Bharat Nathalal Kansara v. Praful Nathalal Kansara & Anr.

2 The Plaintiff’s case may be briefly stated thus: The Plaintiff claims to be an erstwhile partner of the firm of M/s.Metal Press India, formed in the year 1966, whose partners were family members of one Nathalal Kansara (since deceased). The Plaintiff and the Defendants are sons of deceased Nathalal. Apart from the Plaintiff and the Defendants, the other partners of Metal Press India were Nathalal himself and one Virendra Nathalal Kansara, who is Nathalal’s son from his earlier wife. It is the Plaintiff’s case that just before the Plaintiff’s retirement from the firm of Metal Press India, the Plaintiff had 22.50% share in the firm. The firm was carrying on business of manufacture and sale of brass, copper and stainless steel utensils and running a workshop. This business was carried on in a plot of land leased by the firm from the State Government. This plot together with structures standing thereon is the suit property. It is the Plaintiff’s case that the Plaintiff retired from the partnership of Metal Press India after execution of an MOU in the year

1993. The MOU was said to be dated 18 October 1993. (There is some dispute between the parties as to the execution of this MOU; whereas, according to the Plaintiff, the MOU was executed on 18 October 1993, that is to say, the same date on which the Plaintiff retired from the partnership firm, according to the Defendants, the MOU was executed on 16 October 1993, that is to say, prior to the Plaintiff’s retirement from Metal Press India.) It is the Plaintiff’s case that by this MOU, the suit plot of land was divided between Nathalal and his children, who were just prior to that date partners of Metal Press India, in the following manner: a) Nathalal Kansara 24.17% 2900 Sq.Ft. b) Virendra N. Kansara 8.33% 1000 Sq.Ft. c) Praful N. Kansra 22.50% 2700 Sq.Ft. (Defendant No.1) d) Jyotindra N. Kansara 22.50% 2700 Sq.Ft. (Defendant No.2) e) Bharat N. Kansara 22.50% 2700 Sq.Ft. (Plaintiff) Total 100% 12000 Sq.Ft. It is the Plaintiff’s case that this MOU was acted upon by the parties post retirement of the Plaintiff by allotting an area of 2700 sq.ft. to the Plaintiff. It is submitted that in addition to this area, there was a further area within the suit property, which was allotted to the Plaintiff. It is submitted that the aggregate area allotted to the Plaintiff was 4786 sq.ft and in this area, the Plaintiff continued to carry on his own business in the name and style as “NC Industries”. It is the Plaintiff’s case that on or about 22 September 2001, the Plaintiff entered into one more MOU with the Defendants and Nathalal (since deceased), agreeing to surrender and transfer his 22.50% share in the suit property and all area in his possession (the total area being 4786 sq.ft) to the firm of Metal Press India. The MOU executed between the parties on 22 September 2001 and which is on record, however, refers to surrender of a total area of 2700 sq.ft. possessed/allotted to the Plaintiff. The MOU does not refer to any consideration paid or payable by the Defendants or the deceased Nathalal to the Plaintiff towards surrender of this area. It is, however, the Plaintiff’s case that there was an oral agreement between the parties when the MOU was entered into with the Defendants and the deceased Nathalal that they would pay to the Plaintiff a sum of Rs.2600/- per square foot for the area of 4786 sq.ft. in possession of the Plaintiff, aggregating to a sum of Rs.1.25 crores. It is submitted that since the Plaintiff had absolute faith in his father, the deceased Nathalal, he did not insist on any writing with regard to this payment to be made to him by the Defendants and the deceased Nathalal. It is the Plaintiff’s case that on the date of this MOU, a sum of Rs.[8] lakhs was paid by the Defendants and the deceased Nathalal to the Plaintiff, whereas subsequently, sometime in 2004, a further sum of Rs.[5] lakhs was paid to the Plaintiff in cash towards the area surrendered by the Plaintiff. After adjusting this payment of Rs.13 lakhs (said to be Rs.10 lakhs in the averments later to be found in the plaint), the Plaintiff claims a sum of Rs.1.15 crores out of the sum of Rs.1.25 crores agreed to be paid by the Defendants and the deceased Nathalal to the Plaintiff in accordance with the oral agreement. The Plaintiff, accordingly, seeks a money decree for this sum together with pendente lite and post decree interest. In the alternative, it is the Plaintiff’s case, if this court were to come to the conclusion that under the MOU of 22 September 2001 the Plaintiff had surrendered his right, title and interest in the suit property without any consideration (since the MOU does not refer to any), the contract of surrender is void for want of consideration, in which case the Plaintiff seeks cancellation of the MOU of 22 September 2001 and restoration of his vacant and peaceful possession of 22.50% undivided share, right, title and interest in the suit property, represented by 2700 sq.ft. built up area, along with additional area, in all aggregating 4786 sq.ft. and forming part of the suit property.

