Haldiram Bhujiawala v. Anand Kumar Deepak Kumar(2000) 3 SCC 250

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M. JAGANNADHA RAO, J. – 2. This appeal has been preferred by the two defendants,
M/s Haldiram Bhujiawala and Shri Ashok Kumar against the judgment of the Delhi High
Court in FAO No. 365 of 1999 dated 30-11-1999. By that order the High Court summarily
dismissed the appellants’ appeal against the order of the learned Single Judge dated 2-11-
1999 in IA No. 5996 of 1999 in Suit No. 635 of 1992. The IA was filed under Order 7 Rule
11 CPC by the appellants for rejection of the plaint filed by two plaintiffs, Anand Kumar
Deepak Kumar trading as Haldiram Bhujiawala and Shiv Kishan Aggarwal, — on the ground
that the 1st plaintiff was a partnership not registered with the Registrar of Firms on the date of
the suit i.e. on 10-12-1991 and that the subsequent registration of the firm on 29-5-1992
would not cure the initial defect.

3. The suit was filed by the plaintiff (1) for permanent injunction restraining the defendant
   appellants, their partners, servants etc. from infringing Trademark No. 285062 and from using
   the trademark/name “HALDIRAM BHUJIAWALA” or any identical name/mark deceptively
   similar thereto, (2) for damages in a sum of Rs 6 lakhs, and (3) for destruction of the
   material etc.
4. As we are dealing with a matter arising under Order 7 Rule 11 CPC, it will be
   necessary to refer to the plaint allegations. One Ganga Ram (sic Bishan) alias Haldiram,
   carried on business in the name of Haldiram Bhujiawala, since 1941. In 1965, he constituted a
   partnership with his two sons Moolchand, Shiv Kishan and his daughter-in-law Kamla Devi
   (wife of another son R.L. Aggarwal) to carry on business under the same name. In December
   1972, the said firm applied for registration before the Registrar of Trademarks for registration
   of the name Haldiram Bhujiawala – Chand Mal – Ganga Bishan Bhujiawala, Bikaner. The
   Registrar of Trademarks granted registration with No. 285062. On 16-11-1974, the
   partnership was dissolved and under the terms of the dissolution deed the above trademark
   fell exclusively to the share of Moolchand, son of Ganga Bishan and father of the plaintiffs,
   for the whole country (except West Bengal). Thus Shri Moolchand became sole proprietor of
   the trademark in the said area while Smt Kamla Devi was given ownership of the trademark
   rights for West Bengal. It is stated that Shri Lala Ganga Bishan Haldiram executed his last
   will dated 3-4-1979 and also reiterated the rights conferred by the dissolution deed on the
   respective parties. Ganga Bishan died in 1980. His will was later acted upon. Later, the
   testator’s son, Shri Moolchand too died in 1985 leaving behind his four sons, Shiv Kishan,
   Shiv Ratan, Manohar Lal and Madhusoodan. All of them got their names recorded as
   subsequent joint proprietors. The latter three formed a partnership in 1983 and were running a
   shop in Chandni Chowk, New Delhi selling various goods under the abovesaid trademark of
   Haldiram Bhujiawala. In the meantime, on 10-10-1977, Moolchand’s brother Shri R.L.
   Aggarwal (husband of Kamla Devi) and his son Prabhu Shankar, Calcutta applied for
   registration in this very name at Calcutta claiming to be full owners of the said trademark
   without disclosing the dissolution deed dated 16-11-1974. When the Registrar objected on 14-
   4-1978, they replied on 18-7-1978 that they alone were trading in this name in Calcutta. The

defendants have no right to use the said trademark beyond Calcutta. The plaintiffs’ registered
trademark was, in the usual course, renewed on 29-12-1986 till 28-12-1993. The plaintiffs
have also acquired a right on account of prior adoption and long user. The 1st plaintiff firm,
consisting of three sons of Moolchand and the 2nd plaintiff (the fourth son of Moolchand) are
joint owners of the trademark (except in West Bengal). The 1st defendant firm is a newlyconstituted firm intending to start its business and has been formed by Ashok Kumar, son of
Kamla Devi. The 2nd defendant is Ashok Kumar himself in his individual capacity. They
have no right to use this trademark outside West Bengal. The plaintiffs came to know of the
violation of the trademark by Defendants 1 and 2 in December 1991 when the defendants
opened a shop at Arya Samaj Road, Karol Bagh, New Delhi. The cause of action for the suit
is the fact that the defendants acted
“in violation of the common law and contractual rights of the plaintiff”.
On these grounds, the defendants are to be restrained by permanent injunction from using
the trademark and a sum of Rs 6 lakhs is payable as damages.

