Wednesday, 8 May 2019

Whether relinquishment deed of leasehold interest in partnership firm is compulsorily registrable?

According to the Plaintiff, the ``gift`` is not valid as it is not made by registered instrument and attested by two witnesses as required by Section 123 of the Transfer of Property Act . The Defendant, on the other hand, asserts that the share in the partnership property even if it includes immovable assets is not immovable property. In view of the Supreme Court's ruling in Addanki Narayanappa v. Bhaskara Krishnappa MANU/SC/0281/1966 : [1966]3SCR400 . Followed in Commr. of Income Tax, West Bengal v. Juggilal Kamlapat MANU/SC/0130/1966 : [1967]63ITR292(SC) . I uphold the submission of Mr. Vyas, learned Counsel for the Defendant, that the interest of partners in a partnership firm, although it owns immovable property including leasehold interest, is movable property and, therefore, a document evidencing relinquishment of interest of one partner is not compulsorily registrable. 

IN THE HIGH COURT OF BOMBAY

Suit No. 756 of 1977

Decided On: 20.06.1989

Nariman Aspandiar Irani Vs. Adi Merwan Irani

Hon'ble Judges/Coram:
G.H. Guttal, J.

Citation: AIR 1989 Bom 362,1990 MHLJ 265

1. The principal question which arise in this suit is this:- Where two partners together hold the premises of the firm as tenants, does the relinquishment of his interest in the tenancy by one partner in favour of the other, constitute , assignment or transfer of his interest in the tenancy, which is forbidden by Section 15(1) of the Bombay Rents, Hotel and Lodging House Rates control Act ?

The suit instituted by Dr. Nariman Irani, the partner of the Defendant Dr. Adi Merwan Irani in the business known as "Dr. Irani's Maternity and surgical Nursing Home, at 7, Jer Mansion, 1st Floor, 70-B, gowalia Tank Road, Bombay -26" is mainly for a declaration that two writings executed by him on 13th October, 1976, purporting to "gift" his share in the partnership in favour of the Defendant are not valid and that the partnership firm continues to exist as it did, before the execution of the two writings.

2. The plaintiffs case is as under:-

The Plaintiff and the Defendant together hold, on lease, a flat at Jer Mansion, gowalia Tank Road, Bombay-26. Subsequent to the acquisition of the lease , they started the Nursing Home in partnership in accordance with the terms embodied in the partnership deed, dated 31st July 1967, ( Exh. C) .It records that the business was of running "Maternity and Surgical Nursing Home at 7, Jer Mansion, 1st floor, 70-B, gowalia Tank Road, Bombay 26". The plaintiff and the Defendant each brought Rs. 15,000/- into the capital . due to the debts the expenditure on repairs and so on the plaintiff never earned profits, Disputes started between the plaintiff and the Defendant , as he Plaintiff thought that the Defendant was making profits contrary to the partnership deed. According to the Plaintiff, the Defendant wrongfully retained his consultation fees which were agreed to be part of the partnership assets, he treated the patients expected to be treated at the Nursing Home, at some other place and always showed losses though the Nursing Home earned profits. On 19th February 1973, (Exh. `B`), the Defendant wrote a letter to the Plaintiff which illustrates how strained the relations between the partners were. By this letter, be recalled the discussion in regard to the dissolution of the firm and set out certain conditions which included payment of Rs. 72,000/- to ;the Plaintiff. The partnership was proposed to be terminated with effect from 1st April, 1973. But the partnership continued. The relations between the partners continued to be none too happy due to the frequent demands for contribution for the repairs of the building, furniture and so on. The absence of any profits troubled the Plaintiff; so much so, that on 13th October 1976, out of sheer disgust and huff, he wrote a letter to the Defendant, enclosing therewith the declaration. These writings (Exh. `D` pages 1 and 2) are in his own hand. In the letter, he states ``I am enclosing herewith a declaration making you the sole proprietor of Dr. Irani's Maternity and Surgical Nursing Home, Jer Mansion, 1st Floor, Gowalia Tank, Bombay, as of today, the 13th October 1976``. Then, he goes on to record ``I have no claim whatsoever over the said Nursing Home ........`` . The enclosed declaration was also in similar language. It declares `` I am giving my half partnership of the hospital named as Dr. Irani's Maternity and Surgical Nursing Home.......``. Then, he describes the transaction ``as a gift........ as of today the 13th October, 1976``.
Nothing happened for a considerable time. According to the Plaintiff, on 21st November 1976, he and the Defendant met in the Nursing Home. The Plaintiff explained to the Defendant that the harassment and continuous demand of money by the latter disgusted him and, therefore, he wrote the letter and declaration in a huff without intending that they be carried out. The Defendant accepted this position. Both of them decided that the letter and the declaration dated 13th October, 1976, should be treated as non-extant and they continued to be the partners as before. But the Plaintiff was surprised to receive a letter dated 27th December, 1976, written by the Defendant (Exh. `D` page 5), apparently on legal advice. In this letter, be thanked the Plaintiff for the gift he had made and recorded his acceptance. It is at this stage that the Plaintiff became aware of the fact that because of what he wrote in disgust and huff, he was about to lose his property. By his letter dated 19th January, 1977(Exh. `D` page 7), he repudiated the fact that he had gifted his partnerships share. He recalled that the Defendant ``knew fully well the circumstances under which `` he wrote the letter dated 13th October 1976, and that it was agreed that the declaration was not to be acted upon and stood cancelled. The Defendant, by his reply dated 16th February, 1977 (Exh. `D` page 9) denied that there was such agreement not to Act upon the letter and the declaration. Thereafter, correspondence followed to which reference is unnecessary. The suit was instituted on 14th May, 1977.

3. The plaintiff's case is:

(i) By agreement arrived at on 21-11-1976, the letter and the declaration ceased to exist;

(ii) Alternatively he contends that even if such agreement is not proved, the documents which are not registered, cannot create a valid transfer of the Plaintiff's share which includes immovable property;

(iii) The transfer embodied in the letter and declaration dated 13th October, 1976, involves transfer of tenancy is for bidden by Section 15(1) of the Bombay Rent Act and, therefore, void.

