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Civil Appeal No. K‑3 of 1966, decided on 23rd January 1969.

(On appeal from the judgment and Order of the High Court of West Pakistan, Karachi Bench, Karachi, dated the 22nd January ' 1965, in Writ Petition No. 12 of 1965).

r. 4(b)(ii)‑Expression "for purchase of property"‑Lease‑hold interest of an evacuee ‑"Real property" in every sense of the term Hindu, after having received consideration in cash, entering into partnership agreement with a displaced person for transfer of his lease‑hold (in cinema) and thereafter migrating to India‑Payments made by displaced person, held, fall within exception of r. 4(b)(ii).

‑Assets‑Every partner is, in absence of special agreement to contrary, equally interested in whole of partnership assets‑‑ease‑hold interest of one partner becoming asset of firm Other partner acquires interest therein.

While it is true that a partner cannot claim any asset of a partnership as exclusively his own until a distribution of the assets thereof has taken place, yet in law every partner is, in the absence of any special agreement to the contrary, equally interested in the whole of the partnership assets, and if the property happened to be real property then the legal estate in it would be governed by the ordinary doctrines of real property. It is futile, therefore, to argue that even if the lease‑hold interest became an asset of the firm, the other partner acquired no interest therein. A lease hold interest is, subject to any contract to the contrary, both transferable and heritable under the Transfer of Property Act.

Ajudhia Pershad Ram v. Sham Sunder and others A I R 1947 Lah. 13 and Lindley's Partnership, 11th Edn., p. 436 ref:

N. A. Faruqui, Advocate Supreme Court instructed by K. A. Ghani, Attorney for Appellant.

Sayeed A. Shaikh, Advocate Supreme Court instructed by Shafiq Ahmad Senior Attorney for Respondents.

Dates of hearing : 22nd and 23rd January 1969.

This appeal, by special leave, arises out of an order of a Division Bench of the High Court of West Pakistan at Karachi summarily dismissing a petition under Article 98 of the Constitution filed by the appellant herein.

The appellant, who was a displaced person from Bombay in India, had entered into an agreement on 9‑5‑49 with one, Hariram Rewachand, a Hindu resident of Karachi, for running a cinema business in co‑partnership. The latter, it appears, had earlier on 3‑5‑47 acquired a lease‑hold interest for 20 years certain in respect of the premises wherein the cinema house, known as Imperial Talkies, was situated, being Plot No. 11/1, R. C. of Bunder Road, Karachi.

The appellant claimed that he had actually paid a sum of Rs.2,62,500 to the said Hariram as consideration for the purchase of a 3/4th share in the said premises including its fixtures, fit tings, furnitures, machineries, etc., as well as the business itself. The agreement, it was further alleged, also contemplated that the appellant would be the managing partner and will perform all acts necessary for the effectual carrying on of the business. He would also be in sole charge of the management and control of the business.

Unfortunately the transaction could not be completed, as soon thereafter Hariram had to migrate to India and the afore said cinema house was sealed by the Custodian. Ultimately the possession of the premises was also delivered to its Muslim Owners. The appellant thereafter sought to recover the amount paid by him from Hariram Rewachand, but disputes having arisen between them the matter was referred to arbitration, in terms of the agreement, and an award was made in favour of the appellant for the full amount. This award was subsequently made a rule of the Court on the 20th of October 19j4, in Suit No. 572 of 1953 by the Chief Court of Sind and a decree was passed in favour of the appellant for Rs.2,62,500.00.

The said Hariram Rewachand had a large number of other properties also in Karachi which had all been taken over by the Custodian. The appellant, therefore, started proceedings before the Custodian for a declaration of a charge against the properties of the said Hariram Rewachand to the extent of the said sum of Rs.2,62,500. After prolonged proceedings the Additional Settle ment Commissioner (Judicial), Karachi, by his order of the 1st of June 1964, ultimately created such a charge for the entire amount over 4 of the properties of the said Hariram Rewachand and forwarded this order to the Additional Settlement Commissioner (Accounts) at Lahore for satisfaction of the charge. The latter by his order of the 6th of August 1964, allowed payment of only Rs.92,125 but did not approve the payment of the balance. An appeal filed by the appellant from this order before the Settlement Commissioner was dismissed on the 7th of September 1964, although the said Hariram Rewachand by affidavit had admitted the receipt of the entire amount of Rs.2,62,500 in cash and further affirmed that he had bound himself to give the Naz Cinema to the appellant in payment of the above amount after the lease hold interest in the premises of the Imperial Talkies had been surrendered by the Custodian.

The reason given by the Additional Settlement Commissioner (Accounts) for not accepting the entire claim of the appellant was that the transaction evidenced by the deed of agreement entered into on 9‑5‑1949 was "purely one of investment of agreed share money for entering into a partnership with a non‑Muslim, who subsequently evacuated to India. The transaction being other than of purchase of evacuee property, the case does not fall under Exception (b) (ii) of rule 4. As such, the scale mentioned in rule 4(l) applies and accordingly the amount to be satisfied comes to Rs.92,125".

