Allahabad High Court
Dr. Ramji Singh Properties And Hotels ... vs The Debts Recovery Appellate Tribunal ... on 18 February, 2013
Author: Sudhir Agarwal
Bench: Sudhir Agarwal
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Reserved on 04.02.2013 Delivered on 18.02.2013 Court No. - 34 Case :- WRIT - C No. - 3904 of 2012 Petitioner :- Dr. Ramji Singh Properties and Hotels Pvt. Ltd. through its Managing Director Respondent :- The Debts Recovery Appellate Tribunal and Others Petitioner Counsel :- Satish Chaturvedi,Sr. Advocate, Sandeep Chaturvedi, Advocate Respondent Counsel :- Bharat Pratap Singh,Bhanu Bhushan Jauhari, S.N.Pandey Hon'ble Sudhir Agarwal, J.
1. With the consent of learned counsel for the parties, this Court heard the matter finally at this stage under the Rules of the Court and the same is being decided by this judgment.
2. The writ petition is directed against the order dated 14.12.2011 passed by Debt Recovery Appellate Tribunal, Allahabad (hereinafter referred to as "DRAT") in appeals No.R-22 of 2011, R-23 of 2011, R-24 of 2011 and R-25 of 2011 whereby all the four appeals filed by Ballia Etawah Gramin Bank (hereinafter referred to "BEG Bank") have been allowed. The petitioner has also challenged order dated 5.1.2012 dismissing its review application.
3. The facts in brief giving rise to the present dispute are as under:
4. Certain property of M/s Vidya Mandir Press, Varanasi comprise of plot No.222/3 measuring about 0.36 decimal situated in Mohalla- Habibpura (now Pishachmochan) was auctioned publically on 4.1.1983, pursuant to recovery of labour dues. Respondent No.8 Dr. Ramji Singh, Son of Late Vishwanath Singh was a successful bidder. The sale of aforesaid property was made absolute on 1.12.1985 in favour of respondent no.8.
5. On 27.6.1988 a partnership deed was executed with an intention to construct a Cinema Hall on the aforesaid property and to exhibit motion pictures in the name and style of M/s Dr. Ramji Singh & Co. (hereinafter referred to as the "Firm") with principal place of business at 64/49 B, Hirapura, Varanasi. The partnership consisted of Dr. Ramji Singh and Laxman Singh both sons of Vishwanath Singh; Sri Shivji Singh and Sri Markandey Singh, both sons of Sri Ram Narain Singh. It was stipulated in the said partnership deed that land, referred to above, was purchased jointly by the aforesaid parties, and, the same shall be deemed to be the asset and property of Firm constituted thereunder. Dr. Ramji Singh and Shivji Singh became partner with 26% share each and rest of the two were assigned 24% share each. Thereupon a Cinema Hall, known as "Ganga Palace" claimed to have been constructed sometimes in 1988-89. It is said that the aforesaid partnership was duly registered under Section 58 of Partnership Act 1932 (hereinafter referred to as "Act,1932").
6. Later on a private Ltd. Company was incorporated in the name and style of M/s Ramji Properties & Hotels Pvt. Ltd. (hereinafter referred to as "Company") registered under Indian Companies Act, 1956 (hereinafter referred to as "Act, 1956") vide certificate of incorporation dated 20.3. 1990. The aforesaid four persons, namely, Dr. Ramji Singh, Sri Laxman Singh, Sri Shivji Singh and Sri Markandey Singh were promoters and Directors of the aforesaid Company.
7. On 23.3.1990, the Firm was reconstituted by inducting company as fifth partner. Shares of partners were reassigned by allocating 60% share to the company and 10% to each of the remaining four partners. This re-constituted firm was not registered. On 30.3.1990, Partnership Firm was dissolved due to retirement of all the four individual partners, namely, Dr. Ramji Singh, Laxman Singh, Shivji Singh, Markanday Singh. The firm's properties etc. were taken over by Company. As already said, all the four retiring individual partners were Directors in the Company, but later on three of them except Dr. Ramji Singh retired and one Deepak Kumar Singh was appointed as Director on 30.9.1997. Sri Ratnesh Kumar Singh was appointed as Director on 30.9.2004.
8. The company secured commercial loan of Rs.6 lacs from M/s Banaras Mercantile Co-operative Bank Ltd., Varanasi (hereinafter referred to as "Cooperative Bank") on 16.9.2004 by depositing original title deed of land with Cooperative Bank. It is claimed that the aforesaid loan was fully satisfied by 17.12.2005 and a certificate to this effect was given by Cooperative Bank on 17.12.2005. The company again obtained a loan of Rs.20 lacks from M/s Panjab National Bank (hereinafter referred to as "PNB") by mortgaging land and building of Cinema Hall. However, the above loan is not the subject matter of dispute and hence is of no relevance in this case.
9. Much before the constitution of 'Firm' in 1988 the aforesaid four individuals namely Dr. Ramji Singh, Laxman Singh, Shivji Singh and Markanday Singh claimed to have constituted a separate partnership firm in the name and style of "M/s Kisan Cold Storage" (hereinafter referred to as "Second Firm") on 12.12.1978 for running a cold storage and vegetables and fruits and manufacturing of ice and sales etc. The Second Firm obtained certain loan from M/s U.P. Financial Corporation (hereinafter referred to as UPFC) in 1979 and the same was repaid as per loan schedule.
10. The Second Firm again obtained a term loan of Rs.37,16,800/- and cash credit of Rs.69 lacs, total Rs.1,06,16,800/- sometimes in 1995 from BEG Bank. It is said that advances against cash credit were repaid but term loan could be paid to the Bank in part only. For recovery of its outstanding loan, BEG Bank filed original application no.261 of 2001 before Debts Recovery Tribunal, Allahabad (hereinafter referred to as "DRT"). The application was allowed ex parte vide judgment dated 7.8.2002 (Annexure 12 to the writ petition). In the aforesaid application four individuals and Second Firm were impleaded as defendants.
11. Sri Markanday Singh, in the meantime having died, his widow was impleaded as one of the defendant.
12. Since DRT decreed application of BEG Bank for recovery of Rs.51,26,964/- with pendentilite and future interest @ 20.5% per annum after sale of hypothecated and mortgaged property of defendants. A recovery certificate was issued by DRT, registered as DRC No.279 of 2002, before Recovery Officer. The mortgaged property of defendants was attached by DRT vide order dated 7.4.2003.
13. It appears that Dr. Ramji Singh moved an application on 19.8.2003 giving details of assets of M/s Kisan Cold Storage with request that outstanding dues be recovered by attachment of rent income from the said property. The said application was rejected on 9.9.2003. Thereafter, DRT proceeded to auction moveable and immoveable property of M/s Kisan Cold Storage vide order dated 10.3.2004. The auction could not proceed since no bidder turned up and thereafter Recovery Officer passed order on 10.12.2004 permitting BEG Bank to take steps for attachment of personal assets of Dr. Ramji Singh i.e plot no.222/3 measuring about 0.36 decimal, whereon Cinema Hall was constructed.
14. The aforesaid property was attached vide order dated 18.1.2005 passed by DRT. Consequently, public notice for auction was published in daily newspaper "Dainik Jagran, Varanasi" on 11.7.2005 showing reserved price of the property as Rs.120 lacs. DRT, vide order dated 27.5.2005 directed for proclamation of sale of the aforesaid property.
15. The petitioner-Company, claiming owner of the aforesaid property and not liable for attachment or auction pursuant to recovery proceedings against M/s Kisan Cold Storage (Second Firm), filed objection dated 18.7.2005. The petitioner also filed writ petition no.51400 of 2005 challenging order dated 27.5.2005. The writ petition was dismissed on 23.7.2005 on the ground of alternative remedy of appeal under Section 30 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "Act 1993"). Consequently, petitioner Company filed an appeal no.2 of 2005. The DRT suspended auction sale vide order dated 4.8.2005 making it clear that recovery may proceed except sale of plot in question i.e. Cinema Hall by public auction i.e. Cinema Hall.
16. Respondent no.6 i.e. Sri Laxman Singh filed an application dated 15.9.2007 proposing compromise, showing willingness to pay half of the share in outstanding dues. DRT vide order dated 21.2.2008 directed for attachment of M/s Kisan Cold Storage and also for proclamation of sale on or before 19.3.2008. Thereupon respondent no.6 again submitted application dated 5.3.2008 expressing his willingness for compromise and requested DRT to recall order dated 21.2.2008. DRT, however, granted time to respondent no.6 by order dated 13.3.2008 for arriving at a compromise with BEG Bank.
17. In the meantime, petitioner's appeal No.2 of 2005 was dismissed for want of prosecution on 9.7.2008 as a result whereof stay order dated 4.8.2005 also stood vacated. The DRT consequently proceeded for sale of disputed property i.e. Cinema Hall through public auction on 19.9.2008. Again auction notice was published in daily newspaper "Dainik Jagran" dated 9.9.2008.
18. The petitioner again filed objection dated 17.9.2008 before DRT and application dated 11.9.2008 requesting for stay of recovery proceedings. DRT, however, proceeded with recovery resulting in petitioner's another writ petition no.51067 of 2008 which was again dismissed on 29.9.2008 on the ground of alternative remedy, but granting four weeks' relief to the petitioner by suspending confirmation of auction, if any, in respect to the property comprising Cinema Hall.
19. Against sale proclamation order dated 28.7.2008 and the orders dated 18.9.2008 and 19.9.2008 the petitioner filed appeal No.39 of 2008 before Tribunal. An application for recall of order dated 9.7.2008 was also filed, registered as Misc. Case No.61 of 2008.
20. The DRT by order dated 5.12.2008 restored petitioner's appeal no.2 of 2005. In the meantime, petitioner had also filed various documents before Recovery Officer to demonstrate that property comprising cinema hall belong to petitioner-Company and not to any individual, hence could not have been subject matter of recovery proceedings in respect to the dues of M/s Kisan Cold Storage. DRT, however, confirmed sale of property in dispute on 5.1.2009.
