Civil Reference No. 19 of 1999,S. C. Suit No. 6212 of 1998

2nd September, 2000

Petitioner Counsel: Mr. ABHAY S. OKA, Mr. MOHAN TEKAVADE, Mrs. SHANTA RAO,Mr. M. V. HOLMAGI, Mr. B. P. PANDYA, R. SABARWAL, I. P. MISHRA,Mr. RAJIV KUMAR, Mr. D. CHITNIS,M/s. CHITNIS VAITY & CO.,Mr. Y. S. JAHAGIRDAR,Mr. A. S. OKA, Mr. M. P. TEKAVADE, Ms. GEETA SHASTRI, Ms. S. A. SANDHI, Ms. NISHA TRIVEDI, A. PATHAN,M/s. MAKHIJA,Mr. S. H. THATTE,M/s. THATTE & CO.
Respondent Counsel: Mr. G. E. VAHANVATI,Mr. S. G. DESHMUKH,Mr. ABHAY S. OKA,Mr. MOHAN TEKAVADE,Mr. M. M. SAKHARDANDE,Mr. S. PRABHAVALKAR,Mr. G. E. VAHANVATI,Mr. S. G. DESHMUKH

Cases Cited:
M/s. Raptakos Brett & Co. Ltd. Vs. Ganesh Property, AIR 1998 SC 3085 [Para 11]
The State of Madhya Pradesh Vs. G. C. Mandawar, AIR 1954 SC 493 [Para 18]
Prabhakaran Nair Vs. State of Tamil Nadu, AIR 1987 SC 2117 [Para 18]
Sant Lal Vs. State of Punjab, AIR 1988 SC 485 [Para 18]
Hathising Mfg. Co. Vs. Union of India, AIR 1960 SC 923 [Para 23]
Krishnan Kakkanth Vs. Government of Kerala, (1997) 9 SCC 495 [Para 24,26]
M. H. Quareshi Vs. State of Bihar, AIR 1958 SC 731 [Para 26]
State of Madras Vs. V. G. Row, 1952 SCR 597 [Para 26]
T. Velayudhan Achari Vs. Union of India, (1993) 2 SCC 582 [Para 27]
R. K. Garg Vs. Union of India, (1981) 4 SCC 675 [Para 28]
Peerless General Finance Vs. Reserve Bank of India, (1992) 2 SCC 344 [Para 28]
State of Gujarat Vs. Raman Lal Keshav Lal Soni, (1983) 2 SCC 33 [Para 31]
Pathumma Vs. State of Kerala & Ors., AIR 1978 SC 771 [Para 33]

JUDGMENT

B. N. Srikrishna, J.:- This Reference under Section 113 of the Civil Procedure Code, 1888 read with Order 27A Rule 1 thereof, has been made by the Bombay City Civil Court at Bombay seeking the opinion of this Court on the following Reference :-

"Whether the Maharashtra amendment to Section 69 of the Indian Partnership Act is ultra vires the Constitution of India?"

By the order dated 16th August 1999 made in S.C. Suit No. 6212 of 1998, the learned Judge of the Bombay City Civil Court was of the view that sub-section 2A of Section 69 of the Indian Partnership Act, 1932, hereinafter referred to as "the Act", is ultra vires the Constitution of India; that it was necessary to decide the said issue for disposal of the Suit and, therefore, the learned Judge has sought the opinion of the Court as above.

2. Though the Reference has been made in a particular Suit pending before the City Civil Court, since this is a vital question which affects a number of other litigants, we had invited Advocates who are concerned with the above issue to address us whereupon number of Advocates in other matters where the same issue has arisen or is likely to arise for consideration of the Court have appeared and addressed us.

BACKGROUND

3. Prior to the year 1932, the law governing partnerships in India was contained in Chapter XI (Sections 239 to 266) of the Indian Contract Act of 1872. The said Chapter was repealed by the coming into force of the Indian Partnership Act, 1932 by which a separate enactment to deal with the subject of Partnership was brought on the statute book. Chapter VII (Sections 56 to 71) of the Indian partnership Act, 1932 contained the fasciculus of provisions regarding registration of partnership firms. Section 58 provides for the making of an application for registration containing the particulars stated in clauses (a) to (f) of sub-section (1) in the appropriate prescribed form. Such application has to be delivered to the Registrar in the concerned area and is required to be verified and signed by all the partners or by their agents specially authorised in this behalf. Such application is required to be made within a period of one year from the date of constitution of the firm. When the Registrar is satisfied that the provisions of Section 58 have been duly complied with, Section 59 provides that he shall record an entry of the statement in the Register of Firms. Section 59A gives a leeway for the Registration of firms beyond the prescribed period of one year on payment of certain prescribed penalty. Section 62 requires that where a partner in a registered firm alters his name or permanent address, an intimation of the alteration has to be given to the Registrar of Firms for the purpose of making entries in the Register of Firms. Similarly, Section 63 obligates every incoming or going partner or every partner upon dissolution of a firm to give full particulars regarding the changes in and dissolution of a firm. There is also provision under sub-section (2) of Section 63 for giving intimation regarding withdrawal of a minor who has been admitted for the purpose of partnership in a firm. Section 65 empowers a Court deciding any matter relating to a registered firm to direct that the Registrar shall make any amendment in the entry in the Register of firms relating to such firms which is consequential upon its decision and the Registrar shall amend the entry accordingly. There are detailed provisions as to inspection of the register and documents on record and penalties for contravention of the provisions.

