Once partner’s property is brought into stock of firm, it becomes firm’s property: Supreme Court

The Supreme Court on Thursday reaffirmed the rule that once a partner contributes personal property to a firm, it ceases to be their individual asset and becomes the property of the firm, regardless of its original ownership. [Sachin Jaiswal v. Hotel Alka Raje].A Bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah held,“The law on this point is settled which is that separate property of an individual partner, can be converted into partnership property…irrespective of the character of the property, when it is brought in by the partner when the partnership is formed, it becomes a property of the partnership firm, by virtue of Section 14 of Partnership Act.".The ruling was made in an appeal challenging an order by the Allahabad High Court in a dispute over ownership rights concerning Hotel Alka Raje in Faizabad.The Court upheld the High Court’s reasoning, citing Section 14 of the Indian Partnership Act, 1932. This provision states that any property brought into the stock of a firm becomes the firm’s property, irrespective of its prior ownership. The Court referenced past judgments to reinforce the settled legal position that a partner's individual asset, once introduced into the firm, loses its separate identity and becomes part of the firm’s common pool of assets.It found no merit in the appellant’s argument that ownership could not be transferred through a relinquishment deed, emphasising that since the property had already become a firm asset under Section 14, the question of personal ownership did not arise.."It is apparent from a perusal of the record that late Bhairo Prasad Jaiswal, first acquired the property in the year 1965 and then after constituting the partnership firm (respondent No. 1) in 1972, he jointly constructed a building over the property with his brother and partner, Hanuman Prasad Jaiswal, pursuant to which the building was constructed which was to run as a hotel. This leaves no room for any doubt that late Bhairo Prasad had brought the property in question to the stock of the partnership firm as his contribution to the same.".[Read Judgment]