Sachin Jaiswal Vs. M/S Hotel Alka Raje & Ors: Supreme Court Holds Partnership Property Belongs to Firm, Not Legal Heirs of Partner

Introduction:

The Supreme Court in Sachin Jaiswal v. Hotel Alka Raje & Ors. reaffirmed that once a partner contributes property to a partnership firm, it becomes the firm’s exclusive asset under Section 14 of the Partnership Act, 1932. The legal heirs of a deceased partner cannot claim ownership over such property, as their rights are limited to the partner’s share in the firm's profits and liabilities. The Court also clarified that no formal transfer deed is required, as the transfer occurs by virtue of the partner’s contribution. Dismissing the appeal, the Court upheld the High Court’s ruling that the hotel property belonged to the partnership firm and not to the legal heirs of the deceased partner.

Background:

The dispute arose when the legal heirs of Bhairo Prasad Jaiswal, a deceased partner of Hotel Alka Raje, claimed ownership over the hotel property. They contended that the land originally belonged to Bhairo Prasad and should not have been considered a partnership asset. The respondents, being partners of the firm, filed a suit for declaration of title and permanent injunction, which was decreed in their favor by the Trial Court.

The High Court upheld the Trial Court’s decision, clarifying that the property belonged solely to the partnership firm, and not to the individual partners or their heirs. The legal heirs challenged this ruling before the Supreme Court, arguing that the property could not have been transferred by way of a relinquishment deed and should remain with the family of the deceased partner.

The key question before the Supreme Court was whether the legal heirs had any ownership rights over the property contributed by the deceased partner to the partnership firm.

Questions of Law:

1. Whether a property contributed by a partner to a partnership firm remains individually owned by the partner or becomes the firm's property under Section 14 of the Partnership Act, 1932?
2. Whether a formal transfer document (such as a relinquishment deed) is necessary to transfer the property to the firm?
3. Whether legal heirs of a deceased partner can claim ownership over the property contributed by the deceased to the firm?

Findings and Rationale:

1. Property Contributed to the Firm Becomes the Firm's Property: The Court, while interpreting Section 14 of the Partnership Act, 1932, held that once a property is introduced into the partnership stock, it becomes the firm’s exclusive property, unless a contrary intention is proven. The Court ruled that Bhairo Prasad Jaiswal had contributed the land to the partnership and that the construction of the hotel on that land further confirmed his intent to transfer ownership to the firm. Relying on Addanki Narayanappa v. Bhaskara Krishnappa (1966), the Court reaffirmed that once a property is contributed to the firm, the individual partner loses ownership rights over it, except for a right to share in the profits and liabilities of the firm.The Court observed: "It is apparent from the record that late Bhairo Prasad Jaiswal, after constituting the partnership firm in 1972, jointly constructed a building on the property along with his brother and partner, Hanuman Prasad Jaiswal. This leaves no doubt that the property was brought into the firm's stock as a contribution to the partnership."
2. No Formal Transfer Deed is Required to Transfer Property to the Firm: The appellant argued that the property could not have been transferred without a formal relinquishment deed. The Supreme Court rejected this argument, holding that a partner’s intent alone is sufficient to transfer property to the firm. The Court cited the Madras High Court ruling in The Chief Controlling Revenue Authority v. Chidambaram (1970), which held that a formal document is not required to transfer property to a firm.The Supreme Court stated: "A formal transfer document is not necessary when a partner contributes property to the firm, as the act of using the property for partnership purposes is sufficient to establish its inclusion in the firm's assets."
3. Legal Heirs Have No Right Over the Firm's Property: The legal heirs claimed that they had exclusive ownership rights over the property as it was originally acquired by their father. The Supreme Court rejected this claim, holding that once the property became part of the partnership stock, it ceased to be an individual asset. The heirs of the deceased partner only have a right to inherit the deceased’s share in the profits or liabilities, not the physical property itself.The Court observed: "Once property is contributed to the firm, the heirs of the deceased partner have no claim over it. Their rights are limited to the share of profits or liabilities as per the partnership agreement."
4. Relinquishment Deed is Only a Formalization, Not a Legal Requirement: The Court clarified that while a relinquishment deed may be executed to formalize the transfer, it is not a legal necessity. The transfer of property to the partnership occurs by virtue of the partner’s contribution, and no additional formalities are needed unless there is a dispute regarding ownership.

Conclusion

The Supreme Court dismissed the appeal and upheld the High Court’s ruling, reiterating that once a partner contributes property to a partnership firm, it becomes the firm’s property. The legal heirs of the deceased partner cannot claim exclusive ownership over the property, as their rights are limited to the share in profits and liabilities as per the partnership agreement. The Court also clarified that no formal document is required to transfer the property to the firm, as the transfer occurs by virtue of the partner’s intent and contribution. Relying on landmark precedents, the Court reinforced the settled position of law under the Partnership Act, 1932.

Disclaimer

This post is for educational and informational purposes only. It is not intended to defame, discredit, or tarnish the reputation of any individual, entity, or organization. The opinions expressed are based on publicly available judicial decisions and are aimed at fostering a better understanding of legal principles. For specific legal advice, readers are encouraged to consult a professional.