Delhi High Court
Rashmi Nagrath vs M/S Sarva Priya House Bldg.Socy. ... on 25 November, 2016
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 25.11.2016
+ LPA 89/1997
RASHMI NAGRATH ..... Appellant
versus
M/S SARVA PRIYA HOUSE BLDG.SOCY. LTD. ..... Respondent
+ LPA 112/1997
PRANAV KAPUR ..... Appellant
versus
THE REGISTRAR COOP.SOCY & ORS .... Respondents
+ LPA 144/1997
SANJAY KAPOOR ..... Appellant
versus
REGR. OF COOP.SOCY.LTD ..... Respondent
Present: Mr.Rajat Navet & Ms.Sanya Talwar, Advocated for the appellant
in LPA 89/1997.
Mr.Neeraj Malhotra, Mr.Rupal Luthra & Ms.Sakshi, Advocates
for the appellant in LPA 144/1997.
Ms.Niharika Ahluwalia, Advocate for DDA in all cases.
Mr.Rakesh Kumar, Advocate for R-1 in all cases.
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J. (Oral)
1. These are three appeals arising from a common order of the learned
Single Judge dated 4.4.1997. In LPA 89/1997 the appellant Mrs. Rashmi
Nagrath seeks to challenge the said order dated 04.04.1997 passed by the
learned Single Judge dismissing the writ petition of the appellant seeking to
quash the order dated 23.06.1988 passed by the Registrar of Cooperative
Societies/respondent No.2 approving the cancellation of the membership of
the appellant from the cooperative society/Respondent No.1. LPA
No.112/1997 and 144/1997 are filed by the brothers of the appellant in LPA
89/1997 i.e. Mrs.Rashmi Nagrath supporting her case and seeking an
alternate prayer that if for some reason relief is not granted to Mrs.Rashmi
Nagrath on account of her alleged disqualification, a Writ or direction be
issued against respondent No.1 in respect of the plot in question to substitute
the said two brothers in place of Mrs. Rashmi Nagrath as joint members of
the respondent No.1 society and to execute a sub-lease in their favour for the
plot in question.
2. We will first deal with LPA 89/1997.
3. The brief background facts and relevant dates are that the father of the
appellant and respondents No.5and 6, namely, Sh. S.P. Kapur became a
member of respondent No.1 Society on 30.06.1961. In a related
development on 11.12.1961 Mrs. Vimal Kapur, wife of Sh. S.P.Kapur
bought a plot in the Nizammudin West, New Delhi. On 01.03.1966, Sh. S.P.
Kapur died intestate and his estate devolved upon his heirs. On 23.07.1966
respondent No.1 Society enrolled the mother of the appellant Smt. Vimal
Kapur as a member. Immediately thereafter, on 25.07.1966 respondent No.1
transferred the membership in the name of the appellant, the then only major
child of Late Sh. S.P.Kapur on the request of the mother i.e. Mrs. Vimal
Kapur. Respondents No. 5 and 6 were minor at the relevant time. On
27.06.1971, the appellant got married to Sh. Ranjit Nagrath. The said Sh.
Ranjit Nagrath was a partner of a firm M/s. Ralya Ram Mela Ram
established many years ago. The firm was the owner of a residential
property at No.2 Tolstoy Marg, New Delhi since 1932. On 19.07.1979, it
was communicated to the appellant that in the draw of lots held, Plot No.7,
Sarvapriya Vihar, Street No. 10 measuring 371.10 sq.yards had been allotted
to the appellant. On 03.02.1982, the appellant made the final payment for
the plot in question including for purchase of stamp papers for execution of
sub-lease.
4. On 18.02.1982, respondent No.3/DDA intimated the appellant that
they have received some information that plot No.2, Tolstoy Marg, New
Delhi stands in the name of the husband of the appellant and that the father
of the appellant also owned plot G-32, Nizammudin West. A clarification
was sought on that account. The appellant sent a reply dated 08.03.1982
pointing out that her husband does not own in his own name any residential
property in Delhi. The Firm M/s.Ralya Ram Mela Ram was the owner of the
residential property 2, Tolstoy Marg, New Delhi. Regarding property at
Nizammudin West, it was clarified that the property was owned by Mrs.
Vimal Kapur and not by her father.
5. Respondent No.1 appears to have not accepted the reply of the
appellant and on 22.02.1988 respondent No.1 wrote a communication to the
appellant stating that the appellants membership of the Society had ceased
by the Managing Committee and that the Registrar of Cooperative Society
has also confirmed the same. A cheque of Rs.39,565.05/- was enclosed with
the letter to the appellant as her final settlement of account. It may be noted
that the letter gives no reasons or grounds on the basis of which the
membership of the appellant of the society was terminated. However,
keeping in view the fact that the DDA, respondent No.3 had earlier
communicated to the appellant about the ownership of two properties,
namely, the property at Tolstoy Marg being allegedly in the name of her
husband and the property at Nizamuddin allegedly belonging to her father,
these grounds were presumably the reasons on the basis of which the
termination was purportedly done. Presumably, the allegation was that there
is violation of Rule 25(1)(c) (i) of the Delhi Co-Operative Societies Rules
1973.
