Consent Can Be Implied Through Signatures and Conduct: Delhi High Court Clarifies Scope of Section 19(2)(g) in Partnership Property Transfers

"Failure to Enter Witness Box Is Fatal—Adverse Inference Must Follow": In a detailed and precedent-sensitive ruling Delhi High Court dismissed an appeal against the trial court’s refusal to grant relief in a suit involving the alleged unauthorized transfer of the sole immovable property of a partnership firm. The Court, while addressing the interpretation of Section 19(2)(g) of the Indian Partnership Act, 1932, held that post-facto consent inferred from signed financial statements, conduct, and settlement deeds can validate such a transaction, even where the partnership deed declares any unauthorized transfer to be “null and void.”

The dispute revolved around whether one partner (Defendant No.1) could validly transfer the partnership firm’s only immovable property to his relative (Defendant No.2) without the express consent of the other partner (Plaintiff No.2). The appellants claimed that such a sale violated Clause 9 of the partnership deed and Section 19(2)(g) of the Partnership Act, arguing that no written authority or prior approval existed. The Court rejected this contention, holding that consent need not be express when documents, actions, and financial conduct clearly demonstrate acknowledgment and approval of the transfer.

“A Partner Cannot Sign the Balance Sheet and Then Deny Knowledge of the Sale Reflected in It”: Court Establishes Consent from Documented Financials

Justice Anil Kshetrapal, delivering the judgment on behalf of the Division Bench, made a strong observation about the evidentiary value of financial records in partnership disputes. The Bench pointed out that the balance sheets for the financial years ending 31.03.2000 and 31.03.2001, signed by Plaintiff No.2 herself, contained direct indicators of the sale of the firm’s fixed asset—identified as the “shop account” worth Rs.3,67,500.

“The profit and loss account for the following year shows a profit entry of Rs.2,500 from the sale of a building. These documents are signed by Plaintiff No.2. There is no averment that she signed them blindly. In law, her signatures are strong evidence of knowledge and consent,” the Court remarked.

Refuting the plaintiffs' contention that they had no knowledge of the transfer until 2002, the Court stressed that the absence of a detailed postal address in the balance sheets was immaterial, especially when the firm owned only one immovable asset.

“The firm had only one immovable property. The disappearance of the asset from the balance sheet and the appearance of profit from its sale—both signed by Plaintiff No.2—leave no doubt. The transaction was not unauthorized,” the Court held.

“Section 19(2)(g) Prohibits Implied Authority, Not Express or Subsequent Consent”: Delhi HC Clarifies Law on Property Dealings by Partners

Rejecting the appellants’ reliance on Section 19(2)(g) to declare the transfer void, the Court clarified the true legislative intent behind the provision:

“Section 19(2)(g) restricts the implied authority of a partner to alienate immovable property. However, it does not bar a transfer made with actual consent—whether before or after the transaction,” said the Bench.

The judgment distinguished the words “null and void” in Clause 9 of the partnership deed, observing:

“Clause 9 declares unauthorized transactions null and void, but does not stipulate that consent must precede the act. The clause and the statute are both silent on the form and timing of such consent. The law accepts post-facto ratification.”

Hence, the Court concluded that once Plaintiff No.2 was shown to have participated in the accounting process that acknowledged the sale, consent stood established in law.

“Plaintiff’s Silence and Absence from Witness Box Weighs Heavily—Best Evidence Was Withheld”

Perhaps the most scathing legal blow to the appellants came from the Court's invocation of the adverse inference rule under the Indian Evidence Act. The Court noted that Plaintiff No.2, the only person competent to deny knowledge of the transaction, failed to appear as a witness:

“It is Plaintiff No.2 who must have been examined. Her husband (Plaintiff No.3) was not even a partner. When a party withholds the best possible evidence—her own testimony—the only legal conclusion is adverse.”

The Court emphasized that while Plaintiff No.3 deposed generally about good faith and trust, he never categorically stated that Plaintiff No.2 had signed balance sheets without understanding them.

“Assertions of blind trust do not equate to legal ignorance of recorded financial activity,” the Court added.

“Full and Final Settlement Deeds Signed After Alleged Discovery of Fraud Strengthen Inference of Consent”

One of the most compelling evidentiary pillars in the judgment was the Memorandum of Understanding dated 18.06.2002 and the Retirement-cum-Partnership Deed dated 30.06.2002, both of which were signed by Plaintiff No.2. These documents unambiguously recorded a final settlement of Defendant No.1’s share, including profits, goodwill, and assets of the firm.

Quoting Paragraph 6 of the MOU, the Court noted:

“A sum of Rs.75,000/- was paid to Defendant No.1 as full and final settlement of his share in the firm, which included goodwill and assets. This document was executed after the plaintiffs claim to have discovered the transaction in March 2002. If they truly believed the transfer was fraudulent, no such settlement would have occurred three months later.”

The Retirement Deed reinforced this, stating that accounts were settled, and the partner retired from the firm with no pending claims. The Court saw these documents as post-discovery ratification of the very transaction the plaintiffs later contested.

“Construction of a 3.5-Storey Building is an Unproven Claim Without Receipts or Financial Records”

The plaintiffs had also claimed that after purchase, the suit property was reconstructed into a 3.5-storey building, increasing its value and rendering the transfer underpriced. However, the Court found no merit in this assertion:

“Self-serving oral statements, unsupported by building plans, bills, payment proofs or bank records, cannot establish construction worth lakhs. No Court can act on bald averments alone.”

Accordingly, the Court ruled that the plaintiffs failed to prove any enhancement of property value or secret profit by Defendant No.1.

“Dormant Partner or Not—Consent Once Shown Renders Dormancy Irrelevant”

Addressing the contention that Plaintiff No.2 was a dormant partner and hence unaware of transactions, the Court held:

“Once consent is proven, dormancy has no legal consequence. A dormant partner’s liability and authority may be limited, but her responsibility for documents she signs is not.”

The issue of dormancy was therefore rendered moot in light of the documented consent.

Suit Was Rightly Dismissed, No Reliefs Owed

In conclusion, the Court held that the learned Single Judge had rightly dismissed the plaintiffs’ claims for possession, cancellation, and mesne profits, based on their failure to prove lack of consent, absence of financial documentation, and failure to discharge the burden of proof.

“There is no merit in the appeal. The plaintiffs’ own conduct, admissions, and omissions have undone their case,” the Court concluded, dismissing the appeal with no order as to costs.

Date of Decision: 29 October 2025