4. The Defendant asserts that a valid gift or transfer of the Nursing Home was made or at any rate the Plaintiff relinquished his share in the firm. He disputes the meeting alleged to have been held on 21st November, 1976, and the agreement set up by the Plaintiff.

5. A number of documents, such as, rent receipt jointly in the names of the parties (Exh. `A`), partnership deed (Exh. `C`), correspondence (Exhs. `D`, `E`, `F`, `G`, `H`, `I`, `J`,`K`,`L`,`M` and `O`), and the Income Tax returns of the firm (Exh. `N`), have been produced. But the area of controversy is limited to the validity of the transfer. Therefore, I do not propose to examine the documentary and oral testimony except for the purpose of determining this limited question.

6. The circumstances in which the Plaintiff executed the letter and the declaration dated 13th October, 1976, may be considered.

The documentary evidence consisting of the letter dated 29th June, 1974 (Exh. `F`) by Dr. Banu, the Plaintiff's wife, the letter dated 6th June 1974 (Exh. `I`) by the Defendant, and the letter dated 28th May, 1974 (Exh. `J`) by the Defendant clearly prove that soon after the commencement of the Nursing Home, disputes started as the Defendant showed losses and insisted on excluding his consultation fees from the income of the firm. The Defendant demanded from the Plaintiff different amounts towards the repairs or renovation of the premises by his undated letters (Exhs `K` and `L`). These documents support the Plaintiff's case that the Defendant created such conditions that he was disgusted with the affairs of the firm . The Defendant has not denied that he demanded the amounts towards the Plaintiff's share of the expenses. The Plaintiff, who had hardly earned any profits was faced with frequent demands of money, naturally felt a fit of anger which compelled him to write the letter and the declaration. I accept the Plaintiff's case that he wrote the letter dated 13th October, 1976 and made the declaration of the same date in a huff as claimed by him.

However, it needs to be mentioned that the Plaintiff does not seek to avoid the documents on the ground that he did not know what he was doing.

7. The next question is whether on 21st November, 1976, the plaintiff and the Defendant met and agreed that the letter and the declaration dated 13th October, 1976, were not intended to be acted upon and, therefore, cancelled them. There are other facts which have been set out in the evidence and are subjected to cross-examination, but they are not relevant for any issue arising in this suit. The Plaintiff realised, immediately on 14th October, 1976, that he had erred in writing the letter and declaration in a huff. Having realised this mistake, it was natural for him to contact the Defendant and withdraw the letter and declaration. He admits in his testimony that between 14th October, 1976 and 27th December,1976, he continued to visit the Nursing Home. But surprisingly, he never contacted the Defendant to repudiate or withdraw the letter and the declaration. This conduct, unnatural as it is, is inconsistent with the Plaintiff's case. What is important is that in the belated reply dated 19th January ,1977 to the Defendant's letter dated 27th December 1976 by which the latter communicated the acceptance of the gift, the Plaintiff did not write about the meeting held on 21st November 1976 and the decision taken at that meeting. The fact that the Plaintiff and the Defendant met on 21st November 1976 and decided to treat the writings as cancelled, has been set out for the first time in the plaint. It is, therefore, difficult to believe that the meeting, in fact, did take place. The Plaintiff has failed to prove that at the meeting held between him and the Defendant on 21st November, 1976, it was agreed to treat the letter and the declaration as void.

8. The nature of the transaction evidenced by the letter and declaration dated 27th October, 1976, their effect and validity may now be considered. The Defendant, by his letter dated 27th December , 1976, accepted the ``gift`` made by the Plaintiff of his share in the Nursing Home. The validity of this transfer is seriously challenged by the Plaintiff. It is, therefore, necessary to understand what the letter and the declaration purport to create. In the declaration purport to create. In the declaration (Exh. `D` page 1), the plaintiff says ``I am giving my half partnership of the hospital named as Dr. Irani' s Maternity and Surgical Nursing Home at 7, Jer Mansion, 1st Floor, 70-B, Gowalia Tank Road, Bombay-26 to my partner Dr. Adi Merwan Irani. Then, he goes on to describe the transaction as ``a gift to him``. In the letter of the same date addressed to the Defendant, the Plaintiff says that by the declaration, he was ``making the Defendant sole proprietor of Dr. Irani's Maternity and Surgical Nursing Home.........``. The Plaintiff sets out the consequence of the gift and his status in relation to the Nursing Home. In the letter, he says ``I cease to be a partner of the said Nursing Home from today``.

9. The plaintiff has used the word ``gift`` to describe the ``transfer``. What he gifted was in his own words `his half partnership`` . The consequence of this gift has been stated by him in the declaration in these words:

``I am not responsible for any loss or profit in the said Nursing Home as on 13th October, 1976``. In a nutshell, he gave up all that he had, as a partner to the Defendant and ceased to be liable for any losses as from the date of execution of these documents. By whatever name the transaction is described , the substance of the matter is that the Plaintiff gave up his share as partner to the Defendant and ceased to be entitled to profits and liable for losses. This was accepted by the Defendant in his letter dated 27th December 1976. Therefore, the Plaintiff retired from the firm by relinquishing his rights as a partner which means his right to the profits and his liability for the losses. This is the substance of the transaction not withstanding the label of ``gift`` attached to it.
10. According to the Plaintiff, the ``gift`` is not valid as it is not made by registered instrument and attested by two witnesses as required by Section 123 of the Transfer of Property Act . The Defendant, on the other hand, asserts that the share in the partnership property even if it includes immovable assets is not immovable property. In view of the Supreme Court's ruling in Addanki Narayanappa v. Bhaskara Krishnappa MANU/SC/0281/1966 : [1966]3SCR400 . Followed in Commr. of Income Tax, West Bengal v. Juggilal Kamlapat MANU/SC/0130/1966 : [1967]63ITR292(SC) . I uphold the submission of Mr. Vyas, learned Counsel for the Defendant, that the interest of partners in a partnership firm, although it owns immovable property including leasehold interest, is movable property and, therefore, a document evidencing relinquishment of interest of one partner is not compulsorily registrable. Addanki Narayanappa v. Bhaskara Krishnappa MANU/SC/0281/1966 : [1966]3SCR400 .

