Holding

An arbitration award that merely distributes the assets of a dissolved partnership among the partners does not transfer or assign any interest in property and therefore does not require registration under Section 17 of the Registration Act, 1908.

Summary

A partnership of four family members was dissolved and the partners' residual assets were allocated by an arbitration award dated 2 October 1972. Some partners objected to the award under Section 30 of the Arbitration Act, 1940, contending that the award needed to be registered under Section 17 of the Registration Act, 1908. The trial court and the Andhra Pradesh High Court held that registration was mandatory, rendering the award inadmissible. On appeal, the Supreme Court examined whether the award created a transfer of any interest in movable or immovable property. It held that distribution of partnership assets on dissolution does not constitute a transfer or assignment of ownership, as the assets already belong to the partners in proportion to their shares. Consequently, the award does not fall within the ambit of Section 17 and need not be registered. The Court allowed the appeals, set aside the High Court judgment, and ordered the award to be made a rule of the court.

Issues considered

Whether an arbitration award distributing the residue assets of a dissolved partnership firm creates a transfer of interest in property that requires registration under Section 17 of the Registration Act, 1908.

Legislation cited

Subjects

ArbitrationPartnership dissolutionAward registrationSection 17 Registration ActAsset distributionTransfer of propertyCivil AppealSupreme Court of India

Judgment

A N. KHADERVALI SAI-IEB (DEAD) BY LRS. AND ANR.
v.
N. GURUSAHIB (DEAD) AND ORS.

FEBRUARY 5, 2003

B fM.8. SHAH, ASHOK BHAN AND ARUN KUMAR, JJ.]

Registration Act, 1908-Section 17-Award distributing assets on
dissolution of partnership-Registration of award-Requirement for -Held,
C award does not require registration, since the award does not transfer or
assign interest in any asset.

On dissolution of a partnership firm, the assets were allotted between
the partners by way of an arbitration award. The question for
consideration in these cases was whether such an award amounts to
D creation of or transfer of any fresh rights in movable or immovable
properties so as to bring it with'in the ambit of Section 17 of the
Registration Act, 1908.

Allowing the appeals, the Court

E .. HELD: 1. On dissolution of the partnership firm, accounts are settled
.amongst the partners and the assets of the partnership are distributed
amongst the partners as per their respective shares in the partnership firm.
Thus, on dissolution of a partnership firm, the allotment of assets to
individual partner is not a case of.transfer of any assets of the firm. The
assets which hereinbefore belonged to each partner, will after dissolution
F of the firm stand allotted to the partners individually. There is no transfer
or assignment of ownership in any of the assets. This is the legal
consequence. of distribution of assets on dissolution of a partnership firm.
The distribution of assets may be done either by way of an arbitration
award or by mutual settlement between the partners themselves. The
G document which records the settlement in this case is an award which does
not require registration under Section 17 of the Registration Act since the
document does not transfer or assign interest in any asset. (870-D, E, Fl

2. Jn the present case, the award seeks to distribute the residue after
settlement of accounts on dissolution, while distributing their residue·the
H 868
N. KHADERVALI SAHEB >. N. GURUSAHIB [ARUN KUMAR. J.) 869

arbitrators allocated the properties to the partners. The award in such A
circumstances did not require registration under Section 17 (I) of the
Registration Act. 1871-CI

S. V. Chandra Pandian and Ors. v. S. V. Sivalinga Nadar and Ors., 119931
I sec 589, relied on.
B
Ratan la/ Sharma v. Purshottam Harit, 11974) I SCC 671, distinguished.

CIVIL APP ELLA TE JURISDICTION : Civil Appeal Nos. 5680-
568 I of I 994.

From the Judgment and Order dated 29.6.1993 of the High Court of C
A.P. in C.R.P. No. 2250/89 and CMA 1859/89.

A.T.M. Sampath and V. Balaji, for the Appellants.

K. Ram Kumar and B. Sridhar, for the Respondents.
D
The Judgment of the Court was delivered by

ARUN KUMAR, J. These appeals involve a pure question of law as
to whether an award by which residue assets of a partnership firm are
. ;.
distributed amongst the partners on dissolution of the partnership firm requires
registration under Section 17 of the Registration Act, 1908? E
Briefly the facts are that a partnership firm was constituted comprising
of four persons belonging to the same family. Disputes and differences arose
between the partners which were ultimately referred to arbitration. The
arbitrators made an award on 2nd October, I 972. The award was challenged
by way of objections filed under Section 30 of the Arbitration Act, I 940 by F
some of the partners. The objection petition was contested by the other partners
who prayed that the award be made a rule of the Court. The grounds of
challenge to the award included misconduct on the part of the arbitrators as
well as another ground that the award required registration under Section I7
of the Registration Act. The trial Court accepted both the objections holding G
that there was misconduct on the part of the arbitrators as also that the award
was required to be compulsorily registered and since it was not registered it
was inadmissible in evidence. This decision of the trial court was challenged
before the High Court by way of a Civil Revision filed under Section I I 5 of
the Code of Civil Procedure. The High Court found that in the facts and
circumstances of the case it could not be said that there was any legal H
870 SUPREME COURT REPORTS [2003] I S.C.R.
I

