Section 69(2) of the Partnership Act 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: Supreme Court

Supreme Court of India
PC: Supreme Court Observer
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The Supreme Court in a civil appeal has observed 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 attract the bar of Section 69(2) of the Partnership Act, 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, bench of Dinesh Maheshwari has observed.

The instant appeal was filed against the judgment and order passed by the High Court of Gujarat in a Civil Revision Application whereby the High Court allowed the revision application filed by the contesting defendants (respondent Nos. 1 to 3 herein) and had set aside the order of the trial Court and consequently rejected the suit filed by the appellants.

Facts in Brief:

An application was moved by the contesting defendants under Order VII Rule 11(d), Order XXX Rules 1 and 2 and Section 151 of the Code of Civil Procedure, 1908 read with Section 69 of the Indian Partnership Act, 1932 for rejection of plaint on the ground that the suit filed by and on behalf of an unregistered partnership firm was barred by law.

In the said application, the main contention of the respondents (defendants) were that as per 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 and per Order XXX CPC, a suit could be filed on behalf of the firm by any person who is a partner of the firm but the person filing the plaint had not produced any evidence to show that he was a partner in the said firm.

However, the trial Court rejected the application. Being aggrieved, the order was challenged in the High Court by the defendants by way of filing revision petition.

Findings of the High Court:

The High Court had allowed the revision application and set aside the order dated 07.04.2017 of the Trial Court with the consequential effect of rejection of plaint in the following words:
“36. The overall analysis of the aforesaid decisions which are pressed into service and the undisputed background of the circumstances of this case has clearly spelt-out that the suit proceedings which are hit by Section 69(2) of the Act read with Order 30 of the C.P.C., there is no reason why such non-maintainable proceedings be allowed against the object of Order 7 Rule 11(d). Hence, by giving full effect to the statutory provisions, the Court is of the considered opinion that serious error jurisdiction is committed by the Court, and as such present Revision Application deserves to be allowed, and the impugned order dated 07.04.2017 passed below in Special Civil Suit No. 333 of 2015 by the learned 9th Additional Senior Civil Judge, Vadodara is quashed and set aside with a consequential effect of rejection of plaint.“

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In Appeal before the Supreme Court:

Submissions of the Appellant:

Learned counsel for the appellant has submitted that the High Court has failed to appreciate that Section 69(2) of the Act of 1932 does not bar all suits by an unregistered partnership firm against third parties. In the factual matrix of the present case, suit is not hit by Section 69(2) because the contract is not in the regular business dealings of the firm; and the words “enforcing a right arising under the contract” used in Section 69(2) of the Act of 1932 signify the rights arising out of contracts in respect of the firm’s business transactions only. Learned counsel relied upon the decisions in Haldiram Bhujiawala and Anr. v. Anand Kumar Deepak Kumar and Anr: (2000) 3 SCC 250 and Purushottam in support of his arguements.

Learned counsel supplemented his arguments with reference to the concurrent findings of the Trial Court and the High Court on the fact that the contract under consideration, on which the suit is premised, was not in connection with the business of the unregistered firm. Therefore, as per the law laid down by this Court, suit of the appellant is not barred under the provisions of Section 69(2) of the Act of 1932. Learned counsel further argued that the High Court has committed an error in bringing all suits by an unregistered firm against the third party within the ambit of Section 69(2) of the Act of 1932.

Submissions made by the respondents:

Learned counsel appearing for the contesting respondents has strenuously argued that the sale document dated 23.02.2015 was executed by the administrator-partner of the unregistered firm and not in his individual capacity. Consequently, the sale document was related to the business of the firm. Thus, the learned counsel has supported the High Court’s conclusion that the suit was hit by the bar under Section 69(2) of the Act of 1932.

Learned counsel for the contesting respondents referred to the cases of Umesh Goel v. Himachal Pradesh Co-operative Group Housing Society Ltd: (2016) 11 SCC 313 and Farooq v. Sandhya Anthraper Kurishingal and Ors (2018) 12 SCC 580, for the submission that any suit filed by an unregistered partnership firm is hit by Section 69 of the Act of 1932; and if the said suit is filed for enforcement of rights arising out of a contract to which the said unregistered partnership firm is a party, it would be rendered non-maintainable.

Observations of the Court:

The Court observed that the order and judgment passed by the High Court cannot be sustained as the bar of Section 69(2) of the Partnership Act, 1932 is not attracted to the suit filed by the appellant.

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The Court after placing reliance upon the judgment in case of Raptakos Brett & Co. Ltd. v. Ganesh Property: (1998) 7 SCC 184, Haldiram Bhujiawala and Purushottam observed 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.

After considering the plaint, the court observed that the transaction in question, i.e., sale of its share by the plaintiff firm to the contesting defendants has not been the one arising out of the business of the plaintiff firm. This factual aspect is apparent from the basic plaint averments and is fortified by the concurrent findings of the Trial Court as also of the High Court.

The Court noted that the decision of this Court in the case of Purushottam (supra) was cited before the High Court but, while referring to the same in paragraph 33 of the impugned judgment, the High Court probably looked only at the editor’s headnote and in any case, missed out the ratio and principles therein, as reiterated with reference to the previous decisions. The decision in Haldiram Bhujiawala (supra) seems to have not gone into consideration of the High Court although this decision formed the sheet anchor of the order of the Trial Court.

The Court clarified that “we are not commenting on the merits of the case of either of the parties but this much is apparent from a look at the frame and contents of the plaint as also the prayers therein that the present one cannot be said to be such a suit by the unregistered firm which would attract the bar of Section 69(2) of the Act of 1932.

The Court laid much emphasis on the principles laid down in Raptakos Brett and observed that the bar of Section 69(2) is not attracted to the suit filed by the appellant. The Trial Court had rightly appreciated the facts of the case and had rightly rejected the baseless application moved by the contesting respondents.

In view of the facts and circumstances, the Court set aside the order and judgment of the High Court of Gujrat and restored the order of the trial Court.

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Case Details:
Civil Appeal No. 785 of 2022
Shiv Developers through its Partner Sunilbhai Somabhai Ajmeri vs Aksharay Developers & Ors.
Coram: Dinesh Maheshwari, J
Date of Judgment: 31-01-2022