IMPORTANT POINT
In order to attract bar contained in Section 62(2) of the Indian Partnership Act to maintain suit by unregistered firm the right that is sought to be enforced by the unregistered firm and which is barred must be a right arising out of a contract with third party-defendant in respect of the firm s business transactions.

Headnote:Indian Partnership Act, 1932-Section 62(2)-Code of Civil Procedure, 1908-Order 7, Rule 11-Bar to maintainability of suit-Suit for injunction to restrain defendants from infringing trade mark and using trade mark of plaintiff-Plaintiff unregistered firms-Trade mark in question came to share of plaintiff by virtue of earlier dissolution of partnership with defendant s mother-Defendant s petition under Order 7, Rule 11 to reject plaintiff since plaintiff was unregistered firm- Section 62 barred suit-Held : Suit not based on any contract between plaintiff and defendants-Suit based on statutory right under Trade Marks Act and common law right of passing off-Section 69(2) does not bar suit to enforce statutory or common law right-To attract bar u/s 62(2) right sought to be enforced must be arising out of contract with third party in respect of firms business-Instant suit not barred u/s 62(2).
       Section 69(2) cannot bar the enforcement by way of suit by an unregistered firm in respect of a statutory right or a common law right. It is well settled that a passing off action is a common law action based on tort, a suit for perpetual injunction to restrain the defendant not to pass-off the defendant s goods as those of plaintiffs by using the plaintiffs trade mark and for damages is an action at common law and is not barred by Section 69(2). (Paras 9 & 10).
       Likewise, if the reliefs of permanent injunction or damages are being claimed on the basis of a registered trade mark and its infringement, the suit is to be treated as one based on a statutory right under the Trade Marks Act and is, in our view, not barred by Section 69(2). (Para 11)
       The right that is sought to be enforced by the unregistered firm and which is barred must be a right arising out of a contract with a third party - defendant in respect of the the firm s business transactions. (Para 17)
       There is considerable ambiguity in Section 69(2) (unlike the English Statute of 1916 and 1985) as to what is meant by the words arising out of a contract inasmuch as the provision does not say whether the contract in Section 69(2) is one entered into by the firm with the defendant or with somebody else who is not a defendant, nor to whether it is a contract entered into with the defendant in business or unconnected with business. Hence, in our view, it is it permissible to lock into the Report of the Special Committee which preceded the Partnership Act, 1932 even for purpose of construing Section 69(2). (Para 15)
       The above Report and provisions of the English Acts, in our view, make it clear that the purpose behind Section 69(2) was to impose a disability on the unregistered firm or its partners to enforce rights arising out of contracts entered into by the plaintiff firm with third party-defendant in the course of the firm s business transactions. (Para 19)
       Contract must be a contract by the plaintiff firm not with anybody else but with the third party defendant. The further and additional but equally important aspect which has to be made clear is that-the contract by the unregistered firm referred to in Section 69(2) must not only be one entered into by the firm with the third party-defendant but must also be one entered into by the plaintiff firm in the course of the business dealings of the plaintiff s firm with such third party-defendant. (Para 20 & 21)
       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 customers-defendants 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. Further Section 69(2) is not attracted to any and every contract referred to in the plaint as the source of title to an asset owned by the firm. If the plaint referred to such a contract it could only be as a historical fact. For example, if the plaint filed by the unregistered firm refers to the source of the firm s title to a motor car and states that the plaintiff has purchased and received a Motor Car from a foreign buyer under a contract and that the defendant has unauthorisedly removed it from the plaintiff firm s possession,-it is clear that the relief for possession against defendant in the suit does not arise from any contract with defendant entered into in the course of plaintiff firms business with defendants but is based on the alleged unauthorised removal of the vehicle from the plaintiff firm s custody by the defendant. In such a situation, the fact that the unregistered firm has purchased the vehicle from somebody else under a contract has absolutely no bearing on the right of the firm to sue the defendant for possession of the vehicle. Such a suit would be maintainable and Section 69(2) would not be a bar, even if the firm is unregistered on the date of suit. The position in the present case is not different. (Paras 22 & 23)
       In fact, the Act has not prescribed that the transactions or contracts entered into by an firm with a third party are bad in law if the firm is an unregistered frim. On the other hand, if the firm is not registered on date of suit and the suit is to enforce a right arising out of a contract with the third party-defendant in the course of its business, then it will be open to the plaintiff to seek withdrawal of the plaint with leave and file a fresh suit after registration of the firm subject of course to the law of limitation and subject to the provisions of the Limitation Act. This is so even if the suit is dismissed for a formal defect. Section 14 of the Limitation Act will be available inasmuch as the suit has failed because the defect of non-registration falls within the words "other cause of like nature" in Section 14 of the Limitation Act, 1963. (Para 24)
       In the instant case the present defendants who are sued by the plaintiff-firm are third parties to the 1st plaintiff firm. Section 2(d) of the Act defines third parties as persons who are not partners of the firm. The defendants in the present case are also third parties to the contract of dissolution dated 16.11.74. Their mother, Kamla Devi was no doubt a party to the contract of dissolution. The defendants are only claiming a right said to have accrued to their mother under the said contract dated 16.11.74 and then to the defendants. In fact, the said contract of dissolution is not a contract to which even the present 1st plaintiff firm or its partners or the 2nd plaintiff were parties. Therefore, the suit is based on infringement of statutory rights under the Trade Marks Act. It is also based upon the common law principles of tort applicable to passing-off actions. The suit is not for enforcement of any right arising out of a contract entered into by or on behalf of the unregistered firm with third parties in the course of the firm s business transactions. The suit is therefore not barred by Section 69(2). (Paras 22 & 25)
       (ii) Interpretation of Statutes-Report of Committee proceeding enactment of legislation of an Act-When can be referred to in order to construe provisions of that Act-Section 62(2) of Indian Partnership Act barring suit by unregistered firm enforcing rights arising out of contract-Provision ambiguous-Report of Special Committee which preceded enactment of partnership gone into to construe meaning of the words enforcing a right arising under the contract. (Para 15)
       (iii) Indian Partnership Act, 1932 -Section 62(2)-Bar to maintain suit by unregistered firm-Words enforcing a right arising under the contract , meaning of-Contract must be a contract by plaintiff firm not with anybody else but with third party defendant in course of business of firm. (Paras 20 to 25)

