A) ABSTRACT / HEADNOTE

This case examines the narrow but important question whether partners of an unregistered partnership firm can maintain a bare suit for recovery of money against a co-partner. The Supreme Court (Pardiwala & Mahadevan, JJ.) dismissed the Special Leave Petition against the Andhra Pradesh High Court’s decision that the suit (for ₹30,00,000) instituted by a group of persons who held themselves out as partners was barred by Section 69(1) of the Partnership Act, 1932. The Trial Court had held the suit maintainable on the ground that partnership business had not commenced; the High Court reversed that finding, holding that once a partnership agreement exists (even if business has not commenced) the embargo in Section 69(1) applies unless the firm is registered.

The Supreme Court reviewed the statutory text and precedents notably Seth Loonkaran Sethiya v. Ivan E. John and Mukund Balkrishna Kulkarni v. Kulkarni Powder Metallurgical Industries and held that the embargo is mandatory: a partner sues “as a partner” to enforce contractual rights and thus cannot bring a suit against another partner on behalf of the firm unless registration and register entry requirements are satisfied. The Court emphasised that the exception in Section 69(3) would have preserved a suit for dissolution and accounts, and therefore the petitioners’ appropriate remedy (given the parties’ allegations) was dissolution and rendition of accounts rather than a plain recovery suit. The appeal was dismissed.

Keywords: Unregistered partnership firm; Section 69(1); maintainability; recovery of money; dissolution and accounts.

B) CASE DETAILS 

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The dispute arises from a document dated 11.12.2009 which the Trial Court treated as a partnership deed in relation to a stone-crusher quarry. The deed records capital of ₹30,00,000 contributed and allocates shares among one person retaining 25% and others taking the remaining 75% collectively. The petitioners (plaintiffs in the original suit) sued the respondent (a co-partner) for recovery of the ₹30 lakhs, alleging that the amount had been given and was repayable. At the trial a preliminary issue of maintainability was raised: whether partners of an unregistered firm may institute a suit against a co-partner to enforce contractual rights where Section 69(1) of the Partnership Act, 1932 applies.

The Trial Court held the suit maintainable on the factual finding that the partnership business had not in fact commenced; the defendants challenged that interlocutory order before the High Court by Civil Revision Petition. The High Court accepted the defendants’ contention and set aside the Trial Court’s order, holding the suit barred by Section 69(1) because there was an agreement of partnership which was not registered; that decision forms the subject-matter of the SLP before the Supreme Court. The Supreme Court framed its analysis around the mandatory character of Section 69 and whether the plaintiffs’ suit was one “to enforce a right arising from a contract” and therefore caught by the embargo, or whether any exception (e.g., suits for dissolution/accounts under Section 69(3)) applied.

The Court relied on prior decisions that read Section 69 strictly and distinguished suits that were declaratory or for dissolution so as to identify when the statutory embargo yields.

D) FACTS OF THE CASE

The essential facts as found by the Trial Court and recorded on appeal: the respondent owned and operated a stone crusher quarry; owing to the respondent’s difficulty in running the business, an arrangement was executed on 11.12.2009 under which the respondent retained 25% share while the petitioners and others together took 75% in consideration of ₹30,00,000 allegedly received by the respondent. The operative document states that the contributors would “enjoy the schedule properties with all easementary rights and profits and loss” and that monthly distributions would be made language consistent with a partnership sharing arrangement.

The plaintiffs sued for recovery of the ₹30,00,000 and costs. The defendants contended that the partnership had not commenced (or that the document was merely a bond), and raised maintainability under Section 69 since the firm was not registered and the plaintiffs sued in their capacity as partners against a partner. The Trial Court concluded the partnership business had not commenced and therefore allowed the suit to proceed; the High Court reversed, treating the document as a partnership agreement and applying Section 69(1) to hold that a partner cannot maintain a suit in relation to a contractual right if the firm is unregistered. The Supreme Court accepted the High Court’s characterization and statutory conclusion.

E) LEGAL ISSUES RAISED

i. Whether a partner of an unregistered firm can maintain a suit against another partner to enforce a right arising from a contract under which both are parties?
ii. Whether the mere absence of commencement of business excludes the application of Section 69(1) where a partnership agreement exists?
iii. Whether the exception in Section 69(3) (suits for dissolution/accounts) saves a suit for recovery framed as a monetary claim?

F) PETITIONER / APPELLANT’S ARGUMENTS

i. The counsels for Petitioners / Appellant submitted that the document was not a partnership or that the partnership business had not commenced; therefore the plaintiffs were not suing “as partners” to enforce a contractual right and Section 69 should not defeat maintainability.
ii. They argued the instrument might be a bond or arrangement in which the obligation to repay arises in a private capacity and not in the interest of a firm; hence the embargo in Section 69(1) was inapplicable.