6. The appellant filed an appeal before the Registrar of Cooperative
Society/respondent No.2. The Registrar Co-operative Societies vide his
order dated 23.06.1988 dismissed the appeal of the appellant. The said order
notes that the husband of the appellant owns in his name or share property
No.2 Tolstoy Marg, New Delhi. The submission of the appellant that the
said property belongs to the partnership firm M/s. Ralya Ram Mela Ram
was noted but the said order concludes that the said contention does not
inspire any confidence. The said order secondly notes that the basis of the
claim of membership of the appellant is not clear from doubt inasmuch as
her father late Shri S.P.Kapur was enrolled as a member of the society in
1961 and did not file an affidavit till he died on 1.3.1966. It also notes that
the original membership form was not signed by late Shri S.P.Kapur.
7. The appellant challenged the aforesaid acts/order of the respondents
by a writ petition. In the writ petition it was prayed that an appropriate
writ/direction be passed quashing the order dated 23.6.1988 passed by the
Registrar of Co-operative Societies and to hold that the appellant is a valid
member of respondent No.1 Society and to further hold that Rule 25(1)(c)(i)
of the Delhi Co-operative Societies Rules, 1973 (hereinafter referred to as
the „Rules‟) are not attracted. Directions were also sought to respondent
No.1 and 3 to execute a sub-lease in favour of the appellant in respect of the
allotted plot No.7, Street No.10, Sarvapriya Vihar, New Delhi. Other
connected reliefs were also sought.
8. The learned Single Judge of this court by the impugned order dated
4.4.1997 dismissed the writ petition. By the impugned order the learned
single Judge essentially dealt with the argument of the appellant regarding
the property at Tolstoy Marg being owned by the firm M/s. Ralya Ram Mela
Ram. It noted the contention of the appellant that the property which is
bought by the partners or which is acquired in the course of business of the
partnership becomes the property of the firm. It also noted that it is not in
dispute that the property was acquired by the funds of the partnership firm.
However, it framed a legal proposition based on section 15 of the Indian
Partnership Act, namely, as to whether the property which is not used
exclusively for the purpose of business of the firm can be said to be the
property of the partnership. It noted that nothing was brought on record on
behalf of the appellant either before the society or before the Registrar, Co-
operative Societies to enable them to come to a finding that the property was
bought for residential purpose or business of the partnership. It relied upon
judgment of the Sind High Court in Ghumanlal Nurijmal & Others vs.
Papurbai and another, AIR 1915 Sind 10 and of the Madras High Court in
K.Vishwanathan vs. Namakchand Gupta and Anr, AIR 1955 Madras 536
to conclude that if a land is purchased out of the partnership assets and not
used for the purpose of partnership business the question as to whether the
property is a property of the firm is an open question to be determined on
evidence. It noted the stand of the appellant in a suit filed by one Shri
Bikramjit Nagrath in Suit No.2327/1991 where a written statement had been
filed, amongst others by the appellant where a stand had been taken that the
property had earlier been divided by way of an oral family settlement. It
also concluded that if the argument of the appellant that the property is held
by a partnership and the appellant has not incurred any disqualification is
accepted then it would mean that a person may hold a property in the name
of partnership and yet acquire a plot through co-operative society defeating
the very purpose of the rules and regulations. It further noted that it was the
duty of the court where on account of ingenuity an attempt was made to
defeat the purpose of welfare legislation to go behind the smoke-screen and
discover the true state of affairs. The learned Single Judge relied upon the
judgments of the Supreme Court in The Tata Engineering and Locomotive
Co.Ltd. vs. The State of Bihar and Others, AIR 1965 SC 40 and Life
Insurance Corporation of India vs. Escorts Limited and Others, AIR 1986
SC 1370 to hold that the veil of the partnership firm M/s. Ralya Ram Mela
Ram must be lifted and once the same is done the true colour and nature of
the property at 2, Tolstoy Marg, to be a residential property in which the
appellant and her spouse are living would fall within the meaning of Rule
25(1) (c) of the Rules read with bye-laws of the Society. Based on the
above, learned Single Judge dismissed the writ petition.
9. Regarding the case of the appellants in the other two appeals, namely,
LPA 112/1997 and LPA 144/1997 the learned Single Judge noted that there
was no purpose of going into the submissions made by the appellants,
namely, Shri Pranav Kapur and Shri Sanjay Kapur as the writ petitions were
not maintainable. The learned Single Judge held that they have acquiesced
to the nomination of Mrs. Rashmi Nagrath appellant in LPA 89/1997 from
1966 to 1989 to be a member of respondent No.1 society and have filed the
Writ Petition in 1992 at a highly belated stage after Mrs.Rashmi Nagrath
was declared disentitled for membership. Hence, their claim for transfer of
membership as successors of late Shri S.P.Kapur was held to be not
maintainable and the writ petitions were dismissed.
10. This appeal was heard and dismissed by the Division Bench on
20.02.2006. The Division Bench accepted the reasoning of the learned
Single Judge holding that if the appellant‟s claim is accepted it would defeat
the very object of the policy of Government of India that the person who
owns a residential plot in Delhi either in his name or in the name of his
spouse/dependents would not be eligible for allotment of a land.
11. Against the said appeal, an SLP was filed before the Supreme Court.
The Supreme Court quashed the order of the Division Bench and remanded
the matter back for reconsideration by this court vide its order dated
24.10.2013 in CA 659/2007, 660/2007 and 661/2007. The judgment of this
court was set aside as the learned counsel appearing for the parties had
agreed that the arguments were heard only on the question of applicability of
Rule 25(1) of the Rules and that the other grounds were not urged before the
court as the Division Bench had given an impression that the LPA deserves
to be allowed. However, the final verdict was otherwise and hence the
appellant were not permitted to raise their full submissions.
12. We have heard the learned counsel for the parties and gone through
the record.
