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Introduction
The section is a long one. Its length is due to the desire of the
Legislature to make the adverse effects of non-registration so
broad-based and comprehensive as to make the provisions virtually
compulsive.
The outline of the provisions by way of brief points is:
No member of an unregistered firm can enforce his rights under the
partnership contract against either the firm or any present or
past member of it, nor can the firm sue its customers on their
contracts. The firm remains liable to be sued by persons outside
it, and cannot plead a set-off. Only suits for dissolution of the
firm, and the powers of official assignees under the Insolvency
Acts, are exempt from the prohibition. A small and harmonious firm
dealing in a small way and mainly for ready money might be content
to take these risks, mitigated as they are by the proviso of sub-s
(4)(b) as to claims not exceeding Rs 100 in value. For a business
of any considerable magnitude they appear sufficiently deterrent.
Mandatory character
Now, the mischief primarily intended to be prevented by the
mandatory provisions of Section 69 was the hardship and difficulty
to which third parties dealing with a firm were subjected in the
matter of proving as to who were the partners. As to the
provisions affecting the partners themselves it seems clear that
the main object and intention of the Legislature was to prevent a
partner from enforcing his claims against fellow partners if the
firm was not registered and to compel in such a case dissolution
of the firm by laying down that the court will entertain suits
only when dissolution and accounts and winding up of the affairs
of the firm is sought or where accounts or winding up of the
affairs of an already dissolved firm is sought.
The English law compels registration at the pain of penalty;
Section 69 compels it at the pain of disability to sue. Thus it
becomes necessary for the survival of a firm that it should be
registered. However, where a person in his individual capacity is
not shown partner of the firm but as Karta of Hindu undivided
Family he is partner of the firm, he is therefore duly authorized
to institute the suit. A Joint family firm is not subject to the
restrictions imposed by Section 69 of the Act. Similarly, there
are other situations also where firms can escape the liability of
being registered. Hence, this project aims to deal with all those
circumstances where the scope of Section 69 extends and where the
law proves to be a mere facade
Disability
Of Firms Only
The burden lies on the defendant who wants to non-suit the
plaintiff to show that there is or was a firm and the plaintiff's
suit is in respect of the matters relating to the partnership. The
Orissa High Court said on the facts of a case that where there is
not an iota of evidence to show that there was any such agreement
between the plaintiff and defendant as made them partners. Section
69 would not be applicable.
Non-Registration Can Be Raised At Any Stage
There is, however, a bewildering variety of decisions on the
subject. For example, the Andhra Pradesh High Court allowed a suit
to proceed where though the defendant had raised the question of
registration in his written statement and did not press it into an
issue and though the plaintiff-partner had not produced a copy of
the Registrar of Firms so as to show that his name was there. The
matter cannot, however, be raised at the stage of the execution of
a decree. Though, of course, an execution can be sought to be
stayed on the plea of questioning the validity of the decree on
the ground of non-registration.
The Madras High Court has held that a decree passed by a court in
a suit by a firm is not a nullity where the matter of
non-registration was not raised in the suit and accordingly the
validity of the decree cannot be challenged in a separate suit.
All these cases with varying results suggest that the matter of
registration and maintainability of the suit should be decided as
a preliminary matter
Effect Of
Subsequent Registration
HARRIES CJ of the Patna High Court explained the reasons for this
approach:
"Subsequent registration cannot cure the initial defect. A plaint
filed by an unregistered firm is in fact no plaint at all, because
Section 69 makes claims arising out of a contract unenforceable if
the firm is unregistered at the date of the institution of the
suit. An unregistered firm has no right to sue and, therefore, a
plaint filed by it has no legal effect. If at the time the plaint
is filed the claim is bound to fail, how subsequent registration
can improve the position. The single Judge of the Calcutta High
Court held that there was no reason why the court should not treat
the plaint as filed on the date of registration. But I know of no
provision of law, which permits a court to treat a plaint as filed
on a date subsequent, to the date upon which it was actually
filed. The best course in such a case for the suer to adopt is to
institute a fresh suit after registration and the court will
entertain it if it is still within time
There will also be this further difficulty that once a dispute
between the partners has arisen, all of them may not sign the
application form and consequently the firm may remain unregistered
and even if registration is obtained by dropping the names of
adversaries, those whose names do not figure in the registration
cannot still be sued as partners. It is, therefore, advisable to
have the firm registered when it is constituted. Partners cannot
be compelled to sign registration documents, nor an action is
allowed to so compel them. Registration of Sub-partnership A
sub-partnership, (Section 29), is the agreement by a partner to
share his share of the profits with certain other persons. Since
the Partnership Act applies to such partnerships also, for the
purposes of suits as between them registration of the
sub-partnership would seem to be necessary. Such firms have been
recognized as valid for registration purposes.
