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Appaya Nijlingappa Hattargi v. Subrao Babaji Teli
Factual and Procedural Background
The plaintiffs alleged in their plaint that they were partners in a partnership shop which closed on 19 October 1933 (an allegation the written statement did not traverse). They sued after dissolution to recover a debt allegedly incurred in favour of the partnership during its continuance. The learned Subordinate Judge found that the dissolution was not proved and dismissed the suit on the ground that section 69 of the Indian Partnership Act barred the suit. The present matter is a revision application raising the legal correctness of that dismissal.
Legal Issues Presented
- Whether section 69 of the Indian Partnership Act bars a suit brought after dissolution by former partners to recover a debt incurred in favour of the firm during its continuance.
- Whether debts due to a firm at the date of dissolution constitute "property of a dissolved firm" for the purposes of the exception in section 69(3)(a).
- Whether the phrase "power to realise the property of a dissolved firm" in section 69(3)(a) must be read ejusdem generis with the preceding words (i.e., limited to realization incidental to dissolution/winding up) or more broadly to include suits by persons entitled to recover debts.
Arguments of the Parties
Plaintiffs' Arguments
- The plaint alleged dissolution on 19 October 1933 (not traversed), so dissolution is to be taken as admitted.
- The plaintiffs, as persons entitled to the firm's debts after dissolution, sued to recover a debt incurred in favour of the firm during its continuance.
- Such a suit falls within the exception in section 69(3)(a) as an enforcement of a right to "realise the property of a dissolved firm" because debts due at dissolution are property of the dissolved firm.
Defendants' / Subordinate Judge's Position
- The learned Subordinate Judge held the dissolution allegation was not proved and, in any event, that section 69 barred the suit.
- It was argued (and the Judge accepted) that a debt due to a firm would not fall within the definition of "property of the firm" in section 14, and that the words in section 69(3)(a) should be read ejusdem generis with the preceding reference to suits for dissolution or accounts, thus limiting the exception to realizations incidental to dissolution (e.g., recovery by a receiver in a partnership suit).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Patel v. Husseinbhai Mahomed | Observation that sub-sections (1) and (2) of section 69 in terms refer only to a "firm" and not expressly to a dissolved firm; nonetheless, those sub-sections were held to cover dissolved firms when read with the exceptions in sub-section (3). | Referred to for the proposition that sub-sections (1) and (2) must be read as covering dissolved firms; the present court relied on that reasoning while examining the scope of the exceptions in sub-section (3). |
Court's Reasoning and Analysis
The court proceeded as follows:
- Found that the plaint's allegation of dissolution on 19 October 1933 was not traversed and therefore must be taken as admitted; accordingly the partnership was treated as dissolved on that date.
- Explained the purpose of section 69: to discourage non-registration by barring suits by or on behalf of unregistered firms, and noted that a dissolved firm cannot cure the disability by subsequent registration, making the bar absolute for dissolved firms unless an exception applies.
- Reviewed sub-sections (1) and (2) of section 69 and sub-section (3), and relied on earlier reasoning (Patel v. Husseinbhai Mahomed) that sub-sections (1) and (2) are to be read as covering dissolved firms, subject to the exceptions in sub-section (3).
- Considered whether a debt due to a firm at dissolution is "property of a dissolved firm": rejected the Subordinate Judge's reliance on the non-exhaustive definition in section 14 and held that debts due to the firm are properly described as property acquired for the firm and therefore form part of the property of the dissolved firm.
- Addressed the ejusdem generis argument that the phrase "realise the property of a dissolved firm" must be limited to realizations incidental to dissolution (e.g., winding up). The court read sub-clause (a) as creating two separate exceptions corresponding to sub-sections (1) and (2): the first part (dissolution/accounts) as exception to sub-section (1), and the latter part (realise the property of a dissolved firm) as exception to sub-section (2).
- Concluded that a suit by persons who were the only members of the firm at the date of dissolution to recover a debt due to the firm is a suit to enforce a right to realise the property of a dissolved firm and therefore falls within the exception in section 69(3)(a).
Holding and Implications
Holding: The court held that the present suit falls within the exception in section 69(3)(a) and is therefore maintainable. Judgment was entered for the plaintiffs for the amount claimed with costs, and the costs of the revision application were ordered to be borne by the defendants.
Implications: The direct effect is that the plaintiffs recover the claimed debt and costs. The court's reasoning treats debts due at dissolution as property of a dissolved firm and reads the exception in section 69(3)(a) to permit suits by persons entitled to realise such property; no broader precedent beyond this interpretation is expressly announced in the opinion.
Beaumont, C.J:—
This is a revision application which raises a point of law of some general importance. The plaintiffs allege in the plaint that they were partners in a partnership shop, and that the partnership shop closed on October 19, 1933. I think that allegation amounts to an allegation that the partnership was dissolved on October 19, 1933, and that allegation is not traversed in the written statement. That being so, I must take it that on the facts the partnership was dissolved in October 1933. The learned Subordinate Judge held that fact was not proved. But if an allegation made in the plaint is not denied in the written statement, it is taken to be admitted, and need not be proved. The further allegation in the plaint is that during the continuance of the partnership, a debt was incurred by the defendants to the partnership, and the plaintiffs, as the persons who were members of the partnership and therefore entitled to the debt, sue after the dissolution of the partnership to recover the debt. The learned Judge held that even if the dissolution of the partnership were proved, nevertheless the suit would not lie, having regard to section 69 of the Indian Partnership Act, and the question is whether that decision is right.
