1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO.1453 OF 2007 AND NOTICE OF MOTION NO.2012 OF 2007 IN SUIT NO.1453 OF 2007 Kuljinder Singh Ahluwalia ...Plaintiff Vs. Smt. Sandeepkaur Ahluwalia & Ors. ...Defendants Mr.D.J.Khambata , Sr. Counsel i/b. Nankani & Assoc., for Plaintiff Mr. Virag Tulzapurkar with Ms. Sowmya Srikrishna & Mr. Dhawal Mehta & Mr. Swapnil Khatri for Defendant No.1 Mr. Simil Purohit for Defendant Nos.4,5,6 and 7 CORAM: SMT.ROSHAN DALVI, J. DATED: 16 TH DECEMBER, 2008 JUDGMENT: 1. This Suit is filed by the Plaintiff claiming to be a partner in Defendant No.3 Company along with Defendants 1 and 2 for a declaration that certain shares in Defendant No.4 Company are the property of Defendant No.3 Partnership Firm of which the Plaintiff and Defendants 1 and 2 are equal partners. Plaintiff and Defendant No.2 are brothers. Defendant No.1 is the widow of their deceased brother. The parties further claim to be in management of Defendant No.4 2 Company. The shares of Defendant No.4 Company stood in the name of the deceased husband of Defendant No.1. The Plaintiff claims that they are the shares of Defendant No.3 Company itself and that is the intangible property of Defendant No.3 Firm. The Plaintiffs have claimed other reliefs ancillary to the relief of the aforesaid declaration. 2. The Defendant No.3 Firm was admittedly constituted as far back as on 17 th September 1975 under a Deed of Partnership executed between the deceased husband of Defendant No.1 and the deceased mother of the Plaintiff and Defendant No.2. They were equal partners therein. 3. There was a public issue of shares of Defendant No.4, Company in January 1993. Under that public issue further shares were purchased by the deceased husband of Defendant No.1. The source of funds from which the shares were purchased is not shown. The Plaintiff claims that by virtue of said public issue the shareholding of the partnership Firm of Defendant No.3 in Defendant No.4 Company came to be increased. That was in January 1993. At that time there were only two partners of the Firm – the deceased husband of Defendant No.1 and the deceased mother of the Plaintiff and Defendant No.2. 3 4. The Plaintiff claims that the partnership Firm of the Defendant No.3 was reconstituted by a Supplementary Deed of Partnership dated 2nd April 2003 under which the Plaintiff and Defendants 1 and 2 were inducted as partners of the partnership. Each of them then had a 20% share. The Plaintiff further claims that upon the death of the initial two partners of the partnership Firm, the Plaintiff and Defendants 1 and 2 are three equal sharing partners. 5. The Supplementary Deed of Partnership is not registered with the Registrar of Firms. The admission of the Plaintiff, Defendant No.1 and 2 as partners are also not registered. 6. The Plaintiff's claim as a partner is only upon the execution of the Supplementary Deed of Partnership dated 2 nd April 2003. Its execution is denied by Defendant No.1. For the Plaintiff to obtain the relief of declaration sought that the aforesaid shares of Defendant No.4 Company are the part of the property of Defendant No.3 Firm, the Plaintiff must show and prove the execution of the Supplementary Deed of Partnership. 7. The registration of that Deed with the Registrar of Firms and the entry relating to the admission of the Plaintiff, Defendant Nos.1 and 2 with the Registrar of Firms would 4 have initially shown this aspect. The non- registration of the said Supplementary Deed or at least the admission would debar the Suit itself under Section 69 of the Partnership Act. 8. Defendant No.1 has contended that the Suit is not maintainable for want of the registration of the Firm of Defendant No.3 under the said Supplementary Deed of Partnership. If the Deed of partnership was compulsorily registerable so that the Defendant No.3 Firm, as constituted thereafter, is taken not to be registered under Section 69 of the Partnership 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 Partnership Act 1932 from the statements in the plaint. In that event the Plaint would have to be rejected as the Suit would not be maintainable 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 maintainability and consequently 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 January 1932 when the partnership Bill was being considered sets out inter alia the initial act of the then 5 Government to introduce registration of Firms of partners in India. The clause in this regard runs thus:- “12.In addition to the pure law of partnership the Bill contains an important new Chapter on the registration of firms – Chapter VII. The history of the proposals for some measure of this kind in India goes as far back as 1867, when the Bombay Chamber of Commerce first made the suggestion that legislation should be undertaken for the compulsory registration of firms . 