3 The suit is contested by the Defendants mainly on two grounds. Firstly, it is submitted that the so-called oral agreement having been entered into at the time of execution of the MOU of 22 September 2001, the suit, filed on 20 February 2009, is clearly barred by the law of limitation. It is submitted that there is neither a proper plea nor proof of part payment of any amount, whether of Rs.[8] lac, said to have been paid at the time of execution of the MOU, or Rs.[5] lac, said to have been paid sometime in 2004, by the Defendants and deceased Nathalal to the Plaintiff; and even if such payment is proved, more than three years had elapsed after such payment (said to be made around 2004) before the present suit was filed. Secondly, it is submitted that the Plaintiff has no case even on the merits of his claim. First of all, it is submitted, the Plaintiff has not proved his possession of 4786 sq.ft. of area in the suit property. In any event, such possession, as the Plaintiff may have had, was surrendered by him to the reconstituted firm of Metal Press India on execution of the second MOU on 22 September 2001. It is submitted that the MOU of 22 September 2001 does not provide for any payment to the Plaintiff in consideration. It is submitted that the Plaintiff has not been able to establish any oral agreement as of the date of the MOU of 22 September 2001 for payment towards surrender of the area in the suit property in his possession. Insofar as the Plaintiff’s alternative case is concerned, it is submitted that the surrender of area recorded in the MOU cannot be said to be void for want of consideration. It is submitted that the accounts between the parties were duly settled and the Plaintiff had duly received his share in the partnership of Metal Press India upon his retirement and the Plaintiff’s possession of the area of 2700 sq.ft. post his retirement from the firm was merely a permissive possession gratuitously given to him and he did not have any property in this area. It is submitted that the Plaintiff had already shifted from this area and his surrender recorded on 22 September 2001 did not call for any consideration. Both alternative prayers of the Plaintiff are, accordingly, said be devoid of any merit.

4 By an order passed on 27 August 2014, the following issues in the suit were settled by this court: (1) Whether the suit is barred by law of limitation? (2) Whether the Plaintiff has any right title interest in the suit plot of land purchased by the Defendants from the State of Maharashtra? (3) Whether the Plaintiff has received his share in the partnership firm at the time of retirement from the partnership on 18th October, 1993? (4) Does the Plaintiff prove that it was agreed by the late father and Defendants to pay the Plaintiff the consideration of Rs.2,600/- per sq.ft. as against the market rate of Rs.3,000/- per sq.ft. on his surrendering the total area admeasuring 4786 occupied by him? (5) Whether the Plaintiff proves that the leasehold plot of land was ever divided between the Plaintiff and the Defendants? (6) Whether the Plaintiff proves that the Plaintiff is entitled to possession of 4786 sq.ft. in the suit factory premises? (7) If the answer to issue no.6 is in the negative, whether the Plaintiff is entitled to a decree in the sum of Rs.[1] crore 15 Lacs together with interest thereon @ 18% p.a. from the date of filing of the suit till payment/realization? (8) What decree? What order?

