Chiranji Lal vs Dwarka Math Mattu
1969 Latest Caselaw 115 Del

JUDGMENT

V.S. Deshpande, J.

(1) The first question for consideration in this case is whether the appellant. Dr. Chiranji Lal, assigned, sublet or parted with possession of his tenancy right in 14-C Connaught Place in favor of the partnership consisting of himself and the respondent, Dwarka Nath Mattu by virtue of clauses 14, 15 and 16 of the partnership deed executed by them on the 20th January, 1956. The question was answered in the affirmative by both the learned lower courts, who have thereupon passed a preliminary decree in favor of the respondent. Hence this second appeal by the appellant.

(2) The relevant clauses of the partnership deed run as follows :- "14. That during the continuance of the partnership the business of the partnership will be carried on at 14-C Connaught Place, New Delhi. The partnership will pay all rents, taxes, in respect of the said premises. 15. That the goodwill of Lal & Co. including the rights of tenancy has been valued at Rs. 45,000.00 ( Forty five thousand) which has nto been credited to the account of the first party and in lieu of interest of the goodwill the first party will be paid commission Rs. 2% on retail gross sales and Rupee 1% on wholesale gross sales. This commission will be the exclusive income of the first party who will be entitled to withdraw this amount during the continuance of the partnership. 16. At the time of the dissolution, first party will be credited with this amount of Rs. 45,000.00 as stated in para No. 15, and the goodwill including the right of tenancy will then be liable to division amongst the partners just like other "assets of the partnership."

(3) In construing the above clauses of the agreement of partnership, we must be guided by the language used by the parties. It is clear that the parties were aware of the provision of proviso (b) to sub-section (1) of section 13 of the Delhi and Ajmer Rent Control Act, 1952 (hereinafter referred to as 'the Act of 1952). When they entered into the partnership agreement they made conscious effort to ensure that the agreement should nto amount to an assignment, subletting or parting with possession of the premises by the tenant in favor of the partnership, inasmuch, as the landlord of the appellant would thereby get a cause of action to evict the appellant-tenant from the premises. There was nothing wrong with such intention. The parties were free to enter into a genuine agreement which would nto come within the mischief of proviso (b) to sub-section (1) of section 13 of the Act of 1952. If, on the other hand, the transaction amounted to an assignment, sub-letting or parting with possession on the wording of the agreement itself, then the parties could nto prevent the landlord from proving that he was entitled to evict the tenant. But the construction of the agreement must nto be influenced by any consideration that the transaction should or should nto come into the mischief of proviso (b) to sub-section (1) of section 13 of the Act of 1952.

(4) The following conclusions can be drawn from the language of clauses 14, 15 and 16 : 1. The good will of Lal & Co. including the right of tenancy vested in the appellant were valued at Rs. 45,000.00. 2. But neither the goodwill nor the right of tenancy was made an asset of the partnership at the inception of the partnership. This is what is meant by the words "goodwill of Lal & Co. including the right of tenancy has been valued at Rs. 45,000.00, which has nto been credited to the account of the first party". That is to say the right of the appellant to the goodwill and the tenancy, which was worth Rs. 45,000.00, was nto transferred or given over to the partnership and, therefore, the consideration of Rs. 45,000.00 was nto paid to the appellant as these two rights remained with the appellant and were nto transferred to the partnership. In making the accounts of the partnership, if the appellant had been retarded as the seller of the goodwill and the tenancy to the partnership, then an amount of Rs. 45,000.00 would have been given out of the fund of the partnership for payment to the appellant after which the assets of the partnership including the goodwill and the tenancy would have become divisible between the two partners. This amount of Rs. 45,000.00 was nto credited to the appellant when the partnership was entered into; 3. The rent of the premises, which was the original consideration for the tenancy was to be paid by the partnership to the landlord of the appellant, inasmuch as the premises were to be used by the partnership for its business; 4. The goodwill of Lal & Co., which was used by the partnership was to be separately paid for by way of a commission to the appellant, inasmuch as the goodwill continued to belong to the appellant; and 5. At the time of the dissolution of the firm, however, the appellant was to be credited with an amount of Rs. 45,000.00 as consideration of the goodwill including tenancy belonging to the appellant. Thereafter, the goodwill including the right of tenancy was liable to be divided between the partners like the other assets of the partnership.

