Case: SHIV DEVELOPERS THROUGH ITS PARTNER SUNILBHAI SOMABHAI AJMERI Vs. AKSHARAY DEVELOPERS &amp; ORS

apply to a suit for enforcement of right arising from a contract entered into by the unregistered firm with a third party in the course of business dealings with such third party. If the right sought to be enforced does not arise from a contract to which the unregistered firm is a party, or is not entered into in connection with the business of the unregistered firm with a third party, the bar of Section 69(2) will not apply. 18. Nothing contrary to the foregoing discussion is to be found in the decisions cited on behalf of the contesting respondents. The case of Umesh Goel (supra) essentially related to the operation of the provision contained in Section 69(3) of the Act of 1932 and interpretation of the expression other proceedings in the wake of the question as to whether arbitral proceedings and the award passed therein could be read into the expression other proceedings. The said decision has no relevance to the questions at hand. In the case of Farooq (supra), this Court found, after a wholesome reading of the plaint, that the suit was based on clause 25(d) of the partnership deed which specifically stated that no partners of the firm shall without the consent in writing of the other partners being entitled to transfer immovable property belonging to the firm. In that case, two partners of an unregistered firm had sued for cancellation of a sale made by the defendant partner without the consent of all the partners. This Court found that the suit was only to enforce a right arising from the terms of said partnership deed and hence, it attracted the bar of Section 69(2) of the Act of 1932. The said decision, for an entirely different fact situation and different claim, has no application to the facts of the present case. Application of the relevant principles to the subject suit 19. Taking up the facts of the present case, one of the significant features herein is that the transaction in question, i.e., sale of its share by the plaintiff firm to the contesting defendants has not been the one arising out of the business of the plaintiff firm. This factual aspect is apparent from the basic plaint averments and is fortified by the concurrent findings of the Trial Court as also of the High Court. Though the High Court endorsed the finding that the transaction in question was not arising out of the business of the plaintiff firm but, it appears that the implication of this crucial finding has not acquired the requisite attention of the High Court. The decision of this Court in the case of Purushottam (supra) was cited before the High Court but, while referring to the same in paragraph 33 of the impugned judgment, the High Court probably looked only at the editors headnote and in any case, missed out the ratio and principles therein, as reiterated with reference to the previous decisions. The decision in Haldiram Bhujiawala (supra) seems to have not gone into consideration of the High Court although this decision formed the sheet anchor of the order of the Trial Court. 19.1. As noticed, the crucial and key factor in the present case remains that the sale transaction in question is not arising out of the business of the appellant firm. Equally significant fact is that the subject suit is for enforcing a right of avoidance of a document on the ground of fraud and misrepresentation as also the statutory rights of seeking declaration and injunction. Significantly, the composition of defendant firm Aksharay Developers (defendant No. 1) has itself been questioned by the plaintiff- appellant while alleging that on 22.04.2014, this firm was constituted with four partners but later on, the defendant Nos. 2 and 3 (respondent Nos. 2 and 3 herein), constituted another firm in the same name with themselves as partners while leaving aside the other two. 19.2. We are not commenting on the merits of the case of either of the parties but this much is apparent from a look at the frame and contents of the plaint as also the prayers therein that the present one cannot be said to be such a suit by the unregistered firm which would attract the bar of Section 69(2) of the Act of 1932. 20. To put it differently, the relevant principles, when applied to the facts of the present case, leave nothing to doubt that the transaction in question was not the one entered into by the plaintiff firm during the course of its business (i.e., of building construction); and it had been an independent transaction of sale, of the firms share in the suit property, to the contesting defendants. The bar of Section 69(2) is not attracted in relation to the said sale transaction. Moreover, the subject suit cannot be said to be the one for enforcement of right arising from a contract; rather the subject suit is clearly the one where the plaintiff seeks common law remedies with the allegations of fraud and misrepresentation as also of the statutory rights of injunction and declaration in terms of the provisions of the Specific Relief Act, 1963 as also the Transfer of Property Act, 1882 (while alleging want of the sale consideration). Therefore, the bar of Section 69(2) of the Act of 1932 does not apply to the present case. Conclusion 21. The upshot of the foregoing discussion is that, for the purpose of Section 69 of the Act of 1932, the present case is governed by the principles laid down in Raptakos Brett & Co. Ltd. (supra), as further exposited in Haldiram Bhujiawala (supra). Hence, the bar of Section 69(2) is not attracted to the suit filed by the appellant. The Trial Court had rightly appreciated the facts of the case and had rightly rejected the baseless application moved by the contesting respondents. The impugned order of the High Court, being not in conformity with the applicable legal principles, is required to be set aside.