5 Coming to Issue No.1, pertaining to the bar of limitation, it is important to note that the Plaintiff’s main prayer, for a money decree, arises out of an oral agreement between the parties, which is said to have been arrived at contemporaneously with the MOU of 22 September 2001. The so called lumpsum payment of Rs.1.25 crores thereunder was said to be due within two years of the agreement, that is to say, on or before 22 September 2003. The present suit is filed on 20 February 2009, that is to say, much after the expiry of the period of limitation of three years (either under Article 53 or Article 54 of the Limitation Act) for payment of money due under a contract of surrender of immovable property. The Plaintiff has made a faint attempt of getting out of the bar of limitation by alleging a part payment of Rs.[5] lac. This payment is said to have been made in cash around 2004 (i.e. without stating even the approximate date in the plaint). Besides the oral statement of the Plaintiff, there is no evidence of any such payment. The cross-examination of the Plaintiff, if anything, makes out such payment to be unlikely. The Plaintiff has admitted in his crossexamination that from the year 2003-2004, the Plaintiff stopped having any relationship with the Defendants; they did not even visit each other’s residence; they did not have any societal contract; they were not on talking terms. The amount of Rs.[5] lac has not only been not disclosed in any document, but has not even been recorded in any writing; the payment was talked about for the first time in the plaint. It is, accordingly, quite unbelievable that in 2004, the Defendants paid a sum of Rs.[5] lac in cash to the Plaintiff in part payment under the oral agreement of 22 September

2001. But even if, for the sake of argument, one were to take the payment as proved, and reckon the last date of 2004 as the date of such payment, i.e. 31 December 2004, the extended period of limitation would end on 31 December 2007. The suit filed on 20 February 2009 would, in any event, be, thus, barred even on the plea of part payment. It is claimed in para 18 of the plaint that the Defendants refused to perform the contract by making payment; their final refusal came in December 2008 (for which there is, in any event, no proof). If the amount was payable under a contract to the Plaintiff latest by 22 September 2003, the Defendant’s refusal in December 2008 does not give rise to any separate cause of action in favour of the Plaintiff; the cause of action could only be said to have arisen on 22 September 2003. Looked at from any standpoint, the suit is, thus, clearly barred by limitation. Issue No.1 is, accordingly, answered in the affirmative, that is to say, in favour of the Defendants.

6 Issue Nos.[2] to 6, on the one hand, and Issue No.7, on the other, respectively, bear on the merits of the two alternative prayers in the suit, namely, the prayer for a money decree in the sum of Rs.1.15 crores with interest (prayer clause (a)) and the alternative prayer of declaration of the Plaintiff’s 22.50% undivided share, right, title and interest in the suit property after declaring the MOU of 22 September 2001 as bad in law and of no effect, and of recovery of vacant and peaceful possession of such undivided share, right, title and interest in the suit property (prayer clauses (b) and (c) of the plaint). These issues may conveniently be taken up together for consideration. The broad controversy covered by these issues concerns four crucial questions. The first of these concerns whether the Plaintiff had any right, title or interest in the suit property acquired by the Defendants from the State of Maharashtra. Issue No.2, originally settled, covers this aspect of the controversy and beyond. Though the issue, as formulated, describes the suit plot of land as “purchased” by the Defendants, the real issue arising in this matter concerns the Plaintiff’s right, title and interest in the suit plot of land “acquired by lease” by the Defendants from the State of Maharashtra. Though it has come in the evidence that the suit plot of land was eventually purchased by the Defendants from the State after the expiry of the original lease, that is not something which forms part of the pleadings. The issue is, accordingly, considered as corrected as above. Secondly, the controversy concerns whether the Plaintiff, upon his retirement from the partnership firm of Metal Press India, received his full share in the partnership or not. (This effectively forms part of Issue No.3.) The third aspect of the controversy concerns the effect of the MOU of 22 September 2001, particularly whether it is void for want of considertion, which, in turn, depends on whether or not the Plaintiff had acquired any valuable property under the MOU of 16/18 October 1993. The fourth is, whether by virtue of the MOU of 22 September 2001, the Plaintiff could be said to have surrendered his possession of the area “allotted” to him under the earlier MOU of 16/18 October 1993 without any consideration or whether it was contemporaneously orally agreed between the parties to compensate the Plaintiff at the rate of Rs.2600/- per square foot in cash for surrender of the total area in his occupation – whether 2700 sq.ft. referred to in the MOU or 4786 sq.ft. as claimed by the Plaintiff. These four controversies sum up the real dispute between the parties in the present suit.

