2025 (4) TMI 1386 - SC - Indian Laws

Maintainability of suit - issue as regards the maintainability of the suit raised on the ground that a partner of an unregistered partnership firm could not have filed the Suit for recovery of money being hit by Section 69 of the Indian Partnership Act 1932 - HELD THAT - It is evident from a reading of sub-sections (1) and (2) of Section 69 that it assumes a mandatory character. Section 69(1) prohibits a suit amongst the partners of an unregistered partnership firm for the enforcement of a right either arising from a contract or conferred by the Act unless the suit amongst the partners is in the nature of dissolution of the partnership firm and/or rendition of accounts. Section 69(2) prohibits the institution of a suit by an unregistered firm against third persons for the enforcement of a right arising from a contract. As a consequence a suit filed by an unregistered partnership firm and all proceedings arising thereunder which fall within the ambit of Section 69 would be without jurisdiction. This Court in Seth Loonkaran Sethiya and Others v. Mr. Ivan E. John and Others 1976 (10) TMI 160 - SUPREME COURT had categorically held that Section 69 is mandatory in character and a suit instituted by a plaintiff in respect of a right which was vested in him by virtue of a contract and entered into in his capacity as a partner of a partnership firm would be void if such a firm was unregistered. In the case on hand the petitioners (original plaintiffs) had filed the suit for recovery of money in their capacity as partners of an unregistered partnership firm against the respondent (original defendant) in her capacity as a partner of the same unregistered partnership firm. The Trial Court itself had arrived at a finding that the agreement executed between the parties was in fact a partnership deed and not a bond as claimed by the petitioners. It is a clear as a noon day that the present suit had not been instituted by or on behalf of the firm against any third persons so as to fall under the ambit of Section 69(2). The petitioners have also not filed the instant suit for enforcing any statutory right conferred under any other law or a common law right so as to exempt the application of Section 69. Hence the rigours of Section 69(1) would apply on such a suit and the partnership firm being unregistered would prevent the petitioners from filing a bare suit for recovery of money from the respondent. The defence that the partnership business had not yet commenced and thus such a suit for dissolution could not have been preferred would not be of any avail to the petitioners particularly for overcoming the jurisdictional bar under Section 69(1). The High Court is right in taking the view that a suit of such nature could not be said to be maintainable in the absence of the registration of the partnership firm. Conclusion - The suit filed by the petitioners partners of an unregistered partnership firm against another partner for recovery of money arising from the partnership agreement is not maintainable under Section 69(1) of the Indian Partnership Act 1932. There are no error not to speak of any error of law could be said to have been committed by the High Court in passing the impugned order - SLP dismissed.

Summary

Issues Presented and Considered:

1. Whether a partner of an unregistered partnership firm can maintain a suit against another partner for recovery of money arising from a partnership agreement under the Indian Partnership Act, 1932, specifically in light of Section 69 of the Act.

2. Whether the non-commencement of partnership business affects the maintainability of such a suit.

3. The applicability and scope of Section 69(1) and (2) of the Indian Partnership Act, 1932, and the exceptions under Section 69(3) regarding suits by partners or firms.

4. Whether the suit filed by the petitioners falls within the prohibition of Section 69(1) or qualifies under any exceptions permitting suits by partners of unregistered firms.

Issue-wise Detailed Analysis:

Issue 1: Maintainability of Suit by Partner of Unregistered Partnership Firm under Section 69

Relevant Legal Framework and Precedents:

Section 69(1) of the Indian Partnership Act, 1932, states that no suit to enforce a right arising from a contract or conferred by the Act shall be instituted by any person suing as a partner in a firm against the firm or any alleged partner unless the firm is registered and the person suing is shown in the Register of Firms as a partner. Section 69(2) prohibits suits by unregistered firms against third parties. Section 69(3) provides exceptions allowing suits for dissolution and rendition of accounts.

Precedent in Seth Loonkaran Sethiya v. Ivan E. John (1977) confirmed the mandatory character of Section 69, holding that suits by partners of unregistered firms to enforce contractual rights are void and not maintainable. Similarly, the Lahore High Court judgment in Bishen Narain v. Swaroop Narain (1938) held that the fact that the partnership business had not commenced was immaterial for the purpose of Section 69.

Court's Interpretation and Reasoning:

The Court emphasized the mandatory nature of Section 69(1), which prohibits suits by partners of unregistered firms to enforce rights arising from partnership contracts. The Court observed that the suit in question was filed by partners of an unregistered firm against another partner for recovery of money, which constitutes enforcing a contractual right. The partnership deed was found to be valid and not a mere bond.

Key Evidence and Findings:

The partnership deed dated 11.12.2009 clearly established a partnership agreement with defined shares among the partners, including the respondent holding 25% and the petitioners collectively holding 75% shares. The sum of Rs. 30,00,000 was invested as capital under this deed. The Trial Court's finding that the agreement was a partnership deed and not a bond was accepted.

