Dissolution of unregistered firm - Suit for recovery thereafter - Suit for recovery of the amount due to a dissolved firm is maintainable even if the firm was not registered one

GUJRAT HIGH COURT

Before:- A.N. Divecha, J.
A.F.O. No. 270 of 1986 with Civil Application No. 2062 of 1986. D/d. 17.7.1992.

Kantilal Jethalal Gandhi - Appellant
Versus
Ghanshyam Ratilal Vyas - Respondent

For the Appellant - P.M. Raval, Advocate.
For the Respondents - S.M. Pandit, Advocate.

Gujarat High Court, Ahmedabad

JUDGMENT


A.N. Divecha, J.- The order passed by the learned Civil Judge (S.D.), at Narol on 30th June, 1986 below the application at Exh. 5 in Special Civil Suit No. 43 of 1986 is under challenge in this Appeal from Order. Thereby the learned trial Judge was pleased to reject the present appellant's application for interim injuction and to vacate the ad interim injunction granted earlier.
2. The facts giving rise to this Appeal from Order move in a narrow compass. The present appellant claims to be a partner in a partnership firm in the name and style of Shri Nilkanth Builders (the 'firm' for convenience). It was started from 1st January, 1978 and it was dissolved on 1st January, 1986. Under the deed of dissolution the present appellant claims to have acquired the right to recover the debt recoverable by the firm. It took contract to construct 12 houses on sub-plots Nos. 8 to 11 of one Sardar Smruti Co- operative Housing Society Ltd. (the 'society' for convenience). The present respondent had acquired the tenement on plot No. 5. Its price was fixed at Rs. 59,000/-. The respondent herein had paid Rs. 20,000/- on 4th December, 1981 and Rs. 24,000/- on 11th December, 1981. The outstanding amount due from the respondent herein was to the tnue of Rs. 15,000/-. He had to pay it with interest at the rate of 18 percent annum. He paid around Rs. 1,750/- from 11th December, 1981 to 15th March, 1983. The amount due and payable by him to the present appellant would be in the sum of Rs. 24,500/-. On these facts the appellant filed one suit against the present respondent in the Court of the Civil Judge (S.D.) of Ahmedabad (Rural) at Narol for a decree in the sum of Rs. 24,500/- together with interest payable thereon. It came to be registered as Special Civil Suit No. 43 of 1986. The appellant herein made one application in the suit for interim injunction restraining the present respondent from transferring the tenament in question in favour of anyone during the pendency of the suit. That application appears to have been taken on the record of the suit as Exh. 5. An expeart ad interim in junction as prayed for came to be granted on 28th February, 1986. The present respondent filed his reply-cum-written statement and resisted the suit as well as the application at Exh. 5 on various grounds. His reply appears to have been taken on the record of the suit as Exh. 10. After hearing the parties, by his order passed on 30th June, 1986, below the application at Exh. 5 in Special Civil Suit No. 43 of 1986, the learned Civil Judge (S.D.) of Ahmedabad (Rural) at Narol was pleased to reject the application for interim injunction and to vacate the ad interim injuction granted earlier. The aggrieved appellant has thereupon preferred this Appeal from Order before this Court questioning the correctness of the aforesaid order passed by the learned trial Judge below the application at Exh. 5 in Special Civil Suit No 43 of 1986.
3. The learned trial Judge did not find the prima facie case in favour of the present appellant solely on the ground that the firm in which he claimed to be a partner was not registered, and as such his suit for recovery of a due payable to a unregistered firm, though dissolved, would be hit by the relevant provisions contained in Section 69 of the Indian Partnership Act, 1932 ('the Act' for brief).
4. It would be quite proper to look at Section 69 of the Act in order to understand the challenge made to the impugned order passed by the learned trial Judge. It reads :-
    "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 person suing are or have been shown in the Register of Firms as partners in the firm.
    (3) The provisions of sub-Section (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not effect.
    (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 realise the property of a dissolved firm, or
    (b) the powers of an official assignee, receiver or Court under the presidency towns Insolvency Act, 1909 (3 of 1909), or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent partner.
    (4) This S. shall not apply
    (a) to firms or to partners in firms which have no place of business in the territories to which this Act extends or whose place: of business in the said territories are situated in areas to which, by notification under 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 Provincial Small Cause Court Act, 1887 (9 of 1887), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim."
