Whether an unregistered firm can file a suit against a third party is barred U/S 69(2) of Partnership Act?
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 if the plaintiff-partnership firm on the date of the suit is not registered under the provisions of the Partnership Act
If the suit was so barred, whether subsequent registration of the plaintiff’s firm under the Partnership Act could revive the suit or make it competent at least from the date on which such registration pending the suit was obtained by the respondent-firm.
The relevant provision of the Partnership Act. Section 69 sub- section (2) reads as under:
“69. Effect of non-registration.–(1)***
(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.”
The above mentioned provision states 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 if the plaintiff-partnership firm on the date of the suit is not registered under the provisions of the Partnership Act and the persons suing are not shown in the Register of Firms as partners of the firm, on the date of the suit. The unregistered firm or the partners mentioned in the sub- section must be suing the defendant-third party.
It is settled law that when the language of any provision is plain and clear, then the literal rule of interpretation has to be applied and there is ordinarily no scope for considering the equity, public interest or seeking the intention of the legislature. When there is a conflict between the law in hand and equity, it is the law which must prevail.
Although the firm is not a legal entity, yet the provisions of Order 30 Rules 1 and 2 CPC enable several persons doing business as partners to sue or be sued in the name of the firm. The effect of a suit instituted in the name of the firm in the manner prescribed by Order XXX Rule 1 CPC. is as if the suit is filed by all the partners collectively. Whether the suit is filed by all the partners collectively or by only some of the partners impleading the rest as parties to the suit or whether it is filed in the name of the firm by one or more partners in the manner indicated by Order XXX Rule 1 CPC., the conditions prescribed by Section 69(2) must be fulfilled. They are:–
(1) that the firm must be registered; and (2) that the persons suing are or have been shown in the Register of Firm? as partners in the Firm. The second condition requires that the names of the persons suing are presently shown or have been previously shown in the Register of Firms as partners in the firm. That appears to follow plainly from the provisions of Sec. 69(2).
Only filing an application in the prescribed manner under Section 58(1) of the Act in the office of the Registrar of Firms in the prescribed form, giving the particulars of the partnership firm and its partners, together with the prescribed fee would not be enough for the fulfilment of the aforesaid conditions. The Registration Certificate in the prescribed form should be made available to the partners of the firm and an entry of the statement filed under Section 58(1) should be recorded by the Registrar in the Register of Firms before the institution of the suit.
The sub-section (2) of Section 69 cannot be fulfilled merely by sending to the Registrar of Firms the statement required by Section 58 if the right is arising from a contract. The said fact is not denied by the plaintiffs. Therefore, the plaintiffs have to establish that an entry of the statement is made by the Registrar in the Register of Firms before the date of the institution of the suit if the second mandatory condition under Section 69(2) of the Partnership Act is not fulfilled in the present case.
It is also settled law that the provision in Order XXX Rule 1 CPC requires that the “persons suing in the name of the firm” should be partners at the time of the accruing of the cause of action, and, therefore, the same meaning should be given to the words “persons suing” in Section 69 (2) of the Partnership Act, 1932, and the “persons suing” in requirement (b) therein means the person who were partners at the time of the accruing of the cause of action and not on the date of the institution of the suit and it is sufficient for the purposes of requirement (b) if they have been shown in the Register of Firms as partners in the firm.
The provisions of Sub-sections (1) and (2) of Section 69 are substantive provisions intended to discourage the non-registration of firms. The provision in Section 69 (2) is mandatory. The Partnership Act is a special Act which makes the registration of a firm a condition precedent to the institution of a suit of the nature mentioned in it by or on behalf of a firm against a third party. It deals with the question as to when a firm can sue, or be sued by, a third party in respect of a right arising from a contract, and provides certain requirements as conditions precedent for the institution of the suit, viz. (a) that the firm is a registered firm, and (b) the persons suing are or have been shown in the Register of Firms as partners in the firm.
