THE HON'BLE SRI JUSTICE N.R.L. NAGESWARA RAO APPEAL SUIT No.916 OF1997Dated:06-06-2013 K.Kotaoah and others .....Appellants Koganti Siva Prasad ...Respondents Counsel for the Appellants: Counsel for the Respondents: : ?.Cases Refferred:
1. Subs. By Act 3 of 1951, sec.3 and Sch., for ".Part A States and Part C States".. 2 Subs. By Act 3 of 1951, sec.3 and Sch., for ".such States".. 3 Subs. By Act 24 of 1934, sec.2 and Sch. I, for Section 55. 4 AIR1989SC17695 AIR1990MADRAS1986 AIR1994AP1577 AIR1990ALLAHABAD278 AIR (32) 1945 Madras 209 9 2000(6) SCC6592000(5) ALT39SC JUDGMENT
: Defendants in O.S.No.7 of 1991 on the file of the Court of the Principal Subordinate Judge, Tenali, are the appellants herein.
2. The suit was filed for recovery of a sum of Rs.2,64,789.14 ps.
3. The allegations in the plaint go to show that the 1st defendant is a firm situated with its Head Office at Pedanandipadu doing business in contract works. Defendants 2 to 7 are its partners and the 2nd defendant is the Managing Partner. The 2nd defendant is residing at Malladivari Street, Nazerpet, Tenali since more than 10 years. Defendants 2 to 7 are related to each other. The plaintiff, defendants 2 and 3, M.V.Swamy and Davvuluri Venkata Narayana formed into a partnership on 10.02.1972 to conduct and carry on contract works under the name and style of M/s.K.Kotaiah & Company and a partnership deed dated 01.03.1973 was executed between the partners. The said partnership was dissolved on 12.01.1979. As per the deed of dissolution executed between the said partners on 12.01.1979, accounts between partners were looked into and an amount of Rs.76,553/- became due to the plaintiff from the dissolved partnership by the date or dissolution. An amount of Rs.26,553/- was adjusted to the plaintiff on that day either by payment in cash or by adjustment of deposits. For the balance of Rs.50,000/- it was agreed that said amount has to be paid to the plaintiff on or before 30.06.1979 without interest and if it is not paid before 30.06.1979 the amount Rs.50,000/- has to carry interest at 18% from 01.07.1979. The amount was not paid before 30.06.1979 and so the plaintiff became entitled to claim interest at 18% from 01.07.1979.
4. After dissolution of the said firm on 12.01.1979 the defendants 2 to 7 herein formed into partnership firm under the name and style of the 1st defendant on 12.01.1979 and a partnership deed dated 24.12.1979 was executed between them constituting 2nd defendant as its Managing Partner. As per the terms and conditions of the said partnership deed, the 1st defendant firm and its partners have taken over the assets and liabilities of the erstwhile M/s.K.Kotaiah & Company of which the plaintiff, defendants 2 and 3, M.V.Swamy and Davvuluri Venkatanarayana were partners. Thus the 1st defendant firm and its partners, who are defendants 2 to 7, have become liable to discharge the above mentioned amount of Rs.50,000/- with 18% interest to the plaintiff. So the 2nd defendant as Managing Partner of 1st defendant firm executed a promissory note dated 12.01.1982 for an amount of Rs.72,500/- being the amount due to plaintiff from the 1st defendant firm by that date towards the above mentioned account, agreeing to repay the same with 18% interest on demand either to the plaintiff or his order. As the amount has not been repaid the 2nd defendant representing the 1st defendant firm executed a fresh promissory note in renewal of the prior promissory note dated 12.01.1982 for Rs.1,11,650/- agreeing to repay the same with 18% interest either to the plaintiff or his order. Even the said amount was not repaid to the plaintiff either in part or in full and the 2nd defendant representing the 1st defendant and its partners executed a fresh promissory note on 14.01.1988 for Rs.1,71,941/- being the amount due under the promissory note dated 13.01.1985 agreeing to repay the same either to plaintiff or his order with 18% interest on demand. The defendants have not repaid the amount due under the said promissory note to the plaintiff in spite of repeated demands both oral and in writing. The 1st defendant's assets and defendants 2 to 7 personally are liable to discharge the suit debt. The plaintiff learns that the suit debt is shown periodically by 1st defendant firm in its accounts books and also in Income Tax returns submitted to the income tax authorities.
