Bombay High Court
Kuljinder Singh Ahluwalia vs Smt. Sandeepka U R Ahluwalia & Ors. ... on 16 December, 2008
Equivalent citations: AIR 2009 (NOC) 2660 (BOM)
Author: Roshan Dalvi
Bench: Roshan Dalvi
1
IN THE HIGH COURT OF JUDICATURE
AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUIT NO.145 3 OF 200 7
AND
NOTICE OF MOTION NO.201 2 OF 200 7
IN
SUIT NO.14 5 3 OF 200 7
Kuljinder Singh Ahluwalia ...Plaintiff
Vs.
Smt. Sandeepka u r Ahluwalia & Ors. ...Defenda nt s
Mr.D.J.Kham b a t a , Sr. Counsel
i/b. Nankani & Assoc., for Plaintiff
Mr. Virag Tulzapur k a r with Ms. Sowmya Srikrishn a &
Mr. Dhawal Mehta & Mr. Swapnil Khatri for Defenda nt No.1
Mr. Simil Purohit for Defenda nt Nos.4,5,6 and 7
CORAM: SMT.ROSHAN DALVI, J.
DATED: 16 TH DECEMBER, 200 8
JUDGMENT:
1. This Suit is filed by the Plaintiff claiming to be a partner in Defenda nt No.3 Company along with Defenda nt s 1 and 2 for a declaration that certain shares in Defenda nt No.4 Company are the property of Defendan t No.3 Partners hip Firm of which the Plaintiff and Defendant s 1 and 2 are equal partner s. Plaintiff and Defenda nt No.2 are brothers. Defenda nt No.1 is the widow of their deceased brother. The parties further claim to be in manageme nt of Defenda nt No.4 ::: Downloaded on - 09/06/2013 14:09:03 ::: 2 Company. The shares of Defenda nt No.4 Company stood in the name of the deceased husba n d of Defenda nt No.1. The Plaintiff claims that they are the shares of Defenda nt No.3 Company itself and that is the intangible property of Defenda nt No.3 Firm. The Plaintiffs have claimed other reliefs ancillary to the relief of the aforesaid declaration.
2. The Defenda nt No.3 Firm was admittedly constit uted as far back as on 17 th September 1975 under a Deed of Partners hip executed igbetween the deceased husb a n d of Defenda nt No.1 and the deceased mother of the Plaintiff and Defenda nt No.2. They were equal partners therein.
3. There was a public issue of shares of Defenda nt No.4, Company in Jan u a ry 1993. Under that public issue further shares were purcha sed by the deceased husb a n d of Defenda nt No.1. The source of funds from which the shares were purcha se d is not shown. The Plaintiff claims that by virtue of said public issue the shareholding of the partner s hip Firm of Defenda nt No.3 in Defendant No.4 Company came to be increased. That was in Jan u a ry 1993.
At that time there were only two partner s of the Firm - the deceased husba n d of Defenda nt No.1 and the deceased mother of the Plaintiff and Defenda nt No.2.
::: Downloaded on - 09/06/2013 14:09:03 ::: 34. The Plaintiff claims that the partner s hip Firm of the Defenda nt No.3 was reconstit uted by a Supplement ary Deed of Partners hip dated 2 nd April 2003 under which the Plaintiff and Defenda nt s 1 and 2 were inducted as partner s of the partner s hip. Each of them then had a 20% share. The Plaintiff further claims that upon the death of the initial two partner s of the partner s hip Firm, the Plaintiff and Defenda nt s 1 and 2 are three equal sharing partners.
5. The Supplement a ry Deed of Partners hip is not registered with the Registrar of Firms. The admission of the Plaintiff, Defenda nt No.1 and 2 as partners are also not registered.
6. The Plaintiff's claim as a part ner is only upon the execution of the Supplement a ry Deed of Partners hip dated 2 nd April 2003. Its execution is denied by Defendan t No.1. For the Plaintiff to obtain the relief of declaration sought that the aforesaid shares of Defenda nt No.4 Compa ny are the part of the property of Defendant No.3 Firm, the Plaintiff must show and prove the execution of the Supplement a ry Deed of Partners hip.
7. The registration of that Deed with the Registrar of Firms and the entry relating to the admission of the Plaintiff, Defenda nt Nos.1 and 2 with the Registrar of Firms would ::: Downloaded on - 09/06/2013 14:09:03 ::: 4 have initially shown this aspect. The non- registration of the said Supplemen t ary Deed or at least the admission would debar the Suit itself under Section 69 of the Partners hip Act.
