Jharkhand High Court
Maa Ambey Construction vs M/S Paul & Co on 5 June, 2025
Author: Rajesh Shankar
Bench: Rajesh Shankar
2025:JHHC:14484-DB
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Commercial Appeal No. 15 of 2024
1. Maa Ambey Construction, a partnership firm having its office at 72,
Pramathnagar, Parsudih, P.O. Tatanagar, P.S Parsudih, District East
Singhbhum represented through one of its partners Tapan Kumar
Barua, aged about 60 Years, son of Late M.L. Barua, resident of 72,
Pramathnagar, Parsudih, P.O. Tatanagar, P.S Parsudih, District East
Singhbhum.
2. Tapan Kumar Barua, aged about 60 Years, son of Late M.L. Barua,
resident of 72, Pramathnagar, Parsudih, P.O. Tatanagar, P.S Parsudih,
District East Singhbhum.
3. Smt. Sujata Barua, aged about 48 years, wife of Tapan Barua, resident
of 72, Pramathnagar, Parsudih, P.O. Tatanagar, P.S Parsudih, District
East Singhbhum.
... Plaintiffs/Appellants
Versus
1. M/s Paul & Co., a partnership firm having its factory and office at
Village Byangbil, P.O and P.S. Sundernagar, District- East
Singhbhum.
2. Smt. Meena Paul, widow of Late Narayan Paul.
3. Miss Atreyee Paul, daughter of Late Narayan Paul.
Respondent No. 2 and 3 are residents of Village Byangbil, P.O. and
P.S. Sundernagar, District East Singhbhum and also at Shuili Road,
Pramathnagar, P.O. Tatanagar, P.S. Parsudih, District East
Singhbhum.
... Defendants/Respondents
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CORAM: HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE RAJESH SHANKAR
---------
For the Appellants: Mr. Indrajit Sinha, Advocate
Mr. Ankit Vishal, Advocate
For the Respondents: Mr. Ashok Kumar Yadav, Advocate
Mr. Anish Kumar Mishra, Advocate
Mr. Aditya Kumar, Advocate
---------
Reserved on: 06.05.2025 Pronounced on: 5/06/2025
Per M.S. Ramachandra Rao, C.J.
1. This Commercial Appeal is filed by the appellants challenging the
judgment dt. 29.08.2024 in Commercial Suit No.05 of 2022 of the District
Judge-III, East Singhbhum at Jamshedpur.
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2. The appellants are plaintiffs in the suit.
3. They filed the said suit against the respondents for recovery of a
sum of Rs.1.5 Crores with pendente lite interest on prevailing rate of
interest till realization of the principal amount.
4. The appellant no.1/plaintiff no.1 is an unregistered partnership firm,
whereas, appellant nos.2 and 3/plaintiff nos.2 and 3 are its partners. The
said firm is in the business of real estate as developer and promoter within
the town of Jamshedpur.
5. Respondent No.1/ Defendant no.1 is also a firm having its factory
premises at Village Byangbil, P.S. Sundernagar, District East Singhbhum.
Defendant Nos.2 and 3 are running the business of manufacturing in the
name & style of the 1st defendant-firm.
6. Henceforth, the parties shall be referred to as they have been
arrayed in the Trial Court.
Case of the plaintiffs
7. According to the plaintiffs, they knew the defendants for a long
time and Late Narayan Paul, was the husband of the 2nd Defendant and
father of the 3rd Defendant and they were also the partners of the 1st
defendant-firm. During his lifetime, he along with defendant nos.2 and 3
requested to the plaintiffs to extend financial assistance of Rs.1.5 Crores
for running the business of the 1st defendant-firm smoothly as at that time
there was a financial crisis and the plaintiffs agreed to provide the said
financial assistance subject to the following terms and conditions:-
(i) According to the plaintiffs, they were to pay Rs.1.5 Crores which
will be treated as capital contribution in the 1st defendant-
partnership firm till the defendants submit valuation certificate of
the assets of the 1st defendant to the plaintiffs; and after submission
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of the valuation certificate, the defendants were to induct the
plaintiffs as partners of the 1st defendant-firm to the extent of
amount of financial assistance of Rs.1.5 Crores.
(ii) According to the plaintiffs, it was also agreed by the defendants that
they would pay profit of the 1st defendant to the plaintiffs in the
shape of 1% interest per month against Rs.1.00 Crore and 2% on
the rest amount of Rs.50,000/-.
8. Plaintiffs contend that the defendants undertook to complete
assessment and the valuation of assets of the 1st defendant within two
months from the date of payment of the said sum of Rs.1.5 Crores; the
said sum was paid in three installments by 06.01.2020 and a written
Memorandum of Understanding dt. 06.01.2020 was executed by all the
partners of 1st defendant and plaintiff no.2 as partner of plaintiff no.1; but
thereafter the defendants did not comply with the terms and conditions of
the financial assistance agreed in the Memorandum of Understanding dt.
06.01.2020, and deprived the plaintiffs of the said amount with an
intention to misappropriate it; and defendant nos.2 and 3, in a surreptitious
manner, on the death of Narayan Paul, brought into existence a Deed of
Reconstituted Partnership on 30.03.2021.
