Bar of Sec.69(2) of Partnership Act is not attracted in relation to independent transaction of sale of firm’s share in suit property, which has not been entered into by unregistered firm during course of its business: SC

Read Judgment: SHIV DEVELOPERS THROUGH ITS PARTNER SUNILBHAI SOMABHAI AJMERI vs. AKSHARAY DEVELOPERS & ORS. 

Pankaj Bajpai

New Delhi, February 1, 2022: The Supreme Court has opined that bar of Section 69(2) of the Indian Partnership Act, 1932 is not attracted in relation to an independent transaction of sale, of the firm’s share in the suit property, which has not been entered into by the firm during the course of its business. 

A Division Bench of Justice Dinesh Maheshwari and Justice Vikram Nath therefore observed that 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. 

In a nutshell, the Trial Court had rejected the application moved by Aksharay Developers (Respondents – contesting defendants) under Order VII Rule 11(d), Order XXX Rules 1 and 2 and Section 151 of the Code of Civil Procedure, 1908 r/w/s 69 of Indian Partnership Act, 1932 for rejection of plaint on the ground that the suit filed by and on behalf of an unregistered partnership firm was barred by law. The Trial Court essentially held that, on its subject-matter relating to the validity of the sale deed in question, the bar of Section 69(2) was not operating against this suit. However, the High Court has taken a contrary view of the matter and has held that Shiv Developers (Appellant – Plaintiff), being an unregistered firm, would be barred to enforce a right arising out of the contract in terms of Section 69(2) of the Act of 1932. Hence, present appeal. 

After considering the submissions, the Top Court found 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, added the Court. 

Significantly, the composition of Defendant Respondent firm “Aksharay Developers” has itself been questioned by the Plaintiff Appellant while alleging that this firm was constituted with four partners but later on, second & third Respondents constituted another firm in the same name with themselves as partners while leaving aside the other two.

Speaking for the Bench, Justice Maheshwari highlighted that the present case 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. 

Justice Maheshwari quoted the decision in case of Haldiram Bhujiawala and Anr. v. Anand Kumar Deepak Kumar and Anr [(2000) 3 SCC 250], wherein it was held 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.

Similarly, in case of Raptakos Brett & Co. Ltd. v. Ganesh Property [(1998) 7 SCC 184], it was held that the bar of Section 69(2) is 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 such bar 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, added the Bench. 

Hence, the Apex Court allowed the appeal and quashed the judgment of the High Court.