4. Section 69 of the Act which is of importance provides for the effect of non-registration of a firm. This Section reads as under :-

"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 a behalf of any persons 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 :

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 realise the property of 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 firm.

(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 realise 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 realise the property of a dissolved firm.

(3) The provisions of sub-sections (1), (2) and (2A) shall apply also to a claim of set-off or other proceedings to enforce a right arising from a contract but shall not affect-

(a) the firms constituted for a duration upto six months or with a capital upto two thousand rupees ; or ;

(b) the powers of an official assignee, receiver or Court under the Presidency Towns Insolvency Act, 1909, or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner.

(4) This section shall not apply -

(a) to firms or partners in firm which have no place of business in the territories to which this Act extends, or whose places of business in the said territories are situated in areas to which, by notification under section 56 this Chapter does not apply, or

(b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the presidency towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882, or outside the Presidency towns, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim."

5. The Indian Partnership Act, 1932 does not make the registration of a partnership firm compulsory. However, it provides for certain drastic consequences to follow if a firm is not registered.

6. Sub-section 2A of Section 69 of the Act is not in the Central Act but was introduced in the parent statute by virtue of Section 13(b) by Maharashtra Act No. XXIX of 1984. This amendment has been carried out by the State Government in exercise of its constitutional power at Entry 7 of List III of Seventh Schedule to the Constitution of India which reads "contracts, including partnerships". The proviso to sub-section (1) of Section 69 and clause (a) in sub-section (3) of Section 69 were also added and substituted by the same amending Act. Similarly, the words "sub-sections (1), (2) and 2(A)" were substituted by the amending Act in sub-section (3).

7. The historical development of the provisions as to the registration of a partnership firm needs to be considered to appreciate the contentions advanced at the bar. As already recounted, prior to 1932, the law as to partnership was contained in Chapter XI (Sections 239 to 266) of the Indian Contract Act, 1872. The Government of India felt the necessity to enact a separate statute to deal with the subject of partnerships. A Special Committee was appointed to examine the provisions of the Bill to amend the law relating to partnership. The report of the Special Committee is published in the Gazette of India Part V dated January 24, 1932, at pages 31 to 36. The Special Committee took notice of the law in England, the Partnership Act, 1890 (53 and 54 Vict. C. 39), and the views of Lindley as to the main source of difference between the Bill and the Partnership Act, 1890. The Special Committee was of the view that the provisions of the Bill went some way to meet Lindley's criticism while adhering strictly to the old established English and Indian view that a firm is not a legal person. The Special Committee noticed that the Bill had incorporated an amendment under the chapter on the registration of firms, namely, Chapter VII. According to the Special Committee, the history of the proposals for some measure of such a kind in India dated as far back as in 1867 when the Bombay Chamber of Commerce first made a suggestion that legislation should be undertaken for the compulsory registration of firms. This step was then deemed to be impracticable, but ever since at frequent intervals various mercantile bodies, sometimes supported by local Governments, had pressed for some such legislation in the interests of the trading public. The movement was strengthened by the passing of the Registration of Business Names Act, 1916 (5 and 6 George Vs. c. 58) which furnished a useful precedent in the matter. The Registration of Business Names Act, 1916 made the registration of all firms compulsory, attached a penalty to failure to register and rendered persons in default incapable of bringing a suit to enforce their claims as partners, whether against their co-partners or against third parties. The Special Committee also noticed that in 1918 the Industrial Commission in England had recommended a system of compulsory registration and in 1925 the Civil Justice Committee made specific recommendations somewhat on the lines of the Registration of Business Names Act, 1916, but excepting firms with a capital below Rs. 500/-. In 1920, the legislature of Burma passed the Burma Registration of Business Names Act, 1920, which applied the principle of compulsory registration to certain towns in Burma.

