ORDER
H. D. Patel, J.
1. A decree for Rs. 8,92,815.14 was passed against the original defendants Nos. 1 to 9 holding them jointly and severally liable to make payment to the plaintiffs by judgment delivered on 29-4-1987 in Special Civil Suit No. 52 of 1980 by the Third Joint Civil Judge (Senior Division), Nagpur. Feeling aggrieved thereby the present appeal is filed by the original defendants Nos. 1 to 3.
2. The facts relevant for the purpose of deciding the appeal are as follows:
The plaintiff No. 1 carried on the business as whole-sale paper merchant under the name and style 'Dinesh Paper Mart' being the sole proprietor. The said business is now taken over by the partnership also in the name of 'Dinesh Paper Mart' with all its existing assets and liabilities with effect from 1-1-1980. The suit claim being one of the assets of the partnership firm it was joined as plaintiff No. 2. After formation of the partnership the plaintiff No. 1 Purushottam became the partner of the firm. The plaint is signed by plaintiff No. 1 as an individual as well as the partner of the firm.
3. The defendant No. 1 was a registered partnership firm of which the defendants Nos. 2 to 9 were the partners. In a suit for dissolution of partnership and accounts, registered as Special Civil Suit No. 9 of 1974, the defendant No. 10 was appointed as a Receiver to take possession of the properties and run the business of the firm. In the year 1978 the defendant No. 2 was appointed to work as a Receiver in place of defendant No. 10. This order was challenged in A.O. No. 20 of 1978 in this Court. The defendant No. 11 came to be appointed as a Joint Receiver in addition to defendant No. 2, Dueto refusal by the defendant No. 11 to act as a Joint Receiver, the defendant No. 12 came to be appointed as a Joint Receiver in his place. At the relevant time the defendant No. 2 and the defendant No. 12 were in management of the firm.
4. The defendant No. 1-firm purchased goods from the plaintiff on credit. The purchases made prior to the appointment of Receivers, that is till 20-3-1974, were fully paid up. The successive Receivers appointed by the Court purchased the goods from the plaintiffs for business of the defendant No. 1 on credit from time to time. A Khata in the name of the firm was maintained by the plaintiffs. They also made payments from time to time and those payments were also entered in the Khata. Every year on 31st December the outstandings standing in the name of the defendant No. 1 used to be carried forward. As per entries in the Khata, the balance due from the defendant No. 1 as on 31-12-1974 was Rs.4,518/-. Such balances in the year 1975 was Rs. 88,318.25, in the year 1976 was Rs. 3,66,486.12, in the year 1977 was Rs. 4,44,813.29, in the year 1978 was Rs. 5,96,152.26 and in the year 1979 the total outstandings were to the tune of Rupees 6,22,713.06 which the plaintiffs claimed in the suit. Interest was also claimed at the agreed rate of 18% per annum on the balance outstanding for more than seven days.
5. The defendant No. 10 contested the claim by filing the written statement. The defendants Nos. 1 and 2 adopted the written statement filed by the defendant No. 8, who also opposed the claim. Others were proceeded ex parte. The defendants Nos. 1, 2 and 8 denied the entire claim of the plaintiffs. In no case they contended that they could be held personally liable. Even defendant No. 10 did not accept any personal liability. The contesting defendants, however, denied that the plaintiff firm is registered under the Partnership Act and the plaintiff No. 1 is one of the partners.
6. The learned trial Court on the basis of evidence adduced decreed the plaintiffs' suit to the extent mentioned above. One of the issues answered by the learned trial Courtrelated to the registration of the plaintiff No. 2 as a firm under the Indian Partnership Act. Relying upon Exh. 81 which is the certificate of registration of the firm, it was held that the firm was registered under Section 58(1) of the Indian Partnership Act. Aggrieved by the judgment and decree, the present appeal is filed.
7. The question raised in this appeal is about the bar of Section 69(2) of the Indian Partnership Act according to which the very institution of the suit is prohibited unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm. It was urged on behalf of the appellants (defendants Nos. 1, 2 and 3) that the firm was not registered on the date of filing of suit and its subsequent registration will not cure the defect and, therefore, the suit itself is not maintainable.
8. It is not in dispute that the 'Dinesh Paper Mart' a partnership firm came into existence on 1-1-1980. Application for registration is made on 14-1-1980 as can be seen from Exh. 80. The suit was filed on 31-3-1980. The registration of the firm was granted on 29th November, 1980. Therefore, the firm was not registered on the date the suit was filed.