6. In this appeal, learned Senior Counsel for the appellants, Shri Ashok Desai and Shri
   R.F. Nariman contended that the 1st plaintiff firm was not registered with the Registrar of
   Firms on the date of suit, that the plaint repeatedly referred to the proprietary right of the late
   Moolchand as having arisen out of the dissolution deed dated 16-11-1974 and that without
   reference to the said document – which was a contract – the plaintiffs could not prove their
   right to the trademark through Moolchand and the suit was barred since Section 69(2) referred
   to a right “arising from a contract”. The plaintiffs’ right was based on the contract dated 16-
   11-1974. The words “arising from a contract” were akin to the words “arising out of a
   contract” used in Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar [AIR 1952 SC
   119], wherein while construing those words in relation to an arbitration clause, this Court
   held that the said words had to be construed widely. The learned counsel contended that, on
   the facts of this case and as stated in the plaint at several places, the 1st plaintiff was
   compelled to rely on the contract of dissolution dated 16-11-1974 to prove title to the
   trademark and thereby for an injunction and hence it was not a right claimed under common
   law or under any statute, like the Trade Marks Act.
7. On the other hand, learned Senior Counsel for the respondent-plaintiffs, Shri Gopal
   Subramanium supported the view of the High Court by contending that the suit for injunction
   was based upon two rights, one being statutory under the Trade Marks Act arising out of prior
   registration of the trademark and alternatively, the suit was also based on the common law
   right available in a passing-off action. The suit was not based on any contract between the
   plaintiffs and the defendants. The provision in Section 69(2) did not apply if the right sought
   to be enforced did not arise out of a contract between the plaintiffs’ firm and the defendants.
   The reference in the plaint to the dissolution deed dated 16-11-1974 was merely a reference to
   a historical fact that that was the source of the right of Moolchand and on his death, the said
   right to the trademark devolved on his sons, – three of whom are joined in a firm (i.e. the 1st
   plaintiff) and the fourth son is the second plaintiff. The plaintiffs were not parties to the deed
   of dissolution. The defendants too were not parties to the dissolution deed though their mother
   was. Hence, the bar under Section 69(2) did not apply.

8. The points that arise for consideration are:
   (i) Whether Section 69(2) bars a suit by a firm not registered on the date of suit where
   permanent injunction and damages are claimed in respect of a trademark as a statutory
   right or by invoking common law principles applicable to a passing-off action?
   (ii) Whether the words “arising from a contract” in Section 69(2) refer only to a
   situation where an unregistered firm is enforcing a right arising from a contract entered
   into by the firm with the defendant during the course of its business or whether the bar
   under Section 69(2) can be extended to any contract referred to in the plaint unconnected
   with the defendant, as the source of title to the suit property?
   Point 1
9. The question whether Section 69(2) is a bar to a suit filed by an unregistered firm even
   if a statutory right is being enforced or even if only a common law right is being enforced
   came up directly for consideration in this Court in Raptakas Brett Co. Ltd. v. Ganesh
   Property [(1998) 7 SCC 184]. In that case, Majmudar, J. speaking for the Bench clearly
   expressed the view that Section 69(2) cannot bar the enforcement by way of a suit by an
   unregistered firm in respect of a statutory right or a common law right. On the facts of that
   case, it was held that the right to evict a tenant upon expiry of the lease was not a right
   “arising from a contract” but was a common law right or a statutory right under the Transfer
   of Property Act. The fact that the plaint in that case referred to a lease and to its expiry, made
   no difference. Hence, the said suit was held not barred. It appears to us that in that case the
   reference to the lease in the plaint was obviously treated as a historical fact. That case is
   therefore directly in point. Following the said judgment, it must be held in the present case
   too that a suit is not barred by Section 69(2) if a statutory right or a common law right is
   being enforced.
10. The next question is as to the nature of the right that is being enforced in this suit. It is
    well settled that a passing-off action is a common law action based on tort. Therefore, in our
    opinion, a suit for perpetual injunction to restrain the defendants not to pass off the
    defendants’ goods as those of the plaintiffs by using the plaintiffs’ trademark and for damages
    is an action at common law and is not barred by Section 69(2). The decision in Virendra
    Dresses v. Varinder Garments [AIR 1982 Del 482] states that Section 69(2) does not apply
    to a passing-off action as the suit is based on tort and not on contract. In our opinion, the
    above decisions were correctly decided. (Special Leave Petition No. 18418 of 1999 against
    the latter was in fact dismissed by this Court on 28-1-2000.) The learned Senior Counsel for
    the appellants no doubt relied upon Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar.
    That was an arbitration case in which the words “arising out of a contract” were widely
    interpreted but that decision, in our view, has no relevance in interpreting the words “arising
    from a contract” in Section 69(2) of the Partnership Act.
11. Likewise, if the reliefs of permanent injunction or damages are being claimed on the
    basis of a registered trademark and its infringement, the suit is to be treated as one based on a
    statutory right under the Trade Marks Act and is, in our view, not barred by Section 69(2).

