& Anr Vs. Shivraj Fine Art Litho Works & Ors  Insc 756 (7 November 2006)
Singh & Altamas Kabir B.P. Singh, J
this appeal by special leave the plaintiffs are the appellants.
suit against original defendant nos. 1 to 9 was decreed for the sum of Rs.8,92,815.14
by the Third Joint Civil Judge (Senior Division), Nagpur in Civil Suit No.52 of 1980. On
appeal by original defendants 1 to 3, the High Court in First Appeal No.35 of
1988 by its impugned judgment and order of April 10, 1992 allowed the appeal
and dismissed the suit holding that in view of the provisions of Section 69(2)
of the Indian Patnership Act (hereinafter referred to as the 'Act'), the suit
was not maintainable, the plaintiff being an unregistered firm.
facts of the case are not in dispute and they will be briefly noticed.
Plaintiff No.1, Pursushottam, carried on business as whole- sale paper merchant
in the name and style of "Dinesh Paper Mart" as the sole proprietor
of the concern. During this period he supplied goods to the defendant firm
namely Shivraj Fine Arts Litho Works, a firm registered under the Partnership
Act. Defendants 2 to 9 were the partners of the said firm. In the year 1974,
Special Civil Suit No.9 of 1974 was filed for dissolution of the defendant
partnership firm and for rendering of accounts. During the pendency of the suit
a receiver was appointed initially to take possession of the properties of the
firm and to run the business of the firm. Later joint receivers were appointed,
and it is not in dispute that at the relevant time defendant No.2 and defendant
No.12 were in management of the aforesaid registered firm respondent No.1
herein as joint receivers.
aforesaid Purushottam had business dealings with the respondent No.1 firm.
Goods were supplied and payments made from time to time. It is not in dispute
that the amounts due and payable to the plaintiff No.1, Purushottam were fully
paid up as on March 20,
1974, that is, before
the date of appointment of Receiver.
after appointment of the Receiver, successive Receivers purchased goods from
Plaintiff No.1, Purushottam, herein for the business of respondent No.1 firm.
A khata was maintained by plaintiff No.1 Purushottam in which payments made
were duly entered, and at the end of the year the amount outstanding as on
December 31, was carried forward to the next year. The defendant firm
acknowledged their liability to pay the amount entered in the khata by making
an endorsement in the khata. As at the end of the financial year 1979 a sum of
Rs.6,22,713.06 was the balance due from the defendant firm to plaintiff Purushottam.
The plaintiff was also entitled to interest at the agreed rate of 18% per annum
on the balance outstanding for more than seven days.
effect from January 1,
1980 the proprietary firm
of Purushottam (Plaintiff No.1) was taken over by a partnership of which
plaintiff Purushottam was also a partner. The said partnership firm took over
all the assets and liabilities of "Dinesh Paper Mart" and continued
their business in the same name. Though the said partnership firm came into
existence on January 1,
1980, an application
for registration of the firm under the Act was made on January 14, 1980. While the said application was
pending, the instant suit was filed on March 31, 1980. Later, on November 29, 1980, the Plaintiff No.2 firm was
granted registration under the Act. It would thus appear that though the newly
constituted partnership firm had applied for registration on January 14, 1980, on the date on which the suit was
filed, that is on March
31, 1980, it was an
unregistered firm and registration was granted later on November 29, 1980. This therefore, gave rise to the
objection urged on behalf of the defendants relying on Section 69(2) of the Act
that the suit by an unregistered firm was not maintainable to enforce a right
arising from a contract.
High Court took the view relying upon authorities that the suit was barred by
Section 69(2) of the Act, and even if registration was subsequently granted, that
would not cure the defect. Repelling the argument that in any event Plaintiff
No.1, the erstwhile proprietor may be entitled to enforce his claim, the Court
held that once he had transferred his rights to the partnership which took over
all the rights and liabilities of the proprietary concern, he lost his
exclusive right to recover the amount since that had become an asset of the
partnership firm over which he as a partner had no exclusive right. He,
therefore, did not have any enforceable subsisting claim after the partnership
came into existence, and, therefore, no relief could be granted to him in his
personal capacity as erstwhile proprietor of the concern.
