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Report No. 178

7. Amendment of Section 69 (2) of the Indian Partnership Act, 1932:

Chapter VII of the Indian Partnership Act, 1932 deals with 'Registration of Firms' and sections 56 to 65 deal with the procedure for registration. Section 66 refers to inspection of register, Section 67 to grant of copies to 'any person' and Section 68 with 'rules of evidence'. The purpose of these provisions is to protect those who deal with partnership firms in various commercial transactions.

Third parties who deal with a firm by its name or with a partner or managing partner who represent the firm must be in a position to know who are the partners, what are their respective shares in the partnership, the details, if any, as to the capital investment by partners, and the details, if any, of the partnership property. That would enable them to have an idea of the competence, status and solvency of the partners of the firm.

In order to compel partners to register their partnership firms so that all relevant information could be obtained by inspection of the register or by obtaining a certified copy thereof, legislation is necessary. Under the UK Registration of Business Names Act, 1916, there was a penal provision and also a provision which created certain disability in respect of enforcement of certain rights in Courts. But under the Indian Partnership Act, 1932, there is no penal provision as in UK but there is only a provision which creates certain disabilities in respect of enforcement of rights in Courts.

Under the English Act of 1916, section 8 contained the provision which created the disability. It related to the 'rights of that defaulter under or arising out of any contract made or entered into by or on behalf of such defaulters in relation to the business in respect to the carrying on of which particulars were required to be furnished'.

The Indian Act of 1932 was the result of a Report of a Special Committee consisting of Shri Brojender Lal Mitter, Sir Dinshaw Mulla, Sir Alladi Krishnaswami Iyer and Sir Arthur Eggar. The Committee referred to the provisions of the UK Act of 1916 and felt that it would not be advisable to have any penal provision but that there should only be a provision creating a disability. This disability is contained in section 69. The material part of Section 69, which is relevant for the present purpose reads as follows:

"Section 69: Effect of non-registration: (1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm, unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner of the firm.

(2) No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. 52

(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of se.- off or other proceedings to enforce a right arising from a contract, but shall not affec.-

(a).... .... ....

(b).... .... ....

(4) This Section shall not apply t.-

(a).... .... ....

(b).... .... ...."

It will be noticed that sub-section (1) of section 69 bars suits by partners against the unregistered firm or against any person alleged to be or to have been a partner of such a firm. The bar applies to enforcement o.-

(A) right arising out of a contract, or

(B) right conferred by the Partnership Act

On the other hand, sub-section (2) of section 69 bars suits by or on behalf of the unregistered firm against 'third parties'. Section 2 (d) defines 'third party' as a person who is not a partner of the firm. Sub-section (2) bars enforcement of a "right arising out of a contract"

Sub-section (3) applies the provisions of sub-section (1) and (2) to a claim for set off or other proceeding to enforce a right arising from a., and, at the same time, exempts certain rights, namely, right to seek dissolution or accounts or realization of property of the fir.- which are obviously rights created by the Act.

But the question has arisen whether the words 'enforce a right under a contract' would include rights arising out of contracts with third parties not in connection with the day-to-day business or commercial transactions entered into by the unregistered firm. In Raptakos Brett & Co. Ltd. v. Ganesh Property (AIR 1998 SC 3085), when a landlord which was an unregistered firm, sought to evict a tenant after expiry of the lease period, the tenant claimed that the suit was barred by section 69.

The Court held that Section 69 was not applicable as the suit was for enforcement of a right to eviction created by the Transfer of Property Act. In M/s Haldiram Bhujiawala v. M/s Anand Kumar Deepak Kumar, AIR 2000 SC 1287, the suit was laid for permanent injunction not infringe the right to a trade mark and for damages, etc. The suit was filed by an unregistered partnership consisting of the heirs of a deceased partner, whose right to the trade mark in India (except West Bengal) were declared in a deed of dissolution of an earlier partnership.

While seeking injunction, the plaintiff firm (unregistered) pleaded its title to the trade mark and for that purpose, relied upon the dissolution deed. The defendant pleaded the bar of Section 69 on the ground that the deed was a 'contract' and that no right arising out of a contract could be enforced by the unregistered firm of the plaintiffs.

The Supreme Court while interpreting the words 'arising out of a contract' in section 69 (2) held that, having regard to the purpose behind section 69 (2) 54 as could be gathered from the Report of the Special Committee, the bar under that sub-section applied to a suit by an unregistered firm against third parties for enforcement of a right arising out of a contract, provided that, as under the English Act, 1916, the contract was one entered into with third parties in the course of its commercial transactions.

It was held that the dissolution deed on which the plaintiff- unregistered-firm relied upon was not such a contract but was a contract which was only evidence of the title of the plaintiffs to the trade mark. In that connection, the court also referred to section 4 of the U.K.Business Names Act, 1985 which provides for dismissal of an action "to enforce a right arising out of a contract made in the course of business" and held that the words 'arising from a contract' must be construed accordingly as referring to a contract made in the course of business. This, it was held, could be gathered from the Report of the Special Committee which proceeded the 1932 Act which referred to the English Act of 1916'.

In as much as such issues are arising in several cases and in acceptance of the view of the Supreme Court and to avoid any uncertainty, the Commission has proposed to add an Explanation below Section 69 as follows:

"Explanation: For the purposes of this section, the words 'a right arising from a contract' shall mean a right arising from a contract made in the course of business"

so that the bar is restricted to suits by the unregistered firm (or claims to set off or other proceedings) in respect of rights arising out of contracts entered into in the course of business and not to any and every contract which is not entered into in connection with the business of the unregistered firm.



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