1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL LODGING NO. 53 OF 2009 IN NOTICE OF MOTION NO. 2012 OF 2007 IN SUIT NO.1453 OF 2007 KULJINDER SINGH AHLUWALIA, ) 201-202, Lumiere Co-operative Housing ) Society Limited, Picnic Cottage, ) Bus Stop, J.P. Road, Versova, Andheri ) (West), Mumbai – 400 061. ).. Appellant Versus 1. Smt. Sandeep Kaur Ahluwalia, ) 37, Parag Apartments, J.P. Road, ) Versova, Mumbai – 400 072. ) 2. Ravinder Singh Ahluwalia, ) 301-A, Highland Park, Lokhandwala, ) Andheri (West), Mumbai 400 058. ) 3. M/s. Muktanand Corporation, ) A partnership firm having its ) registered office at Surinder House, ) Safaid Pool Kurla, Andheri Road, ) Andehri (East), Mumbai – 400 072. ) 4. M/s. Mukat Pipes Limited, ) A company incorporated under the ) Companies Act, 1956, having its ) registered office at Surindra House, ) Safaid Pool, Kurla, Andheri Road, ) Andheri (East), Mumbai – 400 072. ) 2 5. Mrs. Mandeep A. Pahwa, ) residing at 33, Model Town, ) Ludhiana, Punjab. ) 6. Rupinder Singh, ) Residing at 8-B, Model Towan, ) Patiala, Punjab 140 001. ) 7. Kamal Jain, ) Having his office at Mukat Pipes Ltd., ) Patiala Road, Rajpura, ) Punjab 140 401. ).. Respondents -- Shri R.A. Dada, Senior Advocate, along with Shri Chetan Kapadia and Shri I.S. Nankani i/by M/s. Nankani & Associates for the Appellant. Shri Virag Tulzapurkar, Senior Advocate along with Ms Saumya Srikrishna i/by M/s. Wadia Ghandy & Co. for Resondent No.1. Shri N.H. Seervai, Senior Advocate, along with Shri Prateek Sakseria and Shri Vishal Thaker i/by Ms Anjali Trivedi for Respondent No.2. Shri Simil Purohit for Respondent No.5. -- CORAM : SWATANTER KUMAR, C.J. & S.C. DHARMADHIKARI, J JUDGMENT RESERVED ON : 13TH JULY, 2009. JUDGMENT PRONOUNCED ON : 23RD JULY, 2009 3 JUDGMENT : ( PER SWATANTER KUMAR, CHIEF JUSTICE ) By an order dated 2nd February, 2009, it was directed that this Appeal be heard finally at the stage of admission itself. Hence, Admit. All Respondents waive service. By consent, heard finally at this stage. 2. Kuljinder Singh Ahluwalia, Plaintiff (Appellant herein), filed a Suit for declaration that 33,24,400 shares of M/s. Mukat Pipes Limited, Defendant No.4, Respondent No.4 herein, are the property of M/s. Muktanandan Corporation, a partnership firm- Defendant No.3, Respondent No.3 herein, of which the Plaintiff- Kuljinder Singh Ahluwalia, Defendant No.1 Smt. Sandeep Kaur Ahluwalia and Defendant No.2, Ravinder Singh Ahluwalia are the partners in equal share. It was further prayed in the said Suit that the transfer/transmission of the said shares of Defendant No.4- Company in favour of Defendant No.1 Smt. Sandeep Kaur Ahluwalia be cancelled and also for a permanent injunction to restrain Defendant No.1 from exercising any rights as a share-holder or 4 receiving any benefits in relation to the said shares. A distinct and separate prayer was also made in the Suit praying for a declaration that the appointment of Defendant Nos.1 and 5 as Directors of Defendant No.4-Company was illegal and void and that they should be restrained by a permanent order and injunction from acting as Directors or holding themselves out as Directors of the said Company in pursuance to their appointment at alleged meeting of the Board of Directors held on 8th March 2007. Interim order of injunction and appointment of Receiver was also prayed. 3. The above prayers have been made by the Plaintiff on the averments that a Deed of Partnership was executed on 17th September, 1975 between late Shri Rajinder Singh Ahluwalia, husband of Defendant No.1 and late Smt. Gurudev Kaur, mother of Rajinder Singh Ahluwalia, Plaintiff and Defendant No.2. They were to have equal share in the profit and loss of the partnership business. In pursuance to public issue of Defendant No.4 Company in the year 1993, the shareholding of Defendant No.3 had increased from 4,78,600 to 33,24,400 in the Respondent No.4 Company. A Supplemental Deed of Partnership dated 2nd April, 2003 is alleged to 5 have been executed by and between five partners viz. the Plaintiff, Defendant Nos.1 and 2, the deceased husband of Defendant No.1 and mother of the Plaintiff, each having a 20% share in the profit and losses of the business. The husband of Defendant No.1 and the mother of the Plaintiff, expired on 3rd January, 2004 and 7th September, 2003, respectively. Defendant No.1 requested Defendant No.4-Company to pass a resolution by circulation for transfer/transmission of the shares held by her husband in Defendant No.4 Company, in her name. In response to the said request, Defendant No.4 -Company gave notice