It is evident that a suit by an unregistered firm is not maintainable and the bar under Section 69 of the Act hits at the very root or the very institution of the suit. If a firm is not registered or if the conditions specified in Section 69(2) are not complied with, the partners of the firm may file a suit, but then all of such partners will have to be joined as plaintiffs. When the conditions specified in Section 69(2) are satisfied, i.e. the firm must be registered and the persons suing must be or have been shown in the Register of Firms as partners of the firm, then a suit can be instituted by or on behalf of the partnership firm in the name of the firm.
Order XXX Rules 1 and 2 CPC merely provide the mode or form and the procedure for suits by or against a firm. The requirements in Section 69 (2) has to be satisfied first and then the provisions of Order XXX Rule 1 and 2 CPC are attracted as regards the mode or form in which the suit may be instituted as well as the procedure applicable to the said suit. In providing the mode, Rule 1 prescribes a certain requirement, viz., that the persons mentioned therein must have been partners at the time of the accruing of the cause of action.
Therefore, the provisions in Section 69 (2) of the Partnership Act and those in Order XXX Rule 1 CPC would operate separately. The former deals with the question as to when a firm can sue or be sued by a third party in respect of a right arising from a contract and prescribes certain requirements for the same, while the latter deals with the mode or form and the procedure for suits by or against firms, and prescribes a certain requirement for the same.
Therefore, it is correctly laid down in many cases that the words “persons suing” in Section 69 (2) and the point of time at which the requirements in Section 69 (2) are to be fulfilled, by referring to the provision in Order XXX Rule 1 CPC.
Under Section 69(2), a suit to enforce a right arising from a contract can be instituted by or on behalf of a firm against any third party only if
(a) the firm is registered and
(b) the persons suing, i.e., all the partners of the firm at the time of the institution of the suit, are or have been shown in the Register of Firms as partners in the firm,
while under Order XXX Rule 1 CPC two or more persons who claim as partners may sue, or who are liable as partners may be sued, in the name of the firm (if any), provided such persons were partners at the time of the accruing of the cause of action.
If the facts in a given case are such as to attract the applicability of the provisions in both Section 69 (2) and Order XXX Rule 1 CPC, the requirements in both the provisions should be fulfilled.
In such a case, if a suit to enforce a right arising from a contract is to be instituted by or on behalf of a firm against any third party, the firm has to be a registered firm, and the partners of the firm as on the date of the institution of the suit must have been shown in the Register of Firms as partners in the firm, and further they must have been partners of the firm at the time of the accruing of the cause of action.
Order 30 CPC prescribes the procedure for the purpose of filing a suit in the name of the firm.
In Raptakos Brett & Co. Ltd. v. Ganesh Property 1998 (7) SCC 184, after noticing Section 69 of the Act, it was observed as under: (para 9) “A 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 satisfied:
(i) 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.
(ii) Such unregistered firm or the partners mentioned in the sub-section must be suing the defendant third party.
(iii) Such a suit must be for enforcement of a right arising from a contract of the firm with such a third party.”
In the case of Purushottam and Anr. v. Shivraj Fine Art Litho Works & Ors., (2007) 15 SCC 58, the Supreme Court has dealt with the case of Haldiram Bhujiawala as well as Raptakos Brett & Co. Ltd. (supra) referred by the learned counsel for the parties. Para 20 and 24 of the judgment are read as under :
“20. In Haldiram Bhujiawala[See below] 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 follows : (SCC pp. 259-60, para 18) “18. 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.
19. ….On 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 to register.”
It would thus appear that registration of a firm was conceived as a protection to third parties dealing with a partnership firm. Registration 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.
In Raptakos Brett & Co. Ltd. Apex court after noticing Section 69 of the Act observed : (SCC p. 191, para 9) “A 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 satisfied:
(i) 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.
(ii) Such unregistered firm or the partners mentioned in the sub-section must be suing the defendant-third party.
(iii) Such a suit must be for enforcement of a right arising from a contract of the firm with such a third party.”
Relying upon the aforesaid analysis Apex Court in Haldiram Bhujiawala 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.
With respect, we find ourselves in complete agreement with the principles enunciated in Haldiram Bhujiawala. 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.”
In Haldiram Bhujiawala & Anr. v. Anand Kumar Deepak Kumar & Anr. 2000(3) SCC 250 (para 27) held as under :-
“For all the reasons given above, it is clear that 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).”