13. Learned counsel appearing for the appellant has contended that the
only issue which arises for consideration before this court is as to whether
the appellant has incurred the disqualification under Rule 25(1)(c) (i) of the
Rules on account of her getting married to Mr.Ranjit Nagrath who was a
partner to the extent of 50% in the Firm M/s Ralya Ram Mela Ram which
firm owns the property at Tolstoy Marg. It was urged that the property in
question belongs to a Firm and not to the husband of the appellant. Reliance
was placed on the judgment of the Gujarat High Court in the case of The
Chief Controlling Revenue Authority vs. Chaturbhuj & Anr., AIR 1977
Gujarat 1 to contend that partnership properties are not held by the partners
as co-owners. Property belongs to the Firm but merely vests with all the
partners because the Firm has no legal entity. At the time of dissolution of
the Firm, what is handed over to each partner is the surplus of the assets of
the firm after the liabilities and other outgoings of the firm are provided for.
In case, in the course of such adjustments, a partner receives a property as an
asset, it is merely by way of adjustment of his share in the assets of the Firm.
Hence, it was urged that the husband of the appellant cannot be said to be an
owner of a residential property in Delhi and the respondents have wrongly
terminated the membership of the appellant from the Society. The learned
counsel clarified that after her marriage, the appellant was also inducted as
10% partner in the firm. It was further urged that even if the property is
assumed to be the property of the individual i.e. husband of the appellant,
then also no disqualification is incurred. Reliance was placed on Division
Bench judgments of this court in the case of O.P.Sethi vs. Lt. Governor &
Ors., 45(1991) DLT 426 (DB), Alimuddin vs. The Registrar of Cooperative
Societies &Ors. 63 (1996) DLT 655 (DB), Kishan Kumar Sachan vs. Lt.
Governor & Ors., 2009 (112) DRJ 257 DB and J.K.Gupta vs. Registrar of
Cooperative Societies & Ors., 2010 (116) DRJ 131 DB to contend that Rule
25(1)(c) (i) operates as a disqualification if the property is purchased in the
name of the wife/minor children benami by the member of the Society. It
was urged that the property in question in Tolstoy Marg is at best owned by
the husband of the appellant in his own rights having acquired it prior to the
marriage to the appellant and that the same cannot be a ground for
disqualification of the appellant.
14. Learned counsel for respondent No.1 and respondent No.3 have
defended the action of cancellation of the membership of the appellant from
the Society stating that firstly the original membership of the father of the
appellant was not valid. His wife Mrs. Vimal Kapur concealed the fact that
she owned a residential property in Nizamuddin and hence, the membership
of the original allottee itself was bad. It is stated that Mr.S.P. Kapur never
filed the requisite affidavit as required under law. Respondent No.1 Society
without knowing the full facts transferred membership to the appellant.
Secondly, it is stated that the property at Tolstoy Marg is a residential
property and is used for residential purpose by the appellant and her
husband. The appellant was also taken in as a partner of the firm. Reliance
was placed on the judgment of the Supreme Court in the case of Ishwar
Nagar Cooperative Housing Building Society vs. Parma Nand Sharma &
Ors., (2010) 14 SCC 230 to contend that the cessation of the membership of
the appellant is in order.
15. The facts as above show that the only grounds on which the
membership of the appellant was terminated was as communicated by
respondent No.3 DDA in its communication dated 18.2.1982. It was stated
in that communication that plot No.2, Tolstoy Marg, New Delhi is in the
name of the husband of the appellant. Further, plot No.G-32, Nizamuddin
West also stood in the name of the father of the appellant late Shri
S.P.Kapur. Hence, a clarification was sought from the appellant by the said
DDA.
16. The respondent No.1 society, however, did not issue a Show Cause
Notice or gave any opportunity to the appellant to explain her case and
merely by communication dated 22.2.1988 terminated the membership of
the appellant from the society as she had allegedly incurred disqualification
to remain a member of the society. The said letter does not state any grounds
for termination of the membership of the appellant.
17. The Registrar, Co-operative Societies by his impugned order dated
23.6.1988 confirmed the order of termination on two grounds, namely, that
the contention of the appellant that the property at Tolstoy Marg belongs to
the firm M/s. Ralya Ram Mela Ram does not inspire confidence as her
husband had 50% share in the firm which owns the property. Secondly, it
was noted that the very basis of the claim of membership of the appellant is
not clear as her father who was enrolled in 1961, did not file an affidavit till
his death and that his original membership form was not signed by late Shri
S.P.Kapur.
18. The learned Single Judge upheld the termination of the membership
of the appellant holding that the property at Tolstoy Marg is essentially a
personal property. The device of piercing the veil was used to come to a
conclusion that in view of Section 15 of the Partnership Act, the said
residential property was not being used for the business of the Firm and
hence, would have to be treated as a personal property of the husband of the
appellant.
19. Hence, essentially the core issue is as to whether the property at
Tolstoy Marg was owned by the husband of the appellant in an individual
capacity or by the Firm and the effect thereof.
20. The relevant facts regarding this controversy of the property may be
restated.
21. The property was bought by the firm M/s. Ralya Ram Mela Ram in
1932.The concerned lease deed is in the name of the said firm. The appellant
till her marriage to Mr.Ranjit Nagrath on 26.6.1971 had no property owned
by her or in the name of her husband or dependent children. It is only after
her marriage that the controversy starts inasmuch as Shri Ranjit Nagrath is a
partner having 50% share in M/s. Ralya Ram Mela Ram which in 1932 had
bought a residential property 2, Tolstoy Marg, New Delhi. There are two
additional facts that may be noted, which were not before the respondent
when they passed the impugned order. First additional fact is that
immediately after the marriage the appellant also became a 10% partner in
the firm. The second fact is that in a written statement filed by the appellant
the stand was taken that the firm stood dissolved and an oral partition had
taken place of the property by the appellant.
