Jayamma Xavier vs Registrar Of Firms
2021 Latest Caselaw 11254 Ker

WP(C).No.25741 OF 2020(P)
                                  1

            IN THE HIGH COURT OF KERALA AT ERNAKULAM

                               PRESENT

                 THE HONOURABLE SMT. JUSTICE P.V.ASHA

   THURSDAY, THE 08TH DAY OF APRIL 2021 / 18TH CHAITHRA, 1943

                      WP(C).No.25741 OF 2020(P)


PETITIONER/S:

                JAYAMMA XAVIER
                AGED 58 YEARS
                W/O.XAVIER ZACHARIAS, VAZHAYIL, MOONNILAVU P.O.
                KOTTAYAM 686 586.

                BY ADV. SRI.S.MOHAMMED AL RAFI

RESPONDENT/S:

                REGISTRAR OF FIRMS
                VANCHIYOOR, THIRUVANANTHAPURAM 695 035.

                R1 BY GOVERNMENT PLEADER

OTHER PRESENT:

                SMT.PRINCY XAVIER, GP

     THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
24.03.2021, THE COURT ON 08.04.2021 DELIVERED THE FOLLOWING:
 W.P.(C) No.25741 of 2020                                                       CR

                                P.V.ASHA, J.
                     ---------------------------------
                          W.P.(C) No.25741 of 2020
                    ----------------------------------
                   Dated this the 8th day of April, 2021


                                            JUDGMENT

Ext.P2 order passed by the Registrar of Firms declining

registration of a partnership firm constituted by the

petitioner is under challenge in this Writ Petition. The

reason stated in Ext.P2 is that a LLP cannot be a partner of

a firm.

2. Petitioner claims to be the designated partner of

Sleeplock LLP which is a limited liability partnership

registered under the Limited Liability Partnership Act,

2008 (for short "LLP Act"). The Sleeplock LLP formed a

partnership firm along with one Gourav Raj in the name and

style of M/s.Morning Owl Sleep Solutions. A partnership

deed was executed accordingly on 18.09.2020. The said deed

-Ext.P1 was submitted for registration before the

respondent. The respondent rejected the same on the ground

that LLP cannot be a partner of a firm. Petitioner has

stated that the partnership is formed in order to carry out

the business of processing, manufacturing, trading,

importing, exporting, distribution and sales of furnished W.P.(C) No.25741 of 2020

and semi-furnished mattress, latex form cores, pillows,

rubberised coir, coconut rubber, other rubber and coir

products, through retail outlets and through online

platforms.

3. Petitioner claims that a partnership along with an

LLP is not prohibited under the Partnership Act and that

LLP is a legal entity, as defined under the LLP Act and it

is separate from its partners. It has perpetual succession

and is having a common seal. Under Section 14 it is capable

of suing and being sued, on its registration. It is also

capable of acquiring, developing or disposing of movable or

immovable properties. Therefore, petitioner claims that the

LLP is liable to be treated as a person and there cannot be

any objection for registering a partnership with an LLP

which is a person. It is stated that the said LLP has been

given Ext.P4 Certificate of Incorporation.

4. The respondent has filed a statement reiterating his

stand in the impugned order. It is stated that some of the

provisions of the Limited Liability Partnership Act 2008

are inconsistent with that of the Indian Partnership Act,

1932, pertaining to the liability. According to the

respondent, Section 25, 26 and 49 of the Indian Partnership

Act, 1932 makes the partners to be jointly and severally W.P.(C) No.25741 of 2020

liable with all the other partners and also severally

liable for the acts of the firm, of which such person is a

partner. At the same time it is stated that under Section

28 of the LLP Act, 2008 the provisions regarding the

liability of the partnership firm is restricted to the

contents to the LLP agreement ie. under the LLP Act, the

liability of the partner is restricted only to the extent

provided in the agreement; such a provision runs contrary

to Section 25 and 49 of the Indian Partnership Act. It is

also pointed out that under LLP foreign investment is

permissible whereas it is not permissible under the

Partnership Act.

5. The learned Counsel for the petitioner relied on the

judgment of this Court in M.M.Pulimood vs. Registrar of

Firm: 1984 KLT 420 in support of his contention that the

rejection in Ext.P2 is illegal and without understanding

the provisions contained in the LLP Act.

6. Relying on the judgment of the apex court in

Dulichand Laxminarayanan vs. Commissioner of Income Tax,

Nagpur : AIR 1956 SC 354 the learned Government Pleader

argued that a firm cannot enter into a partnership with

LLP. It is their case that though LLP is a kind of

partnership having the nature of company the provisions in W.P.(C) No.25741 of 2020

the LLP are completely frustrating the purport of Section

25 and 49 of the Indian Partnership Act.

7. Heard Adv.Mohammed Al Rafi, learned counsel for the

petitioner and Smt.Princy Xavier, learned Government

Pleader.