12. For the aforesaid reasons, in both these situations, the unregistered partnership in the
    case before us cannot be said to be enforcing any right “arising from a contract”. Point 1 is
    therefore decided in favour of the respondent-plaintiffs.
    
    Point 2
13. Question however arises as to what is the scope of the words “enforcing a right arising
    under the contract” used in Section 69(2)? Learned Senior Counsel for the appellants
    repeatedly drew our attention to the allegation in the plaint at various places that it was only
    under the deed of dissolution dated 16-11-1974 that Moolchand, — the father of the partners
    of the 1st plaintiff firm and the 2nd plaintiff — became proprietor of the trademark for the
    whole of India (except West Bengal). That right devolved on the plaintiffs on the death of
    Moolchand. Therefore, it was contended that the 1st plaintiff firm was definitely seeking to
    enforce a right “arising from a contract”, namely, the contract of dissolution dated 16-11-1974.It was argued that the 1st plaintiff could not claim any injunction or damages unless
    reliance was placed on the said contract and hence the suit was barred by Section 69(2).
14. For the purpose of deciding this point, it is necessary to go into the question as to
    what the legislature meant when it used the words “arising from a contract” in Section 69(2).
15. In our view, it will be useful in this context to refer to the Report of the Special
    Committee (1930-31) which examined the Draft Bill and made recommendations to the
    legislature.
16. Before going into the above Report of the Special Committee which preceded the
    Partnership Act, 1932, it will be necessary to refer to the case in CIT v. Jayalakshmi Rice
    and Oil Mills Contractor Co. (1971) 1 SCC 280, where this Court refused to refer to this very
    Report for construing Section 59 of the Partnership Act. But, in our view, that decision is no
    longer good law as it was clearly dissented on this aspect in the judgment of the Constitution
    Bench in R.S. Nayak v. A.R. Antulay (1984) 2 SCC 183. In a number of later judgments, this
    Court has referred to the reports of similar committees or commissions (vide G.P. Singh’s
    Interpretation of Statutes, 7th Edn., 1999, pp. 196-97). In the latest case in Hyderabad
    Industries Ltd. v. Union of India notes on clauses were relied upon by the Constitution
    Bench for understanding the legislative intent. A restricted view was no doubt expressed in
    P.V. Narasimha Rao v. State (1998) 4 SCC 626 (at pp. 691-92) that such reports can be
    looked into for the purpose of knowing the historical basis or mischief sought to be remedied,
    but not for construing the provision unless there is ambiguity. Even going by this restricted
    view, we find that there is considerable ambiguity in Section 69(2) (unlike the English Statute
    of 1916 and 1985) as to what is meant by the words “arising out of a contract” inasmuch as
    the provision does not say whether the contract in Section 69(2) is one entered into by the
    firm with the defendant or with somebody else who is not a defendant, nor to whether it is a
    contract entered into with the defendant in business or unconnected with business. Hence, in
    our view, it is permissible to look into the Report even for purpose of construing Section
    69(2).
17. We may state that it was on the basis of the Report of the Special Committee that the
    Partnership Act, 1932 was later passed by the legislature. The Committee consisted of Sir
    Brojendra Lal Mitter, Sir Dinshah F. Mulla, Sir Alladi Krishnaswamy Iyer and Mr Arthur

