Can a partnership firm acquire immovable property?

[Anonymous]

Is it possible for a partnership firm in India to acquire immovable property? And, can it sell immovable property which it had acquired earlier?

[Dr. Ashok Dhamija]

Yes, immovable property can be acquired on behalf of a partnership firm in India.

Firstly, an immovable property can be acquired through “transfer of property” which is governed by the Transfer of Property Act, 1882. Section 5 of this Act lays down as under:

“5. “Transfer of Property” defined.— In the following sections “transfer of property” means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, and one or more other living persons and “to transfer property” is to perform such act.

In this section “living person” includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals.”

Thus, any “living person” can transfer property to one or more other “living persons”. And, the expression “living person” is defined to include a company or association or body of individuals, whether incorporated or not. Thus, an association of individuals or a body of individuals, whether incorporated or not, is also a “living person” for the purposes of the above definition. A partnership firm is thus included in this expression since it is an association or a body of individuals which is not incorporated. It should thus be clear that a partnership firm can transfer an immovable property or an immovable property can be transferred to it.

Further, Section 14 of the Partnership Act, 1932, defines what is the “property” of a firm:

“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 the business of the firm, and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm.”

This section does not limit the expression “property” to only “movable property”. Also, immovable property is not excluded from its definition.  The section is wide enough to include “…all property and rights and interests in property…”.

Likewise, Section 19 of the Partnership Act lays down as under:

“19. Implied authority of the partner as agent of the firm.— (1) Subject to the provisions of Section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm.

The authority of a partner to bind the firm conferred by this section is called his “implied authority”.

(2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to—

(a) submit a dispute relating to the business of the firm to arbitration,

(b) open a banking account on behalf of the firm in his own name,

(c) compromise or relinquish any claim or portion of a claim by the firm,

(d) withdraw a suit or proceeding filed on behalf of the firm,

(e) admit any liability in a suit or proceeding against the firm,

(f) acquire immovable property on behalf of the firm,

(g) transfer immovable property belonging to the firm, or

(h) enter into partnership on behalf of the firm.”

Clauses (f) and (g) of sub-section (2) of above section 19 clearly refer to “acquire immovable property on behalf of the firm” and “transfer immovable property belonging to the firm”, which can have meaning only if the partnership firm has or can acquire immovable property.

In respect of the above Section 19, the Supreme Court, in the case of Bina Murlidhar Hemdev v. Kanhaiyalal Lokram Hemdev, (1999) 5 SCC 222 : AIR 1999 SC 2171, held as under:

“Under Section 19(1) of the Partnership Act, the acts of a partner which are done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. Under Section 19(2), in the absence of any usage or custom of trade to the contrary, the above implied authority — (here express authority under clause 10 of the same nature) — does not prima facie empower the partner to “transfer immovable property belonging to the firm” as stated in clause (g) of Section 19(1) of the Partnership Act. Such a power to transfer property of the firm must be expressly given to the transferring partner. So far as immovable property is concerned there is no such authority shown. Clause 10 does not contain any express power to Shri R.K. Jain to transfer the immovable property of the firm. Hence the said clause is of no use, prima facie.”

From what is held by the Supreme Court, it is clear that the power to transfer immovable property must be expressly given to a partner by the firm.

Thus, from the above, it is obvious that immovable property can be acquired on behalf of a partnership.

     

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Dr. Ashok Dhamija is a New Delhi based Supreme Court Advocate and author of law books. Read more about him by clicking here. List of his Forum Replies. List of his other articles. List of his Quora Answers. List of his YouTube Videos.

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