Case title:
Sachin Jaiswal v Hotel Alka Raje & Other
Date of Order:
27 February, 2025
Bench:
Justice [SUDHANSHU DHULIA]
Justice [AHSANUDDIN AMANULLAH]
Parties:
Appellant - Sachin Jaiswal
Respondent - Hotel Alka Raje & Other
SUBJECT
- In this case, the Supreme Court (hereinafter the “Court”) ruled that when a partner contributes property to a partnership firm, ownership transfers to the firm, not the individual partner or their heirs after their death or retirement. The partner or their heirs are only entitled to a share of the firm's profits based on the contribution, and no formal transfer document is required—bringing the property into the business is sufficient for ownership to vest in the firm.
IMPORTANT PROVISIONS
Section 14 of the Indian Partnership Act, 1932
It states that property originally owned by a partner can become the firm's property if brought into the business as part of the partnership assets. This includes:
- Property contributed by a partner at the time of forming or during the partnership.
- Property acquired in the firm's name for business purposes.
- Goodwill, rights, and interests associated with the business.
OVERVIEW
- Father of the appellant, Late Bhairo Prasad Jaiswal purchased a land plot in Mohalla Rikabganj, Faizabad, in 1965. In 1971, he entered into an oral partnership with his brother, Hanuman Prasad Jaiswal, which was later reduced into writing. The partnership firm, M/s Hotel Alka Raje, was formed, and the brothers jointly built a hotel business on the land.
- In 1982, two new partners were added to the firm through a Partnership Deed. In 1983, late Bhairo Prasad Jaiswal relinquished his rights from the land on which the hotel was built, executing a registered relinquishment deed. The property was released in favor of Hotel Alka Raje, with no legal heirs or successors having any rights or interests.
- Late Bhairo Prasad Jaiswal, who had relinquished his right to the hotel property, continued to run it with three other partners. Due to his old age, he couldn't devote much time to the business.
- A Partnership Deed was signed, dividing profits or losses among the partners. Jaiswal received 10% of net profits or losses, while the other partners received 30% each.
- In 2005, the late Bhairo Prasad Jaiswal passed away, leading to a new partnership deed between three remaining partners, including Shri Hanuman Prasad Jaiswal and respondent Nos. 2 and 3.
- The partnership continued until 2017, when Shri Hanuman Prasad Jaiswal retired due to old age. A supplementary partnership agreement was executed, allowing him to retire and induct a new partner into the firm.
- A civil suit was filed by respondent Nos. 1-14 in 2018 against the appellants for claiming ownership of the property on which Hotel Alka Raje is located. The appellants argued that the land was purchased by their late father, Bhairo Prasad Jaiswal, and a building was constructed on it.
- The trial court also ruled that the appellants have no right, title, or interest in the property, based on a Relinquishment Deed executed by Jaiswal and held that the appellants' successors would not have any share in the property.
- The appellant and other defendants filed a First Appeal against the Trial Court's judgment and decree. By the Impugned Order dated 09.03.2022, the High Court disposed of the appeal, holding that the only entity with ownership, possession, rights, title, and interest in the property is the partnership firm, respondent No. 1.
ISSUES RAISED
- Whether the High Court was justified in issuing the clarifications?
- Did the High Court err by failing to consider the appellant's contention that the transfer of title over the property could not have occurred through a relinquishment deed?
ARGUMENTS ADVANCED BY THE APPELLANT
- The appellant's counsel argues that the High Court made an error in clarifying property ownership rights and interests, stating that they cannot transfer ownership through a relinquishment deed but through the Transfer of Property Act modes such as sale, mortgage, exchange, or gift.
ARGUMENTS ADVANCED BY THE RESPONDENT
- Though notice was sent to every respondent, no appearance was recorded on their behalf; so, this matter stayed unquestioned from their side.
JUDGEMENT ANALYSIS
- Although the property originally belonged to Bhairo Prasad Jaiswal, it became the firm's asset under Section 14 of the Indian Partnership Act, 1932, upon forming a partnership with his brother Hanuman Prasad on 11.10.1972.
- The Court, agreed with the High Court’s interpretation of Section 14 of the Partnership Act, as it rightly held that the property, contributed by late Bhairo Prasad Jaiswal, became the firm's asset.
- The law is well-settled that a partner’s separate property can become partnership property. Relying on the case of Addanki Narayanappa v. Bhaskara Krishnappa (1966 SCC OnLine SC 6), the Court held that any property contributed by a partner at the time of forming a partnership becomes the firm's asset under Section 14 of the Partnership Act.
- The court also relied on the decision of a Full Bench of the Madras High Court in The Chief Controlling Revenue Authority v. Chidambaram (AIR 1970 Mad 5) held that under Section 14 of the Partnership Act, a partner can make their property a firm’s asset through intent alone, without requiring a formal document or agreement.
- It was held that the late Bhairo Prasad Jaiswal contributed the property to the partnership firm after forming it in 1972 and jointly constructing a hotel with his brother Hanuman Prasad Jaiswal.
- The High Court had merely clarified that the Trial Court's decree should favor only the partnership firm (respondent No. 1) since the property became the firm’s asset the moment construction began.
CONCLUSION
- The ruling emphasizes that property contributed by a partner becomes a firm’s asset and is no longer considered personal property. Legal heirs of a deceased partner cannot claim ownership, and no formal transfer deed is required for the transfer to be legally valid.
