Smt. Shanti Bai Agrawal & Others Vs Smt. Uma Bai Agarwal & Others

Chhatisgarh High Court (Single Judge)

865 / 1998 of 2015, Judgment Date: Mar 19, 2015

HIGH COURT OF CHHATTISGARH AT BILASPUR
Second Appea l No. 865 / 1998
Appellan t s : Smt. Shanti Bai Agrawal & Others
VERSUS
Responden t s : Smt. Uma Bai Agarwal & Others
SB: Hon’ble Shri Goutam Bhaduri, J.
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Present: Shri Ravish Agrawal, Sr. Advocate with Shri K.S.Jha,
Advocate for the appellants.
Shri H.B.Agrawal, Sr. Advocate with Smt. Meera Jaiswal,
Advocate for the respondents.
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JUDGMENT
(Delivered on 19th March, 2015)
1. This instant appeal is preferred against the judgment & decree dated
04.07.1998 passed in Civil Appeal No.37-A/97 by the Second Additional
District Judge, Bastar (Jagdalpur). By such judgment & decree, the
appellate Court reversed the judgment & decree dated 25.01.1997 passed
in Civil Suit No.226-A/96 by the Third Civil Judge Class-II, Jagdalpur. The
instant appeal is by the plaintiff.
2. The briefly stated facts of the case is that a suit was filed by the appellant
against Trilokinath Agarwal, Smt. Usha Kiran Agarwal and Deepak
Agrawal for declaration and permanent injunction. The undisputed facts
are that the house comprised over the Nazul sheet No. 78, Plot No.103/2,
admeasuring 6285 sq.ft. was recorded in name of M/s. Gajadhar Prasad
Kashi Prasad, a partnership firm. The firm had four partners namely
Bhuwneshwar Prasad Agarwal (died on 13.07.1962), Udaynarayan
Agarwal (Plaintiff), Trilokinath Agarwal (Defendant-1) and Smt.
Singharabai (died on 21.09.1973). The said property was in name of the
firm M/s. Gajadhar Prasad Kashi Prasad and plaintiff was residing in the
said property right from the year 1943. The partnership firm was dissolved
on 02.11.1956. After dissolution of the firm, the plaintiff, who was a partner
continuing to reside in the house and was in possession thereof which had
also a shop in some portion of the house. It was case of the plaintiff that
he was/is in exclusive possession of the suit property for last 12 years
after the dissolution, as the suit was filed in the month of September,
1994. The plaintiff/appellant pleaded that by ouster of the title of the
defendants after dissolution, the plaintiff was in possession and therefore
had acquired the right and title over the suit property by way of adverse
possession. It was stated that one of the partner Bhuwneshwar Prasad
Agarwal died on 13.07.1962 and Smt. Singharabai died on 21.09.1973
and it was also contended that during the life time of Bhuwneshwar
Prasad Agarwal, the plaintiff was in possession of the suit land. It was
further contended that on 23.06.1992, the defendants filed an application
before the Nazul Tahsildar, Jagdalpur to mutate their name. It was
therefore for such reason, the title of the plaintiff was denied as the
plaintiff had acquired the title over the suit land by way of adverse
possession. Consequently, the suit for declaration and permanent
injunction was filed.
3. In reply to the averments, the defendants stated that the subject land is
recorded in name of M/s. Gajadhar Prasad Kashi Prasad at Pratapganj
Ward, Main Road, Jagdalpur. It was also stated that the suit property
comprised to be the property of the firm. The death of the two partners
were also admitted and further this fact was also admitted that on
02.11.1956 the firm was dissolved. It was further denied that the plaintiff
was in exclusive possession of the land for last 12 years from the date of
filing, thereby has acquired ownership of the property. It was further
contended that Bhuwneshwar Prasad had bequeath his part of property in
favour of the defendants No.2 & 3 by Will dated 12.07.1961 and as such
they were entitled to get their name mutated in respect of the suit land.
4. On the basis of the pleadings and the evidence of the parties, the learned
trial Court found that the Will was not proved whereby the defendants had
claimed their right and further decreed the suit in favour of the plaintiff by
holding that the plaintiff had acquired the title over the suit property by way
of adverse possession. The order of permanent injunction was also
passed in favour of the plaintiff. The said finding were assailed by the
respondents before the Second Additional District Judge, Bastar. The
appellate Court by the judgment & decree dated 04.07.1998 has reversed
the finding by holding that the defendants are the co-sharers.