G) RESPONDENT’S ARGUMENTS

i. The counsels for Respondent submitted that the document on its face records share-allotment, profit-loss sharing and possession of rights in the quarry hallmarks of partnership and therefore the plaintiffs were suing as partners to enforce contractual rights of the firm, bringing their suit squarely within Section 69(1)’s embargo.
ii. They further contended that the fact that the crusher might not have been operational does not alter the character of the written agreement; once partners agree, non-commencement is immaterial to the statutory bar. The High Court was asked to follow earlier decisions supporting this approach.

H) JUDGMENT

The Supreme Court affirmed the High Court. Analytically the bench proceeded by textual and precedential analysis of Section 69(1)–(3). The Court described Section 69(1) and (2) as mandatory embargoes: (1) forbids suits “to enforce a right arising from a contract or conferred by this Act” when instituted by persons suing “as a partner” against the firm or another partner, unless the firm is registered and the plaintiff appears in the Register of Firms; (2) prevents unregistered firms suing third parties on contract rights. The Court relied on Seth Loonkaran Sethiya v. Ivan E. John which held the provision mandatory and rendered suits by partners of unregistered firms void when they sought to enforce contractual rights.

Applying that principle, the Court found that the present suit was instituted by persons who had contributed capital for shares and who sought recovery against the respondent a relief plainly arising from the partnership agreement, not from an independent personal obligation. The Court rejected the argument that non-commencement of business prevents the embargo: the existence of an agreement creating partnership relations determines the statutory quality, not the operational status of the business.

The Court noted that where relief sought is dissolution and rendition of accounts the exception in Section 69(3) permits the suit despite non-registration; accordingly, had the plaintiffs framed their case as dissolution/accounts the statutory bar would not have applied. The decision therefore reinforces that remedies must be chosen to fit statutory exceptions; a bare recovery suit by partners against a partner for enforcement of an agreement is incompetent where the firm is unregistered. The SLP was dismissed.

a. RATIO DECIDENDI

The binding ratio is that Section 69(1) operates mandatorily: where a person sues “as a partner in a firm” to enforce a right arising from a contract between partners (or conferred by the Act), and the firm is unregistered with no register entry for the plaintiff, the suit is barred. The identity of the suit (whether recovery, declaration, or dissolution) determines applicability; declaratory suits as to partnership-status may fall outside 69(1), but suits seeking enforcement of contractual rights by partners typically fall within the embargo unless saved by 69(3) (dissolution/accounts). The statutory scheme prioritises registration as precondition to enforce contractual firm rights in court.

b. OBITER DICTA

The Court observed (following precedent) that equity or apparent unfairness cannot override the statutory requirement. Even if business had not commenced, the written contract that confers partnership rights binds the parties’ posture under Section 69. The bench noted precedent from other jurisdictions (e.g., an older Lahore High Court judgment) which reached similar conclusions; however the court emphasised the legislative policy behind mandatory registration: public notice and third-party protection. The Court also underscored that Section 69(3) is a narrowly tailored exception and must not be used to evade the registration requirement by artful pleading.

c. GUIDELINES 

• Interpretation principle: Read Section 69 strictly; its mandatory character controls maintainability.

• Character of suit: Determine whether plaintiff is suing as partner and whether relief arises from a contract — both limbs must be tested.

• Non-commencement irrelevant: The mere fact that the partnership business was not operational does not negate the document’s character as a partnership agreement.

• Appropriate remedy: Where partners seek internal remedies, prefer dissolution and accounts (saving by Section 69(3)) rather than a bare recovery suit which may be struck down.

• Registration compliance: Parties should ensure registration and proper entry in the Register of Firms before litigating contractual firm rights.

I) CONCLUSION & COMMENTS

The decision reaffirms a long-standing principle of partnership law: registration is not a mere technicality but a jurisdictional precondition for enforcement of contractual rights by partners. Practitioners should be cautious in drafting causes of action where the firm is unregistered pleadings must fit statutory exceptions or else face non-maintainability. The Court’s approach preserves the policy of publicity and third-party protection embodied in the registration regime and prevents partners from using private suits as a substitute for formal safeguards.

The judgment also provides practical guidance: when internal disputes arise among co-owners who have executed partnership-style instruments, the sound procedural route is dissolution and accounts (if appropriate) rather than ad hoc recovery suits. Lastly, the ruling underlines the judiciary’s insistence on the form and substance of instruments: labels such as “bond” or “arrangement” will not defeat the evident attributes of a partnership if the document manifests profit-sharing, capital contribution and allocation of rights.

J) REFERENCES

a. Important Cases Referred

i. Seth Loonkaran Sethiya & Ors. v. Ivan E. John & Ors., (1977) 1 SCC 379.
ii. Mukund Balkrishna Kulkarni v. Kulkarni Powder Metallurgical Industries & Anr., (2004) 13 SCC 750.
iii. Bishen Narain v. Swaroop Narain, AIR 1938 Lahore 43 (as discussed in High Court reasoning).
iv. Sunkari Tirumala Rao & Ors. v. Penki Aruna Kumari, [2025] 1 S.C.R. 902 : 2025 INSC 92 (this judgment).

b. Important Statutes Referred

i. Partnership Act, 1932, Section 69 (ss. (1), (2) and exception (3)).