Case Summary
| Citation | Sharad Vasant Kotak v. Ramniklal Mohanlal Chawda (1998) 2 SCC 171 |
| Keywords | section 69(2A) of the partnership act, dissolution, firm, register, death, admission, partners, reconstitution, registrar, existing firm |
| Facts | There was a partnership firm consisting of 6 partners, one of them died in 1986, and in their place, his wife was admitted as a new partner into the firm. Reconstitution was made by the firm’s partners, including the changing profit-sharing ratios. The induction of a new partner was not brought to the notice of the Registrar of Firms. Another partner also died at the firm in 1994, and the fact of his death was not intimated to the Registrar. The first Respondent gave notice of the firm’s dissolution to the Appellant and also filed a suit for dissolution. The Court held that the suit was not maintainable because the firm was not registered after reconstitution. |
| Issues | Whether the registration given to the firm under the first partnership deed ceases when a new partner was introduced into the firm? |
| Contentions | Appellant contended that the first deed between partners ceased to exist as the partner died, and a new partnership was found under the second deed. The second deed was not registered. |
| Law Points | Supreme Court said that to answer the issue, we must refer to the relevant sections, i.e., 58, 59 and 63. A close perusal of these provisions with Forms A, E, G, H will show that there is a definite distinction between the Certificate of Registration given to the firm and any alterations to be entered in the Register of Firms. This will suggest in no uncertain terms that the changes in the constitution of the firm will not affect the registration once made. In other words, it is not required that every time a new partner is induced, fresh registration has to be applied and obtained. |
| Judgement | Court held that the existing firm was only reconstituted and no need to get a fresh registration. Section 69 (2A) will not apply here, appeal dismissed. |
| Ratio Decidendi & Case Authority |
Full Case Details
K. VENKATASWAMI, J. – 2. This appeal by special leave has arisen under the following
circumstances: The appellants are the partners of a suit firm called ‘M/s Paramount Builders’.
The partnership was entered into on 29-11-1979 with (seven) individuals as partners.
- The said partnership firm was registered on 15-12-1980 under Registration No. 158675
with the Registrar of Firms. On 6-5-1986, Shri Mohanlal Hinji Chawda, a partner of the firm
(Sr. No. 6 above) died and in his place, his widow Smt Jijiben Mohanlal Chawda was
admitted as a partner in the firm. After the admission of the said Smt Jijiben Mohanlal
Chawda, another deed of partnership was made consisting of the six old partners and the
newly admitted partner Smt Jijiben Mohanlal Chawda. As a matter of fact, the induction of
the new partner was not brought to the notice of the Registrar of Firms by forwarding the
required particulars. It is on record that still later on 3-11-1992 another partnership deed was
brought into existence consisting of the same partners. It is also on record that yet another
partner Smt Hemkuver B. Kotak (S. No. 4 above) died in September 1994. The fact of death
of this partner also was not intimated to the Registrar of Firms. While so, the 1st respondent
gave a notice of dissolution of the firm to the appellants and also filed a suit for the
dissolution of the partnership firm bearing Suit No. 5016/94 on 15-12-1994 in the High Court
of Judicature at Bombay on the original side. Initially in the plaint, the constitutional validity
of Section 69(2-A) of the Indian Partnership Act (hereinafter called “the Act”), as amended
by the Maharashtra Act, was not raised. The 1st respondent moved a Chamber Summons No.
301 of 1997 seeking permission of the Court to carry out certain amendments to the plaint.
Briefly, the amendments sought were that subsequent changes and/or modifications in the
partnership deed of M/s Paramount Builders under the deed of partnership dated 20-10-1986
and also in the deed of partnership dated 3-11-1992 are merely in the nature of changes and/or
modifications which do not affect registration of the said firm of M/s Paramount Builders, as
required under the Act, for entitling a partner to institute a suit for reliefs against the partners
on dissolution of firms and alternatively, the other amendment sought was to challenge the
vires of Section 69(2-A) of the Act as in force in State of Maharashtra. - The amendment sought was seriously opposed by the appellants inter alia contending
that the suit as filed was not maintainable and, therefore, the amendment cannot be allowed.
In other words, according to the appellants on and from 20-10-1986 when a new partnership
deed was made, the registration already given to the firm ceased to have validity and the
partnership as at present must be deemed to be an unregistered one and, therefore, the suit was
hit by Section 69(2-A). It was also contended that without impleading the State of
Maharashtra and the Union of India, the vires of Section 69(2-A) in the Partnership Act
cannot be challenged. The learned trial Judge accepting the objections raised by the appellants
found that Section 69(2-A) of the Act creates a bar on the threshold of the filing of the suit for
the relief covered in the suit and the very suit filed by the plaintiff was incompetent. That
being the position, the application for amendment could not be permitted. Consequently, the
application was rejected.