Consequently, the plaintiff would not get any title over the property by way
of adverse possession.
5. With respect to the finding of the Will, no challenge was made. The
appellate Court further held that the property belong to a joint Hindu
property and as such the question of adverse possession do not arise if
the property is held by one of the co-sharers and consequently the
judgment & decree was reversed. Against such judgment & decree, the
instant second appeal was preferred. The second appeal was admitted on
the following substantial questions of law :
“Whether the First Appellate Court has erred in
reversing the trial Court's finding that the plaintiff had
perfected his title over the disputed property (house) by
adverse possession ?”
6. The learned counsel for the appellant submits that admittedly the property
belonged to a firm, thereafter, the firm was dissolved on 02.11.1956;
therefore, the remedy would be governed by Section 48(b)(iv) of the
Partnership Act, 1932, which speaks about the mode of settlement of
accounts between partners. It is further submitted that once the firm
having been dissolved, the property held by such firm will be treated to be
a movable property and therefore the concept of co-ownership as has
been held by the appellate Court is completely perverse. It was further
contended that after the firm is dissolved, the authority of the partner only
continues for the purpose of binding up and not otherwise as per Section
47 of the Partnership Act and further mode of settlement of accounts
between partners is provided under Section 48 of the Partnership Act. It is
stated after discharge of debt, the residue would be treated to be a
movable property which has to be divided among the partners in the
proportions in which they were entitled to share of profits. It is therefore
contended that the concept of co-ownership as has been held by the
learned Court below ignored the admission made by the defendants that
the suit property was a property of firm and the firm stood dissolved
therefore as a consequence of it, it rendered the property in the hand of
the partner as movable property. It was also contended that as per Article
5 of the Limitation Act, 1963, for account and share of the dissolved
partnership firm, the limitation prescribed is three years and therefore the
right to sue, if any, of the defendant extinguished after three years of the
dissolution. It is further stated that as per Section 27 of the Limitation Act,
the right of the defendants extinguished since the plaintiff continue to be in
possession of the property after the dissolution right from 1956. He
submitted that the partner was only entitled to the value of share and
placed his reliance in AIR 1966 SC 1300, (2010) 2 SCC 407 & AIR 1974
SC 1094 and further submits that the defendants' right over the property
extinguished by virtue of Section 27 of the Limitation Act, 1963 and placed
is reliance in AIR 1922 PC 115.
7. Per contra, learned counsel for the respondents supported the order of the
appellate Court. It was stated that M/s. Gajadhar Prasad Kashi Prasad is
a partnership firm consisting of family members of Bhuwneshwar Prasad
Agarwal, Udaynarayan Agarwal, Trilokinath Agarwal & Smt. Singharabai.
He further contended that the members were coparceners and
consequently they were co-sharer. It was further stated that this fact is not
in dispute that the partnership firm stood dissolved on 02.11.1956 and no
settlement of share of property by rendition of account or share of profits
took place as per the provisions of Section 45 & 49 of the Partnership Act.
Therefore, it was stated that the partnership continued unless the
accounts are settled i.e. profit & loss are determined. It was stated that
both the parties therefore knowing their right did not file any suit as it was
barred by time but the bar of right do not extinguish the remedy if it is
available otherwise. He placed his reliance in AIR 1976 SC 1633 and
would submit that even if some right of the parties are barred and even if
the right to file a suit is exhausted but the remedy can be availed by
adopting the other remedy as the right is not extinguished and therefore
the right of the defendants were not extinguished. He further submits that
the possession of the partner of the firm was a permissive and therefore
the partner cannot claim the exclusive right over the property of the firm.
He further relied on the case law 1974(2) SCC 642 and submits that so far
as the mutual right and obligation of partner it continued notwithstanding
the dissolution, therefore, in view of such law, the partners continued with
the firm property even after dissolution. It is further contended that it
cannot be stated that the plaintiff had held the property adverse to the
others i.e. defendants just to claim the title over it.
8. I have heard the learned counsel for the parties, perused the pleadings,
evidence and documents placed on record.
9. The submission made by the counsels of both the parties revolved
around the effect of dissolution of a partnership firm and the status
of the property of a partnership firm after it's dissolution in the hands
of the partners. Necessarily, therefore, in my considered opinion the
another question of law arises for consideration wherein on the
subject of it, both the parties have made their submission. The
substantial question of law thus framed as under :
2. “Whether, the immovable property brought into
partnership by partners, on dissolution, remained to
continue to be immovable property in the hands of
the partners ?”