Scope Of
Sec.69 (1) And Matters Outside Its Preview
Two conditions are necessary to enable a partner to sue his
co-partners or the- firm. First, the firm should be registered
and, second, the name of the partner suing must figure in
registration. The scope of the sub-section was examined by the
Bombay High Court in
S.H. Patel v. Husseinbhai Mohd,
a case where the action was between two former partners to enforce
an agreement restraining the outgoing partner from carrying on in
some area any business similar to that of the firm and the court
had to examine whether such suit was maintainable the firm being
unregistered.
Reliance was placed by the defendant upon an earlier decision of
the Bombay High Court68 In that case the plaintiff and defendant
had been partners with equal shares. On dissolution, the accounts
were made up and the defendant paid the plaintiff Rs 600 on
account of income tax, which it was, estimated the firm would be
liable to pay. Subsequently an assessment of Rs 3400 was made,
which the plaintiff paid and sued the defendant for half the
amount minus Rs 600 already paid. The firm was not registered and
the plea of absence of registration was upheld as the plaintiff's
cause of action was the original contract of partnership and not
any new agreement to pay half the money. DESAI J in the case of
S.H. Patel v. Husseinbhai Mohd.
distinguished the facts of this case from the one quoted in
precedent. Here there was a new agreement as to restraint and not
one arising out of the original contract of partnership. He said:
"The right which the plaintiff seeks to enforce is not the right
vested in, or acquired by, him as a partner, but a right acquired
by him under a distinct subsequent agreement. This agreement does
not in any way regulate the rights of partners as such, i.e., it
does not in any way regulate their actual rights and obligations
as partners, but is, on the contrary, .a new and independent right
furnishing an entirely different cause of action.
Principles
Applicable To Construing S.69
DESAI J at this stage tried to explain the principles by which the
provisions of Section 69 should be construed. The court
accordingly concluded that an agreement between former partners as
to restraint of trade is not within the scope of Section 69(1)A
similar ruling of the Allahabad High Court, where it was held that
a suit by A, the partner of an unregistered dissolved firm against
B, the other partner, to recover a sum which was overdrawn by B
from the partnership assets and the amount which represented B's
share of the loss incurred by the partnership, is a suit to
recover the property of a dissolved firm within the meaning of the
exception in Section 69(3)(a).
Matters Simultaneous with Dissolution and Settlement of Accounts
The Madras High Court had to consider a case in which an agreement
by one partner to pay a sum of money to the other was
contemporaneous with dissolution and settlement of accounts, but
even so the action was allowed. The court said that this was a
suit for the enforcement of an agreement entered into after the
dissolution or at the time of dissolution between partners under
which some definite amount was payable by one partner to another.
The section has to be strictly construed and the court will not be
justified in holding that the bar extends to dissolution and
account.
Matters Personal to Partners during Subsistence of Firm. Where any
agreement is made or a cause arises between the partners during
the subsistence of the firm, what should be the position. If the
matter in question is purely personal between the partners, or has
nothing to do with contract of partnership or Partnership Act, for
example, a tort or tenancy action, between partners, it will be
clearly outside the scope of the section. The section will be
attracted when the matter is contractual and with partnership
content or is about a provision of the Partnership Act which
confers a right upon a partner. The Jammu and Kashmir High Court
witnessed a case of mixed nature.
The plaintiff and the defendant formed a partnership to run a
hotel. The hotel was to be located in a part of the premises
belonging to the plaintiff and which part was already in the
occupation of the defendant. A provision was, therefore, inserted
in the partnership agreement that if the defendant continued in
possession for more than three months after the date of the
partnership agreement, he must pay a sum of money per month as
compensation for use and occupation. The suit was to recover this
amount and also to evict the defendant from the premises. The firm
was not registered. Figured in the agreement and. therefore, it
was a right arising out of agreement and clearly within the sweep
of Section 69.
"The dispute admittedly relates to the premises in which the
business of the partnership was to run. It is also directly
related to the provisions of the partnership deed itself. It does
not, therefore, admit of doubt that the suit is inextricably mixed
up with the partnership itself and arises out of the partnership
contract. Supposing there was no such provision in the partnership
deed about the premises? Quite obviously the matter would have
been outside the scope of the partnership and beyond the reach of
the crippling hands of Section 69, and the plaintiff would have
enforced his right of ownership and compensation for use and
occupation. A matter of personal nature should not cease to be
personal merely because it finds some incidental place or
reference in the partnership deed. The substance of the right in
question should be the guiding criterion.