- Aggrieved by the rejection of the amendment application, the first respondent preferred
an appeal to the Division Bench of the High Court in Appeal No. 509 of 1997. - The appellate court was of the view that the registration of the firm continues to be in
force notwithstanding any reconstitution of the firm and even when dissolution takes place,
the registration of the firm continues. The Division Bench further held that Section 69(2-A)
requires the registration of a firm and it does not require a fresh registration each time a
reconstitution or dissolution of the continuing firm takes place. After finding that the suit filed
by the first respondent was not hit by Section 69(2-A), the Division Bench held as follows:
The proposed amendment consists of two parts. The first part is only a factual
aspect which has been sought to be introduced in order to demonstrate that the bar
under Section 69(2-A) is not attracted. There is no reason as to why such an
amendment should not be granted. The second part of the amendment pertains to the
constitutional challenge of the validity of Section 69(2-A). As we have already taken
a view that Section 69(2-A) is not attracted, the question of challenge does not
survive and, therefore, it is not necessary to grant the amendment containing
constitutional challenge. - Ultimately the appellate court allowed the appeal and permitted the amendment only
regarding the factual portions and not regarding the constitutional validity of Section 69(2-A).
9. In this appeal, the following substantial question of law arises for our consideration:
Whether on the facts of this case the suit for dissolution and account of
partnership is hit by Section 69(2-A) of the Act as amended in the State of
Maharashtra?”
(2-A) No suit to enforce any right 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 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:
Provided that the requirement of registration of firm under this sub-section shall
not apply to the suits or proceedings instituted by the heirs or legal representatives of
the deceased partner of a firm for accounts of a dissolved firm or to realise the
property of a dissolved firm.
11. Before proceeding further, we remind ourselves that we are concerned with a suit
filed by a partner for dissolution and accounts. No third-party rights or liabilities are involved
in the present suit filed by Respondent 1.
12. Undoubtedly counsel on both sides addressed arguments covering larger questions.
But we propose to confine ourselves strictly to the facts of the case and decide the controversy
without touching upon the larger issues or connected issues arising out of the pleadings
because the maintainability of the suit is the sole issue based on Section 69(2-A) of the Act.
13. Section 69(2-A) (extracted above) requires two conditions before a partner can sue fordissolution of a firm and for accounts:
- The firm must be registered.
- The person suing is or has been shown in the register of firms as partner in the
firm. - It is not in dispute that the partnership as entered into under a deed dated 28-11-1979
was duly registered and a certificate of registration was granted. It is also an admitted fact that
the plaintiff, first respondent herein, was one of the founder partners under the deed dated 28-
11-1979 and his name did find a place in the register of firms as a partner and there is nothing
to show that at any point of time, his name has been removed from the register of firms. We
have seen that on the death of one of the partners, his widow was inducted into the partnership
and a deed was entered into on 20-10-1986, repeating almost all the clauses in the partnership
deed dated 28-11-1979 except for consequential changes necessitated by the induction of a
new partner in the place of the deceased partner. - It is the contention of the learned Senior Counsel, Mr Nariman, that when the new
partner was inducted under the partnership deed dated 20-10-1986 in the place of the
deceased partner, the firm registered under the partnership deed dated 28-11-1979 ceases to
be on the records of Registrar of Firms and, therefore, the registration already given will not
enure to the benefit of the partnership entered on 20-10-1986. If that be so, according to Mr
Nariman, learned Senior Counsel, the conditions imposed by Section 69(2-A) are not satisfied
and, therefore, the suit as filed was not maintainable. - In support of his argument, he placed strong reliance on the expression “partnership”
as defined in Section 4 of the Act. It is the contention of Mr Nariman that bearing in mind the
definition in Section 4 of the Act, the partners including the second respondent will
collectively be a firm and that firm is not registered inasmuch as the name of the second
respondent does not find a place in the register of Registrar of Firms. Therefore, the learned
Single Judge was right in holding that the suit was not maintainable at the threshold.
