjudicatory process of the Court, as such a new suit would take years before it gets ready for trial and the parties will be further deprived of an opportunity to get their disputes adjudicated on merits at the earliest and the arrears of cases pending in the Court would go on mounting,"
The consequences of such delayed disposal were aptly illustrated, by justice Majumdar, in his unique style. His Lordship said:
"It is axiomatic to say that as a result of protracted litigation spread over tiers and tiers of Court proceedings in hierarchy, the ultimate result before the highest Court would leave both the parties completely frustrated and financially drained off. To borrow the analogy in an English poem with caption "death the leveler", with appropriate modifications, the situation emerging in such cases can be visualized as under:
"upon final Court's purple alter see how victor victim bleed." All these considerations in an appropriate case may require a re-look at the decision of the two-member Bench of this Court in Shreeram Finance Corporation v. Yasin Khan, (supra). However, as we have noted earlier, on the facts of the present case, it is not necessary for us to express any final opinion on this question or to direct reference to a Larger Bench for reconsidering the aforesaid decision."
11. As for the present case, it is not in dispute that the appellant-firm was registered by the time it presented the claim. Hence, the claim submitted by the appellant cannot be said to have been hit by Section 69 of the Partnership Act.
12. The next question is about applicability of Section 17 of the Registration Act. On behalf of the 1st respondent, it is contended that the 7th respondent could not have parted with the property, except by complying with Section 17 of the Registration Act, when he joined or retired from partnership. Section 17 of the Registration Act mandates that any instrument, through which an individual acquires or relinquishes his right or interest in an immovable property, shall be registered. In other words, unless the instrument is registered, it cannot have the effect of conveying the right, title or interest, as regards the immovable property, covered by it. The question as to whether it is necessary to comply with Section 17, either while contributing an item of immovable property towards the share of an individual while joining a firm, or for relinquishing it at the time of retirement from it, was dealt with by a Full Bench of this Court.
13. In A. Narayanappa v. B. Krishtappa, , it was held that once a partnership firm is constituted, the assets held by it merge into one unit, and that no partner can claim any exclusive rights as regards an identified property comprised in the assets of the firm. The principle was summed up as under :
"In determining whether transfer of shares of partnerships which hold immovable property among other assets, require registration the Court must be influenced by the policy of the Partnership Act. The legal conception of the share of a partner in a partnership cannot be assessed in our opinion, by reference to the possibility of his getting a share in the immovable property possessed by the partnership, for his getting a share in the immovable property is only an uncertain factor.
A Full Bench of the Lahore High Court in the case of Ajudhia Pershad v. Shamsunder, ILR (1947) Lah 417 = AIR 1947 Lah. 13, held that the interest of a partner in partnership assets comprising of movable and immovable property would be treated as movable property. We are in agreement with the view expressed in the above.
Our answer to the question referred to is that the interest of a partner in partnership assets cannot be regarded as a right or interest in immovable property within the meaning of Section 17(1)(b) of the Registration Act."
14. The same decision became the subject-matter of appeal before the Supreme Court reported in Addanki Narayanappa and another v. Bhaskara Krishnappa (dead) and Ors., and it was approved. Similar view was expressed by the decisions rendered in Commissioner of Income-Tax v. Amber Corporation, ; and in . Hence, the contentions of the 1st respondent cannot be accepted.
15. The third, but important aspect is, as to whether the claim put forward by the appellant was genuine or was only an effort to screen the property from execution proceedings. The 1st respondent specifically contended that the 7th respondent has been watching the proceedings in the suit till it was decreed ex parte on 16-3-1994 and has devised the mechanism of bringing about partnership and retiring from it only with a view to keep the petition schedule property away from the execution proceedings. Allegations are made to the effect that several documents were brought into existence by using old stamp papers, and fictitious invoices with correlected dates were pressed into service. Therefore, the truth or otherwise into the transactions undertaken by the 7th respondent in this regards needs to be examined. It is purely a question of fact and needs to be dealt with on the basis of the oral and documentary evidence.
16. The suit was decreed ex parte on 16-3-1994. The partnership is said to have been brought about on 1-4-1994. The timing cannot be said to be without any significance. However, if the series of transactions that took place between the parties are genuine, this timing, by itself, cannot invalidate the transactions.
17. Ex.A3, is the partnership deed, through which the 7th respondent claims to have joined two others by name C. Venugopal and P. Venkata Prasad. Clauses (3) and (5) of Ex.A3, are important to be noted. They read as under :
"Clause 3-Objects : The objects of the partnership shall be to continue to be the owners of the land measuring Ac.2.05 cents and Godowns and Office building measuring about 10,000 S.Ft. along with 12 Gins and along with loan due to Indian Bank and carry on business in Cotton etc., and also to do any other allied business as the partners may decide from time to time.