8. The Special Committee then went on to notice that several of these proposals for introducing an element of compulsory registration ran into difficulties mainly on account of special problems faced in three categories of cases, namely, (a) Hindu undivided families, (b) short-lived partnerships, and (c) firms in a small way of business. The peculiarities arising in the aforesaid three categories of cases were discussed in detail by the Special Committee and at the end of the day the Special Committee opined (vide paragraph 17 of the Report) as under :-

"17. The English precedent in so far as it makes registration compulsory and imposes a penalty for non-registration has not been followed, as it is considered that this step would be too drastic for a beginning in India, and would introduce all the difficulties connected with small and ephemeral undertakings. Instead, it is proposed that registration should lie entirely within the discretion of the firm or partner concerned, but, following the English precedent, any firm which is not registered will be unable to enforce its claims against third parties in the civil courts; and any partner who is not registered will be unable to enforce his claims either against third parties or against his fellow partners. One exception to this disability is made - any unregistered partner in any firm, registered or unregistered, may sue for dissolution of the firm. This exception is made on the principle that registration is designed primarily to protect third parties, and the absence of registration need not prevent the disappearance of an unregistered or imperfectly registered firm. Under this scheme a small firm, or a firm created for a single venture, not meeting with difficulty in getting payment, need never register; and even a firm with a large business need not register until it is faced with litigation. Registration may then be effected at any time before the suit is instituted. The rights of third parties to sue the firm or any partner are left intact."

9. One further recommendation made by the Special Committee (vide paragraph 24) which needs to be noticed is as under :-

"24. One more point regarding the registration of firms calls for mention. It is proposed that the chapter, in so far as it provides machinery for registration, amendment of the register, grant of copies and so forth, should come into force along with the rest of the Bill, so that firms may apply for registration at once. The clause regarding the conclusive nature of the statements recorded in the register will come into force at the said time. However, it would obviously be unjust to make all unregistered firms and partners incapable of suing until they have had a reasonable opportunity to register; and it is proposed that they should be allowed one year by enacting that the clause rendering them incapable of suing shall not come into force until one year after the commencement of the rest of the Act."

10. The Indian Partnership Act, 1932 was brought on the statute book to bring about these objectives. The Report of the Special Committee makes it clear that a deliberate departure was made by the Indian legislature in the matter of compulsory registration of firms. Instead of following the English precedent - on account of several peculiar features noticed in the set up of the Indian businesses - the legislature followed the policy of making registration optional while providing for drastic consequences in the event of non-registration of firms.

11. Section 69(1) and Section 69(2) of the Act imposed partial disabilities on unregistered firms and they were :

(a) Sub-section (1) prohibited a person suing as a partner in a firm from bringing a suit to enforce a right arising from a contract or conferred by the Partnership Act:

(i) against the firm, or

(ii) against any person alleged to have been a partner in the firm.

(b) Sub-section (2) prohibited a firm from filing against any third party a suit to enforce a right arising from a contract.

However, suits to enforce rights not arising from contracts were not hit. (See in this connection M/s. Raptakos Brett & Co. Ltd. Vs. Ganesh Property, AIR 1998 SC 3085).

12. After imposing the disability in the aforesaid manner, sub-section (3) made an exception to the disability as under :-

"The enforcement of any right to sue for the dissolution of a firm or any right or power to realise the property of a dissolved firm was permitted notwithstanding the fact that the partnership was unregistered".

This was the law of partnerships which operated from 1932 till it was amended by the Maharashtra Act No. 1984.

13. The operation of the Partnership Act for a period of more than forty years came in for review by the State Government which referred the matter to the Maharashtra State Law Commission sometime in March 1977. The reference became necessary on account of "the vast extension of the business activity in the public and private sector and the need for effective checks for rampant malpractices". (Vide paragraph 2 of the Eleventh Report of the Maharashtra State Law Commission). The Commission took review of the subject, carefully taking into account the observations made by the Special Committee's Report of 1934. The Maharashtra State Law Commission noticed that the Law Commission of India was in favour of compulsory registration of partnerships and that the Bombay Chamber of Industry and Commerce and the representatives of commercial associations informed the Commission that in the commercial world registration of partnership is a rule rather than an exception, as registration was both convenient and necessary for the purposes of income tax. The State Law Commission, however, recommended :-

"The Commission is not in favour of introducing compulsion for registration of partnerships, just as it is not in favour of requiring the partnership agreements to be in writing. The Commission does not undermine the importance of written partnership and indeed feels that they both are highly desirable; but the Commission is of the view that this should be accomplished not by compulsion but by voluntary decision to be taken in that behalf by the partners themselves. The provision of the law should be so made as to induce the firms to have the partnership agreements in writing and firms registered as a desirable course in the best interests of the business. In this task, the small or ephemeral joint ventures need to be, and can always be, considered for protection. But the Commission does not regard that a need to protect such ventures should necessarily result in compulsion upon the rest." (Vide paragraph 11).

