The Supreme Court confirmed that once a partner contributes personal property to a firm, it becomes the firm’s asset under Section 14 of the Indian Partnership Act, 1932. Individual ownership no longer applies after the transfer.
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NEW DELHI: The Supreme Court once again confirmed that if a partner gives their personal property to a business firm, it no longer belongs to them alone. Instead, it becomes the property of the firm, no matter who originally owned it.
A Bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah clearly stated,
“The law on this point is settled which is that separate property of an individual partner, can be converted into partnership property…irrespective of the character of the property, when it is brought in by the partner when the partnership is formed, it becomes a property of the partnership firm, by virtue of Section 14 of Partnership Act.”
This judgment came in response to an appeal against an order by the Allahabad High Court regarding a dispute over ownership rights of Hotel Alka Raje in Faizabad.
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The Supreme Court supported the decision of the High Court, relying on Section 14 of the Indian Partnership Act, 1932, which states that any property a partner adds to the firm’s assets automatically becomes the property of the firm, no matter who owned it before.
The Court also referred to earlier legal decisions to strengthen the ruling, confirming that once a partner contributes an asset to the firm, it loses its separate identity and becomes part of the firm’s common assets.
The appellant had argued that ownership could not be transferred through a relinquishment deed.
However, the Court dismissed this claim, explaining that since the property had already become a firm asset under Section 14, there was no question of individual ownership anymore.
“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.”
This ruling once again makes it clear that if a partner puts personal property into a business, it becomes part of the firm’s property, and they cannot claim it as their own later.
The Supreme Court’s decision sets a strong legal precedent for similar partnership disputes in India.
CASE TITLE:
Sachin Jaiswal v. Hotel Alka Raje.
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