Telangana High Court
Mohd.Akbar Ahmed, vs Mr.Mir Mohsin Ali on 7 July, 2023
Author: P.Naveen Rao
Bench: P.Naveen Rao
HON'BLE SRI JUSTICE P.NAVEEN RAO
CIVIL REVISION PETITION NO.1130 OF 2023
Date: 07.07.2023
Between:
Mohd. Akbar Ahmed, s/o. late Mr.Mohd.Jaffar,
Aged about 67 years, occu; Business,
r/o.H.No.8-1-423/1A/1, Teja Colony, Shaikpet,
Hyderabad and two others.
.... Petitioners/
Petitioners/
Defendants 1 to 3
And
Mr. Mir Mohsin Ali, s/o. Mir Jawad Ali,
Aged about 38 years, occu: Business,
r/o.Flat No.402, 4th Floor, Qutub Shahi Plaza
of premises No.8-1-40/B/508/55, Samata Colony,
Toil Chowki, Hyderabad and two others.
..... Respondents/
plaintiff/
Defendants 4 and 5
This Court made the following:
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HON'BLE SRI JUSTICE P.NAVEEN RAO
CIVIL REVISION PETITION NO.1130 OF 2023
ORDER :
First respondent/plaintiff instituted O.S.No.4141 of 2022 in the Court of IX Junior Civil Judge, City Civil Court at Hyderabad praying to grant perpetual injunction restraining the defendants and their associates from interfering and dispossessing the plaintiff from the suit schedule property; to grant perpetual injunction restraining the defendants not to transact by executing and registering any deed or deeds in respect of the suit schedule property in favour of third parties and not to encumber or not to create any third party interest over the suit schedule property; and to grant perpetual injunction restraining the defendants and their associates from interfering in the Management of the suit schedule property.
2. Plaintiff claimed that Mrs. Rafath Sultana @ Amedunnisa Begum was the owner of the house bearing Municipal No.13-6-431/48 (New No.13-6-431/48/1, 2, 3, 4, 5 & 6), total admeasuring 800 square yards, situated at Jafariguda, Guddimalkapur, Hyderabad. Plaintiff claims that he had entered into a partnership agreement on 11.02.2013 with Rafath Sultana to develop the suit schedule property as Function Hall, named as "TAJ CONVENTION HALL WITH A/C". The partnership deed is unregistered. Plaintiff was required to invest money for construction of building and as partners with 50 % share each in the partnership firm, both will share expenditure and income in the same ratio. According to -3- the plaintiff, in terms of the agreement, he has constructed the building and leasing out the building for holding marriage functions and other functions. According to the plaintiff, Rafath Sultana died on 02.09.2018. Plaintiff alleges that of-late defendants 1 to 3 who are sons of late Rafath Sultana, are illegally, high handedly and unlawfully obstructing the management of function hall and try to interfere with the suit schedule property. Narrating the various instances of such interferences, suit is filed.
3. In the said suit, defendants 1 to 3 filed I.A.No.1668 of 2022 under Order VII Rule 11 read with Section 151 of Code of Civil Procedure (CPC) to reject the plaint. It is the first and foremost contention of the defendants 1 to 3 that the partnership deed is unregistered and in view of Section 69 of Indian Partnership Act, 1932 (Act, 1932), suit is not maintainable and plaint has to be rejected on that ground alone. The trial Court, by Order dated 15.02.2023, impugned herein, dismissed the said application.
4. I have heard learned counsel Sri Manu for the petitioners and the learned counsel Sri Mohd. Faqruddin Ghori for the first respondent on 27.04.2023, and the matter was directed to be listed under the caption for 'Orders' on 16.06.2023. This day, only learned counsel for petitioners was present and there was no representation for first respondent/plaintiff.
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5. According to the learned counsel for petitioners, admittedly, the partnership deed heavily relied upon by the plaintiff is unregistered partnership deed. If the partnership deed is unregistered, no suit is maintainable by or on behalf of any person claiming as partner of the firm against firm or any person alleged to be or to have been partners in the firm. Further no suit can be instituted to enforce a right arising from a contract against third parties, if the firm is not registered. As plaintiff is alleging that the defendants who are legal heirs of Mrs. Rafath Sultana are interfering in the functioning of the function hall by relying on unregistered partnership deed, the plaint is not maintainable. By referring to the extensive pleadings in the plaint, learned counsel for petitioners would contend that specific allegations of interference are made against legal heirs of the owner of the property in violation of the terms of partnership deed, who are third parties, and seeks injunction against interference by the defendants. Therefore, Section 69 of the Act, 1932 is attracted in all fours and the trial Court grossly erred in not appreciating this fact and not appreciating the law laid down by the Hon'ble Supreme Court in Loonkaran Sethia etc. vs. Mr. Ivan E.John and others1.
