Shadi Lal Vs. Nagin Chand & Ors
 INSC 249 (9 October 1972)
BEG, M. HAMEEDULLAH DWIVEDI, S.N.
CITATION: 1973 AIR 776 1973 SCR (2) 698 1973
SCC (1) 185
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.
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 appellant.
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
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.
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
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 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
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
The respondent claimed 1/3rd share of the
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.