It is true that Sub-section (2) of Section 69 of the Act bars a suit to enforce a right arising from a contract by or on behalf of a firm against any third party if the firm is not registered under the Act. If this provision was alone on the statute book, the conclusion reached by the trial Court against the present appellant might have proved unassailable. There however exist the relevant provisions contained in Sub-section (3) thereof to save the power to realise the property of a dissolved firm from the operations of Sub-sectionS (1) and (2) their of. It thus becomes clear that the power to realise the debt due to a dissolved firm will not be governed by Sub-section (1) or Sub-section (2) of Section 69 of the Act. The bar created thereunder or either of them will not operate against a suit for recovery of a debt due and payable to an unregistered dissolved firm.
5. I am supported in my view by the two rulings of the Bombay High Court in the case of Appaya Nijlingappa Hattargi A Anr. v. Subrao Babaji Teli and Anr. reported in AIR 1938 Bombay 108 and in the case of Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd., reported in AIR 1943 Bombay 385. In the case of Appaya Nijlingappa Hattargi (supra), the suit was filed to recover the debt due and payable to an unregistered dissolved partnership firm. It was sought to be registered by pressing into service the bar created under the relevant provisions contained in Section 69 of the Act. In that context it has been held :-
    "It seems to me that a suit to recover a debt due to a firm brought by persons who were the only members of the firm at the date of the dissolution is a suit to enforce a right to realise the property of a dissolved firm. That being so, in my opinion, this case does fall within the Excepting to Section 69, and the suit therefore is maintainable "
6. To the same effect is the dictum of law pronounced in the ruling of the Bombay High Court in the case of Bhagwanji Morarji Goculdas (supra).
7. I am also supported in my view by the Division Bench ruling of the Madras High Court in the case of Shanmugha Mudaliar v. Rathina Mudaliar and Anr., reported in AIR 1948 Madras 187. In that case also the amount due and payable to an unregistered dissolved partnership firm was sought to be recovered by means of a suit and the defence thereto was inter alia based on the relevant provisions contained in Section 69 of the Act. In that context it has been held.
    "The intention of the Legislature was to inflict disability for non- registration only during the subsistence of the partnership. The words in Section 69(31), particularly "or any right or power to realise the property of a dissolved firm" remove any disability which existed during the continuance of the partnership. Hence where and unregistered partnership has been dissolved, money due to the partnership from a third party in respect of dealing between him and the partnership during its subsistence can be recovered by means of suit."
In the course of its judgment, it has also been held :-
    "It is to be noticed that the Partnership Act places no prohibition upon an unregistered partnership making contracts either between the partners Inter se or with some third party, nor upon an unregistered partnership acquiring property or assets. All that it does is to make a suit instituted by an unregistered partnership to recover property, unregistered Partnership to recover property, unenforceable."
8. With respect, I am in full agreement with the aforesaid rulings of the Bombay and the Madras High Courts. They are on all fours applicable in the present case.
9. In view of my aforesaid discussion, I am of the opinion that the learned trial Judge was in error in not holding the present appellant's prima facie case solely on the basis of the bar created against a suit by the relevant provisions contained in Section 69 of the Act. I think the appellant's prima facie case ought to have been held established.
10. The learned trial Judge has found the balance of convenience in favour of the present appellant. In that view of the matter the interim injunction prayed for by the present appellant by means of his application at Exh. 5 in his Special Civil Suit No. 43 of 1986 ought to have been granted.
11. In the result, this Appeal from Order is accepted. The impugned order passed by the learned Civil Judge (S.D.) of Ahmedabad (Rural) at Narol on 30th June, 1986 below the application at Exh. 5 in Special Civil Suit No. 43 of 1986 is hereby quashed and set aside. The resultant effect would be to revive the order passed by the trial. Judge on 28th February. 1986 there below, It would mean that the appellant is granted the interim relief as prayed for by him in his application for the purpose during the pendency of the suit. There shall however be no order as to costs on the facts and in the circumstances of the case.
12. Civil Application No. 2062 of 1986 is made in this Appeal from Order for an interim injunction as prayed for and granted by the trial Court by its order passed on 28th February, 1986. In view of disposal of this Appeal from Order today, no further orders are required to be passed thereon. It therefore stands disposed of however with no order as to costs on the facts and in the circumstances of the case.

Appeal allowed
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