10. The difficulties of certain small and short lived partnerships was considered in Clauses 16,17 and 18 of the report as follows :- “16 . ..... The Bill seeks to overcome this class of difficulty by making registration optional, and by creating inducements to register which will only bear upon firms in a substantial and fairly permanent way of business. 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 6 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 and 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 claims against third parties in the civil courts; and any partner who is not registered will be unable to enforce his claims either against third parties or against his fellow partners . ...... Registration may then be effected at any time before the suit is instituted. ..... 18 . Once registration has been effected the statements 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 7 substantial members of a firm.” 11. The notes of Clauses Appendix- C to the said report shows inter alia clauses 67 and 68 thus:- “Clause 67 - makes the original documents filed with the Registrar conclusive evidence of the facts contained therein, as against any person who has signed them. It also makes certified copies of entries in the Register evidence of registration and of the contents of the originals. Clause 68 – This important clause provides the pressure which is to be brought to bear on partners to have the firm and themselves registered. Its force has already been discussed in paragraphs 19 to 23 of our Report.” 12. The registration itself shows the admission of the partners to be such partners. The registration of the documents 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 documents under the Registration Act. Consequently a certified extract of the Registrar of Firms 8 would enable a presumption to be drawn of the correctness of its contents. Non- registered Firms would, therefore, not obtain those advantages. 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 consequences; 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 partners 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 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 unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. (3) The provisions of sub- sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect - (a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or (b) the powers of an official assignee, receiver or Court under the Presidency- towns Insolvency Act, 1909, 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 business in [the territories to which this Act extends], or whose places of business in [the said 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- 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 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. State Amendment – [Maharashtra] – 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 deceased 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 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 partnership) or under the Partnership Act (which may be for claiming rights under any of the provisions of the Partnership 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 partner of the Firm, for the actions in law for enforcement of rights under a contract or under the Partnership Act registration prior to the filing of the Suit is mandatory. 15. Under Clause 69(2) the action in law is to enforce a right under a contract, but not under the Partnership 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. 12 16. 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 Partnership), but may also be with regard to the rights conferred under the Act. 17. Which are the rights conferred under the Partnership Act? Under Section 11 of the Partnership Act the mutual rights and duties of the partners are determined by the contract between the partners, 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 Defendants 1 and 2 is under the written contract being the Supplementary Deed of Partnership Deed dated 2nd April 2003. Consequently, 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 partner of the Firm in the register of Firms. 18. The other rights of the Plaintiff as a partner under the Partnership Act may be claimed under Sections 12 and 13 of the Partnership Act while it is a going concern and under 13 Sections 46 and 48 of the Act upon dissolution of the Firm. These rights are subject to the contract between the partners. 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 Partnership Act. 19. Mr. Khambata 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 status . Mr. Khambata argued 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, Defendant No.1 and Defendant No.2 who are equal partners. Though prayer (a) of the plaint does not read as contended by Mr. Khambata, even if it does, the Plaintiff’s claim that he is an equal partner is made pursuant to the contract. 