Case Study: Shanker Housing Corporation (Ext.) v. Mohan Devi and Eight Ors

“The court rules that all the partners of the firm should be registered at the time of institution of suit when a suit is instituted against the third party”

Citation: 1977 SCC OnLine Del 136.

Date of Judgment: 2^nd December, 1977

Court: Delhi High Court

Bench: T.V.R. Tatachari, (CJ), Yogeshwar Dayal (J).

Facts

• The plaintiff, M/s. Shanker Housing Corporation, a registered partnership firm, sued the legal representatives of Net Ram, a former partner, for recovery of a debt. The firm was constituted in 1959 with six partners.
• Net Ram retired in 1964, and Tek Chand, another partner, died in 1966. New partners joined the firm after these changes, but the partnership registry was not updated until 1972.
• The partnership had agreed to purchase land from Chaudhry Attar Singh, but the government subsequently acquired the land. The partnership decided that Net Ram would be responsible for paying Rs. 19,680 to Chaudhry Attar Singh for the land and would receive all rights to the land. The other partners agreed not to object to the transfer of ownership.
• The plaintiff firm sued the legal representatives of Net Ram to recover a debt of Rs. 26,000, which included the amount Net Ram had agreed to pay for the land and interest. The defendants argued that the suit was not maintainable due to the non-registration of the partnership changes and the fact that the land acquisition had frustrated the contract.

Decision of the trial court

The trial court referred the matter to a larger bench for a decision due to a conflict of judicial opinions regarding the scope of “persons suing” in Section 69(2) of the Indian Partnership Act.

Decision of the High Court

The court ruled that Order XXX Rule 1 of the Code of Civil Procedure is not applicable in cases governed by Section 69(2) of the Indian Partnership Act. Under Section 69(2), a firm can only sue a third party if the firm is registered and all partners involved in the lawsuit were also partners at the time the suit was filed. This interpretation ensures that all partners involved in a firm’s legal matters are known and accountable.

Key legal issues discussed

1. Whether Order XXX Rule 1 of the Code of Civil Procedure (hereinafter referred to as C.P.C.) will be applicable in the present case?

No

The defendants relied upon Order XXX Rule 1 of the Code of Civil Procedure (hereinafter referred to as C.P.C.), which states that persons suing in the name of the firm must have been partners at the time of accrual of the cause of action. Therefore, they stated that the same should be applicable in Section 69(2) of the Partnership Act. The court observed that the argument is predicated on a misunderstanding of the respective scope and purpose of Section 69(2) and Rules 1 and 2 of Order 30. Subsections (1) and (2) of Section 69 are substantive provisions designed to discourage the non-registration of firms.

The court elucidated the distinction between the two provisions of the respective statutes. The court held that Rules 1 and 2 of Order XXX of the C.P.C. outline the procedural aspects and formalities for lawsuits involving firms. In essence, the requirements stipulated in Section 69(2) must be met initially for a suit of the specified nature to be filed. Subsequently, the provisions of Rules 1 and 2 of Order 30 become applicable, governing the procedural aspects of the lawsuit.

The court rejected this contention of the defendants. In the 13^th para of the judgment, the court remarked, “The provision in Section 69(2), with which alone we are concerned in the instant case, is mandatory and makes the registration of a firm a condition precedent to the institution of a suit of the nature mentioned in it by or on behalf of a firm against a third party. It deals with the question as to when a firm can sue, or be sued by, a third party in respect of a right arising from a contract, and provides certain requirements as conditions precedent for the institution of the suit, viz. (a) that the firm is a registered firm, and (b) the persons suing are or have been shown in the Register of Firms as partners in the firm.”

2. Does “persons suing” in Section 69(2) refer to all firm partners who were partners at the time of accrual or cause of action?

No

The court ruled that the “persons suing” in Section 69(2) of the Indian Partnership Act refers to all partners of the firm at the time the lawsuit was filed. This means that for a firm to sue a third party, all partners who were part of the firm when the legal action was initiated must be listed in the Register of Firms.

The court rejected the argument that “persons suing” should refer to all partners at the time the cause of action arose. This interpretation would have allowed firms to sue with partners who were no longer part of the firm at the time of the lawsuit. The court emphasized that the purpose of Section 69(2) is to ensure that all partners involved in a firm’s legal matters are known and accountable.

In the 22^nd para, the court remarked that “the words “persons suing” in Section 69(2) also mean all the partners of the firm as on the date of the accruing of the cause of action. As pointed out by us, the language in Section 69(2) which is in the present tense has to be given its plain grammatical meaning, and when so read, it would follow that “persons suing” in Section 69(2) mean “all the partners of the firm at the time of the institution of the suit”.”

The court further ruled that for a firm to initiate legal proceedings against a third party arising from a contractual obligation, the firm must be registered, and all partners involved in the lawsuit must be listed in the Register of Firms as of the date the legal action commenced. Moreover, these partners must have been members of the firm at the time the contractual dispute originated.