Partnership Act, 1932, Section 14 - Partnership property - Property used for partnership

purposes is necessarily not the partnership property - Property belonging to a partner does
not become partnership property by being used for the purpose of partnership - There must
be some evidence of an intention to treat the property as a part of the capital of the
business - Where a partner brings certain property into the common stock as part of his
capital, it becomes partnership property - Act has also specifically included the goodwill
among the partners of the firm subject to any contract between the partners, in all accounts
for determining the shares.
D.R. Associates vs General Manager, East Coast ... on 21 April, 2004
Equivalent citations: I (2005) BC 10, 98 (2004) CLT 109, 2005 (1) CTLJ
146 Ori, 2004 I OLR 689
Author: B Das
Bench: S B Roy, B Das

JUDGMENT B.P. Das, J.

1. In the present writ application, the petitioner prays for a direction to the opposite
parties to issue work-order in respect of the work indicated in Annexure- 1 in favour
of the petitioner.

2. The brief facts as delineated in the writ application tend to reveal the following :

The petitioner claims to be a partnership firm. In response to the tender call notice
dated 22.5.2003 issued by the East Coast Railway for supply of hard stone machine
crushed ballast of 15 MM size, vide Annexure-1, the petitioner and some others
submitted their tenders. The aforesaid tender was of the value of Rs. 1,35,30,000/-.
After opening the tenders, it was found that the petitioner's firm was L-1 and another
firm, namely, A.R.S.S., was L-2. According to the petitioner, on 20.8.2003, the Opp.
Party No. 3, Senior Divisional Manager (Central), East Coast Railway, issued a letter
to the petitioner seeking certain clarifications regarding financial capability of the
petitioner's firm, vide Annexure- 3, and on 28.8.2003 a reply was sent on behalf of
the petitioner clearly indicating about the financial status of the petitioner-firm as
well as its partners (Annexure-4). On 29.8.2003 Opp. Party No. 3 issued another
letter asking the petitioner-firm to submit the Solvency Certificate, and the
petitioner submitted the same along with its letter-dated 12.9.2003 (Annexure-7). As
the Opp. Parties did not communicate anything to the petitioner, the petitioner
issued a letter to Opp. Party No. 3, vide Annexure-8, and thereafter a reminder, vide
Annexure-9. However, by letter dated 22.10.2003 (Annexure-10) Opp. Party No. 3
requested the petitioner to revalidate its tender up to 27.12.2003 for finalization of
the same. The petitioner accordingly by letter dated 23.10.2003, vide Annexure-11,
communicated extension of the validation of the tender to Opp. Party No. 3. When
nothing was heard regarding the fate of the petitioner's bid either way, the petitioner
on enquiry came to know that the credentials and past experience of individual
partners were refused to be treated as the experience of the partnership firm, for
which the petitioner was not awarded with the work covered under the tender notice.
On 27.10.2003 the petitioner received a letter dt. 18.10.2003, vide Annexure-12,
from opposite party No. 3 stating that the authority reserved the right not to allot the
tender work to the lowest party and further that no correspondence will be made
with the tenderers in the event of rejection of the tender.

3. A counter affidavit has been filed by the opposite parties, wherein the Opp. Parties
have justified their action in not accepting the tender of the petitioner and in this
regard reliance has been placed on the eligibility criteria indicated in the tender call
notice. According to the Opp. Parties, as per the eligibility criteria; if the tender value
is more than rupees one crore, then (i) the tenderer is to furnish revenue/bankers
solvency certificate of 40% of advertised tender value of work; (ii) he should have
completed in the last 3 financial years i.e. current year and 3 previous financial
years, at least one similar single work for minimum 35% advertised tender value of
work; and (iii) total contract amount received during last three years and in the
current financial year should be a minimum of 150% of advertised tender value of
work.

The tenderers are required to produce along with the tender the attested copies of
the certificates from the employer/client/audited balance sheet duly certified by the
Chartered Accountant etc. in support of the financial turnover.

4. So, according to the Opp. Parties, the petitioner's firm did not possess the
requisite experience to be eligible to participate in the aforesaid tender. Fact remains
that the petitioner is a partnership firm running in the name and style of "M/s D.R.
Associates" having 4 partners, namely; Sri Dinesh Singh, Sri Rajesh Singh, Smt.
Bhaswati Nayak and Smt. Jolly Patnaik and by virtue of a deed of partnership, dated
10.4.2003, copy of which is annexure- 2, the said partnership firm was reconstituted
and one Sanatan Rout was admitted to the partnership firm on and from 10th April,
2003 having a share of 10% to the profit and loss of the said firm. The document of
reconstitution of the firm is an unregistered deed of partnership. As it appears, the
newly added partner, namely, Sanatan Rout, was initially executing the contract
works in his individual capacity being the proprietor of a firm and amongst the
partners of the petitioner-firm so reconstituted, he is the only partner, who has the
requisite experience as per the tender notice, as his individual turn over was more
than the amount required under the tender notice during the period from April,
2002 to 31st July, 2003. As per the Opp. Parties, the credentials and past experience
of an individual partner, namely, S. Rout, cannot be treated as the experience of the
partnership firm of the petitioner, and therefore, the petitioner-firm is not at all
eligible to participate in the tender as they do not have the turn over of value more
than the amount required under the tender. The sum and substance of the argument
of the Opp. Parties is that the experience acquired and the turn over of work done by
Sanatan Rout in his individual capacity prior to 10.4.2003 i.e. the date on which
Sanatan Rout entered as a partner of the D. R. Associates, cannot be treated to be the
experience of the partnership firm and treated to be the turn over of the partnership
firm, So the question falls for consideration is whether the turn over of work done by
Sri Sanatan Rout can be credited to the partnership firm of the petitioner for the
purpose of treating it to be the turn over of the partnership. According to the learned
counsel for the Opp. Parties, the deed of reconstituting the partnership was executed
on 10.4.2003, just little more than one month before the tender notice was
published, for the purpose of participating in the tender.