9. It would be worth-while to reproduce Section 69(2) of the Indian Partnership Act, which deals with the effect of non-registration. It reads as under:
'69(2). No suit to enforce a right arising from a contract shall be instituted in a court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.'
A bare reading makes it abundantly clear that two conditions must be fulfilled before a suit could be validly instituted by or on behalf of the firm and those conditions are that -- (1) the firm is registered and (2) the persons suing are or have been shown in the Register of Firms as partners in the firm. Non-fulfilment of either of the conditions is fatal to the suit. This Court as well as the Apex Court had various occasions to consider Sec. 69(2) of the Indian Partnership Act and the recentones can be cited in order to show how the provision was construed. In Gandhi and Co. v. Krishna Glass Pvt. Ltd., AIR 1987 Bom 348, it was held that the suit filed by a partnership firm must fail, if the name of one of the partners has not been shown in the Register of Firms on the date of filing of the suit. In Shreeram Finance Corporation v. Yasin Khan, : [1989]3SCR484 , the suit was filed by a registered firm, but there was a change in its constitution. Two of the partners shown in the Register of Firms retired, one new partner was added and minors admitted to the benefit of the firm. The suit was filed by the firm after change in constitution, but before change was notified to the Registrar. The suit was held to be not maintainable as the current partners on the date of the suit were not shown in the Register of Firms. In an earlier case in Commissioner of Income-tax, Andhra Pradesh, Hyderabad v. Jayalakshmi Rice and Oil Mills Contractor Co., : [1971]79ITR549(SC) , it is ruled that Section 58 of the Indian Partnership Act is not to be read in isolation and has to be considered along with the scheme of other provisions of the Act, namely Section 59 and Section 69. The latter section may not have a direct bearing, but it throws light on what was contemplated by the Legislature, with regard to the point of time when the firm would be regarded as registered. The said ruling then proceeds to endorse the view taken by the Kerala High Court in Kerala Road lines Corporation v. The Commissioner of Income-tax, Kerala, : [1964]51ITR711(Ker) . If expressed the view that reading Sections 58 and 59 of the Indian Partnership Act together a firm cannot be said to be registered when the statement prescribed by Section 58 and the required fee are sent to the Registrar and that registration of the firm is effected only when the entry of the statement is recorded in the Register of Firms and the statement is filed by the Registrar as provided by Section 59. Considering the aforesaid case laws there is no doubt left that the suit filed by or on behalf of the firm which is not registered and the persons suing have not been shown in the Register of Firms as partners in the firm is not maintainable.
10. The counsel for the respondent Nos. 1 and 2 did not enter into the aforesaid controversy, but contended that in the aforesaid situation, the plaintiff No. 2 may not be entitled to the decree. It was further urged that upon reading the averments in the plaint the goods were supplied by Purushottam Sitaramji Khandelwal in his capacity as a proprietor of Dinesh Paper Mart and it was he alone who was entitled to a decree. In this background it was claimed that the decree passed by the learned trial Court could be maintained as against the plaintiff No. 1. In support thereof the learned counsel relied upon four decisions and they are (1) 1950 Nag LJ 250 : AIR 1951 Nag 143 Shriram Shaligram -- Shop at Dhamangaon v. Laxmibai alias Taibai; (2) AIR 1942Mad 634 Govardhandas Takersay v. M. Abdul Rahiman; (3) : AIR1974All473 Smt. Dropadi Devi v. Ramdas and (4) (1861) 14 Moo PC 160 Jose Joaquim Agacio v. Paul S. Forbes.
11. Upon reading of the plaint it is clear that whatever transactions which took place between the parties were prior to the formation of the partnership firm. What requires to be looked into is, whether after formation of partnership the exclusive right of the plaintiff No. 1 which he had in assets still survives. If the answer is in the affirmative, the plaintiff No. 1 is entitled to the decree and not otherwise. The aforesaid four cases relied upon by the respondents are of no relevance for determination of the issue in question and the law laid down therein are also inapplicable.
12. For deciding the aforesaid question the relevant provisions are to be found in Sections 14 and 15 of the Indian Partnership Act. Section 14 deals with the property of the firm. It stipulates that the property of the firm will include all property, rights and interest in property originally brought into the stock of the firm or acquired by purchase or otherwise, by or for the firm for purposes and in course of the business of the firm. Even goodwill of the firm is included therein. Of course, but all this is subject to the contract between the partners. The section also clarifies that the property rights and interest in the property acquired with money belonging to the firmare deemed to have been acquired for the firm. Section 15 provides that subject to the contract between the parties, the property of the firm shall be held and used by the partners exclusively for the purpose of business. It is necessary to look at the partnership deed in order to ascertain the nature of the contract inter se between the plaintiffs. Clause 10 thereof is relevant, which is as follows:
'ASSETS AND LIABILITIES : That the firm has taken over assets and liabilities of theerstwhile business carried on by party No. 1 of the First Part.'