8. The question to be considered is whether LLP can be

treated as a person which can be permitted to form a

partnership with an individual. In the judgment in

M.M.Pulimood's case (supra) relied on by the petitioner, a

learned Single Judge of this Court was considering a case

where a partnership deed was executed with a Private

Limited Company, incorporated by the Registrar of

Companies, as one of the partners. After analyzing the

provisions contained in Section 4 of the Partnership Act as

well as the definition of person in Section 3 (42) of the

General Clauses Act, this Court found that there was no

impediment in executing a partnership with a Private

Limited Company incorporated under the Companies Act which

comes under the definition of Person.

9. At the same time in the judgment in Duli Chand

Laxmi Narayanan's case (supra) relied on by the learned

Government Pleader the Honourable Apex Court after

analyzing the provisions contained in Section 26A of the W.P.(C) No.25741 of 2020

Income Tax Act as well as the provisions contained in the

Partnership Act and the definition of 'person' in Section

3(42) of the General Clauses Act arrived at a conclusion

that a partnership cannot be formed between 3 firms, a

Hindu Undivided Family and an individual. It was found that

a firm is not a legal entity.

10. When the judgment in Duli Chand Laxmi Narayanan's

case (supra) was rendered or when this Court rendered the

judgment in Pulimood's case the Limited Liability

Partnership Act had not come into force and hence there was

no occasion to consider whether LLP can be a partner in a

firm. Therefore, in order to examine the contentions raised

by the learned Government Pleader it is necessary to have a

look at the relevant provisions contained in the Indian

Partnership Act, 1942 as well as in the LLP Act. Section 4

of Indian Partnership Act defines "partnership", "partner",

"firm" and "firm name" which reads as follows:

4. Definition of "partnership", "partner", "firm" and "firm name".--"Partnership" is the relation between persons who have agreed to share the profit of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually "partners" and collectively "a firm" and the name under which their business is carried on is called the "firm name".

11. It is therefore necessary to find out the W.P.(C) No.25741 of 2020

definition of 'person'. 'Person' is not defined either

in the Partnership Act or in the LLP Act. Section 3(42)

of the General Clauses Act, 1897 reads as follows:

3. Definitions.--In this Act, and in all General Acts and Regulations made after the commencement of this Act, unless there is anything repugnant in the subject or context,--

xxxxxxxxxxxxxxx (42) "person" shall include any company or association or body of individuals, whether incorporated or not;

xxxxxxx

12. A partnership can be entered into between two

persons. Such persons can be an incorporated body of

individuals. LLP is a body corporate. It can be said to be a

person, as defined in Section 3(42) of the General Clauses

Act, 1897 in case there is no repugnancy in the subject or

context. In order to examine the same it is necessary to

have a look at some more provisions in both the Acts viz

Partnership Act and LLP Act.

13. The definition of body corporate, LLP and LLP

agreement are given under clause (d), (n) and (o) of

Section 2 of the LLP Act as follows:

2. Definitions.--(1) In this Act, unless the context otherwise requires,--

W.P.(C) No.25741 of 2020

xxxxxxxxxxxxx

(d) "body corporate" means a company as defined in Section 3 of the Companies Act, 1956 (1 of 1956) and includes--

(i) a limited liability partnership registered under this Act;

(ii) a limited liability partnership incorporated outside India; and

(iii) a company incorporated outside India, but does not include--

xxxxxxx

(n) "limited liability partnership" means a partnership formed and registered under this Act;

(o) "limited liability partnership agreement" means any written agreement between the partners of the limited liability partnership or between the limited liability partnership and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that limited liability partnership;

14. A Limited liability partnership shall be a

body corporate, as per Section 3 which reads as

follows.

3. Limited liability partnership to be body corporate.--(1) A limited liability partnership is a body corporate formed and incorporated under this Act and is a legal entity separate from that of its partners.

(2) A limited liability partnership shall have perpetual succession.

(3) Any change in the partners of a limited liability partnership shall not affect the existence, rights or liabilities of the limited liability partnership.

The provisions of the Indian Partnership Act, 1932 (9 of

1932) shall not apply to a limited liability partnership. W.P.(C) No.25741 of 2020

But as per Section 4 of the Partnership Act, partnership is

the relation between persons who have agreed to share the

profits of a business carried on by all or any of them

acting for all.

15. In the present case an individual agreed with an

LLP to share the profits of the business. LLP is a body

corporate, independent legal entity having a common seal

and perpetual succession, capable of suing and of being

sued. Once a partnership is formed the LLP, which is a

partner would have to abide by the partnership Act. The

respondent's objection is based on the liability of the

partners of LLP, stating that the same is confined to the

terms in the agreement. The extent of liability of limited

liability partnership given in Section 27 reads as follows:

27. Extent of liability of limited liability partnership.--(1) A limited liability partnership is not bound by anything done by a partner in dealing with a person if--

(a) the partner in fact has no authority to act for the limited liability partnership in doing a particular act; and

(b) the person knows that he has no authority or does not know or believe him to be a partner of the limited liability partnership. (2) The limited liability partnership is liable if a partner of a limited liability partnership is liable to any person as a result of a wrongful act or omission on his part in the course of the business of the limited liability partnership or with its authority.