5. Learned counsel for the petitioner in this regard takes us through Section 8 of the
Indian Partnership Act, 1932, which enumerates as follows :

"Section 8. Particular Partnership : A person may become a partner with another

Relying upon the aforesaid provisions of the Partnership Act, Mr. Palit, learned
counsel for the petitioner, submits that the very purpose of formation of partnership
by different individuals is not only to pool their individual resources, but also the
good-will and experience that each individual gives together as a cohesive unit; each
bringing along with him the limited physical resources that is available as also the
good will, managerial equipments, capabilities and all the human elements that is
required to run a business. It is argued that in the tender in question when a
credential requirement of a particular amount of turn over is set, it is set with a view
to ensure that the firm is capable of undertaking and executing their contract. The
physical resources of the firm have already been certified by a scheduled Bank by
means of a certificate issued in the form of Solvency Certificate. So far as the 3rd
criteria is concerned, as Sri Sanatan Rout has experience as an individual fulfilling
the criteria as set in the aforesaid tender notice, he walks into the partnership with
his experience and becomes a partner for all practical purposes arid the authorities
should have considered it from the angle whether the firm will be able to execute the
contract. Hence, according to the petitioner, the financial capability of M/s. D.R.

Associates after joining of Sri Rout as a partner should have been taken into
consideration because the incoming partner was running a proprietorship concern,
and the entire achievement of this concern including his turn over belongs to him
alone. Naturally when he joins the partnership his turn over has to be taken as the
turn over of petitioner's firm, for which the petitioner's firm qualified for the tender.

6. Under the aforesaid back-ground, it is to be examined whether the joining of Sri

"Section 14. The property of the firm : Subject to contract between the partners, the
property of the firm includes all property and rights and interest 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 good will 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."

7. It is well settled that the property used for the partnership purposes is necessarily
not the partnership property. Property belonging to a partner does not become
partnership property by being used for the purpose of the partnership. There must
be some evidence of an intention to treat the property as a part of the capital of the
business. There may be some cases wherein the business carried on may be the
separate property of one of the partners. Where a partner brings certain property
into the common stock as part of his capital, it becomes the partnership property.
Likewise, the Partnership Act has specifically included the goodwill among the
partners of the firm subject to any contract between the partners, in all accounts for
determining the shares. So, whether in the present case Sri Rout has entered into the
partnership with all his property by including the goodwill earned in the
proprietorship concern, into the common stock can only be seen from the deed of
partnership by virtue of which he stepped into the partnership firm of M/s. D. R.
Associates. The copy of deed of partnership is annexed to this writ application as
Annexure- 2 series. The agreement is an unregistered one and contains 5 clauses.
Except saying that the party of the 5th part is admitted to the said partnership firm
in consideration of his work, ability and in consideration of his agreeing to abide by
the terms of the original partnership deed, there is nothing to indicate that the new
partner either brought the good will of his proprietorship or there is anything to
show that he brought certain property of his proprietorship concern to the common
stock as part of his capital. The Opp. Parties did not accept the tender of the
petitioner on the ground that the total amount of contract received by the firm
during the period from April 2000 to 31st July, 2003 is less than the minimum
required turnover, i.e., Rs. 2,02,95,000/-. While considering the tender of the
petitioner, the Opp. Parties have not taken into account the turnover of Sri S. Rout
for the work done by him in his individual capacity. The minimum turnover required
as per the tender notice is that the party should have received contract amount
during the last 3 years and the current financial year a minimum of 150% of
advertised tender value of work. If the turnover of Sri Sanatan Rout is excluded, the
petitioner does not have the turnover as required under the tender notice.

8. In our considered opinion, the authorities are correct in rejecting the tender of the
petitioner by excluding the turn over of Sri Rout, who was later on admitted to the
partnership, as the partnership does not disclose anything to indicate that Sri
Sanatan Rout has entered into partnership of M/s D.R. Associates i.e. the petitioner,
with the properties of his proprietorship as well as the goodwill.

The writ petition is accordingly dismissed.

9. I agree.