8. Defenda nt No.1 has contended that the Suit is not maintain able for want of the registration of the Firm of Defenda nt No.3 under the said Supplement ary Deed of Partners hip. If the Deed of part ners hip was compulsorily registerable so that the Defenda nt No.3 Firm, as constituted thereafter, is taken not to be registered under Section 69 of the Partners hip Act, the Suit would fall within the mischief of Order VII Rule 11(d) of the C.P.C being a Suit as would appear to be barred by the Partners hip Act 1932 from the stateme nt s in the plaint. In that event the Plaint would have to be rejected as the Suit would not be maintain able in the absence of registration of the Firm. Hence before considering the Plaintiff's case on merits in the Notice of Motion the issue of maintain a bility and conseque ntly the question of rejection of the Plaint, if at all, is being considered.
9. The purpose and object of Section 69 and its history must be understood. The report of the Special Committee made to His Excellency The Governor- General- in- Council dated 20 th Jan u a ry 1932 when the part ners hip Bill was being considered sets out inter alia the initial act of the then ::: Downloaded on - 09/06/2013 14:09:03 ::: 5 Governme nt to introduce registration of Firms of partners in India. The clause in this regard runs thus:-
"12.In ad d i t i on to the pure law of par t n e r s h i p the Bill cont a i n s an impor t a n t new Chap t e r on the regis t r a t i o n of firms - Chap t e r VII. The histor y of the propos a l s for some meas u r e of this kind in India goes as far back as 18 6 7 , when the Bomba Chamber of Commerce firs t ma d e the sugge s t i o n tha t legisl a t i o nig shoul d be under t a k e n for the compul s o r y regis t r a t i o n of firms .
10. The difficulties of certain small and short lived partner s hips was considered in Clauses 16,17 and 18 of the report as follows :-
"16 . ..... The Bill seek s to overco me this clas s of difficul t y by ma k i n g regis t r a t i o n option a l , and by crea t i n g induce m e n t s to regis t e r which will only bear upon firms in a subs t a n t i a l and fairl perm a n e n t way of busine s s .
17 . The outline s of the sche m e are briefly as follow s . The Englis h prece d e n t in so far as it ma k e s regis t r a t i o n compul s o r y and impo s e s a penal t y for non- regis t r a t i o n has not been ::: Downloaded on - 09/06/2013 14:09:03 ::: 6 follow e d , as it is consi de r e d tha t this step woul d be too dra s t i c for a beginning in India, and woul d introd u c e all the difficul t i e s connec t e d wit h sm al l and ephe m e r a l under t a k i n g s . Inste a d , it is propos e d tha t regis t r a t i o n shoul d lie entirel wit hi n the discre t i o n of the firm or part n e r concerne d; but, follow i ng the Englis h prece d e n t , any firm which is not regis t e r e d will be unable to enforce its claim s agai n s t thir d par t i e s in the civil court s; and any par t n e r who is not regis t e r e d will be unable to enforce his clai m s either agai n s t thir d par t i e s or agai n s t his fellow par t n e r s . ......
Regis t r a t i o n may then be effect e d at any time before the suit is insti t u t e d . .....
18 . Once regis t r a t i o n has been effect e d the sta t e m e n t s recor de d in the regis t e r regar d i n g the cons t i t u t i o n of the firm will be conclusive proof of the fact s therein cont a i n e d again s t the par t n e r s ma k i n g the m, and no par t n e r whose name is on the regis t e r will be permi t t e d to deny tha t he is a par t ne r , - wit h cert a i n natur a l and proper excep t i o n s whic h will be indic a t e d later. This shoul d affor d a strong prot ec t i on to person s deal i ng wit h firms again s t false deni al s of par t ne r s h i p and the evasion of liabili t y by the ::: Downloaded on - 09/06/2013 14:09:03 ::: 7 subs t a n t i a l member s of a firm."
11. The notes of Clauses Appendix- C to the said report shows inter alia clauses 67 and 68 thus:-
"Clause 67 - ma k e s the origin a l docum e n t s filed wit h the Regis t r a r conclusive evidenc e of the fact s cont a i n e d therein, as again s t any person who has signe d the m. It also ma k e s certifie d copies of entrie s in the Regist e r evidence ig of regis t r a t i o n and of the conten t s of the origin al s . Clause 68 - This impor t a n t claus e provi d e s the pres s u r e which is to be brough t to bear on par t ne r s to have the firm and them s e l v e s regis t e r e d . Its force has alre a d y been discu s s e d in par a g r a p h s 19 to 23 of our Report."