Again, in paragraph 12 of its Report, the State Law Commission said : "An appropriate mode of providing further inducements to the firms would be to prohibit legal action for dissolution of a firm or for account of a firm or to enforce any right or power to realise the property of the dissolved firms by unregistered firms." The State Law Commission was of the view that, instead of making the registration compulsory, registration should be left to the volition of the parties but that non-registration should in the long run result in stringent consequences being visited upon the parties. The mode of inducement to registration suggested by the Commission was to be achieved by imposing on an unregistered firm a further disability i.e. removal of the exception granted in Section 69(3)(a) of the Act.

14. The Maharashtra Act No. XXIX of 1984 which brought about amendments in the Indian Partnership Act, 1932 reflects the thinking of the State Law Commission on the subject. The Statement of Objects and Reasons appended to Bill No. XI of 1984 evidences this. The Statement of Objects and Reasons (reported in M.G.G. Part V dated July 9, 1984, pages 200 and 201) brings out the following:-

(a) That the legislature recognised the manifold changes in the socio-economic conditions and the vast extension of business activities in the public and private sector making it necessary for the Act to be urgently amended so as to make it more effective or useful for all concerned ;

(b) That though at that time registration of a firm was not compulsory, the intention was to continue the same legal position as to no compulsion in the matter of registration of a firm, but that it was felt that persuasive pressure should be brought upon firm to come on the register.

To quote from the Statement of Objects and Reasons in paragraph 3, "It is expected that the proposed amendments would provide very strong inducement to the trading community to resort to written partnership, agreements and registration of partnerships."

15. The Statement of Objects and Reasons suggests that it was recognised that under the law as it existed, no member of an unregistered firm could enforce by suit his right under the partnership contract against either the firm or any person or past member of it, nor could the unregistered firm sue third parties on their contracts. "To bring further persuasive pressure on the firms to come on the register", it was proposed to provide that even for suits for the dissolution of a firm or for accounts of a dissolved firm or to realise the property of a dissolved firm, the firm must be a registered firm. For the purpose of protecting the interest of the small firms, it was proposed to exclude partnership firms constituted for a duration upto six months, or with a capital upto two thousand rupees, from the proposed disabilities under Section 69. With these objects in view, the exception which had been carved out in sub-section (3)(a) with reference to suit for dissolution was deleted by the amendment and in its place sub-section 2A was introduced along with clause (a) in the exiting sub-section (3) which was substituted by the following :-

"the firms constituted for a duration upto six months or with a capital upto two thousand rupees."

Similarly, the other amendment in sub-section (3), already noted, was also effected.

16. The Amendment Act came into force from 1st January 1985. The basic purpose underlying the amendment made by the State legislature was to induce the parties who wanted to carry on business in partnerships to come on the register of firms. There was an obvious public purpose behind this. In the absence of availability of publicly available information, any third party who dealt with a firm could not be sure if any person with whom he was dealing was a member of a firm, and in case the firm denied its liability and the authority of such person to represent it, the members of public would be put to prejudice, inconvenience and harm. Registration of the firm, therefore, operated as constructive notice both as to the fact of the registration and as to the fact of the names of the partners of the firm. It enabled third parties dealing with the partnership firms to know who the partners were as the names of the partners had to be entered on the register. This was intended to be and in fact offered a great protection for persons who dealt with partnership firms. The three exceptions to the stringent rule enacted in sub-section 2A were : (i) suit by heirs or legal representatives of deceased partners of firm for accounts of the dissolved firm or for realising property of a dissolved firm; (ii) cases of firms constituted for a duration upto six months or with a capital upto two thousand rupees; and (iii) the powers of an official assignee, receiver or Court under the Presidency Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner. We are not concerned with the exemption granted under sub-section (4) of Section 69 of the Act for that is not under challenge.

CHALLENGE BASED ON ARTICLE 14

17. The challenge to the constitutional validity of sub-section 2A of Section 69 of the Act as abridging the Fundamental Right guaranteed under Article 14 has been raised on the following grounds :-

(a) The amendment operates in Maharashtra alone. Thus partners of an unregistered firm in the State of Maharashtra alone are subjected to the disability introduced by the Amending Act No. XXIX of 1984, while similarly situated partners of unregistered firms in other States are not subject to such disability. This is an arbitrary and invidious discrimination hit by Article 14 of the Constitution.

18. In our view, this challenge has no substance whatsoever. As held by the Supreme Court in The State of Madhya Pradesh Vs. G. C. Mandawar, AIR 1954 SC 493, "Article 14 does not authorise the striking down of a law of one State on the ground that in contrast with a law of another State on the same subject its provisions are discriminatory. Nor does it contemplate a law of the Centre or of the State dealing with similar subjects being held to be unconstitutional by a process of comparative study of the provisions of the two enactments. The sources of authority for the two statutes being different, Article 14 can have no application. The same view has been followed by the Supreme Court in Prabhakaran Nair Vs. State of Tamil Nadu, AIR 1987 SC 2117 and Sant Lal Vs. State of Punjab, AIR 1988 SC 485. Thus, the contention is wholly unsound. The source of authority for the amendment is the State legislature and its power under Entry 7 of List III of the Seventh Schedule, namely, "contracts, including partnerships". This is on the concurrent list and, therefore, Parliament was also equally empowered to enact on the same subject. The source of authority for the Central legislation is Parliament. The source of authority of the two being different, as held by the Supreme Court in the aforesaid judgments, Article 14 can have no application. We, therefore, reject this contention.