20. The declaration with regard to the title in respect of the shares is pursuant to the provisions contained in Sections 14 and 15 of the Partnership 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 Supplementary Deed of Partnership dated 2nd April 2003, he 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 Defendants 1 and 2, who are alleged to be the partners, 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 Partnership Act upon a plain reading of the Section. 22. Mr. Khambata has drawn my attention to the judgment in the case of Mukund Balkrishna Kulkarni Vs. Kulkarni Powder Metallurgical Industries (2004) 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 partnership upon a declaration that the party suing was a partner having an equal share with the other partner in the partnership business. Paragraph 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. 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 Supplementary Deed of Partnership being his contract with the other partners. 23. That Suit was for the declaration and existence of partnership 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 partnership. If declaration is that the shares of a Company belong to the Firm of which the Plaintiff claims to be an equal partner with Defendants 1 and 2 at best the Suit is for declaration of the share – equal or unequal, with Defendants 1 and 2 but not of the existence of partnership. The Plaintiff has nevertheless sued as a partner. The Plaintiff has sued Defendants 1 and 2 as his partners. That is under the contract reflected in the Supplementary Deed of Partnership. 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 paragraph 2 of the judgment that the Plaintiff claimed that the parties had agreed to form a partnership, the Plaintiff had invested monies pursuant to 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 partnership business, in which the Plaintiff and the Defendants had equal shares and prayed for dissolution of the Firm and accounts and payment upon such accounts. The Plaintiff in this case has not sued for any declaration of any partnership business. The Plaintiff has not sued for a share in the profits of the Firm, equally or otherwise. The Plaintiff has not sought to dissolve the Firm and sued for accounts. 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 partnership or share between the parties is evidenced by the subsequent prayers themselves. It may be of interest to note that the other prayers in the Suit are for orders for cancellation of the transfer/termination of the share, an order of injunction against Defendant No.1 exercising her rights as the member of the Company and receiving benefits upon the shares, the appointment of Defendant Nos.1 and 5 as the Directors of the Company (pursuant to the transfer/termination 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 17 ascertainment of the shares of the parties as partners of Defendant 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 partnership and the share of the parties . The Suit is a suit of a partner to exercise his rights under the Contract of Partnership consequent upon a single act of Defendant No.1 as his alleged partner for and in respect of only that alleged act. The declaration sought by the Plaintiff is, therefore, a single declaration “that the said 3324400 shares of Defendant No.4 Company are the property of Defendant No.3 Partnership Firm”, the Plaintiff having described the said Firm as being the Firm of the Plaintiff and Defendants 1 and 2 as equal partners. 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 paragraph 9 in the aforesaid judgment showing the two embargoes both of which apply to this case is the only material aspect in the judgment 18 required to be seen as a matter of settled law. The latter part of the said paragraph 9 shows an entirely distinguishable case. 25. In the case of Abani Kanta Pal A 1986 Calcutta 143 it was interalia deserved that a plaint filed by a partnership firm which is not registered is a “void plaint” as it contravenes 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 Defendant. Consequently amendments sought to be carried out in such a suit were also refused. 26. All the other judgments relied upon by Mr. Khambata relate to the embargo contained in Section 69(2) of the Partnership Act and do not apply to this case – they deal with rights of a partner against third parties. Madan Manohar Ramchandra Gupta Vs. Narayan Sadashiv Phutane I.L.R. 1959 Bombay 362 case of a partner suing a third party upon attachment of monies in the hands of a person and claiming it to be belonging to the partnership Firm; Haldiram Bhujiawala Vs. Anand Kumar Deepa Kumar (2000) 3 S.C.C. 250 an action to enforce the statutory rights under the Trade Marks Act and an action 19 under common Law to restrain the Tort of passing of; Central Bank of India Vs. Sagdeo Towers 2007(4) Mh.L.J 123 . The Suit instituted by an unregistered Firm for eviction of third party from the tenanted premises. Similarly M/s. Shreeram Finance Corporation Vs. Yasin Khan A.I.R. 1989 S.C. 1769 , relied upon by Mr. Tulzapurkar, a Suit on a hire - purchase 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