Collateral property
Narasimman
(Querist) 05 May 2012
This query is : Resolved
Dear Sir,
We're planning to buy a collateral property with a nationalized bank.The property is in the name on an Unregistered firm with 4 Partners.The firm had 5 partners with father & 3 sons with their uncle.In 2006 one of the son moved to UK & got relieved from the firm.He has given POA to his father & has signed the release DEED.Now due to losses firm has no business & wanted to clear the debt property.
1.Can we buy this property?
2.When I pay whom should we make the payment?
3.Do we need to get any document signed by the son (relived)in UK?
4.EC says the firm has pledged the assert with only one bank? How to make sure if not pledged with any other private lenders?
5.After my purchase if can any other lender or file a suit for uncleared dues?
6.Can any of the personal dept taken by any of the partners affect me or file a suit against the assert purchased?
Kindly let me know the precautions to be taken & what all document to be verified.
Regards,
Narasimman
ajay sethi
(Expert) 05 May 2012
contact a local lawyer . you have to peruse original documents of title of property before deciding to purchase the same .
you will need NOC from bank before you purchase the said property .
without knowing finacial position of unregistered firm it would be advisable to move with caution .
since firm is unregistered it can be sued but cannot sue .
Narasimman
(Querist) 05 May 2012
Sir,
Thank you for the reply.
We have checked with the local lawyer & the original document title is in the name of the Firm.
Can you help with answers to my questions posted?
Narasimman
Anirudh
(Expert) 06 May 2012
The original title deed can never be in the name of the Firm, for the simple reason that A partnership Firm is not a legal entity at all.
You have not done the due diligence with utmost diligence.
Adv.R.P.Chugh
(Expert) 06 May 2012
I respectfully disagree with Ld Colleague Anirudh when he says title deed cannot be in the name of a partnership firm's name, agreed it's not a legal entity but it's still capable of holding property under the firm name(S.14 IPA). On the same analogy - Firm though not a legal person it still has bank accounts in it's name. It is also taxed as an entity.
Hence for the limited purpose of owing property/holding bank accounts/being taxed - the firm is really a person !
As regards the specific query raised by querist - I opine :-
1. Insist on a release deed/retirement/public notice of retirement of the partner who has retired.
2. Ensure all partners participate in the transaction.
3. There is no centralised database of assets pledged with banks, however if they have been pledged the original title deeds, in the fitness of things are stamped/endorsed with pledgee's Stamp.
Feel free to talk !
Anirudh
(Expert) 06 May 2012
Dear Mr. Bharat,
A Partnership Firm is not a legal entity. It has limited identity for purpose of tax law. As per section 4 of Indian Partnership Act, 1932, 'partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. - - Under partnership law, a partnership firm is not a legal entity, but only consists of individual partners for the time being. It is not a distinct legal entity apart from the partners constituting it - Malabar Fisheries Co. v. CIT (1979) 120 ITR 49 = 2 Taxman 409 (SC).
For tax law, income-tax as well as sales tax, partnership firm is a legal entity - State of Punjab v. Jullender Vegetables Syndicate - 1966 (17) STC 326 (SC) * CIT v. A W Figgies - AIR 1953 SC 455 * CIT v. G Parthasarthy Naidu (1999) 236 ITR 350 = 104 Taxman 197 (SC).
Section 14 of the Partnership Act, does not say that the immovable property can be held in the name of the Firm.
As per Section 15, the property SHALL BE HELD by the partners and used by the partners exclusively for the purposes of the business. If the property can be in the name of the Partnership Firm itself, the question of the property 'shall be held by the partners' will not arise.
Further, from 1.4.2011 onwards, whenever there is an equitable mortgage, the same is required to be compulsorily registered with the AUTHORITY created under the SARFAESI Act.
