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PETITIONER: UNION OF INDIA & ORS.

       Vs.

RESPONDENT: M/S EXEN INDUSTRIES

DATE OF JUDGMENT09/10/1974

BENCH: ALAGIRISWAMI, A. BENCH: ALAGIRISWAMI, A. MATHEW, KUTTYIL KURIEN

CITATION:  1974 AIR 2346            1975 SCR  (2) 364  1975 SCC  (1)   6

ACT: Import Trade Control Policy-Licences to  partnership-Licence entitlement of quondam partners after dissolution.

HEADNOTE: A  partnership  was dissolved and the  deed  of  dissolution provided  that  the machinery,  raw-materials  and  finished goods in stock as also other assets and liabilities were  to be divided equally between the two partners.  The respondent was  to have the advantage of continuing the firm name,  the benefit  of  the existing import licences,  and  of  pending applications for import licences.  Thereafter the respondent firm applied for import licences for necessary raw-materials and  was granted 50% of what the original firm was  getting. The  respondent  filed a writ petition in  the  high  court, contending  that the installed capacity of the  factory  was double  that  of the actual production  before  dissolution, that  in  the  division,  the  respondent  got  the   actual production  capacity  whereas  the  other  partner  got  the unutilized   spare   capacity,  and  that   therefore,   the respondent  was  entitled  to  get  import  licences   after dissolution as before. The  High  Court  allowed  the  petition  and  directed  the Government  to consider the claim of the respondent  on  the basis of its own production. Allowing the appeal to this Court, HELD : The respondent was not entitled to anything more than what was granted to him by the Government. [369 A-B] (1)According to para 71 of the Hand-book of the Rules  and Procedure  in relation to Import Trade Control, in the  case of  industries  borne on the registers  of  the  Directorate General  of  Technical  Development  licences  are  normally issued   on  the  basis  of  the  recommendations   of   the Directorate   General  of  Technical  Development  and   the respondent was given import licences on that basis. [368  G- 369A] (2)Under  para  88(2)(c) of the Hand-book if  there  is  a division of a factory amongst partners, a joint  application by all the succeeding parties had to be made for re-issue of separate  licences  in their favour in proportion  to  their share.   So also if division takes place after  importation. If that is-so in respect of the importation of goods against

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current licences, the same principle should apply for future licences also. [368 E-G] Controller v. Aminchand, [1956] 1 S.C.R. 262, followed. (3)In the circumstances, the most equitable way of dealing with  the  matter was to divide the old  import  entitlement equally between the two partners which is what the appellant did.  If the petitioner’s contention is accepted it  follows logically  that it should apply to the other  partner  also. Merely because there was delay in the other partner starting his production, he cannot be denied his import  entitlement, which  would mean, that between them they would be  entitled for  import  licence  at  twice  what  the  partnership  was originally getting. [366 E-F] (4)The  fact that after dissolution the new firm was  able to  take advantage of its inbuilt installed capacity  cannot entitle  it to get the whole of the quantity issued  to  the former  firm,  for  that  would  mean  depriving  the  other partner.  Such a contention cannot be considered unless  the other partner is also made a party to the proceedings.  [367 F-G] (5)  Paragraph 73 of the Hand-book shows that a  licence  is issued on the basis of certified requirements for 12  months consumption  after scrutiny by the licensing authority.   In the  present case, the respondent was not the same  firm  as the old one.  There were no imports by the respondent during the   past  licensing  period,  because,  the  imports   and production in the past were only by the former firm. [367 D- F]                             365

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1612  of 1972. Appeal by Special Leave from the Judgment & Order dated  the 16th November, 1971 of the Delhi High Court in C.W. No. 25-D of 1966. L.N.   Sinha  Solicitor  General  of  India  and   Girish Chandra,for the appellants. G.  L.  Sanghi,  Praveen Kumar and B. R.  Agarwal,  for  the respondent. The Judgment of the Court was delivered by,’ Alagiriswami, J.-formed a partnership under the name of Exen Industries   and  were  manufacturing  fountain  pens.    In December 1963 the partnership was dissolved and Vora took in another  partner  and  continued  the  industry  under   the original  name  of Exen Industries.  Mehta  started  another business also of manufacturing fountain pens urder the  name of  Premier  Products.   Under the deed  of  dissolution  of partnership  all  the  machineries  and  other  assets  were equally  divided between the two partners and Vora was  also given  the  benefit of all the existing import  licences  as well  as  applications  for import  licences  then  pending. Thereafter the respondent firms new Exen Industries  applied for  import  licences for necessary raw materials  and  were granted  50  per cent of what the original  Exen  Industries were  getting.  Thereupon the respondent firm filed  a  writ petition out of which this appeal arises.  A Division  Bench of  the  Delhi  High Court allowed  the  writ  petition  and quashed  the  order of the Government dated  3rd  )December, 1965  and directed the appellants, who were  respondents  in the  writ petition. to consider the claim of the  respondent (who  will hereafter be called the petitioner) on the  basis of  its  own  production  and not  on  the  basis  that  the