10. Admittedly, according to both the plaintiff and defendants, the suit property
was in name of firm M/s. Gajadhar Prasad Kashi Prasad. The written
statement contains an admission that over the suit plot the firm had
constructed a house wherein with the permission of the other partners, the
plaintiff namely Udaynarayan Agarwal was residing. Presently, in the
instant appeal, the legal heirs of Udaynarayan Agarwal, plaintiff/appellants
have been arrayed and also the legal heirs of Trilokinath Agarwal & Smt.
Usha Kiran Agarwal have been made parties. Therefore, by reading of the
written statement, the admission and statement of PW-1, this fact is not in
dispute that the property belonged to the firm. The finding of the appellate
Court that there is no firm and there is no dissolution is completely against
the pleading and the evidence in the record and appears to be perverse
on the face of it.
11. The existence of firm and it dissolution on 02.11.1956 is not in dispute.
Even before this Court also, the respondents did not dispute the existence
of firm and its dissolution. The dissolution of the firm is covered under
Chapter-VI of the Indian Partnership Act, 1932. Section 42 speaks about
dissolution on the happening of certain contingencies. It starts with subject
to contract between the partners a firm is dissolved, on certain conditions.
Further, Section 45 speaks about the liability for acts of partners done
after dissolution. Section 46 speaks about right of partners to have
business wound up after dissolution. Section 47 says continuing authority
of partners for “purpose of winding up” and Section 48 speaks about mode
of settlement of accounts between partners. The right of partners starts
from Section 46 of the Partnership Act and the continuing authority of
partners for purpose of winding up and mode of settlement of accounts.
The relevant sections of Indian Partnership Act, 1932 for the purpose of
controversy are reproduced herein below.
“46. Right of partners to have business wound up
after dissolution. - On the dissolution of the a firm
every partner or his representative is entitled, as
against all the other partners or their representatives, to
have the property of the firm applied in payment of the
debts and liabilities of the firm, and to have the surplus
distributed among the partners or their representatives
according to their rights.
47. Continuing authority of partners for purposes of
winding up. - After the dissolution of a firm the
authority of each partner to bind the firm, and the other
mutual rights and obligations of the partners continue
notwithstanding the dissolution, so far as may be
necessary to wind up the affair of the firm and to
complete transactions begun but unfinished at the time
of the dissolution, but not otherwise:
Provided that the firm is in no case bound by the
acts of a partner who has been adjudicated insolvent;
but this proviso does not affect the liability of any
person who has after the adjudication represented
himself or knowingly permitted himself to be
represented as a partner of the insolvent.
48. Mode of settlement of accounts between
partners. - In settling the accounts of a firm after
dissolution, the following rules shall, subject to
agreement by the partners, be observed : -
(a) losses, including deficiencies of capital, shall
be paid first out of profits, next out of capital, and,
lastly, if necessary, by the partners individually in the
proportions in which they were entitled to share
profits;
(b) the assets of the firm, including any sums
contributed by the partners to make up deficiencies
of capital, shall be applied in the following manner
and order : -
(i) in paying the debts of the firm to third
parties;
(ii) in paying to each partner rateably what is
due to him from the firm for advances as
distinguished from capital;
(iii) in paying to each partner rateably what is
due to him on account of capital; and
(iv) the residue, if any, shall be divided among
the partners in the proportions in which they were
entitled to share profits.
12. Reading of Section 46 would make it clear that on dissolution of a firm,
first the property of the firm be applied for payment of debts and liabilities
of the firm and the surplus to be distributed among the partners according
to their rights. Section 47 speaks the authority of the partners will continue
only so far “as it may be necessary to wind up” the affair of the firm and to
complete transactions begun but unfinished at the time of the dissolution,
“but not otherwise”.
13. The Supreme Court in AIR 1996 1300 in between Addanki Narayanappa
& Another v. Bhaskara Krishnappa & Others has occasioned to
interpret the share of the partner and the nature thereof. It is stated that
the share of a partner is nothing more than his proportion of the
partnership assets after they have been turned into money and applied in
liquidation of the partnership, whether its property consists of land or not.
Further, on dissolution the debts and liabilities should first be met out of
the firm property and thereafter assets should be applied in rateable
payment to each partner of what is due to him firstly on account of
advances as distinguished from capital and, secondly on amount of
capital, the residue, if any, being divided rateably among all the partners.