21. The petitioner came in third writ petition no.3699 of 2009 challenging order dated 5.1.2009. This writ petition was disposed of on 28.5.2009 permitting petitioner to file appeal with further direction to Appellate Authority to decide all the objections expeditiously and in any case within three months and till then status quo with regard to possession over property in dispute was directed to be maintained.
22. The petitioner Company then filed appeal no.12 of 2009 against order dated 5.1.2009. Besides the above three appeals, PNB had also filed appeal no.1 of 2009 before DRT. All these four appeal were heard together and allowed vide judgment dated 18.5.2010.
23. The BEG Bank preferred four appeals i.e. appeals No.R-22 of 2011, R-23 of 2011, R-24 of 2011 and R-25 of 2011 under Section 20 of Act, 1993 before DRAT, who has allowed all the aforesaid four appeals setting aside DRT's judgment dated 18.5.2010. The petitioner company filed review application no.348 of 2011. The same was also dismissed on 5.1.2012.
24. Sri Satish Chaturvedi, learned Senior Advocate for the petitioner contended that property in dispute namely Cinema Hall comprise of land and building both belong to petitioner Company which is an independent and separate entity. The same could not have been put for auction pursuant to recovery proceedings initiated against Second Firm even if it is admitted that partners of the firm are jointly and severally liable to clear outstanding dues of Second Firm. He contended that even if initially land was purchased in the name of an individual i.e. respondent no.8, but subsequent events show that property in dispute stood transferred and owned by petitioner Company. It had no nexus with Second Firm or its partners. Hence for recovery of outstanding dues relating to Second Firm, the property in dispute cannot be proceeded against. The entire proceedings in respect to property in dispute comprising of Cinema Hall (land and building) is patently illegal and without jurisdiction. He also contended that disputed property was never subjected to mortgage or hypothecation or constitute security offered by second firm or the individual partners. In fact, they could not have done so while seeking advancement of loan etc. in 1995 since the property in dispute at that time did not belong to them and, therefore, the entire recovery proceedings initiated against property in dispute is patently without jurisdiction and nullity in the eyes of law. He submitted that Section 69 (3) of Act, 1932 has no application in the case in hand and DRAT has misdirected itself in placing reliance thereon so as to allow appeal of BEG Bank in respect of property in dispute. The judgment impugned in this writ petition is patently illegal and outcome of a complete misinterpretation and misunderstanding of law on the part of DRAT.
25. Per contra, Sri B.P. Singh, learned counsel appearing for BEG Bank submitted that orders have been passed after giving due opportunity to petitioner and there is no manifest or otherwise error therein warranting any interference.
26. In my view, following questions/issues would be required to be adjudicated by this Court to arrive at the conclusion whether the impugned orders of DRAT are legally sustainable or not:
A. Whether it was open for Dr. Ramji Singh to throw land i.e. plot no.222/3 measuring 0.36 decimal to be a jointly owned property of himself and others through an agreement ?
B. Whether the agreement dated 27.6.1988 would result in making the aforesaid land to be a joint property of all the four partners to be in joint stock of the firm instead of individually owned property vide auction sale dated 4.1.1983/1.12.1985 ?
C. Whether the aforesaid action of Dr. Ramji Singh and others has sanction of law under Act, 1932 and what remain the status of the property whether individual or that of firm after execution of agreement/ partnership deed dated 27.6.1988 ?
D. Whether the building constructed on the aforesaid land after execution of the agreement dated 27.6.1988 can be said to be the property of one or more individuals or property owned by the firm i.e. co-ownership property of individual partners in their own individual rights unconnected with the firm ?
E. What is effect of agreement dated 23.3.1990 in respect to the land and building standing thereon i.e. Cinema Hall and whether it became joint stock property of reconstituted Firm having five partners or not ?
F. What is the effect and consequence of agreement/dissolution deed dated 30.3.1990 in respect to aforesaid land and building and whether it stood transferred to petitioner, as agreed by all the partners, and became his property or there is any other status or it reverted back to Dr. Ramji Singh and became his individual property reviving auction sale dated 4.1.1983/1.12.1985 ?
27. The issue 'A' to 'D' above can be taken together. The first and foremost question up for consideration is, what is the status of property i.e. Plot No.222/3 measuring about 0.36 decimal situated at Mohalla Habibpura (now Pishachmochan), which was auctioned on 4.1.1983 and was purchased by Dr. Ramji Singh, respondent no.8, being the highest successful bidder pursuant whereto sale deed was executed in his favour after the sale was confirmed on 1.12.1985, when it was put as joint property of firm at the time of its constitution vide partnership deed dated 27.06.1988.
28. This issue can be examined from two angles. In 1983, Dr. Ramji Singh purchased vacant land. The certificate of sale dated 5.12.1985 clearly show that Dr. Ramji Singh, respondent no.8, was the purchaser of plot No.222/3 in his individual capacity. It was always open to him to make the said property an asset and property of a Partnership Firm. There is no bar either in law or otherwise preventing him from making his individual own property, a joint property with some other individuals or a joint stock of a Firm. Atleast no such legal or otherwise bar has been shown to this Court by Sri Singh, counsel for BEG Bank.
29. Acting his (Dr. Ramji Singh) own, he declared that the property in fact purchased was a joint property and then made it Firm's property. This is what he did while executing partnership agreement (Annexure 2 to the writ petition) in which he disclosed that though property aforesaid was purchased by him in his individual name but it was de facto a joint property belong to all the four partners and that is how he put the said property as joint property of partnership firm vide clause 3 of partnership agreement dated 27.06.1988. The relevant extract thereof reads as under:
"WHERAS We the parties hereto by mutual agreement purchased on 1.12.1985 a plot of land jointly bearing settlement Plot No. 222/3 situated in Village Habibpura Pargana Dehat Amanat, Distt. Varanasi at present allotted Varanasi Corporation No. C-21/30.B-Ka situated in Mohalla Pishachmochan Varanasi City in the name of Dr. Ramji Singh & Co. and have mutually agreed to construct a Cinema Hall thereon and to exhibit motion pictures therein in partnership;"
"3. That the aforesaid plot of land bearing Varanasi Corporation No. C. 21/30 B-Ka situated in Mohalla Pishachmochan Varanasi city purchased on 1.12.1985 jointly by the parties hereto in the name of Dr. Ramji Singh & Co. is and shall be deemed to be the asset and property of the aforesaid partnership firm named and styled M/s Ramji Singh & Co."
30. It cannot be doubted that an agreement/contract is the foundation of a relationship of "partnership". Section 4 of Act, 1932 talks of an agreement between persons to share profits of a business carried on by all or any of them acting for all. The relationship, so developed, in law, is called "partnership" vide Section 4 of Act, 1932. The persons individually entered into such agreement are called "partners" vide Section 4 and the collective body is called "firm". In other words, partnership is a relationship created by contract. It is not generated or created or happened by natural relations like blood relation or personal contacts etc., but an agreement is an integral part to create relationship known as "partnership".
31. Earlier provision with respect to partnership were in Contract Act, 1872 (hereinafter referred to as "Act, 1872"). Section 239 of Act, 1872 defined 'partnership', as the relation which subsists between persons who have agreed to combine their property, labour or skill in some business and to share profits thereof between them. Partnership, therefore is a relation resulting from contract and that an agreement, express or implied is the source of said relation. It is voluntary contract between two or more persons for joining together their money, goods, labour and skill or either of them or all of them, upon an agreement and that gain or loss shall be divided proportionately between them, keeping its object the advancement and protection of fair and open trade. An agreement was, thus, essential for creation of "partnership" under Act, 1872.
32. In Mirza Mal Bhagwan Das Vs. Rameshar and others AIR 1929 All. 536 this Court recognized that an agreement, express or implied, is essential for creation of partnership, and, that being so, there is no presumption in law that a member of Joint Hindu Family entering into a partnership with certain persons, strangers to the family, is doing so in a representative or vicarious capacity, so as to hold that other members of family become ipso facto liable as partners in that partnership. In other words, one can say that in the case of an ordinary firm there must be an agreement to constitute partnership. Some members of a family, if run a business jointly, it cannot be said that it is a partnership business. The factum of partnership has to be proved by evidence that the persons, alleged to be partners, have agreed to share profits of a business by compounding their property, labour or skill in the business.
33. In Mirza Najm Effindi Vs. Firm Kohinoor Footwear Co. AIR 1946 All. 489, this Court observed that to create a partnership, there must be an agreement entered into by all the parties concerned to share profits of the business failing which no person can claim to be a partner. The relation of partnership arises fro contract and not from status.
34. With the enactment of Act 1932, vide Section 73 and Schedule II thereof, Sections 239 to 266 of Act, 1872 dealing with law relating to partnership stood repealed.
35. In Umarbhai Chandbhai Vs. Commissioner of Income Tax (1952) 22 ITR 27 (Bom.) the Court said that there are two essential conditions before it could be said that by contract a relationship has been brought about between the persons which may be termed as a "partnership". The two conditions are that parties must agree to share profits of business and the business must be carried on by all or any of them for all of them.
36. In Mohd. Laiquiddin and Anr. v. Kamala Devi Misra (Dead) by L.Rs. and Ors., 2010 (2) SCC 407, the Court observed that a partnership is a contract between the partners. There cannot be any contract unilaterally without the acceptance by the other partner. Partnership is not a matter of heritable status but purely one of contract and this is clear from the definition of "partnership" under Section 4.
37. There is no requirement of law that such agreement of partners must be a registered document, or, that a partnership firm cannot come into existence, unless it is registered. Once the requirement of law i.e. an agreement to share profits is satisfied, relationship of partnership would come into existence.
38. The agreement, therefore, plays a pivotal role to govern relationship of partners inter-se, vis-a-vis the firm also.
39. Thus, there is no probability and more so, it cannot be disputed that agreement referred to above between four persons namely, Dr. Ramji Singh, Sri Laxman Singh, Sri Shivji Singh and Sri Markandey Singh satisfied requirement of constitution of a "partnership relation" and the same came into existence with the execution of document dated 27.06.1988. It is nobody's suggestion that the purpose of creation of partnership firm was illegal or there was any other shortcoming which may justify an inference that the agreement was unlawful, illegal, and, will not result in developing any relationship between the persons executing agreement, having some legal consequences, as contemplated therein.
