V. SUBRAMANIAM Vs. RAJESH RAGHUVANDRA RAO
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7438 OF 2000
V. Subramaniam .. Appellant (s)
Rajesh Raghuvandra Rao .. Respondent
MARKANDEY KATJU, J.
1. This appeal by special leave has been filed against the impugned
judgment of the Bombay High Court dated 27.9.2000 in Civil Reference
No. 19 of 1999.
2. Heard learned counsel for the parties and perused the record.
3. This appeal arises out of a suit filed before the Bombay City Civil
Court instituted by the appellant praying inter alia for dissolution of an
unregistered partnership firm between the appellant and the respondent. In
that suit a defence taken was that the suit was not maintainable in view of
sub-section (2A) of Section 69 of the Indian Partnership Act, 1932
(hereinafter referred to as `the Act'). The Bombay City Civil Court was of
the view that the said sub-section 2A, which was introduced by the
Maharashtra Amendment to Section 69 of the Act, being the Maharashtra
Act no.29 of 1984 (which received assent of the President of India) was
unconstitutional being violative of Articles 14 and 19 (1)(g) of the
Constitution of India. Hence the Bombay City Civil Court by order dated
16.8.1999 made a reference to the High Court under Section 113 of C.P.C.
4. The High Court, however, in the impugned judgment has held that the
said sub-section 2A of Section 69 of the Act is not unconstitutional. Hence
this appeal before us.
5. Section 69(1) & (2) of the Partnership Act originally read 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 firms."
6. Sub-section 2A which was introduced by the Maharashtra
Amendment 1984 states as follows :
"(2A) No suit to enforce any right 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 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 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:
Provided that the requirement of registration of
firm under this sub-section shall not apply to the suits or
proceedings instituted by the heirs or legal
representatives of the deceased partner of a firm for
accounts of a dissolved firm or to realize the property of
a dissolved firm."
7. It may be mentioned that the Maharashtra Amendment of 1984 not
only inserted sub-section 2A in Section 69, it also substituted the original
sub-section (3)(a) to Section 69 by an altogether different sub-section (3)(a).
8. The original sub-section (3)(a) of Section 69 in the Partnership Act
read as follows :
"(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
(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."
9. The Maharashtra Amendment of 1984 substituted clause (a) of
Section 69(3) of the original Act by the following sub-section (a) :
"The firms constituted for a duration of six months
or with a capital upto Rs.2000/-"
10. The Maharashtra Amendment also added a proviso to Section 69(1)
which reads as follows:
"Provided that the requirement of registration of
firm under this sub-section shall not apply to the
suits or proceedings instituted by the heirs or legal
representatives of the deceased partner of a firm
for accounts of the firm or to realize the property
of the firm"
11. The English law in so far as it makes registration compulsory for a
firm and imposes a penalty for non-registration was not followed when the
Partnership Act was made in India in 1932 as it was considered that this
step would be too drastic and would introduce several difficulties. Hence
registration was made optional at the discretion of the partners, but
following the English precedent, any firm which was not registered by
virtue of sub-sections (1)& (2) of Section 69 disabled a partner or the firm
(as the case may be ) from enforcing certain claims against the firm or third
parties (as the case may be) in a Civil Court.
12. An exception to this disability with regard to an unregistered firm was
made in sub-section (3)(a) to Section 69, and this clause enabled the
partners in an unregistered firm to sue for the dissolution of the firm or for
accounts or for realizing the property of the dissolved firm.
13. This exception in clause (a) of Section 69(3) was made on the
principle that while registration of a firm is designed primarily to protect
third parties, the absence of registration does not mean that the partners of
an unregistered firm lose all rights in the said firm or its property and hence
cannot sue for accounts or for its dissolution or for realizing their property
in the firm.
14. It may be mentioned that a partnership firm, unlike a company
registered under the Indian Companies Act, is not a distinct legal entity, and
is only a compendium of its partners. Even the registration of a firm does
not mean that it becomes a distinct legal entity like a company. Hence the
partners of a firm are co-owners of the property of the firm, unlike
shareholders in a company who are not co-owners of the property of the
15. Till the Maharashtra Amendment of 1984 came into force on
1.1.1985, a partner in a firm could file a suit for dissolution of an
unregistered partnership firm or for accounts of the dissolved firm or to
recover the properties of the dissolved firm. However, in view of sub-
section 2A of Section 69, since 1.1.1985 a partner in an unregistered
partnership firm in the State of Maharashtra cannot file a suit for dissolution
or for accounts of a dissolved firm or realize properties of a dissolved firm,
unless the duration of the firm was only six months or it's capital is upto
Rs.2000/-. The question before us is whether sub-section 2A of Section 69
inserted by the Maharashtra Amendment is constitutionally valid.
