Case Number: Civil Appeal No(s). 785 Of 2022 (Arising out of SLP (C) No. 20262 Of 2018)

Judges Name: Hon’ble Judges Dinesh Maheshwari J, Vikram Nath J

Order dated: 31.01.2022

Facts of the case:

• This is an appeal filed by Shiv Developers (Appellants) against Aksharay Developers and others (Respondents) challenging the decision of the Hon’ble High Court of Gujarat. The Appellant is an unregistered partnership firm and it purchased a land along with the Respondents No.2 and No.3. The parties entered into an agreement for creating a partnership firm for development of the land and a fixed sum of Rs. 1 Crore was to be paid to Appellant’s partner. The Respondents registered another new partnership firm without the Appellant’s partner and got the land transferred to the new firm. The Appellant’s partner was in the belief that he was also a partner in the new firm and cheques issued for the transfer of land were also dishonored. The Appellant filed a suit to declare the sale of the land as null and void before the 9th Additional Senior Judge, Vadodara (Trial Court). The Respondents moved an application to dismiss the suit as the Appellant was not a registered firm and Section 69(2) of the Indian Partnership Act, 1932 (Act) prohibits an unregistered firm from filing suits. The Trial Court dismissed the application filed by the Respondents and the Respondents preferred an appeal to the Hon’ble High Court which allowed it. Therefore, the Appellant has approached the Hon’ble Supreme Court.

Supreme Court observed/held as follows:

• Section 69 of the Act along with the cases of Raptakos Brett & Co. Ltd. v. Ganesh Property and Haldiram Bhujiawala were discussed by the Court to enunciate the principles of Section 69(2) of the Act. 
• Appellant argued that Section 69(2) of the Act does not bar all suits against third parties and contract is not during the course of regular business. And this section applies to only rights arising from contracts with respect to firm’s business. 
• The Respondents argued that the sale deed was executed by the Appellant’s partner in his capacity as the administrator and not in his individual capacity. Therefore, the sale deed was related to the business of the firm and will be hit by the bar under Section 69(2) of the Act. 
• The Hon’ble Court noted the sale of the firm’s share in the land is not a transaction arising from the business of the firm. And the suit was filed for enforcing a right from a document on the ground of fraud and misrepresentation. 
• The Hon’ble Court held that bar under Section 69(2) of the Act does not apply to this case and it set aside the order of the Hon’ble High Court.

The Hon’ble Supreme Court allowed the appeal.