6. Per contra, according to the learned counsel for 1st respondent/ plaintiff, as per the terms of partnership deed, the deed would continue to operate till 15 years period agreed upon notwithstanding death of the owner and the partnership deed shall be continued by the legal heirs and 1 AIR 1977 SC 336 -5- successors. He would contend, though plaintiff has made averments referring to entering into partnership deed with Mrs. Rafath Sultana, his main grievance is against the alleged interference by the defendants claiming as legal heirs of Mrs. Rafath Sultana and as the claim made in the plaint and prayer sought is against interference only, Section 69 of the Act, 1932 is not attracted and the trial Court has rightly dismissed the application to reject the plaint.
7. It is not in dispute that late Rafath Sultana was the owner of the suit schedule property; According to plaintiff, he and late Rafath Sultana entered into agreement for development of the property to run function hall and to share profits in the ratio of 50:50. Admittedly, the said partnership deed is unregistered. After the death of late Rafath Sultana, the legal heirs are now claiming that the property belong to them.
8. Plaint averments do disclose extensive discussion on the terms of the partnership deed, the construction made by the plaintiff, expenditure incurred by him and running the function hall. Therefore, the only issue is in the light of pleadings in the plaint and the prayer sought by the plaintiff, whether Section 69 of the Act, 1932 is attracted and the plaint is liable to be rejected on that ground.
9. Section 69 of the Indian Partnership Act, to the extent relevant, reads as under:
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"Section 69. EFFECT OF NON-REGISTRATION.
(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm:
Provided that the requirement of registration of firm under this sub-section shall not apply to the suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a firm for accounts of the firm or to realise the property of the firm.
(2) No suit to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm."
10. The scope of Section 69 of the Act, 1932 has fallen for consideration before the Hon'ble Supreme Court in Loonakaran Sethia (supra). Before the trial Court objection was raised on maintainability of the suit as partnership firm was not registered. The trial Court rejected the objection holding that suit being one for recovery of assets due to a dissolved partnership firm from a third party was not barred by Section 69 of the Act. On appeal, High Court partially allowed both the appeals. Thereon matter went before Hon'ble Supreme Court. One of the questions considered by the Hon'ble Supreme Court was whether the suit is barred by Section 69 of the Act. (Question No.3). On scope of Section 69, Hon'ble Supreme Court held as under:
"21. A bare glance at the section is enough to show that it is mandatory in character and its effect is to render a suit by a plaintiff in respect of a right vested in him or acquired by him under a contract which he entered into as a partner of an unregistered firm, whether existing or dissolved, void. In other words, a partner of an 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. In the instant case, Seth Sugan Chand had to admit in unmistakable terms that the firm "Sethiya & Co." was not registered under the Indian Partnership Act. It cannot also be denied that the suit out of which the -7- appeals have arisen was for enforcement of the agreement entered into by the plaintiff as partner of Sethiya & Co. which was an unregistered firm. That being so, the suit was undoubtedly a suit for the benefit and in the interest of the firm and consequently a suit on behalf of the firm. It is also to be borne in mind that it was never pleaded by the plaintiff, not even in the replication, that he was suing to recover the outstandings of a dissolved firm. Thus the suit was clearly hit by Section 69 of the Partnership Act and was not maintainable."
11. Sub section 1 of Section 69 contemplates that the bar to file suits comes into application when one of the partners of the unregistered partnership deed is suing in the capacity as partner, against the firm or any person alleged to have been the partner of the firm. Therefore, in order to attract Section 69 (1), it has to be established that a partner is suing the partnership firm or the other partners.
12. In the present case, the suit has been filed against the legal heirs of the deceased partner. Therefore, the point for consideration is whether the legal heirs constitute as partners and does the partnership continue to exist after the demise of one of the partner.
13. Section 422 of the Indian Partnership Act, 1932 specifies the contingencies which lead to the dissolution of a partnership firm.