(5) The actual use of the goodwill and the tenancy premises of the appellant by the partnership has been held by the learned lower Courts to amount to the vesting of the goodwill and the tenancy in the partnership. They have been influenced by the fact that virtually the partnership used these rights as belonging to it. In my view they confused thereby the use of these rights with the ownership of the same. It was entirely legal and possible that the appellant should continue to hold the goodwill including the tenancy and only allow the tenancy to use the same without transferring it to the partnership. The mere fact that the holder of these rights enters into partnership with another and enables both the partners to enjoy these rights does nto necessarily mean that these rights vest in both the partners. On the contrary, the legal title to and possession of these rights continued to be with the appellant and only the use of the goodwill and the premises was allowed to be made by both the partners, viz. by the partnership.

(6) The appellant, doing the business in the name and style of Lal & Co., in the leasehold premises, was already carrying on the business of sale of medicines before he entered into this partnership. This business was to be continued by the partnership. The management of the business was to be by both the partners. The profit and loss of the firm were to be divided equally between the partners. Both the partners were to contribute the stock of goods of their respective businesses to the partnership and the inequality between their contributions was to be made good by payment of cash. The partnership was, therefore, a genuine one. In such a partnership, the partner who is in legal possession of the tenancy prior to the formation of the partnership continues to be in such legal possession and the actual possession of the premises by both the partners does nto change the position. The use of the premises by the other partner would be as a licensee. This is illustrated by the leading case of Chaplin v. Smith, in which the lessee formed a company of which he became the Managing Director and the company carried on its business in the premises. It was held that the lessee had nto parted with the possession of the premises. For the same reason the premises of the appellant cannto be said to have been either sublet or assigned to the partnership. In fact, the partnership meant only the appellant and the respondent. There was no transfer by the appellant in favor of himself and the respondent. In Pratap Chand v. RadheySingh,SAO 309 of 1967, decided by me on 14th March, 1969, the lessee entered into a partnership with another person, but the partnership agreement allowed the other person to be in exclusive management of the business. He could, therefore, exclude the leasee from the possession. It was, therefore, held that the legal possession of the premises had bean parted with in favor of the other partner. The partnership was, therefore, only ostensible and nto a genuine one. In the present case, on the other hand, the partnership is a genuine being managed by both the partners. There was, therefore, neither any assignment nor any subleting, nor any parting with possession by the appellant in favor of the partnership or the respondent.

(7) The possession of the respondent as a partner of the appellant over the premises was that of a licensee. It was nto exclusive inasmuch both the appellant and the respondent were in possession of the premises. The possession of the respondent was, however, in pursuance of the partnership agreement and, therefore, as of right arising out of the said agreement. Even if the possession of the respondent had been exclusive, it would nto have amounted to possession as an assignee or a lessee, inasmuch as the legal possession remained with the. appellant, who alone continued to remain as the tenant of the premises as the tenancy had nto been transferred to the partnership. In H. C. Sharma v. Life Insurance Corporation of lndia, I had occasion to point out that the Rent Control Legislation had an impact on the Law of landlord and tenant. This has given rise to the emergence of a new concept, which may be called a possessory license to distinguish it from the older orthodox type of license which gave no right to exclusive possession and which is defined in section 52 of the Easements Act. Even though exclusive, such possession does nto amount to an assignment or a lease. This concept has been elaborated by Lord Denning in several decisions such as Cobb v. Lane, torbett v. Faulkner and Facchini v. Bryson. As observed by Lord Denning at page 1202 of the decision in Cobb v. Lane, referred to above, the question in all these cases is one of intention. "Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land ?" The question can be answered in the affirmative ill the present case, in the light of the provisions of the partnership agreement discussed above. The Supreme Court has also recognised the existence of such a possessory license nto amounting to a lease or assignment in three recent decisions, viz.., Associated Hotels of India v. R. N. Kapur, M. B. Lat v. Dunlop Rubber Company, and Associated Hotels of India v. S. B. Sardar Ranjit Singh. For the above reasons I hold that the partnership agreement entered into by the parties did nto transfer the tenancy rights of the appellant to the partnership at the inception and during the life of the partnership.

(8) The next question for consideration is the legality of the agreement embodied in clause 16 of the partnership deed, that at the time of the dissolution the goodwill including the right of tenancy would vest in the partnership, for which a consideration of Rs. 45,000.00 would be paid to the appellant after which the goodwill and the tenancy would be liable to division between the partners.

(9) Section 44(3) of the Act of 1952 prohibited and penalised only the subletting of the whole or part of the premises by the tenant. It did nto expressly prohibit the assignment or parting with possession of the premises. The agreement to transfer the premises by the appellant to the partnership at the time of its dissolution was not. therefore, forbidden by Law within the meaning of Section 23 of the Contract Act.