Judgement Key Points

Key Points: - The suit is not barred by Section 69(2) where the right being enforced is a statutory right under the Trade Marks Act or a common law right of passing off. (!) (!) (!) - Section 69(2) requires that the right be one arising out of a contract entered into by the unregistered firm with a third party-defendant in the course of the firm’s business; mere references to contracts or historical dissolution deeds do not automatically bar relief if the suit is grounded in statutory or common law rights. (!) (!) (!) (!) - The Court affirms that passing off and injunctions based on common law tort are not barred, whereas enforcement based on a contractual source with the defendant could be barred. (!) (!) (!) - If a contract-based right is involved, the defendant’s bar under Section 69(2) may apply, and withdrawal/refiling after registration may be possible. (!) - The judgment emphasizes reliance on the Special Committee’s Report and English precedent to interpret the intent of Section 69(2) as protecting third parties dealing with registered/unregistered firms in business. (!) (!) (!) (!) (!)

What is the scope of Section 69(2) of the Indian Partnership Act, 1932 in bars to suit by an unregistered firm seeking injunction or damages for trade mark infringement or passing off?

What factors determine whether a right being enforced arises out of a contract under Section 69(2) (i.e., contract with third party in course of the firm's business) versus statutory or common law rights?

What is the proper interpretation of "arising out of a contract" in Section 69(2) when the plaint references dissolution or historical deeds as the source of title to a trade mark?