Clause 5-Capital : The capital required for the conduct of the business shall be contributed to the second and third partners according to their individual convenience and interest will be charged at the rate of 18% per annum or any other rate as may be prescribed be the Income Tax Act or any other applicable provisions as may be in force. The Net Assets of the first party taken over by the firm shall be taken as NIL and as such the Capital of the first party will be taken as NIL."
18. From a reading of these clauses, it is evident that the object of the firm was to continue as the owner of the property and through business. It is not stated as to how much amount was required to be contributed by the other partners towards the capital. Neither the net worth of the assets of the 7th respondent nor their value, in terms of percentage of total assets, was mentioned. There is no clause in the deed through which the 7th respondent had contributed or merged his property into assets of the firm. One of the basic characters of a partnership firm is to define the shares of the individual partners. It is on the basis of such defined shares, that the whole concept of partnership functions. In the absence of the same, it becomes impossible for any firm to function. Whatever may have been the justification in not complying with this important requirement, the subsequent conduct of the parties becomes relevant to decide as to whether the constitution of such firm is genuine.
19. As observed earlier, the 7th respondent retired from the firm on 24-4-1995, through Ex.A4. This took place almost within one year from the date of the constitution of the firm. At least, by the time of retirement, it should have been evident as to how much was contributed by each party in the form of capital or assets; how much business was undertaken, and how much assets or liabilities are to be shared by the retiring partner, on the one hand, and the continuing partners on the other. The circumstances under which the 7th respondent is said to have retired from the partnership, as stated in Ex.A4, are rather interesting. Clauses (1)(2) and (3) read as under:
"Clause 1: The continuing parties and the retiring party hereby agree that they have not carried on any business and agree that the accounts have been settled up to the date of retirement i.e., 31-3-1995 and the retiring part has agreed to receive his capital account balance in full settlement of his account and the continuing parties have agree to pay the same.
Clause 2 : The retiring party hereby acknowledge that he has received his capital account balance as per Clause 1 above at the time of signing this deed.
Clause 3 : The continuing parties shall take over all the assets and liability to Indian Bank of the Partnership Firm and the retiring party shall not have any right whatsoever over the said assets of the Partnership Firm. The retiring party shall not have any responsibility whatsoever for the present, past or future liabilities of the Partnership Firm."
20. From this, it is evident that the firm has not undertaken any business activity ever since it was constituted. No reference is made to the contributions, if any, made by the remaining partners up to the date of dissolution. It was also not indicated as to how much amount was paid to the 7th respondent, when he retired. The very fact that no business was undertaken, discloses that there was no contribution from the other partners No reason is forthcoming as to why the 7th respondent was so generous to walk out of the partnership by leaving his valuable asset, namely, the petition schedule property. The other documents filed by the appellant hardly improve the situation. A profit and loss account for the period during which the said partnership subsisted is filed as Ex.A5. Under the heading of profit and loss appropriate account, each of the partners were shown as having derived net profit of Rs. 1,493/-. When there was no business, it is not known as to how they earned profit.
21. An effort was made to show that after the retirement of the 7th respondent, the appellant continued to undertake business. Various invoices are marked as Exs.A7 to A16. They deserve to be seen only to notice their artificiality, lack of bona fides, and indiscriminate corrections. It is interesting to note the dates of invoice Numbers 1 to 7, which are as under :
Invoice Number Date
-------------- -----
1. 5-12-1996
2. 9-12-1996
3. 10-12-1996
4. 11-4-1996
5. 14-4-1996
6. 25-4-1996
7. 28-4-1996
22. This is the sate of affairs, after dates on several invoices were corrected. The forms initially were printed for a proprietary concern; whereas stamp is put as though it is a firm. The other documents would not at all gain the confidence of the Court. The cumulative effect of the various aspects referred to above is that the constitution of a firm with the participation of the respondent No. 7 and two others, and his retirement thereafter etc., are not true and genuine. The whole effort was made to keep the petition schedule property outside the purview of the execution. The evidence, therefore, establishes that the alleged transactions were sham and not genuine.
23. Learned Counsel for the appellant submits that the Respondents 2 to 9 were due to pay various amounts to several persons, including the 1st respondent; whereas they were entitled to receive certain amount from the Tobacco Board. It is his contention that on the instructions given by the Respondents 2 to 9, the Tabocco Board distributed the amounts to as many as 66 individuals from out of the bills payable to Respondents 2 to 9, and in the process, the 1st respondent was paid a sum of Rs. 26,112/-. He submits that this amount was not taken into account, either while passing the decree, or initiating the execution proceedings. In his connection, it needs to be observed that it is not for the appellant, and if at all, it is only Respondents 2 to 9, who can come forward with such a plea. Further, unless the payment of amount outside the Court, in relation to a decree, is certified, as required under Rule 2(3) of Order 21 CPC, the same cannot be taken cognizance of.
24. For the foregoing reasons, the CMA is dismissed. However, there shall be no order as to costs.