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69. Effect of non- registration. — (2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.= In the instant case, the firm was no doubt registered. However, the name of the person (PW.1), who instituted the proceedings on behalf the firm, is said to have been inducted later on as a partner, but his name was not entered in the register of firms. The appellant did make an effort to convince the trial Court that intimation of PW.1 joining the firm as a partner was given, to the Registrar of Firms in Ex.A.5. The fact, however, remains that by the time the suit was filed, the name of PW.1 was not entered in the register of firms. – In M/s. Shreeram Finance Corporation v. Yasin Khan[3], the Supreme Court held that a suit filed on behalf of a reconstituted firm cannot be maintained, unless the name of the newly added partner, and in whose name the suit is filed has been entered in the register of firms. The ratio of that judgment gets straight away attracted to the facts of the present case. The law requires that it is only when the firm is registered and the name of such person acting as a partner is entered in the register of firms, that he would be entitled to validly institute the proceedings. – the observation of the Supreme Court reads: “In the present case the suit filed by the appellants is clearly hit by the provisions of sub-section (2) of section 69 of the said Partnership Act, as on the date when the suit was filed, two of the partners shown as partners as per the relevant entries in the Register of Firms were not, in fact, partners, one new partner had come in and two minors had been admitted to the benefit of the partnership firm regarding which no notice was given to the Registrar of Firms. Thus, the persons suing, namely, the current partners as on the date of the suit were not shown as partners in the Register of Firms. The result is that the suit was not maintainable in view of the provisions of sub-section (2) of section 69 of the said Partnership Act and the view taken by the Trial Court and confirmed by the High Court in this connection is correct…”

* THE HON’BLE MR JUSTICE L.NARASIMHA REDDY

 

+ Second Appeal No.49 of 2013

%Dated 15.02.2013

 

 

 

#M/s. Chandu Financiers, Chittoor, rep. by its foreman Y.Raghu.

…appellant.

and

 

$ G.Ramakrishna Naidu and another

 

…Respondents

 

 

! Counsel for appellant:     Sri Mehar Chand Noori

 

^ Counsel for Respondents :  Sri Sumanth

 

 

< GIST:

 

 

> HEAD NOTE:

 

 

 

? Cases referred

 

  1. 1999 (6) ALT 681
  2. (1999) 9 SCC 113
  3. (1989) 3 SCC 476

 

 


  THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY

 

Second Appeal No.49 of 2013

JUDGMENT:

The plaintiff in O.S.No.1238 of 1999 on the file of the III Additional Junior Civil Judge, Chittoor, is the appellant.  The appellant is a Partnership Firm, and it filed the suit against the respondents for recovery of amount covered by a chit transaction.  While the 1st respondent was the prized subscriber, the 2nd respondent is the guarantor.  It was pleaded that the appellant started chits in Group No.7 of the value of Rs.50,000/-, of the duration of 20 months with monthly subscription of Rs.2,500/-.
1st respondent subscribed to one of the chits and became successful bidder in August, 1995.  He stated that having received the prize amount of Rs.33,300/-, the 1strespondent committed default in payment of the instalments.  Interest was claimed @24% per annum.

 

The 1st respondent filed a written statement and the
2nd respondent adopted the same.  It was admitted that the
1st respondent is a prized subscriber.  However, it was urged that all the instalments were paid as per the schedule.  An objection was raised as to the maintainability of the suit, on the ground that the foreman, by name, Mr.Y.Raghu, through whom the suit is filed, is not competent to represent the partnership firm.  According to the respondents, one Mr.Bhaskar Naidu is the Managing Partner, and on account of the disputes with him, Raghu got the suit filed.  The trial Court dismissed the suit, through judgment, dated 08.09.2004, by accepting the plea as to the bar of the suit under Section 69 of the Partnership Act (for short ‘the Act’).  A.S.No.168 of 2004 filed by the appellant before the District Court, Chittoor, was dismissed on 06.08.2008.  Hence, this Second Appeal.

 

Sri Mehar Chand Noori, advanced arguments on behalf of the appellant.  He contends that the bar under Section 69 of the Act operates only against a firm, which is not registered and the appellant herein did not suffer from any disability, since it is registered.  He contends that once the firm is registered, it is not necessary that the name of every partner must be entered to enable them to institute independent proceedings in relation to the firm.  He has places reliance upon a judgment rendered by this Court in Sri Laxmi Cloth Stores, Vijayawada v. Ratna and Co., Cloth Merchant, Machilipatnam[1], and the judgment of the Supreme Court in Gwalliar Oil Mills v. Supreme Industries[2].