Application of Law to Facts:

Since the suit was filed by partners of an unregistered firm to recover money arising from the partnership agreement, it fell squarely within the prohibition of Section 69(1). The fact that the partnership business had not commenced was held immaterial, consistent with precedent.

Treatment of Competing Arguments:

The petitioners argued that the partnership business had not commenced and thus the suit should be maintainable. The Court rejected this, relying on the precedent that the commencement of business is irrelevant for the applicability of Section 69. The High Court's reliance on the Lahore High Court decision was upheld.

Conclusions:

The suit was not maintainable under Section 69(1) of the Indian Partnership Act, 1932, as it was filed by partners of an unregistered firm to enforce contractual rights against another partner.

Issue 2: Effect of Non-Commencement of Partnership Business on Suit Maintainability

Relevant Legal Framework and Precedents:

The Lahore High Court judgment in Bishen Narain v. Swaroop Narain held that non-commencement of business does not affect the applicability of Section 69. The Court reaffirmed this principle.

Court's Interpretation and Reasoning:

Despite the petitioners' contention that the partnership business had not started, the Court held that the existence of a partnership agreement and the rights arising therefrom triggered the application of Section 69. The Court reasoned that the equities do not warrant any concession based on non-commencement.

Key Evidence and Findings:

The written statement of the defendant admitted that the business was stopped in 2009, but the partnership agreement itself acknowledged the offer of partnership despite the non-working condition of the business.

Application of Law to Facts:

The non-commencement of business did not exempt the petitioners from the prohibition under Section 69(1). The partnership deed was operative and created enforceable rights among partners.

Treatment of Competing Arguments:

The Court rejected the argument that the suit was maintainable because the business had not commenced, holding that the status of the business is immaterial for the purposes of Section 69.

Conclusions:

Non-commencement of partnership business does not affect the applicability of Section 69(1), and thus does not render the suit maintainable.

Issue 3: Applicability of Exceptions under Section 69(3) for Suits by Partners of Unregistered Firms

Relevant Legal Framework and Precedents:

Section 69(3) exempts suits for dissolution of the firm and rendition of accounts from the embargo of Section 69(1). Mukund Balkrishna Kulkarni v. Kulkarni Powder Metallurgical Industries (2004) clarified that suits for declaration of partnership do not fall under Section 69(1), and suits for dissolution and accounts are permitted regardless of registration.

Court's Interpretation and Reasoning:

The Court distinguished the present suit for recovery of money from suits for dissolution or rendition of accounts. It held that the petitioners should have filed a suit for dissolution and accounts, which would have been maintainable under the exception in Section 69(3).

Key Evidence and Findings:

The petitioners did not seek dissolution or accounts but only recovery of money, which is a right arising from the partnership contract and thus barred under Section 69(1).

Application of Law to Facts:

The suit did not fall within the exception under Section 69(3) and was therefore barred. The Court noted that the petitioners' defense that the business had not commenced did not justify bypassing the registration requirement.

Treatment of Competing Arguments:

The Court rejected the argument that the suit could be maintained because the partnership business had not commenced, emphasizing that the appropriate remedy would have been a suit for dissolution and accounts.

Conclusions:

The suit for recovery of money is not saved by the exception under Section 69(3), which applies only to suits for dissolution and rendition of accounts.

Significant Holdings:

"A bare glance at the section is enough to show that it is mandatory in character and its effect is to render a suit by a plaintiff in respect of a right vested in him or acquired by him under a contract which he entered into as a partner of an unregistered firm, whether existing or dissolved, void."

"Once there is an agreement of partnership, unless it is registered, no suit can be maintained by the partners for enforcing any right accruing from such agreement."

"The right of partner to ask the dissolution of a firm is a right the enforcement of which is otherwise forbidden under Section 69(1). It is because of the exception under sub-section (3) of Section 69 that a person suing as a partner can enforce a right under the contract for dissolution of the firm and accounts."

Core Principles Established:

- Section 69(1) of the Indian Partnership Act, 1932, is mandatory and prohibits suits by partners of unregistered firms to enforce contractual rights against each other.

- The non-registration of a partnership firm bars suits for recovery of money or enforcement of contractual rights arising from the partnership agreement.

- The commencement or non-commencement of the partnership business is immaterial for the applicability of Section 69.

- Exceptions under Section 69(3) allow suits for dissolution and rendition of accounts even if the firm is unregistered.

Final Determinations:

The suit filed by the petitioners, partners of an unregistered partnership firm, against another partner for recovery of money arising from the partnership agreement is not maintainable under Section 69(1) of the Indian Partnership Act, 1932.

The High Court's order setting aside the Trial Court's decision and holding the suit non-maintainable was upheld.

The petitioners' Special Leave Petition was dismissed accordingly.