(10) The Delhi Rent Control Act, 1958 (hereinafter referred to as 'the Act'), which came into force on 9-2-1959, however, changed this position. Section 16(3) clearly stated that after the commencement of the Act no tenant shall either assign, sublet or transfer his rights in the tenancy. Section 48(2) forbade and penalised nto only the subletting, but also the assignment or parting with possession of the premises. The agreement to transfer the leasehold rights to the premises at the time of the dissolution of the partnership was an executory agreement. Firstly, it was to be acted upon only at the time of the dissolution of the firm. Secondly, the consideration for the transfer was to be paid only at the time of the dissolution of the firm. Till the dissolution, the agreement was neither to be acted upon nor was the transfer to be paid for. This agreement, though legal when it was entered into. was overtaken by a supervening illegality when the Act came into force as shown by sections 16(3) and 48(2) of the said Act. These provisions forbade the agreement within the meaning, of section 23 of the Contract Act. The learned lower appellate court in paragraph 10 of its judgment has taken the view that the assignment of the tenancy rights had already vested in the partnership before the Act came into force and, therefore, the agreement embodied in clause 16 of the partnership deed was legal. I am unable to agree. Clause 16 expressly says that the transfer of the tenancy rights was to take place only at the time of the dissolution. The suit for the dissolution of the partnership was instituted after the Act had come into force. On the date of the suit, therefore, the agreement embodied in clause 16 of the partnership deed had already become illegal as it was forbidden by sections 16(3) and 48(2) of the Act. The second paragraph of section 56 of the Contract Act squarely applies to the present case. It's relevant part runs as under : "A contract to do the act which after the contract is made, becomes by reason of some event which the promisor could nto prevent unlawful, becomes void when the act becomes unlawful."

(11) This is doctrine of supervening illegality. From the commencement of the Act of 1958, therefore, the agreement embodied in clause 16 of the partnership deed became unlawful and, therefore, void. This void part of the partnership agreement is severable. The tenancy right of the appellant cannto legally vest in the partnership even at the time of the disolution. As on separate consideration for the transfer of the goodwill as distinguished from the transfer of tenancy rights was stipulated even the goodwill of the appellant would nto vest in the partnership. The avoidance of this part of the partnership agreement does nto in any way affect the rest of the partnership agreement.- In Ambler v. Bolton, a part of the assets of the partnership consisted of a Government contract entered into in the name of one of the partners and containing a provision against its 'alienation. It was held that upon the dissolution of the partnership, the partner in whose name the contract was taken and should continue to carry it must be debited in the accounts with its value. This decision is cited with approval in Lindley on Partnership, 12th Edn. page 572. The Law of Partnership, thus, contemplates a case in which a partner holds an untransferable asset. Such an asset will continue to belong to the said partner alone inasmuch as its transfer to the partnership is forbidden by law.

(12) In Woman Shrinivas v. R. B. & Co. the Supreme Court held that a contract for subletting was opposed to public policy. The same may be said of a contract for the transfer of tenancy rights. The Supreme Court held at page 693 of the judgment that such a contract could nto be enforced and it could nto be legalised by the conduct of the parties. This observation applies to the present case also. The suit in the present case was filed after the commencement of the Act. Therefore, it was governed by the provisions of this Act. It is only the suits and proceedings which were pending when the Act came into force that would be governed by the Act of 1952 as provided in sub-section (2) of Section 57 of the Act.

(13) For the above reasons, I hold that the goodwill including the tenancy rights belonging to the appellant were nto transferred to the partnership at the time of the formation of the partnership and that the agreement to transfer such rights to the partnership at the time of the dissolution of the partnership is void being contrary to law. The goodwill and the tenancy right of the appellant is not. therefore, an asset of the partnership and no decree for the dissolution of the partnership can affect them. They continued to remain with the appellant and the partnership is nto required to pay any consideration to the appellant, inasmuch as they have nto been transferred and are nto transferable to the partnership. The appeal is allowed in the above terms. The decrees of the trial court in case No. 142 of 1959 and of the learned Additional restrict Judge in R.C.A. 20 of 1967 are modified and it is ordered that the suit of the respondent for the dissolution of partnership and accounts in so far as it related to the goodwill including the tenancy right in 14-C Connaught Place belonging to the appellant is dismissed. No order is made as to costs.