Summary
A suit by partners of an unregistered partnership firm against another partner for recovery of the Rs. 30 lakh they had paid as capital for their shares was held barred by Section 69(1) of the Partnership Act, 1932; the plea that the partnership business had never commenced did not lift the bar, and the remedy lay in a suit for dissolution and accounts saved by Section 69(3).
Issues
- Whether a money suit by partners of an unregistered firm against a co-partner, to recover capital contributed under the partnership deed, is maintainable in view of Section 69(1) of the Partnership Act, 1932.
- Whether the fact that the partnership business had not commenced takes the suit outside the bar of Section 69(1).
Provisions considered
- Section 69(1), Indian Partnership Act, 1932Read as mandatory: it bars a suit by a person suing as a partner of an unregistered firm against the firm or a co-partner to enforce a right arising from a contract or conferred by the Act. The plaintiffs' suit to recover capital paid under the partnership deed from a co-partner fell squarely within it. (¶¶ 8, 9, 10, 14, 15, 16)
- Section 69(2), Indian Partnership Act, 1932Noted as the separate bar on suits by an unregistered firm against third persons; the present suit was not of that kind, being between partners. (¶¶ 8, 15)
- Section 69(3)(a), Indian Partnership Act, 1932The exception preserving a suit for dissolution of the firm or accounts of a dissolved firm despite non-registration; the Court said the plaintiffs should have sued for dissolution and rendition of accounts. (¶¶ 11, 16)
Held
- Section 69 is mandatory. Section 69(1) prohibits suits among partners of an unregistered firm to enforce a right arising from a contract or under the Act, save suits for dissolution and/or accounts; proceedings falling within Section 69 are without jurisdiction. (¶¶ 8, 9)
- Two conditions must co-exist for the bar under Section 69(1): the plaintiff must sue as a partner in a firm, and the suit must be to enforce a right arising from a contract. (¶¶ 10, 11)
- Since the deed showed that the Rs. 30 lakh was paid by the plaintiffs as capital for 75% shares in the firm, their recovery suit against the co-partner holding the remaining share was a suit by partners to enforce a right under the partnership agreement, and was barred as the firm was unregistered. The suit was not by the firm against third persons, nor to enforce a statutory or common law right independent of the contract. (¶¶ 12, 13, 14, 15)
- The plaintiffs ought to have filed a suit for dissolution and rendition of accounts, which non-registration would not bar under Section 69(3). The argument that the business had not commenced could not overcome the jurisdictional bar of Section 69(1); the High Court rightly held the suit not maintainable. (¶¶ 16, 17)
Result
Special Leave Petition dismissed; High Court's order holding the money suit not maintainable upheld.