Case: Kuljinder Singh Ahluwalia Vs. Smt. Sandeep Kaur Ahluwalia &amp; Others

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.

Court's reasoning:
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 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.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.The principle of strict construction thus would be applicable to the provisions of Section 69 which in turn has serious consequences of dismissal of a Suit, right at the threshold. What, therefore, follows is that the ingredients of Section 69 should be satisfied in absolute terms and it will be difficult for the Court to apply the bar of Section 69 on inferences.A bare reading of the provisions of Section 69(1) of the Act requires that 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 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. Similarly, Section 69(2) also prohibits institution of a suit in any Court by or on behalf of a firm against any third party unless the firm is registered and it satisfies the said conditions. This bar is absolute in terms and has to be construed strictly as per the law enunciated. The exceptions to the application of this rule are contemplated under Subsections (3) and (4) of Section 69 of the Act. In the present case, the suit had been instituted by Kuljinder Singh Ahluwalia against Defendant No.primarily, though partnership concern Respondent No. 3 and other partners had also been impleaded as Defendants in the suit. The prayers were that the shares of Defendant No.4Company was the property of the partnership concern, of which the Plaintiff, Defendant Nos.1 and 2 have equal share, and Defendant No.4 Company should be directed to cancel the transfer/transmission of the said shares which was done in favour of Defendant No.1. These reliefs were based primarily on the ground that there was a supplemental deed where all the partners had equal shares and that upon the death of husband of Defendant No.1, the legal representatives have no right to the shares to the exclusion of others as they belonged to partnership firm. The shares admittedly were of Defendant No.4Company and it was cancellation of transfer of shares which was prayed. The execution of the Supplemental Deed itself was disputed and Defendant No.1 in the suit had claimed, on the basis of Deed of Relinquishment, being the only heir of her deceased husband that the said shares were her exclusive property. Further, appointment Defendant Nos.1 and 5 as Directors of Defendantwas also questioned. These reliefs were not based visavis Defendant No.4 on any contract whatsoever. Further, these rights or remedy were available to the Plaintiff in his own capacity, as he would be entitled to 20% of the shares in his own name, under the provisions of the Company Law or an action in common law. A suit for declaration for cancellation of a transfer deed as well as the appointment of the Directors of Defendant No.4 Company would not be a right arising out of a contract. The prayers in the suit, which are of declaratory nature with consequential reliefs of Receiver, injunction and for cancellation of the resolution appointing Defendant Nos.1 and 5 as Directors are not the disputes falling within the ambit of any contract. The Plaintiff had brought a suit not only as a partner of the partnership concerned but also in his individual capacity and the reliefs claimed were not against the partnership firm or against the partners who were the erstwhile partners of the partnership concern but primarily against Defendant No.4, a limited company, which has its own legal entity. Within the ambit of Section 69(2) of the Act, the Plaintiff had not brought a suit against third party on behalf of the partnership concern enforcing right arising out of a contract. As already noticed, the reliefs claimed against Defendant No.4 Company are primarily available in the realm of Companies Act and/or in common law. The Appellant had earlier approached the Company Law Board which had passed certain directions and on Appeal, which was disposed of by the consented order, gives rise to the suit in question. This fact sufficiently indicates that the controversy in the suit was primarily relatable to the remedies and claim raised before the Company Law Board, of course, with the addition of other reliefs. In light of the principles of law aforenoticed, we are of the view that the bar contained under Section 69 of the Partnership Act was not attracted, in any case, in its entirety to the present suit. It can be usefully noticed at this stage that the Maharashtra Amendment Act 29 of 1984 inserting Section 69(2A) to the Partnership Act, 1932 substituting Section 69(3)(a) was held to be unconstitutional by the Supreme Court ultra vires to Articles 14, 19(1)(g) and 300A of the Constitution of India in the case of V. Subramaniam v. Rajesh Raghuvandra Rao, (2009)5 SCC 608  . In that judgment, the Supreme Court while discussing the object of Section 69 held that primary object of registration of partnership firm is to protect the interest of third party against false denial of partnership and evasion of liability and for providing conclusive proof of fact as to who is the partner. The partner, whose name appears in the register cannot deny that he is a partner except under the circumstances provided. The object is to render protection and to ensure that the partnership carries on business in accordance with law and the limitations stated in the Section are with regard to enforcement of particular kind of claims against particular kind of persons.The provisions of Section 69 may not have an application in a case where the partner has based its claim on a subsequent compromise and not on the basis of the claim arising out of the original partnership. (Ref. KundanmalAnr. v. Madan Gopal, AIR 1956 Hyderabad 27).20. The Partnership Deed dated 17th September, 1975 was admitted and the Supplemental Partnership Deed dated 2nd April, 2003 was denied. In