 

Sri Sumanth, learned counsel for the respondents, on the other hand, submits that the prohibition contained under Section 69 of the Act disables not only an unregistered firm, but also a partner, whose name is not entered in the register, maintained by the Registrar of Firms.

 

As observed earlier, the suit was filed for recovery of amount covered by a chit transaction. When the issues were framed at the initial stage, it appears that much attention was not paid to the effect of Section 69 of the Act, on the suit.  Accordingly, the following issues were framed:

1.                               “Whether the discharge of the chit instalments as alleged in the written statement is correct?

2.                               Whether there is cause of action for the plaintiff to file the suit?

3.                               To what relief?”

 

Thereafter, the following additional issues were framed:

 

1.      “Whether Y.Raghu is the foreman of the plaintiff?

2.      Whether the plaintiff has issued legal notice as alleged in para 11 of the plaint?”

 

On behalf of the appellant, PW.1 was examined and Exs.A.1 to A.17 were filed.  On behalf of respondents, DWs.1 and 2 were examined and Exs.B.1 to B.5 were filed.  The trial Court answered issue No.1 in favour of the appellant herein.  Issue No.2 was treated as superfluous.  However, it answered additional issues 1 and 2 against the appellant.  In A.S.No.168 of 2004, the lower Appellate Court framed the following points for its considered and dismissed the appeal.

 

1.                                   “Whether Y.Raghu, who is representing the plaintiff-firm is competent to file the suit on behalf of the plaintiff-firm?

2.                                   Whether the suit claim is hit by Section 25(1) of A.P.Chit Fund Act?”

 

 

The suit is based upon a chit transaction.  The 1st respondent did not dispute the existence of the same.  Though he pleaded the payment of all the instalments, the trial Court held that he did not pay certain instalments.  That finding has also become final, since neither independent appeal, nor any cross-objections were filed by the respondents.  However, the suit as well as the appeal were dismissed by taking into account, the purport of Section 69 of the Act.  Therefore,
it needs to be examined as to whether the view taken by the trial Court and the lower Appellate Court on the facts of the case is correct.

 

Section 69 of the Act prohibits the institution of the suits for enforcement of right arising out of a contract, or other rights by or on behalf of a firm, unless it is registered.  In addition to placing embargo on the firm, as such, the provision proceeds to extend the bar against any person, unless his name has been shown in the register of firms as a partner. The provision reads:

 

69. Effect of non- registration.

(1) 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.

(2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

(3) The provisions of sub- sections (1) and (2) shall apply also to claim of set- off or other proceeding to enforce a right arising from contract, but shall not affect-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the Presidency- towns Insolvency Act, 1909, (2 of 1909 ), or the Provincial Insolvency Act, 1920, (5 of 1920 ), to realize the property of an insolvent partner.

(4) This section shall not apply-

(a) to firms or to partners in firms which have no place of business in 1[ the territories to which this Act extends], or whose places of business in 2[ the said territories] are situated in areas to which, by notification under 3[ section 56], this Chapter does not apply, or

(b) to any suit or claim of set- off not exceeding one hundred rupees in value which, in the Presidency- towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882, (15 of 1882 ), or, outside the Presidency- towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887, (9 of 1887 ), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.

 

From a perusal of the section, it becomes clear that sub-section (1) thereof disables an individual, claiming to be a partner of a firm, from instituting any proceedings against the firm or its other partners, unless such firm is registered and the plaintiff in such a suit has been shown in the Register of Firms as a partner.  In other words, this provision deals with the disputes between a person, who is a partner of an unregistered firm, on the one hand, and the firm, on the other hand.  It also takes in its fold instances where the firm may have been registered, but the plaintiff is not shown as a partner in the register of firms.

 

Sub-section (2) attaches the disability on the firm as such from instituting proceedings against third parties.  Here again, the requirement is dual in nature.  The first is that the firm must be registered and the second is that even if the firm is registered the person representing the firm must be shown as a partner in the register of firms.  The exceptions that are provided for under sub-sections (3) and (4) of Section 69 of the Act do not get attract the facts of the present case.