(3) An obligation of the limited liability W.P.(C) No.25741 of 2020

partnership whether arising in contract or otherwise, shall be solely the obligation of the limited liability partnership.

(4) The liabilities of the limited liability partnership shall be met out of the property of the limited liability partnership.

16. Extent of liability of a partner in an LLP is given

under Section 28 as follows:

28. Extent of liability of partner.--(1) A partner is not personally liable, directly or indirectly for an obligation referred to in sub-section (3) of Section 27 solely by reason of being a partner of the limited liability partnership.

(2) The provisions of sub-section (3) of Section 27 and sub-section (1) of this section shall not affect the personal liability of a partner for his own wrongful act or omission, but a partner shall not be personally liable for the wrongful act or omission of any other partner of the limited liability partnership.

17. Now it is necessary to have a look at the provisions contained

in Section 25, 26 and 45 of the Partnership Act which read as follows:

25. Liability of a partner for acts of the firm.-- Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.

26. Liability of the firm for wrongful acts of a partner.-- Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner.

45. Liability for acts of partner done after dissolution.--(1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if W.P.(C) No.25741 of 2020

done before the dissolution, until public notice is given of the dissolution:

Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done after the date on which he ceases to be a partner.

(2) Notices under sub-section (1) may be given by any partner.

18. The liability of partners of LLP and liability of

the LLP as a partner under the Partnership Act would be

different. The liability of partners in an LLP cannot have

any relevance when the LLP itself becomes a partner, when

it would be bound by the provisions in the Partnership Act.

The liability of the LLP would be as in the case a company

which joins a firm after entering into a partnership.

19. In the judgment in Dhuli Chand's case, the Apex

Court was considering a case where the Income Tax Officer

rejected an application submitted under Section 26A of the

Income Tax Act on the ground that the deed of partnership

consisted of three firms, one Hindu undivided family

business and one individual. Apex Court found that a firm

cannot be treated as a person which can enter into a

partnership with other firms or individuals or Hindu

Undivided Family. It was held as follows:

"In our opinion, the word "persons" in Section 4 of W.P.(C) No.25741 of 2020

the Indian Partnership Act, which has replaced Section 239 of the Indian Contract Act, contemplates only natural or artificial i.e. legal persons and for the reasons stated above, a firm is not a "person" and as such is not entitled to enter into a partnership with another firm or Hindu undivided family or individual. In this view of the matter there can arise no question of registration of a partnership purporting to be one between three firms, a Hindu undivided family business and an individual as a firm under Section 26-A of the Act.

20. Section 4 of the Partnership Act permits

Constitution of a firm or partnership between one or more

persons. In this case the partnership deed was executed

between an individual and an LLP which is a body corporate

having a legal entity and coming within the definition of

"person". The individual liability of the partners of LLP

would not be relevant when the LLP itself would have

liability independent of the liability of the partners.

Therefore, the difference in the provisions under the

Partnership Act relating to liability of the firm or the

individual partners would not stand in the way of

constitution of a partnership with an LLP. Hence I find that

LLP cannot have a disqualification from entering into a

partnership with an individual or other persons. The

judgment in Pulimood's case (supra) where the Private

Company was held entitled to be a partner would apply in the

present case though the LLP is not a private company but is W.P.(C) No.25741 of 2020

a legal entity.

21. Therefore, Ext.P2 order is set aside. There shall

be a direction to the respondent to reconsider the request

of petitioner for registration and to take appropriate

action on the same within a period of one month from the

date of receipt of a copy of the judgment.

The Writ Petition is accordingly allowed.

Sd/-

                                                        P.V.ASHA

rkc                                                      JUDGE
 WP(C).No.25741 OF 2020(P)




                            APPENDIX
PETITIONER'S/S EXHIBITS:

EXHIBIT P1           TRUE COPY OF THE PARTNERSHIP DEED       DTD.

18/9/2020 SUBMITTED FOR REGISTRATION.

EXHIBIT P2 TRUE COPY OF THE ONLINE COMMUNICATION RECEIVED BY THE PETITIONER REJECTING HER APPLICATION.

EXHIBIT P3 TRUE COPY OF THE LIMITED LIABILITY PARTNERSHIP AGREEMENT DTD. 4/9/20 OF SLEEPLOCK LLP.

EXHIBIT P4 TRUE COPY OF THE CERTIFICATE OF INCORPORATION ISSUED TO THE SLEEPLOCK LLP ISSUED BY REGISTRAR OF COMPANIES, MINISTRY OF CORPORATE AFFAIRS.