Introduction

  1. A bench of the Supreme Court of India ("SC") comprising of Mr. Justice Dinesh Maheshwari and Mr. Justice Vikram Nath passed a judgment in Shiv Developers, through it's partner Sunilbhai Somabhai Ajmeri v. Aksharay Developers & Ors, 2022 SCC OnLine SC 114, and clarified the nature of suits filed by an unregistered partnership firm which will not be barred under Section 69(2) of the Partnership Act, 1932 ("Act").
  1. The facts in the case were that a suit was filed by Shiv Developers, an unregistered partnership firm ("Firm") against the Respondent developer, seeking a perpetual injunction and declaration of a sale deed as null and void. The Respondents relying on Section 69(2) of the Act filed an application to reject the plaint as being barred under law. The trial court rejected the application; however, the Gujarat High Court reversed the order of the trial court and rejected the plaint. The Gujarat High Court relied on the SC judgment in Purushottam and Anr. v. Fine Art Litho Works & Ors, (2007) 15 SCC 58, and held that since the claim and relief sought in the suit by the Firm arose out of a contract, the suit was hit by the bar of Section 69(2) of the Act and the suit was not maintainable. A special leave petition was filed before the SC by the Firm. The point for consideration before the SC was essentially whether Section 69(2) of the Act bars all suits filed by an unregistered firm.

Summary of findings

  1. Section 69 of the Act reads as under:

"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 firm.

(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 realise the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent partner.

(4) This section shall not apply,—

(a) to firms or to partners in firms which have no place of business in the territories to which this Act extends, or whose places of business in the said territories, are situated in areas to which, by notification under section 56, this Chapter does not apply, or

(b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882 (5 of 1882), or, outside the Presidency-towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887 (9 of 1887), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim."

  1. The SC made reference to its earlier judgments in Haldiram Bhujiawala and Anr. v. Anand Kumar Deepak Kumar & Anr, (2000) 3 SCC 250 and Raptakos Brett & Co. Ltd. v. Ganesh Property, (1998) 7 SCC 184, to infer that Section 69(2) of the Act will be attracted only when:
  1. the contract in question is entered into by the firm with a third party;
  2. the contract is entered into by the firm in the course of its business dealings and
  3. the contract is entered into for the enforcement of a statutory right or a common law right.
  1. The SC discussed the principles regarding Section 69(2) of the Act and observed that the intention of the provision was for a third party who does business with a firm to know the names of the persons they are dealing with, which is not the case when the enforcement of a right is sought to be exercised. The SC highlighted that the transaction in question in the present case is one not arising out of the business of the Firm since it dealt with the sale of the Firm's share in a property and that the suit was filed for remedies under the Specific Relief Act, 1963 and the Transfer of Property Act, 1882, and not for enforcement of a right arising out of a contract. Therefore, the bar of section 69(2) of the Act will not apply to the present suit and the order passed by the High Court of Gujarat was set aside.

KCO comment

  1. This judgment along with the earlier judgments in Haldiram Bhujiawala and Anr. v. Anand Kumar Deepak Kumar & Anr, (2000) 3 SCC 250 and Raptakos Brett & Co. Ltd. v. Ganesh Property, (1998) 7 SCC 184 add clarity to the applicability of Section 69(2) to unregistered partnership firms. The enunciation of the principle of contracts entered into by the firm in the course of its business dealings and the need for third parties to be aware of whom the dealings are being undertaken with, will make the position clearer as to when a suit is maintainable by an unregistered firm.

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