to all its Directors. The Plaintiff, vide his letter dated 21st March, 2005, objected to the said transfer/transmission on the ground that the same were pledged as security with IDBI Bank and IDBI bank’s permission was needed for such a transfer/transmission. It is averred that Defendant Nos.6 and 7, the Directors of Defendant No.4-Company, had asked for certain documents and information in respect of the said shares. However, on 8th December, 2005, the Plaintiff has averred that he received a letter from the transfer agents of Defendant No.4 Company informing that the said shares had already been transmitted on 11th May, 2005 on the basis of resolution dated 31st 6 March, 2005 sent by Defendant No.6. Being aggrieved by this action, the Plaintiff and Defendant No.2 filed a Petition under Section 111A of the Companies Act, 1956 before the Company Law Board on different grounds including that there should be a rectification of the register of members and that the said shares belonging to Defendant No.3- partnership firm be transmitted in favour of the Plaintiff, Defendant No.1 and Defendant No.2 jointly in terms of Board Resolution dated 5th December, 2005. Defendant No. 1 also filed a Company Petition under Section 397 of the Companies Act before the Company Law Board. Both these Petitions came to be disposed of by the Company Law Board vide its order dated 14th February, 2007 where it was ordered as under:- “18. ..........The Board’s resolution dated 5.12.2005 regarding re-transmission of shares is hereby set aside being illegal. Smt. Sandeep Kaur Ahluwalia who validly holds 43.38% shares is permitted to have at least two directors out of the total 5 directors on the Board to be immediately appointed in the next general meeting to be held within a month of receipt of this order. She shall continue to have the same proportion of representation on the Board in the event the same proportion of representation on the Board in the event of increase in the number of directors in future. 7 19. In view of the foregoing, petition under Section 111A of the Act is not maintainable and is hereby dismissed. 20. Both the petitions are disposed off with the above directions. All interim orders stand vacated. All Company Applications stand disposed off. No order as to cost.” 4. As is evident from the above that Resolution dated 5th December, 2005 of the Board of Directors of Defendant No.4- Company was set aside with certain directions. Aggrieved by the said order dated 14th February, 2007, the Plaintiff and Respondent No.2 filed Company Appeals bearing Nos. 8 and 9 of 2007 before the High Court. However, in the meanwhile, vide Resolution dated 8th March, 2007 Defendant No.6 in collusion with Respondent Nos.1 and 5 had called a meeting of the Board of Directors of the Defendant No.4-Company and Defendant Nos.1 and 5 were appointed as Directors of the said Company. The Company Appeals were disposed of by the High Court vide its order dated 4th May, 2007 holding that the Plaintiff was at liberty to file a civil suit in respect of shares and that Defendant No.1 was not to alienate or transfer the said shares except to discharge the dues of I.D.B.I. and 8 general body meeting of Defendant No.4 was to be held. All these terms were incorporated in the consent terms. Notice of the meeting of the Board of Directors of Defendant No.4 Company was issued on 4th May, 2007 which was objected to by the Plaintiff on the ground that the notice has not been issued properly and there was short and insufficient notice. Thereafter, the present Suit i.e. Suit No.1453 of 2007 was filed for claiming the reliefs aforenoticed. A Notice of Motion No.2012 of 2007 was taken out and besides injunction also prayer for appointment of Receiver was made. This Notice of Motion came up for hearing before the learned Single Judge and the Court vide the impugned order dated 16th December, 2008 took a view that the suit fell within the mischief of Section 69(1) of the Partnership Act, 1932 and as the partnership was not registered the suit was barred. Thus, the learned Single Judge not only rejected the Notice of Motion but even dismissed the suit as not maintainable. This Appeal has been directed against that order. 