16. In our opinion sub-section 2A of Section 69 inserted by the
Maharashtra Amendment violates Articles 14, 19(1)(g) and 300A of the
Constitution of India.
17. It has already been mentioned above that a partnership firm, whether
registered or unregistered, is not a distinct legal entity, and hence the
property of the firm really belongs to the partners of the firm. Sub-section
2A virtually deprives a partner in an unregistered firm from recovery of his
share in the property of the firm or from seeking dissolution of the firm.
18. Article 300A of the Constitution of India states :
"No person shall be deprived of his property save by
authority of law."
19. It is by now well settled that a law to be valid has to be non arbitrary
vide the 7-Judge Bench decision of this Court in Maneka Gandhi vs.
Union of India and another AIR 1978 SC 597.
20. Sub-section 2A virtually deprives a partner of a firm from his share in
the property of the firm without any compensation. Also, it prohibits him
from seeking dissolution of the firm although he may want it dissolved.
21. Deprivation of property may take place in various ways, such as
`destruction' vide this Court's decision in Chiranjit Lal Chowdhuri vs.
Union of India AIR 1951 SC 41 or `confiscation' vide this Court's decision
in Ananda Behera vs. State of Orissa AIR 1956 SC 17, or revocation of a
proprietary right granted by a `private proprietor' vide this Court's decision
in Virendra Singh vs. State of U.P. AIR 1954 SC 447, `seizure of goods'
vide this Court's decision in Wazir Chand vs. State of H.P. AIR 1954 SC
415 or `immovable property' vide this Court's decision in Virendra Singh
vs. State of U.P. (supra) from the possession of an `individual' vide this
Court's decision in Wazir Chand vs. State of H.P. (supra) or `assumption
of control of a business' vide this Court's decision in Virendra Singh vs.
State of U.P. (supra) in exercise of the `police power' of a State. Thus,
there is a `deprivation' where a municipal authority, under statutory power,
pulls down `dangerous premises' vide decision in Nathubhai Dhulaji vs.
Municipal Corporation AIR 1959 Bom. 332 or an insolvent is divested of
his `property' vide decision in Vajrapuri Naidu, N. vs. New Theatres,
Carnatic Talkies Ltd. 1959(2) MLJ 469.
22. The appellant challenges the Amendment as violative of Articles 14
and 19(1)(g) of the Constitution. Article 14 guarantees the right to equality
and states that "The State shall not deny to any person equality before the
law or the equal protection of the laws within the territory of India." Equal
protection means the right to equal treatment in similar circumstances. In
other words there can be classification for legitimate purposes, but it is well
settled that the classification must be reasonable i.e. based on intelligible
differentia and having nexus between the basis for classification and the
object of the legislation.
23. Under Article 19(1)(g) of the Constitution all persons have the right
to practice any profession or to carry on any occupation, trade or business.
Clause (6) of that Article enables the State to make any law imposing, in the
interest of general public, reasonable restrictions on the exercise of the right
conferred under sub-clause (g) of Article 19(1).
24. In Chintamanrao and another vs. The State of Madhya Pradesh
AIR 1951 SC 118 this Court observed :
"The phrase `reasonable restriction' connotes that the
limitation imposed on a person in enjoyment of the right
should not be arbitrary or of an excessive nature, beyond
what is required in the interest of the public. The word
`reasonable' implies intelligent care and deliberation,
that is the choice of a course which reason dictates.
Legislation which arbitrarily or excessively invades the
right cannot be said to contain the equality of
reasonableness and unless it strikes a proper balance
between the freedom guaranteed in Article 19(1)(g) and
the social control permitted by clause (6) of Article 19, it
must be held to be wanting in that quality."
25. Similarly in M.C.V.S. Arunachala Nadar vs. State of Madras
and others AIR 1959 SC 300 where the constitutional validity of the
Madras Commercial Crops Markets Act was challenged, as violative of
Article 19(1)(g), while considering the test of reasonableness to be applied
this Court observed as under :
"It has been held that in order to be reasonable, a
restriction must have a rational relation to the object
which the legislature seeks to achieve and must not go in
excess of that object (Chintamanrao and another vs.