V.A. Mohta, Sr. Advocate, appearing on behalf of the appellants before us
advanced three main submissions. Firstly, he submitted that once registration
is granted, even though after the filing of the suit, the suit should be held
to be maintainable as from the date on which registration is granted subject to
the law of limitation.
he submitted that Plaintiff No.1, Purushottam in his personal capacity could
sue the respondent firm for the amount in question, if the firm of which he was
a partner was for reason of non- registration unable to maintain a suit.
Lastly, he submitted that Section 69(2) of the Act is not attracted to a case
where the contract in question is not with the unregistered firm and for this
he relied on the Kumar Deepak Kumar and Anr. : (2000) 3 SCC 250. Ors. (1989) 3
SCC 476; it was held by this Court that a suit filed by the existing partners
of the firm after reconstitution was not maintainable if the newly added
partners were not shown as partners in the Register of Firms under the Act. In
that case the suit was filed in the name of the current partners as on the date
of the suit, whose names were not shown as partners in the Register of Firms
maintained under the Act. It is no doubt true that in the aforesaid decision
the bar was attracted not on account of non-registration of a partnership firm
but on account of the fact that the persons suing had not been shown in the
Register of Firms as partners of the firm. Counsel for the respondent submitted
that Section 69(2) of the Act is mandatory and unless the conditions specified
therein are fulfilled, a suit by a partnership Firm will be hit by the bar
contained in that provision.
question as to whether the subsequent registration of the firm would cure the
initial defect in the filing of the suit arose for (1998) 8 SCC 559. This Court
held that in view of the clear provision of the Act it was not possible to
subscribe to the view that subsequent registration of the firm may cure the
initial defect, because the proceedings were ab initio defective as they could
not have been instituted since the firm in whose name the proceedings were
instituted was not a registered firm on the date of the institution of the
proceedings. This Court also noticed the difference of opinion amongst the High
Courts and concluded thus:- "Counsel for the respondents, however, invited
our attention to two decisions which take a view that subsequent registration
of the firm can cure the initial defect provided the registration is before the
period of limitation has run out. Our attention was drawn to However, the High
Court of Patna in Laduram Vastrad & Co. take a contrary view and hold that
the suit is incompetent ab initio. We have considered these decisions, but in
the light of the plain language of Section 69 of the Partnership Act read with
Section 20 of the Arbitration Act and in view of the decision of this Court
reported in Shreeram Finance Corpn.
clearly of the opinion that proceedings under Section 20 of the Arbitration Act
were ab initio defective since the firm was not registered and the subsequent
registration of the firm cannot cure that defect".
same view was also reiterated in U.P. State Sugar Corporation These decisions
squarely answer the first submission of Shri V.A. Mohta. The submission must
therefore be rejected.
second submission urged on behalf of the appellants is also squarely answered
by a judgment of this Court reported in Addanki 3 SCR 400 This Court held:
seems to us that looking to the scheme of the Indian Act no other view can
reasonably be taken.
whole concept of partnership is to embark upon a joint venture and for that
purpose to bring in as capital money or even property including immovable
property. Once that is done whatever is brought in would cease to be the
exclusive property of the person who brought it in. It would be the trading
asset of the partnership in which all the partners would have interest in
proportion to their share in the joint venture of the business of partnership.