(b) It is contended that the discrimination made between the partners and the heirs of deceased partners in the matter of imposition of the disability is arbitrary so as to be also hit by Article 14. The contention is that while a partner of an unregistered firm cannot bring a suit, even for accounts or for realisation of his share of the property of the firm, the heir of such partner can. We find no substance in this contention.

19. It cannot be gainsaid that a partner of an unregistered firm, who is presumably a worldly wise businessman, can be equated or put on par with the heir of such a partner, who may presumably be a minor, an illiterate or literate widow, not used to ways of business. In any event, the disability was forseeable when the partnership was constituted. On the day on which the partnership was constituted and brought into existence, all partners had notice of the provisions of the Act and the adverse consequences that may arise in future, if the partnership was not registered in accordance with the provisions of the Act. If, knowing such consequences, they failed to register the partnership as required by the Act, it is understandable that they are visited with the stringent consequence which flow from sub-section 2A of Section 69 of the Act. The heirs, however, could have had no volition in the matter of registration or non-registration. Consequently, they cannot be visited with the same stringent consequences. The contention is, therefore, unsound and the challenge must fail.

20. (a) It is next contended that the operation of the scheme of the Partnership Act as brought about by the Maharashtra amendment is arbitrary and unreasonable. The argument runs somewhat like this :-

There is no compulsion to register a partnership. The partnership can be constituted without a deed or without registration and the partnership business may continue. After the partnership has carried on its business for some time, a dispute may rise between the partners requiring the filing of a suit by one or more partners for accounts or for realisation of the property of the firm. At this time all the partners would not be seeing eye to eye. Since Section 58 of the Act requires that the application for registration has to be accompanied by a true copy of the Deed of Partnership and a statement in the prescribed form which is required to be signed and verified by all the partners, registration at this juncture is an impossibility since the partners are at loggerheads. Consequently, imposing the severe disability on a partner by barring his suit for accounts and realisation of the assets of the firm is an arbitrary, harsh and unreasonable restriction which advances no purpose of the amendment and, therefore, must be struck down as hit by Article 14 of the Constitution.

(b) In our judgment, this contention too is fallacious. It is no more dubitable that the object of the amendment was to "induce" parties voluntarily to come on the register. This the legislature achieved by a carrot and stick policy. Though it permitted unregistered partnerships to carry on business, the legislature pointed out that, in case the partnership ran into trouble, the partners would not only be disabled from suing third parties, but also disabled from bringing a suit interse for accounts and realisation of the assets of the firm. This every partner must be deemed to have been aware of on the date on which he entered into the partnership and the partnership was constituted. Having cognizantly and deliberately decided against following the softer option of registering the partnership - at the time when all the partners were seeing eye to eye - the partners of such a firm cannot be heard to complain, after a disagreement has ensued between them, that the law operates harshly as against them. In our judgment, the consequences are neither unintended, nor unreasonable, much less, unconstitutional or unrelated to the objects of the statute, as suggested. It was perfectly open to the legislature to have adopted the English precedent of making registration compulsory, in which case there was hardly any scope to complain. Compulsory registration of business entities is not an unknown phenomenon in laws affecting business. Compulsory registration is required under the Companies Act as well as under the Co-operative Societies Act. A similar provision for partnerships, if made, would perhaps have been perfectly justified. Instead of making such a provision, which the legislature in its wisdom, after review of the peculiar Indian situation, felt was unsuited to Indian conditions, the legislature gave the mercantile community the caution that if they failed to take the softer option, they would have to face stringent consequences. Having failed to take the softer option, the parties cannot be heard to complain at the later stage about the drastic effects of the statute. We see nothing arbitrary, unreasonable or unrelated to the objects of the statute in the State amendments.

21. (a) It is next contended that, as evidenced from the Special Committee's Report, the provision as to registration was intended to protect third party members of the public; that the severe disability introduced by the amending Act has no nexus with this object at all.