There is no merit in the Plaintiff's contention that the gift has not been accepted. The conduct of the parties and especially the letter dated 27th December, 1976 (Exg, D-page 5) written by the Defendant proves acceptance of the gift.

11. The next question is whether the tenancy is an asset of the partnership . Mrs. Bharucha urged that what is ``transferred`` by the Plaintiff is what he held as partner; for, the declaration says ``I am giving my half partnership of the hospital``. According to her, the tenancy is not an asset of the firm and, therefore, the Plaintiff's share in the tenancy does not pass to the Defendant even if the ``gift`` or relinquishment is proved.

12. The property of the firm includes all property and rights and interests in property ``originally brought into the stock of the firm`` Section 14 - Partnership Act . But this is subject to contract between the partners. Under Section 14 of the Partnership Act , property belonging to a person , in the absence of an agreement to the contrary, does not, on the person entering into a partnership with others, become the property of the partnership, merely because it is used for the business of the partnership. It will become property of the partnership only if there is an agreement - express or implied - that the property was, under the agreement of partnership, to be treated as the property of the partnership (Arjun Kanoji Tankar v. Santram Kanoji Tankar : (1969)3SCC555 .

)
In view of this statement of law by the Supreme Court, the question is whether there is any agreement to treat the tenancy of the premises at 7, Jer Mession, Gowalia Tank Road, Bombay 26, as the property of the partnership deed and the balance-sheets exclude inference of such agreement. Therefore, when the Plaintiff made `` a gift`` of his ``half partnership of the hospital``, he gave all his share except the share in the tenancy, for, the tenancy was never the property of the firm. This inference is difficult to escape.

13. But there is a hurdle which the plaintiff has to cross. The plaint does not contain an averment that the leasehold interest of the partners is not property of the firm. After hearing the arguments of Mr.Vyas, the Plaintiff made an application for amendment of the plaint to introduce a statement that the tenancy is not property of the firm. I rejected the application on 8th March, 1989, as it was belated and would necessitate further evidence. I accept the argument of Mr.Vyas that the Plaintiff cannot be permitted to urge that the tenancy does not belong to the partnership because the Defendant had no opportunity of meeting such a case. For this reason, I reject the submission of Mrs. Bharucha.

14. This brings me to the important argument advanced by Mrs. Bharucha. The argument is this: Assume that the leasehold interest in the premises is an asset of the firm. Admittedly, the Plaintiff and the Defendant are the lessees. The Defendant cannot claim that the relinquishment of the Plaintiffs ``half` share of the hospital`` conveys to him the plaintiff's interest in the lease. The reason is that such transfer is forbidden by Section 15 of the Bombay Rents, Hotel and Lodging House Rates Control Act ``. Therefore, the transfer of Plaintiff's share in the tenancy is void.

This question is complex and defies an easy answer. Yet a careful analysis of the scheme of the Partnership Act , the concept of partner's interest and the legislative intent underlying Section 15 of the Bombay Rent Act promises a way out. The difference between the argument upheld by me in paragraph 10 above and this submission should be clearly understood. No doubt the property of a firm - even if it includes immovable assets - is moveable property. Upon dissolution of a firm or retirement of partners, the assets of the firm change hands. The document embodying the terms of dissolution or retirement which may effect transfer of immovable assets is not compulsorily registrable. But this does not necessarily mean that when a partner relinquishes his interest in the partnership , no transfer of immovable property takes place. It is not lawful for any tenant to ``sublet the whole or any part of the premises let to him or to assign or transfer in any other manner his interest therein`` - Section 15(1) Bombay Rent Act . Mrs.Bharucha urged that the ``transfer`` of the Plaintiff's share in the lease hold interest in the premises, even as an asset of the partnership, falls within the statutory prohibition against`` assignment or transfer in any other manner his interest therein``, making such transfer void.

15. The question, therefore, is whether the relinquishment by a partner as a part of his share in the partnership constitutes ( I) assignment or transfer of ``his interest therein``; (ii) in any other manner.

It should be remembered that Section 15(1)takes effect notwithstanding anything contained in any law. Therefore, the prohibition against ``assignment or transfer in any other manner`` of a tenant's interest in the premises is absolute and is subject only to the exceptions created by Section 15 of the Bombay Rent Act and no other law.

The prohibition against such transfer or assignment is subject to two exceptions(I) The contract between the landlord and tenant may permit such assignment or transfer - Section 15(1) - Bombay Rent Act . (ii) The State Government may be notification in the official gazette permit the transfer of interest in the premises held under such leases or class of leases and to such extent as may be specified in the notification - Proviso to Section 15(1) - Bombay Rent Act . Subject to these exceptions, the prohibition against transfer or assignment of a tenant's interest is absolute.

The key words in the Section are ``assign or transfer in any other manner` ` and `` his interest therein``. The fundamental test, therefore, is whether relinquishment of tenancy as partner's share conveys to the transferee partner ``his interest`` in the premises. Consider how and when such "interest" is transferred. Such interest may be created if the Defendant did not previously have interest in the whole of the tenancy. For instance , it the Plaintiff a Plaintiff and the Defendant, each, had interest in the whole of the lease, there is no question of transfer of the Plaintiff's interest to the Defendant , too, has interest in the Plaintiff's property in the premises. To put it differently, if the Plaintiff and the Defendant had community of interest or unity of title, the question of transfer of interest may not arise, for the simple reason that both have antecedent title to the whole interest. The idea of transfer of property presupposes that title to the property did not vest in the transferee before the transfer. (V. N. Sarin v. Ajit Kumar Poplai MANU/SC/0360/1965 : [1966]1SCR349 . The question then is; Do the Plaintiff and the Defendant who hold the lease together, have title to the whole of the lease? Do they have unity of title? Or each of them has separate titles to the tenancy? In other words, does each of them have identical interest in the whole premises and in every inch of it?