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]13. Having given anxious consideration to the rival submissions and having examined the record with reference to the law applicable, we are clearly of the view that the impugned judgment and order dated 15.02.2018, as passed by the High Court, cannot be sustained and the bar of Section 69(2) of the Act of 1932 is not attracted to the suit filed by the appellant.15. In our view, the questions arising in this matter could be directly answered with reference to the principles enunciated by this Court in the case of Raptakos Brett & Co. Ltd. v. Ganesh Property: (1998) 7 SCC 184,  which have further been explained and applied by this Court in the cases of Haldiram Bhujiawala and Purushottam (supra). We may take note of the principles vividly exposited in the case of Haldiram Bhujiawala (supra) that to attract the bar of Section 69(2) of the Act of 1932, the contract in question must be the one entered into by firm with the third-party defendant and must also be the one entered into by the plaintiff firm in the course of its business dealings; and that Section 69(2) of the Act of 1932 is not a bar to a suit filed by an unregistered firm, if the same is for enforcement of a statutory right or a common law right.16. Briefly put, the relevant factual aspects in the case of Haldiram Bhujiawala (supra) had been as follows: The suit in that case was filed by the plaintiffs seeking perpetual injunction to restrain the defendants from infringing the trademark and from using the trademark/name Haldiram Bhujiawala. There were two plaintiffs, the first being a partnership firm comprising of three sons of Moolchand whereas the second plaintiff was his fourth son. The historical facts were that the business in the name of Haldiram Bhujiawala was being carried on by one Ganga Bishan alias Haldiram since the year 1941. In the year 1965, he constituted a partnership with his two sons Moolchand, Shiv Kishan and his daughter-in-law Kamla Devi (wife of another son R.L. Aggarwal) to carry on business under the same name. The said firm was granted registration of the said trade name. However, on 16.11.1974, the said partnership was dissolved and in terms of the dissolution deed, the above trademark fell exclusively to the share of Moolchand for whole of the country except the State of West Bengal whereas the said Smt. Kamla Devi was given ownership of the trademark rights for the State of West Bengal. The four sons of Moolchand got their names recorded as subsequent joint proprietors of the trademark. Three of them formed a partnership (the plaintiff No. 1 in the subject suit) in the year 1983 and were running a shop at Chandni Chowk, Delhi. In the meantime, on 10.10.1977, the said R.L. Aggarwal and his son applied in Calcutta for registration of the same trademark while claiming themselves to be the full owners thereof without disclosing the dissolution deed dated 16.11.1974. One Ashok Kumar, son of Smt. Kamla Devi, constituted a new firm and opened a shop at Arya Samaj Road, Karol Bagh, New Delhi. In the given circumstances, the plaintiffs of the subject suit claimed the reliefs of injunction, damages, and for destruction of material etc., while claiming their rights of using the said trademark. The defendants sought rejection of the plaint for the reason that the plaintiff No. 1 was not a registered partnership firm on the date of filing of the suit. The application was dismissed by the Trial Court as also by the High Court. Hence, the matter was in appeal before this Court. The points arising for determination in the said matter were formulated by this Court in the following terms: -8. The points that arise for consideration are:(i) Whether Section 69(2) bars a suit by a firm not registered on the date of suit where permanent injunction and damages are claimed in respect of a trademark as a statutory right or by invoking common law principles applicable to a passing-off action?