12. The registration itself shows the admission of the partner s to be such part ners. The registration of the docume nt s of the firm shows the precise agreement between those partners. A defence that such an agreement was not executed or that those parties were not partners would therefore not lie. The concept is much the same as registration of docume nt s under the Registration Act. Conseque n tly a certified extract of the Registrar of Firms ::: Downloaded on - 09/06/2013 14:09:03 ::: 8 would enable a presu m ption to be drawn of the correctnes s of its contents. Non- registered Firms would, therefore, not obtain those advant ages. The fact that the partner claiming to be such would, therefore, have to be proved by that partner. Once the fact is disputed, until that is done he cannot sue in his capacity as a partner and claim rights as a partner. Therefore, the law is that though Registration is discretionary, unregistered firms suffer from serious conseque nces; whereas the firm would not be able to enforce its claim against third parties, the Partners would be unable to enforce their claims not only against third parties but also against their fellow partners.
13. In the absence of such a provision the parties claiming to be partner s may file suits against the Firm (as in this case), against the person alleged to be a partner (as in this case) or against any third party without being called upon to prove at least prima facie that he is a partner of the Firm and he is suing as such. Section 69, which requires compulsory registration, upon setting out the facts of the non- registration, reads thus:
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 ::: Downloaded on - 09/06/2013 14:09:04 ::: 9 person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.
(2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unles s the firm is registered and the persons suing are or have been show n in the Register of Firms as partners in the firm.
(3)The provisions of sub- sections (1) and (2) shall apply also to a claim of set- off or other proceeding to enforce a right arising from a contract, but shall not affect -
(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or
(b) the powers of an official assignee, receiver or Court under the Presidency- towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner.
(4) This section shall not apply -
(a) to firms or to partners in firms which have no place of busines s in [the territories to which this Act extend s], or whose places of busines s in [the said ::: Downloaded on - 09/06/2013 14:09:04 ::: 10 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- town s, 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 Provincial Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.
Sta t e Amend m e n t - [Mahar a s h t r a] - In its application to the State of Maharashtra, in S. 69. -
(a) to sub- S.(1) the following proviso shall be added, namely :-
"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 decease d partner of a firm for accounts of the firm or to realise the property of the firm."
(b) after sub- S.(2), the following sub- section shall be inserted, namely:-
"(2-A) No suit to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or any right or ::: Downloaded on - 09/06/2013 14:09:04 ::: 11 power to realise the property of a dissolved firm shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or 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."
14. The essential difference between actions under Section 69(1) and 69(2) is that under Clause (1) the Partner sues upon a contract (which may be a contract of part ners hip) or under the Partners hip Act (which may be for claiming rights under any of the provisions of the Partners hip Act). Such suits are the ones against the Firm or against any person stated to be a partner. Hence for the suit against the Firm or against any one stated to be a part ner of the Firm, for the actions in law for enforcement of rights under a contract or under the Partners hip Act registration prior to the filing of the Suit is mand atory.
15. Under Clause 69(2) the action in law is to enforce a right under a contract, but not under the Partners hip Act. Such right is for an action in law by a person suing on behalf of the Firm or by the Firm itself, but against the third party.
::: Downloaded on - 09/06/2013 14:09:04 ::: 1216. Hence it can be seen that suits against third parties need to be under any contract to fall within the mischief of Section 69(2). Suits against the Firm or the persons stated to be a partner of the Firm are required to be not only under a Contract (necessarily a Contract of Partners hip), but may also be with regard to the rights conferred under the Act.
17. Which are the rights conferred under the Partners hip Act? Under Section 11 of the Partners hip Act the mut u al rights and duties of the partners are determined by the contract between the partner s, expressly or impliedly. In this case the rights of the Plaintiff as a partner claiming an equal share in the profits and assets of the Firm with Defenda nt s 1 and 2 is under the written contract being the Supplement a ry Deed of Partners hip Deed dated 2nd April 2003. Consequen tly, if the Plaintiff claims his rights as a partner under the said Deed, which he does, he would squarely fall within the first clause of Section 69(1) requiring that Firm to be registered with the Registrar of Firms or for he being shown as a part ner of the Firm in the register of Firms.