Suits Between Firms And Third Parties
[Sub-S. (2)}
Contractual matters
An unregistered firm cannot sue any third party for the
enforcement of any right arising from contract. There are two
requirements of the right to sue namely, the firm should be a
registered one and the person suing should appear as a partner in
the registration. The Supreme Court did not allow an unregistered
firm and its partner to recover sums of money advanced by the firm
to a mill. JASWANT SINGH J said:
"In the instant case. Seth Suganchand had to admit in unmistakable
terms that the firm 'Sethiya & Co.' was not registered under the
Indian Partnership Act. It cannot also be denied that the suit out
of which the appeals have arisen was for enforcement of the
agreement entered into by the plaintiff as partner of 'Sethiya &
Co., which was an unregistered firm. That being so, the suit was
undoubtedly a suit for the benefit and in the interest of the firm
and, consequently, a suit on behalf of the firm. It is also to be
borne in mind that it was never pleaded by the plaintiff, not even
in the replication, that he was suing to recover the outstanding
of a dissolved firm Thus the suit was clearly hit by Section 69
and was not maintainable.
The Supreme Court examined the scope of the words "arising
from contract
in its decision in
Haldircon Bhujiawala v Anand Kumar Deepak Kumar.
A person who had been carrying on business in the name of "Halidiram
Bhujiawala"
since 1941 constituted in 1965 a partnership with his two sons M
and S and his daughter-in-law K, who was the wife of his third
son. In 1972, the firm got the said name registered with the
Registrar of Trade Marks. On 16-11-1974, the partnership was
dissolved and under the terms of the dissolution deed the above
trademark fell exclusively to the share of M for the whole country
except West Bengal. K was given ownership of the trademark rights
for West Bengal. The said person in a will reiterated the rights
conferred by the dissolution deed. He died in 1980. M died in 1985
leaving behind four sons. All of them got their names recorded as
subsequent joint proprietors.
Three of them formed a partnership in 1983 and were running a shop
in New Delhi selling various goods under the above said trademark
of "Haldiram
Bhujiawala".
In the meantime, in 1977 K's husband and his son applied for
registration of this very name at Calcutta claiming to be the full
owners of the trademark without disclosing the dissolution deed
dated 16-11-1974. The registered trademark of M's sons was, in the
usual course, renewed on 29-12-1986 till 28-12-1993. They had also
acquired a right on account of prior adoption and long user. They
filed a suit in which the firm consisting of three sons of M was
plaintiff 1 and the fourth son of M was plaintiff 2. The first
defendant was a newly constituted firm, which intended to start
its business, and was formed by K's son. The second defendant was
K's son in his individual capacity. The suit sought, inter alia, a
permanent injunction restraining the defendants (appellants
herein) from infringing the trademark/name "Haldiram
Bhujiawala"
and from using the same. The violation of the trademark by the
defendants came to the notice of the plaintiffs when the
defendants opened a shop in New Delhi. The plaintiffs also claimed
a certain amount by way of damages.
The cause of action for the suit was that the defendants had acted
"in
violation of the common law and contractual rights of the
plaintiff".
The defendants (appellants herein) filed for rejection of the
plaint on the ground that the 1st plaintiff was a partnership not
registered with the Registrar of Firms on the date of the suit,
i.e. on 10-12-1991 and that, therefore, Section 69(2) of the
Partnership Act, 1932 was a bar to maintainability of the suit.
They further pleaded that the subsequent registration of the firm
on 29-5-1992 would not cure the initial defect. Before the Supreme
Court the question was as to the applicability of the bar under
Section 69(2) of the Partnership Act, 1932 to the present case and
the scope of the words "arising
from a contract"
occurring therein. The appellants contended that the suit sought
to enforce a right "arising
from a contract",
namely, the contract of dissolution dated 16-11-1974 and that,
therefore, the suit was barred by Section 69(2). Dismissing the
appeal, it was held that the suit was not barred by Section 69(2)
if a statutory right or a common law right is sought to be
enforced.
The Court said:
The question is as to the nature of the right sought to be
enforced in the present suit. It is well settled that a
passing-off action is a common law action based on tort.
Therefore, a suit for perpetual injunction to restrain the
defendants not to pass off the defendants' goods as those of the
plaintiffs by using the plaintiff's trademark and for damages is
an action at common law and is not barred by Section 69(2).