40. Now the next aspect would be whether the property in question, which was purchased by Dr. Ramji Singh in his own individual name, could have been made a joint property of all the partners, and thereby the property of the firm through the aforesaid agreement. The answer would be, obviously, a big "yes".
41. In order to appreciate legal aspect of this issue, this Court would have reference to Section 14 of Act, 1932, which reads as under:
"S. 14. The property of the firm.-Subject to contract between the parties, the property of the firm includes all properties and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes, and in the course of the business of the firm, and includes all the goodwill of the business."
42. The provision is very clear and admits no ambiguity or doubt. The property, having whatever character, which belong to individuals, can be brought in by the parties into joint stock. When a partnership relationship is constituted by entering into an agreement, it is always open to the individuals entering into the contract to bring their property, held individually or otherwise, in the joint stock of the partnership firm.
43. In Arjun Kanoji Taukar Vs. Shantaram (1969) 3 SCC 555 a contention was raised that in any event, by virtue of Section 14 of Act 1932 all the assets with the aid of which business was carried on by the plaintiff, must be deemed in law to have become partnership assets under the deed of partnership. Rejecting the submission, Court held that under Section 14 property belong to a person in absence of any agreement to the contrary, does not, on a person entering into a partnership with others, become property of partnership, merely because it is/has been used for the business of the partnership. It will become property of partnership only if there is an agreement, express or implied, that the property was, under the agreement of partnership, treated as property of the partnership.
44. In other words, when 'A' transferred his property voluntarily through a contract/agreement to others so as to bring in their rights also in the same way transferrer enjoys, rights and that transfer is to the extent that all the individuals in a new partnership called partnership, treat the property to be joint property of resultant of new relationship of partnership. It will become property of partnership firm and such a transfer is valid as it is legal consequence and there is no irregularity, illegality or otherwise objectionable therein. The term "transfer of property" is not to be construed in the terms of Transfer of Property Act but in a case of partnership firm, such transfer of property has to be looked into from lightly different angle. This term "transfer of property" has been considered by Apex court in Sunil Siddhart Vs. Commissioner of Income Tax Ahmedabad, Gujarat (1985) 156 ITR 509 (SC)=1985(4)SCC 519. The term "transfer of property" was construed by Court observing:
"In its general sense, the expression "transfer of property" connotes, the passing of rights in property from one person to another. In one case, there may be a passing of the entire bundle of rights from the transferor to the transferee. In another case, the transfer may consist of one of the estates only out of all the estates comprising the totality of rights in the property. In a third case, there may be a reduction of the exclusive interest in the totality of rights of the original owner into a joint or shared interest with other persons. An exclusive interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest, it would seem that there is a transfer of interest. Therefore, when a partner brings in his personal asset into the capital of the partnership firm as his contribution to its capital, he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm. While he does not lose his rights in the asset altogether, what he enjoys now is an abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital."
45. The decision in Arjun Kanoji Taukar Vs. Shantaram (supra) was followed and reiterated in Arm Group Enterprises Ltd. Vs. Waldorf Restaurant, (2003) 6 SCC 432 and Mohd. Laiquiddin and Anr. Vs. Kamala Devi Misra (Dead) by L.Rs. and Ors. (supra).
46. In Boda Narayana Murthy and Sons Vs. Valluri Venkata Suguna and others AIR 1978 AP 257, it was observed that a property would become property of partnership only when there is an agreement, express or implied, that the property under the agreement of the partnership is to be treated as property of partnership.
47. In another case, namely, M/s. Shivraj Fine Art Litho Works and others Vs. Purushottam and others AIR 1993 Bom. 30 (DB), the Court said that the partner, who brings in his own assets as property of the partnership business reduces his exclusive right in the assets to the shared rights in it of the other partners of the firm. The concept of co-ownership cannot apply to such property.
48. The aforesaid decision of Bombay High Court, however, on another point of Section 69(2) has been reversed in appeal by Apex Court vide its decision in Purushottam and Anr. Vs. Shivraj Fine Art Litho Works and Ors., JT 2007 (4) SC 564. The Apex Court decision this Court shall refer to while discussing Section 69 of Act, 1932.
49. In Mrs. Sujan Suresh Sawant Vs. Dr. Kamlakant Shantaram Desa AIR 2004 Bom. 446, the Court came across a similar situation. It held, when a partner brings in his personal asset into partnership firm as his contribution to the capital, an asset which originally was subject to the entire ownership of the partner, becomes now subject to the rights of other partners in it. It is not necessary that every partnership firm for the purpose of its business should own and utilize its own property only. It can utilize the property owned by others for the purpose of its business. It would, however, become property of partnership only if there is an agreement that property under the agreement of the partnership is to be treated as property of partnership. For a property to become property of firm, it must be brought into stock of the firm by the partners, originally, when the firm was formed, or subsequently acquired by purchase or otherwise in the course of the business of the firm.
50. In other words, one must distinguish the property of a partner, not put in the joint stock of the firm, but, permitted to be used for the firm or for carrying out the business, since, in such a case, property would not become property of the firm or property of the partnership business. Property belong to a partner as his personal property, in absence of any agreement to that effect does not ipso facto become property of the partnership firm merely for its use for the business of partnership.
51. In Shashi Kapila Vs. R.P. Ashwin JT 2001 (9) SC 488, the Court observed that a partnership firm is an association of persons. Despite the unity between them, every partner can have his own separate existence from the firm. Any property over which a partner has right, other than the partnership firm, would remain his individual asset. Mere fact that particular person has chosen to include himself as a partner of the firm will not result in incorporation of all his individual properties as assets of the partnership.
52. A somewhat similar situation, as in this case, came to be considered before Kolkata High Court in Broadway Centre Vs. Gopaldas Bagri AIR 2002 Cal. 78. There one partner purchased property in Court auction sale and had interest in the said property by virtue of Court sale. He became owner thereof. However, he brought property in partnership agreement. The said partner together with other partners, supplied necessary consideration for purchase of the said property at the time of Court sale. It was held that property would be the property of the firm.
53. In V. Subramaniam Vs. Rajesh Raghuvandra Rao (2009) 5 SCC 608 the Court observed that a partnership firm, unlike a company registered under the Indian Companies Act, is not a distinct legal entity. It is only a compendium of its partners. The partners of a firm are co-owners of the property of the firm, unlike shareholders in a company who are not co-owners of the property of the company.
54. For better understanding, this Court may say that the parties by contract between themselves agree with what kind of property can be or have been included or excluded in the property of partnership firm. As such, in order to determine whether a particular property is the assets of the partnership firm, agreement between the parties has to be looked into.
55. In Firm Ram Sahay Mall Rameshwar Dayal and others Vs. Bishwanath Prasad AIR 1963 Pat. 221, a Division Bench said that no written or registered document is necessary for an individual to contribute any land or immovable property as a contribution against his share of the capital of a new partnership business. They become properties of the firm as soon as partners intend to so, bring them in, and, treat them as such.
56. The effect of brining in a property of individual as a joint stock of the firm would be that the said property thereafter shall be and can be used by the partners exclusively for the purpose of business. It ceased to be an individual's property since it has been made property of the partnership firm. This is also subject to the contract between the parties. If there is a stipulation in the agreement between the partners otherwise, obviously that will prevail but in absence of any such thing, Section 14/15 of Act, 1932 shall have its operation. So long as partnership continues, no part of the assets of the partnership can be regarded as if it belong to an individual partner. In absence of any contract to the contrary, all the partners hold, use and have interest in whole of the partnership firm. They have community of interest. Their rights in the property are not mutually exclusive. In other words, so long as partnership subsists, such property cannot be deemed to be separate property of a partner. This is what the incident of ordinary partnership as has been, as observed in Mohammad Abdul Sattar Vs. The State of Andhra Pradesh AIR 1958 AP 555.
57. In Reddi Veerraju Vs. Chittori Lakshminarasamma and others AIR 1971 AP 266 (DB), the Court said that all the members of partnership are interested in whole of the partnership property and it is only upon a dissolution that any part of the partnership property may convert into separate, individual property of the individual partner. Every partner has dominion over the partnership property for the reason of the fact that he is a partner. A partnership is well known to be distinguished from co-ownership. None of the partners has any right to treat property of firm as individual property and transfer it as such. The basic distinction between co-ownership and partnership is that the co-ownership is not necessary result of agreement while the partnership is. The concept of involvement of community of profits or loss is not attached with the concept of co-ownership. A co-owner can without consent of others may transfer his interest, but partner cannot.
58. The above discussion, therefore, would leave no manner of doubt that status of the property in dispute, which may have come into existence with purchase thereof by Dr. Ramji Singh on the auction sale made absolute on 1.12.1985 did not continue after execution of the ownership deed on 27.6.1988 wherein all the partners including Dr. Ramji Singh unequivocally declared the status of the property in dispute with all joint property of all the partners and made it asset and property of the partnership firm named and styled as Ramji Singh And Company. There is nothing illegal or otherwise contrary to law to transfer the status of said property to that of partnership property or in other words the property of the firm. It then cease to be individual property of Dr. Ramji Singh after execution of partnership agreement dated 27.6.1988.
59. At the time of execution of agreement dated 27.6.1988, the aforesaid plot was vacant. The partners agreed to construct a Cinema Hall thereon named as "Ganga Palace". Consequent thereto a Cinema Hall, as a matter of fact, i.e. Ganga Palace was constructed in 1988-89. The building thus raised was property of the Firm and not any individual. As per deed dated 27.06.1988, both land and building constituted property of firm. There is no stipulation in partnership agreement dated 27.6.1988 as to how property of firm shall be apportioned or taken by partners, except of a general clause 12, which said that provisions of Indian Partnership Act, 1932 and other enactments in force shall be binding on the parties hereto. It leads to a situation that land, i.e. plot No.222/3 (given a new number being C-21/30 B-Ka), and the building constructed thereon i.e. Cinema Hall, constituted stock of the Firm and there being no contract otherwise between the partners, the same could have been settled in accordance with the provisions of Act, 1932.