According to the learned Senior Counsel, the mere fact that the plaintiff’s name find a place
in the register of Registrar of Firms is not sufficient to maintain the suit when admittedly one
of the partner’s name (second respondent’s name) was not shown in the register of Registrar
of Firms. He also contended that a comparison of language employed in Sections 31 and 32 of
the Act will show that whenever a partner is inducted into an existing firm, the old firm ceases
to exist and an altogether new firm comes into existence from the date of induction of the new
partner and that new firm must get fresh registration. He also submitted that the partners
entered into another deed on 3-11-1992 and they have expressly treated the firm as a
reconstituted one. In other words, according to the learned Senior Counsel, the deed dated 20-
10-1986 in the absence of such expression (reconstituted firm) the understanding was the old
firm, ceases to be in existence and a new firm was brought into existence. For this, he also
placed reliance on clauses 4 and 5 regarding “Commencement” and “Accounting Year”. He
also placed reliance on a passage from Lindley on Law of Partnership, 15th Edn., p. 374:
Each partner is, it is true, the agent of the firm; but as pointed out before, the firm
is not distinguishable from the persons from time to time composing it; and when a
new member is admitted he becomes one of the firm for the future, but not as from
the past, and his present connection with the firm is no evidence that he ever
expressly or impliedly authorised what may have been done prior to his admission.
This is wholly consistent with the fact that after the admission of a new member, a
new partnership is constituted, and thus special circumstances are required to be
shown before the debts and liabilities of the old partnership are treated as having
been undertaken by the new partnership.
- Contending contrary and supporting the judgment of the Division Bench, Mr Soli J.
Sorabjee, learned Senior Counsel, submitted that there is a well-recognised distinction
between the legal concept of dissolution and reconstitution of a firm. In the case of an
incoming or an outgoing partner in an existing firm, there is only a reconstitution of the firm
and in all other respects, the existing firm continues with old and new partners. A look at
Chapter V of the Act, according to him, will fortify the above contention. In other words,
Chapter V deals with “Income and Outgoing Partners” while Chapter VI separately deals with
“Dissolution of a Firm”. The two are totally different concepts and cannot in law be equated
with each other. According to the learned Senior Counsel, the rules framed by the
Maharashtra Government in 1989 and the forms prescribed under the rules in particular
Forms E, G and H clearly support the said contention. It is also his contention that even when
there is a dissolution of a firm, it does not cease to be a registered firm but for the purposes of
Partnership Act it continues to be registered. In other words, according to the learned Senior
Counsel, the registration of a firm is valid till it is cancelled in a manner known to law. Noncompliance of Sections 61, 62 and 63, as amended in Maharashtra, if at all, will attract the
penalties prescribed under Section 69-A and nothing more and it is incorrect to contend that
non-compliance of the said provisions will result in deregistration of the firm. As the
consequence of deregistration is a drastic one, it is impermissible to hold that non-compliance
with Sections 63(1) and 63(1-A) would lead to deregistration of a firm in the absence of
express and clear legislative provision to that effect. He further contended that merely because
another partnership deed was made on 20-10-1986, it cannot be said that there was a
dissolution of the old firm and consequential formation of a new firm under the latter deed.
According to the learned Senior Counsel, it is the substance of the matter that is relevant to be
looked into and not the phraseology employed by the parties. In other words, the test is
whether after the execution of the deed dated 20-10-1986, for all intents and purposes, the
firm as reconstituted was a different unit or remained the same unit in spite of change in its
constitution. Looked at from this angle, the unit remained the same as it originally was in
spite of change in its constitution and the contention to the contrary, according to the learned
Senior Counsel, was not correct. To support this, he pointed out the similarities between the
two deeds. The alleged dissimilarities as found in clauses 4 and 5 of the document dated 20-
10-1986 are really not dissimilarities but consequential and incidental changes.
19. In reply to the contention of Mr Nariman that the purpose for which Section 69(2-A)
was introduced by the Maharashtra Legislature will be the last if the view projected by him is
not accepted, Mr Sorabjee submitted that failure to comply with the mandatory provisions in
Section 61, 62 or 63 may attract the penalties provided under Section 69-A of the Act but not
the deregistration of the firm.
