Section 69 Partnership Act Has Mandatory Character; Suit Filed By Partner Of Unregistered Firm Against Another Partner For Recovery Of Money Not Maintainable: SC

The Petition before the Supreme Court was filed against an order of the Andhra Pradesh High Court whereby the Revision Petition filed by the respondents (original defendants) was allowed and the order of the District Judge deciding a preliminary issue as regards the maintainability of the suit instituted by the petitioners (original plaintiffs) for recovery of money was set aside.

The Division Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan asserted, “It is evident from a reading of sub-sections (1) and (2) of Section 69 that it assumes a mandatory character.”

Factual Background

The petitioners (original plaintiffs) instituted an Original Suit seeking a decree in their favour for recovery of Rs 30 lakh from the defendant. In the suit proceedings, the issue as regards the maintainability of the suit was raised on the ground that a partner of an unregistered partnership firm could not have filed the Suit for recovery of money, being hit by Section 69 of the Indian Partnership Act, 1932 (Act).

The aforesaid issue was decided as a preliminary issue and the Trial Court held that the suit is maintainable. The Trial Court took the view that although there is a partnership deed on record yet as the partnership business had not commenced, the suit could be said to be maintainable. The defendants filed a Civil Revision Application. The High Court took the view that the suit was not maintainable, being hit by Section 69 of the Partnership Act and allowed the Revision. Aggrieved thereby, the Appellants approached the Apex Court.

Reasoning

The Bench, at the outset, explained that Section 69(1) prohibits a suit amongst the partners of an unregistered partnership firm, for the enforcement of a right either arising from a contract or conferred by the Act, unless the suit amongst the partners is in the nature of dissolution of the partnership firm and/or rendition of accounts. Section 69(2) prohibits the institution of a suit by an unregistered firm against third persons for the enforcement of a right arising from a contract. As a consequence, a suit filed by an unregistered partnership firm and all proceedings arising thereunder, which fall within the ambit of Section 69 would be without jurisdiction.

On a perusal of the partnership deed, the Bench noticed that the sum of Rs. 30 lakh which was given to the respondent and was sought to be recovered, was rendered by the petitioners as capital for the purpose of acquiring 75% shares collectively in the partnership firm. As per the arrangement, the respondent was to hold the remaining 25% shares. Therefore, the suit for recovery was filed by a set of partners together on one side, against another partner, to enforce a right accruing under the agreement.

It was further noticed that the present suit had not been instituted by or on behalf of the firm against any third persons so as to fall under the ambit of Section 69(2). The petitioners had also not filed the instant suit for enforcing any statutory right conferred under any other law or a common law right so as to exempt the application of Section 69.

Reference was made to the judgment in Seth Loonkaran Sethiya and Others v. Mr. Ivan E. John and Others reported in (1977) wherein it has been held that Section 69 is mandatory in character and a suit instituted by a plaintiff in respect of a right which was vested in him by virtue of a contract and entered into in his capacity as a partner of a partnership firm, would be void, if such a firm was unregistered.

“Hence, the rigours of Section 69(1) would apply on such a suit and the partnership firm being unregistered would prevent the petitioners from filing a bare suit for recovery of money from the respondent”, the Bench held. The Court further suggested that it would have been appropriate for the petitioner to have preferred a suit for dissolution of the partnership firm and rendition of accounts, especially considering that the factum of non-registration of the partnership firm would not have acted as a bar in a suit for dissolution in light of the exception carved out under Section 69(3).

“The defence that the partnership business had not yet commenced and thus, such a suit for dissolution could not have been preferred, would not be of any avail to the petitioners, particularly for overcoming the jurisdictional bar under Section 69(1). The High Court is right in taking the view that a suit of such nature could not be said to be maintainable in the absence of the registration of the partnership firm”, it said. Finding no error in the impugned judgment of the High Court, the Apex Court dismissed the appeal.

Cause Title: Sunkari Tirumala Rao & Ors. v. Penki Aruna Kumari (Neutral Citation: 2025 INSC 92)

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