These questions are manifestations of the concepts of property know as "joint tenancy" and "tenancy-in-common". They are marked by distinct features. Property held as joint tenancy passes on the death of one joint tenant, by survivorship. Among tenants-in-common, it passes by succession. Even among Hindus a joint gift or bequest creates tenancy-in-common. (Principles of Hindu Law Sir D.F Mulla, Fourteenth Edition, Page 471). The difference in the incidents of joint tenancy and tenancy-in-common should be borne in mind in considering the nature of the partner's interest in the property of the firm. If they hold the leasehold interest as tenants-in-common, there is no unity of title; their there is unity of title and each is the owners of every inch of the premises.

16. Now, if the Plaintiff and the Defendant hold the tenancy jointly in the sense that each of them is a tenant of every part of the premises, if means that the Defendant has interest in every part of the premises which further means that even before the date of relinquishment vested in the Defendant. In such an event, the relinquishment, by the Plaintiff does not transfer "any interest" to the Defendant because the Defendant already has interest in what the Plaintiff seeks to transfer. If, on the other hand, the Plaintiff and the Defendant hold the lease in such manner that their titles are separate, distinct and defined, it means that the title to the interest relinquished, did not vest in the Defendant.

17. The "transfer" in question is by a partner to another partner. Its incidents and effect should not be confused with the partition of Hindu coparcenary property, for, their characteristics, are as well be shown a little later, different. Therefore, the mature of partner's interest and his title to the assets of the firm should be clearly understood. When two or more persons join in business as partners, do they have unity of title to every asset or the profits? What is the significance of sharing of profits and losses? When one refers to partnership in business, the idea of defined shares is the dominant thought. What flashes in the mind is the idea that the partners own the business in share such as 1/2; 1/2 or 1/3; 2/3, and so on. The concept of ownership in unity or partners' right to every inch of the property is alien to the concept of partnership. How true this is will be seen from the provisions of the Partnership Act .

In this case, the leasehold interest of both the partners is assumed to be the property of the partnership for the purposes of Section 14 of the Partnership Act . where one partner transfers his interest in the partnership, the transferee does not have the same rights as the transferor. The transferee is by the statutory provisions merely entitled to receive the share of profits of the transferring partner (Section 29(1) - Partnership Act , ) implying thereby that the transferring partner has a distinct and defined interest in the profits. But the firm may be dissolved, or as in this, case, the transferor may cease to be partner. In such an event, the transferee is entitled "to receive the share of the assets of the firm to which the transferring partner is entitled". [ Section 29(2) - Partnership Act .] For this purpose, the share of the transferring partner is ascertained on taking accounts from the date of the dissolution. [Section 29(2) - Partnership Act .] or the date on which the transferor ceases to be a partner. The rules of settling ceases the accounts require that, firstly, losses, deficiencies in the capital are paid, if necessary, by the partners individually "in the proportions in which they were entitled to share profits". [Section 48(a) - Partnership Act .] Secondly, the assets of the firm are applied for payment of debts, partner's advances and what is due to the partners on account of capital. [Section 48(b)(I)(ii) & (iii) Partnership Act .] Lastly, and significantly. The residue if any, shall be divided among the partners in the proportions in which they were entitled to share profits. [Section 48(b)(iv) - Partnership Act .]

18. The scheme of Partnership Act is that partner's interest in the assets of the firm - which includes leasehold interest - is conceived in severalty, each partner being liable to contribute to the losses and deficiencies in the capital and each partner being entitled to the residue in proportion to his share in the profits. His entitlement is determined by the "proportion" in which the shares the profits. Suppose two partners share profits in the proportion 1;2. If, on dissolution and accounts, immovable assets are left, they would receive the assets or their value in the proportion 1;2. The partner having 1/3rd share has no interest in the remaining 2/3rd property. Suppose in this case the partnership were dissolved and after making payments in accordance with Section 48 of the Partnership Act , the leasehold interest is left as the residue of the assets of the firm, how will the tenancy be divided ? The answer is; "in the proportion in which" the partners shared profits. Thus, the defendant will have no claim to the plaintiff's proportionate share in the tenancy.

Therefore, where partners take premises jointly on lease for the business of the partnership, there is no unity of title. The law clearly conceives their interests in severalty in proportions defined by them.

19. Having regard to the above analysis. I have no doubt that partners hold the partnership property as tenants-in-common and not as joint tenants. Besides "the presumption in India must always be in favour of tenancy-in-common rather than joint tenancy" Mohd Jusab Abdulla v. Fatmabai Jusab Abdulla MANU/MH/0004/1947 : AIR1948Bom53 . Chagla J. in the above quoted case was no doubt dealing with a case under Mohammaden Law; but even among Hindus, a joint gift or bequest creates a common principles of Hindu Law, Sir D.F. Mulla, Fourteenth Edition, page 471. The general law, therefore, is that the acquisition of property by two or more persons creates tenancy-in-common.

In my opinion, therefore, since the plaintiff and the defendant, as partners, own the leasehold interest as tenants-in-common, the defendant does not have any interest in the plaintiff's property which the latter purported in gift" or relinquish. To use the words of the Supreme Court, the title to the property relinquished or transferred by the plaintiff "did not vest in the defendant prior to such transfer". If the plaintiff thus "transferred" property in which the defendant has no antecedent interest what actually occurred was a transfer of plaintiff's interest in the tenancy. This transfer or assignment which admittedly does not attract the exceptions set out in paragraph 15 above is clearly forbidden by Section 15(1) of the Bombay Rent Act .

20. But, Mr. Vyas, Learned Counsel, for the defendant relied upon certain judicial decisions which I will presently consider.