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production of M/s.  Exen Industries was divided between  the petitioner   and   Shri  Mehta  in  )December   1963.    The petitioner’s  case  was that his actual production  was  the same as before the dissolution as the installed capacity  of the   factory  was  double  that  of  actual  capacity   and production, that in the division of the machinery and assets of the partnership the half given to the petitioner was  for his  level of production and only the other half  consisting of  the spare and the unutilised capacity of  the  machinery and  stock  were  given  to Mehta  and  he  was,  therefore, entitled  to  get import licences after the  dissolution  as before it. The  High Court thought that the respondents before it  fell into  a subtle error inasmuch as they thought that  by  the division of the machinery and stock of the old firm, half of the productive capacity fell to the share of each partner at the  dissolution, and that the Government failed to  observe the  distinction  between  installed  capacity  and   actual capacity.  On the other hand it appears to us that it is the High  Court that has fallen into a subtle error of  thinking that the petitioner is the same as the old Exen  Industries. When  the machinery of a factory is divided into  two  equal halves it is not possible to accept the contention that  one of the partners to the partnership got the actual 366 production capacity and the other partner got the unutilised spare  capacity.  This is what the petitioner  urged  before the  High  Court and the High Court accepted.   There  is  a plain  error in this.  It may be that a  particular  factory might have an installed capacity either double or more  than double  of its actual production.  The import  licences  are given  on  the basis of actual production.  In such  a  case where  the  machinery  is divided equally  between  the  two partners,  merely because one partner goes  into  production immediately and because of the excess installed capacity  is enabled to produce the same quantity as the partnership firm produced  before the dissolution it cannot be said  that  he has  got  the  actual production  capacity and  the  other partner  who has also got half of the actual  machinery  got only  the unutilized spare capacity because there  was  some delay   in  his  beginning  production.    The   partnership dissolution deed do clearly provided that the machinery, raw materials  and finished goods in stock as also other  assets and  liabilities were to be divided equally between the  two partners.  The only advantage which Vora got was to continue the  same  old name and the benefit of the  existing  import licences  as  well as the pending  applications  for  import licences.   It  ,did  not provide that he  was  to  get  the benefit  of the old import entitlement for all future  times nor  was it provided that he was to get the benefit  of  all the  production  of the dissolved firm for  the  purpose  of future import licences.  The question of installed  capacity as  against the actual production did not arise either.   In the circumstances the most equitable way of dealing with the matter  was  to divide the old  import  entitlement  equally between the two partners, which is what the Government  did. If  the petitioner’s contention that because  the  installed capacity even from half the machinery which he got was equal to  the  old  productive capacity  is  accepted  it  follows logically  that it should apply to the other  partner  also. Merely  be-cause  there  was  delay  in  the  other  partner starting  his production he cannot be denied the benefit  of the  import entitlement which the partnership, in  which  he was  an  equal partner, had.  That means that  between  them both they would be entitled for import licences at twice the

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value of what the partnership was originally getting.   Nei- ther is foreign exchange available in plenty nor the  supply of  raw  materials  so great that import  licences  for  raw materials could be given without reference to considerations of availability ’of these two. The  error  which  the High Court fell into  as  we  already pointed out was in thinking that the new Exen Industries  is the  same as the old Exen Industries.  That can be the  only basis for holding that Exen Industries (New) should get  its import entitlement on the basis of its production,. The petitioner’s contention was based on paragraph 73 of the Hind  book of Rules & Procedure in relation to import  trade control.   That  paragraph as far as is  relevant  reads  as follows:               "73.   Basis of Licensing.-(1) The  applicants               are  advised to submit applications for  their               requirements duly certified by the  certifying               authority  concerned.   The licences  for  raw               materials                                    367               will  ordinarily  be  issued  subject  to  the               availability of foreign exchange on the  basis               of  certified requirements for  twelve  months               consumption,  but the  certified  requirements               will be scrutinised by the licensing authority               and   an  appropriate  reduction  will   where               necessary be made after taking into accounts               (i)   the   stock   held  on   the   date   of               application and the expected arrivals  against               licences in hand;               (ii)the  quantum  of  import  likely  to  be               available through the commercial channels;               (iii)the   quantum   of  similar   goods   or               substitutes   likely  to  be  available   from               indigenous sources; and               (iv)the past imports of the item in question               by the applicant.               (v)   the  actual production during  the  past               licensing period and the estimated  production               for the period in question;               (vi)any  fall  in production on  account  of               circumstances such as break down of machinery,               labour relations want of funds etc." The petitioner contended that on the basis of this paragraph he  was,  entitled to a licence on the  basis  of  certified requirements  for twelve months consumption.  But  the  very same  paragraph shows that the certified  requirements  will have\to  be scrutinised after taking into account  the  past imports of the item in question by the applicant  and   the actual production during the past licensing period and  the estimated production for the period in question. Now  in this case there were no past imports of the item in question by the  applicant but only by the former Exen  Industries and the actual production during   the past licensing period can also be   only  the  production  of  the  former   Exen Industries. The petitioner’s entitlement     cannot      be considered divorced from its past history and the fact  that it was only one of the partners of a dissolved  partnership. The  fact that after the dissolution of the partnership  the new Exen company was able to produce as much as or even more than  the  former Exen company taking advantage of  the  in- built installed capacity cannot entitle it to get the  whole of  the  quantity issued to the former Exen  company.   That would  mean depriving the other partner who was entitled  to an  equal quantity.  We are of opinion that  the  petitioner