 

In the instant case, the firm was no doubt registered.  However, the name of the person (PW.1), who instituted the proceedings on behalf the firm, is said to have been inducted later on as a partner, but his name was not entered in the register of firms.  The appellant did make an effort to convince the trial Court that intimation of PW.1 joining the firm as a partner was given, to the Registrar of Firms in Ex.A.5.  The fact, however, remains that by the time the suit was filed, the name of PW.1 was not entered in the register of firms.  In M/s. Shreeram Finance Corporation v. Yasin Khan[3], the Supreme Court held that a suit filed on behalf of a reconstituted firm cannot be maintained, unless the name of the newly added partner, and in whose name the suit is filed has been entered in the register of firms. The ratio of that judgment gets straight away attracted to the facts of the present case.

 

Learned counsel for the appellant made an attempt to convince this Court that the disjunctive employed in sub-section (2) separates the requirement as to the registration of the firm on the one hand, and enter the name of the partner in the register of firms, on the other hand.
In other words, he contends that once the firm is registered, it is not necessary that the name of the partner, who instituted the suit, must be entered in the register of firms.  However, it is difficult to accept that contention.  Firstly, the provision is clear in its purport, and the same legal requirement is incorporated in sub-sections (1) and (2), may be in different context.  Secondly, the fact that a partnership firm has no independent legal existence and it must be represented by the Managing Partner or an ordinary partner, duly authorized, becomes significant.
An individual can, at the best, adjust his state of affairs vis-à-vis others.  Once he makes an attempt to represent others, the authorization must be proper and legal, since a partner proposes to represent not only himself, but also rest of the partners of the firm, and their collective rights and obligations.

 

The law requires that it is only when the firm is registered and the name of such person acting as a partner is entered in the register of firms, that he would be entitled to validly institute the proceedings.  In Sri Laxmi Cloth Stores, Vijayawada’s case, a learned Single Judge of this Court took the view that once a certificate of registration of a firm is filed, it is not necessary that the name of the person, representing the firm as a partner, must be entered in the register of firms.  The plea similar to the one raised by the learned counsel for the appellant was accepted.  The support was drawn from the two judgments rendered by this Court.   However, it does not appear that the attention of this Court was drawn to the judgment of the Supreme Court in Sriram Finance Corporation’s case, the observation of the Supreme Court reads:

“In the present case the suit filed by the appellants is clearly hit by the provisions of sub-section (2) of section 69 of the said Partnership Act, as on the date when the suit was filed, two of the partners shown as partners as per the relevant entries in the Register of Firms were not, in fact, partners, one new partner had come in and two minors had been admitted to the benefit of the partnership firm regarding which no notice was given to the Registrar of Firms. Thus, the persons suing, namely, the current partners as on the date of the suit were not shown as partners in the Register of Firms. The result is that the suit was not maintainable in view of the provisions of sub-section (2) of section 69 of the said Partnership Act and the view taken by the Trial Court and confirmed by the High Court in this connection is correct…”

 

The facts of the present case squarely fit into that.  Therefore, the judgment of this Court in Sri Laxmi Cloth Stores, Vijayawada, cannot be treated as a binding precedent.

 

The judgment of the Supreme Court in Gwalilar Oil Mill’s case was totally in a different context.  That was the case in which the names of the new partners, who filed the suit on behalf of the firm, were, no doubt, not entered in the register of firms as on the date of filing of the suit.  However, during the pendency of the suit, the reconstitution of the firm with the name of the person, who filed the suit, representing the firm, was certified with effect from 01.01.1976.  In that view of the matter, the Supreme Court held that the bar under Section 69 of the Act did not operate.  Such is not the case here.

 

For the foregoing reasons, the second appeal is dismissed.  There shall be no order as to costs.

 

The miscellaneous petition filed in this second appeal shall also stand disposed of.

 

____________________

L.NARASIMHA REDDY, J.   

Dated:15.02.2013

L.R. copy to be marked.

GJ

 

 

 

 

 

 

 

 

 

 


THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY

Writ Petition No. of 2012

 

 

 

Date:.02.2013

GJ

 

 

 

 


[1] 1999 (6) ALT 681

[2] (1999) 9 SCC 113

[3] (1989) 3 SCC 476

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