7 Coming to the Plaintiff’s right, title and interest in the suit plot of land, which, during the subsistence of the partnership between the Plaintiff and the Defendants and the deceased Nathalal, was a leasehold property, it is claimed by Mr.Vaishnav, learned Counsel for the Plaintiff, that by virtue of the Plaintiff’s admission to the partnership of Metal Press India, he acquired this right, title or interest in the leasehold property. Though a partner, by virtue of his share in the partnership, can be broadly said to be having an interest in the property and business of the firm, it has been a settled law that during the subsistence of the partnership, no partner can make a claim to any particular property of the firm - even to the extent of his share in the partnership. As observed by the Supreme Court in the case of Addanki Narayanappa vs. Bhaskara Krishnappa[1], whatever 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 realization of this property and upon dissolution of the partnership to a share in the money representing the value of the property. Though, since the firm has no legal existence, the partnership property can be said to be vested in all partners and in that sense, every partner may be said to be having interest in the partnership property, during the subsistence of the partnership no particular interest in any specific item of the property can thus be identified as belonging to any particular partner. No partner accordingly can deal with any portion of such property on his own nor can he assign his interest in any specific item of the partnership property to anyone. His right is merely to obtain such profits as may fall to his share from time to time and, upon the dissolution of the firm, to share in the net assets of the firm, that is to say, assets which remain after satisfying the liabilities set out in clause (a) and sub-clauses

(i) to (iii) of clause (b) of Section 48 of the Partnership Act. Having regard to this law, it is not possible for the Plaintiff to claim that during the subsistence of the partnership, i.e. till 18 October 1993, when the Plaintiff retired from the partnership, he had any particular share – 22.50% or otherwise – in the suit property, which was one of the properties owned by the partnership.

8 The judgments cited by Mr.Vaishnav do not detract from this position of law. In Khushal Khemgar Shah vs. Khorshed Banu Dadiba Boatwalla[2], the Supreme Court was considering whether goodwill of a partnership firm could be taken into account for working out the share of a deceased partner which passes on to his legal representatives. The argument of the surviving partners before the court was that the deceased having agreed that his interest in the goodwill shall cease upon his death, the legal representatives were not entitled to it. The Supreme Court held that the agreement between the partners that the name, place of business and reputation of the firm were to be utilised by the surviving partners would not necessarily warrant an inference that it was intended that the heirs of a deceased partner would not be entitled to a share in the goodwill. The court did not accept the surviving partners’ agreement that in the face of the particular stipulation in the partnership deed, the legal representatives were not entitled to a share in the goodwill in the absence of an express stipulation to the contrary. In Malabar Fisheries Co., Calicut vs. Commissioner of Income-Tax, Kerala[3], the Supreme Court ruled that receipt of his share in the assets of the firm by a partner upon dissolution did not amount to a transfer of assets under Section 2(47) of the Income- Tax Act. Likewise, in B.T. Patil and Sons vs. Commissioner of Gift-Tax, Karnataka[4], the Supreme Court held that no transfer was involved when a partner retired from the firm and received as asset of the firm in lieu of his interest in the firm. The case of Allahabad High Court, Board of Revenue, U.P. vs. Auto Sales, Allahabad[5], cited by Mr.Vaishnav, also concerned the status of receipt of his share in the firm by a retiring partner. The Court held that as in the case of dissolution, receipt of a partner’s share upon retirement, did not amount to any conveyance. These cases have no

4 2001 AIR SCW 2416 5 AIR 1979 ALLAHABAD 312 bearing on the issue at hand. The issue discussed here is, whether immediately prior to the execution of the MOU of 16/18 October 1993 or the deed of retirement of 18 October 1993, the Plaintiff could be said to be having any particular share (i.e. 22.50%) in a particular property of the firm (i.e. the suit property), and not whether he generally had interest in the business and assets of the firm and upon retirement, was entitled to a share in the net assets to the extent of his share in the profits of the partnership.