20. At the outset, we would like to deal with the substance of the partnership deeds in this
case. As noticed earlier, the first deed of partnership was entered into on 29-11-1979 and that
partnership firm was registered on 15-12-1980. One of the partners (Shri Mohanlal Hinji
Chawda) died on 6-5-1986 and in his place, his widow was inducted. The second deed of
partnership was drawn on 20-10-1986. By reason of the second deed of partnership, can it be
said that the existing firm dissolved or ceased. It is relevant here to note that in both the deeds
it was expressly made that the death, insolvency or retirement of any partner shall not dissolve
the partnership firm. On the other hand, the partner shall be entitled to carry on the
partnership business on the terms and conditions mutually agreed upon by the said partners
(vide clause 11). Therefore, it cannot be contended by the appellants that by reason of death
of one of the partners, the existing firm stands dissolved. Can it then be said that by reason of
inducting the widow of the deceased partner the existing registered firm ceased and totally a
new partnership firm came into existence. According to the appellants, by reason of clauses 4
and 5 in the second deed of partnership, it must be deemed that the old partnership ceased and
entirely a new partnership firm was found under the second deed. We are unable to agree with
the contention of the learned Senior Counsel for the appellants on this aspect. Clauses 4 and 5
relate to commencement of the partnership and accounting year. These are minimal changes
introduced in the second deed of partnership by reason of the introduction of a new partner in
place of clauses 4 and 5 in the first partnership deed and in other respects, namely, the name
of the partnership firm, the address and location of the firm, the business carried on and shares
allotted among the partners and duration of the partnership, are identical. Moreover a careful
reading of clauses 5 and 6 of the second partnership deed will give an impression that the
partners have agreed to continue the existing firm. The profits or losses for the period prior to
and up to the death of the deceased partner is dealt with and provided. There is no indication
that the old firm was dissolved. Likewise, reliance placed on the recitals in the third deed of
partnership drawn on 3-11-1992 will not come to the help of the appellants. Learned counsel
for the appellants placed reliance on the term used in the third partnership deed reconstituted
in the preamble portion. We are of the opinion that this does not make any substantial
difference when we look into the substance of the three deeds.
- The contention of the learned counsel for the appellants that the induction of the new
partner will result in dissolution of the firm is not also acceptable. Reliance placed on the
language of Sections 31 and 32 of the Act to support the said contention will be of no avail if
we look into Section 17 of the Act. Section 17(a) of the Act (extracted above) suggests only
reconstitution of the firm where a change occurs in the constitution of the firm. Otherwise, the
old firm remains the same.
25. The next question is whether the registration given to the firm under the first
partnership deed ceases when a new partner was introduced into the firm. For this, we refer to
Sections 58, 59 and 63, the relevant portions have already been extracted. Rules 3, 4, 6 and 17
have also been extracted. The forms prescribed in this connection have also been extracted. A
close perusal of these provisions with Forms “A”, “E”, “G” and “H” will show that there is a
definite distinction between the Certificate of Registration given to the firm and any
alterations to be entered in the Register of Firms. This will suggest in no uncertain terms that
the changes in the constitution of the firm will not affect the registration once made. In other
words, it is not required that every time a new partner is inducted, fresh registration has to be
applied and obtained. However, information about changes have to be given. Failure to
comply attracts penalties under Section 69-A of the Act.
- In Pratapchand Ramchand & Co..[AIR 1940 Bom 257], the Bombay High Court
observed as follows:
Dealing in particular with Section 63(1), that sub-section among other things
provides that when a registered firm is dissolved any person who was a partner
immediately before the dissolution, or the agent of any such partner or person
specially authorized in this behalf, may give notice to the Registrar of such change or
dissolution, specifying the date thereof, and the Registrar shall make a record of the
notice in the entry relating to the firm in the Register of Firms, and shall file the
notice along with the statement relating to the firm filed under Section 59. Pausing
there, that section evidently contemplates in the case of a dissolution of a firm by
death that notwithstanding the death the firm should still be treated for the purpose of
the Act as still registered. Mr Davar has argued that by reason of the death and the
dissolution of the firm the firm ceased to be registered, and in his argument he went
so far as to say that the firm ought to have been registered again. No doubt it would
have been logical having regard to Section 42 if the Act had so provided. But in fact
it has not. The Act does contemplate notwithstanding dissolution by death that so far
as registration is concerned the firm is to be deemed still to be registered, and it
empowers any person who was a partner immediately before the dissolution to give
notice of the change and requires the Registrar to record that notice in the entry
relating to the registration of the firm and to file it along with the original statement
which had been filed. The next section requiring notice is Section 69(2).