22. We may look at the legal position regarding an immovable property
owned by a partnership firm. Sections 14 and 15 of the Indian Partnership
Act reads as follows:-
14. The property of the firm.--Subject to contract between the
partners, the property of the firm includes all property and
rights and interests in property originally brought into the
stock of the firm, or acquired, by purchase or otherwise, by or
for the firm, or for the purposes and in the course of business
of the firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights and
interests in property acquired with money belonging to the
firm are deemed to have been acquired for the firm.
15. Application of the property of the firm.--Subject to
contract between the partners, the property of the firm shall be
held and used by the partners exclusively for the purposes of
the business."
23. In the case of The Chief Controlling Revenue Authority vs.
Chaturbhuj & Anr.(supra), the Full Bench of the Gujarat High Court held
as follows:-
"12. xxx
In our opinion, what the legal position which ultimately emerges
from Naravanappa v. Bhaskara Krishnappa (supra), Dewas Cine
Corporation (supra). Commissioner of Income-tax v. Bankey Lal
Vaidya, (AIR 1971 SC 2270) (supra) and Velo Industries (siipra)
is that whatever a partner gets either in the shape of money or in
the shape of an immovable property which prior to the
dissolution was a property of the partnership firm, is his share in
the surplus of the assets of the firm which remained after the
liabilities and other outgoings of the firm are provided for. There
is no concept of co-ownership amongst partners during the
subsistence of the partnership. The partnership properties are not
held by the partners as co-owners. The property belongs to the
firm and it merely vests in all the partners because the firm has
no legal entity. But such vesting does not mean that all the
partners are the co-owners of the Property. The distinction
between co-ownership and partnership pointed out by the
Supreme Court in Champaram Cane Concern v. State of Bihar,
(AIR 1963 SC 1737) (supra) must be borne in mind in this
connection. Moreover, what happens at the time of dissolution is
merely handing over to each partner his share in the surplus of
the partnership assets after all the liabilities and outgoings are
provided for and if any particular property which prior to the
dissolution was part of the partnership is allotted to the partner it
is merely by way of adjustment of his share in the assets of the
partnership. As the Supreme Court pointed out in Dewas Cine
Corporation's case (supra) the distribution of surplus is for the
purpose of adjustment of the shares of the partners in the assets
and it is in the course of such adjustment that one or other
property - may be moveable, may be immovable - comes in the
allotment to a particular partner. The concept of partition or the
concept of co-owners of the property dividing or agreeing to
divide such property in severalty can never apply to what
happens when a firm is dissolved and one property or another is
allotted to a partner."
24. The Supreme Court in the case of Addanki Narayanappa & Anr. vs.
Bhaskara Krishtappa & Ors., AIR 1966 SC 1300 held as follows:-
"4. ......... Section 14 provides that subject to contract between
the partners the property of the firm includes all property
originally brought into the stock of the firm or acquired by the
firm for the purposes and in the course of the business of the
firm. Section 15 provides that such property shall ordinarily be
held and used by the partners exclusively for the purposes of the
business of the firm. Though that is so a firm has no legal
existence under the Act and the partnership property will,
therefore, be deemed to be held by the partners for the business
of the partnership. ........
From a perusal of these provisions it would be abundantly clear
that whatever may be the character of the property which is
brought in by the partners when the partnership is formed or
which may be acquired in the course of the business of the
partnership it becomes the property of the firm and what a
partner is entitled to is his share of profits, if any, accruing, to the
partnership from the realisation of this property, and upon
dissolution of the partnership to a share in the money
representing the value of the property. No doubt, since a firm has
no legal existence, the partnership property will vest in all the
partners and in that sense every partner has an interest in the
property of the partnership. During the subsistence of the
partnership, however, no partner can deal with any portion of the
property as his own. Nor can he assign his interest in a specific
item of the partnership property to anyone. His right is to obtain
such profits, if any, as fall to his share from time to time and
upon the dissolution of the firm to a share in the assets of the
firm which remain after satisfying the liabilities set out in
clause(a) an sub-cls. (i), (ii) and (iii) of clause(b) of s. 48.
5. xxx
6. xxx
7. It seems to us that looking to the scheme of the Indian Act no
other view can reasonably be taken. The whole concept of
partnership is to embark upon a joint venture and for that purpose
to bring in as capital money or even property including
immovable property. Once that is done whatever is brought in
would cease to be the exclusive property of the person who
brought it in. It would be the trading asset of the partnership in
which all the partners would have interest in proportion to their
share in the joint venture of the business of partnership. The
person who brought it in would, therefore, not be able to claim or
exercise any exclusive right over any property which he has
brought in, much less over any other partnership property. He
would not be able to exercise this right even to the extent of his
share in the business of the partnership. As already stated, his
right during the subsistence of the partnership is to get his share
of profits from time to time as may be agreed upon among the
partners and after the dissolution of the partnership or with his
retirement from partnership of the value of his share in the net
partnership assets as on the date of dissolution or retirement after
a deduction of liabilities and prior charges. It is true that even
during the subsistence of the partnership a partner may assign his
share to another. In that case what the assignee would get would
be only that which is permitted by s. 29(1), that is to say, the
right to receive the share of profits of the assignor and accept the
account of profits agreed to by the partners....."