In Shyam Sundar the Punjab High Court laid down this proportion: where upon dissolution of a firm, the tenancy held by the firm devolved upon one partner by reason of relinquishment by the heirs of the other partner, such relinquishment is not "transfer" of tenancy so as to attract Section 13(2)(ii) (a) of the East Punjab Urban Rent Restriction Act , 1949. The rationale of the decision was that transfer by one co-tenant to another co-tenant is different from transfer to a stranger. But this reasons does one answer the question whether such a transfer effects "transfer of interest" in the tenancy. What is forbidden by law is transfer or assignment of "interest" in the tenancy whether it is in favour of a stranger or a co-tenant. Such transfer is as effective in favour of a stranger as it is in favour of a co-tenant. It has been held that admission of a stranger as partner does not involve "transfer" of tenancy. The reason is that the admission of a new partner - though a stranger - does not necessarily involve "transfer of interest" in the premises to the partnership. Therefore, what is of cardinal importance is the element of transfer of interest. I am afraid, the character of a transferee as stranger is not a relevant consideration. What is important is whether an interest in the property is transferred.

There is another approach to the question. There exists between the lessor and the two lessees a privity of estate. Where two partners hold the lease and one transfers his share to the other is the estate affected? In such a case, the transferring partner effectually deals with the estate. Upon transfer of his interest by one co-lessee, the privity of estate between the transferring partner and the lessor is extinguished. This happens because there has been a transfer of interest in the property. Syam Sundar does not consider this.

21. The relevance of the distinction between transfer to a co-tenant and transfer to a stranger is one factor considered by the Punjab High Court. there is an additional reason which flows from two assumption, not relevant to the nature of partnership property. The assumptions are:

(i) "Community of interest and unity of possession are the necessary attributes of partnership property" shyam Sundar v. Brijlal Chimanlal. MANU/PH/0008/1968.

(ii) Upon dissolution, "various partners got exclusive title to their share and relinquished their rights in the remaining partnership property going to other partners" Shyam Sundar v. Brijla Chimanlal MANU/PH/0008/1968.

Having made these assumptions, the Punjab High Court, on the analogy of Hindu coparcenary property held that the relinquishment of tenancy does not constitute "transfer". The Supreme Court's judgment in V. N. Sarin v. Ajit Kumar Poplai MANU/SC/0360/1965 : [1966]1SCR349 on which the Punjab High Court relied, is the source of the reasoning in Shyam Sundar's case. It, it therefore, necessary to consider whether the Supreme Court's judgment supports the conclusions of Shyam Sundar. The Poplai family consisting of B. S. Poplai, Ajitkumar Poplai and Vinodkumar Poplai owned, as Hindu coparceners, a bungalow and other properties. V. N. Sarin was inducted as tenant of the bungalow by B.S. Poplai much prior to the partition. In the partition of the Joint Hindu Family property, the bungalow fell to the share of Ajikumar Popali. After partition, Ajikumar Popali applied under Section 14 of the Delhi Rent Control Act (59 of 1958) for eviction of V. N. Sarin on the ground that he required the premises bona fide for his own residence. Under Section 14(6) of the Delhi Rent Control Act , a landlord who has "acquired any premises by transfer" cannot apply for eviction of tenant unless a period of five years had clasped from the date of the acquisition. Ajikumar Poplai had applied of five years. . N.Sarin urged that the acquisition by transfer and therefore Ajit Kumar's application for eviction was incompetent.

The Supreme Court was dealing with the incidents of coparcenary property which, in the words of the Supreme Court, is characterised by "community of interest and unity of possession" which are "the essential attributes of coparcenary property". V. N. Sarin v. Ajit Kumar MANU/SC/0360/1965 : [1966]1SCR349 . After considering the nature and effect of partition of coparcenary property, the Supreme Court took into account the fact that "each coparcener has an antecedent title to the said property though its extent is not determined until partition takes place ", V. N. Sarin v. Ajit Kumar - MANU/SC/0360/1965 : [1966]1SCR349 . These basic rules of Hindu Law of coparcenary property were the foundation of the Supreme Court's judgment. Since coparcenary property of Jindus is held as joint tenants, the Supreme Court was considering the case of joint tenants and not tenants-in-common. That is why the Supreme Court finally held that since Ajikumar, as a coparcener and joint tenant, had interest in the property before the partition, the allotment of bungalow to him was not transfer for the purpose of Section 14(6) of the Delhi Rent control Act . the Supreme Court, aware of the distinction between the incidents of joint tenancy and tenancy-in-common, hand that transfer for the purpose of Section 14(6) of the Delhi Rent Control Act presupposes that "the title to the property" which the transferee acquires by the transfer "did not vest in him prior to such transfer". V. N. Sarin v. Ajikumar MANU/SC/0360/1965 : [1966]1SCR349 was - unlike the case I am dealing with - was a case in which the transferee held interest in the property prior to the transfer.

22. The assumption made by Shyam Sundar case MANU/PH/0008/1968 that community of interest and unity of possession are the necessary attributes of partnership property is an erroneous extension of the rule of Hindu Law to partnership property. Similarly, the analogy of dissolution of partnership with partition of coparcenary property is an equally incorrect application of the concept of partition of coparacenary property; firstly because the division of the assets of the partnership is governed by a separate set of rules set out in paragraphs 17 and 18 above which conceive interests of partners in severalty as distinguished from the unitary interest of Hindu coparceners ,and secondly because in the case of coparceners ,and secondly because in the case of coparceners the extent of the coparceners' title is not determined until partition takes place; where as the shares of partners in the assets of the firm are previously determined by their contract.

23. In my opinion, the judgment of the Supreme Court in V. N. Sarin v. Ajitkumar MANU/SC/0360/1965 : [1966]1SCR349 does not support the conclusions of Shyam Sundar MANU/PH/0008/1968. The lesson of V. N. Sarin is that partition of coparcenary property in which all coparceners have antecedent interest cannot constitute "transfer" because the "transferee" already has interest in the subject-matter of the transfer. This Hindu Law perception is the centre piece of the decision. In other words, V. N. Sarin's case has no application to property not governed by the rules applicable to Hindu coparcenary property. In a sense, the Supreme Court's observations in paragraph 13 impliedly repudiate the broad proposition made by Shyam Sundar.

