S. 14 Partnership Act | Partner's Contribution Becomes Firm's Property, Legal Heirs Cannot Claim Ownership : Supreme Court

The Supreme Court on Thursday (February 27) observed that a contribution made by the partner to the partnership firm becomes the firm's property as per Section 14 of the Partnership Act, 1932 and neither the partner nor his legal heirs would have an exclusive right over the firm's property after the partner's death or retirement except the share in profit in proportion to the contribution made in partnership firm.

The Court added that no formal document is required to be made for transferring the property to the partnership firm, as the transfer occurs by virtue of the partner's contribution to the firm. However, the Court said that a relinquishment deed could be made to formalise the transfer of property to the partnership firm.

The bench comprising Justices Sudhanshu Dhulia and Ahsanuddin Amanullah heard the case where the legal heirs of one of the partners of the partnership firm claimed ownership over the Hotel (partnership property) after the death of the partner. The appellant-legal heirs attempted to claim ownership of the property, arguing that it was acquired by his father and should not have been transferred to the partnership firm.

The respondents (partnership firm and its partners) 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 to the partnership firm and not to the individual partners or their heirs, prompting the legal heirs to appeal to the Supreme Court.

Before the Supreme Court, the Appellant-legal heirs, apart from arguing that it was acquired by his father and should not have been transferred to the partnership firm, also contended that the property could not be transferred by way of a relinquishment deed.

Affirming the High Court's decision, the judgment authored by Justice Dhulia, taking note of Section 14 of the Partnership Act, 1932, observed that once the property is brought into the partnership stock, it becomes the firm's property unless there is a contrary intention proven.

Since Bhairo Prasad Jaiswal made a contribution of the land and building to the partnership firm, and the construction of the hotel on the land was clear evidence of his intention to contribute the property to the firm.

Thus, the Court rejected the appellant's claim that he had a right to the property as the legal heir of Bhairo Prasad Jaiswal. It held that once the property became the firm's property, the heirs of the contributing partner had no claim over it.

The Court cited Addanki Narayanappa v. Bhaskara Krishnappa (1966), affirming that property contributed to a partnership becomes firm property, denying exclusive rights to the contributor.

The Court upheld the Madras High Court's ruling in The Chief Controlling Revenue Authority v. Chidambaram (1970), which held that a partner's intent alone can convert individual property into partnership property without a formal document. This rejected the appellant's claim that a relinquishment deed was insufficient to transfer the property to the partnership firm.

“It is apparent from a perusal of the record that late Bhairo Prasad Jaiswal, first acquired the property in the year 1965 and then after constituting the partnership firm (respondent No. 1) in 1972, he jointly constructed a building over the property with his brother and partner, Hanuman Prasad Jaiswal, pursuant to which the building was constructed which was to run as a hotel. This leaves no room for any doubt that late Bhairo Prasad had brought the property in question to the stock of the partnership firm as his contribution to the same. In fact, this is precisely the reason which prompted the High Court to clarify that the decree rendered by the Trial Court ought to be read in favour of the partnership firm-respondent No. 1 alone, as opposed to being read in favour of the firm along with the other three partners, i.e. respondent Nos. 2-4 herein, because the property had become the firm's property at the very moment late Bhairo Prasad Jaiswal started constructing the hotel on his land after constituting the partnership. The evidence of his intention to contribute the land and the building of 'Hotel Alka Raje' is quite clear.”, the court observed.

In terms of the aforesaid, the Court dismissed the appeal.

Case Title: SACHIN JAISWAL Versus M/s HOTEL ALKA RAJE & OTHER

Citation : 2025 LiveLaw (SC) 342

Click here to read/download the judgment

Appearance:

For Petitioner(s) Ms. Vasudha Banka, Adv. Mr. Kushagra Kaul, Adv. Mr. Kabir Dixit, AOR

For Respondent(s)