5. Before dealing with the matter on merits, it will be useful to notice here the reply filed by Defendant No.1 to the affidavit-in- support of the Notice of Motion No.2012 of 2007. She took up the 9 stand that late Rajinder Singh Ahluwalia was the absolute owner of the shares as he held those shares in his individual capacity. According to her, at the time of death of Rajinder Singh Ahluwalia, the intestate law was applicable to him and he left herself and her three daughters as his heirs. Her daughters had relinquished their respective right, title and interest in the said shares and she was the sole person to succeed Rajinder Singh Ahluwalia’s estate which included the said shares. In relation to the partnership, the stand taken was that the original partnership deed was executed between her deceased husband and his mother and as far as Supplemental Partnership Deed is concerned, which is alleged to have been executed on 2nd April, 2003, the stand of the Defendant No.1 was that it was not binding, she had signed some papers by misrepresentation and thus the supplemental Partnership Deed was of no consequences. It was specifically averred that the Plaintiff and Defendant No.2 had accepted and acquiesced to transfer the said shares in her favour and as such by their conduct they were not entitled to question the transfer at that stage. The Appellant and Respondent No.2 used to take her signature from time to time on various documents pertaining to the business activities and affairs of 10 late Rajinder Singh Ahluwalia and she had signed the papers fraudulently and had not executed Supplemental Partnership Deed with free will or consent. It was also averred that the appointment of Defendant No.5 and herself as Directors of Defendant No.4- Company was not illegal but was in conformity with the provisions of the Companies Act. Other averments in the plaint were denied and a specific objection was taken that the suit was barred under Section 69 of the Indian Partnership Act, 1932. 6. A separate reply on behalf of Defendant No.4-Company was filed to the Notice of Motion wherein it adopted statements made by Defendant No.1 to be correct and adopted the same for the purpose of disposal of the matter. Similar replies were also filed on behalf of Defendant Nos.5, 6 and 7, respectively. 7. Rejoinder to the Notice of Motion was filed on behalf of the Plaintiff where these allegations were denied and it reiterated the averments made in the Plaint with some clarification. 11 8. It is really not necessary for us to notice the facts giving rise to the present Appeal in greater detail but keeping in view the fact that there are serious factual controversies involved in the present suit, it is necessary for the Court to notice the nature of the alleged facts and likely issues which would fall for determination of the Court arising from such factual averments made by the parties in their respective pleadings. As is evident from the above facts, the issues of law and fact would arise in the present case. The Respondents in the appeal had not filed any written statement before the learned Single Judge but had only filed the reply to the Notice of Motion. While hearing the Notice of Motion, the learned Single Judge recorded the following reasons for coming to the conclusion that the suit was barred under the provisions of Section 69 of the Indian Partnership Act, 1932. “It is clear that this Suit falls within the mischief of Section 69(1) of the Partnership Act. In this case the Plaintiff claiming to be a partner was not an ignoramus. He was a man of the world. He was in various large businesses. He was a Director inter alia in Defendant No.4 -Company. It is unacceptable that he would not know the consequences of non- registration of the Firm. He must in any event suffer those consequences in law. The Partnership is not 12 registered. The Suit is therefore, barred under Section 69(1) of the Partnership Act.” 9. After noticing the provisions of Section 69(1) and (2) respectively, the Court held as under:- “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 declaratin 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 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 13 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. xxx xxx xxx 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 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 14 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.1exercising 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 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 15 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 required to be seen as a matter of settled law. The latter part of the said paragraph 9 shows an entirely distinguishable case.” 10. Another aspect of this case which needs to be noticed at this juncture is that the parties had taken steps before the Company Law Board. Company Appeals were filed, against the orders passed