60. Moreover, there is nothing on record to demonstrate that the aforesaid property was ever made property of Second Firm in any manner or continued to be an individual's property after execution of partnership agreement dated 27.06.1988 in respect of Firm. In any case, Dr. Ramji Singh, respondent no.8 ceased to be an individual owner of plot no. 222/3 on execution of agreement dated 27.06.1988. In other words, the aforesaid property i.e. land became a joint property of all the partners and made stock and asset of the firm with effect from 27.06.1988. The building raised there on was simply the property of the Firm having been raised after formation of the Firm.
61. In view of above discussion, all the questions A to D, as formulated in para 26 are answered in affirmance i.e. in favour of the petitioner. The land in dispute ceased to an individual property of Dr. Ramji Singh with execution of agreement dated 27.6.1988 and became a joint stock/property of the Firm constituted vide aforesaid deed and no individual remained its owner so as to have any legal consequences of his own. So far as building is concerned, it was constructed after the Firm came into existence. Therefore, it was the property of Firm throughout.
62. Then comes the next stage i.e. issues E & F. The Firm was reconstituted by introduction of a fifth partner i.e. Company vide agreement dated 23.3.1990. The existing assets and liabilities of Firm were not altered in any manner and continued to be with the Firm as there is nothing otherwise shown in the agreement dated 23rd March, 1990. Clause 11 of partnership deed further stipulated that in case of retirement of a partner, the remaining partners shall continue the business. However, clause 9 provides that partnership shall be at will.
63. The deed of partnership executed on 23.3.1990 does not show any intention of existing partnership firm of getting itself dissolved. It contemplates continuing of earlier partnership firm with the only change that with the consent of all existing partners, another, new partner i.e. petitioner' company, was introduced and added as fifth partner to the existing partnership firm, with effect from 23.3.1990. The aforesaid deed re-write only share of partners amongst themselves and some other aspects which have no impact on continuance of earlier firm.
64. Even if the Firm is reconstituted, the fact remains that by virtue of agreement, parties agree to put the existing property in joint stock of all the five partners. It was permissible vide Section 14 of Act, 1932. Thus what has been said in regard to Issues A to D of para 26, the same shall apply to Issue E & F also.
65. With the reconstitution of Firm vide agreement/partnership deed dated 23.3.1990, property of Firm remained in the same position but with five partners thereof having shares in the manner prescribed therein in the profit of the Firm but the property remained with that of the Firm i.e. a joint stock of all the five partners. Issues E and F formulated in para 26 are also answered accordingly.
66. Now comes the question of Registration, vis a vis Section 69 of Act, 1932.
67. It has been specifically pleaded in para 4 of writ petition that the partnership constituted vide deed dated 27.06.1988 was duly registered under the provisions of Section 58 of Act 1932. Judgment dated 14.12.2011 of DRAT in para 11 states that during the course of argument before Tribunal, the counsel for respondents admitted that partnership firm was unregistered. It is in that view of the matter, DRAT proceeded to refer Section 69 of 1932 Act and relying on a decision of Delhi High Court in AIR 1983 Delhi 134 (Jagat Mittar Saigal Vs. Kailash Chander and another) held that the claim set up by respondents before it, namely, the petitioner and respondents no. 5 to 8 was not permissible since it amounts to claiming right under the contract which constituted partnership firm, though unregistered and, therefore, it was barred by Section 69(3). In para 15 of the judgment dated 14.12.2011, it further says that after reconstitution in March 1990, still it was not registered and thus due to bar created by Section 69, the company, i.e., the petitioner in the present writ petition and respondent no. 1 before DRAT cannot claim that the property belonged to the firm which was unregistered, has now vested in the company. DRAT also relied on the decisions in Ram Adhar Vs. Rama Kirat Tiwari AIR 1981 All.405; Bharat Sarvodaya Mills Co. Ltd. vs Mohatta Brothers AIR 1969 Gujarat 178; Dinesh Jangid Vs. L.K. Jangid AIR 2007 Rajasthan 203; Jagdish Chandra Gupta V. Kajaria Traders (India) Ltd. AIR 1964 SC 1882; Loon Karan Sethia Vs. Ivan E. John and others AIR 1977 SC 336; Chhote Lal Vs. U.P. State Electricity Board, AIR 1990 All. 27.
68. However, in the order dated 5.1.2012 passed on review application (Annexure 51 to the writ petition), the DRAT has observed that treating the firm unregistered in 1988 was a factual a mistake. Still DRAT has abided to its earlier view, observing that partnership was not constituted in 1985 and no partnership was registered at that time, when property was purchased jointly in the name of four persons in auction, and therefore, it will attract Section 69(3) of Act 1932. DRAT has further said that partnership was constituted first in the year 1985, reconstituted in 1988 and again in 1990 but throughout, change in the constitution was not intimated to Registrar, Firms and Societies and thus its registration in 1988 would make no difference. Here DRAT has relied on M/s. Badrimal Ramcharan & Co. Vs. M/s. Gana Kaul & Sons AIR 1971 J&K 109; V.S. Bahal Vs. M/s L.Kapur and Co. AIR 1956 Punjab 24; and Firm Butamal Dev Rai Vs. Channamal AIR 1964 Punjab 270. It was in these circumstances, DRAT has held that nothing would make any difference to ultimate order passed by DRAT on 14.12.2011 and accordingly dismissed review application.
69. Here relevant issues on the question of Registration would be :
I Whether any firm was constituted in 1985 ?
II Whether the firm constituted vide partnership deed dated 27.06.1988 was registered under Section 58 of Act 1932 ?
III What is the effect of information not given to Registrar, Firms and Societies of induction of new partner vide partnership deed dated 23.03.1990 ?
IV Scope, ambit and effect of Section 69 of Act, 1932 including its applicability to the case in hand.
70. So far as first issue i.e. (I) above is concerned, the parties have not disputed that there was no partnership constituted in 1985 by any of parties in this writ petition in respect of property in dispute. For the first time, partnership was constituted in 1988 vide deed dated 27.06.1988. The observation made by DRAT in the impugned order dated 05.01.2012 that there was a partnership constituted in 1985 in respect of property in dispute is factually incorrect. What actually happened is that partnership deed dated 27.06.1988 stipulates that parties with mutual agreement purchased land in dispute on 01.12.1985 and have decided to reduce terms of partnership in writing to avoid any misunderstanding in future. In para 2 of the agreement they say that partnership business has and shall be deemed to have commenced w.e.f. 01.04.1983. It is a self disclosed date of commencement of partnership by the persons entering into the said relationship and in absence of any statutory bar, there is no reason to make it inconsequential or ineffective. Be that as it may, that by itself would not result in treating as if a partnership came into existence in 1985. Moreover, purchase of a property on 01.12.1985 by itself did not require any existence of partnership. To my mind, though this aspect for the purpose of answering the issue in question is wholly irrelevant yet this Court has no option but to say that DRAT has committed a patent error in looking and relying on this aspect of the matter to justify its order dated 14.12.2011. Its observation that a partnership stood constituted in 1985 is factually incorrect and perverse being contrary to record.
71. Coming to issue (II) as above, execution of partnership deed on 27.06.1988 is not in dispute. DRAT itself has stated in its order dated 05.01.2012 that treating this partnership firm constituted in 1988 as unregistered, is a factual mistake, since it was registered. This is evident from the following extract of the order dated 05.01.2012:
"In this reference this is to be seen that no doubt that this is a factual mistake committed by this Tribunal that the partnership firm constituted in the year 1988 was unregistered but ultimately it is found to be registered....."
72. Once it is admitted by Tribunal that treating partnership firm constituted in 1988 as unregistered is a factual mistake, it is evident that the said firm was registered one. Therefore, assertions in para 4 of the writ petition that the firm constituted by partnership deed dated 27.06.1988 was registered, is liable to be treated correct. Counsel for respondents BEG Bank could neither raise any dispute nor controvert the above fact. It goes without saying that firm constituted under partnership deed dated 27.06.1988 consisted of four partners only.
73. I therefore, find no hitch in holding that the Firm constituted vide partnership deed dated 27.6.1988 was a registered Firm under Act, 1932 and that being so, to that extent reference to Section 69 is wholly irrelevant and impermissible in any manner.
74. Now I come to remaining two issues i.e. III & IV, as above.
75. The firm was reconstituted vide deed dated 23.03.1990 by inducting petitioner as fifth partner. It is not disputed by Sri Satish Chaturvedi, learned senior counsel that neither there is any fresh registration of reconstituted firm nor there is anything to show that the name of fifth partner, inducted vide partnership deed dated 21.03.1990 was conveyed to Registrar, Firms and Societies for entering his name in the register showing him as a partner of the firm. It is in these circumstances, this Court has now to consider its legal effect, consequence and also whether Section 69 at all, will be attracted in this case or not. In other words, issues No.III and IV, both can be and shall be taken together as under. The aforesaid problem can also be looked into from another angle. Whether introduction of a new partner will necessarily result in dissolution of existing registered partnership firm.
76. Section 31 of Act, 1932 contemplates that subject to contract between the partners and provisions of Section 30, no person shall be introduced as a partner in the firm without consent of all the existing partners. Section 30, which talks of interest of minors, admitted to benefits of partnership, has no application in the present case. It also cannot be doubted that new partner was introduced in the firm with the consent of all existing partners. There is nothing otherwise in the contract and on the contrary, it has specifically said so. With regard to liability etc. a new partner may admit old liability of the firm and there is no bar. Therefore, Section 31, which permits induction of a new partner in a firm with consent of all the partners stood complied with and there is no infirmity in induction of petitioner as a partner in the Firm.
77. However, there are some authorities taking a view that with the induction of a new partner, constitution of earlier firm would change and there is a break in identity of firm. In Gouri Sankar Sheroff and others Vs. Central Hindusthan Bank Ltd. and others AIR 1959 Cal. 262 (DB) and Nandlal Sohanlal, Jullundur Vs. The Commissioner of Income Tax, Patiala AIR 1977 P&H 320 (FB) the Court said whenever a constitution of a firm changes by addition of new member as partner, there is a break in identity of the firm whether the name continued to be the same or not.
