Section 69(2) Of Partnership Act Cannot Bar Enforcement By Way Of Suit Filed By Unregistered Firm In Respect Of Statutory Right Or Common Law Right - SC

The appeal was filed by Plaintiff against the judgment of the Gujarat High Court that allowed the revision application filed by the contesting Defendants thereby, reversing the order passed by the Court of Additional Senior Civil Judge.

The Trial Court had rejected the application moved by the contesting Defendants under Order VII Rule 11(d). Order XXX Rules 1 and 2 and Section 151 of the CPC regarding Section 69 of the Indian Partnership Act for rejection of the plaint on the ground that the suit filed by an on behalf of the unregistered partnership firm was barred by law.

The High Court held that the Plaintiff being an unregistered firm would be barred to enforce a right arising out of the contract in view of Section 69(2) of the Partnership Act. Hence the appeal before the Apex Court.

The question for consideration before the Court was:

Whether the subject suit, filed by an unregistered partnership firm, is covered by the bar created by Section 69(2) of the Act of 1932.

The Court noted that the conclusion of the High Court was based upon the sale document that the transaction in question was an independent one and the claim made in the suit was not arising out of any business transaction of the firm or the contract relating to or arising out of business transactions.

The High Court in the context of Section 69(2) of the Act held that the transaction under challenge was a sale document entered into by the Plaintiff firm with Respondents and held that by the effect of non-registration of the firm; the suit appeared to be not maintainable.

The Court noted that it was clearly of the view that the impugned judgment cannot be sustained, and the bar of Section 69(2) is not attracted to the suit filed by the Appellant.

The Court considered the effect of the provisions contained in Section 69 of the Act.

The Court then made the following observations:

"In our 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 and Anr. v. Anand Kumar Deepak Kumar and Anr: (2000) 3 SCC 250 and Purushottam and Anr. v. Shivraj Fine Art Litho Works and Ors., (2007) 2 G.L.H. 406[=(2007) 15 SCC 58]. We 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."

The Court heavily relied upon the principles enunciated in Haldiram Bhujiawala Case wherein the rationale and object of the provision was explained to hold that the same was intended to protect those in commerce who deal with a partnership firm in business inasmuch as they ought to be enabled to know the names of the partners of the firm before they deal with them in business and the said provision is not attracted to any and every contract referred to in the plaint as a source of title to an asset owned by the firm.

These principles, the Court noted, were further considered and applied by the Court in Purushottan Case.

The Court noted that one of the significant features in the case was 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.

The Court noted that it was not commenting on the merits of the case of either of the parties.

The Court noted that the transaction in question was not the one entered into by the plaintiff firm during the course of its business and it had been an independent transaction of sale of the firms share in the suit property to the contesting Defendants.

The Court noted that the bar of Section 69(2) is not attracted in relation to the said sale transaction.

The Court noted that 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, 1892. The Court concluded that the bar of Section 69(2) would not apply to the case.

The Court made the following crucial observations:

"The upshot of the foregoing discussion is that, for the purpose of Section 69 of the Act of 1932, the present case is governed by the principles laid down in Raptakos Brett & Co. Ltd. (supra), as further exposited in Haldiram Bhujiawala (supra). Hence, the bar of Section 69(2) is not attracted to the suit filed by the appellant."

The Court noted that the Trial Court had rightly appreciated the facts of the case and had rightly rejected the baseless application of the contesting Respondents.

The order of the High Court was thus set aside. The appeal was allowed. The Trial Court was directed to proceed with the trial of the suit in accordance with the law.

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