Bombay High Court Says Partners Cannot Sell Firm Property Individually; Sale Agreement Held Void

Holding that partners cannot transfer firm property in their individual capacity once it has become partnership property, the Bombay High Court's Goa bench on April 29 upheld concurrent findings declaring a 2008 Agreement for Sale and related MOUs concerning a Vasco-da-Gama property as void.

A single-judge bench of Justice Dr. Neela Gokhale found that the property, originally owned by Shaikh Moosa Shaikh Hussain and Zahida Hussain, had already been brought into the partnership firm, Hotel Sultan Plaza, through a partnership deed and addendum in 1997, and therefore could not be dealt with outside the firm's name.

“Hence, the trial Court has exercised its jurisdiction by declaring the Agreement for Sale a nullity, primarily on the ground of the statutory bar to an individual partner alienating property belonging to a partnership firm. In any case, the Petitioner has instituted a suit for specific performance of the said Agreement and has exercised his right to sue,” the court said.

The High Court found no infirmity, perversity or jurisdictional error in the concurrent decrees of the trial court and the appellate court, which had held that the Agreement for Sale and the MOUs were not binding on the partnership firm.

“In view of the aforesaid, there is no infirmity nor any perversity in the impugned Decrees. There is no jurisdictional error committed by the trial Court or the First Appellate Court. Interference of this Court in the impugned judgment, Order and Decree is neither warranted nor will be justified. Hence, the Petition stands dismissed.”

The dispute arose after the property, though assigned to the partnership firm through a partnership deed and addendum in 1997, was sought to be sold in 2008 by the original owners to Abdul Karim Noor Mohammed for Rs. 83 lakh, along with separate MOUs concerning goodwill and possession, leading to multiple rounds of litigation.

Examining the findings of the courts below, the High Court reiterated that an agreement for sale does not create any right or interest in immovable property but only gives rise to a right to sue. It held that a declaration of nullity could therefore be granted without seeking cancellation of the agreement or recovery of possession.

“Insofar as the Petitioner's contention that the trial Court ought not have declared the Agreement for Sale and the other documents as null and void, in the absence of any prayer seeking cancellation of the Agreement for Sale and other documents and recovery of possession of the property, it is settled law that an agreement for sale does not create any interest in the property of the purchaser. There is only a right to sue that accrues to an aggrieved party to the agreement. Thus, there is no requirement on the part of the Respondents to seek cancellation of the said Agreement for Sale. Section 34 of the Specific Relief Act, 1963.”

Finding no ground to interfere under its supervisory jurisdiction, the court dismissed the petition.