78. If I apply the aforesaid dictum in the present case, it cannot be doubted that constitution of firm changed after introduction of a new partner vide agreement dated 23.3.1990 though the old firm with the same name and style continue. Still the fact remains that reconstitution of Firm by itself cannot be equated with dissolution of form. Change of constitution of the firm by necessity does not mean that existing firm stood dissolved, unless the contract is otherwise between the partners.
79. The Apex Court in Commissioner of Income-tax, West Bengal Vs. A.W. Figgies & Co. and others AIR 1953 SC 455 observed that a firm has no legal existence apart from its partners. It is merely a compendious name to describe its partners. It is, however, equally true that under the statute i.e. Act 1932, there is no dissolution of firm by mere incoming or outgoing of a partner. A partner can retire with the consent of other partners and a partner can be introduced in the partnership by the consent of other partners. The reconstituted firm can carry on its business in the same firm's name till dissolution. Thus, by mere introduction of a new partner vide agreement dated 23.3.1990, the firm cannot be said to have dissolved and nothing otherwise in the agreement has been shown so as to justify a different view in the matter.
80. An ancillary question would be, earlier firm, having four partners, was registered one, would that registration cease to be effective automatically on introduction of a new partner and can it be said that to be an unregistered firm, on and thereafter.
81. There is no provision in the Act, 1932 which talks of such a consequence. In Mangoomal Jethanand Vs. Aralmal Satramdas AIR 1922 Sind 13, the Court said, that when a new partner joins the firm after retirement of an earlier partner, the newly constituted firm is different from the old one and cannot institute a suit on contract entered into by the later except when the new firm took over by arrangement all the liability and outstanding of the old firm. It leads to the inference that the firm, as such, cannot be said unregistered on introduction of a new partner.
82. Counsel for respondent bank, however, submitted that Firm on 23.03.1990 and onward was not a registered one and therefore, consequences normally applicable to a registered firm would not be available to the petitioner or individual partners of the Firm in respect to the property in dispute founded on the above three agreements dated 27.6.1988, 23.3.1990 and 30.3.1990. He submitted that there are certain disabilities which a non registered partnership firm has to suffer and that being so, claim set up by petitioner in respect to property in dispute may not be available. This argument has found favour with DRAT also with reference to Section 69(2) & (3) whereon impugned order is founded and therefore needs to be examined more carefully. This Court shall examine this submission on the anvil of Section 69 in general and shall also scrutinize the case treating the firm as such unregistered on and after 23.3.1990.
83. It cannot be doubted that Act, 1932 does not require every partnership to be registered compulsorily. There are provisions for registration of firm contained in Chapter VII of Act, 1932 but it nowhere provides that registration would be compulsory for a Partnership Firm.
84. In order to understand import of Section 69, it would be desirable to look into certain historical background of Act, 1932. As already said, provisions governing partnership were part of Act, 1872. Before enacting Act, 1932, a special Committee was constituted to examine draft Bill and subit its report. It consisted of Sir Brojendra Lal Mitter, Sir Dinshah F. Mulla, Sir Alladi Krishnaswamy Iyer and Mr. Arthur Eggar, which examined draft Bill and made recommendation which the legislature considered before enacting Act, 1932.
85. The Apex Court in Haldiram Bhujiawala and another Vs. Anand Kumar Deepak Kuar and another 2000(3)SCC 250 has found it permissible to look into such report for the purpose of construing provisions of Act 1932. In respect to registration of a firm, the contents of report in paragraphs no. 17, 18 and 19 would be of much assistance and are reproduced as under:
"17. The outlines of the scheme are briefly as follows. The English precedent, in so far as it makes registration compulsory and imposes a penalty for non-registration has not been followed, as it is considered that this step would be too drastic for a beginning in India, and would introduce all the difficulties connected with small or ephemeral undertakings. Instead, it is proposed that registration should lie entirely within the discretion of the firm or partner concerned; but, following the English precedent, any firm which is not registered will be unable to enforce its claim against third parties in the civil Court; and by partner who is not registered will be unable to enforce his claims either against third parties or against fellow partners".
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 fur 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 partners to register"
86. It is in this context and as interpreted by various Court from time to time, I would look into Section 69 and its scope.
87. Section 69 of Act, 1932 reads as under:
"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 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 parter 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 firm or to partners in firm 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, or outside the Presidency-towns, is not of a kind specified in the Second Schedule to the Presidency Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.
88. Construing Section 69 of Act, 1932 the above provisions, Madras High Court in Shanmugha Mudaliar Vs. P.V. Rathina Mudaliar and Anr., AIR 1948 Madras 187, said as under:
4. Sub-sections (1) and (2) of Section 69 of the Partnership Act forbid the institution of a suit to enforce a right arising from a contract in respect of a partnership when the partnership is not registered. Sub-section (3) of the same section, however, provides that the provisions of Sub-sections (1) and (2) shall not affect any right or power to realise the property of a dissolved firm. It is to be noticed that the Indian Partnership Act places no prohibition upon an unregistered partnership making contracts either between the partners inter se or with some third party nor upon an unregistered partnership acquiring property or assets. All that it does is to make a suit instituted by an unregistered partnership, to recover property, unenforceable. But relief from the disability can be obtained at any time as long as the partnership is in existence, and if the partnership is registered before the suit is instituted the partnership can recover its property and sue on contracts made with third parties even when those contracts were entered into at a time when a partnership was not registered. In Ponnappa Chetti's case (1944) 2 M.L.J. 406 Bell, J., came to the conclusion that where an unregistered partnership has been dissolved any contract made with the partnership or moneys due to it in respect of dealings during the subsistence of the partnership cannot be enforced by a suit and that Sub-section (2) of Section 69 prevents such a suit succeeding. But, it has to be noticed, in that case there was no appearance on behalf of the partners of the partnership then under consideration ; nor, it seems to us, was the learned Judge's attention drawn to Sub-section (3) of Section 69.
6. When a firm has been dissolved, thereafter it is impossible for registration ever to be effected. Consequently the disability of non-registration cannot be overcome, as it can be during the continuance of the partnership, when the partners can, at any time, register as required by the Act and any disability existing upto that time regarding enforcement by suit of contracts and debts due to the partnership can be removed.
7. The words in Sub-section (3) of Section 69 which I have quoted above are very wide. The sub-section enacts that the provisions of the two previous subsections shall not affect any right or power to realise the property of a dissolved firm. It is the right of all the partners, or by some arrangement as between themselves, one or more, to realise the property of their late partnership. In the course of the argument it has not been suggested that moneys due to the partnership from a third party in respect of dealings between him and the partnership do not form part of the partnership property. It seems to me that the intention of the Legislature was to inflict disability for non-registration only during the subsistence of the partnership and, in doing that, at the same time there is provision that the partnership can cause the disability to be removed by registration before action is brought, although there was disability, by reason of non-registration, existing at the time the contract was made or the debt incurred. When a partnership has been dissolved the disability cannot be removed. Consequently it will be impossible, if a different view were taken of the provisions of Sub-section (3) for a dissolved unregistered partnership to recover by suit it's assets and property.
89. Again in P.M.S.M. Mohammed Abdul Samad & Ors.Vs. P.M.S.C. Madarsa Rowther and Ors., AIR 1959 Madras 440, the Court said:
The object of Section 69(2) is to compel a firm which is a going concern to get itself registered it has to institute a suit or make claims in courts of law. Section 69(1) refers to a suit instituted in any court by or On behalf of any person suing as a partner in a firm. If such a person instituted a suit against the firm or any person alleged to be or to have been a partner in the firm, the suit would be dismissed unless the firm had been registered and the person suing was or had been shown in the Register of Firms as a partner in the firm. "Firm" is thus defined in Section 4 :
"Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm' and the name under which their business is carried on is called the 'firm name', "
That definition makes it clear that the expression "firm" cannot be applied to a partnership except where it is continuing to carry on business. Where the partnership has been dissolved, it is referred to in the Act as a dissolved firm, and not simply as a firm. Neither Section 69(1) nor Section 69(2) can apply to a suit instituted by a person who claims to have been a partner in a dissolved firm or to a suit instituted by or on behalf of a dissolved firm. Such suits lie outside the purpose of the sub-sections.
Their purpose is to compel registration of the firms that seek relief in courts. A dissolved firm cannot be registered. Hence a suit by or on behalf of a dissolved firm or by a partner of a dissolved firm cannot possibly be nit by the prohibition enacted in those sub-sections. If a person who is a partner in a firm sues the firm for some particular relief or sues an individual partner of the firm or a former partner of the firm, the suit cannot be maintained unless the firm is registered. That is because the firm Is in being and may be registered.
If a person, who claims that he is a partner in firm and whose claim is disputed, sues the firm or a partner or a former partner of the firm, such a suit, again, is within the prohibition enacted in Section 69(1). " That is because the suit is instituted by the plaintiff in his capacity as partner and since the firm is in being and is capable of being registered, it is opposed to the policy of the Act, subject to the exceptions enacted in Section 69(3) to allow the institution of a suit by a person who claims to be a partner unless the firm is registered and his name appears, or appeared, in the Register as a partner.
But unless there is a firm -- that is to say, a partnership that is continuing to do business --and the suit instituted by the plaintiff involves a basic claim on his part to be recognised as a continuing partner of the firm, the suit would not be hit by the prohibition enacted in Section 69(1) of the Act. In this case, it is admitted by both parties that the firm was dissolved in 1949. The plaintiffs were partners in the dissolved firm.
They sue the defendants who were the other partners of the dissolved firm. The suit and the defence pressed alike on the basis that the relationship pf partnership has ceased to subsist and that the firm is no longer in existence. To such a suit, Section 69(1) can have no application. I hold that the institution of the suit is not barred by Section 69(1) of the Partnership Act.