The person who brought it in would, therefore, not be able to claim or exercise
any exclusive right over any property which he has brought in, much less over
any other partnership property. He would not be able to exercise this right
even to the extent of his share in the business of the partnership. As already
stated, his right during the subsistence of the partnership is to get his share
of profits from time to time as may be agreed upon among the partners and after
the dissolution of the partnership or with his retirement from partnership of
the value of his share in the net partnership assets as on the date of
dissolution or retirement after a deduction of liabilities and prior
charges." The High Court has, therefore, rightly held that the partnership
having come into existence of which Plaintiff No.1 was a partner, and he having
transferred to the said partnership all his assets and liabilities of his
proprietary concern, he had no subsisting exclusive right to enforce the
liability against the defendants since such rights as he had as the proprietor
vested in the partnership. He could not therefore either file a suit or claim
any relief in the suit filed by the partnership asserting his right as the
erstwhile proprietor. The second submission also fails.
brings us to a consideration of the third submission that the bar in Section
69(2) of the Act is not attracted to a suit in which the contract in question
is not with the unregistered firm which is the plaintiff. Counsel placed
considerable reliance on the judgment of this Court in Haldiram Bhujiawala and Anr.
(supra), and submitted that the principles laid down therein applied to his
case with full force.
other hand, the respondents insist that the case is clearly distinguishable on
facts, and in any case the observations relied upon by the appellants do not
constitute the ratio, as it was wholly unnecessary to go into the question
which did not fall for consideration after the first question was answered in favour
of the appellants.
therefore becomes necessary for us to notice the relevant facts of the case,
the questions that fell for consideration, and the principles laid down
plaintiffs in the suit were the sons of Moolchand, the first plaintiff being
the partnership firm of which three of his sons were partners, and the second
plaintiff being his fourth son. Their case was that the partnership of which
their late father Moolchand was a partner was the duly registered proprietor of
the trademark Haldiram Bhujiawala. On dissolution of the firm on 16.11.1974 in
terms of the deed of dissolution, Moolchand became the sole proprietor of the
trademark for the whole country except State of West Bengal. Smt. Kamla Devi, another partner, who was the wife of R.L.
Aggarwal a brother of Moolchand, was given ownership of the trademark rights
for West Bengal. Upon the death of Moolchand in
1985 his four sons got themselves recorded as joint proprietors of the
trademark. Three of them formed a partnership in the year 1983 and were running
a shop in Chandni Chowk, Delhi.
meantime on 10.10.1977 R.L. Aggarwal and his son applied in Calcutta for registration of the same
trademark in their name claiming to be full owners of the trademark, without
disclosing the dissolution deed of 16.11.1974. In these circumstances a suit
was filed by the partnership firm with three of the sons of Moolchand as
partners thereof being the first plaintiff. The second plaintiff in the suit
was the fourth son of Moolchand. They claimed the relief of injunction
restraining the defendants from using the said trademark, damages, and for
destruction of the material etc. The defendants filed an application under
Order 7, Rule 11, CPC for summary dismissal of the suit since Plaintiff No.1
partnership firm was not a registered partnership firm on the date of the
filing of the suit. The Trial Court dismissed the application and so did the
appellate bench of the High Court of Delhi. The defendants appealed to this
Court by Special Leave.
questions were framed which arose for consideration.
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 trademark as a
statutory right or by invoking common law principles applicable to a
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?"
first question was answered relying upon the law laid down (1998) 7 SCC 184
that the bar in Section 69(2) of the Act did not operate to bar a suit by an
unregistered firm seeking enforcement of a statutory right or a common law
right. It was held that a passing off action being a common law action based on
tort, and not on contract, Section 69(2) did not apply. The reliefs of
permanent injunction and damages were claimed on the basis of infringement of
registered trademark. Thus the suit was held to be one based on statutory right
under the Trade Marks Act, and therefore not barred by Section 69(2).
for the respondents contended before us that having answered the first question
in favour of the plaintiffs, it was wholly unnecessary for the disposal of the
appeal to consider the second question formulated by this Court. Therefore, any
observation made or principle enunciated, in relation to the second question
was at best obiter, and not a binding precedent.
shall assume in favour of the respondents that the observations made and
principles laid down are obiter and therefore not a bind precedent. Even so
that does not preclude this Court from appreciating the reasons given for the
principles laid down, and if the reasoning appears to this Court to be cogent,
and merit acceptance, the same may be accepted by this Court as its own and
applied to the case before it.
