# UNION OF INDIA & ORS v. MIS EXEN INDUSTRIES

- **Citation:** [1975] 2 S.C.R. 364
- **Court:** Supreme Court of India
- **Decided:** 1974-10-09
- **Case number:** Civil Appeal No. ~612 of 1972
- **Bench:** K. K. Mathew, A. Alag!Riswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-ors-v-mis-exen-industries-6307
- **Pages:** 6

## Headnote

Import Trade Control Po/Jcy-Licences ·10 partnership-Licence entitlement of
quondam partners after disso/11tlon.
A
B
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 liabi·
lities 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 respon· C
dent-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 l:ligh Court allowed the petition and directed the Govermnent to consider D
the claim of th~ respondent 011 the basis of its own production. ·
N!owing the appeal to this Court,
HELD : The respondent was not entitled to anything more than what was
gra!lled to him by the Govenunent. [369 A·B]
(1)
Ao~ordfug to para 71 of the Hand-book of the Rules and Prooedure in
relation to Import Trade Control, in the case of industries borne on the r~ters E
of the Directorate General of Technical Development licences are normally tsSued
on the basis of the recommendations of the Directorate General of Technical Development and the respondent. was given import licences on that basis. [368 0-369A]
(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 suoceeding parties had to be made
for re-issue of separate liceiiees in their favour in proportion to theiI: share. So
also if division takes place after importation. If that is so in respect of the importation of goods against cum:nt licences, the same principle should apply for future
licences also. [368 E-G]
·
·
F
Controller v. Aminchind, [1966] 1 S.C.R. 262, followed.
(3) In the circumstar.c:is, the most equitable way of dealing With the matter
was to divide the old import entitlement equally betweer. the two partners which
is what the appellant did. Ir the petitioner's contention is accepted it follows logically that if should apply to t.he other partner also. 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. G
licence at twice what the partnership was originally getting. [366 E-F]
·
(4) The fact that after dissolution the new finn was able to take advantage
of its inbuilt installed capacity cannot entitle it to /Jet the whole. of the quantity
issued to the former firm, for that would mean depnving the other partner. Such
a contention C'annot be considered unless the other partn~ is also made a party to
the proceedings. [367 F-0]
(5) Paragraph 73 of the Hand-book shows that a licence is issued on the basis
of certified. requirements fpr 12 months consumption after scrutiny by the licensing H
authorlty. In the present <:al{e. the respondent was not the. SlllIIO finn as the ol d
one. There were no tmports by t/luespondent during the past licelising period, because,
th« imports and production in the past were only by the former fil')ll. [367 D·F)
A
B
.,
c
D
E
F
G
H
UNION V. EXEN INDUSTall!S (AlagiriswamJ, 1.)
365