Eggar. Para 16 of the Report states that the “Bill seeks to overcome this class of difficulty by
making registration optional, and by creating inducements to register which will only bear
upon firms in a substantial and fairly permanent way of business”. Paras 17, 18 and 19 of the
Report are important (see Mulla: Partnership Act, 1st Ed., 1934, p. 167, at pp. 176-77) reads:
“17. The outlines of the scheme are briefly as follows. The English precedent
insofar as it makes registration compulsory and imposes a penalty for nonregistration has not been followed, as it is considered that this step would be too
drastic for a beginning in India, and would introduce all the difficulties connected
with small or ephemeral undertakings. Instead, it is proposed that registration should
lie entirely within the discretion of the firm or partner concerned; but, following the
English precedent, any firm which is not registered will be unable to enforce its claim
against third parties in the civil court; and any partner who is not registered will be
unable to enforce his claims either against third parties or against fellow partners.”
It will be noticed that the above extract refers to the English precedent which is partly not
followed and which is partly followed. We shall be referring to the said English precedent
shortly but before we do so, we have also to refer to paras 18 and 19 of the said Report.

18. The Report states in paras 18 and 19 as follows:
    18. Once registration has been effected the statement recorded in the register
    regarding the constitution of the firm will be conclusive proof of the facts therein
    contained against the partners making them and no partner whose name is on the
    register will be permitted to deny that he is a partner – with certain natural and proper
    exceptions which will be indicated later. This should afford a strong protection to
    persons dealing with firms against false denials of partnership and the evasion of
    liability by the substantial members of a firm.
19. …On the other hand, a third party who deals with a firm and knows that a
    new partner has been introduced can either make registration of the new partner a
    condition for further dealings, or content himself with the certain security of the
    other partners and the chance of proving by other evidence, the partnership of the
    new but unregistered partner. A third party who deals with a firm without knowing of
    the addition of a new partner counts on the credit of the old partners only and will not
    be prejudiced by the failure of the new partner to register.
    Similarly, para 23 also refers to those who deal with the firm.
    
    19. The English precedent referred to in para 17, which has been not followed in part but
    followed in part in drafting Section 69(2) is the one contained by the Registration of Business
    Names Act, 1916. Section 7 of that Act refers to penalties for default in registration. As stated
    in the Report, the penalty part of that Act has not been introduced in India but the provisions
    of Section 8 creating disabilities in the way of the firm in default is adopted. Section 8 of the
    above English Act is relevant and it speaks of
    (T)he rights of that defaulter under or arising out of any contract made or entered
    into by or on behalf of such defaulter in relation to the business in respect to the
    carrying on of which particulars were required to be furnished” (see Halsbury
    Statutes, 3rd Edn., Vol. 37, p. 867).

The above provision clearly signifies that the right that is sought to be enforced by the
unregistered firm and which is barred must be a right arising out of a contract with a thirdparty defendant in respect of the firm’s business transactions.

