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PETITIONER: SHADI LAL

       Vs.

RESPONDENT: NAGIN CHAND & ORS.

DATE OF JUDGMENT09/10/1972

BENCH: RAY, A.N. BENCH: RAY, A.N. PALEKAR, D.G. BEG, M. HAMEEDULLAH DWIVEDI, S.N.

CITATION:  1973 AIR  776            1973 SCR  (2) 698  1973 SCC  (1) 185

ACT: Partnership--Allotment  of quota by  Government--Dissolution of partnership and firm name given to one partner--Allotment of quota to that partner--If other partners can lay a claim.

HEADNOTE: Under   cl.   6  of  the  Woollen   Yarn   (Production   and Distribution) Control Order, 1960, the Textile Commissioner, with  a view to secure proper distribution of woollen  yarn, issues directions to a manufacturer of or dealer in yarn  to sell woollen yam to manufacturers of hosiery to whom  quotas are allotted.  The quotas are allotted on the basis of  con- sumption during the basic period 1956-1959. The  appellant, first respondent and another  were  partners doing hosiery business, and the partnership was dissolved on 31-3-1959.   After the dissolution, the three partners  were doing  hosiery business separately.  The firm name  belonged to  the  appellant  under the deed  of  dissolution  and  he obtained quota in the firm name.  The first respondent filed a suit for a declaration that he was entitled to draw  1-1/3 of the quota allotted to the appellant. The High Court, in Letters Patent Appeal, decreed the suit. Allowing the appeal to this Court, HELD:     A declaration can only be founded on a legal right and the first respondent had no such legal right. [602C-D] (a)  After  the dissolution of the partnership each  partner was  entitled to ask for a quota for himself which would  be considered on its merits. [602A-D] (b)  Even if the appellant claimed the quota on the basis of past performance during the years 1956-59, it lay within the power of the Textile Commissioner to allot to the  appellant the quantity he thinks fit and proper and the respondent can have no proprietary claim to the appellant’s quota.  [601H;. 602A, B-C] (c)  The   quota  granted  to  the  appellant  was  in   his individual business right and was his own property.  It  was not and could not be an asset of the partnership.  Quota  is a  licence and a matter of privilege.  The fact that it  was granted  in  the  firm  name does  not  convert  it  into  a partnership   asset,  because  the  name  belongs   to   the

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appellant. [601G-H]

JUDGMENT: CIVIL  APPELLATE   JURISDICTION : Civil Appeals  Nos.  1419- 1420 of 1970. Appeals  by certificates from the judgment and decree  dated January  19,  1970  of the Punjab & Haryana  High  Court  at Chandigarh in I.P.A. Nos. 273 and 274 of 1964. 599 B. Sen, B.  P. Maheshwari, Maya Krishnan, N. K. Jain and R.   K. Maheshwari, for the appellant. M.  C. Setalvad D. N. Misra, J. B. Dadachanji, O. C.  Mathur and Ravinder Narain, for the respondents. The Judgment of the Court was delivered by. RAY  J.-These  two appeals are by  certificate  against  the judgment  dated  19 January 1970 of the Punjab  and  Haryana High Court. The question which falls for consideration in these  appeals is  whether  the  respondent is entitled  to  a  declaratory decree  to draw 1/3rd quota of the woollen yam  allotted  to the  business of the ,appellant under the name and style  of Jain Bodh Hosiery, Ludhiana. The  appellant  and  the  respondents  are  partners.   They carried  on hosiery business in Ludhiana under the  name  of Jain  Bodh Hosiery.  The three persons were partners in  the aforesaid  business.  On 31 March 1959 the  partnership  was dissolved.  After the dissolution the three partners started hosiery  business  separately and individually.   Shadi  Lal carried on the hosiery business, under the name and style of Jain Bodh Hosiery. Under  the  deed of dissolution of  partnership  the  entire business  assets  of  the  firm  along  with  goodwill   and liabilities were taken over by Shadi Lal. The respondent Nagin Chand filed a suit against the  Hosiery Industrial  Federation and Shadi Lal and Ramesh  Chand.  The Federation  was authorised by the Government  to  distribute woollen  yarn  amongst the members of  the  Federation.  The parties proceeded on the admitted procedure of allotment  of quota.  In order to be eligible for quota a manufacturer  is required  to  be a member of any of  the  five  associations registered with the Hosiery Industry Federation. The   quota is  to be allotted to the manufacturer members on the  basis of  figures  of consumption of woollen yarn by  the  members during the years 1956 to 1959 called the basic period. The  respondent Nagin Chand’s cause of action was this.  The three   partners   carried  on  hosiery  business   in   co- partnership. The partnership business was entitled to  quota of  woollen yarn on the figures of consumption in the  years 1956  to 1959. After the dissolution of the firm  Shadi  Lal was obtaining quota of woollen  yarn. The quota was allotted on  the consumption figure of the years 1956 to 1959.  Nagin Chand  along with his partners consumed woollen yarn  during those years. After the dissolution, 600 Shadi Lal was drawing quota of woollen yarn on the basis  of consumption  figures  of the firm during the years  1956  to 1959 when the three partners were co-partners.  Quota is not part  of  goodwill.  Nagin Chand was therefore  entitled  to 1/’3rd  share of the quota given to the business named  Jain Bodh Hosiery. It may be stated here that Ramesh Chand filed a suit against Shadi  Lal  and  the other parties on  a  similar  cause  of action.