5. Defendants 1 and 2 filed a written statement denying the allegations. The substantial defence is that the 1st defendant firm is not a registered firm and defendants 4 to 7 are not its partners. The 2nd defendant is a registered contractor and contract works were taken. The name of the 2nd defendant was mentioned in the partnership deed as he was a Technical man and an Engineering graduate. He has to get only remuneration for the works. By the date of dissolution of the firm on 12.01.1979 the 2nd defendant has to get a sum of Rs.60,000/- and interest thereon towards remuneration. Further, the 2nd defendant has to get a sum of Rs.52,840/-. The plaintiff has to reimburse half of that amount. As per the dissolution deed, the 2nd defendant has executed a General Power of Attorney in favour of the father of the plaintiff and the father of the plaintiff has withdrawn certain amounts and a suit O.S.No.443 of 1990 on the file of the Court of the Principal Subordinate Judge, Guntur, was filed. It was further pleaded that the firm was dissolved on 12.01.1979 and the second firm was started long after the dissolution and the partners of the second firm have nothing to do with defendants 4 to 7. There is no liability to pay any interest. Further-more, the alleged dissolution on 12.01.1979 was contingent on the happening of certain events and conditions were imposed and therefore, the liability cannot be enforced as a debt. The renewed promissory notes are, consequently, not valid. The suit is barred by time.
6. The other defendants also filed a written statement denying the liabilities.
7. On the basis of the above pleadings, the Court below has framed necessary issues and after considering the evidence on record decreed the suit of the plaintiff. Aggrieved by the said judgment, the present appeal is filed.
8. The learned counsel for the appellants contends that the suit is not maintainable and the transaction is not validly enforceable. Therefore, the following points arise for consideration:
1. Whether the 2nd defendant had accepted the liability to pay the suit amount and whether the documents executed by the 2nd defendant are binding on the other defendants?. 2) Whether the suit is bad for want of registration of the 1st defendant firm and not maintainable under Section 69 of the Indian Partnership Act?.
9. POINTS: Though the 2nd defendant has raised several contentions in the written statement, in his evidence he admits the execution of the agreement. Ex.A.15 is the dissolution deed. He also admits execution of the renewal promissory notes Exs.A.12 to A.14. It is also not in dispute from the income tax returns filed by the defendants the debt due to the plaintiff was shown, which has been considered by the Court below, for which there is no explanation. Ex.A.12 is dated 12.01.1982. Ex.A.13 is dated 13.01.1985, which is a renewal of Ex.A.12 and Ex.A.14 is dated 14.01.1988, which is in renewal of Ex.A.13. There is no dispute about the fact that originally the partnership was formed in 1979 under the name and style of M/s K.Kotaiah and Company and subsequently, after the dissolution on 12.01.1979 a fresh partnership was entered into on 24.12.1979 as can be seen from Ex.A.17. The recitals in Ex.A.17 clearly go to show that the earlier partnership was in existence till 12.01.1979 and new partnership was formed on the same day. But, however, the partnership deed was executed on 24.12.1979. Therefore, the 1st defendant along with the other defendants carry on the business is established by Ex.A.17.
10. The original partnership deed was dated 01.03.1973. The deed of dissolution dated 12.01.1979 under Ex.A.15 clearly goes to show that the partners agreed to dissolve the firm and certain works are distributed between the parties. As per clause (d) the capital amount of Rs.50,000/- shall be payable to the plaintiff free of interest before 30.06.1979 and in default, interest at 18% shall be paid from 01.07.1979. Therefore, by virtue of this dissolution deed, the obligations and liabilities of the partners have been settled. If at all any other partner has got a right against the plaintiff the only course open is to file a suit. It is clearly a case where after settlement of accounts of the firm the money was found payable to the plaintiff. It is not a case where any amount is payable under a contract or other legal obligations to contract the provisions under Section 69 of the Indian Partnership Act (for short, 'the Act'). The evidence of the 2nd defendant clearly goes to show that he has consciously executed all the documents and the income tax return also shows that the 1st defendant is a registered firm and the amount due to the plaintiff was shown periodically as per the returns Exs.A.18 to A.20. There cannot be any registration of a firm for the purpose of income tax and differently for the purpose of the Act. In case of income tax only account number will be given and it has to be mentioned as to whether the firm is registered or not. In fact, the return Ex.A.18 shows that it was a registered firm. Therefore, consequently, it cannot be said that the firm is not a registered one though the plaintiff failed to produce the particulars of the registration or the particulars of the persons in whose name the partnership was recorded.
11. So far as the consideration is concerned, Ex.A.12 though a deed of dissolution clearly shows that there was an undertaking to pay the amount all subsequent promissory notes executed by the 2nd defendant clearly go to show that in pursuance of the settlement dated 12.01.1979 as the amount due and consequent on the failure the promissory notes are being executed and in fact the document Ex.A.12 clearly shows that the subsequent firm has accepted the liability to pay the amount as the business was being carried in the name of the said firm. Therefore, when the suit is filed on the basis of the promissory notes, which are evidently supported by valuable and valid consideration, the contention that the suit as framed is not maintainable cannot be entertained. It is definitely a case where the amount was found due on settlement and for the valid consideration subsequently, the promissory notes were executed.
12. It is no doubt true that Ex.A.12 was executed on 12.01.1982 whereas the subsequent document Ex.A.13 was executed on 13.01.1985 and Ex.A.14 was executed on 14.01.1988. It cannot be in doubt that Exs.A.13 and A.14 were executed after the period of three years from the respective dates. But, however, when the cause of action is based on Ex.A.14, which is dated 14.01.1988 and when the suit was filed on 16.01.1991, evidently, after the reopening it cannot be said that the suit is barred by time. Therefore, taking any view of the matter and taking into consideration the admissions of DW.1, it cannot but be held that he executed all the documents consciously and as a partner of the earlier firm and also the partner of the 1st defendant firm and treating the liability continuously even in income tax returns. Therefore, the partners of the firm cannot escape the liability.