Similarly the learned Settlement Commissioner dismissed the appeal on the following ground :‑

"There is however no evidence on record to show that the amount of Rs.2,62,500 was paid to Hariram for the purchase of any of his properties. The deed of partnership . . . . . . . . was for partnership in business and the various clauses in the partnership deed indicate that the parties had pooled their resources for running the cinema and the appellant's contribu tion of Rs.2,62,500 was in connection with the business. There is no indication in the partnership deed or any other document produced before m‑. that the property belonging to Hariram was purchased by the appellant and if so what was its exact value."

In the High Court also the contention that the case of the appellant fell within exception (b) (ii) of Rule 4 of the Satisfaction of Charges (Evacuee Property) Rules, 1961, was summarily rejected for almost the same reason as was given by the learned Settlement Commissioner. The High Court observed as follows :‑

"In the present case resources of the petitioner and the evacuee whether m the form of money or property, were pooled together to form a partnership. Being a member of the part nership is not purchasing property of the evacuee."

Leave was granted in this case to examine as to whether the amount paid by the appellant was for purchase of property as required by exception (b) (ii) to rule 4 of the Satisfaction of Charges (Evacuee Property) Rules, 1961, or whether the amount paid was in the nature of a contribution to the partnership capital.

Since the main question that arises for consideration is as to whether the payments made by the appellant came within Excep tion (b) (ii) of rule 4 of the Satisfaction of Charges (Evacuee Property) Rules, 1961, it is necessary to set out the relevant portions of the said Rule :‑

"4. Extent of satisfaction of charges.‑(1) Save as otherwise provided in this rule, the extent of satisfaction of the total amount of all charges created at any time in favour of an individual charge‑holder shall be as follows :‑

(i) for the first five thousand rupees of the aggregate value of all charges held by a charge‑holder‑seventy per centum.

(ii) for the next five thousand‑rupees‑sixty per centum.

(iii) for the next ninety thousand‑rupees fifty per centum.

(iv) for the balance of the amount‑twenty‑five per centum of such balance subject to a maximum limit of rupees three lacs:

Provided that the total amount payable to a charge‑holder shall not exceed fifty per centum of the transfer price of the property or properties against which he holds the charge.

Exceptions

(a) . . . . . . . .

(b) Subject to the maximum limit of rupees three lakhs as aforesaid, the following classes of charges held by a displaced person or a local shall be paid in full‑

(i) charges on account of principal mortgage money due from an evacuee, and

(ii) charges on account of money paid in cash to an evacuee for the purchase of his property, where such transaction did not materialise."

Under this exception it will be observed that charges on account of money paid in cash to an evacuee for the purchase of property where such transaction does not materialise, are repayable up to the maximum limit of Rs.3 lakhs. The question, therefore, that next arises for consideration is as to what was the true nature of the transaction in the present case. There is no dispute that the amount paid was paid in cash. The only dispute here is as to "whether it was paid to an evacuee for the purchase of his property."

To determine the true nature of the transaction entered into it is again necessary to refer to the agreement of the 9th of May 1949, itself. Under this deed described as a "Deed of Partner ship" the lease entered into between the owners of Imperial Talkies and Hariram Rewachand is expressly included in the ambit of the partnership. The contracting parties declared

"Whereas the parties of the 1st and 2nd part have mutually agreed to enter into a partnership with regard to carrying on the business of exhibiting cinema shows, theatrical performances, entertainments dances, as a matter of fact all other kinds of entertainments and in respect of several business premises shops etc. let out on rent, on terms and conditions set forth herein below."

Rewachand, the lessee, then covenanted not to exercise the option conferred upon him by the Indenture of Lease to determine the lease earlier that the 31st of March 1967, and further in the event of the partnership continuing till the 31st of March 1967, to exercise the option of renewal for a further period of 10 years. Rewachand further covenanted not to encumber, mortgage, charge or otherwise in any manner whatsoever deal with or dispose of the rights and interests vested in him by virtue of or under the Indenture of Lease. The most important, for our present of the deed of partnership, which we quote in extenso :‑

"(B) The business of the partnership shall consist of cinema shows, theatrical performances, dances and other entertainments of any kind whatsoever and for these purposes to use the auditorium and other office and residential and business pre mises and let out the rest of the leased property to one or more tenants.

(N) The Party of the 2nd part doth further bind himself that after the consideration is paid by the first party as shown herein below, the furniture, machinery etc. the property of the second party lying in the cinema premises shall be the property of the partnership.

(O) That in consideration of 3/4th value of the machinery, furniture, benefits under the lease dated 3rd May 1947, and goodwill etc. the party of the 1st part shall pay Rs.2,62,500 (Two lacs sixty‑two thousand five hundred) only to the party of the 2nd part which the party of the 1st part has this day paid to the party of the 2nd part and the receipt of which the party of the 2nd part doth hereby acknowledge."