It is obvious that the Act contemplates complete liquidation of the assets
of the partnership as a preliminary to the settlement of accounts between
partners upon dissolution of the firm.
14. Furthermore, in (2010) 2 SCC 407 in a case between Mohd. Laiquiddin
& Another v. Kamala Devi Misra (Dead) By LRs & Others, the Supreme
Court has held as under :
“38. Under the Partnership Act, 1932, property which is
brought into the partnership by the partners when it is
formed or which may be acquired in the course of the
business becomes the property of the partnership and a
partner is, subject to any special agreement between
the partners, entitled upon dissolution to a share in the
money representing the value of the property.
40. In S.V.Chandra Pandian v. S.V. Sivalinga Nadar,
this Court held that: 16....in the entire asset of the firm
all the partners have an interest albeit in proportion to
their share and the residue, if any, after the settlement
of accounts on dissolution would have to be divided
among the partners in the same proportion in which
they were entitled to a share in the profit.... The mode
of settlement of accounts set out in Section 48 clearly
indicates that the partnership asset in its entirety must
be converted into money and from the pool the
disbursement has to be made...”
42. As noted hereinabove, the partnership got dissolved
on the death of the original plaintiff (since deceased), it
would be reasonable to allow both the parties to take
their respective properties. The appellants are entitled
to the exclusive possession of the land and the
respondents are entitled to take away the movables
from the property and recover the value of the buildings
and structures embedded to the land. It has to be
assessed by the technically qualified person. The
appellants are liable to pay the value of the remaining
structures after adjusting the amount if any due to the
appellants.”
15. Further, the Supreme Court in (1993) 1 SCC 589 in case of S.V.Chandra
Pandian & Others v. S.V.Sivalinga Nadar & Others, has held that on
the dissolution of firm each partner becomes entitled to his share in the
profits, if any, after the accounts are settled in accordance with Section 48
of the Partnership Act. In the entire asset of the firm all the partners have
an interest albeit in proportion to their share and the residue, if any, after
the settlement of accounts on dissolution would have to be divided among
the partners. The Supreme Court in such case law has further held that
entire property whether brought in by the partners on the constitution of
the partnership firm or acquired in the course of business of the
partnership, such property shall become the property of the firm and an
individual partner shall only be entitled to 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. Therefore, by application of the above principle, it
would be clear that the property of the firm would be “a movable property”
for the distribution among the partners and it cannot be held to be an
immovable property for the purpose of the dissolution in between the
partners.
16. It is well settled that the firm is not a legal entity, it has no legal existence,
it is merely a compendious name and hence the partnership property
would vest in all the partners of the firm. Accordingly, each and every
partner of the firm would have an interest in the property or asset of the
firm but during its subsistence no partner can deal with any portion of the
property as belonging to him, nor can he assign his interest in any specific
item thereof to anyone.
17. Therefore, according to Section 47 of the Indian Partnership Act, 1932,
after the dissolution of a firm, the authority of each partner to bind the firm,
and the other mutual rights and obligations of the partners continue
notwithstanding the dissolution, “so far as may be necessary to wind up
the affair of the firm” and further to complete transactions begun but
unfinished at the time of the dissolution, “but not otherwise”. Herein the
dissolution is not in dispute, therefore, the partners had only interse right
between them in terms of Section 47 and 48(b)(iv) of the Indian
Partnership Act to claim for the right as per the provisions of the said
section.
18. Therefore, in view of the aforesaid discussion, it is held that after
dissolution of the property, the immovable property i.e. the subject suit
land which was of a partnership firm became “a movable assets” in the
hand of the partners interse of M/s. Gajadhar Prasad Kashi Prasad. The
partners have their interse right in terms of Section 48 of the Indian
Partnership Act which could have been enforced by filing a suit to claim a
share of dissolved partnership firm.
19. As observed in the aforesaid, the value of the property is to be
assessed and the partners are entitled to get the adjustment of their
shares from the amount according to the share held in the
partnership firm. Consequently, the question of law is answered that
on dissolution, the immovable property of a partnership firm
converted into money, therefore, looses the character of immovable
property in the hands of the partner and the partners are entitled to
receive their proportionate share in residue of the property being
money represent the value of the property.
20. Further, as per Article 5 of the Indian Limitation Act, the suit could have
been filed by either of the partners within three years of the dissolution.
