1998(2) ALL MR 524
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

A.P. SHAH AND B.B. VAGYANI, JJ.

M.L. Chaturvedi Vs. M/S. Sanjay Finance Corporation

Appeal No.448 of 1997,Notice of Motion No.305 of 1996,Suit No.2905 of 1995

11th July, 1997

Petitioner Counsel: Mr.NAVIN PAREKH with Mr.V.L. DESAI
Respondent Counsel: Mr.M.C.SHAH

(A) Letters Patent (Bombay), Clause 15 - "Judgment" - Meaning of - Order permitting withdrawal of suit with liberty to file fresh suit is judgment within meaning of clause 15 and hence letters patent appeal would lie. AIR 1921 Bombay 267 and 1983(1) Bom.C.R.37 Rel.on.

Civil P.C. (1908), O.23, R.1.

Letters Patent Appeal - Order allowing withdrawal of suit with liberty to file fresh suit - Appeal - Maintainability. (Para 2)

(B) Civil P.C. (1908), O.23, R.1(3)(a) - "Formal defect" - Suit by unregistered firm - Cannot be permitted to be withdrawn with liberty to file fresh suit - Non-registration of firm is not formal defect but defect affecting merits of suit. Judgment in Summary Suit No.2905 of 1995 (S.J.) Reversed.

Partnership Act (1932), Ss.69(2), 59

Withdrawal of suit - Suit by unregistered firm - Whether can be allowed to be withdrawn with liberty to institute fresh suit.

Words and Phrases - "Formal defect" - Meaning - Non-registration of firm - Whether constitutes formal defect or defect of substance.

Where the summary suit for recovery of money was instituted by an unregistered firm against the third party, the suit cannot be permitted to be withdrawn with liberty to file a fresh suit, as non-registration of the firm was not a "formal defect" within the meaning of 0.23, R 1(3)(a), but the defect affecting the merits of the suit. [Para 7]

It is settled position that the expression "formal defect" has to be given a wide and liberal meaning and must be deemed to connote every kind of defect which does not affect the merits of the case. A firm not registered u/s 59 of the Partnership Act, 1932 suffers from the legal disability of enforcing a right arising from a contract by instituting a suit against a third party by operation of S.69(2) of the Act. Non registration of the firm, therefore, is not a formal defect, but a defect affecting the merits of the suit, in other words, the very root of the plaintiff's suit. AIR 1940 Bombay 121(FB), AIR 1977 SC 330, 1989 Mh.L.J.849, AIR 1986 Orissa 1, AIR 1982 NOC 142 (J&K) and AIR 1990 Madras 198 Rel.on. Judgment in Summary Suit No.2905 of 1995 (SJ) Reversed. [Para 4,6]

Cases Cited:
AIR 1921 Bom 267 [Para 2]
1983(1) Bom CR 37 [Para 2]
AIR 1940 Bom 121(FB) [Para 4]
AIR 1977 SC 330 [Para 6]
1989 Mh LJ 849 [Para 6]
AIR 1986 Oris 1 [Para 6]
AIR 1982 NOC 142(J&K) [Para 6]
AIR 1990 Mad 198 [Para 6]
AIR 1937 Nag 146 [Para 7]
AIR 1983 Mad 150 [Para 7]


JUDGMENT

A.P. SHAH, J. :- This is defendant's appeal against the order of the learned single Judge granting permission to withdraw the suit with liberty to file a fresh suit. The facts of t he case are few and may be shortly stated. The plaintiff filed Summary Suit No.2905 of 1995 for recovery of a sum of Rs.15,00,000/- with past and future interest. Along with the suit, the plaintiff filed Notice of Motion No.305 of 1996 for attachment before judgment. The notice of motion was placed for hearing before the learned single Judge on 7th February, 1997. The plaintiff applied for withdrawal of the notice of motion on the ground that the suit is not maintainable in view of Section 69(2) of the Indian Partnership Act. The notice of motion was accordingly allowed to be withdrawn. At that stage, the Counsel for the plaintiff made prayer for withdrawal of the suit with liberty to file a fresh suit. The prayer was opposed by the Counsel for the defendant. He submitted that if withdrawal is permitted, liberty to file a fresh suit should not be granted. The learned single Judge, however, felt that there is no vested right accrued in favour of the defendant and granted the prayer for withdrawal of the suit with liberty to file a fresh suit.

2. We have heard Mr.Parekh for the appellant and Mr.Shah for the respondent. Mr.Shah, raised a preliminary objection to the maintainability of the appeal. Mr.Shah submitted that the order under appeal is not a "judgment" within the meaning of clause 15 of the Letters Patent and hence appeal is not maintainable. The submission is devoid of any merit. In Narandas Raghunathdas V/s. Shantilal Bholabhai AIR 1921 Bombay 267, the Division Bench of this Court held that an order under Order XXIII Rule 1 permitting the plaintiff to withdraw the suit with liberty to file a fresh suit is a "judgment" and hence letters patent appeal would lie. There is also a direct decision of the Supreme Court supporting this legal position in the case of Shah Babulal V/s Jayaben reported in 1983(1) Bom.C.R.37. In paragraph 120 of the judgment, the Supreme Court has given illustrations of interlocutory orders which may be treated as judgments. An order allowing withdrawal of the suit with liberty to file a fresh suit is held to be a "judgment" within the meaning of Clause 15 o f the Letters Patent. We have, therefore, no hesitation in rejecting the preliminary objection of Mr.Shah.