by the Company Law Board, before this Court which were disposed of by a consented order dated 4th May, 2007. In view of the consent terms marked “X”, while referring to the disputes regarding shares, the learned Single Judge granted eight weeks’ time to the Appellant 16 to file a suit and recorded the findings as under:- “.....The suit and all proceedings therein will proceed without being in any manner influenced by the findings of the Company Law Board in any manner whatsoever. The directions contained in the impugned order regarding the appointment of Directors will be subject to orders passed in the suit or in any interlocutory proceedings therein. Respondent No.1 for a period of eight weeks from the date of this order will not sell, alienate, pledge or create any third party rights of the disputed 33,24,400 shares which are pledged with I.D.B.I. In favour of any other third party except to discharge the dues of I.D.B.I.” 11. From the above consented terms, it is clear that the dispute between the Company and the Applicants before the Company Law Board was specifically kept open and alive and the order passed by the Company Law Board was not to influence the Court proceedings. It had two aspects: (a) regarding the appointment of Directors; and (b) the right to hold shares. The parties had even agreed not to create third party rights. Thus, primarily, the scope of the present Suit was sufficiently indicated before the Company Law Board and parties to the proceedings were governed by the consented terms. In furtherance to such 17 proceedings, the Plaintiff had filed the Suit claiming reliefs against the Company in relation to appointment of Directors and questioned the transfer of the shares in favour of Defendant No.1 exclusively. It appears from the Plaint that neither any relief had been claimed by a partner against the partnership concern nor any claim was raised on the basis of any contract. It is in light of these facts that the Court had to examine the applicability or otherwise of the bar contained in Section 69 of the Partnership Act. 12. It is a settled principle of law that bar to maintainability of a Suit in terms of Section 69 of the Act is a bar created by law and it ought to be taken up and decided at the very initial stage of the proceedings as if such an issue is answered against the Plaintiff, then the Suit itself would be liable to be dismissed. It has also been observed in various judgments that the bar under Section 69 hits at the very root of the jurisdiction of the Court and is an impediment of law to the very institution of the Suit before the Court which otherwise would have jurisdiction to entertain and decide the Suit. 18 13. In the case of Raptakos Brett & Co. Ltd vs Ganesh Property, (1998) 7 SCC 184, the Supreme Court was concerned with a case where an unregistered partnership firm filed a Suit for restoration of the possession under the covenant of the lease and the law of the land. The Deed of Partnership was registered during the pendency of the Suit. The Partnership Suit was decreed. The Supreme Court while declining to interfere held that the Court, when called upon to decide the question whether the Suit was hit by Section 69(2) of the Partnership Act, has to see what the Plaintiff claimed as his cause of action. Holding, in that case, that the Plaintiff in clearest terms had based his cause of action on the law of the land, the later part was a distinct cause of action apart from the cause of action emanating from the alleged breach of the covenant on the part of the otherside. The right was being claimed under common law. Even with reference to the terms of the contract, there was an implied obligation and terms of the contract would not reduce the legal efficacy of the statutory obligation foisted upon such a lessee by the express provisions of Section 108(q) read with Section 111(a) of the Property Act. It was not giving effect to or relief was not purely based upon enforcement of contractual right on the basis of an 19 expired contract of tenancy. Besides dismissing the Appeal preferred by the Company which had taken the objection on bar of Section 69, the Supreme Court held as under :- “21. So far as the applicability of the bar of Section 69 sub-section (2) of the Partnership Act is concerned, it is true that it is a penal provision which deprives the plaintiff of its right to get its case examined on merits by the court and simultaneously deprives the court of its jurisdiction to adjudicate on the merits of the controversy between the parties. It will, therefore, have to be