Addanki Narayanappa v. Bhaskar Krishnappa AIR 1966 SC 1300/ 1966 SCR (3) 400

In this case, the members of two joint Hindu families, which we may for the sake of convenience describe as “A” and “B”, entered into a partnership for carrying on business of hulling rice, decorticating groundnuts, etc.  The capital of the partnership consisted, inter alia, of some lands contributed by the two families and in the course of the business of the partnership also, some more lands were acquired by the partnership.  The partnership was subsequently dissolved by mutual agreement between the partners and an unregistered document was executed recording the terms and conditions of dissolution which included, inter alia, a stipulation that “A” family had given up their share in the machines, etc., and in the business, and made over the same to the members of “B” family alone completely by way of adjustment.  When members of “A” family sought to rely on this document in a subsequent suit for dissolution and accounts of the partnership, members of “B” family raised a contention that since the partnership assets included immovable properties and the document recorded relinquishment by members of “A” family of their interest in those assets, the document was compulsorily registrable under section 17(1)(c) of the Registration Act and, as it was not registered, it was inadmissible in evidence.  To determine the validity of this contention, the Supreme Court was called upon to consider what is the true nature of the interest of a partner in a partnership and what happens when the firm is dissolved or a partner retires from the firm.  The Supreme Court analysed the relevant provisions of the Partnership Act and proceeded to state the effect of these sections in the following words:

“From a perusal of these provisions it would be abundantly 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 the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property.  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, however, 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 anyone. His right is to obtain such profits, if any, as fall to his share from time to time and 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 Supreme Court further held as follows:

“…. his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges.” The Supreme Court held that though the partnership assets included immovable properties, the document did not operate as relinquishment of any interest in any of the immovable properties by members of “A” family, but it was merely by way of adjustment of the rights of the partners on dissolution by giving to each his share in the net partnership assets after deduction of liabilities and prior charges and it was, therefore, not compulsorily registrable under section 17(1)(c) of the Registration Act.

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