Lastly it was provided by Clause (W) that in the event of Hariram acting prejudicially to the interest of the partnership so as to give cause for termination of the lease and the same is terminated before the expiry of the stipulated period, including the period of option mentioned in the Indenture of Lease, he should refund to the appellant the sum of Rs.2,65,000 by way of damages.

The lease‑hold interest, which is real property in every sense of the term, was, therefore, a very important asset of the partner ship and the real intention of the parties was that in consideration of the payment of the said sum of Rs.2,62,500 the benefits under the lease as also all the furnitures, fixtures, fittings, etc., of the said Imperial Talkies shall become the assets of the partnership. The partnership was also to let out and realize the rents of the portions of the premises which were not in its use for the purpose of the cinema. If this be so, then can it be doubted that the transaction in effect was an agreement for the transfer or sale of the property of Hariram i.e. his lease ,hold interest in the said imperial Talkies to the partnership firm to be constituted under the aforesaid deed of agreement We are further strengthened in this view by the fact that the partnership through the managing partner, the appellant, was also given the right to collect the rents, issues and profits of the shop and office rooms and residential portions situated in the premises in which the cinema itself was located.

The learned counsel for the appellant has also drawn our attention to the definition of the word "property" given in the Pakistan (Administration of Evacuee) Property Act, 1957, where under "property" includes both movable and immovable property. This has been done for the purpose of establishing that in any event the parties did also contemplate a transfer of movable property, such as furnitures and machineries. We have also been referred to the definition of property given in subsection (25) of section 3 of the General Clauses Act to show that this includes the "benefits arising out of land" within the word "property" and a lease‑hold interest, it is contended, is certainly a benefit arising out of land.

There can be no dispute with regard to the above. If there was, in the present case, a transfer or even an assignment of the lease‑hold interest, then there was a transfer of property, and even if the transfer was to the firm as such, the true legal position would be that all partners of the firm would be treated as co- owners of the property having a right to share in its distribution on the dissolution of the firm. The agreement did, therefore, clearly contemplate a transference of the lease‑hold rights of the evacuee to, at any rate, the firm of which the appellant was a partner and became entitled to a share.

As against this the learned counsel appearing on behalf of the Department has contended that the transaction was not a transac tion for the transfer of property at all but was merely a transac tion for creating a partnership, and even if it was a transaction for the transfer of any property to the partnership the appellant could not take advantage of it, for the true position of a partner is that he cannot say that he is the exclusive owner of any portion of the property until the firm has been dissolved, its debts and liabilities paid and the assets divided amongst the partners.

In support of this contention an observation of Cornelius J., as he then was, in the case of Ajudbia Pershad Ram v. Sharp Sunder and others (A.1 R 1947 Lah. 13) has been cited. There a passage from Lindley on Partnership has been quoted to the following effect.

"What is meant by the share of a partner is his proportion of the partnership assets after they have been all realised and converted into money, and all the partnership debts and liabili ties have been paid and discharged. This it is, and this only, which on the death of a partner passes to his representatives, or to a legatee of his share; and which on his bankruptcy passes to his trustee."

While it is true that a partner cannot claim any asset of a partnership as exclusively his own until a distribution of the assets thereof has taken place, yet in law every partner is, in the absence of any special agreement to the contrary, equally interest ed in the whole of the partnership assets, and if the property happened to be real property then the legal estate in it would be e governed by the ordinary doctrines of real property. Vide Lindley on Partnership, 11th Edn. p. 426. It is futile, therefore, to argue that even if the lease‑hold interest became an asset of the firm, the appellant acquired no interest therein. A lease‑hold interest is, subject to any contract to the contrary, both transfer able and heritable under the Transfer bf Property Act and, therefore, if Hariram transferred his interest in the lease‑hold to the firm, there was a transfer of property and the transaction was in essence for the transfer or sale of property.

Exception (b) (ii) of Rule 4 of the Satisfaction of Charges (Evacuee Property) Rules, 1961, does not require that the money should have been paid to the evacuee for the purchase of his property by the applicant himself. It is sufficient if the charge is held by a displaced person or a local. In the present case a charge was admittedly declared in favour of the appellant, who was a displaced person, and it was partially accepted even by the Additional Settlement Commissioner (Accounts). The requirements of the aforementioned exception were, therefore, in every way satisfied.

Having read the provisions of the Deed of Partnership as a whole, we have no hesitation in coming to the conclusion that the Settlement Authorities were wrong. We would, therefore, set aside the order of the Settlement Commissioner (Policy) and the Additional Settlement Commissioner (Accounts) and direct them to act in accordance with law as declared by this Court.

This appeal is, accordingly, allowed, but having regard to the fact that the only respondents in this case are the Settlement Authorities, we make no order as to costs.

Appeal accepted.

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