A Partnership is formed when two or more people join to carry out a business and share the profits thereof.[1] Indian partnerships are governed under the Indian Partnership Act of 1932,[2] which does not make it mandatory to register a partnership. Despite of the said provision the act makes indirect inducements for registration of the Partnerships. As a result of these contradictions, the registration of the partnerships was put at the discretion of the parties.

The Law Commission of India Report on Partnership Act strongly recommends the registration of the partnerships under the said act, but it had yet not been adopted till date. A landmark case in this regard is the case of V. Subramaniam Vs. Rajesh Raghuvandra Rao, wherein a state amendment in regards to the registration of Partnerships was challenged on the grounds of being Unconstitutional.


Facts of the Case:
The case originated in the city civil court of Bombay wherein the appellant prayed for the dissolution of the unregistered partnership between appellant and the respondent. A defence in the case involved that the suit was not maintainable according to the Sub-section (2A) of the section 69 of the Indian Partnership Act, 1932.

The Bombay City Civil Court held the view that this sub-section introduced by the Maharashtra Amendment to the Act, being the Maharashtra Act No. 29 of 1984 was unconstitutional as it was in violation of Articles 14 and 19(1) (g) of the Constitution of India. Then the City Civil Court made reference to the High Court under Section 113 of Code of Civil Procedure. The High Court impugned the judgement and held the section to be not violative of the Constitution of India. This decision of the High Court has been further appealed in the present case.

Issues:

1. Whether sub-section 2a of section 69 inserted by the Maharashtra amendment violates article 300a of the constitution of India?
2. Whether sub-section 2A of Section 69 inserted by the Maharashtra Amendment violates Article 14 of the Constitution of India?
3. Whether sub-section 2A of Section 69 inserted by the Maharashtra Amendment violates Article 19(1) (g) of the Constitution of India?

Rule:

• Code of Civil Procedure, 1908 (CPC) - Section 113.
• Constitution of India - Article 14, Article 19, Article 19(1), Article 19(1) (g), Article 300A.
• Indian Partnership Act, 1932 - Section 69, Section 69(1), Section 69(3).

Analysis:
Backdrop of the case

The Section 69(1) & (2) of the Partnership Act[3] 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.
   

The 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.

The Maharashtra Amendment of 1984 along with the insertion of Sub-section 2A in Section 69,also substituted a new Sub-section (3)(a) to Section 69.

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 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 realize the property of a dissolved firm.
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/-

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.

According to the English Law, the registration of a firm was held to be compulsory and penalty was imposed on non-registered firms. While framing of the Indian Partnership Act, 1932[4] the registration of the firm was not made compulsory but was held to be optional at the discretion of the partners. But any unregistered firm by virtue of Section 69 were not granted the right to enforce certain claims against either the firm or the third parties in any Civil Court.

The Section 69(3)(a) as an exception allowed the partners to sue for the dissolution of the firms or for the accounts or for the realization of property of the dissolved firm. The Partnership firm is not a legal entity despite its registration. The partners of the co-owners of the property which is not the case with shareholders as the shareholders are not the property holders of the company.

Before the Maharashtra Amendment of 1984, partners of a firm could file for dissolution of unregistered partnership firm or accounts of the dissolved firm or to recover its properties. But with the amendment to Section 69(2)(a) by the Maharashtra Amendment, the partners of unregistered firms were barred from filing suit for dissolution or accounts or properties of a dissolved firm, unless the duration of the firm was only six months or it's capital is upto Rs. 2000/-.

ISSUE 1
The partnership firm not being a legal entity has its property belonging to the partners of the firm. The amendment deprives a partner of the firm to recover its property if the firm which he is a part of is not registered. The Article 300(A) of the Constitution of India[5] states that: “No person shall be deprived of his property save by authority of Law.”

As held in the Landmark judgment of Maneka Gandhi v. Union of India and Anr. that for any law to be valid it is essential for it to be non-arbitrary.[6] The Sub-section 2A deprives a partner of an unregistered firm of it right to get his share in the property of the firm which is jointly owned by him.

There also is no provision for such partner to get any kind of compensation. The partner of an unregistered firm also could not file a suit for the dissolution of the firm even though he/she wants it to.

There can be deprivation of property in various forms, by destruction of property as in Chiranjit Lal Chowdhuri v. Union of India[7], or by the confiscation by the decision from a Court as in Ananda Behra v. State of Orissa[8], or by revocation of any kind of proprietary right which was also in the case of Virendra Singh v. State of Uttar Pradesh[9].

There also is deprivation of property when a municipal authority under any kind of statutory obligation, destroys any premise which is held to be dangerous as vide the decision in Vairapuri Naidu v. New Theatres, Carnatic Talkies Ltd.[10]

In the present situation any partner of an unregistered firm has been deprived of its property without any reasonable grounds as a result of which the Amendment is held to be violative of Article 300(A) of the Constitution of India[11].

ISSUE 2
The appellant also contended that the Amendment is in violation of Article 14 and Article 19(1)(g) of the Constitution of India. Article 14 of the Constitution of India[12] grants the right to equality to all persons. It gave the people the right to be treated equally. This right is not an an absolute right.

The equals are treated equally and the unequals unequally. This right also authorises classification on reasonable grounds which are based on the doctrine of intelligible differentia and this classification must have an established nexus between the object to be achieved and the classification made. In the given situation the partners of an unregistered firm are distinguished from those of a registered firm.

They are deprived of the right to dissolve the firm nor they have the power to get their property. The Amendment in this case while differentiating amongst the registered and unregistered firms fails to provide the nexus between the objective of the amendment and the classification made. Therefore the Amendment is held to be violative of Article 14 of the Constitution of India.

