The Bombay High Court (Goa Bench) has held that where immovable property has been brought into the common stock of a partnership firm by a partner, such property becomes property of the firm, and an individual partner cannot unilaterally bind the firm or alienate that property unless the act is done in the firm’s name or in a manner expressing or implying an intention to bind the firm in terms of Section 22 of the Partnership Act.
The Court clarified that agreements for sale executed by partners in their individual capacity, without reference to the firm, are therefore not binding on the firm; and a suit seeking declaration that such agreements are null and void is maintainable without seeking cancellation, since an agreement for sale does not create an interest in property.
The High Court did not reopen facts under Article 227, while upholding the concurrent view that the property belonged to the partnership firm, the vendors acted only in their personal capacity, the firm was never bound under Section 22, and therefore the sale agreement and related MOUs were rightly declared null and void as against the firm.
A Single Judge Bench of Justice Dr. Neela Gokhle accepted the concurrent findings that the suit property had been brought into the common stock of the partnership firm through the partnership documents and the mutation in survey records. It expressly held that there was no requirement of a registered document for the firm to acquire ownership of property contributed by a partner.
The Bench observed that the impugned agreements were executed by Respondents Nos. 12 and 13 in their individual capacity, not in the name of the partnership firm, and there was no reference in those instruments showing an intention to bind the firm as required by Section 22 of the Partnership Act. The Bench further noted that the transactions purported also to transfer the goodwill of the business, which it treated as an asset exclusively belonging to the firm and not capable of unilateral transfer by an individual partner.
On the petitioner’s case that some partners had signed as witnesses and therefore had knowledge of the transaction, the Bench accepted the trial court’s finding that the signatures were not proved to be those of the partners and that the petitioner did not prove otherwise, including by expert evidence. The Bench also held that the petitioner could not credibly deny knowledge of the firm’s ownership because the survey/mutation records reflected the partnership firm’s name, and even the mortgage history relied on by the petitioner indicated the firm’s ownership.
On limitation, the Bench held that the issue had in substance been addressed by the courts below: since the partners were found to have had no prior knowledge of the transaction, the suit could not be treated as time-barred before such knowledge arose. On the objection that a mere declaration suit without cancellation was not maintainable, the Bench held that an agreement for sale does not create any interest in the property and therefore the respondents were not required to seek cancellation; a declaration of nullity was sufficient.
Briefly, the petition challenged the trial court decree which had declared the Agreement for Sale and the subsequent MOUs null and void and not binding on Respondent No. 1 partnership firm. Essentially, the Respondents Nos. 12 and 13 were the original owners of the suit property, but Respondent No. 1 was a registered partnership firm constituted by Respondent No. 12 and his children under a deed of partnership dated 10 January 1997.
Later, by an addendum dated 17 July 1997 to the deed of partnership, Respondent No. 12 assigned the suit property in favour of the partnership firm, with Respondent No. 13 as a consenting party, and later the firm was reconstituted on 26 October 1998. On 17 October 2008, Respondents Nos. 12 and 13, in their individual capacity, executed an Agreement for Sale in favour of the petitioner for Rs. 83 lakhs, under which the petitioner was to clear the EDC loan component of Rs. 50 lakhs.
The petitioner asserted that he paid Rs. 72.02 lakhs towards purchase consideration, including Rs. 50 lakhs towards full and final settlement of the EDC loan, leaving a balance of Rs. 10.97 lakhs. On the same date, a first MOU was executed under which the petitioner agreed to pay Rs. 96 lakhs towards goodwill of the business, followed by an addendum dated 4 December 2008; a second MOU dated 25 August 2009 extended validity and recorded delivery of possession including first-floor structure; and a third MOU dated 22 February 2010 further extended performance till 31 March 2010.
The petitioner had earlier filed a suit for specific performance on 6 April 2010 against Respondents Nos. 12 and 13. Thereafter, on 1 July 2013, Respondents Nos. 1 to 6 filed a separate suit seeking a declaration that the Agreement for Sale and the three MOUs were null and void on the ground that the partnership firm was the true owner of the suit property.
Appearances:
Prathamesh Kamat, Advocate with Nakul Jain and Apurva Mehta, Advocates (through VC) and with Vibhav Amonkar and Raj Chodankar, Advocates for the Petitioner
E. O. Mendes, Advocate for Respondent nos. 1, 2, 4, 6, 8 to 11
Dharmanand Vernekar, Advocate for Respondent no. 13