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Both  the  suits  were  tried  together.   The  trial  Court dismissed the suits. The  first  Appellate Court decreed the suits  and  declared that  each of the plaintiffs was entitled to 1/3rd share  of the quota allotted in the name of Jain Bodh Hosiery. The learned Single Judge of the High Court on second  appeal set  aside the decree granted by the first  Appellate  Court and dismissed the suits. The High Court in Letters Patent Appeal accepted the  appeal and  decreed the suits in terms of the decree of  the  first Appellate   Court.    The  High  Court  arrived   at   these conclusions.   The  basis of allotment  was  consumption  of woollen  yarn  during  the  years  preceding  the  date  of, dissolution  of  partnership.  The three  partners  after dissolution carried on their individual business.  The claim to quota on the basis of consumption during partnership  was not lost by the dissolution.  The partners had the right  to do   hosiery   business  in   their   individual   capacity. Therefore,  they  were each entitled to draw  1/3rd  of  the quota. Counsel  for  the respondent contended that  the  origin  of quota  was  the performance of. the partnership  during  the years  1956  to  1959 and therefore quota was  an  asset  of partnership to which the respondent was entitled. The Woollen Yam (Production and Distribution) Control, Order 1960  which  came  into  force on 29  October  1960  is  the relevant  order.  There was a similar order which came  into force on 21 September 1960.  The earlier order was  repealed by the later order.  The Textile Commissioner with a view to securing   proper  distribution  of  woollen  yarn,   issues directions  to any manufacturer of or dealer in woollen  yam to sell any stock of woollen yarn held by such  manufacturer or   dealer   to  any  person  specified  by   the   Textile Commissioner.  It is under that provision in clause 6 of the Order  that  woollen  yam is allotted  to  manufacturers  of hosiery.  The Federation was authorised by the Government to discharge the duties of the Textile Commissioner. 601 The  question is whether the quota which is allotted to  the appellant Shadi Lal after the dissolution of business is  an item  in the assets of partnership.  On the  dissolution  of partnership  mained  due among the  partners  inter-se.   No asset remained unmained due among the partners inter-se.  No asset remained undistributed. Shadi  Lal  obtains quota by reason of  his  qusiness.   The quota  enables him to obtain raw material.  Raw material  is converted   into  finished  products.   These,   goods   are marketed. After  the  dissolution of partnership  the  three  partners brothers  carried on hosiery business separately.   Each  is entitled to ask for quota of woollen yarn in accordance with the,  provisions  of the Woollen Yarn  Control  Order.   The grant  of  quota is within the power and discretion  of  the Textile  Commissioner.   The quota which is  granted  to  an applicant is in his individual business right and it is  his property.   If  the partnership had continued  the  partners would  have  been entitled to quota as partners.   The  fact that quota is granted in the name of Jain Bodh Hosiery  does not  convert  the  quota  into  a  partnership  asset.   The business  name  belongs to the appellant under the  deed  of dissolution. It  was  said by counsel for the respondents that  the  past performance  during  the, years 1956 to 1959  was  important because during the partnership the quota was earned by joint labour.   Therefore, after separation it was said  that  the

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quota to Jain Bodh Hosiery was given to three persons.  This contention  is  unsound  The  appellant  after   dissolution carried on business in the name of Jain Bodh Hosiery.’ He is entitled  to apply for quota in that business  name.   Quota that  is  granted  in that business  name  is  his  separate property.   Neither  Nagin Chand nor Ramesh  Chand  has  any proprietary right in that quota. It must be recognised that quota attaches to the owner of  a business  at the point of time the quota is granted.  It  is the  business  at  the relevant time  which  obtains  quota, Therefore, quota enures to the benefit of the business. Quota was not and could not be an asset of the  partnership. Assets  are  divisible among partners.  Quota could  not  be divided. Quota is a matter of privilege and the grant of  it lies with the Textile Commissioner.  Quota is a licence  for a  particular  time  for a particular  quantity.   Quota  is worked  out by getting the raw material represented  by  the Quota. It  was  said  by  counsel  for  the  respondents  that  the appellant   was  obtaining  quota  on  the  basis   of   the Performance of the partnership business during the  relevant material years.  If the ’appellant claims on that basis  and the Textile Commissioner allots quota 602 on  that basis it lies within the power of the  Commissioner to allot the quantity he thinks fit and proper. If  the respondent by virtue of his individual  business  is entitled  to make an application for grant that  application will  merit its own consideration.  The relevant merits  and demerits  of the appellant or of the respondents will  be  a matter for the relevant authorities granting quota. The respondent claimed 1/3rd share of the appellant’s quota. The  respondent has no proprietary claim to the  appellant’s quota.   The appellant’s quota is not an asset in the  items of  partnership. A fortiori it is not an acquired  asset  of the partnership. The  High Court was in error in decreeing the suits  on  the consideration  that  the respondent was entitled to  1/3  rd quota.  A declaration can be founded only on a legal  right. The respondent has none. The  appeals  are therefore accepted.  The judgment  of  the High Court is set aside.  The suits are dismissed.  In  view of  the fact that there is no order as to costs in the  High Court parties will pay and bear their own costs. V.P.S. Appeals allowed. 603