Legal Proposition That Partnership Is Not Heritable Status And Depends On Contract Prevails Over Govt Circulars: Bombay High Court

The court held, "the legal position is clear that partnership is not a matter of heritable status but purely depends on contract. Hence even though there are Government Circulars but the legal proposition that the partnership is not a matter of heritable status but it depends on the contract would prevail over the Government Circulars".

A division bench of Justice A. S. Chandurkar and Justice Urmila Joshi Phalke of the Nagpur bench in a letters patent appeal set aside a Single Judge order which allowed the wife of a deceased partner to be added in the firm's wine licence despite contrary provisions in the partnership deed. The Single Judge had relied on a government circular of 1994 in the decision.

Facts

Vijaykumar Jaiswal, Arunkumar Jaiswal (appellant) and Dinkarrao Gawande were partners of the firm M/s. Akot Wine Mart. Dinkarrao expired in 1994 and Vijaykumar Jaiswal left the firm later. Therefore, the firm was dissolved and the appellant became the sole proprietor. His name alone was continued in the licence for wine shop (Country and foreign liquor).

The partnership was 'AT WILL'. Clause 10 of the partnership deed specified that outgoing partners or legal heirs of the deceased partner are not entitled to claim goodwill or right of the firm. Further, clause 11 provided that all license rights or any other rights would vest in the remaining partners if any partner retires or dies.

Kamlabai, wife of Dinkar Gawande, applied for inclusion of her name in place of her husband's in the licence. The Collector rejected her application and the State Excise Commissioner rejected her appeal. The Minister of State Excise remanded the matter back to the Collector, Akola. This order was challenged by the appellant in the High Court. A Single Judge bench dismissed his petition holding that the issue was required to be decided on the basis of the government policy. Hence the present appeal.

Government Circular

Government Circular dated 25.02.1994 provided that when original licence holder dies or is unable to participate in the business due to disability, the consent of legal representatives has to be obtained while transferring the licence. If the licence is in the name of the firm, consent of the legal representatives has to be obtained to delete the name of the deceased partner.

Observations of the Single Judge

State government cannot be prevented from substituting the name of the deceased partner with his legal representative by making a partnership agreement. It would be contrary to the provisions of the Act, Rules and the Circulars and the power of the government. Therefore, such a clause must yield to the authority and power of the state government.

Court's observations in the present case

The court noted that the government circular of 1994 relied on by Kamlabai and the Single Judge was substantially modified by the circular of 1996. The 1996 government circular provided that no-objection of the legal representatives of original licence holder is no longer required. The court noted that the circular of 1996 was not brought before the Single Judge.

In the present case, the licence was obtained in the name of the partnership firm. The facts of the case and the clause 9, 10, and 11 of the partnership deed were not in dispute.

The court said that the partnership deed was executed between the partners who agreed to the terms. No right was reserved for the legal heirs to claim in the licence and hence, Kamlabai is not entitled for such a right, the court said.

"Deceased Dinkar Gawande was fully aware that his legal heirs have no right after his retirement or on his death in respect of the licence but he agreed the said terms and conditions. Thus, the deceased husband of respondent no.3 had agreed as a term of partnership and which is not in dispute. In view of the said partnership deed or the contract between the partners admittedly respondent no.3 is not entitled for inclusion of her name", the court held.

The court further held that partnership is not a heritable status but purely depends on contract. This legal position would prevail over the government circulars, the court said.

Therefore, the court set aside the order passed by the Single Judge.

Case no. – Letters Patent Appeal No. 510 of 2009

Case title – Shri Arunkumar s/o Dwarklal Jaiswal v. State of Maharashtra and Ors.

Citation: 2022 LiveLaw (Bom) 479