24. Mathuradas v. Purnshottamdas 1959 Nag LJ 11 on which Shyam Sundar relied also assumed that the tenancy was of "joint ownership of both the partners". Baldev Mitter and Tirath Prakash v. Basant Ram follows Shyam Sundar which I have already considered. Badri Narayan Jha v. Rameshwar Daval Singh MANU/SC/0054/1951 : [1951]2SCR153 a Supreme Court's decision and Vrajlal Makandas Valiya v L.D. Joshi, Asstt.Collector Bhavnagar (1971) 12 Guj LR 586 of Gujarat High Court, are not applicable because the question of transfer did not arise for consideration in those cases.

25. In Shyam Sundar's case MANU/PH/0008/1968, the Punjab High Court relied upon two cases from the Madras High Court. It is appropriate to deal with them.

The facts of Koragalva v. Jakri Beary MANU/TN/0025/1926 : AIR 1927 Mad 261 were these: The mulgeni lease was in favour of three lessees. One of the co-lessees alienated his share to another co-lessee. The Madras High Court held that "the alienation in favour of co-lessee by another lessee of his right in the lease is not an alienation which will work a forfeiture unless such is prohibited by the lease deed". Two reasons for this decision are discernible from the report.

(i) It is not a fair construction to hold that the person who is already a tenant should obtain the consent of the landlord ......if the clause of the lease deed ought to be strictly construed.

(ii) The law of landlord and tenant in England being more favourable to the landlord than to the tenant, the English Law on the subject should not be followed in India.

Since the Madras High Court considered the question not in the context of the property of partnership firm but in the narrow context of the document it was called upon to construe, the decision must be understood in the light of that document. Under the clause prohibiting alienation by the lessees, the three lessees agreed that "we are not entitled to alienate the said Land to anyone else ..........."6 .

The Madras High Court qualified its decision by use of the words "unless such (alienation) is prohibited by the lease deed" Koragalva v. Jakri Beary MANU/TN/0025/1926 : AIR 1927 Mad 261. Therefore, the Court was examining whether the lease deed prohibited alienation by one co-leasee to another, now mark the words in the lease deed. The three lessees were prohibited from alienating the Land Acquisition Act "to anyone else". The word "else" is understood in different senses depending upon the context. Its plain dictionary meaning is "besides" or "nobody else". The Pocket Oxford Dictionary, Seventh Edition. It may be used to distinguish the identity of persons or things. Webster's Third New International Dictionary (1971) as in the sentence "such decisions are to be made by a Commanding Officer and no one else". The identity of the named person is differentiated from others. In the context of the clause construed by the Madras High Court "we (the lessees)" have identity different from "anyone else". The word also means "apart from that" or "with the exception of that". Webster's Third New International Dictionary (1971). Used in this sense, the three lessees agreed that they were not entitled to alienate the said Land Acquisition Act to anyone apart from themselves. The word "else" also means" in addition to". This would be clear if the meaning of "besides" is borne in mind, for "besides" is used to mean "in addition to" or "apart from". The Pocket Oxford Dictionary Seventh Edition.

The word in its correct application suggests that the lease deed prohibited alienation to "anyone in addition to us" or to "anyone besides us", or to anyone "apart from us". Therefore, the lease deed construed by the Madras High Court prohibited alienation to anyone in addition to the three lessees or to anyone besides the lessees. In other words, under the lease deed, there was no prohibition against alienation between co-lessees inter se. That is why Devadoss J. held that a person who is "already a tenant" need not seek the consent of the landlord in order to acquire the interest of another tenant for the simple reason that the lease deed contained no such prohibition.

26. The ratio of the judgment is that where the lease deed prohibits alienation by the lessees of their leasehold interest to "anyone else", transfer of leasehold interest by a co-lessee to another co-lessee, not being a transfer to "anyone else", is not forbidden by the contract. The Madras High Court arrived at the decision in a case where the lease deed confined the prohibition against alienation to persons other than the lessees. The judgment has no application to the facts of this case.

27. Then, there is the judgment of the Division Bench of Madras High Court in K. Devarajulu, Naidu v. C. Ethirajavathi Thayaramma - MANU/TN/0011/1950 : AIR1950Mad25 which followed Koragalva's case MANU/TN/0025/1926 : AIR 1927 Mad 261. As the judgment reveals, after the dissolution of the partnership, one of the partners" was allowed to use the premises for his sole business". That is why the Madras High Court says "This Act on the part of the two partners cannot amount to transfer or subletting .......". The Act complained of was "allowing" the use of the premises. The question of transfer did not fall for consideration.

28. Koragalva's decision is based on the construction of the lease deed which precluded the lessees from alienating their lease hold interest to "anyone else", implying permission to transfer by one co-lessee to another. The words used in the contract interpreted by the Madras High Court clearly exclude prohibition against alienation by one co-lessee to another and, therefore, the judgment has no application to this case. In the case of K. Devarajula Naidu, there was a there permission to use the premises and no question of transfer arose.

29. I am not called upon to apply rules of English Law. As the judgment of Chagla C.J. and the commentary of Sir D.F. Mulla on Hindu Law referred to in paragraph 19 above would point out, the concepts of joint tenancy and tenancy-in-common are a part of Indian jurisprudence.

30. I will now consider two judgment of the Supreme Court on which Mr. Vyas strongly relied.

In Madras Bangalore Transport Co. (West) v. Inder Singh - MANU/SC/0539/1986 : AIR1986SC1564 a partnership firm in possession of premises as a tenant founded a limited company in which all the partners where Directors. The firm allowed the Company to operate from the tenanted premises. Since the firm continued to be in occupation along with the Company and since the Company was a creature of the partnership it was held that there was no subletting so as to attract Section 14(1)(b) of the Delhi Rent Control Act . this case is different from a case where interest in the premises is transferred. All that the tenant did was to allow the Company to use the premises which is not forbidden by law.