5. In the lower courts the contention that was urged was that the claim made by the plaintiff was to enforce his right and power to realise the property of the dissolved firm. The lower courts overruled that contention, They were right in doing so.
6. The surcharge refundable to the firm has been realised on behalf of the firm. The plaintiffs are seeking now not to realise the property of the dissolved firm but to realise from some of the partners of the former firm the plaintiffs' share of the money that has been realised. The plaintiffs cannot therefore be said to be enforcing or exercising any right or power to realise the property of the dissolved firm. The lower courts rightly held that the suit is not within the terms of the exception enacted in Section 69(3)(a) of the Act.
90. A Division Bench of Calcutta High Court in Ajit Kumar Maity Vs. Narendra Nath Jana and Ors., AIR 1955 Cal.224, the Court said:
2. Primarily the bar in Section 69 is. against the plaintiff, the result being, if a partnership has not been registered, no suit to enforce a right arising from a contract will be entertained either on behalf of the firm against a third party or on behalf of any person suing as a partner in a firm against the firm or any person alleged to have been a partner in the firm. These are the consequences of the provisions of Sub-sections (1) and (2). The first effect of the extension of the provisions of Sub-sections (1) and (2) by Sub-section (3) is that if a defendant claims set-off on the basis of a partnership, he will be debarred from doing so unless the partnership is registered.
The next effect is that if any person is by "any proceeding" seeking "to enforce a right" arising from a contract on the basis of a partnership he will be debarred from doing so, unless the partnership is registered. Can it be reasonably said that when a defendant tries to defeat the claim of the plaintiff by setting up a right on the basis of partnership, that is "a proceeding" 'to enforce a right on the basis of partnership'. In my judgment, the written; statement as such is in the. first place not a proceeding contemplated in Sub-section (3). In the second place, it cannot, in my judgment, be properly said that by setting up a plea to defeat the plaintiff's claim a defendant can be said to be seeking 'to enforce a right arising from a contract'. A party can be said to be seeking to 'enforce a right' only if he is seeking some relief from the court. Where no relief is being sought from the court, it cannot be said that he is seeking to enforce a right. Not only in form, but also in substance, what the defendants have sought to do in these cases is to try to defeat the plaintiff's claim to certain properties. There is no attempt to enforce their own. rights. Reliance was placed on certain observations in -- 'Jamal Usman v. Firm Umar Haji Karim Shop', AIR 1943 Nag 175 (A), to the effect that a claim arising out of a contract set up in defence to negative the right of suit of the plaintiff is placed under the same disability as the right to bring a suit under Sub-sections (1) and (2).
91. Calcutta High Court expressed its disagreement with a judgment of Nagpur High Court in Jamal Usman Vs. Firm Umar Haji Karim Shop, AIR 1943 Nag. 175 where the view taken appears to be otherwise.
92. In Mumtaz Khoda Bux Vs. Ahsanul Haq & Anr., AIR 1955 Vindhya Pradesh 12, the Court construed Section 69 in para 14 as under:
"Finally, it was argued that the suit is barred under S. 69, Partnership Act. The partnership between Ahsanul Haq, Abdul Hafiz and Mumtaz Husain was dissolved on 29.6.51. It was held in Bairang Lal Vs. Anandi Lal', AIR 1944 Nag 124 (C) that after the settlement of accounts between partners of a dissolved partnership, the bar in S. 69 does not extend to suits for recovery of money due on a contract entered into between the partners of an unregistered firm.
In Sheo Dutt Vs. Pushi Ram, AIR 1947 All 229 (D), 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 was 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 contained in S. 69(3)(a).
In Shri Ram Shaligram Shop v. Lakshmi Bai, AIR 1951 Nag 143 (E) it was held that S. 69 should be construed strictly and that it is only a suit brought as a partner that is barred. It was observed "when there is an agreement between the parties by which some right is created which is capable of enforcement independently and without resort to general accounts of the unregistered partnership, it furnishes entirely a different cause of action and the suit of the partner based on them is not barred as he cannot be described there as suing as a partner."
In view of these decisions, the learned Additional District Judge rightly held that the present suit is not barred under S. 69, Partnership Act."
93. In Bedabar Sahu Vs. Khetramani Barik, AIR 1969 Orissa 194, the Court said:
"The present claim of the plaintiff is directly covered by the last clause in Sub-section (3) (a). Non-registration of the firm would not thus stand as a bar in respect of any right or power to realise the property of a dissolved firm. The question for consideration is whether the dues of the plaintiff against the defendant after accounts being taken retain the character Of the property of a dissolved firm. In one sense it can be, namely, this property had belonged to the firm before dissolution and after dissolution and accounting it came to the hands of the plaintiff who has the right to realise it from the defendant. The present case comes within this exception. The matter is also covered by a decision of this Court reported in 25 Cut. LT 34 : AIR 1959 Orissa 110, Daitari Mohapatra v. Brundaban Hatia.
3. The plaintiff's case stands on a stronger footing from another analysis. The cause of action for recovery of the amount agreed to be paid by the defendant to the plaintiff has nothing to do with the property of the firm except that in its historical context it once belonged to the firm. After accounts were taken and an agreement was executed by the defendant in favour of the plaintiff acknowledging the liability to pay that amount, a different cause of action arises which has nothing to do with the dissolved firm. On such a view the plaintiff's suit is bound to succeed.
94. In Shriram Shaligram Shop Vs. Laxmibai and others, AIR (38) 1951 Nagpur 143, a Division Bench presided by Hon'ble Hidayatullah, J, as His Lordship then was, held:
"When there is an agreement between the partners by which some right is created which is capable of enforcement independently and without resort to general accounts of the unregistered partnership, it furnishes an entirely different cause of action and the Plaintiff cannot be described as 'suing as a partner'. It is not every suit that is barred but only a suit brought 'as a partner.' The section must be construed strictly and the bar of the section cannot be carried further than what the words import."
95. In Bajranglal Maniram Singhvi Agarwal Vs. Anandilal Ramchandra Potdar and another, AIR (31) 1944 Nagpur 124 enforcement of an agreement with respect to settlement of account and to claim money accordingly was held not barred by Section 69 though the Firm is unregistered. The Court said that the suit is not one by or on behalf of any person suing as a partner in a firm but one by a person entitled to recover an amount on the basis of a settled account, and as such is not governed by Section 69 (1) of Act, 1932. As the terms of the partnership do not at all enter into the consideration in such a case. The fact that the partnership was an unregistered firm has no bearing on the suit as laid. The Court distinguished an earlier decision in Chhotelal Vs. Gopaldas, AIR 1940 Nagpur 78 observing that, "The ratio decidendi of that case is that it is not essential that the firm should be actually in existence on the date when the suit is instituted for the application of S. 69, sub-ss. (1) and (2), Partnership Act. In that case the suit was by a partner in respect of money due to him on the basis of the partnership transaction and was held to be barred under S. 69 (2) of the Act even though the partnership has been dissolved before the institution of the suit. The suit was not one based on the cause of action afforded by a settlement of account between the parties after the dissolution of an unregistered partnership. That case therefore has no application to the facts of the present case and is easily distinguishable."
96. A Division Bench of this Court in Ram Kumar Vs. Kishore Lal and others, 1945 ILR (All.) 309 (at page 316) says after referring to Section 69(3)(a) as under:
"It also makes it clear that the bars created by clauses (1) and (2) will not affect the right recognized by this clause. Assuming that the old partnership was dissolved, there was nothing to prevent the plaintiff either himself or along with the surviving members of the family of Musamal to realise the property by bringing a suit on the bond. Section 69(3)(b) recognizes.
"the powers of an official assignee, receiver or court under the Presidency Towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner,"
without any hindrance created by sub-sections (1) and (2)."
97. The Court relied on a decision of Bombay High Court in Bhagwanji Morarji Goculdar Vs. Alembic Chemical Works Co. Ltd., AIR 1943 Bom. 385 holding that partners of a dissolved partnership are entitled to realize all the assets of dissolved firm and such a suit is not barred by Section 69(2).
98. To the same effect is another Division Bench decision in Sheo Dutt & others Vs. Pushi Ram & others, AIR (34) 1947 Allahabad 229 where in para 16 the Court held:
"To our mind, the exception in sub-s. (3) is wide enough to include a claim for money due to a dissolved firm either by a partner or by a third party."
99. Section 69 came to be considered since inception for umpteen times before various Courts across the country. Some of earlier authorities giving an idea of the import of Section 69 may be referred hereat.
100. Section 69 of Act, 1932 bars a remedy by way of a suit to enforce a right arising from a contract or conferred by Act, 1932. Broadly, Section 69 signifies a right sought to be enforced by an unregistered firm, and what is barred is that it must be a right arising out of a contract with third party defendant in respect of the firm's business transactions.
101. In M/s Raptakos Brett & Co. Ltd. v. Ganesh Property, [1998] 7 SCC 184 the Apex Court considered the ambit of word "right arising from a contract". In para 9, Court observed that contractual rights arising from contract means it must be a contract entered into by the firm with third party defendants. Relevant observation in para 9 of the judgment reads as under:
"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 third party would be barred at its very inception."
102. The above observations have been quoted and followed in Haldiram Bhujiawala (supra) and in paras 21 and 22 the Court said:
"21. The above Report and provisions of the English Acts, in our view, make it clear that the 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.
22. In Raptokas Brett and Co., [1998] 7 SCC 184 ......
From the above passage it is firstly clear that a contract must be a contract by the plaintiff firm not with anybody else but with the third party defendant."
103. Going further, in Haldiram Bhujiawala (supra), the Court said, that contract by unregistered firm referred to in Section 69(2) must not only be one entered into by the firm with the third party defendant but must also be one entered into by the plaintiff firm in the course of business dealings of the plaintiff firm with such third party defendant. Section 69(2), is not attracted to any and every contract referred to in the plaint as the source of title to an asset owned by the firm. If the plaint referred to such a contract it could only be as a historical fact. In para 26, the Court said, that, the Act, in fact, has not prescribed that the transactions or contracts entered into by a firm with a third party are bad in law if the firm is an unregistered firm. The Court concluded that a suit filed, not for enforcement of any right arising out of a contract entered into by or on behalf of the unregistered firm with third party in the course of the firm's business transactions, is not barred by section 69(2).