JUDGMENT

M. Jagannadha Rao, J.-Leave granted.

2. This appeal has been preferred by the two defendants, M/s. Haldiram Bhujiawala and Sri Ashok Kumar against the judgment of the Delhi High Court in FAO 365 of 1999 dated 30.11.1999. By that order the High Court summarily dismissed the appellants appeal against the order of the learned Single Judge dated 2.11.1999 in IA 5996/99 in Suit No. 635/92. The IA was filed under Order 7 Rule 11 CPC by the appellants for rejection of the plaint filed by the two plaintiffs, Anand Kumar Deepak Kumar trading as Halidram Bhujiawala and Shiv Kishan Agarwal,-on the ground that the 1st plaintiff was a partnership not registered with the Registrar of Firms on the date of suit i.e on 10.12.91 and that the subsequent registration of the firm on 29.5.92 would not cure the initial defect.

3. The suit was filed by the plaintiff (1) for permanent injunction restraining the defendants appellants, their partners, servants etc. from infringing the trade-mark No. 285062 and from using the trademark/name HALDIRAM BHUJIA WALA or any indentical name/mark deceptively similar thereto (2) for damages in a sum of Rs.6 lakhs and (3) for destruction of the material etc.

4. As we are dealing with a matter arising under Order 7 Rule 11 CPC, it will be necessary to refer to the plaint allegations. One Ganga Ram alias Haldiram, carried on business in the name Halidram Bhujia Wala, since 1941. In 1965, he constituted a partnership with his two sons Moolchand, Shiva Krishan and his daughter-in-law Kamla Devi, (wife of another son R.L. Aggarwal) to carry on business under the same name. In December 1972, the said firm applied for registration before the Registrar of Trade Marks for registration of the name Haldiram Bhujia Wala-Chand Mal-Ganga Bishan Bhujiwala, Bikaner. The Registrar of Trade Marks granted registration with the No. 285062. On 16.11.1974, the partnership was dissolved and under the terms of the dissolution deed the above trade mark fell exclusively to the share of Mool Chand, son of Ganga Bishan and father of plaintiffs, for the whole country (except West Bengal). Thus Sri Mool Chand became sole proprietor of the trade-mark in the said area while Smt. Kamla Devi was given ownership of the trade-mark rights for West Bengal. It is stated that Sri Lala Ganga Bishan Haldi Ram executed his last will dated 3.4.1979 and also reiterated the rights conferred by the dissolution deed on the respective parties. Ganga Bishan died in 1980. His will was later acted upon. Later, the testator s son, Sri Moolchand too died in 1985 leaving behind his four sons, Shiv Kishen, Shiv Ratan, Manohar Lal and Madhusoodan. All of them got their names recorded as subsequent-joint proprietors. The latter three formed a partnership in 1983 and were running a shop in Chandni Chowk, New Delhi selling various goods under the abovesaid trade mark of Haldiram Bhujia Wala. In the meantime, on 10.10.77, Mool Chand s brother Sri R.L. Aggarwal (husband of Kamla Devi) and his son Prabhu Shankar, Calcutta applied for registration in this very name at Calcutta claiming to be full owners of the said trade mark without disclosing the dissolution deed dated 16.11.74. When the Registrar objected on 14.4.78, they replied on 18.7.78 that they alone were trading in this name in Calcutta. The defendants have no right to use the said trade mark beyond Calcutta. The plaintiff s registered trade mark was, in the usual course, renewed on 29.12.86 till 29.12.93. The plaintiffs have also acquired a right on account of prior adoption and long user. The 1st plaintiff firm, consisting of three sons of Moolchand and the 2nd plaintiff (the fourth son of Moolchand) are joint owners of the trade mark (except in West Bengal). The 1st defendant firm is a newly constituted firm intending to start its business and has been formed by Ashok Kumar, son of Kamla Devi. The 2nd defendant is Ashok Kumar himself in his individual capacity. They have no right to use this trade mark out

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2000 Supreme(SC) 445

What is the scope of Section 69(2) of the Indian Partnership Act, 1932 in bars to suit by an unregistered firm seeking injunction or damages for trade mark infringement or passing off?

What factors determine whether a right being enforced arises out of a contract under Section 69(2) (i.e., contract with third party in course of the firm's business) versus statutory or common law rights?

What is the proper interpretation of "arising out of a contract" in Section 69(2) when the plaint references dissolution or historical deeds as the source of title to a trade mark?

Cases Referred (7)