UNION OF INDIA Vs. EXEN INDUSTRIES

JUDGEMENT

(1.) One H. T. Vora and another G. J. Mehta 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 under 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 pending. Thereafter the respondent firm new Exen Industries applied for import licences for necessary raw materials an 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 (supra) 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.

(2.) 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 the 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 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 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 because there was delay in the other partner starting his production he cannot he denied the benefit of the import entitlement which the partnership, in which he was an equal partner, had. That means that between them both 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.

(3.) 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 only basis for holding that Exen Industries (New) should get its import entitlement on the basis of its production.