IMPORTANT POINT
If a right sought to be enforced by an unregistered firm had not arisen from the contract to which the unregistered firm was a party, or was not entered into in connection with business of unregistered firm with a third party, bar of Section 69(2) of Partnership Act will not apply.

Headnote:(i) Partnership Act - Section 69(2) - Suit by unregistered partnership firm for enforcement of right under a contract - Whether subsequent registration of firm would cure the initial defect in filing of suit? No.
       Held : The question as to whether the subsequent registration of the firm would cure the initial defect in the filing of the suit arose for consideration in D.D.A. Vs. Kochhar Construction Work and Anr. (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.(Para 8)
       (ii) Partnership Act - Section 69(2) - Suit for recovery filed by appellant firm decreed by trial Court - High Court set aside the decree in appeal holding that firm being unregistered suit was not maintainable - Appeal - Plaintiff firm earlier a proprietary concern supplied goods to defendant firm and by end of financial year 1979 a sum of Rs. 6,22,713 was the balance due from defendant firm - With effect from January 1, 1980 the proprietary concern was taken over by a partnership firm of which proprietor became one of the partners - Partnership firm took over all assets and liabilities of proprietory concern - Application for registration of firm was made on 14-1-1980 - While application was pending, recovery suit in question was filed on 31-3-1980 - Firm was granted registration on 29-11-1980 - Whether right in the recovery suit could be executed by the proprietor? No - Whether bar u/s 69(2) of the Act was attracted to a suit in which the contract in question was not with the unregistered firm which was the plaintiff?
       Held : 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.(Para 11)
       This 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. On the 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.(Para 12)
       With respect, we find ourselves in complete agreement with the principles enunciated in Haldiram Bhujiawala and Anr. (supra). Having 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. (Para 24)
       In the 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. (Para 25)
       We, 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. (Para 26)

JUDGMENT

B.P. Singh, J. - In this appeal by special leave the plaintiffs are the appellants. Their 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 Partnership Act (hereinafter referred to as the Act), the suit was not maintainable, the plaintiff being an unregistered firm.

2. The facts of the case are not in dispute and they will be briefly noticed. Plaintiff No.1, Purushottam, 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.

3. The 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. Even 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.

4. With 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.

5. The 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,

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2006 Supreme(SC) 1068

IMPORTANT POINTIf a right sought to be enforced by an unregistered firm had not arisen from the contract to which the unregistered firm was a party, or was not entered into in connection with business of unregistered firm with a third party, bar of Section 69(2) of Partnership Act will not apply.

Cases Referred (6)

IMPORTANT POINT
If a right sought to be enforced by an unregistered firm had not arisen from the contract to which the unregistered firm was a party, or was not entered into in connection with business of unregistered firm with a third party, bar of Section 69(2) of Partnership Act will not apply.