The party No. 1 under the partnership deed is Purushottam Khandelwal. When the partnership was formed all the assets and liabilities of the proprietary concern of Purushottam Khandelwal stood transferred to the partnership firm. In the present case the recoveries to be made becomes an asset of the firm.
13. Before the point can be answered, it is necessary to deal with some of the case laws cited by the counsel for the appellants. In : (1969)3SCC555 Arjun Kanoji Tankar v. Shantaram, a contention was raised that inany event by virtue of Section 14 of thePartnership Act, all the assets with the aid ofwhich the business was carried on by theplaintiffs must be deemed in law to havebecome the partnership asset under the deedof partnership. It was held that, under Section 14 the property belonging to a person, inthe absence of any agreement to the contrary,does not on a person entering into a partnership with others, become the property ofthe partnership merely because it is used forthe business of the partnership. It will becomethe property of the partnership only if there isan agreement express or implied that theproperty was, under the agreement of partnership, to be treated as the property of thepartnership. This judgment was followed bythis Court in Nariman Aspandiar Irani v. Adi Merwan Irani, : AIR1989Bom362 .
14. In Sunil Siddharthbhai v. Commr. of Income-tax, Ahmedabad, Gujarat, : [1985]156ITR509(SC) , while considering the expression 'Transfer of Property' the Supreme Courthas observed as follows (at pp. 371-72 of AIR):
'In its general sense, the expression 'transfer of property' connotes the passing of rights in the property from one person to another. In one case there may be a passing of the entire bundle of rights from the transferor to the transferee. In another case, the transfer may consist of one of the estates only out of all the estates comprising the totality of rights in the property. In a third case, there may be a reduction of the exclusive interest in the totality of rights of the original owner into a joint or shared interest with other persons. An exclusive interest in property is a larger interest than a share in that property. To the extent to which the exclusive interest is reduced to a shared interest it would seem that there is a transfer of interest. Therefore, when a partner brings in his personal asset into the capital of the partnership firm as his contribution to its capital he reduces his exclusive rights in the asset to shared rights in it with the other partners of the firm. While he does not lose his rights in the asset altogether what he enjoys now is an abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital.'
It becomes apparent that when a partner brings in his personal asset into partnership firm as his contribution to the capital, an asset which originally was subject to his entire ownership of the partner, becomes now subject to the rights of other partners in it. In other words, the partner who brings in the asset reduces his exclusive right in the asset to the shared rights in it with other partners of the firm. We, therefore, cannot accept that the exclusive right of the plaintiff No. 1 Purushottam in the asset which is brought into partnership will survive even after formation of the partnership. The answer to the question posed would be in the negative. The decree passed cannot therefore be maintained in favour of the plaintiff No. 1 Purushottam.
15. Though we have taken the view as aforesaid, we are constrained to observe that such strict adherence to the interpretation of Section 69(2) of the Indian Partnership Actcauses unavoidable hardship to parties losing their bona fide claims. A view recently taken by the Andhra Pradesh High Court in Atmuri Mahalakshmi v. Jagadeesh Traders, : AIR1990AP288 is worth noting. In this case, the Court relies on another judgment of the Madras High Court in T. Varadarajulu Naidu v. Rajamanika Mudaliar AIR 1937 Mad 767. The gist of the decision is extracted below.
'It would be most inequitable for the plaintiffs to have their suit dismissed and he forced to file another after paying fresh court fee. The duty of the court is to administer justice according to principles of equity and good conscience and it cannot be said to do this when it dismisses a suit because the formality of withdrawing a plaint and filing a fresh one in the same terms was not complied with. The only rider that can be placed is that instead of directing the party to file a fresh suit, the plaint that has already been filed shall be treated as a valid one from the date of registration of the firm under Section 69(2) of the Partnership Act. The suit will be deemed to have been instituted on the date of the registration.... The limitation starts from the date of registration of the firm but not from the date of filing of the suit.'
We have added this paragraph only with 9 view to show that contrary views have been taken by other High Courts in the land.
16. In the result the appeal is allowed. The judgment and decree of the trial Court is set aside. The suit filed by the plaintiffs is dismissed, but in the circumstances, without any order as to costs. The costs of the appeal shall be borne by the parties as incurred.
17. Appeal allowed.