18. The other rights of the Plaintiff as a part ner under the Partners hip Act may be claimed under Sections 12 and 13 of the Partners hip Act while it is a going concern and under ::: Downloaded on - 09/06/2013 14:09:04 ::: 13 Sections 46 and 48 of the Act upon dissolution of the Firm.
These rights are subject to the contract between the partner s. In this case since the Plaintiff claims under the Contract between the partners he claims rights under that contract granted under Section 11 of the Partners hip Act.
19. Mr. Khamba t a argued on behalf of the Plaintiff that the Plaintiff sought a declaration relating to two aspects - one is a declaration of title and the other is a declaration of stat us .
Mr. Khambata argued
ig that the Plaintiff has sought
declaration with regard to the shares of Defendant No.4 Company being the property of Defendant No.3 Firm and also a declaration that the Firm consists of three partners the Plaintiff, Defendan t No.1 and Defenda nt No.2 who are equal partner s. Though prayer (a) of the plaint does not read as contended by Mr. Khambat a, even if it does, the Plaintiff's claim that he is an equal partner is made purs u a n t to the contract.
20. The declaration with regard to the title in respect of the shares is purs u a n t to the provisions contained in Sections 14 and 15 of the Partner s hip Act. If the Plaintiff succeeds in showing that he is a partner of the Firm, which would be only if the Plaintiff succeeds in proving the execution of the Supplement a ry Deed of Partners hip dated 2 nd April 2003, he ::: Downloaded on - 09/06/2013 14:09:04 ::: 14 would be entitled to the declaration in respect of the shares which the Plaintiff claims as the property of the Firm. To do that the Plaintiff, suing as such partner against the Firm and against Defendant s 1 and 2, who are alleged to be the partner s, must show that the Firm in which he is a partner is registered and his name is shown as a partner in the register of Firms.
21. The Plaintiff falls squarely within Section 69(1) of the Partners hip Act upon a plain reading of the Section.
22. Mr. Khambat a has drawn my attention to the judgment in the case of Mukund Balkrishna Kulkarni Vs. Kulkarni Powder Metallurgical Industries (200 4) 13 S.C.C. 750 to show that the Suit as framed is not the one falling within the parameters of Section 69(1). The aforesaid case is in a Suit for dissolution of the partners hip upon a declaration that the party suing was a partner having an equal share with the other part ner in the partners hip busines s. Paragrap h 9 of the judgment sets out the two embargoes which must coexist before a plaintiff can be non- suited under Section 69(1).
These two embargoes are :-
1. The person must be suing as a partner - the Plaintiff is suing as a partner.::: Downloaded on - 09/06/2013 14:09:04 ::: 15
2. The Suit is the one to enforce the right arising from a contract - the Plaintiff seeks to enforce this right arising under the Supplement a ry Deed of Partners hip being his contract with the other part ners.
23. That Suit was for the declaration and existence of partner s hip and the share between the parties. It was held that a prayer for such declaration could not be made by person suing as a partner. In this case I find no declaration of the existence of the part ners hip. If declaration is that the shares of a Company belong to the Firm of which the Plaintiff claims to be an equal partner with Defendant s 1 and 2 at best the Suit is for declaration of the share - equal or unequ al, with Defenda nt s 1 and 2 but not of the existence of partner s hip. The Plaintiff has nevertheless sued as a partner. The Plaintiff has sued Defenda nt s 1 and 2 as his partner s. That is under the contract reflected in the Supplement a ry Deed of Partners hip. It was observed in the aforesaid judgment that the prayer was to be a partner in the Firm and such a prayer is not barred under Section 69(1). It may be seen from the facts in paragrap h 2 of the judgment that the Plaintiff claimed that the parties had agreed to form a partners hip, the Plaintiff had invested monies purs u a n t to ::: Downloaded on - 09/06/2013 14:09:04 ::: 16 the agreement, and he had taken part in the business of the Firm. There was, therefore, an oral agreement. This fact was denied by the Respondent. The Plaintiff's Suit for declaration that that was the partners hip business, in which the Plaintiff and the Defenda nt s had equal shares and prayed for dissolution of the Firm and account s and payment upon such account s. The Plaintiff in this case has not sued for any declaration of any partners hip business.
The Plaintiff has not sued for a share in the profits of the Firm, equally or otherwise.
ig The Plaintiff has not sought to dissolve the Firm and sued for account s.
