Property linked to partnership business

Abhinav (Querist) 29 October 2013 This query is : Resolved
Dear Sirs,

Let me first explain the situation.

1. Ours is a family business registered under Indian partnership act.
2. We have 5 working partners and 3 non working partners in the setup.
3. The land on which our factory is running is either owned by 3 partners.
4. The business is running in full swing.
5. One of the partners who happens to be a sleeping partner is a nuisance.
6. I want to know how to make a full and final settlement for this partner.
7. The problem is this, he happens to be one of the original partners in whose name land was bought. If we go by land share his % shall 33. If we go by the partnership deed , % is 11. So how should the division be done ?
8. What about the other 4 partners who does not have any stake in land ? Since the business is run on that land should not the entire division of land be done according to partnership deed amongst 8 partners ?
We are not shutting down the business, just want to restructure it.

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adv. rajeev ( rajoo ) (Expert) 29 October 2013
You have to go in accordance with the partnership deed.

malipeddi jaggarao (Expert) 29 October 2013
Ownership of land in which partnership business is being conducted is a different aspect. The ownership goes as per the title deed. When such land is used for business purpose there might be some agreement either oral or written to compensate the rent to the owner-partners separately. After that is separated from the profits, the net profits are to be shared as per the partnership deed among all the partners either active or sleeping either premises-owner partners or others.

Abhinav (Querist) 29 October 2013
Dear Mr adv.rajeev / malipeddi jaggarao

Thanks for the suggestion, can you please also reply to some more doubts.

Do you mean to say the entire division which includes immovable property should be divided as per deed ? Please note that in deed few more partners are involved who were not the initial buyer of the land on which business is run. One important information I would like to share which may hold cognizance in "there might be some agreement either oral or written" that the land was once taken away by us in Land Ceiling. The land was brought back in a 10 year litigation filed by us against Govt by showing that land is required to run a business. Interestingly this time we added one more partner as the co-owner of land. This was deliberately done so that we do not loose few areas of our land. Later on we added few more partners.

So a straight question, can we hold grounds on the fact that since the land was granted by the government after land ceiling for running a business, it implicitly indicates a capital investment by the original holders of the property in name of firm.

The only stake original partners can claim now is as per their share in partnership deed.

Please advise.

Devajyoti Barman (Expert) 29 October 2013
It is to be seen whether the land still retains its individual colour or has become a partnership property.

In any case you can always give a market price for the share of the said partner and ask for his resignation.
If he is guilty of any misconduct as prescribed by law, then rest of the partners may even expel him.
In either of the situation you have to give him a price for his share in the property.

Abhinav (Querist) 29 October 2013
Mr Barman,

I am not very clear with your answer. We do not want to indulge in any expel or similar things. What we want is to make a final settlement of the concerned partner. The issue is what stake does the partner legally holds ?
Is it 33% of the land + 11% of business income in partnership or 11% of the (land+business interests).

The land has been used entirely for the partnership firm since its inception.

Abhinav (Querist) 29 October 2013
Mr Barman,

I am not very clear with your answer. We do not want to indulge in any expel or similar things. What we want is to make a final settlement of the concerned partner. The issue is what stake does the partner legally holds ?
Is it 33% of the land + 11% of business income in partnership or 11% of the (land+business interests).

The land has been used entirely for the partnership firm since its inception. But we do not have anything in writing that original holders of the land gifted their land in business. The only case that holds is the fact that under Land Ceiling Act, land was given to partners only to carry out business, so does it not imply implictly that land belongs to partnership firm and not to individuals?

Nadeem Qureshi (Expert) 29 October 2013
Dear Abhinav
Its depend on your firm's bye-laws or constitution of the partnership firm.
it will be better to contact a lawyer with all the documents for best advise

Devajyoti Barman (Expert) 29 October 2013
It appears that land is now a partnership property as a result of which the outing partner may receive a price of his share in the property .
Give the amount and settle the issue. You have to give him a part of capital he contributed any.

Abhinav (Querist) 29 October 2013
Mr Barman,

Can you quantify the percentage that should be paid, please refer to my earlier posts. We consulted a local lawyer but I think he is playing a double game.

Rajendra K Goyal (Expert) 29 October 2013
The partnership deed need to be consulted.
From the given facts it seems 33% of the value of land and share in the assets of the firm by 12.5% (being 8 partners). Moreover while retiring he may claim share in the goodwill of the firm in cash also.
If he agree value of land may be paid in cash.

Abhinav (Querist) 29 October 2013
Mr Rajendra,

Thanks for your reply. But I checked a a judgement of Supreme Court in the article "Partnership Property_ A Case Law Derivative" which is available here only. "The matter came up for consideration in Addanki Narayanappa v. Bhaskara Krishnappa,[5] before the Supreme Court and the nature of the interest of a partner in the partnership property during the subsistence of partnership. After its dissolution was fully discussed, it was laid down from the provisions of sections 14, 15, 29, 32, 37, 38 and 48 making it clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of partnership it becomes the property of the firm. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to any one. His right is to obtain such profits, if any, as fall to his share from time to time, if any, upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub- clauses (i), (ii), and (iii) of clause (b) of section 48. The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in, would cease to be the exclusive property of the person who brought it in. It would be the trading assets of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person, who brought it in, would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in."

Now our is also same case, and dont you think the partner should be paid his share in assets of the firm ( which now includes land also ) as per his share mentioned in deed. ?

Rajendra K Goyal (Expert) 29 October 2013
Legally there are so many provisions and ingredients while the merits are dealt with in any case.

The applicability of ruling of apex court can not be denied but the facts are to be seen whether these are applicable in the facts of the present case or not.

The conditions and provisions under which the property was given to partnership has to be seen and how a property standing in the name of three partners only out of eight can be considered property of partnership remains a disputed question to be decided on merits.

Practically the partner who is creating nuisance may not agree to lawful way and if legal path is adopted long litigation will ruin the partnership and its business which would never be in the interest of the partnership or remaining partners.

The partnership would be lucky if any amicable solution is arrived even at the above suggested lines.

Thyagarajan (Expert) 29 October 2013
The sleeping partner by this time would have come to know that you are trying to get rid of him from your ventures.
As you are taking advise he too would have stated to do so.
I agree with Expert Rajendra K.Goyal. Get to know on what terms he will renounce his share in all respects, if you are in speaking terms.
Keep legal path as lost resort.

Abhinav (Querist) 29 October 2013
Thank you so much experts. We too dont want to indulge in litigation.

The land was bought for building a business and not for real estate. Ever since we have maintained it.

It is unfortunate for the family but in best of interests we have to do it as the concerned partner is not liked by anyone in the family and its better we all get rid of him.

Raj Kumar Makkad (Expert) 30 October 2013
Well advised by experts so no more to add.

ajay sethi (Expert) 30 October 2013
agree with experts

Devajyoti Barman (Expert) 01 November 2013
The percentage would be as per the partnership deed. If the deed is silent then it should be 12.5%.

Abhinav (Querist) 01 November 2013
Dear Mr Barman,

Appreciate your time and response. On what basis your statement holds legally ? Do we have an ACT or Law?

Property linked to partnership business

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