25. Reference may also be had to a judgment of the Division Bench of
this Court in the case of The Commissioner of Income Tax, Delhi-1 vs.
M/s. Dewan Chand Dholan Dass & Anr., ILR (1982) 1 Delhi 657 which
was dealing with the legal question of interpretation of Section 23 (2) of the
Income Tax Act, 1961 i.e. as to whether in determining the income from the
house property owned by a firm when a portion was occupied by its partner
for his personal residence, deduction was permissible. The basic facts of the
case were that the firm owned a property in Sunder Nagar. The ground floor
was let out and first floor was partly used by the firm for its business. Rest
of the property was occupied by its six partners who were closely related
and were residing therein. In these circumstances, the Division Bench held
as follows:-
"14. In the general legal concept a firm has no separate legal
personality, it being a compendious name for the partners
carrying on the business of the firm. As such, at a first blush, it
appeared to us that the occupation of a building by the partners
of a firm for their residence would be occupation by the owner
firm for its residence, especially if all the partners were residing
therein. Therefore, we were inclined to accept the contention of
learned counsel for the respondent that since a firm was nothing
else but a combination of the human beings who composed it
and had no separate existence distinct from them and the
partners of the firm, or some of them, were eating, drinking and
sleeping in the premises, the occupation of the group would be
deemed to be the occupation of the owner firm.
15. However, on a closer examination, taking into consideration
the scheme and other relevant provisions of the Income-tax Act,
1961 and the Partnership Act, we feel that the expression
"occupation of the owner for the purposes of his own
residence" would only refer to a human owner and not a
fictional entity. Though it is true that a firm does not have a
legal entity distinct from its partners, yet under the Income-tax
Act a firm has been regarded as a separate assessable entity.
16. A registered firm is regarded as an entity distinct from its
partners, for the purposes of income-tax. Section 4 of the 1961
Act which is the charging section refers to "every person".
Person has been defined in section 2(31) which enumerates the
categories of assessees. Section 2(31)(iv) includes "a firm" in
the definition of „person‟ as distinct from "an individual"
[Section 2(31)(i) or a body of individuals section 2(31)(v)].
„Firm‟, „partner‟ and „partnership‟ have been defined in section
2(23) to have the same meaning as assigned to them in the
Indian Partnership Act, 1932.
17. Sections 14 and 15 of the Indian Partnership Act, 1932
contemplate the owning of property by a firm. This includes the
property originally brought in by the partners as also property
purchased from money belonging to the firm. This property is
to be held and used by the partners exclusively for the purposes
of its business. Thus the partners cannot hold it or use it in their
individual capacity.
18. .....
19. It would, therefore, be clear that the specific house property
belonging to the firm is not owned by the partners, in the true
sense. During the existence of the partnership a partner cannot
deal with it as his own, nor can be assign his interest in it as a
co-owner could do. It is only on dissolution when the firm
ceases to exist that a partner would be entitled to a share of the
proceeds of the property after payment of the liabilities of the
partnership firm. As such, it is difficult to contemplate
residence by some of the partners or even all of them as self
residence by the owner firm. A firm cannot physically reside
and so cannot claim the benefit of the provision, which is
available to the assessable entity only."
26. Similarly, Shadi Lal, J. of the Lahore High court in the case of Amir
Chand & Ors. vs. Jawahir Mal and Ors. AIR 1916 Lah 410 held as
follows:-
"7. .... The contention of the appellants would, as observed
in Sudarsanam Maistri v.Narasimhulu Maistri, "certainly hold
good if it had been alleged and proved that, from time to time,
portions of the assets of the partnership were, by the agreement
of the partners, withdrawn from the partnership and converted
into land or house to be owned by the partners as co-owners.
"In the absence, therefore, of any such allegation
and proof, lands and houses bought in the name of
one partner and paid for by the firm or from the
profits of the partnership business are prima
facie partnership property.
The case is, therefore, governed by the ordinary
rule that, unless a contrary intention appears by
express agreement, or by the nature of the
transaction, property bought with money belonging
to the firm, is deemed to have been bought on
account of the firm."
27. The legal position is hence quite clear that a firm has no legal
existence and therefore, the property would be deemed to be held by the
partners for the business of the partnership firm. However, during the
subsistence of the partnership, no partner can deal with any portion of the
property as his own and his right is to obtain profits that fall to his share
from time to time. Section 14 provides that unless a contrary intention
appears, a property acquired with the money belonging to the firm is deemed
to have been acquired for the firm. Lands and houses bought in the name of
a partner from the projects of a firm are prima facie partnership property.
28. The learned Single Judge relied upon the judgment of Sind High
Court in Ghumanlal Nurijmal & Others vs. Papurbai and another (supra)
to conclude that the disqualification of Rule 25 of the Rules is attracted in
the present case. The Sind High court noted as follows:-
"..But in the case of a purchase of land it cannot be said that
there is a presumption either way, for much depends upon the
purpose for which the land was purchased. The law on this
point was laid down in Bank of England case(1) Turner, L.J.
said at p.284:
"It cannot, I think, be laid down as an universal rule, that
when lands are bought by partners in trade, and are paid
for out of the partnership assets they of necessity become
part of the joint estate of the partners. There are different
purposes for which the lands may have been bought.
