IMPORTANT POINT
Sub-section 2A of section 69 of the Indian Partnership Act, 1932 is invalid.

Headnote:Indian Partnership Act, 1932 – Section 69(2A) – Validity – Articles 14, 19(1)(g) and 300A, Constitution of India – After introduction of sub-section 2A in section 69 since 1.1.1985 a partner in an unregistered partnership firm in the State of Maharashtra cannot file a suit for dissolution or for accounts of a dissolved firm or realize properties of a dissolved firm, unless the duration of the firm was only six months or its capital is upto Rs.2000/- – A partnership firm, whether registered or unregistered, not a distinct legal entity, firm’s property belongs to the partners – Sub-section 2A virtually deprives a partner in an unregistered firm from recovery of his share in the property of the firm or from seeking dissolution of the firm – Sub-section 2A virtually deprives a partner of a firm from his share in the property of the firm without any compensation – It also prohibits him from seeking dissolution of the firm although he may want it dissolved – In effect an unregistered firm, though may come into existence and function, cannot enforce its claims against third parties or go out of existence – A partner of unregistered firm is now unable to enforce his claims against third parties or against his fellow partners – A dishonest partner can deprive the other partners of their due rights – An aggrieved partner is left without any remedy whatsoever – He can neither file a suit to compel the mischievous partner to cooperate for registration, as such a suit is not maintainable, nor can he resort to arbitration if any, because the arbitration proceedings would be hit by Section 69(1) – Restrictions placed by sub-section 2A, held, arbitrary and of excessive nature and go beyond what is in the public interest – Held invalid. (Para 17, 20, 26, 27)
       AIR 1978 SC 597; AIR 1951 SC 41; AIR 1956 SC 17; AIR 1954 SC 447; AIR 1954 SC 415; AIR 1951 SC 118; AIR 1959 SC 300; AIR 1964 SC 1882; AIR 2008 SC 1640 – Relied upon
       AIR 1959 Bom. 332; 1959 (2) MLJ 469 – Cited with approval
       Facts of the case:
       Appellant filed a suit praying for dissolution of an unregistered partnership firm between the appellant and the respondent. The Court was of the view that the said sub-section 2A, of Section 69 of the Indian Partnership Act, 1932 was unconstitutional being violative of Articles 14 and 19 (1)(g) of the Constitution of India. Hence the Bombay City Civil Court made a reference to the High Court.
       The High Court in the impugned judgment has held that the said subsection 2A of Section 69 of the Act is not unconstitutional.
       Finding of the Court:
       Impugned judgment is unsustainable.
       Result:
       Sub-section 2A held invalid.

JUDGMENT :-

Markandey Katju, J.

1. This appeal by special leave has been filed against the impugned judgment of the Bombay High Court dated 27.9.2000 in Civil Reference No.19 of 1999.

2. Heard learned counsel for the parties and perused the record.

3. This appeal arises out of a suit filed before the Bombay City Civil Court instituted by the appellant praying inter alia for dissolution of an unregistered partnership firm between the appellant and the respondent. In that suit a defence taken was that the suit was not maintainable in view of sub-section (2A) of Section 69 of the Indian Partnership Act, 1932 (hereinafter referred to as ‘the Act). The Bombay City Civil Court was of the view that the said sub-section 2A, which was introduced by the Maharashtra Amendment to Section 69 of the Act, being the Maharashtra Act no.29 of 1984 (which received assent of the President of India) was unconstitutional being violative of Articles 14 and 19 (1)(g) of the Constitution of India. Hence the Bombay City Civil Court by order dated 16.8.1999 made a reference to the High Court under Section 113 of C.P.C.

4. The High Court, however, in the impugned judgment has held that the said subsection 2A of Section 69 of the Act is not unconstitutional. Hence this appeal before us.

5. Section 69(1) & (2) of the Partnership Act originally read as follows:

"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 in 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 firms."

6. Sub-section 2A which was introduced by the Maharashtra Amendment 1984 states as follows:

"(2A) No suit to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or any right or power to realize the property of a dissolved firm 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 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 in the firm:

Provided that the requirement of registration of firm under this sub-section shall not apply to the suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a firm for accounts of a dissolved firm or to realize the property of a dissolved firm."

7. It may be mentioned that the Maharashtra Amendment of 1984 not only inserted subsection 2A in Section 69, it also substituted the original sub-section (3)(a) to Section 69 by an altogether different sub-section (3)(a).

8. The original sub-section (3)(a) of Section 69 in the Partnership Act read as follows :

"(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect:-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm."

9. The Maharashtra Amendment of 1984 substituted clause (a) of Section 69(3) of the original Act by the following sub-section (a):

"The firms constituted for a duration of six months or with a capital upto Rs.2000/-"

10. The Maharashtra Amendment also added a proviso to Section 69(1) which reads as follows:

"Provided that the requirement of registration of firm under this sub-section shall not apply to the suits or proceedings instituted by the heirs or legal repre

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2009 Supreme(SC) 517

SUPREME COURT OF INDIA THE HONOURABLE MR. JUSTICE MARKANDEY KATJU & THE HONOURABLE MR. JUSTICE G.S. SINGHVI V. Subramaniam - AppellantVersus Rajesh Raghuvandra Rao - RespondentCIVIL APPEAL NO.7438 OF 2000 Date of Judgment : 20-03-2009

IMPORTANT POINTSub-section 2A of section 69 of the Indian Partnership Act, 1932 is invalid.

Cases Referred (10)

SUPREME COURT OF INDIA
THE HONOURABLE MR. JUSTICE MARKANDEY KATJU & THE HONOURABLE MR. JUSTICE G.S. SINGHVI
V. Subramaniam - Appellant
Versus
Rajesh Raghuvandra Rao - Respondent
CIVIL APPEAL NO.7438 OF 2000
Date of Judgment : 20-03-2009

IMPORTANT POINT
Sub-section 2A of section 69 of the Indian Partnership Act, 1932 is invalid.