2025 (3) TMI 392 - SC - Companies Law

Partner's property contributed to firm becomes firm property under Section 14 Partnership Act, individual ownership extinguished

Sachin Jaiswal Versus M/s. Hotel Alka Raje & Other

The SC upheld the HC's ruling that property contributed by a partner to a partnership firm becomes firm property under Section 14 of the Partnership Act. ... Ownership/possession of property - transfer of ownership rights/interest in a property by way of a relinquishment deed - modes of transfer defined in the Transfer of Property Act - HELD THAT:- The High Court based its order on an interpretation of Section 14 of the Partnership Act and taking into consideration the fact that it was an admitted position that the property was contributed by late Bhairo Prasad Jaiswal to the partnership firm. The law on this point is settled which is that separate property of an individual partner, can be converted into partnership property. In this context, reliance can also be placed upon a judgment of this Court in Addanki Narayanappa v. Bhaskara Krishnappa, [1966 (1) TMI 75 - SUPREME COURT] in which this Court has held that irrespective of the character of the property, when it is brought in by the partner when the partnership is formed, it becomes a property of the partnership firm, by virtue of Section 14 of Partnership Act. A similar view has been taken by the Full Bench of the Madras High Court in The Chief Controlling Revenue Authority vs. Chidambaram, Partner, Thachanallur Sugar Mills and Distilleries and Ors. [1969 (1) TMI 74 - HIGH COURT OF MADRAS], wherein it was held that Section 14 of the Partnership Act enables a partner to bring a property which belongs to him, by the ‘evidence of his intention’ to make it a property of the firm and in order to do so, no formal document or agreement would be necessary. It is apparent from a perusal of the record that late Bhairo Prasad Jaiswal, first acquired the property in the year 1965 and then after constituting the partnership firm (respondent No. 1) in 1972, he jointly constructed a building over the property with his brother and partner, Hanuman Prasad Jaiswal, pursuant to which the building was constructed which was to run as a hotel. This leaves no room for any doubt that late Bhairo Prasad had brought the property in question to the stock of the partnership firm as his contribution to the same - In fact, this is precisely the reason which prompted the High Court to clarify that the decree rendered by the Trial Court ought to be read in favour of the partnership firm respondent No. 1 alone, as opposed to being read in favour of the firm along with the other three partners, i.e. respondent Nos. 24 herein, because the property had become the firm’s property at the very moment late Bhairo Prasad Jaiswal started constructing the hotel on his land after constituting the partnership. The evidence of his intention to contribute the land and the building of ‘Hotel Alka Raje’ is quite clear. Conclusion - The property brought into a partnership becomes the property of the firm, and any individual claims to such property are extinguished upon its contribution to the partnership. The property was owned by the partnership firm alone. There are no reason to take a view different from that of the High Court in this regard. There is absolutely no scope for interference with the order of the High Court dated 09.03.2022 in the exercise of our jurisdiction under Article 136 of the Constitution of India - appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the High Court was correct in clarifying that the property in question was owned by the partnership firm, M/s Hotel Alka Raje, and not by the individual partners.Whether the High Court erred by not addressing the appellant's contention that ownership rights in a property cannot be transferred through a relinquishment deed but only through the modes defined in the Transfer of Property Act.Whether the property, originally owned by late Bhairo Prasad Jaiswal, became the property of the partnership firm under Section 14 of the Indian Partnership Act, 1932.ISSUE-WISE DETAILED ANALYSISProperty Ownership and Section 14 of the Partnership ActThe relevant legal framework is Section 14 of the Indian Partnership Act, 1932, which states that the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired by or for the firm.The Court interpreted Section 14 to mean that any property brought into the firm by a partner becomes the perpetual property of the firm. The Court found that the hotel property, initially acquired by late Bhairo Prasad Jaiswal and later developed into a hotel, was contributed to the partnership firm, M/s Hotel Alka Raje, as his share. This contribution was evidenced by the construction of the hotel on the land after the formation of the partnership.The Court relied on the precedent set in Addanki Narayanappa v. Bhaskara Krishnappa, which held that property brought into a partnership ceases to be the individual asset of the partner and becomes the property of the partnership firm. The Court also referenced the Full Bench decision of the Madras High Court in The Chief Controlling Revenue Authority vs. Chidambaram, which supported the view that a partner could bring property into the partnership without any formal document, and it would become the property of the firm.The Court concluded that the property had become the firm's property when late Bhairo Prasad Jaiswal started constructing the hotel, clearly indicating his intention to contribute the land and building to the partnership.Relinquishment Deed and Transfer of PropertyThe appellant contended that ownership rights in property cannot be transferred through a relinquishment deed. However, the Court found that this issue was not central to the case because the property had already become the firm's property by virtue of Section 14 of the Partnership Act. The Court noted that the High Court's clarification was correct in stating that the property was owned by the firm alone, and the relinquishment deed was not necessary to transfer ownership to the firm.The Court did not find it necessary to separately address the legal aspects of the relinquishment deed since the property had already been contributed to the partnership firm, making the relinquishment deed redundant in this context.SIGNIFICANT HOLDINGSThe Court held that the property in question was indeed the property of the partnership firm, M/s Hotel Alka Raje, as per Section 14 of the Indian Partnership Act, 1932. The Court affirmed the High Court's clarification that the property should be read as being owned by the firm alone, not by the individual partners.The Court emphasized that the intention of late Bhairo Prasad Jaiswal to contribute the property to the firm was clear from his actions of constructing the hotel on the land after forming the partnership.The Court dismissed the appeal, finding no reason to interfere with the High Court's order, as there was no error in the High Court's interpretation and application of the law regarding partnership property.In conclusion, the Court upheld the principle that property brought into a partnership becomes the property of the firm, and any individual claims to such property are extinguished upon its contribution to the partnership. The appeal was dismissed, reinforcing the High Court's judgment that the property was owned by the partnership firm alone.