They may have been bought for the purpose of being
used and employed in the trade...or they may have been
bought, not for the purpose of being used or employed in
the trade, but for the purpose of a mere speculation on
account of the partnership.. again they may have been
bought without reference to the purposes of the trade or
the benefit of the partnership, with the intention of
withdrawing from the trade the amount employed in the
purchase, and converting that amount into separate
property of the partners, or they may have been bought
on account of one or more of the partners, he or they
becoming debtors to the partnership for the amount laid
down in the purchase,. Where land purchased is not
merely paid for out of the partnership assets but is bought
for the purpose of being used and employed in the
partnership trade, it is possible to conceive a case in
which there could e sufficient evidence to rebut the trust,
.. but where the land is not purchased for these purposes,
the question becomes more open, and we have to
consider where the circumstances attending the purchase
show that it was made on account of the partners
individually, or of any one or more of them in which
whose name the land may have been bought."
It follows, therefore, that if land is purchased out of the
partnership assets and not used for the purpose of partnership
business, the question is an open one and is to be determined on
the general evidence."
29. Hence, the Sind High Court was of the view that where land is not
purchased for the purpose of business of the firm the question becomes open
and will have to be considered as to whether the circumstances attending the
purchase show that it was made on account of partners individually or
anyone or more of them. This is a question to be determined on general
evidence.
30. The learned Single Judge by the impugned order lifted the veil of the
firm Ralya Ram Mela Ram for the purpose of finding the true colour and
nature of the property at Tolstoy Marg and held that it is a residential
property in which the appellant and her spouse were living and falls within
the mischief of Rule 25(1)(c) of the Rules. It also concluded that the
property at Tolstoy Marg was never dealt with as a property of the
partnership firm and the same was not used during the course of business
and that is the reason the petitioner has not brought on record any material
regarding the said property. The learned Single Judge noted the submissions
of the appellant in the written statement filed in the suit. The learned Single
Judge held that the property for all intent and purpose was used for
residential purpose by the appellant and accordingly, the appellant ceased to
be a member of the Society in 1971 and acquired the property of her spouse
at that time.
31. In our opinion, neither respondent No.1 nor respondent No.2/the
Registrar Co-operative society at any stage ever entered into an exercise to
determine as to whether the property in question belongs to the Firm or is
the personal property of the appellant/appellant's husband. This exercise
which was carried out by the learned single judge without an opportunity of
leading evidence to the appellant has caused grave miscarriage of justice to
the appellant. An issue which was not raised or taken up before the
concerned authorities, i.e. respondent No.1 the Society, respondent No.2 the
Registrar of Co-operative Society or respondent No.3 DDA has been
adjudicated upon by the learned Single Judge in writ jurisdiction where the
issue was about legality and validity of the orders of the two respondents i.e.
respondent No.1 and 2. The issue being a highly disputed question of fact
could not have been adjudicated in this manner. In our opinion, on this
ground itself, the impugned order is liable to be set aside as it has rendered a
finding without affording an appropriate opportunity to lead evidence to the
appellant on issues which were not raised by the respondent in the impugned
order. Further, in our view, the finding recorded by the learned Single Judge
that the property at Tolstoy Marg can be treated as an individual residential
property of the appellant‟s husband is an erroneous finding and is even
otherwise liable to be set aside. The property as per the records available
belongs to the Firm Ralya Ram Mela Ram. A registered perpetual lease deed
is placed on record executed by Secretary of State for Indian Council in
favour of Ralya Ram Mela Ram contractor dated 21.03.1932. The property
as per the perpetual lease deed belongs to the firm and for the purpose of the
present dispute would have to be treated accordingly.
32. Be that as it may, in our opinion, the facts of the case also did not
warrant the lifting of the veil of the firm.
33. In Tata Engineering Locomotive Company Limited vs. State of
Bihar (surpa), a judgment relied upon by the learned single judge, the
supreme court held as follows:-
"26. It is unnecessary to refer to the facts in these two cases and
the principles enunciated by them, because it is not disputed by
the respondents that some exceptions have been recognised to
the rule that a corporation or a company has a juristic or legal
separate entity. The doctrine of the lifting of the veil has been
applied in the words of Palmer in five categories of cases :
where companies are in the relationship of holding and
subsidiary (or sub-subsidiary) companies; where a shareholder
has lost the privilege of limited liability and has become
directly liable to certain creditors of the company on the ground
that, with his knowledge, the company continued to carry on
business six months after the number of its members was
reduced below the legal minimum; in certain matters pertaining
to the law of taxes, death duties and stamps, particularly where
the question of the "controlling interest" is in issue; in the law
relating to exchange control; and in the law relating to trading
with the enemy where the test of control is adopted. In some of
these cases, judicial decisions have no doubt lifted the veil and
considered the substance of the matter."
34. Reference may also be had to be judgment of the Supreme Court in
the case of LIC vs. Escorts Ltd & Ors., AIR 1986 SC 1370 where the
Supreme Court held as follows:-
"90. ..... Generally and broadly speaking, we may say that the
corporate veil may be lifted where a statute itself contemplates
lifting the veil, or fraud or improper conduct is intended to be
prevented, or a taxing statute or a beneficent statute is sought to
be evaded or where associated companies are inextricably
connected as to be, in reality, part of one concern. It is neither
necessary nor desirable to enumerate the classes of cases where
lifting the veil is permissible, since that must necessarily
depend on the relevant statutory or other provisions, the object
sought to be achieved, the impugned conduct, the involvement
of the element of the public interest, the effect on parties who
may be affected etc."