24. The fact that prayer (a) in the Suit is simplicitor for a declaration of the title to the shares and NOT for declaration of the existence of partners hip or share between the parties is evidenced by the subseq ue n t prayers themselves. It may be of interest to note that the other prayers in the Suit are for orders for cancellation of the transfer / t e r mi n a tion of the share, an order of injunction against Defenda nt No.1 exercising her rights as the member of the Compa ny and receiving benefits upon the shares, the appointme n t of Defenda nt Nos.1 and 5 as the Directors of the Company (purs u a n t to the transfer / t e r mi n a tion of the shares of the Company to them) and an injunction against them from acting as Directors of the Company. There is no prayer for ::: Downloaded on - 09/06/2013 14:09:04 ::: 17 ascertain me n t of the shares of the parties as part ners of Defenda nt No.3 Firm and the payment of the share to the Plaintiff either as a going concern or upon dissolution of the Firm. The Plaintiff has not sought dissolution; he has not sought reliefs exercising his rights as partner either. The Suit read as the whole is therefore, not a Suit for declaration of the existence of partner s hip and the share of the parties . The Suit is a suit of a part ner to exercise his rights under the Contract of Partners hip conseque nt upon a single act of Defenda nt No.1 as his alleged part ner for and in respect of only that alleged act. The declaration sought by the Plaintiff is, therefore, a single declaration "that the said 332440 0 shares of Defendant No.4 Compan y are the property of Defenda nt No.3 Partnership Firm", the Plaintiff having described the said Firm as being the Firm of the Plaintiff and Defenda nt s 1 and 2 as equal part ners. Hence the observations in the aforesaid judgment that that Suit was a Suit for declaration of the existence of the contract between the parties but not a Suit to enforce a right arising from such a contract would not apply in this case. This Suit is for enforcing the right of the Plaintiff as a partner under the contract. It is not for a declaration of the existence of that contract. The initial part of paragrap h 9 in the aforesaid judgment showing the two embargoes both of which apply to this case is the only material aspect in the judgment ::: Downloaded on - 09/06/2013 14:09:04 ::: 18 required to be seen as a matter of settled law. The latter part of the said paragrap h 9 shows an entirely distinguish able case.
25. In the case of Abani Kanta Pal A 198 6 Calcutta 143 it was interalia deserved that a plaint filed by a part ners hip firm which is not registered is a " void plain t" as it contravene s the provisions of Section 69(1) & (2) and the Court would have no jurisdiction to even entertain such a suit and will ignore the existence of such plaint , as such requirement cannot be waived by the Defenda nt. Conseque n tly amend me n t s sought to be carried out in such a suit were also refused.
26. All the other judgment s relied upon by Mr. Khambat a relate to the embargo contained in Section 69(2) of the Partners hip Act and do not apply to this case - they deal with rights of a partner against third parties. Madan Manohar Ramcha ndra Gupta Vs. Narayan Sadashiv Phutane I.L.R. 19 5 9 Bombay 362 case of a partner suing a third party upon attach me n t of monies in the hands of a person and claiming it to be belonging to the partner s hip Firm; Haldiram Bhujiawala Vs. Anand Kumar Deepa Kumar (200 0) 3 S.C.C. 250 an action to enforce the stat utory rights under the Trade Marks Act and an action ::: Downloaded on - 09/06/2013 14:09:04 ::: 19 under common Law to restrain the Tort of passing of;
Central Bank of India Vs. Sagdeo Towers 200 7( 4) Mh.L.J 12 3 . The Suit instituted by an unregistered Firm for eviction of third party from the tena nted premises. Similarly M/s. Shreeram Financ e Corporation Vs. Yasin Khan A.I.R. 19 8 9 S.C. 17 6 9 , relied upon by Mr. Tulzapurk a r, a Suit on a hire - purcha se agreement against the third party filed by a Firm which was unregistered at the time of the filing of the Suit.
27. It is clear that this Suit falls within the mischief of Section 69(1) of the Partners hip Act. In this case the Plaintiff claiming to be a partner was not an ignoram u s. He was a man of the world. He was in various large businesses. He was a Director inter alia in Defenda nt No.4 Company. It is unaccepta ble that he would not know the conseque nces of non- registration of the Firm. He must in any event suffer those conseque nces in law. The Partners hip is not registered.
The Suit is therefore, barred under Section 69(1) of the Partners hip Act.
28. Hence the Plaint is rejected.
29. Notice of Motion is accordingly stands dismissed.
::: Downloaded on - 09/06/2013 14:09:04 ::: 20(SMT. ROSHAN DALVI, J.) ::: Downloaded on - 09/06/2013 14:09:04 :::