Bhujiawala and Anr. (supra) this Court noticed the recommendations made by the
Special Committee in its report which was considered by the legislature while
enacting the Partnership Act, 1932. The Committee recommended that registration
of firms be made optional as it considered making registration compulsory too
drastic for a beginning in India. It was
proposed that registration should lie entirely with the discretion of the firm
or partner concerned, but any firm which was not registered will be unable to
enforce its claim against third parties in the civil court; and any partner who
is not registered will be unable to enforce his claims either against third
parties or against fellow partners. Paragraphs 18 and 19 of the Report reads as
Once registration has been effected the statement recorded in the register
regarding the constitution of the firm will be conclusive proof of the facts
therein contained against the partners making them and no partner whose name is
on the register will be permitted to deny that he is a partner with certain
natural and proper exceptions which will be indicated later. This should afford
a strong protection to persons dealing with firms against false denials of
partnership and the evasion of liability by the substantial members of a firm.
the other hand, a third party who deals with a firm and knows that a new
partner has been introduced can either make registration of the new partner a
condition for further dealings, or content himself with the certain security of
the other partners and the chance of proving by other evidence, the partnership
of the new but unregistered partner. A third party who deals with a firm
without knowing of the addition of a new partner counts on the credit of the
old partners only and will not be prejudiced by the failure of the new partner
would thus appear that registration of a firm was conceived as a protection to
third parties dealing with a partnership firm.
ensured the certainty of existence of the firm and its membership, so that
later an unsuspecting third party contracting with the firm may not run the
risk of being defeated on discovery that neither the partnership firm nor its
partners existed in fact. On the other hand, an unregistered firm could not
bring a suit for enforcing its right arising from a contract.
Brett & Co. Ltd. (Supra) this court after noticing Section 69 of the Act observed
mere look at the aforesaid provision shows that the suit filed by an
unregistered firm against a third party for enforcement of any right arising
from a contract with such a third party would be barred at its very inception.
To attract the aforesaid bar to the suit, the following conditions must be
That the plaintiff-partnership firm on the date of the suit must not be
registered under the provisions of the Partnership Act and consequently or even
otherwise, the persons suing are not shown in the Register of Firms as partners
of the firm, on the date of the suit.
Such unregistered firm or the partners mentioned in the sub-section must be
suing the defendant-third party.
Such a suit must be for enforcement of a right arising from a contract of the
firm with such a third party".
upon the aforesaid analysis this Court in Haldiram Bhujiawala and Anr. (supra)
held that the contract contemplated by Section 69 of the Act is the contract
entered into by the firm with the third party defendant. The contract by the
unregistered firm referred to in Section 69(2) must not only be one entered
into by the firm with a third party defendant, but must also be one entered
into by the plaintiff firm in the course of the business dealings of the
plaintiff firm with such third party defendant.
respect, we find ourselves in complete agreement with the principles enunciated
in Haldiram Bhujiawala and Anr. (supra).
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.
instant case the contract was entered into with the respondent firm by the
erstwhile proprietor of the concern namely Purushottam. The partnership firm
came into existence later. The amount claimed in the suit were due to the
proprietor Purushottam who carried on his proprietary business in the name and
style of "Dinesh Paper Mart". When he entered into partnership with
others, he contributed to the partnership by way of his contribution to the
capital, all the assets and liabilities of his erstwhile proprietary concern.
Thus, though the partnership firm, which was unregistered, became entitled to
enforce the contractual obligation of the defendant firm which it owed to Purushottam,
the contract was not one entered into by the unregistered firm with a third
party, nor was it one entered into by the unregistered firm in the course of
its business dealings with the defendants. So viewed, the bar of Section 69(2)
cannot apply to the suit filed by the Plaintiff appellants.
therefore, allow this appeal with costs and set aside the impugned judgment and
decree of the High Court and restore that of the Third Joint Civil Judge
(Senior Division) Nagpur, in Civil Suit No.52 of 1980 dated