31. However, there is a judicial pronouncement of this Court which needs

In Murli Dhar v. Chunilal 1970 Ren.CJ 922 (SC) an old firm ceased to exist and possession of the shop was taken by a new firm. But one of the partners of the extinct firm continued to be a partner of the new firm. The Supreme Court held that the occupation by the new firm did not amount to subletting. The reasons were:-

(i) Mere possession by somebody other than the tenant does not mean subletting.

(ii) Admittedly, there was no evidence of the fact subletting.

(iii) Since one of the original tenants continued to be in occupation as partner of the new firm, there could not be subletting.

Since admittedly there was no evidence of subletting, all that plaintiff proved was possession of the premises by another set of partners. The question of transfer of tenant's interest did not arise for consideration. The judgment is not an authority for the proposition that relinquishment of tenancy by a partner is not transfer of interest therein, careful consideration. In Shah Babubhai, Jahagirdar, J. held that where notwithstanding the change in the composition of the firm from time to time, one of the original partners continued to be a partner, "the addition or deletion of one or the other partner" does not result in unlawful transfer of tenancy. He refrained from holding that substitution of an altogether new group of partners would amount to such transfer of tenancy.

Consider the facts of that case. Shan Babubhai was not, at the inception of the tenancy, a partner of the firm, Bharat General Stores, in whose favour the lease was created. He became a partner as a result of a subsequent reconstitution of the firm. Devji Dharsi against whom the decree for eviction was made was a partner of Bharat General Stores at all times. There were other partners too. The composition of the firm underwent changes by the exit of some and entry of other partners. Eevji Dharsi was alone joined as the defendant. Shah Babubhai obstructed execution of the decree and claimed tenancy as a partner. The landlord urged that admission of Shah Babubhai to the partnership subsequent to the creation of lease amounts to unlawful transfer of tenancy. Jahagirdar J. held that the "addition" of Shah Babubhai as a partner did not constitute transfer of tenancy.

The facts of the case do not bring out:

(a) How the tenancy was dealt with upon retirement or "deletion" of the outgoing partners.

(b) Whether the tenancy was held by Devji Dharis alone and whether the tenancy was an asset of the firm.

32. No doubt, mere "addition" of Shah Babubhai as partner or "deletion" of other partners cannot constitute transfer of tenant's interest. The reason is that such "addition or "deletion" is consistent with mere use of the premises which, as already stated, is not forbidden by the Bombay Rent Act . But, then transfer requires some thing more than permission to use the premises. If requires divesting of transferor's interest in property. The facts of the case of Shah Babubhai do not reveal whether Devji Dharsi was the sole owner of the leasehold interest, whether the tenancy was brought into the stock of the firm, whether Shah Babubhai or the firm got anything more than a mere user of the premises. Nor are the terms of partnership of dissolution clear from the facts. What is important is that there was no finding by the Court of Small Causes. Bombay that the partnership firm was a tenant. Therefore, the judgment cannot be understood to have held that relinquishment of tenancy by one partner to another does not constitute transfer for the purpose of Section 15 of the Bombay Rent Act , for the simple reason that the existence of lease in favour of Bharat General Stores had not been proved at the stage when Jahagirdar J. remanded the proceedings to the Court of Small Causes. Bombay. However, "addition" or "deletion" of partners by itself cannot amount to transfer, because such "addition" or "deletion" may be a mere use of the premises. The "addition" of Shah Babubhai as partner by itself does not mean that Devji Dharsi or other partners, dealt with the lease-hold interest which, as the findings of the Court of facts revealed, did not belong to the partnership.

In my opinion, Jhagirdar J. did not hold that relinquishment by a partner of his share in the tenancy as a part of his share in the partnership in favour of another partner does not constitute transfer of "his interest therein" for the purpose of Section 15(1) of the Bombay Rent Act .

33. Koragalva v. Jakri Beary MANU/TN/0025/1926 : AIR 1927 Mad 261 considered the validity of the transfer of interest by a co-lessee to another co-lessee in the context of the relevant clause of the contract. Shyam Sundar v. Brijlal Chamanlal MANU/PH/0008/1968 interpreted Section 13(2) (ii) (a) of the East Punjab Urban Rent Restriction Act 1949. V. N. Sarin v. Ajit Kumar - MANU/SC/0360/1965 : [1966]1SCR349 decided whether partition of coparcenary property constitutes "transfer" for the purposes of Section 14(6) of the Delhi Rent Control Act . as already stated, this Court in Shah Babubhai's case (1986) I Ren CJ 144 did not hold that relinquishment by a partner of his share in the lease as a part of his share in the partnership does not constitute transfer of ""is interest" in the premises for the purposes of Section 15(1) of the Bombay Rent Act .

The prohibition against transfer of tenant's interest in the premises enacted by Section 15(1) of the Bombay Rent Act is marked by a unique feature. The transfer of tenant's interest cannot be made, not only by subletting or assignment, but "in any other manner". None of the judicial decisions cited so far were called upon to consider the effect of the words " in any other manner".

Learned Counsel for the plaintiff urged that the words "in any other manner" employed with reference to the prohibited transfers manifest the legislative intent to prevent parting with of tenant's interest in the premises, by any mode whatsoever.

34. The legislative prohibition against the transfer of tenant's interest in the premises, operates "notwithstanding anything contained in any law". these words signify the overriding effect of the legislative command that a tenant shall not transfer his interest in the tenancy. After setting out the prohibition, the legislature enumerates two specific modes of the prohibited transfers. They are; subletting and assignments. In order to preclude transfer by a mode not named in the Section, the legislature employed the words "in any other manner".

