The Trial Court had rejected the application moved by the contesting defendants under Order VII Rule 11(d) [Rejection of plaint barred by any law], Order XXX Rules 1 and 2 [Temperory injunction] and Section 151 [Inherent powers] of the Code of Civil Procedure, 1908 read with Section 69 [No suit to enforce for a contract arising out of unregistered partnership] of the Indian Partnership Act, 1934 for rejection of plaint on the ground that the suit filed by and on behalf of an unregistered partnership firm was barred by law. High court has given a contrasting view to the trial court verdict that it would be barred to enforce a right arising out of the contract in terms of Section 69(2) of the Act of 1932.
The appellant before Supreme Court is an unregistered partnership firm by the name “Shiv Developers”. It has further been averred a new partnership by the firm name “Aksharay Developers” was formed with four partners exclusively for the purpose of the project related with the suit property and the tenure of the partnership was confined to the completion of the said project. A Memorandum of Understanding was signed by the partners on the date of incorporation of the said firm. According to the appellant, the said MOU clearly acknowledged the fact that all the parties to the MOU were the partners of the firm “Aksharay Developers” and the MOU was being entered by virtue of the same.
The grievance of the appellant is from the new turn of events, the respondent Nos. 2 and 3 constituted another firm under the same name and style as “Aksharay Developers” but without including Sunilbhai Somabhai Ajmeri of Shiv Developers and respondent No. 4 as partners. This firm, as constituted got registered fraudulently. It is further alleged that on the very next day of constituting the firm, the respondent Nos. 2 and 3 got executed a sale deed, whereby 60% share of the appellant in the suit property was purchased by this new firm Aksharay Developers from Sunilbhai Somabhai Ajmeri, acting on behalf of the appellant firm Shiv Developers. While later was under the bona fide belief that the suit property of appellant firm was being sold to that firm wherein he was also a partner as per the partnership deed and MOU.
The issue is whether the mandate of Section 69 of the Act of 1932, the plaintiff, being an unregistered partnership firm, was barred to file a suit regarding the rights arising from any agreement/contract. ?
Application of Section 69 (2) of the Indian Partnership Act, 1932: The court said in their view, the questions arising in this matter could be directly answered with reference to the principles enunciated by this Court in the case of Raptakos Brett & Co. Ltd. v. Ganesh Property: (1998) 7 SCC 184, which have further been explained and applied by this Court in the cases of Haldiram Bhujiawala (2000) 3 SCC 250)and Purushottam and Anr. v. Shivraj Fine Art Litho Works and Ors., as reported in (2007) 2 G.L.H. 406[= (2007) 15 SCC 58).
The court said that they may take note of the principles vividly exposited in the case of Haldiram Bhujiawala (supra) that to attract the bar of Section 69(2) of the Act of 1932, the contract in question must be the one entered into by firm with the third-party defendant and must also be the one entered into by the plaintiff firm in the course of its business dealings; and that Section 69(2) of the Act of 1932 is not a bar to a suit filed by an unregistered firm, if the same is for enforcement of a statutory right or a common law right.
To put it differently, the relevant principles, when applied to the facts of the present case, leave nothing to doubt that the transaction in question was not the one entered into by the plaintiff firm during the course of its business (i.e., of building construction); and it had been an independent transaction of sale, of the firm’s share in the suit property, to the contesting defendants. The bar of Section 69(2) is not attracted in relation to the said sale transaction. Moreover, the subject suit cannot be said to be the one for enforcement of right arising from a contract; rather the subject suit is clearly the one where the plaintiff seeks common law remedies with the allegations of fraud and misrepresentation as also of the statutory rights of injunction and declaration in terms of the provisions of the Specific Relief Act, 1963 as also the Transfer of Property Act, 1882 (while alleging want of the sale consideration). Therefore, the bar of Section 69(2) of the Act of 1932 does not apply to the present case.
The points that arise for consideration in Haldiram judgment (supra) are:
(i) Whether Section 69(2) bars a suit by a firm not registered on the date of suit where permanent injunction and damages are claimed in respect of a trademark as a statutory right or by invoking common law principles applicable to a passing-off action?
(ii) Whether the words “arising from a contract” in Section 69(2) refer only to a situation where an unregistered firm is enforcing a right arising from a contract entered into by the firm with the defendant during the course of its business or whether the bar under Section 69(2) can be extended to any contract referred to in the plaint unconnected with the defendant, as the source of title to the suit property?
Answering the first question in the negative, this Court referred to the previous decision in Raptakos Brett & Co. Ltd. (supra) and held as follows: –
“9. The question whether Section 69(2) is a bar to a suit filed by an unregistered firm even if a statutory right is being enforced or even if only a common law right is being enforced came up directly for consideration in this Court in Raptakas Brett Co. Ltd. v. Ganesh Property [(1998) 7 SCC 184]. In that case, Majmudar, J. speaking for the Bench clearly expressed the view that Section 69(2) cannot bar the enforcement by way of a suit by an unregistered firm in respect of a statutory right or a common law right. On the facts of that case, it was held that the right to evict a tenant upon expiry of the lease was not a right “arising from a contract” but was a common law right or a statutory right under the Transfer of Property Act. The fact that the plaint in that case referred to a lease and to its expiry, made no difference. Hence, the said suit was held not barred. It appears to us that in that case the reference to the lease in the plaint was obviously treated as a historical fact. That case is therefore directly in point. Following the said judgment, it must be held in the present case too that a suit is not barred by Section 69(2) if a statutory right or a common law right is being enforced.
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The real crux of the question is that the legislature, when it used the words “arising out of a contract” in Section 69(2), it is referring to a contract entered into in course of business transactions by the unregistered plaintiff firm with its defendant customers and the idea is to protect those in commerce who deal with such a partnership firm in business. Such third parties who deal with the partners ought to be enabled to know what the names of the partners of the firm are before they deal with them in business.
The aforesaid decision in Haldiram Bhujiawala (supra) was further considered and applied by this Court in the case of Purushottam (supra) while holding as under: –
“24. With respect, we find ourselves in complete agreement with the principles enunciated in Haldiram Bhujiawala. Having regard to the purpose Section 69(2) seeks to achieve and the interest sought to be protected, the bar must apply to a suit for enforcement of right arising from a contract entered into by the unregistered firm with a third party in the course of business dealings with such third party. If the right sought to be enforced does not arise from a contract to which the unregistered firm is a party, or is not entered into in connection with the business of the unregistered firm with a third party, the bar of Section 69(2) will not apply.”
HON’BLE MR JUSTICE DINESH MAHESHWARI
Judge Supreme Court of India
HON’BLE MR JUSTICE VIKRAM NATH
Judge Supreme Court of India
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