Likewise, if the relief of permanent injunction or damages are
being claimed on the basis of a registered trademark and its
infringement, the suit is to be treated as one based on a
statutory right under the Trade Marks Act and is not barred by
Section 69(2). Therefore, in both these situations, the
unregistered partnership in the present case cannot be said to be
enforcing the right 'arising
from a contract'.
Moreover, there is considerable ambiguity in Section 69(2) as to
what is meant by the words 'arising out of a contract. 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 the third-party
defendants in the course of the firm's business transactions.
Moreover, 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 defendants 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 defendants
Therefore, 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).Bombay State
Amendment" The Bombay State Amendment of 1984 has added
sub-section (2-A) to Section 69. The sub-section provides:
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:
The amendment has the effect of barring even suits for
dissolution. A suit was filed for dissolution, which had to be
dismissed for non-registration. An amendment to the suit was
sought. The court did not permit it. No amendment of a suit could
be allowed where the original suit itself was not maintainable
Statutory
And Non-Contractual Rights
If for example, the property of a firm is damaged by the negligent
or deliberate act of a third person, the firm can definitely sue
him whether registered or not. Non-registration is not a license
for anybody to take liberty with the property of the firm. Courts
have thus to distinguish for the purposes of Section 69
contractual claims from those which arise independently of a
contract. In a curious decision the Patna High Court did not allow
an unregistered firm to enforce its insurance claim in respect of
its motor vehicles. An insurance claim is not so much a claim
under a contract as an action to collect the property of the firm
and in the manner of collecting the payment of a cheque and should
have been allowed by
bringing it in that category.
Effect Of Change In Constitution Not Notified To Registrar
In a case before the Bombay High Court, the plaintiff's personal
business was taken over by a partnership firm along with all the
assets and liabilities and he became a partner in the firm. He had
supplied some quantity of the paper to a firm before the takeover.
The claim in respect of the same also became partnership property.
As an individual he could have enforced his claim, but as a claim
of the firm, it could not be enforced because the firm was not
registered. The court lamented that a genuine claim running into
lakhs of rupees could not be enforced for technical consideration
and the recipient of the material obtained an unjust enrichment.
By or on behalf of firm The bar imposed by Section 69(2) comes
into operation when the suit is by or on behalf of the firm. The
individual right of a partner to sue a third party is not within
the preview of the provisions
The law has been thus stated in LINDLEY ON PARTNERSHIP:
'One partner may sue alone on a written contract made with himself
if it does not appear from the contract itself that he was acting
as agent of the firm; and one partner ought to sue alone on a
contract entered into with himself, if such contract is in fact
made with him as a principal, and not on behalf of himself and
others.
The principle thus laid down was followed by the Allahabad High
Court in a case were an individual had taken out a lease in his
personal capacity and he was allowed to enforce it though
subsequently he had taken two partners with him. The court said
that regard must be had to the fact that at the time of the lease
agreement he was all by himself and, therefore, could have
enforced without joining his subsequent partners as co-plaintiffs.
His individual right cannot suffer because of non-registration of
a partnership, which he subsequently constituted.
"Set-Off
Or Other Proceedings"
[S.69 (3)]
The words "other
proceedings"
had created some controversy as to their import, particularly in
reference to the question whether they included arbitration
proceedings. Some High Courts have relaxed the rigor of Section 69
to this extent that an arbitration agreement can be implemented
without the intervention of the court. Such submission is not a
"proceeding" within the meaning of Section 69(3). The Calcutta
High Court explained how this stands outside the scope of Section
69."It appears to be implicit in the terms of Section 69 itself
that proceedings contemplated by it are proceedings in court.
Those contemplated by sub-sections (1) and (2) are expressly so.
Sub-section (3) begins with a reference to the provisions of
sub-sections (1) and (2) and says significantly that they shall
apply also to a claim of set-off or other proceeding to enforce a
right arising out of a contract. It appears that when sub-section
(3) draws in the provisions of sub-sections (1) and (2), it draws
in the whole of those provisions including the reference to
proceeding in court, and when it says that the provisions of the
earlier two sub-sections shall apply 'also'
to a claim of set-off or other proceeding, it seems to make it
abundantly clear that the proceedings it is contemplating are of
the same class as those in sub-sections (1) and (2).The Supreme
Court has now by its decision in
Jagdish Chandra Gupta v Kajaria Traders (India) Ltd
. settled the controversy in favor of the view that arbitration
proceedings would also fall within the sweep of the words "other
proceedings".