Applying that sub-section to the present case the firm was registered and in my
opinion continued to be registered on the date of the institution of this suit on 26th
October, 1939. There is no time-limit fixed in any of the Sections 60 to 63 as to when
notice of alterations or changes should be given. Mr Davar argued that the word
‘when’ with which each of those sections begins involves an obligation upon the
person proposing to give notice of the change to give it immediately upon the change
occurring. The sections do not say so. The position therefore is this: The firm was
registered at the time of the institution of the suit. The firm then consisted of
Chhogamal Dhanaji and Chunilal Idanji, two of the original partners whose names
were shown on the register on the date of registration and were shown on the register
on the date of the institution of the suit. The fact that the firm was registered on the
date of the institution of the suit and that the names of the persons suing (the firm
being a compendious name for the persons suing) were shown in the register on the
date of the institution of the suit appears to me to be a compliance with Section 69(2)
of the Act.
It would seem that the legislature introduced the words with which that subsection concludes, viz., ‘and the persons suing are or have been shown in the register
of firms as partners in the firm’ advisedly. If additional partners had come into the
firm as partners since the date of registration and their names had not been entered on
the register in accordance with notice of a change in the constitution of the firm given
to the Registrar, it may well be that the firm as then constituted could not sue,
because although it was a registered firm some of the persons then suing would not
be shown in the register of firms as partners in the firm on the date of the suit. That is
not this case. The partners who are suing were shown in the register originally and
are still shown, and the firm according to my construction of the Act remained
registered notwithstanding the death of one of the original partners.
- In our opinion, the view taken by the Bombay High Court and followed by the other
High Courts is the right view. - Learned counsel for the appellants placed strong reliance on the Objects and Reasons
for the amendments introduced in the Maharashtra Act. According to the learned counsel, if
his contention is not accepted, the object with which Section 69(2-A) was introduced will be
lost. We do not think so. In this context, we wish to point out that Section 69(3)(a) of the
Central Act enables the partners of both registered and unregistered firms to file a suit for
dissolution and/or accounts. That being the position by introducing sub-section (2-A) in
Section 69, the Maharashtra Legislature has placed certain restrictions to the extent that even
the suit for dissolution of a firm or for accounts, the suit can be filed only if the firm is
registered and the ‘person’ suing as a partner is shown in the Register of Firms as a partner in
the firm. In other words, a person, who is not shown in the Register of Firms by induction
after registration even though the firm is registered, cannot file a suit for dissolution or
accounts. This does not in any way mean that the registration given to the firm earlier will
cease. In this case, the firm was registered and there was only a reconstitution of the firm and
the first respondent, the plaintiff in this case, is a person whose name is shown in the Register
of Firms along with the names of the appellants and, therefore, there is compliance of Section
69(2-A). The contention to the contrary by the learned counsel for the appellants cannot be
accepted.
32. We are also not impressed by the arguments of the learned counsel for the appellants
that if the definition of Section 4 is applied to Section 69(2-A) then unless the names of all the
partners find a place in the Register of Firms, the suit filed by the plaintiff cannot be
sustained. The fact that the firm was registered and the plaintiff’s name finds a place in the
Register of Firms are not in dispute. The name of the newly introduced partner, of course,
does not find a place in the Register of Firms. That means the person whose name does not
find a place in the Register of Firms may incur certain disabilities and that will not disable the
plaintiff to press the suit against the firm, which was registered against the persons whose
names find a place in the Register of Firms. We are not called upon to decide what are the
disabilities of the person, whose name does not find a place in the Register of Firms. For the
purpose of Section 69(2-A), the partnership firm will mean the firm as found in the certificate
of registration and the partners as found in the Register of Firms maintained as per rule in
Form ‘G’. The present suit being one for dissolution and accounts by one of the partners,
whose name admittedly finds place in the Register of Firms along with the names of all the
appellants, the requirements of Section 69(2-A) are satisfied. Section 4 of the Act is also
complied with for this limited purpose.
33. Our conclusion is that on the induction of the second respondent, the existing firm
was only reconstituted on the facts of this case and, therefore, there is no necessity to get a
fresh registration. If by virtue of non-compliance of certain mandatory provisions in not
informing the Registrar of Firms about the change in the constitution of the firm, certain
penalties provided in the Act alone are attracted and that will not lead to the conclusion that
the registration of the firm ceased. This conclusion is based on a conjoint reading of Sections
58-63 and the forms prescribed thereunder. Further, this conclusion does not in any way
militate the object of the Maharashtra Amendment introduced by Act 29 of 1984.
- In the result, we hold that the suit in question is not hit by Section 69(2-A) of the Act
and, therefore, the Division Bench is right in allowing the appeal. Consequently, the appeal is
dismissed. However, there will be no order as to costs.
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