Retirement Without Registered Release Is No Retirement in Law: Madras High Court Flags Stamp & Registration Lapses in Partnership Dispute

“Partnership Owning Immovable Property into a Sole Proprietorship by Assumption”, In a significant ruling on the interplay between partnership law, registration requirements, and property rights, the Madras High Court partly allowed an appeal by setting aside a decree of permanent injunction while sustaining a declaration that a rival partnership deed was null and void.

Justice P.B. Balaji, delivering the reportable judgment, observed that the parties had been “spending years in litigation, addressing the symptoms of the disease, without taking steps to cure the disease itself,” and underscored that when a firm owns immovable property, retirement of partners without a duly stamped and registered release deed is legally ineffective.

Rival Registrations and Claims Over Mill Properties

The dispute concerns M/s. Shree Arunachaleswarar Mills, originally constituted in 1966. Over decades, several partners retired and new partners were inducted. The plaintiffs claimed that the defendants had retired in 1999 and that the 2nd plaintiff ultimately became sole proprietor. They further contended that after clearing substantial bank dues and managing the affairs of the Mill, the defendants had no subsisting right.

However, in October 2016, the defendants registered a partnership firm in the identical name “Shree Arunachaleswarar Mills.” The plaintiffs challenged this registration as fraudulent and void, and also sought permanent injunction restraining interference with possession and alienation.

The trial court decreed the suit, granting both declaration and injunction. The defendants appealed.

“When a Firm Owns Immovable Property, Retirement Requires Registered Release”

The High Court framed the core issue: whether the plaintiffs were entitled to declaration that the partnership deed dated 13.10.2016 registered by the defendants was null and void, and whether they were in exclusive possession.

Justice Balaji laid down a crucial legal position. He held that where a partnership firm owns immovable property, any retirement of a partner that involves divestment of interest in such property must be effected through a duly stamped and registered instrument, as mandated by Section 17(1) of the Registration Act, 1908.

The Court categorically observed that “unless the retiring partner executes a registered release or surrender deed, releasing his interest in the immovable property, there would be no vesting of rights in the name of the continuing partners.”

Mere retirement deeds, without proper stamp duty and registration, do not divest title. Nor does a partnership automatically convert into a sole proprietary concern without lawful dissolution or registered relinquishment.

The Court was unable to accept the plaintiffs’ claim that the firm became a sole proprietorship merely because other partners retired. In law, unless there is valid dissolution or registered release, the assets continue to stand in the name of the firm.

Declaration Sustained: Defendants Could Not Re-Register Using Identical Name

Despite the defects in retirement formalities, the Court found that the defendants had, by conduct and representation, disclaimed interest in the firm for years. Notably, they had written to government authorities acknowledging that the 2nd plaintiff was liable for the firm’s debts.

Having “affirmed such relinquishment subsequently in an express manner,” the defendants were not entitled to register a fresh firm in the same name and stake claim over the assets.

Accordingly, the High Court upheld the declaratory relief granted by the trial court, declaring the partnership deed dated 13.10.2016 (Regn. No.821 of 2016) null and void.

“No Injunction Against Co-Owner” – Permanent Injunction Set Aside

The crucial reversal came on the question of injunction.

Both sides claimed exclusive possession. The plaintiffs relied on mutation of patta and business control; the defendants relied on evidence of loan settlements and recovery of physical possession from the bank.

The Court placed significant reliance on Ex.B7, a letter dated 10.08.2017 addressed to Indian Bank’s Asset Recovery Branch, requesting return of keys upon settlement of the loan. An endorsement showed receipt of keys by the 2nd defendant. Ex.B8 was also addressed by the Bank to the 2nd defendant.

Justice Balaji found that the trial court had failed to consider these material documents.

More fundamentally, since there had been no valid dissolution or registered relinquishment, the property standing in the firm’s name remained joint property. All partners, including outgoing ones whose interests were not lawfully extinguished, would be co-owners.

The Court reiterated the settled principle that “no injunction can be granted against the co-owner.” In the absence of proof of clear, exclusive possession, the plaintiffs were not entitled to permanent injunction.

The decree of permanent injunction was therefore set aside.

Section 37 and 48: Outgoing Partner’s Continuing Rights

The Court further invoked Section 37 of the Indian Partnership Act, 1932, which provides that where business continues with firm property without settlement of accounts, the outgoing partner is entitled either to a share of profits attributable to his share or interest at 6% per annum.

It also referred to Section 48, which prescribes the mode of settlement of accounts upon dissolution.

Since neither proper settlement nor lawful dissolution had taken place, the defendants could not be completely excluded from rights in the firm property.

“Fight the Core Issue, Not the Peripherals”

The judgment is a cautionary tale. The Court observed that both sides had been litigating peripheral issues — revenue records, rival registrations, bank settlements — without addressing the foundational defect: absence of valid dissolution or registered release of interest in immovable property.

The High Court clarified that the proper course is a comprehensive civil suit seeking declaration of rights, dissolution, settlement of accounts, and partition.

The Appeal Suit was partly allowed. The declaration that the defendants’ partnership deed dated 13.10.2016 was null and void was sustained. The decree of permanent injunction was set aside.

Date of Decision: 06 February 2026