'
The facts were:
A clause in a deed of partnership provided that in case of any
dispute between the partners, the matter would be referred to
arbitration. A dispute having arisen, one partner appointed an
arbitrator to which the other partner gave no response. An action
was then commenced to enforce the arbitration clause of the
agreement.
The other partner contended that the firm was not registered and,
therefore, the suit should be dismissed. The Supreme Court held
that the suit was not maintainable. HIDAYATULLAH J (afterwards CJ)
emphatically said, "it is impossible to think that the right to
proceed to arbitration is not one of the rights which are founded
on the agreement of the parties. The words of Section 69(3) 'or
other proceeding to enforcer right arising from a contract'
are sufficient to cover the present matter This is undoubtedly a
welcome decision. If arbitration proceedings were allowed,
unregistered firms would, by providing for arbitration in the
partnership deed, escape the disability contained in the section.
That would have virtually nullified the very purposes for which
Section 69 was there.
Proceeding After Arbitration Award
In this case there was a contract between the petitioner and the
respondent an unregistered partnership firm. A dispute arose
between them. The petitioner gave a notice to the respondent firm
for appointment of an arbitrator and suggested five names. The
respondent agreed to the name of one of the arbitrators, who, as
sole arbitrator, conducted the arbitration proceedings and
ultimately filed the award in the court for making it the rule of
the court. An objection was raised by the petitioner, contending
that proceedings relating to enforcement of an award were covered
within the meaning of Section 69(3) of the Partnership Act. It was
held that the bar under Section 69 is with respect to the filing
of a suit, claim of set-off or other proceedings to enforce a
right arising from a contract by an unregistered partnership firm.
The proceedings arising out of an award cannot be put on par with
the proceedings arising out of an agreement. Once an award was
made and filed in court either by the arbitrator himself or on the
motion of any one of the parties, the court had no option except
to make it a rule of court if it came to the conclusion that there
was no cause to remit the award or any of the matters referred for
reconsideration or set aside the award after the time for making
an application to set aside had expired. The proceedings after the
filing of an award were not, therefore, hit by Section 69(3). A
bar under Section 69 is with respect to a suit/proceeding/claim of
set-off to enforce a right. As the unregistered firm had not
initiated the proceeding and had only to defend it, on this ground
also it could safely be said that there was no bar under Section
69(3). Section 69(3) was not attracted on the facts of the present
case. This decision was affirmed by-the Supreme Court in Kamal
Pushp Enterprises v D.R. Construction Co.
Conclusion:
It seems clear that the main object and intention of the
Legislature was to prevent a partner from enforcing his claims
against fellow partners if the firm was not registered and to
compel in such a case dissolution of the firm by laying down that
the court will entertain suits only when dissolution and accounts
and winding up of the affairs of the firm is sought or where
accounts or winding up of the affairs of an already dissolved firm
is sought.
But there have been a number of situations where the court
themselves have0 distinguished the facts of the cases from the one
quoted in precedent to such an effect that the case in question is
one where there was a new agreement altogether. It does not,
therefore, admit of doubt that the suit is inextricably mixed up
with the partnership itself and arises out of the partnership
contract. Hence the firm can conveniently be placed outside the
scope of Section 69
Often it has been quoted by the counsels that it's not a case
arising out of the original contract of partnership. Supposing
there is no mention of a provision in the partnership deed, the
matter is quite conveniently placed outside the scope of the
partnership and beyond the reach of the crippling hands of Section
69.On the other hand a matter of personal nature should not cease
to be personal merely because it finds some incidental place or
reference in the partnership deed.
Moreover, there is considerable ambiguity in Section 69(2) as to
what is meant by the words 'arising out of a contract. The courts
in a number of cases has held That 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, fails to be barred by Section 69(2). These
are but only a few situations to prove that often the law is not
what the courts make out of it from the books of statutes, but how
the courts choose it to be made out. Hence in a considerable
number of situations the courts have merely paid a lip service to
Section 69. Infact it has conveniently decided the cases in such a
way that they fall beyond the so-called 'crippling hands ' of
Section 69. In such circumstances it is not difficult to prove
that the law of having a firm registered is no more than a mere
formality and the firms face little encumbrances even if they are
not registered.
Bibliography
# The Partnership Act by Pollock and Mulla
# Law of Partnership by Avatar Singh
# The Law of Partnership by Justice P.S. Narayan
# The Law of Partnership by R.R. Maurya
# Commentaries on Partnership Act by P.N. Chadha
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