fact, its execution was challenged. The distinction between statutory rights and rights arising out of a contract has to be clearly understood to apply the bar contained under Section 69 of the Act. The reliefs claimed, primarily against Defendant Nos.4 Company, were neither arising out of any contract nor were they in any way dependent upon the status of the partnership. The appointment of Directors of Defendant No.4 Company could even be questioned by an individual shareholder in terms of Section 111 of the Company Act and there is no dispute to the fact that the Appellant was a shareholder/Director of Defendant No.4 Company. Thus it is difficult for us to sustain the view taken by the learned Single Judge.In the Petition before the Company Law Board, the prayers were with regard to the management of the Respondent No. 4 Company within the ambit and scope of Sections 397, 398, 402 and 403 of the Companies Act, for appointment of an Administrator, breaches committed by the respondents in their capacity as Directors of the Company, for holding Annual General Meeting and injuncting the respondents and particularly respondent Nos.5 to 7 (in that petition) that they were not Directors of the company, besides praying for other reliefs and cancellation of the Resolutions. In para 6 of the Plaint, while referring himself as the Director of the Defendant no.4, the Plaintiff has challenged the transfer of the said shares and averred that no notice of the Circular Resolution dated 31st March, 2005 in relation to the transfer of shares was given to him and the said Resolution was illegal and void. This plea was raised specifically without prejudice to the contentions that the shares were property of the firm. In para 7 of the Plaint, it was also averred that the Defendant No.1 (Respondent No.1 herein) was not entitled to exercise any rights as shareholder in respect of the shares, in question, of the Respondent No.4. In paras 8 and 9 of the Plaint, it was also averred that Respondent No.1 was not entitled to participate in the General Body Meeting and she should be restrained from participating, exercising or voting and it was necessary to prevent her from misusing or taking any wrongful advantage of the said shares and the affairs of Defendant No.4. These averments in the Plaint clearly establish the cause of action of the Plaintiff as Director of Defendant No.4 and the reliefs claimed are in relation thereto, particularly, challenging the appointment of Respondent Nos.1 and 5 as Directors of the Company is in no way dependent on any contract or the partnership deeds. This cause of action was dehors the questions relating to the partnership. We are not commenting on the question whether there is proper joinder of causes of action as that point has neither been taken up in the pleadings nor argued before us. It will be for the Court of competent jurisdiction to examine this issue but certainly, in our opinion, with reference to the facts stated in the Plaint, documents available on record, provisions of law and the relevant principles of law, there cannot be any rejection of the Plaint and consequently dismissal of the suit under the provisions of Order VII Rule 11 of the Code of Civil Procedure, 1908.Still another important aspect of this case which requires to be dealt with by us is even if for the sake of argument, it is to be assumed that the bar contained under Section 69(1) of the Act was attracted insofar as prayer (a) was concerned as it refers to the Supplemental Deed which was disputed, still Court could dismiss the suit at this stage, wholly or partially and in the manner in which it has been dismissed. It is a settled principle of law that the suit can be dismissed under the provisions of Order VII Rule 11 of the code of Civil Procedure if the suit is barred or its institution is impermissible under any other law for the time being in force. It is also equally true that for the purpose of examining such bar of law to the maintainability or institution of a suit, the Court has to act on the plea of demur. The averments made in the Plaint have to be taken as correct and the law has to be applied on that basis.The provisions of Order XIV Rule (1) of the Code of Civil Procedure makes it obligatory upon the Court to frame issues on the question of facts and law where the claims of the parties are in dispute. The Court is to pronounce its judgment on all the issues and while framing the issues in terms of Order XIV Rule (2) of the Code, the Court can even frame preliminary issue which may dispose of the suit itself, if the issues relate to the jurisdiction of the Court or a bar to the suit created by any law for the time being in force. Admittedly, no preliminary issue was framed by the learned Single Judge at least none appears from the record. However, it was contended before us by the learned Counsel appearing for the Respondents that the parties were put to notice that the suit would be heard in relation to the bar contained under Section 69 of the Partnership Act. May be this is not an illegality but certainly it would have been much better approach of the Court to frame a preliminary issue in the event it considered it appropriate to dispose of the suit itself when the Notice of Motion was fixed for hearing. Be that as it may, even if the suit was taken to be barred under Section 69 of the Act, still the right of the Appellant in his capacity as a shareholder and the reliefs against the Defendantin relation to appointment of Directors, cancellation of resolution and cancellation of Transfer Deed was not a matter relating to or arising out of any contract of the Partnership or of the partnership against third party. This part of the cause of action and distinct reliefs claimed in the Plaint were in any case beyond the scope of Section 69 of the Act, on fact and in law, and thus the suit could not have been dismissed in its entirety. Even on this count, the order under Appeal would not be sustainable.