(ii) Whether the words arising from a contract in Section 69(2) refer only to a situation where an unregistered firm is enforcing a right arising from a contract entered into by the firm with the defendant during the course of its business or whether the bar under Section 69(2) can be extended to any contract referred to in the plaint unconnected with the defendant, as the source of title to the suit property?16.1. Answering the first question in the negative, this Court referred to the previous decision in Raptakos Brett & Co. Ltd. (supra) and held as follows: -9. The question whether Section 69(2) is a bar to a suit filed by an unregistered firm even if a statutory right is being enforced or even if only a common law right is being enforced came up directly for consideration in this Court in Raptakas Brett Co. Ltd. v. Ganesh Property [(1998) 7 SCC 184] . In that case, Majmudar, J. speaking for the Bench clearly expressed the view that Section 69(2) cannot bar the enforcement by way of a suit by an unregistered firm in respect of a statutory right or a common law right. On the facts of that case, it was held that the right to evict a tenant upon expiry of the lease was not a right arising from a contract but was a common law right or a statutory right under the Transfer of Property Act. The fact that the plaint in that case referred to a lease and to its expiry, made no difference. Hence, the said suit was held not barred. It appears to us that in that case the reference to the lease in the plaint was obviously treated as a historical fact. That case is therefore directly in point. Following the said judgment, it must be held in the present case too that a suit is not barred by Section 69(2) if a statutory right or a common law right is being enforced.xxxx xxxx xxxx11. Likewise, if the reliefs of permanent injunction or damages are being claimed on the basis of a registered trademark and its infringement, the suit is to be treated as one based on a statutory right under the Trade Marks Act and is, in our view, not barred by Section 69(2).12. For the aforesaid reasons, in both these situations, the unregistered partnership in the case before us cannot be said to be enforcing any right arising from a contract. Point 1 is therefore decided in favour of the respondent-plaintiffs.16.2. This Court further exposited on the scope of the words enforcing a right arising under the contract, as used in Section 69(2) of the Act of 1932; and after a detailed survey of the reports and precedents which led to the frame of the said provision as also after reference to various authorities on the point, this Court explained the rationale and object of the provision that the same was intended to protect those in commerce who deal with a partnership firm in business, inasmuch as they ought to be enabled to know the names of the partners of the firm before they deal with them in business; and the bar of Section 69(2) is not attracted to any and every contract referred to in the plaint as a source of title to an asset owned by the firm. This Court held and explained as under: -23 The further and additional but equally important aspect which has to be made clear is that the contract by the unregistered firm referred to in Section 69(2) must not only be one entered into by the firm with the third-party defendant but must also be one entered into by the plaintiff firm in the course of the business dealings of the plaintiff firm with such third-party defendant.24... The real crux of the question is that the legislature, when it used the words arising out of a contract in Section 69(2), it is referring to a contract entered into in course of business transactions by the unregistered plaintiff firm with its defendant customers and the idea is to protect those in commerce who deal with such a partnership firm in business. Such third parties who deal with the partners ought to be enabled to know what the names of the partners of the firm are before they deal with them in business.25 Further, Section 69(2) is not attracted to any and every contract referred to in the plaint as the source of title to an asset owned by the firm. If the plaint referred to such a contract it could only be as a historical fact. For example, if the plaint filed by the unregistered firm refers to the source of the firms title to a motor car and states that the plaintiff has purchased and received a motor car from a foreign buyer under a contract and that the defendant has unauthorisedly removed it from the plaintiff firms possession, — it is clear that the relief for possession against the defendant in the suit does not arise from any contract which the defendant entered into in the course of the plaintiff firms business with the defendant but is based on the alleged unauthorised removal of the vehicle from the plaintiff firms custody by the defendant. In such a situation, the fact that the unregistered firm has purchased the vehicle from somebody else under a contract has absolutely no bearing on the right of the firm to sue the defendant for possession of the vehicle. Such a suit would be maintainable and Section 69(2) would not be a bar, even if the firm is unregistered on the date of suit. The position in the present case is not different.17. The aforesaid decision in Haldiram Bhujiawala (supra) was further considered and applied by this Court in the case of Purushottam (supra) while holding as under: -24. With respect, we find ourselves in complete agreement with the principles enunciated in Haldiram Bhujiawala. Having regard to the purpose Section 69(2) seeks to achieve and the interest sought to be protected, the bar must apply to a suit for enforcement of right arising from a contract entered into by the unregistered firm with a third party in the course of business dealings with such third party. If the right sought to be enforced does not arise from a contract to which the unregistered firm is a party, or is not entered into in connection with the business of the unregistered firm with a third party, the bar