The State of Madhya Pradesh (supra). The mode of
approach to ascertain the reasonableness of restriction
has been succinctly stated by Patanjali Ssastri, C.J. in
State of Madras vs. V.G. Row AIR 1952 SC 196 :
"It is important in this context to bear in
mind that the test of reasonableness, wherever
prescribed, should be applied to each individual
statute impugned, and no abstract standard, or
general pattern of reasonableness can be laid down
as applicable to all cases. The nature of the right
alleged to have been infringed, the underlying
purpose of the restrictions imposed, the extent and
urgency of the evil sought to be remedied thereby
the disproportion of the imposition, the prevailing
conditions at the time, should all enter into the
26. The primary object of registration of a firm is protection of third
parties who were subjected to hardship and difficulties in the matter of
proving as to who were the partners. Under the earlier law, a third party
obtaining a decree was often put to expenses and delay in proving that a
particular person was a partner of that firm. The registration of a firm
provides protection to the third parties against false denials of partnership
and the evasion of liability. Once a firm is registered under the Act the
statements recorded in the Register regarding the constitution of the firm are
conclusive proof of the fact contained therein as against the partner. A
partner whose name appears on the Register cannot deny that he is a partner
except under the circumstances provided. Even then registration of a
partnership firm is not made compulsory under the Act. A partnership firm
can come into existence and function without being registered. However,
the Maharashtra Amendment effects such stringent disabilities on a firm as
in our opinion are crippling in nature. It lays down that an unregistered firm
cannot enforce its claims against third parties. Similarly, a partner who is
not registered is unable to enforce his claims against third parties or against
his fellow partners. An exception to this disability was a suit for dissolution
of a firm or a suit for accounts of a dissolved firm or a suit for recovery of
property of a dissolved firm. Thus a partnership firm can come into
existence, function as long as there is no problem, and disappear from
existence without being registered. This is changed by the 1984
Amendment extending the bar of the proceedings to a suit for dissolution or
recovery of property as well. The effect of the Amendment is that a
partnership firm is allowed to come into existence and function without
registration but it cannot go out of existence (with certain exceptions). This
can result into a situation where in case of disputes amongst the partners the
relationship of partnership cannot be put an end to by approaching a court
of law. A dishonest partner, if in control of the business, or if simply
stronger, can successfully deprive the other partner of his dues from the
partnership. It could result in extreme hardship and injustice. Might would
be right. An aggrieved partner is left without any remedy whatsoever. He
can neither file a suit to compel the mischievous partner to cooperate for
registration, as such a suit is not maintainable, nor can he resort to
arbitration if any, because the arbitration proceedings would be hit by
Section 69(1) of the Act (Jagdish Chandra Gupta vs. Kajaria Traders
(India) Ltd. AIR 1964 SC 1882).
27. In our opinion the restrictions placed by sub-section 2A of Section 69
introduced by the Maharshtra Amendment Act, for the reasons given above,
are arbitrary and of excessive nature and go beyond what is in the public
interest. Hence the restrictions cannot be regarded as reasonable.
28. In the Constitution bench decision of this Court in Maneka Gandhi
vs. Union of India and another (supra) it has been held that arbitrariness
and unreasonableness violates Articles 14 and 19(1)(g) of the Constitution.
The said provision is clearly unreasonable and arbitrary since by prohibiting
suits for dissolution of an unregistered firm, for accounts and for realization
of the properties of the firm, it creates a situation where businessmen will be
very reluctant to enter into an unregistered partnership out of fear that they
will not be able to recover the money they have invested in the firm or to get
out of the firm if they wish to do so. As already stated above there is no
legal requirement, unlike in England, which makes registration of a firm
compulsory, rather in India it is voluntary. Both registered and unregistered
are legal though of course registration and non registration have different
legal consequences as stated above.
29. The High Court was of the view that the object of the Maharashtra
Amendment was to induce partners to register and it was intended to protect
third party members of the public. We cannot see how sub-section 2A of
Section 69 in any way protects the third party members of the public. It
makes it virtually impossible for partners in an unregistered firm to dissolve
the firm or recover their share in the property of the firm. Hence it is totally
30. It is true that it has been held by this Court in Government of
Andhra Pradesh & Others vs. P. Laxmi Devi AIR 2008 SC 1640 that
the Court should not lightly declare a statute to be unconstitutional as it
expresses the will of the people through its elected representatives.
However, that does not mean that a statute can never be declared as
unconstitutional. In fact the aforesaid decision this Court has held that in
some circumstances a statute can be declared as unconstitutional, namely,
where it clearly violates some constitutional provision. Since in our opinion
sub-section 2A of Section 69 as introduced by the Maharashtra Legislature
clearly violates Articles 14, 19(1)(g) and 300A of the Constitution, it is in
our opinion ultra vires and is hence declared unconstitutional.
this appeal is allowed and impugned judgment of the Bombay High Court is
set aside. The suit can now proceed ignoring sub-section 2A which we have
declared invalid. No costs.
March 20, 2009
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