14. In the case of Mohd. Laiquiddin v. Kamala Devi Misra3, the Hon'ble Supreme Court reiterated the principles on the dissolution of a two-member partnership firm. The Apex Court held that in case where the partnership firm is constituted by only two partners, upon the death 2
42. Dissolution on the happening of certain contingencies.--Subject to contract between the partners a firm is dissolved,-- (a) if constituted for a fixed term, by the expiry of that term; (b) if constituted to carry out one or more adventures or undertakings, by the completion thereof; (c) by the death of a partner; and
(d) by the adjudication of a partner as an insolvent. 3 (2010) 2 SCC 407, -8- of either one of them, the firm automatically stands dissolved, even if there is clause in the contract stating otherwise. Hon'ble Supreme Court held:
"27. In order to arrive at the conclusion that the partnership firm stood dissolved on account of death of one of the partners, the High Court had rightly placed reliance on S. Parvathammal v. CIT4 wherein the High Court held that in a firm consisting of two partners on account of death of one of the partners, the firm automatically is dissolved and observed as follows: (ITR pp. 161-62) "... a partnership normally dissolves on the death of a partner unless there was an agreement to the contrary. There was no such agreement in the original partnership deed. Even assuming that there was such an agreement, in a partnership consisting of two partners, on the death of one of them, the partnership automatically comes to an end and there is no partnership which survives and into which a third party can be introduced. Hence, on the death of S, the original partnership was dissolved. The subsequent taking in of the assessee as a partner was only as a result of the entering into of a new partnership between R and the assessee. Partnership was not a matter of heritable status but purely one of contract."
In the light of the aforementioned case, it is clear that when there are only two partners constituting the partnership firm, on the death of one of them, the firm is deemed to be dissolved despite the existence of a clause which says otherwise. A partnership is a contract between the partners. There cannot be any contract unilaterally without the acceptance by the other partner.
28. The appellants, the legal representatives of the original plaintiff (since deceased) were not at all interested in continuing the firm or to constitute a fresh firm and they cannot be asked to continue the partnership, as there is no legal obligation upon them to do so as partnership is not a matter of heritable status but purely one of contract, which is also clear from the definition of partnership under Section 4. Therefore, the trial court was justified in holding that the firm dissolved by virtue of death of one of the partners and the first appellate court as well as the High Court have taken the correct view in upholding the same."
(Emphasis supplied)
16. In CIT v. Seth Govindram Sugar Mills5, the point of law for consideration before the Hon'ble Supreme Court was whether upon the demise of a partner, will the legal heirs become partners, thereby keeping the partnership firm intact, or will the partnership firm dissolve upon the 4 (1987) 163 ITR 161 (Mad) 5 (1965) 3 SCR 488 -9- demise and the legal heirs will merely constitute an Association of Persons. The Court held that on the demise of one of the two partners in a partnership firm, partnership automatically comes to an end. Paragraph 7 reads as under:
"7. There is a fallacy in this argument. Partnership, under Section 4 of the Partnership Act, is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Section 5 of the said Act says that the relation of partnership arises from contract and not from status. The fundamental principle of partnership, therefore, is that the relation of partnership arises out of contract and out of status. To accept the argument of the learned counsel is to negative the basic principle of law of partnership. Section 42 can be interpreted without doing violence either to the language used or to the said basic principle. Section 42(c) of the Partnership Act can appropriately be applied to a partnership where there are more than two partners. If one of them dies, the firm is dissolved; but if there is a contract to the contrary, the surviving partners will continue the firm. On the other hand, if one of the two partners of a firm dies, the firm automatically comes to an end and, thereafter, there is no partnership for a third party to be introduced therein and, therefore, there is no scope for applying clause (c) of Section 42 to such a situation. It may be that pursuant to the wishes or the directions of the deceased partner the surviving partner may enter into a new partnership with the heir of the deceased partner, but that would constitute a new partnership. In this light Section 31 of the Partnership Act falls in line with Section 42 thereof. That section only recognizes the validity of a contract between the partners to introduce a third party without the consent of all the existing partners : it presupposes the subsistence of a partnership : it does not apply to a partnership of two partners which is dissolved by the death of one of them, for in that event there is no partnership at all for any new partner to be inducted into it without the consent of others."
17. Therefore, a partnership firm constituted by two partners, upon the demise of one of the partners, automatically stands dissolved and ceases to exist, even if there is contrary clause in the contract. Partnership in a partnership firm is not heritable. Therefore, the legal heirs of a partner do not become partners of the partnership firm. Therefore the terms and conditions incorporated in the partnership deed
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while constituting the partnership firm are not enforceable against the legal heirs of the deceased partner.