3. The next question which falls for our determination is whether the learned single Judge was right in permitting the withdrawal of the suit with liberty to file a fresh suit. Mr.Parekh urged that admittedly on the date of the suit, the plaintiff firm was not registered under Section 59 and, therefore, the suit could not have been instituted against the defendant in view o f Section 69(2) of the Indian Partnership Act. Mr.Parekh urged that defect at the time of institution of the suit was not a formal defect. Therefore, the learned single Judge committed a serious error of law in permitting withdrawal of the suit under Order XXIII Rule 1(3) of the Code of Civil Procedure. Mr.Shah, on the other hand, contended that non-registration of the plaintiff firm was a defect of a technical and formal nature and so the learned Judge did not commit any error of law or jurisdiction by permitting withdrawal of the suit with liberty to institute a fresh suit.

4. Order XXIII Rule 1(3) provides that where the Court is satisfied that a suit must fail by reason of "some formal defect" or that there are "other sufficient grounds" for allowing the plaintiff to institute a fresh suit for the same subject-matter the Court may, on such terms as it thinks fit grant the plaintiff permission to withdraw from such suit with liberty to institute a fresh suit in respect of the subject-matter of such suit. In Ramrao V/s Babu Appanna AIR 1940 Bombay 121, a Full Bench of this Court held that the words "formal defect" in Rule 1(2) of Order XXIII mean defect which does not affect the merits of case whether that defect is fatal to suit or not. It was held that the plaintiff would be allowed to withdraw from the suit if there is a defect of form as distinguished from a defect of substance. In view of the law laid down by the Full Bench it is settled position that the expression "formal defect" has to be given a wide and liberal meaning and must be deemed to connote every kind of defect which does not affect the merits of the case. Now the question is whether non-registration of the firm is a formal defect or a defect affecting the merits of the case.

5. Section 69(2) of the Indian Partnership Act reads as follows :-

"No suit to enforce a right arising for 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 firm,."

6. In AIR 1977 SC 330 (Loonkaran Sethia V/s Ivan E. John), interpreting the provisions of Section 69, the Supreme Court made the following observations :-

"A bare glance at the section is enough to show that it is mandatory in character and its effect is to render a suit by a plaintiff in respect of a right vested in him or acquired by him under a contract which he entered into as a partner of an unregistered firm, whether existing or dissolved, void. In other words, a partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of Section 69 of the Partnership Act."

The Supreme Court reiterated this position in 1989 Mh.L.J.849 (Shreram Finance Corporation V/s Yasin Khan and others). It was held that since the persons suing namely, the current partners as on the date of suit were not shown as partners in the Register of Firms, the suit was not maintainable in view of the provisions of Section 69(2) of the Partnership Act. Although the plaint was amended on a later date, that could not save the suit. In the light of the principle laid down in the aforesaid decisions, it appears that the law is well settled that a firm not registered under section 59 suffers from the legal disability of enforcing a right arising from a contract by instituting a suit against a third party by operation of Section 69(2) of the Act. Non registration of the firm, therefore, is not a formal defect, but a defect affecting the merits of the suit, in other words, the very root of the plaintiff's suit.

It is, therefore, clear that such a defect in t he suit is not a formal defect. The learned Judge was clearly in error in permitting the plaintiff to withdraw the suit with liberty to file a fresh one. The view which we are taking is supported by decisions of various other High Courts (see in this connection Khatunna V/s. Ramsewak Kashinath AIR 1986 Orissa 1, Wardman Finance Corporation V/s. Ghulam Ahmad Lone AIR 1982 NOC 142 (J&K) and T.Savariraj Pillai V/s R.S.S. Vastrad and company AIR 1990 Madras 198).

7. Mr.Shah drew our attention to the decision of the Nagpur High Court in AIR 1937 Nagpur 146 (Firm Sonlal Hansraj v/s. Sadashiv Dasras Koshli) wherein it was laid down that when a suit is dismissed on the ground that the firm was not registered and subsequently the firm is registered, a second suit filed by the firm is not barred. He also drew out attention to the decision of the Madras High Court in AIR 1983 Madras 150 (M/s.Buhari Trading Co. V/s. M/s.Star Metal Co.) holding that the dismissal of a suit which was sought to be withdrawn on the ground that the plaintiff therein was an unregistered firm does not bar the filing of a fresh suit on the same cause of action after the firm gets itself registered and for doing so no permission is needed. In our view, these decisions are not in any way helpful to Mr.Shah. There cannot be any quarrel about the proposition laid down in the aforesaid decision that a second suit brought by an unregistered firm after it gets itself registered cannot be barred under law. However such a suit cannot be permitted to be withdrawn under Order XXIII Rule 1(3)(a) with liberty to file a fresh suit as the defect is not of form but of substance.

8. In the result, the impugned order passed by the learned single Judge is set aside. At this stage, Mr.Shah makes a prayer for simpliciter withdrawal of the suit. The suit is allowed to be withdrawn. Usual order as regards refund. Appeal is accordingly allowed.

Appeal allowed