9. Plaintiffs have contended that when they demanded the defendants
to refund the amount, but they kept on deferring it and they also came to
know that the defendants are contemplating to dispose off the assets of
defendant no.1.
10. Thereafter, plaintiffs issued a demand notice dt. 16.11.2021
requesting refund of the sum of Rs.1.5 Crores, but the defendants gave a
vexatious reply on 29.11.2021 and so the plaintiffs had to file the said suit.
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Case of the Defendants
11. Defendants 2 and 3 filed an application under Section 69 of the
Partnership Act read with Order 14 Rule 2 C.P.C. seeking framing of a
preliminary issue, i.e., "Whether the suit is hit by the provisions contained
under Section 69 of the Partnership Act, 1932, and is liable to be
dismissed as not maintainable?"
Findings of the Commercial Court
12. Thereafter, on 07.08.2024 a preliminary issue on that aspect was
framed as to whether the suit was hit by Section 69 of the Partnership Act.
13. Evidence was adduced on behalf of the plaintiffs and plaintiff no.2,
who was examined on the plaintiffs' behalf. He stated that plaintiff no.1
was not registered on the date of filing of the suit but during the pendency
of the suit it was registered with the Registrar of Firm, Jharkhand under a
Registration No.298 of 2024 dt. 11.07.2024. He also contended that even
the defendants were not a registered firm.
14. The defendants did not adduce any evidence.
15. The Commercial Court considered the submissions of both the
parties and held that since the plaintiff no.1-firm is an unregistered firm
and the suit is for enforcement of a contract entered into between the
parties, plaintiff no.1-firm was incompetent to institute any suit in view of
the bar contained in Section 69(2) of the Partnership Act, 1932.
16. After noting that both the 1st plaintiff and the 1st defendant are
unregistered firms, it held that the transaction of lending of money of the
sum of Rs.1.5 Crores was not a friendly loan and the amount was lent as
capital contribution in the partnership firm till the defendants submit
valuation certificate of assets within two months from the date of making
of the payment of the said sum, and thereafter the defendants was to admit
the plaintiffs as partners of the 1st defendant-firm to the extent of amount
of financial assistance of Rs.1.5 Crores as per Memorandum of
Understanding dt. 06.01.2020. It is also held that though there are three
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exceptions provided in Section 69(3) of the Partnership Act, 1932, the
plaintiffs' suit did not fall in any of the three exceptions.
17. It also held that subsequent registration of the plaintiffs' firm did
not revive the suit or make it competent at least from the date on which
such registration pending the suit was obtained by the plaintiffs' firm and
that the judgment of the Supreme Court in Raptakos Brett And Co. Ltd.
Vs. Ganesh Property1 cited by the plaintiffs did not decide the said issue.
It also held that the judgment of the Supreme Court in Delhi
Development Authority Vs. Kochhar Construction Works and
Another2 cited by the defendants has held that subsequent registration of
the firm will not be of any avail.
18. The suit was accordingly dismissed on the said preliminary issue.
Findings of this Court
19. Challenging the same, this appeal is filed.
20. Counsel for the appellants sought to contend that the view taken by
the Commercial Court is incorrect and that, though the transaction in
question was with a third party/defendants, to apply the bar under Section
69(2) of the Partnership Act, 1932, there must be a contract entered into
by the plaintiffs' firm in the course of its business dealings with such third
party-defendant; that, admittedly the 1st plaintiff-firm as per the averment
in the plaint was a firm doing business of real estate development as
developer and promoter, while the 1st defendant-firm was in the
manufacturing business; the capital contribution made by the 1st plaintiff-
firm in the 1st defendant-firm was not for doing real estate business, and
therefore, cannot be said to be in the course of business dealings of the
plaintiffs' firm with the defendants; and, therefore, the bar contained in
Section 69(2) cannot apply.
21. Counsel for the respondents supported the judgment of the
Commercial Court.
(1998) 7 SCC 184
(1998) 8 SCC 559
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22. No doubt, in the judgment of Raptakos Brett And Co. Ltd. (supra
1), it was held in para-9 that the suit filed by unregistered firm against a
third party for enforcement of any right arising from a contract with such a
third party would be barred, but in another judgment of Haldiram Bhujia
Wala and Another Vs. Anand Kumar Deepak Kumar and Another3
an additional requirement for the application of the bar contained in
Section 69(2) of the Partnership Act, 1932, was also added, i.e., it must
also be one entered into by the plaintiff-firm in the course of the business
dealings of the plaintiff firm with such third-party defendant.
23. That was a case of a trade-mark dispute arising under the Trade
Marks Merchandise Marks Act, 1958. The Supreme Court further held:
"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
(2000) 3 SCC 250
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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.
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).
24. More clarity on the aspect is thrown by a recent judgment of the
Supreme Court in Shiv Developers Vs. Aksharay Developers and
Others4.
Appellant in that case was an unregistered firm engaged in the
business of construction of buildings.