104. In Mukund Balkrishna Kulkarni vs. Kulkarni Powder Metallurgical Industries & Anr (2004) 13 S.C.C. 750, Section 69 was dealt with in detail. In paragraphs no. 9 and 10 the Court said that sub section (1) of Section 69 contains embargos which must coexist before a plaintiff can be non-suited under that sub section. The two embargos are: (i) that the suit should be filed by person "suing as a partner in a firm" and (2) that the suit must be to enforce a right arising from a contract. Referring to the issue before the Court whether a declaration of the existence of the partnership and share between the parties was prayed, the Court said that prayer for such declaration could not be said to be made by person suing as a partner. It was a prayer, to be a partner, and is, therefore, not debarred under Section 69(1) of Act 1932. It was clarified that what in fact prayed for by the plaintiff, was, a declaration of existence of a contract between the parties. That could not be said to be a suit to enforce a right arising from a contract.
105. Another prayer in the suit up for consideration before the Court in Mukund Balkrishna Kulkarni (Supra) was direction not to continue as a partner of firm and to dissolve the firm. It was said that to this extent plaintiff was suing as a partner but he was entitled to do so under Section 69(3)(a). In para 10 of the judgment, Court said:
"10. 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. The claim for a half share in the firm's assets would be a necessary corollary to a prayer for dissolution. Without the prayer for specified shares in the firm's assets and business, the relief that may be granted in a suit for dissolution would be ineffective."
106. In V. Subramaniam Vs. Rajesh Raghuvandra Rao (Supra) looking to historical background of Section 69, the Court in para 10 said :
"10. The English law in so far as it makes registration compulsory for a firm and imposes a penalty for non-registration was not followed when the Partnership Act was made in India in 1932 as it was considered that this step would be too drastic and would introduce several difficulties. Hence registration was made optional at the discretion of the partners, but following the English precedent, any firm which was not registered by virtue of sub-sections (1) and (2) of Section 69 disabled a partner or the firm (as the case may be ) from enforcing certain claims against the firm or third parties (as the case may be) in a Civil Court. An exception to this disability with regard to an unregistered firm was made in sub-section (3)(a) to Section 69, and this clause enabled the partners in an unregistered firm to sue for the dissolution of the firm or for accounts or for realising the property of the dissolved firm. This exception in clause (a) of Section 69(3) was made on the principle that while registration of a firm is designed primarily to protect third parties, the absence of registration does not mean that the partners of an unregistered firm lose all rights in the said firm or its property and hence cannot sue for accounts or for its dissolution or for realizing their property in the firm."
107. It cannot be doubted that legislature has made its intention clear that, wherever applicable, Section 69 would have to be complied with strictly and it is mandatory in character. 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 a unregistered firm, whether existing or dissolved, void. In other words, a partner of erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of Section 69 of Act, 1932. The Apex Court in Seth Loonkaran Sethiya and Ors. Vs. Mr. Ivan E. John and Ors., AIR 1977 SC 336, in para 20, observed:
"a partner of a erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of Section 69 of the Partnership Act."
108. To sum up, Sub-section (3) is an exception to sub-section (1) and (2) except to a case where an unregistered firm or its partner set up as defence a claim of set-off or other proceeding to enforce a right arising from a contract. There are three classes which are excluded from the ambit of earlier sentence and that includes Clause (3)(a) i.e. the enforcement of any right to sue for dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm.
109. In the light of the above exposition of law discussing threadbare Section 69, I find myself unable to agree with DRAT that the petitioner could not have set up its claim in respect to the disputed land and building since property stood transferred to it pursuant to the partnership firm reconstituted vide agreement dated 23.3.1990 which was unregistered. The petitioner was not enforcing any right by filing a suit as a partner or setting up a claim for set off. The apportionment, division or settlement of property amongst partners has already been finalized vide agreement dated 30.3.1990. The partnership itself disappeared/ceased to exist thereafter for the reason that other four partners retired and there remains only one partner, which obviously would not have resulted in continuance of partnership firm, in absence of more than one person to continue in partnership. The transfer of property or settlement of property or apportionment of shares in property as a result of dissolution even in respect to an unregistered partnership firm can result in legal consequences of settling of property of Firm for the reason that such a suit for accounting is permissible by Section 69(3)(a). It cannot be said that on one hand such a suit is permissible yet on the other hand, the result acquired after such accounting etc. would not be given effect to on the ground that it would amount to enforcing a contract of an unregistered firm.
110. Moreover this Court cannot shut its eyes to certain glaring facts. Here in the agreement dated 23.3.1990, the entire assets and liability of the erstwhile firm have been penned down in Clause-5. Clause-8 excludes only the personal dealings and liabilities of the partners or other firms or entities in which they are partner. Clause 8 reads as under:
"8. That the partnership business shall not in any way be liable or responsible for any personal dealing of any of the partners or other FIRMS/ENTITIES in which any of above parties are partners."
111. The partnership came to an end on execution of dissolution deed dated 30th March, 1990 whereby four individual partners retired. There remained only one the Company. Since a partnership firm cannot continue with a single person, by operation of law, the firm stood dissolved on 30.3.1990. The definition of "Partnership" contained in Section 4 of Act, 1932 clearly provides that a Partnership can come into existence only when more than one person enter into a relationship agreed to share profits of a business carried on by all or any of them acting for all. Thus, in order to bring a Partnership Firm into existence and to continue it, one of the necessary condition is that there must be more than one person to enter into the relationship for doing a partnership business. As soon as there remains only one partner, for any reason whatsoever, the partnership firm would immediately come to an end. As per partnership agreement dated 23.3.1990, it was a "partnership at will". As stipulated in dissolution deed dated 30.3.1990, it stood dissolved with the consent of all the partners w.e.f. 30.3.1990.
112. It was always open to the partners to decide amongst themselves as to how and in what manner assets and liabilities of Firm shall be apportioned between them. The partners decided amongst themselves vide dissolution agreement dated 30.3.1990 that properties, assets and liabilities of firm shall go with one of the partners namely the Company i.e. M/s Ramji Singh Properties & Hotels Pvt. Ltd.. This settlement or apportionment is not a transfer of property from one person to another but it is like surrendering of rights jointly owned by partners in a particular manner so as enable retain joint property after cessation of joint status into individual. A property, which was owned by all the partners after cessation, shall be owned by individuals with absolute rights in terms of settlement on dissolution.
113. Accordingly in the opinion of Court, land and building on plot No.222/3 (new number being C-21/30 B-Ka) became property of Company by virtue of agreement dated 30.3.1990. The respondent no.2 i.e. BEG Bank has not shown anywhere to have come into picture by virtue of any document so as to generate its interest on disputed property i.e. Cinema Hall (building and land) till 1990 or that even upto 1994. Admittedly, there was no transaction with BEG Bank with either the petitioner or any other party including partners of the Firm. It is not shown how the second Firm developed any interest therein.
114. As per the case set up by BEG Bank, M/s Kisan Cold Storage, Bansdeeh Road Ballia (Second Firm) executed an agreement with it (BEG Bank) on 4.8.1995, for a term loan and cash credit limit (working capital) against hypothecation of potato stocks etc.. The property in dispute was never either represented to BEG Bank at that time having any relationship with Second Firm or its partners namely respondents No.4 to 8 and no kind of charge was created or could be created by them in respect to disputed property.
115. The most interesting aspect is that the property in dispute never belong to Second Firm to which BEG Bank had advanced loan and for recovery whereof proceedings in question were initiated. The only reason for which it could eye on the property in question is that Dr. Ramji Singh, happened to be one of the partners of Second Firm and then by reverting back to the auction sale of 1983/1985.
116. The impugned recovery has been sought to be given effect to treating that since property in dispute was sold to an individual, it would continue and always remain to be such individual's property and all the subsequent events and their legal consequences are to be ignored or omitted, without applying mind that such assumption is wholly impermissible in law and even as a matter of fact.
117. Once the land was made a property of the Firm, and it was not shown that Firm and Second Firm have any inter-relationship, the property of Firm could not have been touched by BEG Bank while pursuing recovery of outstanding dues against Second Firm.
118. The DRAT has tried to wriggle out of the entire complexity by referring to Section 69, though, as already discussed above, and also in the light of authoritative pronouncement of Apex Court in recent decade, Section 69 has no application in the case in hand. It does not prohibit or bar petitioner's claim in respect to the property in dispute, which in my view belong to the petitioner. He, being an independent separate legal person, has nothing to do with the recovery of outstanding dues of Second Firm. The decisions relied by DRAT, I find have no application to the case in hand.
119. Jagat Mittar Saigal (Supra) is a decision of a Single Judge of Delhi High Court. The question up for consideration therein, whether a petition under Section 8(b) read with Section 20(4) of Arbitration Act 1940 would be maintainable at the instance of a partner of an unregistered partnership firm. The Court said that the bar created by Section 69 of 1932 Act is mandatory and the Court is left with no option or discretion in such matters which come within the mischief of the aforesaid statute. No relief can be granted against disability imposed by Section 69. In para 10 of the judgment, the Court observed, that, clauses (a) and (b) of sub section (3) of Section 69 carve out an exception to the prohibition contained in sub-sections (1) and (2) and clearly enable the enforcement of any right to sue for dissolution of a firm or for accounts of a dissolved firm or any right or power to realize property of a dissolved firm. It appears that the Legislature intended that no disability should attach to any partner in regard to winding up of the affairs of firm including realization of property of the dissolved firm and its accounting between the partners on its dissolution. A partner can enforce a right to sue for the dissolution of the firm or for accounts of a dissolved firm or for realizing the property of the dissolved firm. The Court then further said:
"In other words, a suit for accounts of a dissolved firm or for realizing the assets of a dissolved firm is not barred under the provisions of subsections (1) and (2) by reason of the exception contained in sub-section (3) of Sec. 69. ..............In the case of arbitration proceedings in the Court, it necessarily follows that if it is to enforce a right arising from a contract between the parties, then the prohibition would apply. But it shall not affect the arbitration proceedings to enforce a right arising from the contract if it is the enforcement of a right for accounts of a dissolved firm, or for the realization of the property of a dissolved firm. A partner of an unregistered firm can enforce any right arising from the contract for rendition of accounts of a dissolved firm. In other words, although a partner of unregistered firm has no right to bring a suit for enforcement of a right arising out of the contract, yet after the dissolution of such a firm, a suit or arbitration proceedings for the relief of the rendition of accounts is maintainable as it is expressly saved by Clause (a) of sub-section (3) of Section 69."