13. The learned counsel for the appellants strongly contended that the 1st defendant firm is not a registered firm and the suit is liable to be dismissed. I have already stated that in the income tax returns it was shown as a registered firm and there is no material as to what is the difference of a registration of a firm for the purpose of income tax or under the Partnership Act. In fact, the contention raised by the learned counsel for the appellants also even if to be accepted that the 1st defendant firm is not registered, the claim of the plaintiff cannot be defeated.
14. In order to appreciate the contention of the appellants, it is useful to refer to the Section 69 of the Act, which reads as follows: ".69. Effect of non-registration - 1) No suit to enforce a right arising from a contract or conferred by this Act 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. 2) No suit to enforce a right arising from a contract shall be instituted in any 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. 3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect, - a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm, or b) the powers of an official assignee, receiver or Court under the Presidency- towns Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1909 (3 of 1909) or the Provincial Insolvency Act, 1920 (5 of 1920) to realize the property of an insolvent partner. 4) This section shall not apply, - a) to firms or to partners in firms which have no place of business in 1[the territories to which this Act extends]., or whose places of business in 2[the said territories]., are situated in areas to which, by notification under 3[section 56]., this Chapter does not apply, or b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the Presidency-towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882 (5 of 1882), or, outside the Presidency- towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887 (9 of 1887), or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim"..
15. It is to be noted that the plaintiff is not suing the earlier firm in which he was a partner and he was only suing the subsequently re-constituted firm. The prohibition under Section 69(1) of the Act applies only when the plaintiff instituted a suit against the firm in which he was a partner and which firm was not registered.
16. Evidently, the suit is also not filed on behalf of any firm to attract Section 69(2) of the Act. Under Section 69(3) of the Act there is a saving provision and the enforcement of any right to sue for dissolution of a firm or for accounts of the dissolved firm or any right or power to realize the property of a dissolved firm is protected. Evidently, this is not a case where the action is sought to be taken against the dissolved firm and evidently, it is a new firm though the old partners continued.
17. The learned counsel for the appellants has relied upon the following decisions about the non-maintainability of the suit for want of registration:
1. M/s. Shreeram Finance Corporation Vs. Yasin Khan and others4 2) T.Savariraj Pillai Vs. M/s. R.S.S. Vastrad and Company5 3) Annapoorna Fertilisers and General Stores Vs. Arunodaya Fertilisers and General Stores and another6 4) Chhote Lal Vs. U.P. State Electricity Board7 18. In this connection, it is to be noted that Section 69 of the Act applies mandatorily to the institution of a suit. It does not deal with cases where the 1st defendant is an unregistered firm. The prohibition under Section 69 of the Act cannot be extended to cases where a claim is made against the 1st defendant firm, which is not registered. In fact, under Section 69(1) of the Act it is only a prohibition of the partner against the firm, for which he is a partner. Under Section 69(2) of the Act the prohibition is against an unregistered firm instituting a suit against the third parties. Therefore, it is abundantly clear that even if the contention of the defendants is to be accepted that the firm is not registered, still the liability cannot be denied. In this connection, it is useful to refer to a decision reported in A.V. Sundaram Chettiar Vs. T.O. Ittimathu and Brothers by Proprietor Ittimathu8, whereunder it was held that Section 69 of the Act only prohibits a suit by the members of an unregistered firm. In case the suit is filed against an unregistered firm and the decree is passed, they have got every right to question the decision even if the firm is not registered.
19. Further-more, it is useful to refer to a decision reported in Kamal Pushp Enterprises Vs. D.R. Construction Co.9, whereunder it has been specifically held by the Supreme Court that the restriction under Section 69 of the Act is confined only to enforcement of a right arising from a contract by an unregistered firm by instituting a suit or other proceedings in the Court. In fact, the Court also considered in that decision as to whether the bar under Section 69 of the Act applies to arbitration proceedings, which is not very much relevant on that aspect. But, the judgment of the Apex Court clearly goes to show that it has confirmed the finding of the trial Court and High Court to the effect that Section 69 of the Act do not stand in the way of an unregistered firm defending proceedings against it and it precludes only the initiation of any proceedings by such a firm.
20. Therefore, in view of the above circumstances, since the claim is made against the 1st defendant and it is not a case where a suit was instituted by an unregistered firm, the contention of the appellants cannot be accepted. Therefore, I do not find any merits in the appeal and the appeal is liable to be dismissed.
21. Accordingly, the Appeal Suit is dismissed. No costs. Miscellaneous Petitions, if any, pending in this appeal shall stand closed. _______________________________ JUSTICE N.R.L. NAGESWARA RAO Date:06.06.2013