9 Coming now to the MOU of 16/18 October 1993, though there is a controversy between the parties as to whether the MOU was executed on 16 or 18 October 1993, it is really immaterial to consider that controversy, for whichever be the date of its execution, what is important to note is that the MOU anyway preceded the retirement of the Plaintiff on 18 October 1993- whether immediately or two days prior to it. Mr.Vaishnav submits that the MOU itself creates a right, title and interest in favour of the Plaintiff to the extent of 22.50% in the suit property, represented by the area of 2700 sq.ft. forming part of the suit property or, for that matter, 4876 sq.ft. area which the Plaintiff actually claims to be in his use for his own business in the name of “NC Industries”. That does not appear to be correct. If one has regard to the MOU of 16/18 October 1993, it appears to have merely allotted certain area within the suit premises to the Plaintiff for his use. It does mention this area to be admeasuring 2700 sq.ft. built up area in the factory premises within the suit property. Though the MOU does refer to the Plaintiff’s entitlement of 22.50% undivided share, right, title and interest in the leased plot of land belonging to the firm of Metal Press India represented by this area, it does, in the same breath, talk about impermissibility of dividing the suit property having regard to the conditions of the lease. The MOU, therefore, talks about Nathalal making suitable provisions in future for devolution of this right, title and interest in favour of the Plaintiff. Clause 7 of the MOU, in terms, provides as follows:

10 It is at once clear from the provisions of the MOU referred to above that though, under the MOU, the Plaintiff was allotted 2700 sq.ft. built up area within the suit property for his own business, there was no mention of any immediate right, title or interest created in favour of the Plaintiff so far as this area is concerned. This was so since the lease deed, under which the firm held the suit property, prohibited any sub-division, sub-letting or assignment of part of the leasehold property except with previous consent of the collector. The Plaintiff has in his cross-examination not only accepted this position, but also admitted that no such permission was ever obtained from the Collector (See, Q.54 and 55 of crossexamination of the Plaintiff). Having regard to this position, the MOU instead contemplated a future act on the part of deceased Nathalal, by way of a testamentary disposition or otherwise, to create such right, title and interest in favour of the Plaintiff, which admittedly did not happen at any time. Nathalal died in 2005 without devising his share in the property or creating any interest in favour of the Plaintiff - whether of 22.50% share, right, title and interest in the suit property or otherwise at all. It is important to note that in the present suit, the Plaintiff has not sought specific performance of the purported agreement to create a right, title and interest in his favour to the extent indicated by him. The suit is on the footing that the Plaintiff already has such right, title and interest, presumably by virtue of the MOU of 16/18 October 1993. In other words, the Plaintiff’s possession of 2700 sq.ft. (and not of 4786 sq.ft., as indicated by the Plaintiff, for which there is no evidence whatsoever) was merely a permissive possession, with which the Plaintiff could carry on his own business in a portion of the suit property. It has come in evidence that the Plaintiff in fact did carry on his business in the name of “NC Industries” in this area of 2700 sq.ft. for some time. We shall presently see what subsequently happened to the Plaintiff’s permissive possession of 2700 sq.ft. In the meanwhile, we must focus on an important event which happened after the MOU of 16/18 October 1993, immediately or within two days.

11 On 18 October 1993, the parties executed a deed of retirement. By this deed, Virendra Nathalal Kansara and the Plaintiff herein both retired from the business of the partnership. The retirement deed inter alia records that the accounts of the partnership till the date of their retirement had been made up, adjusted and settled and nothing was now due or payable by each to the other in respect thereof (Clause 3 of the deed of retirement). The retiring partners unequivocally released unto the continuing partners all accounts, claims and demands in relation to the partnership. Whatever right or interest the Plaintiff may have had in the partnership and the resultant claim in its assets including the suit property, the Plaintiff was divested of such right or interest upon his retirement from the firm and adjustment and settlement of the accounts between the partners. The Plaintiff has claimed in his evidence, and also referring to the evidence of the Defendants, that no payment of valuable consideration in favour of the Plaintiff has come on record. That is clearly beside the point. The retirement deed, which is the best evidence of the factum of the Plaintiff’s retirement and settlement of accounts between the partners consequent upon such retirement, and which is signed solemnly by all partners of the firm including the Plaintiff himself, clearly puts paid to the Plaintiff’s claim that he continued to have 22.50% interest in the suit property or that accounts were not in fact settled between the parties. In any event, no oral evidence of any agreement in this behalf, or want of it, contemporaneously with the written agreement between the parties is admissible in evidence. Having regard to the deed of retirement executed by the parties, it must be held that after its execution, the accounts between the parties were duly adjusted and settled and the Plaintiff was left with no interest in the properties of the firm including the suit property.