Bhagwanji Morarji Goculdas v. Alembic Chemical Works Co. Ltd.

1. The facts necessary to be stated for the determination of this preliminary issue are very short and simple. Defendant 1 company was incorporated under the Companies Act in the year 1907. On 7th December, 1907, it entered into an agreement with the firm of Kotibhaskar, Amin & Co., appointing the latter its secretaries, treasurers and agents. The plaintiff alleges that he became a partner in this firm on 31st March 1922, by virtue of an assignment executed in his favour by one Narandas Purshottam who had become a partner of the firm earlier. In October 1939, the partners in the firm of Kotibhaskar, Amin & Co were the plaintiff and one Bhai-Lal D. Amin. On 5th October, 1939, Bhailal D. Amin assigned his share in the firm to his son defendant 2. On 30th November, 1939, defendant 1 company wrote to the plaintiff stating that the managing agency agreement of 7th December, 1907, had come to an end. The plaintiff alleges in his plaint that the firm of Kotibhaskar, Amin & Co. was constituted to carry on the said managing agency agreement and to act as the secretaries, treasurers and agents of defendant 1 company. The said undertaking came to an end by the breach and wrongful termination of the said managing agency agreement by defendant 1 company. The plaintiff says that the firm of Kotibhaskar, Amin & Co., became dissolved by the end of the said undertaking. The suit is filed to realize the amount payable by defendant 1 company to the dissolved firm of Kotibhaskar, Amin & Co. as part of its property or assets. The suit is for damages for the breach of the managing agency agreement which the plaintiff assesses at Rs. 9,00,000 or such other sum as the Court may award to him.

2. Defendant 1's contention is that having regard to Section 69 of the Partnership Act, 1932, the plaintiff's suit is not maintainable. It is common ground that the partnership firm of Kotibhaskar, Amin & Co. was not registered under the provisions of the Partnership Act. It is admitted by defendant 1 company that this partnership was dissolved before the suit was filed. Therefore the suit is by the partners of a dissolved firm to realize unliquidated damages for a breach of contract. As pointed out by the learned Chief Justice in 39 Bom. L.R 12141, Section 69 of the Partnership Act, is designed to encourage registration by imposing a disability in the case of firms which are not registered. Sub-sections (1) and (2) of S. 69 forbid the bringing of certain suits mentioned therein by an existing firm unless that firm is registered. Sub-section (1) deals with suits between partners; sub-s. (2) deals with suits to enforce a right arising from a contract. It has to be borne in mind that an existing firm which is not registered can have this disability removed by getting itself registered before filing a suit of the nature mentioned in sub-ss. (1) and (2) of S. 69. Sub-clause (a) of sub-s. (3) lays down that the prohibition contained in sub-ss. (1) and (2) of S. 69 shall not affect 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. The plaintiff's contention is that he has filed this suit to realize the property of a dissolved firm and, therefore, his suit is not affected by the prohibition contained in sub-ss. (1) and (2) of S. 69. On the other hand, it is argued on behalf of defendant 1 company that a claim for unliquidated damages for a breach of contract is not property and, therefore, the plaintiff's suit is not saved by sub-s. (3)(a) of S. 69. If defendant 1's contention were sound, it would mean that the partners of a dissolved firm which was not registered could never sue any person for damages for breach of a contract, because, while the existing firm could get itself registered before the filing of the suit, that would not be possible in the case of a dissolved firm. I have to consider whether on a true construction of the section the Legislature intended to impose so severe a penalty upon the partners of a dissolved firm who had failed to get their firm registered under the provisions of the Act. In this connexion it has to be remembered that although an existing firm could get itself registered at any time before the filing of the suit, this can only be done provided all the partners agree to the firm being so registered. Any partner by refusing to permit registration could effectively prevent a suit being filed by an existing partnership. If the plaintiff's contention is to be accepted, it would then at least be possible for the partners who wished to enforce their claim to dissolve the partnership and file a suit as partners of a dissolved firm; but, according to defendant 1 company, if the firm did not get itself registered for any reason whatsoever, its right to enforce a claim for damages became completely barred and under no circumstance could the partners maintain a suit of that nature. Unless the intention of the Legislature is clearly expressed in the language of the section itself, any Court would hesitate before placing upon the section a construction I which would defeat the undoubted rights of parties.

3. Mr. Coltman has contended that a right to sue for breach of a contract is not property. Mr. Coltman has relied on Section 6 of the Transfer of Property Act, 1882, which lays down what kind of property may be transferred, and it provides that a mere right to sue cannot be transferred. Mr. Coltman argues that a claim for damages is a mere right to sue and, therefore, it is not property. The fallacy underlying this argument is that the Transfer of Property Act does not define all kinds of property. As its very name implies, it deals with the transfer of property and it lays down what kinds of property can be transferred. It does not follow because a claim for damages can not be transferred, therefore necessarily it is not property. Mr. Coltman has also relied on section 60 of the cpc, 1908, which provides that a mere right to sue for damages cannot form the subject-matter of an attachment. Here again, S. 60 of the Code does not define “property” but merely lays down what kind of property cannot be attached. It is true that transferability and attachability are two of the important insignia of property, but they are not the only ones. I must construe the word “property” as used in sub-s. (5) of Section 69 of the Partnership Act, in its widest sense, and there is no doubt that in that widest sense “property” means all legal rights which a person can own. If a chose in action or an actionable claim is a legal right which a person can own and if a right to sue for damages is a chose in action, then undoubtedly it is property. Halsbury in the Hailsham Edition, volume IV, in enumerating various kinds of choses in action, mentions the right of action arising under contract, including claim for unliquidated damages for breach of contract as one of them (p. 424, Art. 789). Both under the English law and under the Transfer of Property Act such a chose in action is not transferable. But that again goes to the question of transferability of this particular kind of property and not to the nature of the property itself.

4. Under S. 69, sub-s. (3), sub-cl. (b), Partnership Act, the power of the Official Assignee to realise the property of an insolvent partner is not affected by the prohibitions contained in sub-sections (1) and (2). Section 52 of the Presidency Towns Insolvency Act, 1908, describes the property of the insolvent which is divisible amongst his creditors, and among this property is the right to sue for damages for breach of contract which becomes vested in the Official Assignee on the adjudication of an insolvent. Therefore, under S. 69, sub-s. (3), sub-cl. (b), the Official Assignee can sue for damages for breach of contract on behalf of an insolvent partner of a firm although that firm has not been registered. If the right of the Official Assignee to sue for damages for breach of contract can be considered as a suit to realise the property of an insolvent partner, I fail to understand why a suit by the partners of a dissolved firm of the same nature cannot be considered a suit to realise the property of a dissolved firm. It would be contrary to the well-known canons of construction to give to the word “property” one meaning in sub-cl. (b) of sub-s. (3) of S. 69 and a different meaning to the same word in sub-cl. (a) of sub-s. (3). In any case if damages are realised for a breach of contract, these damages would undoubtedly become partnership property, and the whole scheme of sub-clause (a) of sub-s. (3) which I am considering is to enable partners of a dissolved partnership to realise all the assets of the dissolved firm.

5. It cannot be disputed that damages for breach of contract are assets of the firm, and as such they can be realised by partners of the dissolved firm although the firm has not been registered. I, therefore, hold that the plaintiff in filing this suit to recover damages for breach of a contract is exercising his right to realise the property of the dissolved firm of which he alleges he was a partner, and although that firm was not registered, he is not debarred from maintaining the suit under Section 69 of the Partnership Act. I, therefore, answer issue No. 1 in the affirmative.

6. Order accordingly.