(b) In our view, this argument arises on account of a misconception. The amendment is but a step in furthering the object which was initially envisaged in the 1932 Act itself, namely, that of protecting the interests of innocent third parties. While enacting the 1932 Act, the legislature had the experience in England before it and the English precedent of the registration of Business Names Act, 1916. On the other hand, it had before it the peculiar features of the trading entities in India. We have already referred to the peculiar features affecting the Indian trading community which were noticed by the Special Committee in its Report. Because of these peculiar features, compulsory registration was not considered feasible at that time. The law operated on this basis from 1932 to 1984 (for a period of more than fifty years). At least in the State of Maharashtra, the State Government requested the State Law Commission to take a review of the operation of the central Act from 1932 and suggest remedial measures. After noticing the manner in which business was being carried on and how the Act affected such business, and further that there were rampant mal-practices, the State Commission, though still of the view that registration should not be made compulsory, yet recommended that the disabilities for non-registration be extended even to suits interse between partners so as to bring in greater disincentive for non-registration. Viewed against this background, it is obvious that the expansion of the disability to interse suits between the partners was a step in the same direction towards protection of members of the public and third parties. In our considered judgment, the State amendment is actually in furtherance of the object sought to be achieved by the parent Act in the matter of providing protection to third parties. While the parent Act had only one disability, i.e. the disability in the matter of suing third parties, the amending Act has introduced a second disability of barring suits interse between partners, both in the case of unregistered firms. In our view, therefore, the contention cannot be accepted.

22. The next ground of attack is that the legislature has without basis discriminated in favour of small firms and the Official Assignee. It is established law that Article 14 does not come into play where the two entities to be compared do not stand on the same footing. We do not think that it requires much argument to hold that a small firm or the official Assignee do not stand on the same footing as medium or big size firms. It is unnecessary for us to delve further into this distinction for we are satisfied that the two stand on different planes and have been differently dealt with for good reasons.

CHALLENGE BASED ON ARTICLE 19(1)(g)

23. (a) It is contended that sub-section 2A of Section 69 of the Act places an unreasonable restriction on the right to carry on business which would include the right to close down the business also. That there is restriction of the right to carry on or close down the business is indubitable; that there is unreasonableness in doing so, is hotly contested.

(b) Article 19(1)(g) of the Constitution confers on every citizen the right to practice any profession or to carry on any occupation, trade or business. Clause (6) empowers the state to make any law imposing in the interest of the general public reasonable restrictions in the exercise of rights conferred by Article 19(1)(g). It is true that in Hathising Mfg. Co. Vs. Union of India, AIR 1960 SC 923, the Supreme Court recognised that the right to do business also includes within itself the right to close down the business, but the right to impose reasonable restrictions on both cannot be doubted. The issue then is, are the restrictions imposed on the right to carry on business by the amending Act reasonable ?

(c) We have already pointed out that the object sought to be achieved by the legislation by making provisions for registration - both in the parent Act as well as in the amending Act - is protection of the interests of the public. The importance of registration cannot be over-stated. Registration operates to protect members of general public by identifying the partners of the firm with whom the members of the general public are dealing. The consequences of not being able to so identify would be that the firm could deny its liability towards an outsider, though a partner may have ostensibly represented the unregistered firm. Registration eliminates such a controversy and gives a clear identification to a member of public as to who he is dealing with. Thus, the reasonableness of the restriction has to be adjudged from the purpose for which it has been imposed. The purpose of the restriction is, in our opinion, salutary and fits in exactly with the scheme of clause (6) of Article 19, namely, "in the interest of the general public".

24. (a) It is next contended that the legislation operates harshly as against persons who had chosen not to register for the reason that, after disputes have arisen, there is no probability of a registration coming through. A dishonest partner may, therefore, be totally immune from legal action.

(b) In our view, this contention too has no merit. The fact that legislation may operate harshly on a particular individual in a particular case is no ground for invalidating the legislation. This is particularly so when the consequences, however harsh they may seem when they arise, were and ought to have been foreseen at the time of the constitution of the partnership itself. (See in this connection Krishnan Kakkanth Vs. Government of Kerala and others, (1997) 9 SCC 495).

(c) The argument of unreasonableness of retraction is also without substance for another reason. There cannot be an unfettered right to carry on any business, in partnership or otherwise. In fact, Section 11 of the Companies Act provides that, in case of a partnership in excess of eleven partners, in the case of banking business, and in excess of twenty partners in other businesses, business cannot be done without incorporation. It can hardly be contended that such a restriction is invalid or unconstitutional. The very fact that no such contention has been raised or entertained, for the last forty four years that the Companies Act, 1956 has been in operation, provides negative testimony. Thus, if the imposition of a total ban cannot be challenged as unconstitutional, a fortiori, it follows that imposition of an adverse consequence in the event of non-registration can hardly be said to be an unreasonable restriction on the fundamental right guaranteed under Article 19(1)(g).

25. It is not as if the State Act has prohibited unregistered firms from carrying on business. There is no total ban on business by an unregistered firm, though it is perhaps conceivable that even such a ban might have been upheld. On the other hand, what has been done is to provide for certain disabilities in addition to those already existing in the parent Act. This, by itself, is not an unreasonable restriction of the fundamental right guaranteed under Article 19(1)(g) in our view.