120. Court thus held that for rendition of accounts an application under Section 8(2) read with Section 20 of Arbitration Act 1940 is maintainable. I find nothing in the aforesaid judgment which supports the observations and view taken by DRAT so as to hold claim of petitioner upon the property in dispute, as not maintainable and unenforceable. In the case in hand, in fact petitioners are not enforcing any right by filing a suit or claiming a set off. In fact, the petitioner is trying to protect property in dispute stating that it is owned by it having already been settled in its favour with agreement of all the partners of dissolved firm, apportioning the property of the firm amongst themselves. As already discussed, Section 69 therefore, as such does not bar the petitioner from obstructing recovery proceedings initiated by BEG Bank against the property owned by petitioner giving background origin of the said property for the said purpose.
121. In Ram Adhar Vs. Rama Kirat Tiwari (Supra) the two plaintiffs carrying out business of manufacturing bricks in partnership, filed a suit to recover amount due to the firm from the defendant who is said to have purchased bricks from the firm but did not make payment. The firm being unregistered, a Single Judge of this Court held the aforesaid suit barred by Section 69(2) of Act 1932. This Court relied on Apex Court's decision in Loon Karan Sethia (Supra) where the Court has said that a partner of erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of Section 69 of the partnership Act. This decision lends no support to hold the objection raised by petitioner in respect of the property in dispute to contend that BEG Bank has no right to recover dues of second firm from the said property which belong to petitioner and not the second firm. Here is not a case where the petitioner has filed any suit or has pleaded claim by way of set off.
122. Bharat Sarvodaya Mills Co. Ltd.(Supra) is a decision rendered by a Division Bench of Gujarat High Court. The Court held that a firm has no a legal entity. It is collective term for the partners who have entered into a partnership with one another. There M/s Mohatta Brothers carrying on business of managing agency was a registered firm. Subsequently on or about 24th October 1949 the firm was reconstituted by induction of a new partner but was not registered as a result of reconstruction and hence, was held not entitled to file a suit and barred by Section 69 of Act 1932. The Court referring to various provisions of Act 1932 and Order 30 Rule 1 and 2 C.P.C. said that a suit by or in the name of a firm is really a suit by or in the name of all its partners. A firm, being not a legal entity in the sense of a company, when a suit is filed in the name of the firm, it is in reality a suit by all the partners of the firm. Having said so, the Court dealt with Section 69(2) in para 7 of the judgment and said :
"Section 69(2), therefore, bars a suit against a third party if it is for enforcing a right arising from a contract. The bar equally applies both to suits by the firm as well as suits on behalf of the firm. Two mandatory requirements which must be fulfilled before such a suit can be filed to enforce a contractual right by the firm or on behalf of the firm are: (1) that the firm must be a registered firm and (2) that the persons suing are or have been shown in the Register of firms as partners of the firm. As the section creates a bar to the suit, the requisite conditions will have to be treated as mandatory conditions. Unless these two conditions are fulfilled there would be a fatal bar to the entire suit and it would be wholly incompetent in a Court of law. A plain literal reading of the section shows that both these conditions are cumulative conditions as they have been joined by the conjunction 'and' and not by the disjunctive 'or'. We would consider in a moment the contention of Mr. Nanavati that the second condition is inapplicable by its nature to a suit by a firm. Prima facie, on a plain literal reading of Section 69(2), both these mandatory conditions must be held to be cumulative conditions and both of them must be complied with to show that a suit to enforce a contractual right by or on behalf of a firm is maintainable against a third party. These two conditions are enacted for protecting a third party who enters into a contract with the firm. If the firm is registered and the partners acting for the firm have their names shown in the Register of firms; as partners in the firm the third party would have a complete protection when he enters into such a contract. Looking to the purpose underlying Section 69(2), it is obvious that both these conditions must be cumulative conditions. If only a firm was registered and thereafter it was reconstituted by introduction of new partners unless the second condition is fulfilled, the third party would not have adequate protection as it could not check up whether they were partners of the registered firm when such persons purport to act as a partner in the firm while dealing with the third party. Section 69(2) creates a bar not only in cases where the suit is by the firm but also when the suit is on behalf of the firm. The suit by the firm can be filed, as we lave already discussed under Order 30, Rule 1, by bringing it in the name of the firm mentioning the firm in the cause title and the plaint being verified by one of the partners at the time of accrual of the cause of action. The suit on behalf of the firm can be filed equally by all the partners who are compromises and all of whom are under Section 45 of the Indian Contract Act, 1872, joined together in enforcing the promise against a third party promiser. The suit by a firm as we have already discussed, is only a procedural provision for the purposes of the firm of the suit but in reality even a suit by the firm is a suit by all the individual partners at the time of accrual of the cause of action. Therefore, there would be no rhyme or reason for the Legislature to provide two different conditions when the suit is by a firm or when the suit is by individual partners merely, because for the sake of convenience in filing a suit a different procedure was laid down in Order 30 to enable a firm to bring a suit in the Firm name. Therefore, on a plain literal construction we must hold that in both the cases where the suit is by a firm or on behalf of the firm both of these mandatory conditions must be cumulative conditions."
123. Further regarding the alleged reconstruction due to outgoing or incoming of a partner, the Court referred to Section 63 of Act 1932 and in para 8 of the judgment said:
"...........Section 63 leaves no doubt whatever that even when there is a change in the constitution of a registered firm by reason of incoming, or outgoing partner or where there is dissolution of the firm, or when the minor admitted to the benefits of the partnership becomes a major and elects or refuses to continue as a partner what is necessary for the Registrar to do is to note the change in the constitution or about the fact of dissolution of the firm. It is thus obvious that in the context in which the registration of the firm is contemplated in Chapter VII, the registered firm may continue its existence notwithstanding any reconstitution of the partnership firm and even when dissolution has taken place provided the registered firm continues in existence. In that view of the matter so far as Section 69(2) is concerned, the first condition would only mean that the continuing firm must be a registered firm and it does not require a fresh registration each time that a re-constitution or dissolution of the continuing firm takes place. The firm retains its identity for the purposes of registration and what is required under Section 63 is notifying the changes in the constitution of the firm or as regards its dissolution, There would, however, be no fresh entry of registration so long as the same registered firm continues in existence. Therefore, we accept the first contention of Mr. Nanavati that even when a firm is reconstituted by introduction of a new partner it would remain the same registered firm and there would be no necessity of a fresh registration if the continuing firm was a registered firm which was registered with the Registrar of Firms by the order under Section 59 of the Act."
124. Then the Court also considered Section 69(3)(a) and in para 11 of the judgment it said:
"........Section 69(3)(a) makes it clear that it is only after getting the firm dissolved that a suit can be filed in such cases by partners for realizing the property of a dissolved firm from a third party. That exception is provided by the Legislature itself. But unless the case is brought in that exception in Section 69(3)(a) the bar would be applied both as regards the suit in the name of the firm as well as the suit by individual partners."
125. The aforesaid decision basically considered, when a firm stood reconstituted by induction of a partner whose name was not entered with the Registrar of firms, whether suit of such firm hit by Section 69(2) or not. The observations made above and also the question with which the Court was confronted, I am clearly of the view that the aforesaid decision has been mis-appreciated and misapplied by DRAT so as to support its view that the objection filed by petitioner in respect of recovery instituted at the instance of BEG Bank against property in dispute is not maintainable. DRAT has clearly erred in relying upon the aforesaid decision against the petitioner.
126. Chhote Lal Vs. U.P. State Electricity Board (Supra) is also a Division Bench judgment of this Court. Here also, proceedings under Section 20 of Arbitration Act were initiated by one of the partners of an unregistered firm. The Court held that the plaintiff is seeking enforcement of its rights arising from a contract and is not protected by Section 69(3)(a). The Court followed Apex Court's decision in Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd. AIR 1964 SC 1882 and held the said proceedings barred. But, here again, it is neither a suit instituted by petitioner nor a claim of set off, in the nature of counter claim or any other proceedings, arising from a contract. This decision also, in my view, has been misapplied by DRAT to the facts of the present case.
127. M/s. Badrimal Ramcharan and Co. (Supra), a Division Bench of Jammu and Kashmir High Court held, where a person is inducted as a partner in the partnership firm but no intimation of this was conveyed to Registrar, leaving no scope for change to be entered in the register, a suit on behalf of such firm would not be maintainable. In taking the above view, the Court relied on two Division Bench decisions of Punjab High Court in V.S. Bahal Vs. M/s L. Kapur and Co. (Supra) and Firm Butamal Dev Rai Vs. Channamal (Supra). The controversy in the present case is entirely different. All the above three decisions thus would have no application to the issues involved in this case. The DRAT has erred in law by placing reliance thereon.
128. In view of above discussion, the impugned judgments and orders passed by DRAT cannot sustain.
129. The writ petition is accordingly allowed. The orders dated 14.12.2011 (Annexure No.49 to the writ petition) passed in Appeal(s) No.R-22/2011, R-24/2011 and 25/2011; and, dated 05.01.012 (Annexure No.51 to the writ petition) passed in Review Application No.348/2011 in Appeal No.R-22/2011 by DRAT, are hereby quashed. The appeals filed by BEG Bank before DRAT shall stand dismissed.
130. This order, however, shall not preclude BEG Bank from taking such recourse, as permissible in law, for recovery of its dues from the property of second firm in accordance with law.
131. The petitioner shall be entitled to cost which is quantified to Rs.20,000/-.
Order Date:-18.02.2013 KA/PS/Akn