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cannot  be allowed to put forward such a contention  without making  Mehta a party to these proceedings and  no  decision against the interest of Mehta could be made in his absence. Another  reason why we consider that the  petitioner  cannot get  anything more than what he was given would be  apparent from  a reading of paragraph 88(2)(c) and understanding  the principle underlying it.  That paragraph reads as follows:               "88(2) (c) Division of business:-(i) Where  an               import  licence has been granted to an  actual               user and before the importation               368               of the goods against the said licence there is               a division of the factory amongst the partners               of   the   business  and  the  name   of   the               business/factory  as appearing in the  licence               is  retained by one of the succeeding  parties               or  none of them is allowed to use such  name.               the succeeding parties, not being the  licence               holders, cannot operate upon the said licence.               In  such cases also, joint application by  all               the  succeeding parties should be made to  the               licensing  authority concerned for reissue  of               separate licences in their favour, in lieu  of               the  original  licence, in proportion  to  the               portion  of  the factory taken  over  by  each               succeeding  party  supported  by   documentary               evidence   showing   the   division   of   the               business/factory and particulars of the estab-               lished  importer quotas, if any, possessed  by               the   succeeding   parties.    The   licensing               authority will consider the application in the               same manner as in the cases referred to in sub               para  b(i) above and licences, if  admissible,               will  be issued to the succeeding parties  for               the  proportionate values as indicated  above.               The   original  licence  surrendered  by   the               parties  will  be retained  by  the  licensing               authority and cancelled.               (ii)If  the  division  of  the  factory   as               referred to in sub para(i)     above,    takes               place  after  the  importation  of  the  goods               against the     said  licence,  the   imported               goods become part of the assets of the   factory               and  they should be divided by the  succeeding               parties  amongst themselves  proportionate  to               the portion of the factory taken over by them,               under  intimation to the  licensing  authority               concerned so that the licensing authority  may               be in a position to ensure proper  utilisation               of   the  imported  goods  by  each   of   the               succeeding units in the factory taken over  by               them from the original concern." If  there is a division of the factory amongst the  partners of  a  business  joint application  by  all  the  succeeding parties  has to be made for reissue of separate licences  in their  favour  in proportion to the portion of  the  factory taken  over  by each succeeding party.  So all  so  even  if division  takes place after importation.  If that is  so  in respect   of  the  importation  of  goods  against   current licences,  same principle should apply for  future  licences also.   The principle that when a partnership  is  dissolved the import- licences would have to be equally divided  among the partners has been implicitly recognised by this Court in its  decision in Controller V. Amichand(1).  This  paragraph embodies that equitable principle.

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There  is  yet  another reason  why  the  petitioner  cannot succeed.  According to paragraph 71 of the Hand-Book in  the case of industries borne on the registers of the Directorate General of Technical Development, licences will normally  be issued   on  the  basis  of,  the  recommendation   of   the Directorate   General   of  Technical   Development.    Exen Industries  was  borne on the registers of  the  Directorate General  of  Technical Development and the quota  of  import licence granted (1)  [1966] 1 S.C.R. 242. 36 9 to  the  new  Exen  Industries  is  on  the  basis  of   the Directorate’s recommendation. We  are,  therefore, satisfied that the petitioner  was  not entitled  to anything more than what was granted to  him  by the  Government and the High Court was in error in  assuming that   the  actual  capacity  was  retained  full)  by   the petitioner  and only the spare capacity was given to  Mehta. No such artificial distinction could be made. We,  therefore, allow the appeal and set aside the  judgment of the High Court.  The appellant will pay the costs of  the respondents  as  ordered  at the time of the  grant  of  the special leave. Appeal allowed. V.P.S. 370