## Text

364
UNION OF INDIA & ORS.
v.
MIS EXEN INDUSTRIES
October 9, 1974
[K. K. MATHEW AND A. ALAG!RISWAMI, JJ.]
Import Trade Control Po/Jcy-Licences ·10 partnership-Licence entitlement of
quondam partners after disso/11tlon.
A
B
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 liabi·
lities 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 respon· C
dent-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 l:ligh Court allowed the petition and directed the Govermnent to consider D
the claim of th~ respondent 011 the basis of its own production. ·
N!owing the appeal to this Court,
HELD : The respondent was not entitled to anything more than what was
gra!lled to him by the Govenunent. [369 A·B]
(1)
Ao~ordfug to para 71 of the Hand-book of the Rules and Prooedure in
relation to Import Trade Control, in the case of industries borne on the r~ters E
of the Directorate General of Technical Development licences are normally tsSued
on the basis of the recommendations of the Directorate General of Technical Development and the respondent. was given import licences on that basis. [368 0-369A]
(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 suoceeding parties had to be made
for re-issue of separate liceiiees in their favour in proportion to theiI: share. So
also if division takes place after importation. If that is so in respect of the importation of goods against cum:nt licences, the same principle should apply for future
licences also. [368 E-G]
·
·
F
Controller v. Aminchind, [1966] 1 S.C.R. 262, followed.
(3) In the circumstar.c:is, the most equitable way of dealing With the matter
was to divide the old import entitlement equally betweer. the two partners which
is what the appellant did. Ir the petitioner's contention is accepted it follows logically that if should apply to t.he other partner also. 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. G
licence at twice what the partnership was originally getting. [366 E-F]
·
(4) The fact that after dissolution the new finn was able to take advantage
of its inbuilt installed capacity cannot entitle it to /Jet the whole. of the quantity
issued to the former firm, for that would mean depnving the other partner. Such
a contention C'annot be considered unless the other partn~ is also made a party to
the proceedings. [367 F-0]
(5) Paragraph 73 of the Hand-book shows that a licence is issued on the basis
of certified. requirements fpr 12 months consumption after scrutiny by the licensing H
authorlty. In the present <:al{e. the respondent was not the. SlllIIO finn as the ol d
one. There were no tmports by t/luespondent during the past licelising period, because,
th« imports and production in the past were only by the former fil')ll. [367 D·F)
A
B
.,
c
D
E
F
G
H
UNION V. EXEN INDUSTall!S (AlagiriswamJ, 1.)
365
CIVIL APPELLATE JURISDICTION : Civil Appeal No. ~612 of 1972.
Appeal by Special Leave from the Judgment & Order dattd the
16th November, 1971 of the Delhi High Court in C.W. No. 25-I>
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.-One H. T. Vora and another G. J. Mehta
formed a partnership under the name of Exen Industritis ar.d wf.le
manufacturing fountain pens. In December 1963 the partnerd1ip
was dissolved and Vora ·took in ancther partnm and ccntinmd the
industry under the original name of Exen Industries. Mehta starttd
another business also of manufacturing fountain pens ur.der the nz.n«e
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 application~ foi: import licences then pending.
Thereafter the respondent firms new Exen Industries applied for import
licences for necessary raw materials and were granted 50 per ctint 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 allowr.d the writ petition
and quashed the order of the .Government dated 3rd December, 1965
and directed the appella.nts, 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 196J.;; The petitioner's
case was that his actual prc.duction was the same as before the dissolution as the installed capacity of the factory was double that of actual
capacity an4 production, that in the division of the machinery and
assets :or 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 l\{ehta 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
machini:ry and stock of the old firm, half of the prc.ductive capacity
fell to the share of each partner at the dissolution, and that the Ge vtrnment 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 t~ accept
the contention that one of the partners to the partnership got the actual
366
SUPREME COURT REPORTS [1975] 2 s.c.R.
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 diswlution 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 produc:tion. The partnership dissolution deed do
clearly provided that the machinery, raw materials and finishe:d 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 if 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 circumsta.nces 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 because there was delay in the other partner starting his prcduction he
cannot be denied the benefit of the import entitlement which the nartnership, 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 mater-
. ials 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 n.ew Exe11 Industries is the same as the old
Exen Industries. That can be the only basis for holding that Exell
Industries (New) should get its import entitlement on the b~.sis of its
production.
Th'!' p!titioner's cJntention was based on paragraph 73 of the