35. In the present case it cannot be said that the device of partnership firm
was used to hoodwink the authorities or to sidestep the disqualification of
Rule 25. The property is with the firm since 1932 much before even when
the appellant was perhaps born. It is only after her marriage on 27.6.1971
that the question of whether the disqualification is attracted arose. No steps
have been taken by the appellant or her husband to camouflage the
ownership of the property. There are no facts to conclude that a fraud was
sought to be played on the authorities or there is any improper conduct
intended to evade the statutory bar of Rule 25. There may be circumstances
where the veil may have to be lifted, namely, if a residential property is
sought to be transmitted to a firm and immediately or in a proximate period
the original owner of the property seeks to apply to be a member of the co-
operative society. The facts of the present case do not warrant a conclusion
that there was any attempt to overreach or sidestep Rule 25.
36. In view of the above, the exercise indulged in by the learned Single
Judge in piercing the veil of the firm to come to a conclusion that the
property is actually a residential property of the husband of the petitioner is
an exercise done contrary to the legal position. There were no facts available
on record to conclude that there is an attempt to evade the law or to
fraudulently side step any statutory bar in acquitting the property at
Sarvapriya Vihar. The impugned order hence suffers from manifest errors.
37. Even if for a moment we take it that the husband of the petitioner
owned a residential property, what would be effect of such a conclusion?
Would it disentitle the appellant from becoming a member of respondent
No.1 Society? We may look at the relevant rule in this regard.
38. Rule 25(1) (c) (i) &( 2) reads follows:-
"25. Disqualification of Membership
(1) ......
xxx
(c) .....
(i) owns a residential house or a plot of land for the
construction of a residential house in any of the approved or
un-approved colonies or other localities in the National
Capital Territory of Delhi, in his own name or in the name of
his spouse or any of his dependent children, on lease hold or
free hold basis or on power of attorney or on agreement for
sale; Provided that disqualification of membership as laid
down in sub-rule (1)(c) (i) shall not be applicable in case of
co-sharers of property whose share is less than 66.72 sq.
Metres of land;
.....
2. Notwithstanding anything contained in the rules or the
bye-laws of the co-operative society, if a member becomes,
or has already become, subject to any disqualification
specified in sub-rule (1), he shall be deemed to have ceased
to be a member from the date when the disqualification were
incurred."
39. As per the above Rule a person who is eligible to be a member of a
society, if he owns a residential house/plot in Delhi in his own name or in
the name of his spouse or in the name of dependent children, shall be
disqualified from the membership of a cooperative society. Rule 25(2) states
that if the person becomes subject to any disqualification specified in sub-
rule (1), he shall be deemed to have ceased to be a member from the date
the disqualification incurred.
40. We may also see the interpretation of the said rule by reference to
various judgments. In the case of O.P.Sethi vs. Lt. Governor & Ors.(supra)
the brief facts where that the petitioner had filed an application for
membership of the cooperative society. His wife was the owner of the house
in Shakti Nagar, Delhi. In 1967, the petitioner applied to the society for
transfer of membership in favour of his mother-in-law. The needful was
done. The mother-in-law died in 1982. As the petitioner was the nominee, he
applied for transfer of the plot in his favour. Mutation was effected in favour
of the petitioner in 1984. A notice was issued to the petitioner to show cause
as to why his membership in the said society be cancelled as his wife was
owning a property. Thereafter, his membership was cancelled. In these facts,
the Division Bench noted the difference between Rule 25 and section 26
read with rule 35. It noted as follows:-
"15. Section 26 stipulates that on the death of a member of a
co-operative society, the society may transfer the share of the
deceased to the nominated person or the legal heir or
representative, as the case may be, in accordance with law or
such person may be paid a sum representing the value of the
share or interest ascertained in accordance with the rules and
bye-laws governing a society. Thus, on the death of a member,
the said Section gives two options to the society (i) the society
may transfer the share of a deceased to the nominated person
or the legal heir or representative in accordance with law or (ii)
pay such person a sum representing value of share or interest
ascertained in accordance with the rules or bye-laws. Rule 35
of the said rules provides for nomination of persons and the
procedure therefore for the purpose of sub-section (1) of
Section 26 of the said Act.
16. From a conjoint reading of Section 26 and Rule 35 it
appears that if a proper nomination has been made in
accordance with Rule 35, the society has no option but to
transfer the share of the deceased in favour of the nominated
person, if he so desires."
41. The division Bench concluded as follows:-
"20. As is evident from the above, the conditions for being
eligible to be a member of a co-operative society as
prescribed in by-law 5 though, at the first glance, appear to be
identical to the conditions which are prescribed in Rule 25 of
the said rules, dealing with the disqualification for
membership but a closer look reveals a significant difference
between Rule 25 (1) (c) (i) and bye-law 5 (i) (e). Whereas
bye-law 5 (i) (e) provides in positive terms that person shall
not be eligible to be a member of the society if he, his wife or
any of his dependents own a dwelling house or a plot for
building a house in Delhi, on the other hand, as already noted
above, Rule 25 (i) (c) postulates that no person shall be
eligible for admission as a member of the society if be owns a
residential house or a plot of land for the construction of a
residential house in Delhi in his own name or in the name of
his spouse or any of his dependent children (emphasis
added). From the language employed, the legislative intent
behind Rule 25 (i) (c) can be ascertained. It appears that the
law makers were conscious of the fact that system of
"benami" holdings of properties had become a way of life in
India and in fact felt concerned about it, so much so that way
back in 1972, the Government of India considered it
necessary to request the Law Commission to examine the
problem of benami held properties with a view to
determining whether benami transactions should be
prohibited. On the recommendations of the Law Commission
contained in its 57th Report, on May 19, 1988, the Benami
Transactions (Prohibition of Right to Recover Property)
Ordinance, 1988 was promulgated, which was ultimately
replaced by the Benami Transactions (Prohibition) Act, 1988.