For ready reference Article 5 of the Indian Limitation Act, 1963 is
reproduced herein below.
Article 5 -
1. Description of suit :
For an account and a share of the profits of a dissolved partnership.
2. Period of limitation :
Three years.
3. Time from which period begins to run :
The date of the dissolution.
21. Likewise situation fell for consideration before the Privy Council in a case
law reported in AIR 1922 PC 115 in between K. Gopala Chetty v. T.G.
Vijayaraghavachariar, the earlier Limitation Act, 1908, Article 106 was
governing the limitation for the purpose which subsequently in the year
1963, it became Article 5. The interpretation of Article would go to show
that in a case of dissolution of partnership complete winding up of a
partnership if no accounts have been taken and there is no constat that
the partners have squared up, then the proper remedy when such an item
falls in is to have the accounts of the partnership taken and if it is too late
to have recourse to that remedy, then it is also too late to claim a share in
an item as part of the partnership assets. Here in this case, admittedly the
dissolution had happened on 02.11.1956, therefore, by application of
(Article 106 of the Limitation Act, 1908) Article 5 of the Limitation Act,
1963, the defendants having not claim any right for settlement of account
and share in the partnership, it would be barred as the period of three
years has lapsed. The similar proposition has been followed in (1974) 2
SCC 642 in between Saligram Ruplal Khanna & Another v. Kanwar
Rajnath. Therefore, taking the totality of the facts, the immovable property
of firm M/s. Gajadhar Prasad Kashi Prasad, the suit property was a
property of the firm and the firm having been dissolved on 02.11.1956 as
per the Partnership Act, it fell into shares of the partners as a movable
assets for which the partners could have sue their part of share after the
discharge of dues and other settlement within a period of three years from
the date of dissolution. Having not done so, the right to sue for account
and the share in the partnership property became barred.
22. Now reverting to the plaint allegation, it speaks that the suit was filed by
Udaynarayan Agarwal for declaration and permanent injunction on the
ground that he is in possession of the suit property and is held adverse to
the other partners after dissolution of the firm. The prayer in the plaint
reads as under :
(i) oknh dk okn Hkwfe ij izfrdwy dCtk ds vk/kkj ij LoRo
?kksf"kr fd;k tkos ,oa jktLo fjdkMZ ij okn Hkwfe ds laca/k esa
oknh dk uke Hkwfe Lokeh ds :i esa vafdr fd;s tkus dk
vkns'k iznku djus dh d`ik djsaA
(ii) izfroknhx.k dks vLFkk;h fu"ks/kkKk ds tfj;s okn Hkwfe ds
laca/k esa vU; fdlh Hkh jktLo U;k;ky; esa dk;Zokgh djus ls
jksdk tkosA
(iii) oknh dks izfroknhx.k ls okn O;; fnyok;k tkosA
(iv) vU; dksbZ vuqrks"k tks fd ekuuh; U;k;ky; mfpr le>s
oknh ds i{k esa iznku djus dh d`ik djsaA
23. In terms of the prayer made, the law if applied as has been laid down in a
recent case reported in (2014) 1 SCC 669 in between Gurdwara Sahib v.
Gram Panchayat Village Sirthala & Another, the Hon'ble Supreme
Court has laid down that even if the plaintiff is found to be in adverse
possession, it cannot seek a declaration to the effect that such adverse
possession has matured into ownership. It further says, only if
proceedings are filed against the appellant and the appellant is arrayed as
defendant that it can use this adverse possession as a shield/defence.
Therefore, in view of the proposition laid down qua the prayer made, the
suit filed by the plaintiff is held not maintainable. Therefore, the question of
law is answered that the first appellate Court has erred in reversing the
trial Court's finding that the plaintiff had perfected his title over the
disputed property by adverse possession is held as not sustainable on the
grounds enumerated and the reasons stated by the appellate Court, but
the suit is held to be not maintainable. The order of the appellate Court in
reversing the judgment and decree of the trial Court and the finding
thereof are set aside. The suit, however, is dismissed on the ground as
per the law laid down in the recent dictum as supra, which do not fall in
line to the reasoning given by the appellate Court. The finding has already
been given in interpretation of the Section 46, 47 & 48, and the effect of
dissolution of a partnership firm in terms of the Partnership Act, 1932.
24. In view of foregoing discussion and observation, the second appeal
stands dismissed, as the suit was not maintainable on the basis of
adverse possession alongwith observation made. No order as to costs.
JUDGE