The Supreme Court ruled that partners of an unregistered firm cannot file recovery suits against each other and must seek dissolution and accounts, reaffirming the mandatory nature of Section 69.
The Supreme Court has reaffirmed that a partner of an unregistered firm cannot enforce a contractual right against another partner. The Court held that such a restriction is imposed by Section 69 of the Partnership Act, 1932, which explicitly bars the maintainability of suits between unregistered partners of a partnership firm. The Court emphasized that partners seeking legal remedies should file suits for the dissolution of the firm and rendition of accounts, as these are not barred under the Act.
Key Observations of the Supreme Court
- The Court held that:
- "It is evident from a reading of sub-sections (1) and (2) of Section 69 that it assumes a mandatory character. Section 69(1) prohibits a suit amongst the partners of an unregistered partnership firm, for the enforcement of a right either arising from a contract or conferred by the Act, unless the suit amongst the partners is in the nature of dissolution of the partnership firm and/or rendition of accounts."
- Section 69(2) prevents an unregistered firm from filing suits against third parties for enforcing contractual rights.
- A suit filed by an unregistered partnership firm, or arising from it, would be without jurisdiction, rendering it legally untenable.
Case Background
- The matter arose from an appeal against an order of the Andhra Pradesh High Court, which dismissed the petitioners' civil revision challenging the trial court's dismissal of their recovery suit.
- The petitioners (original plaintiffs) had filed a suit to recover money from a partner of the same unregistered firm.
- The Supreme Court upheld the High Court's decision and held that the petitioners were barred from filing such a suit due to the firm's unregistered status.
Court's Analysis and Reasoning
- The Court emphasized that the plaintiffs should have pursued a suit for dissolution of the firm and rendition of accounts, as such suits are explicitly exempted from the bar under Section 69(3).
- The Court rejected the petitioners' argument that the firm's business had not commenced, stating that the bar applies even before the commencement of business operations.
- The Court ruled that the jurisdictional bar under Section 69(1) applies strictly and cannot be bypassed by filing a recovery suit.
Bench's Stand
- The bench comprising Justice JB Pardiwala and Justice R Mahadevan reiterated that the appropriate remedy lies in seeking dissolution and rendition of accounts.
- The Court maintained that the High Court was correct in dismissing the petitioner's case and that no error was committed in the impugned judgment.
Case Title: Sunkari Tirumala Rao & Ors. versus Penki Aruna
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