Therefore, with this background in mind, in our view a
definite indication of the legislative interest is available in the
language of the said Rule and the intent was to disqualify
from membership even those persons who held properties
"benami" either in their wife's name of in the name of their
dependent children. Thus, we are of the considered view that
Rule 25 (1) (c) is attracted in these cases where the properties
are held benami. Having come to this conclusion, there seems
to be little difficulty in holding that the said Rule cannot
apply in the cases where properties are acquired by
transmission/devolution. We feel that Rules 25 and 35 of the
said Rules have to be read in different contexts. The former
takes care of the cases of acquisition of membership or its
transfer and the latter the cases of transmission etc. The view,
which we have taken, we feel, will give a harmonious
construction to the provisions of the said Rules and bye laws,
referred to above...."
42. Hence, it was concluded that to attract Rule 25(1)(c)(i), the property
has to be in the name of the member of the society or benami in the name of
his wife or children and where the wife has bought the property from her
own fund in her own name, the said rule would have no application. It also
concluded that Rules 25 and 35 have to be read in different context. Rule 25
takes care to case of acquisition of membership or its transfer whereas rule
35 deals with cases of transmission.
43. The Division Bench of this court in the case of Kishan Kumar
Sachan vs. Lt. Governor & Ors.(supra) in which the Division Bench held
as follows:
"7. Rule 25(1)(c)(i) has been interpreted in three decisions of
this court, i.e. O.P. Sethi v. Lt. Governor: 45(1991) DLT
426, Navjeevan Co-operative House Building Society
Ltd. v. Delhi Co-operative Tribunal: CWP 3150/1985 decided
on 10.07.1987 and Shri Sita Ram Jain v. Registrar of Co-
operative Societies: CWP 3203/1992 decided on 15.11.1995.
xxx
In any event, there are also no sufficient documents on record
to show that wife of the petitioner owns plot No. 8649, Shastri
Nagar, Delhi. Under Section 54 of the Transfer of Property Act,
ownership of a property can be transferred by a registered
document. It is not the case of the respondents that there is a
registered sale deed/document of title in her favour. It is also
not the case that she has got the aforesaid plot on leasehold or
freehold basis. However, even assuming that the wife of the
petitioner is the owner of the aforesaid plot, she would be
regarded as the owner in her own right and in her own name
and the same can't be said to be a disqualification of the
petitioner, as is alleged."
44. The above noted interpretation of Rule 25(i)(c)(i) of this Court in
O.P.Sethi vs. Lt.Governor (supra) was accepted.
45. The original allegation before respondents No.1 to 3 was that the
property at Tolstoy Marg was owned by the husband of the appellant. Even
for a moment if we assume this to be correct, the issue follows as to whether
in that eventuality would the appellant be disqualified? The Registrar of Co-
operative Societies, respondent No.2 appears to have gone on the said basis
that the appellant is disqualified in view of Rule 25(1)(c) of the Rules.
However, the legal position above is quite clear. Merely because the
husband of the appellant owns a property in his own name which is not
admittedly held Benami by him on behalf of the appellant, the
disqualification under Rule 25(1)(C) does not get attracted in view of the
above noted legal position.
46. However, this proposition in view of the facts which have now
emerged may not be of much relevance in view of the fact that it is an
admitted fact that the petitioner herself became a 10% partner in the Firm
Ralya Ram Mela Ram and hence, ipso facto has some rights, though in a
lesser proportion, in the said property.
47. There is one more issue which needs to be noted, namely, the written
statement filed by the appellant where a stand has been taken that the
partnership had come to an end and an oral partnership of the property took
place. The suit is still pending adjudication. I may note that none of the
parties have placed this document on the record of this Court. Assuming
there appear to be some admissions in the said written statement which have
been filed on behalf of the appellant, the matter is yet to be adjudicated
upon, it is a settled legal position that admissions can be explained or
clarified (Ref. Ram Niranjan Kajaria & Ors. vs. Sheo Prakash Kajaria &
Ors, 2015 (10) SCC 203).
48. I may add that respondent No.3 DDA in the written submission has
sought to argue that the original membership of the father of the appellant
was irregular. Reliance is placed on bye-law 5 (i) (e) and bye-law 8 which
was invoked prior to the co-operative society rules, 1973. An averment is
made that the appellant is disqualified under the said bye-laws. The stand is
that Mrs.Vimal Kapoor got the membership transferred to her own name and
concealed the fact about her ownership of the property in Nizammuddin.
49. We may note that the above issue was never raised before the
Registrar, Co-operative Societies or before the learned Single Judge. We do
not wish to go into the said issue at this belated stage after 50 years. In any
case the facts show that within two days the mother of the appellant had
requested that the membership be transferred in the name of the appellant.
She could have requested at the initial stage itself for transfer of the
membership in the name of the appellant straight. But within two days she
seems to have realised the mistake and got the membership transferred in the
name of the appellant. The issue is at best and even otherwise a curable
defect.
50. In view of the above, we have no hesitation to quash the order of the
learned Single Judge dated 04.04.1997 and of the Registrar of Co-operative
societies dated 23.06.1988. We issue a Writ of Mandamus directing
respondents No.1 and 3 to execute a sub-lease in favour of the appellant
regarding the plot No.7, Street No.10, Sarvapriya Vihar, New Delhi.
51. Regarding LPA 112/1997 and 144/1997 in view of our order above,
no orders are required in the same.
JAYANT NATH, J.
CHIEF JUSTICE
NOVEMBER 25, 2016
rb/n