ISSUE 3
The Article 19(1)(g) of the Constitution of India[13] grants the right to practise any occupation, trade or business. Like the Article 14, this is also not an absolute right and the State has the right to impose reasonable restriction in the exercise of this right for upholding the interest of the general public which are provided under Article 19(1)(g).

19. Protection of certain rights regarding freedom of speech etc

(1) All citizens shall have the right:

• to freedom of speech and expression;
• to assemble peaceably and without arms;
• to form associations or unions;
• to move freely throughout the territory of India;
• to reside and settle in any part of the territory of India; and
• omitted
• to practice any profession, or to carry on any occupation, trade or business

(6) Nothing in sub clause (g) of the said clause shall affect the operation of any existing law in so far as it imposes, or prevent the State from making any law imposing, in the interests of the general public, reasonable restrictions on the exercise of the right conferred by the said sub clause, and, in particular, nothing in the said sub clause shall affect the operation of any existing law in so far as it relates to, or prevent the State from making any law relating to:

1. the professional or technical qualifications necessary for practising any profession or carrying on any occupation, trade or business, or
2. the carrying on by the State, or by a corporation owned or controlled by the State, of any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise

In Chintamanrao and Anr. V. State of Madhya Pradesh, it was held that the phrase reasonable restriction involved that the restrictions imposed on the enjoyment of the right should be reasonable and the State should not act arbitrarily or unreasonably while limiting the exercise of the rights.[14]

As held in M.C.V.S. Arunachala Nadar v. State of Madras and Ors; the reasonable restriction must be rationally related to the object which is intended to be achieved by the Legislature and should in no manner be beyond that objective.[15]

The registration of firms is supported to ensure the protection of rights of third parties so that he does not suffer any kind of hardships to prove as to who are the partners of the firm.A partner whose name appears on the Register cannot deny that he is a partner except under the circumstances provided. Despite according to the Indian Law did not make it mandatory to register a firm and it could come into existence and function without being registered.

The Amendment being discussed in this case, denies the enforcement of rights against third parties by an unregistered firm. Simultaneously the partner of unregistered firm is denied its enforcement of its right against third partner or his fellow partner.

Neither could it file a suit for the dissolution of such firm or get his share of the property. 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 lead to injustice to a partner who wants to dissolve the firm in case of dispute or illegal exercise of power by anyone of the partners. This can prove to be unfair for the other partner who suffers the hardships due to the acts of the other partner. The aggrieved partner is left with no remedy neither in the form of suit nor in the form of arbitration.[16]

Therefore it can be concluded that the changes introduced by the Maharashtra Amendment Act to Section 69(2)(a) is arbitrary and in no form is upholding the interest of the public but is strictly against it. And as a result of which this restriction cannot be held to be reasonable which makes the Maharashtra Amendment to be violative of Article 19(1)(g) of the Constitution of India.

Therefore the restrictions placed by the Maharashtra Amendment Act are arbitrary, unreasonable and of excessive nature and went beyond what is of public interest.

Conclusion:
After a careful study of the contentions of the parties and then the judgment given by the honourable judge of the Supreme Court of India, I support the judgment and also find the Maharashtra Amendment to be violative of the provisions of the Constitution of India.

The English Law strictly makes the registration of a firm compulsory and non-registration of the same is liable to be penalized. But this is not followed in the Indian Partnership Act, 1932 because it was not compatible with the prevailing situations at that point of time and could have resulted into various 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 from enforcing certain claims against the firm or third parties in a Civil Court.

This case has been followed in numerous cases like:

1. Oanali Ismalji Sadikot v. State of Gujarat and Ors[17];
2. Bijay Ku. And Ors. Vs. State of Orissa[18],
3. Ezra Victor Aboody vs. H. Dhanrajgir Estate Pvt. Ltd[19] and many more.

However the decision of this case was dissented in the case of Tube Investments of India Limited and Ors.vs. T Assistant Commissioner of Income Tax and Ors[20] but the reasoning given was not strong enough to overrule the judgment.

End-Notes:

1. Mulla,The Indian Partnership Act(10 edition) 2012.
2. Indian Partnership Act,1932
3. Section 69,Indian Partnership Act,1932.
4. Indian Partnership Act,1932.
5. Article 300, Constitution of India.
6. Maneka Gandhi v. Union of India and Anr. [1978]2SCR621
7. Chiranjit Lal Chowdhuri v. Union of India: [1950]1SCR869
8. Ananda Behera v. State of Orissa: [1955]2SCR919
9. Virendra Singh v. State of U.P.: [1955]1SCR415
10. Vajrapuri Naidu, N. v. New Theatres, Carnatic Talkies Ltd. 1959)2MLJ469
11. Article 300, Constitution of India.
12. Article 14, Constitution of India.
13. Article 19, Constitution of India.
14. Chintamanrao and Anr. v. The State of Madhya Pradesh [1950]1SCR759
15. M.C.V.S. Arunachala Nadar v. State of Madras and Ors.: AIR1959SC300
16. Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd.: [1964]8SCR50
17. Oanali Ismalji Sadikot v. State of Gujarat and Ors ,Special Criminal Application No. 421 of 2007
18. Bijay Ku. And Ors. Vs. State of Orissa,WP No. 9251 of 2009.
19. Ezra Victor Aboody vs. H. Dhanrajgir Estate Pvt. Ltd,AA no. 4 of 2007.
20. Tube Investments of India Limited and Ors.vs. T Assistant Commissioner of Income Tax and Ors, Tax case 249 of 2006.