Hmd b)ok of Rules & Procedure· in relation to import trade control. ·
Th'l.t paragraph as far a!> is relevant reads as follows:
"73. Basis of Licensing.-(!) The applicants are advised to
submit a'.)plic1tions for their requirements duly certified by the
c~rtifying a•1thority c1>ncerned. The licence~ for raw materials
A
B
c
D
E
F
G
H
A
B
c
. D
(1
G
H
UNION v. EXEN INDUSTRIES (Alagiriswami, /.)
367
will ordinari"ly be issued subject to the availabilit) of fcrci~n
exchange on the. bads of certified requirements for twelve
months consumption, but the certified requirements will be' scrutinised by the licensing authority and an appropriate reduction
will when.: necessary be made after taking into accc t:nt;
(i) the ~tock held on the date of application and the expected arrivals against licences in hand;
·
(ii) the quantum of import likely to be avail able throuJ.>,h
the commercial channels;
-
(iii) the quantum of similar goods or .substitutes like!)
to be available from indigenous sources; and
(iv) the past imports of the item in quest ion by t lre app.'icant.
(v) the actual production during the past licensing p~riod
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 shews
that
the certified requirements will have to be scrutinfr(d after taking into
account the past imports of the item in question by the applicant and
the actual production during the past licensing pericd and the estimated production for the period in question. Nc.w 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 dissohed partnership. The fact that after the diswlution of the partnershlp the new Exen company was able to pre duce as
much as or even more than the former Exen company taking advantage of the in-built installed capacity cannot entitle it to ~ft 1he whole
of the quantity issued to the former Exen ccmpan)'. That would
mean depriving the other partner who was entitkd to an equal quantity. We are of opinion that the petitioner cannot te allc wed tc put
forward such a contention without making Mehta a party to theEe
p~oceedings and no decision against the interest of Mehta cculd te made
in his absence.
Another reason why we consider that the petitioner cannot get
an)thing more than what he was given wou~d be ap~ar7nt frcm a
reading of paragraph 88(2)(c) and understandmg the pnnc1ple undtrlying it. That r-aragraph reads as follows:
"88(2J (c) Division of business:-(i) Where an import licence
has been granted to an actual user and before the imrortaticn
368
SUP.RBMB COOJ.T REPORTS [1975] 2 S.C.R·
of the goods against the said licence there is a division of the
factory am'.)ngst the partners of the busi.ness 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 sucn name, the succ~eding parties, not being
the lic~nce holders, cannot operate upon the said licence. In
such c1ses also, joint application by all the succeeding parties
should b~ mlde to the lic::nsing authority concerned for re-issue
ofsepirate licences in their favour;in lieu of the original lic~nce,
in proporti:on to the portion of the fa<;tory taken over by each
succeeding party supported by documentary evidence showing
the division of the busineEs/factory and particulars of the estab·
fohed importer quotas, if any, possessed by the succeeding parties.
The licensing authorit; will consider the application in the same
mlnner as in the cases referred to in sub para b(i) above and
ljcenc!s, if admissible, will be issued to the succeeding parties
for the proportionate \'alues as indicated above. The original
lic!nce surrendered by the parties will be retained by the licensing
.authority ~nd cancellt;d.
(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
am 1ngst themselves proportionate to the portion of the factory
taken over py them, under intimation to the licensing authority
c1>ncerned so that the licensing authority may be in a position to
ensure proper utilisation of the-imported goods by each of the
succ~eding units in the factory taken over by them from the
original concern."
If tire re is a division of the factory amon~st the partners of a businc:ss
joint application by all thci succeeding parties has to be made forte·
issue of separate licences in their favour in proportion to the portion of
the factory taken over by ei~ch succeeding party. So all so even if di vi.
sion takes place after imt1•ortation. If that is so in respect of the
imnortation of goods against current licences, saine principle shmtld
apply for future licences also. The principle that when a partnersllip
is· dissolved the import licences would have to be equally divided
among the partners has been imnlicitly recognised by this Court in
its decision in Controller v. Am'chand(1). This paragraph embodies
that equitable principle.
Th~re is yat another reason why the petitioner cannot succeed.
According to paragraph 71 of the Hand-Book in the case of industries
b'.)rne on the registers of the Directorate General of Technical Developm~nt, licences will normally be issued on the basis of the recom·
mendation of the Directorate General of Technical Development.
Eiren Industries was borne on the registers of the Directorate General
1f Technical Development and the quota of import licence granted
(1) (1966] 1 S.C.R. 242.
A
B
c
D
E
F
G
H
A
a
UNION v. EXEN INDUSTRIES (Alagiriswami,. J.)
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 Higl). Court was in error in assuming that the· actual capacity
was retained fully 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 lea~e.
V;P.S.
Apptal allowed.