26. As laid down by the Supreme Court in Krishnan Kakkanth Vs. Government of Kerala and others, (1997) 9 SCC 495, the right to carry on business is not an unfettered or unrestricted right. The State is empowered to impose reasonable restrictions in the enjoyment of the fundamental rights guaranteed under Article 19(1)(g). The concept of social control is evident in the types of restrictions that are permissible by clauses (2) to (6) under Article 19. The reasonableness of the restriction is to be determined in an objective manner and from the standpoint of interest of the general public and not merely from the standpoint of interest of the person on whom the restrictions are imposed or by their drastic consequences. A restriction cannot be said to be unreasonable merely because in a given case it operates harshly and even if the persons affected therein are petty traders. The Supreme Court has pointed out in Krishnan Kakkanth's case (supra) vide paragraph 27 as under :-

"27. The reasonableness of restriction is to be determined in an objective manner and from the standpoint of the interests of general public and not from the standpoint of the interests of the persons upon whom the restrictions are imposed or upon abstract consideration. A restriction cannot be said to be unreasonable merely because in a given case, it operates harshly and even if the persons affected be petty traders (Mohd. Hanif Vs. State of Bihar, AIR 1958 SC 731). In determining the infringement of the right guaranteed under Article 19(1), the nature of right alleged to have been infringed, the underlying purpose of the restriction imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, enter into judicial verdict (Laxmi Khandsari Vs. State of U. P., AIR 1981 SC 873, D.K. Trivedi and Sons Vs. State of Gujarat, 1986 SCC Supp. 20 and Harakchand Ratanchand Banthia Vs. Union of India, AIR 1970 SC 1453)."

Such reasonable restrictions must strike a balance between freedom and social control. It is settled law that in determining the question of reasonableness the Court cannot proceed on a general notion of what is reasonable in the abstract or even on a consideration of what is reasonable from the point of view of the person or persons on whom restrictions are imposed. As observed by the Supreme Court in M. H. Quareshi Vs. State of Bihar, AIR 1958 SC 731, vide paragraph 21, "To the person who has this right any restriction will be irksome and may well be regarded by him as unreasonable. But the question can't be decided on that basis. What the Court has to do is to consider whether the restrictions imposed are reasonable in the interests of the general public." The Supreme Court in this case endorsed its earlier view expressed in State of Madras Vs. V. G. Row, 1952 SCR 591 at page 607 as under :

"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 judicial verdict. In evaluating such elusive factors and forming their own conception of what is reasonable, in all the circumstances of a given case, it is inevitable that the social philosophy and the scale of values of the judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility and self-restraint and the sobering reflection that the Constitution is meant not only for people of their way of thinking but for all, and that the majority of the elected representatives of the people have, in authorising the imposition of the restrictions, considered them to be reasonable."

27. In the field of economic legislation or legislation affecting business, reasonableness is to be adjudged from the overall social control which the legislation seeks to place on the business. In T. Velayudhan Achari Vs. Union of India and others, (1993) 2 SCC 582, the Supreme Court upheld the restrictions imposed by Section 45-S(1) of the Reserve Bank of India Act, 1934 as introduced by the Banking Laws (Amendment) Act, 1993 limiting the number of depositors that can be accepted by individual firm or unincorporated association by taking the view that these restrictions were reasonable restrictions as they were intended to protect the larger interest of the depositors and, in such matters, restriction of economic activities was always permissible. It was emphasised that while examining the validity of such provisions, the Court always must have regard to the wisdom of the legislature because that alone has the necessary information and expertise pointing to the need of such a legislation.

28. The Supreme Court in R. K. Garg Vs. Union of India, (1981) 4 SCC 675, vide paragraph 19, observed as under :-

"......... That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the Court would be least fitted to pronounce. The Court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not. There are so many imponderables that would enter into the determination that it would be wise froor the Court not to enter into the determination that it would be wise for the Court not hazard an opinion where even economists may differ. The Court must while examining the constitutional validity of a legislation of this kind, be resilient, not rigid, forward looking, not static, liberal, not verbal and the Court must always bear in mind the constitutional proposition enunciated by the Supreme Court of the United States in Munn Vs. Illinois, 94 US 113 : 24 L.Ed. 77 (1875), namely, that courts do not substitute their social and economic beliefs for the judgment of legislative bodies. The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere, unless the exercise of legislative judgment appears to be palpably arbitrary. The Court should constantly remind itself of what the Supreme Court of the United States said in Metropolis Theater Co. Vs. City of Chicago, 228 US 61 : 57 L.Ed. 730 (1912):

The problems of government are practical ones and may justify, if they do not require, rough accommodations, illogical it may be, and unscientific. But even such criticism should not be hastily expressed. What is best is not always discernible, the wisdom of any choice may be disputed or condemned. Mere errors of government are not subject to our judicial review."

