Union of India & Ors Vs. M/S Exen
Industries  INSC 201 (9 October 1974)
MATHEW, KUTTYIL KURIEN
CITATION: 1974 AIR 2346 1975 SCR (2) 364 1975
SCC (1) 6
Import Trade Control Policy-Licences to
partnership-Licence entitlement of quondam partners after dissolution.
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 G369A]
(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 current licences, the same principle should apply for future
licences also. [368 E-G] Controller v. Aminchand,  1 S.C.R. 262,
(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
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 DF] 365
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
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 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 value of what the partnership was originally getting. Neither 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
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
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 inbuilt 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 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 established 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.
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)  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.