The appellant-plaintiff contended that on 26.11.2013, the
appellant and Respondents 2 and 3 purchased an open land through a
registered sale deed in which appellant's share was 60% and that OF
Respondents 2 and 3 were 20% each. It was further averred that on
22.04.2014, a new partnership firm by name "Aksharay Developers" was
formed with four partners, one of whom was a partner and administrator
(2022) 13 SCC 772
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of the appellant-firm and the Respondents 2, 3 and 4, for the purpose of
the project relating to the suit property and an MoU was signed by the
partners on the date of incorporation of the firm ; and it was agreed in the
MoU that from the income which may accrue from the project, a fixed
sum of Rs.One Crore would be paid to the partners of the appellant-firm,
with 5 to 10% on the profit accruing upon the completion of the project.
Appellant further contended that on 23.02.2015, Respondents 2 and 3
constituted another firm under the same name and style as "Aksharay
Developers" but without including the partners of the appellant-firm and
Respondent 4 as partners. This firm was the Respondent No.1 in the
appeal before the Supreme Court.
It was contention of the appellant before the Supreme Court that
the new firm with the same name "Aksharay Developers" was constituted
and got registered by Respondents 2 and 3 clandestinely and fraudulently;
and on the very next day after the constitution of the 1st Respondent firm,
Respondents 2 and 3 got executed a sale deed, whereby the 60% share of
the appellant in the suit property was purchased by the new firm from the
partner of the appellant-firm acting on its behalf. It was also alleged that
the cheques issued in favour of the appellant towards sale consideration
were dishonoured.
Therefore, the appellant alleged that Respondents 2 and 3 had
obtained the suit property through a well-hatched conspiracy and without
even discharging the sale consideration; and as per the terms agreed upon
in the sale deed dt. 24.02.2015, if the cheques issued towards sale
consideration were not honoured, the sale deed shall be deemed to be full
and void. The appellant sought perpetual injunction in the suit along with
a declaration of the sale deed dt. 24.02.2015 as null and void.
The Respondents appeared and filed an application for rejecting
the claim of the appellant on the ground that the appellant firm was not a
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registered firm and, therefore, the suit is barred under Section 69 of the
Partnership Act.
The Trial Court rejected the contentions urged on behalf of the
respondents holding that the sale document was not proved to be prima
facie pertaining to an agreement/contract relating to a business of the
partnership firm.
But the High Court in a revision filed against the said order
allowed the application of the 1st Respondent on the ground that the
plaintiff being an unregistered firm cannot seek any relief against third
parties and the suit was therefore not maintainable.
The Supreme Court overturned the judgment of the High Court.
The Supreme Court held that the business of the appellant firm was the
business of construction of buildings but the transaction in question was
not the one entered into by appellant firm during the course of its business
(i.e. of building construction); and it had been an independent transaction
of sale of the firm's share in the suit property to the contesting defendants.
Consequently, the bar of Section 69(2) is not attracted in relation to the
said transaction.
One of the reasons granting of the relief in that case was that
subject suit is clearly one where plaintiff seeks common law remedies
with allegations of fraud and misrepresentation as also of statutory rights
of injunction and declaration in terms of provisions of Specific Relief Act,
1963, apart from the Transfer of Property Act, 1882, while alleging want
of sale consideration and, therefore, the bar under Section 69(2) of the
Partnership Act does not apply.
The Supreme Court reiterated that the principles laid down in
Raptakos Brett (supra 1) and Haldiram Bhujiawala (supra 3) that to
attract the bar under Section 69(2) of the Partnership Act, the contract in
question must be one entered into by the firm with the third-party
defendant and must also be the one entered into by the plaintiff firm in the
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course of its business dealings. It also referred to another judgment of the
Supreme Court in Purushottam Vs. Shivraj Fine Arts Litho Works5
wherein the Supreme Court had also held that if the rights sought to be
enforced does not arise from a contract to which unregistered firm is a
party or is not entered into in connection with the business of the
unregistered firm with a third party, the bar under Section 69(2) will not
apply.
25. In view of the judgment of the Supreme Court in Shiv Developers
(supra 4) and the principles laid down therein (that if the rights sought to
be enforced arises from a contract which is not entered into in connection
with the business of the unregistered form with a third-party, the bar of
Section 69(2) will not apply) , and since in the instant case the business of
the 1st plaintiff-firm is real estate development and the money in question
was not given to the 1st Defendant for the said business, but was in the
nature of a financial assistance, we are of the opinion that the bar under
Section 69(2) of the Partnership Act, 1932, would not apply and the suit
filed by the plaintiff is not barred under Section 69(2) of the Act for the
said reasons.
Conclusion and directions
26. Accordingly, this Commercial Appeal is allowed and the judgment
of the Commercial Court in Commercial Suit No.05 of 2022 on the file of
District Judge-III, East Singhbhum, Jamshedpur, is set aside; the said suit
is restored to the file of the said Court; and the said Court is directed to
decide the suit in accordance with the law without going into the question
of bar of suit under Section 69(2) of the Partnership Act, 1932. No costs.
(M.S. Ramachandra Rao, C.J.)
(Rajesh Shankar, J.)
N.A.F.R.
Manoj/-
(2007) 15 SCC 58