20. The Business Names Act, 1985 has replaced the above Act of 1916 and Section 4 of
    the new Act refers to the “civil remedies for breach of Section 4”. It provides for dismissal of
    the action “to enforce a right arising out of a contract made in the course of a business” if the
    firm is not registered (see Halsbury Statutes, 4th Edn., Vol. 48, p. 101).
21. The above Report and provisions of the English Acts, in our view, make it clear that
    the purpose behind Section 69(2) was to impose a disability on the unregistered firm or its
    partners to enforce rights arising out of contracts entered into by the plaintiff firm with the
    third-party defendants in the course of the firm’s business transactions.
22. In Raptakos Brett and Co. it was clarified that the contractual rights which are sought
    to be enforced by the plaintiff firm and which are barred under Section 69(2) are “rights
    arising out of the contract” and that it must be a contract entered into by the firm with the
    third-party defendants. Majmudar, J. stated as follows:
    A mere look at the aforesaid provision shows that the suit filed by an
    unregistered firm against a third party for enforcement of any right arising from a
    contract with such a third party would be barred…. (emphasis supplied)
    From the above passage it is firstly clear that a contract must be a contract by the plaintiff
    firm not with anybody else but with the third-party defendant.
23. The further and additional but equally important aspect which has to be made clear is
    that the contract by the unregistered firm referred to in Section 69(2) must not only be one
    entered into by the firm with the third-party defendant but must also be one entered into by
    the plaintiff firm in the course of the business dealings of the plaintiff firm with such thirdparty defendant.
24. It will also be seen that the present defendants who are sued by the plaintiff firm are
    third parties to the 1st plaintiff firm. Section 2(d) of the Act defines “third parties” as persons
    who are not partners of the firm. The defendants in the present case are also third parties to
    the contract of dissolution dated 16-11-1974. Their mother, Kamla Devi was no doubt a party
    to the contract of dissolution. The defendants are only claiming a right said to have accrued to
    their mother under the said contract dated 16-11-1974 and then to the defendants. In fact, the
    said contract of dissolution is not a contract to which even the present 1st plaintiff firm or its
    partners or the 2nd plaintiff were parties. Their father Moolchand was a party and his right to
    the trademark devolved in the plaintiffs. The real crux of the question is that the legislature,
    when it used the words “arising out of a contract” in Section 69(2), it is referring to a contract
    entered into in course of business transactions by the unregistered plaintiff firm with its
    defendant customers and the idea is to protect those in commerce who deal with such a
    partnership firm in business. Such third parties who deal with the partners ought to be enabled
    to know what the names of the partners of the firm are before they deal with them in business.
25. Further, Section 69(2) is not attracted to any and every contract referred to in the
    plaint as the source of title to an asset owned by the firm. If the plaint referred to such a

contract it could only be as a historical fact. For example, if the plaint filed by the
unregistered firm refers to the source of the firm’s title to a motor car and states that the
plaintiff has purchased and received a motor car from a foreign buyer under a contract and
that the defendant has unauthorisedly removed it from the plaintiff firm’s possession, -it is
clear that the relief for possession against the defendant in the suit does not arise from any
contract which the defendant entered into in the course of the plaintiff firm’s business with
the defendant but is based on the alleged unauthorised removal of the vehicle from the
plaintiff firm’s custody by the defendant. In such a situation, the fact that the unregistered
firm has purchased the vehicle from somebody else under a contract has absolutely no bearing
on the right of the firm to sue the defendant for possession of the vehicle. Such a suit would
be maintainable and Section 69(2) would not be a bar, even if the firm is unregistered on the
date of suit. The position in the present case is not different.

26. In fact, the Act has not prescribed that the transactions or contracts entered into by a
    firm with a third party are bad in law if the firm is an unregistered firm. On the other hand, if
    the firm is not registered on the date of suit and the suit is to enforce a right arising out of a
    contract with the third-party defendant in the course of its business, then it will be open to the
    plaintiff to seek withdrawal of the plaint with leave and file a fresh suit after registration of
    the firm subject of course to the law of limitation and subject to the provisions of the
    Limitation Act. This is so even if the suit is dismissed for a formal defect. Section 14 of the
    Limitation Act will be available inasmuch as the suit has failed because the defect of nonregistration falls within the words “other cause of like nature” in Section 14 of the Limitation
    Act, 1963. (See Surajmal Dagduramji Shop v. Shrikisan Ramkisan.)
27. For all the reasons given above, it is clear that the suit is based on infringement of
    statutory rights under the Trade Marks Act. It is also based upon the common law principles
    of tort applicable to passing-off actions. The suit is not for enforcement of any right arising
    out of a contract entered into by or on behalf of the unregistered firm with third parties in the
    course of the firm’s business transactions. The suit is therefore not barred by Section 69(2).
28. For the aforesaid reasons, the appeal fails and is dismissed without costs. We should
    not be understood as having said anything on the merits of the case for we have confined
    ourselves to the allegations in the plaint as we are here only dealing with an application filed
    by the appellants under Order 7 Rule 11 CPC.