18. Section 69 (2) prohibits institution of a suit by or on behalf of a partnership firm against third parties, if the partnership firm is not registered. The term 'person suing' employed in the Section clearly signifies that individual partner can not sue against third parties if his name is not found in the Register of firms. Moreover, in this case there were only two partners and other partner died in the year 2018. Thus, the plaintiff alone was left in the partnership firm, which stood dissolved on death of other partner. In this context, it is useful to refer to the opinion expressed by the Delhi High Court in Shankar Housing Corporation (Ext) Vs Mohan Devi and eight others6.
18.1. In Shanker Housing Corpn (Supra) the Delhi High Court examined whether in Section 69 (2) of the Partnership Act, the expression 'person suing' has to be construed as the persons who are shown as partners on the date of cause of action or on the date of institution of the suit. The court held that a firm is not a separate legal entity, but, is only a collective or compendious name for all the partners, therefore person suing shall for the purposes of the section mean all the partners of the firm who are its partners at the time of the institution of the suit. It is held:
"10. Section 4 of the Partnership Act defines the term 'Partnership' as the "relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all". It further states that "persons who were 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'". Thus, a firm is not a separate legal entity, but, is only a collective or compendious name for 6 1977 SCC OnLine 136
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all the partners. So, if a suit to enforce a right arising from a contract is to be instituted "by a firm" against a third party, the firm would be the plaintiff. If the suit is to be instituted "on behalf" of a firm, the partner or partners, who wants or want to institute the suit on behalf of (i.e. for the benefit of) the firm would be the plaintiff. But, in both the cases, the suit would in effect be by or on behalf of all the partners of the firm. Section 69 (2) lays down that the suit of the nature mentioned above can be instituted only if (a) the firm is registered, and (b) the persons suing are or have been shown in the Register of Firms as partners in the firm. The use of the words 'is' and "are or have been", which are in the present tense, shows that the point of time contemplated in Section 69 (2) is at the time of the institution of the suit. That is to say, the firm must be a registered firm by the date of the institution of the suit and the persons suing (i.e. all the partners) must have been shown in the Register of Firms as partners of the firm by the date of the institution of the suit. This appears to us to be the plain meaning of Section 69 (2).
***
24. ...The general principle that a stranger to a contract cannot sue on the contract is not applicable in the case of a partner of a firm. The definition of a firm in Section 4 of the Partnership Act shows that a firm is only a compendius term for all the partners of the firm, and each partner acts for all. Therefore, even when a partner of the firm enters into a contract for and on behalf of the firm, all the partners of the firm have to be regarded as parties to the contract, and the partners other than the partner who entered into the contract cannot be regarded as strangers to the contract. Section 69 (2) of the Partnership Act contemplates a contract in respect of which the firm (i.e. all the partners) have a right to enforce the same"
19. The defendants in the suit are third parties to the unregistered partnership firm. In view of provision in Section 69 (2), the plaintiff cannot institute a suit in a Court to enforce a right arising as a partner of unregistered partnership firm against defendants, who are third parties to the unregistered partnership firm.
20. Thus, looking from either perspective, the suit is not maintainable against defendants.
21. The trial Court erred in not appreciating the fact that plaintiff is claiming possession and enjoyment of the suit schedule property by
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virtue of an unregistered partnership deed stated to have entered with late Rafath Sultana. He seeks to cling on to the possession as against legal representatives of late Rafath Sultana who are third parties to the partnership firm, by referring to the terms of the partnership deed.
22. The trial Court erred in not appreciating that the plaint is barred by law.
23. The trial Court erred in dismissing I.A., filed under Order VII Rule 11 of CPC.
24. Order of IX Junior Civil Judge, City Civil Court at Hyderabad in I.A.No.1668 of 2022 in O.S.No.4141 of 2022 dated 15.2.2023 is set aside and the Civil Revision Petition is allowed. I.A.No.1668 of 2022 in O.S.No.4141 of 2022 is allowed and plaint in O.S.No.4141 of 2022 is rejected as barred by law. No costs. Pending Miscellaneous Applications, if any, shall stand closed.
__________________________ JUSTICE P.NAVEEN RAO Date: 07.07.2023 Kkm/tvk
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HON'BLE SRI JUSTICE P.NAVEEN RAO CIVIL REVISION PETITION NO.1130 OF 2023 Date: 07.07.2023 Kkm/tvk