Section 69 of the Indian Partnership Act forbids the bringing of suits in respect of partnerships which have not been registered under the Act. The scheme of the Act as to registration is to give any firm a right to register, disclosing the particulars required by the Act, and then section 69 is designed to encourage registration by imposing a disability in the case of firms which are not registered. It is to be noticed that an existing firm can get over the disability by registering before it brings its suit, but, of course, a firm cannot register after it has ceased to exist. So that in the case of a dissolved firm any bar imposed by section 69 becomes absolute, and cannot be got rid of by subsequent registration. Section 69(1) bars the right of any person suing as a partner in the firm to enforce his rights against the firm or any person alleged to be or to have been a partner in the firm, unless the firm is registered. Then sub-section (2) deals with enforcing claims by the firm against third parties, and prohibits the enforcing in a suit of any right on behalf of the firm against a third party, unless the firm is registered. Then sub-section (3), to which I will refer more in detail in a moment, introduces certain exceptions to the disabilities imposed by the first two sub-sections. I have been referred to a decision of my own in the case of Patel v. Husseinbhai Mahomed in which the plaintiff alleged that he had paid on behalf of a firm in which he had been a partner with the defendant the whole income-tax of the firm, and he was suing to recover from the defendant contribution towards that payment. I pointed out in that case that sub-sections (1) and (2) in terms only refer to a firm, and not to a dissolved firm. But, having regard to the exceptions to those two sub-sections contained in sub-section (3), exceptions which relate largely to matters connected with a dissolved firm, I thought that sub-sections (1) and (2) must be held to cover the case not only of a firm, but of a dissolved firm. But I was not in that case concerned to consider the extent of the exceptions contained in sub-section (3), because it was clear in that case that the suit did not fall within any of the exceptions. Now it is alleged in this case that the suit does fall within the exceptions contained in sub-section (3), clause (a), of section 69. That clause reads as follows:—
“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 realise the property of a dissolved firm.”
So that the section is not to cover the right to sue for the dissolution of a firm or for the accounts of a dissolved firm. Clearly this suit is not a suit of this nature, and the question is whether it is covered by the further words, “or any right or power to realise the property of a dissolved firm.” It is said that this is a suit to recover a debt incurred in favour of the firm, and that debts belonging to a firm at the date of dissolution become part of the property of the dissolved firm after its dissolution, and it seems to me that is clearly so. The learned Subordinate Judge was not prepared to accept that view, because he thought that a debt due to a firm would not come within the definition of the property of a firm contained in section 14 of the Act. That section is, however, not exhaustive; it only provides what the property of the firm shall include. But, in my view, even in that definition debts due to the firm fall within the description of property, being property acquired for the firm. I think, therefore, that a debt due to a firm at the date of dissolution is properly described as property of a dissolved firm. But then it is said that I must read the whole of sub-clause (a) together, and that the last sentence to which I have referred must be read ejusdem generis to the words which precede it. The first part of the sub-clause deals with the right to sue for dissolution of a firm or for accounts of a dissolved firm, and it is said that the further reference to the realisation of the property of a dissolved firm must be read as covering only the case of realisation with a view to a dissolution or winding up of the firm, and would cover for instance the recovery of debts by a receiver appointed in a partnership suit, and it is further argued that the words ought not to be given the much wider meaning of covering any suit to recover a debt due to a dissolved brought by any person or persons entitled to recover such debt. Sub-section (3), however, in terms introduces exceptions both to sub-section (1) and sub-section (2), and in my view the two parts of sub-clause (a) of sub-section (3) must be read as referring respectively to the first two sub-sections. As I have pointed out, the first sub-section deals with the right to enforce a contract by one partner against the others, and the second sub-section deals with the right to enforce a contract by the firm against third parties. I think I must read the first sentence of sub-clause (a) as creating exceptions from sub-section (1), the exceptions being enforcement of a right to sue for dissolution or accounts of a dissolved firm; and the last sentence of that sub-clause is directed to sub-section (2) and creates an exception in respect of a suit to enforce any right to realise property of a dissolved firm. It seems to me that a suit to recover a debt due to a firm brought by persons who were the only members of the firm at the date of dissolution is a suit to enforce a right to realise the property of a dissolved firm. That being so, in my opinion this case does fall within the exception to section 69, and the suit, therefore, is maintainable. It is clear from the judgment that the learned Judge held the plaintiffs' case proved, and only dismissed the suit on the technical ground that the suit did not lie having regard to section 69. As, in my opinion, that ground fails, there will be judgment for the plaintiff for the amount claimed with costs, and costs of this application must be borne by the defendants.
Order accordingly.
Y.V.D
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