35. The word "transfer" in the clause "transfer in any other manner" is used in its generic sense to denote the idea of making over property to another person. Rejecting the restricted meaning of "transfer" in the Transfer of Property Act , this court went so far as to hold that devolution of tenant's interest by bequest falls within the prohibition of Section 15(1) Dr. Anant Trimbak Sabnis v. Vasant Pratap Pandit MANU/MH/0173/1980 : AIR1980Bom69 . The broad generic sense, taking in its sweep all species of dealings with tenant's interest resulting in making over of property is consistent with the object of the Section.

36. The legislature has used the word "any" which is word with a wide meaning and is used to exclude all limitations. Clarke - Jerviose v. Scutt - (1920) I Ch. 382. The legislature could not have fore sent the modes that may be employed for the purpose of transferring tenancy. Aware of this, the legislature specified subletting and assignment, the two known modes of transfer; but it took care to use the words signifying exclusion of any other mode, arrangement or process of transfer. The significance of the word "any" is clear if one notices its meaning. It weans "in any degree, to any extent or at all". Therefore, when the legislature used the word "any" with reference to the transfer, it clearly intended to say that no transfer "at all " or "to any extent" or "in any degree" shall be made, New Webster's Dictionary of the English Language. The meaning of the word "other" in the context of transfer is also significant. It is used to denote a form of transfer "different or distinct from the ones mentioned or employed" New Webster's Dictionary of the English Language.

37. Whether a tenant sublets or assigns his interest - the obvious modes named by the statute - or the tenancy is made over to another through the medium of dissolution of a firm or retirement from the partnership, the result is identical; for, the tenant's interest's interest has been parted with. Aware of this possibility, the legislature used these words to mean that the tenant's interest in the premises shall not be made over to another persons by any mode at all.

38. In my opinion, therefore, having regard to the meaning of the words, "in any other manner", the transfer of tenant's interest through the mode of dissolution of partnership or retirement from partnership is a transfer forbidden by Section 15(1) of the Bombay Rent Act .

39. My conclusions on the question of the validity of the transfer of tenancy may be summarised as under.

The Partnership Act conceives the interests of partners in severalty. There is no community or unity of interest between partners. Therefore, they hold immovable property of the firm as tenants-in-common and not as joint tenants. Having regard to the and not as joint tenants. Having regard to the incidents of tenancy-in-common, one partner has no interest in the share in the property of another partner. Where one partner transfers or relinquishment his share in the partnership business to another, the transfer partner has no antecedent title to the share of the transferring partner. Therefore the making over or relinquishment of leasehold interest as a part of the transferor's share in the assets of the firm constitutes transfer of such lease hold interest.

Section 15(1) of the Bombay Rent Act prohibits transfer of tenant's interest in the prohibits not only by subletting or assignment but also "in any other manner". The words "in any other manner" mean a manner other than by subletting and assignment. The effect of giving up of his share in the tenancy by a partner as a part of his share in the partnership is to make over his share in the tenancy. Such making over of tenancy or parting with tenancy constitutes transfer of tenant's interest "in any other manner". Such transfer of tenancy is forbidden by Section 15(1) of the Bombay Rent Act and is, therefore, void. The transferee partner does not, therefore acquire the transferor's interest in the tenancy.

For these reasons, I hold that the defendant did not acquire the plaintiff's interest in the tenancy of the premises under the letter and declaration dated 13th October 1976.

41. Therefore, I answer issues as follows:

(Contd. On Col. 2) Issues Findings --------------------------------------------------------------------------------------------------------------------------------1. It is proved by the plaintiff that he wrote the letter dated 13/10/1976 and made the In the affirmative. Declaration of the same date in the Circumstances stated in paragraphs 4,5, And 6 of the plaint? 2. It is proved by the plaintiff that at the In the negative. meeting held on 21st November 1976, the plaintiff and the defendant agreed ] that the letter and declaration dated 13-10-1976 were not to be acted upon and that consequently the plaintiff and the defendant continued to be partners? 3. Is it proved by the plaintiff that the The assets of the partnership being letter and the declaration dated 13-10-1976 movable property, their transfer is do not create a valid transfer of the not required to be made by a regist Nursing Home and other property ered instrument and, therefore, Mentioned in the latter and declaration it is valid. For the reasons stated in paragraphs 11and/ Or 12-A of the plaint? The transfer of leasehold interest is Forbidden by Section 15(1) of the Bombay Rent Act and is, therefore, Void. 4. Is it proved by the Defendant that by the letter and declaration dated 13-10-1976, the Plaintiff abandoned or relinquished his position as partner and his interest in the Nursing Home, as alleged in paragraph 3(k) of the written-statement? 5. If the answer to Issue No. 4 is in the The relinquishment of the Plaintiff's affirmative, is the relinquishment set up share in partnership is valid, but the by the Defendant void for the reasons relinquishment of the Plaintiff's stated in paragraph 12-Bof the plaint? Interest in the premises is void. 6. Has the firm been dissolved by the In the negative. The Plaintiff retired Plaintiff's notice dated 17th March, 1977, from the partnership by relinquishing As alleged in paragraph 10 of the plaint? His share therein. 7. Whether the Plaintiff is entitled to any As per order below. Relief, and if so, what relief? -------------------------------------------------------------------------------------------------------------------------------
41.On the one hand, the Plaintiff fails on his plea that he has not transferred his share in the firm to the Defendant, for the document evidencing such transfer has been established. On the other hand, the Plaintiff succeeds in establishing that such transfer does not effect the transfer of his share in the tenancy of the premises. Since the Plaintiff has retired from the firm, there is no question of dissolution of the firm at the Plaintiff's instance. I therefore, make the following decree.

(i) So far as prayer (a) is concerned, the suit is dismissed with this modification that the Plaintiff's retirement from the partnership or relinquishment of his share in favour of the Defendant shall not effect the transfer of the Plaintiff's share in the tenancy. Both of them continue to be the tenants as before.

(ii) Prayers (b), (c), (d), (f), and (g) are rejected.

(iii) Since the Plaintiff has failed to prove the Issue No.2 but has succeeded in proving that the tenancy has not been validly transferred, there will be no order as to costs.

42. Order accordingly.




Print Page

No comments:

Post a comment