of Section 69(2) will not apply.18. Nothing contrary to the foregoing discussion is to be found in the decisions cited on behalf of the contesting respondents. The case of Umesh Goel (supra) essentially related to the operation of the provision contained in Section 69(3) of the Act of 1932 and interpretation of the expression other proceedings in the wake of the question as to whether arbitral proceedings and the award passed therein could be read into the expression other proceedings. The said decision has no relevance to the questions at hand. In the case of Farooq (supra), this Court found, after a wholesome reading of the plaint, that the suit was based on clause 25(d) of the partnership deed which specifically stated that no partners of the firm shall without the consent in writing of the other partners being entitled to transfer immovable property belonging to the firm. In that case, two partners of an unregistered firm had sued for cancellation of a sale made by the defendant partner without the consent of all the partners. This Court found that the suit was only to enforce a right arising from the terms of said partnership deed and hence, it attracted the bar of Section 69(2) of the Act of 1932. The said decision, for an entirely different fact situation and different claim, has no application to the facts of the present case.19. Taking up the facts of the present case, one of the significant features herein is that the transaction in question, i.e., sale of its share by the plaintiff firm to the contesting defendants has not been the one arising out of the business of the plaintiff firm. This factual aspect is apparent from the basic plaint averments and is fortified by the concurrent findings of the Trial Court as also of the High Court. Though the High Court endorsed the finding that the transaction in question was not arising out of the business of the plaintiff firm but, it appears that the implication of this crucial finding has not acquired the requisite attention of the High Court. The decision of this Court in the case of Purushottam (supra) was cited before the High Court but, while referring to the same in paragraph 33 of the impugned judgment, the High Court probably looked only at the editors headnote and in any case, missed out the ratio and principles therein, as reiterated with reference to the previous decisions. The decision in Haldiram Bhujiawala (supra) seems to have not gone into consideration of the High Court although this decision formed the sheet anchor of the order of the Trial Court.19.1. As noticed, the crucial and key factor in the present case remains that the sale transaction in question is not arising out of the business of the appellant firm. Equally significant fact is that the subject suit is for enforcing a right of avoidance of a document on the ground of fraud and misrepresentation as also the statutory rights of seeking declaration and injunction. Significantly, the composition of defendant firm Aksharay Developers (defendant No. 1) has itself been questioned by the plaintiff- appellant while alleging that on 22.04.2014, this firm was constituted with four partners but later on, the defendant Nos. 2 and 3 (respondent Nos. 2 and 3 herein), constituted another firm in the same name with themselves as partners while leaving aside the other two.19.2. We are not commenting on the merits of the case of either of the parties but this much is apparent from a look at the frame and contents of the plaint as also the prayers therein that the present one cannot be said to be such a suit by the unregistered firm which would attract the bar of Section 69(2) of the Act of 1932.20. To put it differently, the relevant principles, when applied to the facts of the present case, leave nothing to doubt that the transaction in question was not the one entered into by the plaintiff firm during the course of its business (i.e., of building construction); and it had been an independent transaction of sale, of the firms share in the suit property, to the contesting defendants. The bar of Section 69(2) is not attracted in relation to the said sale transaction. Moreover, the subject suit cannot be said to be the one for enforcement of right arising from a contract; rather the subject suit is clearly the one where the plaintiff seeks common law remedies with the allegations of fraud and misrepresentation as also of the statutory rights of injunction and declaration in terms of the provisions of the Specific Relief Act, 1963 as also the Transfer of Property Act, 1882 (while alleging want of the sale consideration). Therefore, the bar of Section 69(2) of the Act of 1932 does not apply to the present case.21. The upshot of the foregoing discussion is that, for the purpose of Section 69 of the Act of 1932, the present case is governed by the principles laid down in Raptakos Brett & Co. Ltd. (supra), as further exposited in Haldiram Bhujiawala (supra). Hence, the bar of Section 69(2) is not attracted to the suit filed by the appellant. The Trial Court had rightly appreciated the facts of the case and had rightly rejected the baseless application moved by the contesting respondents. The impugned order of the High Court, being not in conformity with the applicable legal principles, is required to be set aside.