Partnership Regn consequences
Mohd v. Madarsa, AIR 1959 Mad 440
The Plaintiffs and the defendants were doing business in partnership from 1944 to 1949. The main business by the partnership was procurement and distribution of paddy under the Control Orders.
The partnership was dissolved in 1949 and accounts of the dissolved partnership were taken. The Plaintiffs received their share of the capital and profits and retired from the partnership. The defendants are continuing the business.
The firm was never registered. During the earlier period of partnership, the Govt demanded Rs.1,300 as surcharge on the stocks of paddy held by the partnership. The money was paid. Subsequently they claimed the money from the Govt. As a result of further consideration, the Govt directed a refund of that surcharge amount to the partnership firm. This amount was refunded nearly after three years from the dissolution of the partnership.
The plaintiffs claimed their half share in the said refund amount and they filed this suit. Both the Trial Court and the Appellate Court dismissed the suit on the ground that the firm is not a registered one and therefore the suit is not maintainable under Sec.69 of the Partnership Act (Central Act 9 of 1932).
The plaintiffs contended that the suit was saved by the exception enacted in Sec.69(3) of the Partnership Act. The Lower Courts held that the suit is not within the exception enacted in Sec.69(3)(a).
Sec.69(1): “No suit to enforce a right arising from a contract 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 have been a partner in the firm, unless the firm is registered.”
Sec.69(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.”
The object of Sec.69(2) is to compel a firm which is a going concern to get itself registered it has to institute a suit or make claims in courts of law.
Sec.69(1) refers to a suit instituted in any court by or on behalf of any person suing as a partner in a firm.
Sec.4 defines Firm: “Persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’.
This definition of ‘firm’ makes it clear that the expression firm cannot be applied to a partnership except where it is continuing to carry on business.
Where a partnership has been dissolved, it is referred to as a dissolved firm. Hence in the case of a dissolved firm, neither Sec.69(1) nor Sec.69(2) can apply to a suit instituted by a person who claims to have been a partner in a dissolved firm or to a suit instituted by or on behalf of a dissolved firm. Such suits lie outside the purpose of the sub-sections.
Sec.69(1) and 69(2) compel registration of the firms that seek relief in courts. A dissolved firm cannot be registered. Hence a suit by or on behalf of a dissolved firm cannot possibly be hit by the prohibition enacted in those Sec.69(1) and 69(2).
If a person who is a partner in a firm sues the firm for some particular relief or sues an individual partner of the firm or a former partner of the firm, the suit cannot be maintained unless the firm is registered. That is because the firm is in being and may be registered.
If a person, who claims that he is a partner in the firm and whose claim is disputed, sues the firm or a partner or a former partner of the firm, such a suit, is within the prohibition of Sec.69(1). That is because the suit is instituted by the plaintiff in his capacity as partner and since the firm is in being and is capable of being registered.
Therefore it is opposed to the policy of the Act, to allow the institution of a suit by a person who claims to be a partner unless it is registered.
But unless there is a firm (that is a partnership) that is continuing to do business.
In this case: the plaintiffs are erstwhile partners and not the present or continuing partner and therefore the prohibition enacted in Sec.69(1) would not hit. The earlier partnership business was dissolved. Now the plaintiffs are in the capacity of partners in the dissolved firm. Therefore the plaintiffs sue the defendants who were the other partners of the dissolved firm. Hence the relationship of partnership has ceased to subsist and that the firm is no long in existence.
Therefore the prohibition to file a suit by the plaintiffs can have no application. The plaintiffs can very well file such suit against the partners of the dissolved firm, even in though the erstwhile partnership was not a registered one.
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