A misconduct on the part of the arbitrators. Thus the first ground of attack
against the award was found to be unsustainable. However, the High Court
accepted the finding of the trial Court on the second ,ground, that is,Jhe
award was required to be compulsorily registered. Since the award was
unregistered, it could not be made a rule of the Court. Hence the present
B appeals.
We have carefully perused the award in question. By the award the
arbitrators have distributed the assets of the dissolved firm between the partners
in accordance with their respective shares in the partnership. The real question
for consideration is whether such an award amounts to creation of or transfer
C of any fresh rights in movable or immovable properties so as to bring it
within the ambit of Section 17 of the Registration Act? A perusal of the
award shows that it is simply a case of distribution of assets of the dissolved
firm amongst the partners themselves. A partnership firm is not an independent
legal entity, the partners are the real owners of the assets of the partnership
firm. Actually the firm name is only a compendious name given to the
D partnership for sake of convenience. The assets of the partnership belong to
and are owned by the partners of the firm. So long as partnership continues
each partner is interested in all the assets of the partnership firm as each
partner is owner of the assets to the extent of his share in the partnership. On
dissolution of the partnership firm, accounts are settled amongst the partners
E and the assets of the partnership are distributed amongst the partners as per
their respective shares in the partnership firm. Thus, on dissolution of a
partnership firm, the allotment of assets to individual partner is not a case of
transfer of any assets of the firm. The assets which hereinbefore belonged to
each partner, will after dissolution of the firm stand allotted to the partners
individually. There is no transfer or assignment of ownership in any of the
F assets. This is the legal consequence of distribution of assets on dissolution
of a partnership firm. The distribution of assets may be done either by way
of an arbitration award or by mutual settlement between the partners
themselves. The document which records the settlement in this case is an
award which does not require registration under Section 17 of the Registration
G Act since the document does not transfer or assign interest in any asset. This
question stands concluded by a decision of this Court in S. V. Chandra Pandian
and Ors. v. S. V. Sivalinga Nadar and Ors .• [ 1993] I SCC 589. This was also
a case of distribution of assets of a dissolved firm by way of an award. This
Court noticed that the award read as a whole made it clear that the arbitrators
had confined themselves to the property belonging to the partnership firm
H and had scrupulously avoided other properties. While distributing the residue
N. KHADERVALI SAHEB v. N. GURUSAHIB [ARUN KUMAR. J.] 871

assets, the arbitrators allocated .he properties to the partners. Section 48 of A
the Partnership Act was applied and the properties were allocated to the
partners as per their share on the distribution of the residue. The award
sought to distribute the assets of the partnership firm after settlement of
accounts on dissolution. This Court took the view that the property falling to
the share of the partner on-distribution of the residue would naturally belong
to him exclusively "but since in the eye of law it is money and not an B
immovable property there is no question of registration under Section 17 of
the Registration Act." it was further observed " ... even if one looks at the
award as allocating certain immovable property since there is no transfer, no
partition or extinguishment of any right therein there is no question of
application of Section 17(1) of the Registration Act." As observed in the C
above case, in the present case also we are satisfied that the award seeks to
distribute the residue after settlement of accounts on dissolution, while
distributing their residue the arbitrators allocated the properties to the partners.
The award in such circumstances did not require registration under Section
17 (I) of the Registration Act.
D
The learned counsel appearing for the respondents was unable to contest
this legal 'preposition which stand concluded on the basis of the above
mentioned decision of th is Court, however, he sought to rely on an earlier
-. ,. decision of this Court in Ratan Lal Sharma v. Purshottam Harit, [1974) I
SCC 671. The said decision was noticed by this Court in Pandian 's case E
(supra) and was explained. The said case is clearly distinguishable. It need
not detain us from concluding that the award in the present case did not
require registration under Section 17( 1) of the Registration Act. The appeals
are accordingly allowed. The judgment of the High Court is hereby set aside.
The result would be that the objections against the award dated 2!!_d October,
1972 stand rejected and the award is ordered to be made rule of the Court. F
Decree to follow in terms of the award. Both the appeals stand disposed of.
There will be no order as to costs.

K.K.T. Appeal allowed.