Introduction

• This case deals with Section 48 of the Indian Partnership Act, 1932.

Facts

• The four appellants and respondents 1 and 2 are brothers who were doing business together as partners in two registered partnerships named Messer's Sivalinga Nadar and Brothers and S.V.S Oil Mills.
• Most of the properties were owned by the first partnership.
• Disputes arose among the six brothers regarding their partnership business.
• To resolve these issues, they agreed to arbitration.
• The arbitrators considered the arguments from all sides, circulated a draft award, and after receiving feedback, issued their final decision on 9^th July 1984.
• After the award was made, S.V. Chandrapandian and others asked the arbitrators to file the award in court, which was done.
• Subsequently, they requested the court to issue a decree based on the award.
• However, before the court could decide on this request, S.V. Sivalinga Nadar and S.V. Harikrishnan filed applications under Section 30 of the Arbitration & Conciliation Act, 1996 to set aside the award.
• The Division Bench accepted the appeal, overturning the decision of the Single Judge and stating that since the award was not registered, it could not be enforced by the court.
• A Special Leave Petition was filed in the Supreme Court.

Issue Involved

• Whether the interest of a partner in partnership assets is to be treated as movable property or both movable and immovable depending on the character of the property for the purposes of Section 17 of the Registration Act, 1908?

Observation

• The Court said that when partners start a business together, all the property they bring in or acquire during the partnership becomes the property of the business.
• Each partner is only entitled to their share of the profits made from this property.
• If the partnership dissolves, they get a share of the money from selling the property.
• The court emphasized that a partnership itself is not a legal entity; it's just a name for the group of partners. So, all partners have a stake in the business's property, but no partner can treat any part of it as their own while the partnership is ongoing.
• However, a partner can make decisions that bind the entire partnership if it is for the usual business of the partnership. The partner's right is mainly to get their share of profits when the partnership ends, after settling all debts and obligations according to the law.
• The Court explained that because a partner's share in the firm's properties can change based on factors like losses and advances, it is impossible to determine a fixed share for each partner until the accounts are settled as per the Partnership Act, 1932.
• When the remaining amount, which is divisible among the partners, is determined, each partner has a stake in it.
• Allocating a specific property to a partner based on their share in the firm's profits does not mean there is a transfer or extinction of the interests of other partners in that property.
• So, during the dissolution of the partnership and the distribution of the remaining assets among the partners, there is no action that falls under the rules of transfer or extinction as mentioned in the Registration Act, 1908.
• The Court said the true reading of the arbvitral award as a whole, there is no doubt that it essentially deals with the distribution of the surplus properties belonging to the dissolved firms.

Conclusion

• The Court finally held that “The award which is pending for registration may be registered by the Sub-Registrar notwithstanding the objection raised by one of the partners S.V. Sivalinga Nadar through his lawyer if that is the only reason for withholding registration. Hence, the award did not require registration under Section 17(1) of the Registration Act, 1908”.
• The appeals are allowed accordingly with costs.

Notes

Section 48 of the Partnership Act, 1932: Mode of settlement of accounts between partners —

In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed —

(a) losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits;

(b) the assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:—

(i) in paying the debts of the firm to third parties;

(ii) in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital;

(iii) in paying to each partner rateably what is due to him on account of capital; and

(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.