Purushottam & Anr vs Shivraj Fine Art Litho Works & Ors

The facts of the case are not in dispute and they will be briefly noticed. Plaintiff No.1, Pursushottam, carried on business as whole- sale paper merchant in the name and style of "Dinesh Paper Mart" as the sole proprietor of the concern. During this period he supplied goods to the defendant firm namely Shivraj Fine Arts Litho Works, a firm registered under the Partnership Act. Defendants 2 to 9 were the partners of the said firm. In the year 1974, Special Civil Suit No.9 of 1974 was filed for dissolution of the defendant partnership firm and for rendering of accounts. During the pendency of the suit a receiver was appointed initially to take possession of the properties of the firm and to run the business of the firm. Later joint receivers were appointed, and it is not in dispute that at the relevant time defendant No.2 and defendant No.12 were in management of the aforesaid registered firm respondent No.1 herein as joint receivers.

The aforesaid Purushottam had business dealings with the respondent No.1 firm. Goods were supplied and payments made from time to time. It is not in dispute that the amounts due and payable to the plaintiff No.1, Purushottam were fully paid up as on March 20, 1974, that is, before the date of appointment of Receiver. Even after appointment of the Receiver, successive Receivers purchased goods from Plaintiff No.1, Purushottam, herein for the business of respondent No.1 firm. A khata was maintained by plaintiff No.1 Purushottam in which payments made were duly entered, and at the end of the year the amount outstanding as on December 31, was carried forward to the next year. The defendant firm acknowledged their liability to pay the amount entered in the khata by making an endorsement in the khata. As at the end of the financial year 1979 a sum of Rs.6,22,713.06 was the balance due from the defendant firm to plaintiff Purushottam. The plaintiff was also entitled to interest at the agreed rate of 18% per annum on the balance outstanding for more than seven days.

With effect from January 1, 1980 the proprietary firm of Purushottam (Plaintiff No.1) was taken over by a partnership of which plaintiff Purushottam was also a partner. The said partnership firm took over all the assets and liabilities of "Dinesh Paper Mart" and continued their business in the same name. Though the said partnership firm came into existence on January 1, 1980, an application for registration of the firm under the Act was made on January 14, 1980. While the said application was pending, the instant suit was filed on March 31, 1980. Later, on November 29, 1980, the Plaintiff No.2 firm was granted registration under the Act. It would thus appear that though the newly constituted partnership firm had applied for registration on January 14, 1980, on the date on which the suit was filed, that is on March 31, 1980, it was an unregistered firm and registration was granted later on November 29, 1980. This therefore, gave rise to the objection urged on behalf of the defendants relying on Section 69(2) of the Act that the suit by an unregistered firm was not maintainable to enforce a right arising from a contract.

The High Court took the view relying upon authorities that the suit was barred by Section 69(2) of the Act, and even if registration was subsequently granted, that would not cure the defect. Repelling the argument that in any event Plaintiff No.1, the erstwhile proprietor may be entitled to enforce his claim, the Court held that once he had transferred his rights to the partnership which took over all the rights and liabilities of the proprietary concern, he lost his exclusive right to recover the amount since that had become an asset of the partnership firm over which he as a partner had no exclusive right. He, therefore, did not have any enforceable subsisting claim after the partnership came into existence, and, therefore, no relief could be granted to him in his personal capacity as erstwhile proprietor of the concern.

We, therefore, allow this appeal with costs and set aside the impugned judgment and decree of the High Court and restore that of the Third Joint Civil Judge (Senior Division) Nagpur, in Civil Suit No.52 of 1980 dated 29.4.1987.