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Dissolution Deed Of Partnership Firm Which Merely Allocates Properties To Partners Does Not Confer Title In Immovable Property : Kerala HC [Read Judgment]

The registration of a valid deed of conveyance of immovable property would be the medium through which the transfer of immovable property can be effected to the individual partners of the dissolved Firm”- observed the Court

The High Court of Kerala has held that a dissolution deed, that merely allocates items of immovable properties to a partner proportionate to his share in the assets of the firm, does not confer title in the properties to partner, enabling him to seek mutation of property.

The decision was given by a Division Bench of Chief Justice Hrishikesh Roy and Justice A.K Jayasankaran Nambiar, while considering an intra-court appeal filed by the State in the case State of Kerala v. V.D Vincent.

The issue before the Court was whether the partner of a dissolved firm can seek mutation of the properties allocated to him in proportion to his share on the strength of the dissolution deed.

Factual Background.

A firm “Universal Builders and Developers”, constituted in 2010 but registered in 2015, was dissolved in 2016. The dissolution deed distributed properties to the partners. However revenue authorities refused to mutate the properties allocated to them as per the dissolution deed, stating that in the absence of a registered deed conveying title, mutation cannot be effected as per Transfer of Registry Rules. This made them approach the High Court by way of writ petition.

Single Bench Allowed The Petition.

The Single Bench allowed the petition. Relying on  the decisions reported in M/s.Malabar Fisheries Co. v. The Commissioner of Income-tax, Kerala – [AIR 1980 SC 176]  & N. Khadervali Saheb (Dead) By LRS. And Another v. N. Gudu Sahib (Dead) And Others – [(2003) 3 SCC 229], it was held that a partnership firm was only a compendious personality of the partners, that was not distinct from the persons who constitute it. Hence, in terms of Section 14 of the Partnership Act, the property of the Firm will have to be understood as the property belonging to the partners for the exclusive purpose of business. Also, the proposition laid down in George V.J. and Others v. V.V. George and Others – [2010 (2) KHC 674] & S.V. Chandra Pandian and Others v. S. V. Sivalinga Nadar and Others – [1993 KHC 1150] that when partners convert individual property into the property of the Firm no registration is required in terms of the Registration Act, weighed with the Single Bench. It was deduced from those decisions that registered deed was not required to convey title to properties distributed to partners of a dissolved firm.

Division Bench reversed the Single Bench’s finding.

Challenging the single bench decision, the State filed appeal. It was contended that as per Section 5 of the Transfer of Property Act, a body of individuals was regarded as a “living person”, thereby making partnership firm a “living person”. It was also pointed out  that as per Section 17 of the Registration Act it was compulsory to register all non-testamentary deeds creating title over immovable properties.

What particularly turned the fate of the case was the fact that the dissolution deed did not distribute properties to the same partner who had initially brought it to the stock of the firm at the time of its constitution.  This is clear from the observations in paragraph 6 and 7 of the judgment as follows :

“This view( of the Single Judge) might perhaps have received our approval had it been a case where the property, that was originally brought in to the partnership by any particular partner had, upon dissolution of the Firm, gone back to the same partner. That, however, is not the case in these proceedings. 

In the instant cases, the dissolution deed, while effecting a distribution of the partnership assets, allotted particular items of immovable property to partners other than those who had brought the property into the partnership”.

In that backdrop, the Court proceeded to anaylse the nature of interest acquired by the partners as per the dissolution deed.

Reference was made the SC decision in Addanki Narayanappa and Another v. Bhaskara Krishtappa and 13 Others – [AIR 1966 SC 1300]  which had held that an agreement which recorded the fact of dissolution of the partnership business, and the allotment of machines etc. to a particular partner, could not be said to convey any immovable property to the partner.

Further, reference was made to S.V. Chandra Pandian and Others v. S.V. Sivalinga Nadar and Others – [(1993) 1 SCC 589], which had decided the issue whether an arbitration award dissolving the firm and distributing its proportionate assets required registration under Section 17. There, it was explained that what a partner in effect acquires on distribution of assets after the dissolution of firm is the monetary value of the assets, which reflects his share in the net value of the firm at the time of dissolution. Because, final settlement of accounts of the firm takes place only after dividing the residue, if any, in term of Section 48 of the Partnership Act. On this premise, it was held that no assignment of title over distributed properties takes place as per the dissolution deed, necessitating registration as per Section 17 of the Registration Act.

Taking a cue from this proposition, the judgment authored by Justice A K Jayasankaran Nambiar held:

“…the interest that a partner, who is allotted any item of immovable property towards his share in the assets of the partnership firm, on its dissolution, is only in the monetary value of the immovable property, which represents his share in the assets of the partnership firm on its dissolution. The interest that he obtains is to be treated as movable property, and not immovable property since he does not get an absolute title to the immovable property”.

It was further held that such interest, in the absence of any words indicating a conveyance of title in immovable property, has to be treated as “movable property” for the purposes of Section 17(1) of the Registration Act. Hence, the partners cannot seek absolute title over the property on the strength of dissolution deed.  The Court expressed agreement with the submission of the State Attorney that that the registration of a valid deed of conveyance of immovable property would be the medium through which the transfer of immovable property can be effected to the individual partners of the dissolved Firm.

The appeal was allowed, setting aside the judgment of the single bench, holding :

A dissolution deed, that merely allocates items of immovable properties to a partner proportionate to his share in the assets of the Firm without conveying a title in the said property to him, does not, in our opinion,confer on the said partner a right to obtain a mutation of the property in his name, under the Transfer of Registry Rules. Consequently only a valid deed, duly registered, can convey the title over immovable property to the writ petitioners, and it is only thereafter that they can seek a transfer of registry in respect of the said items of immovable property.

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