To similar effect are the observations of the Supreme Court in Peerless General Finance Vs. Reserve Bank of India, (1992) 2 SCC 344.

29. Another contention which has been strenuously urged is that the State amendment has rendered a litigant without remedy. The contention is that there is no provision in the Act which gives a deeming effect to an application filed for registration under section 58. Consequently, despite the filing of such an application, the actual registration process takes a long time. Thus, even if the partners constitute a partnership and on the same day file the required duly verified statement under their signatures under Section 58, the actual registration of the firm may not be granted for a long period of time. This, it is submitted, is on account of the bureaucratic manner in which the Registrar functions and the innumerable - sometimes flimsy - objections raised by his office. It is then urged that there being no provision in the Act to the effect that the registration when granted would be deemed to be effective from the date of the application, if a dispute arises in the interregnum between the date of the application and the actual date of registration, even a vigilant set of partners would be put in an unenviable situation. It is pointed out that if an attempt to register a firm is made after disputes have arisen, a dishonest dissenting partner may decline to subscribe to and verify the application for registration and defeat the attempt for registration. Since there is no adjudicatory power given to the Registrar, much less the power to compel the dissenting partner to put his signature on the application for registration (as given say under the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963), the law would always operate to the prejudice of innocent partners who would be deprived of their remedy of bringing a suit for accounts and realisation of the assets of his firm.

30. In our view, this contention too is not justified. We will even assume that the Registrar acts in a bureaucratic manner and takes an unduly long time to register a firm. That may be a matter of administrative laxity curable by a judicial fiat in an appropriately brought proceeding by way of a Writ Petition. That does not justify invalidating the legislation as abridging the fundamental rights guaranteed under Article 14 or under Article 19(1)(g) of the Constitution. It is urged that a suit brought for compelling a dissenting partner to sign the application for registration would also be barred under sub-section 2A of the Section 69 of the Act. In our view, this contention is unsound. Sub-section 2A bars only a suit, to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or any right or power to realise the property of a dissolved firm, by or on behalf of the partner of an unregistered firm. The disability is restricted to these kinds of suits. A suit filed by one partner against another to compel him to sign an application for registration under Section 58, in our judgment, is not hit by the bar under sub-section 2A of Section 69 of the Act. We, therefore, do not see any difficulty as to why such an independent suit cannot be brought. Even if the difficulty envisaged of unreasonable refusal to sign and verify the application for registration is true, the partner may be compelled by a decree of the Court to sign the application for registration. Obviously, pending the result of such litigation, the Court would be entitled to grant such interim relief as may be warranted in the facts and circumstances of the case. The bogey of an unreasonable refusal, therefore, is baseless, in our view. Nonetheless, we do recognise that, though insufficient to support an argument to invalidate the constitutionality of the impugned provisions of the Act, there is certain amount of lacuna in the Act which needs to be filled up. The Registrar needs to be given an adjudicatory power or at least the power to direct a recalcitrant partner to sign an application for registration on pain or penalty. Alternatively, the registration, when granted, should date back to the date of the application. We accordingly recommend that these ameliorative measures be incorporated in the statute by amendments. The statute, as it stands, despite the notice lacunae, does not fall foul of the constitutional provisions as contended.

31. The judgment of the Supreme Court in State of Gujarat Vs. Raman Lal Keshav Lal Soni, (1983) 2 SCC 33, was relied upon to urge that an amendment in a statute cannot go against the object of the principal Act. We have already held that there is no inconsistency between the object of the parent Act and the object of the amending act. Both are intended to protect the interest of the public at large; both apply different degrees of pressure to bring unregistered firms on the register by brandishing the threat of barring suits against third parties, or even interse.

32. It is argued that the amending Act creates three separate classes, namely, (a) a class of partners of unregistered firm; (b) a class of legal heirs of partners of unregistered firms, and (c) a class of partners of firms having limited period of six months or less and partners in a firm having capital of less than two thousand rupees and further that the law operates differently against these three classes despite their being identically situated. The basic premise on which the argument is based is erroneous. We do not accept that these three classes are identically situated. We have already indicated sufficiently that each one of them is sui generis and the doctrine of hostile discrimination which is anathema to Article 14 cannot operate here.

33. Pathumma and others Vs. State of Kerala and others, AIR 1978 SC 771, was cited to contend that the restrictions contemplated by Article 19(1)(g) should not be arbitrary or of excessive nature so as to go beyond the requirement of the interest of general public. It is urged that the interests of the general public are already protected by the original Section 69 disabling partners of a unregistered firm from suing a third party, that the amendment has the effect of giving an unfair advantage to a dishonest partner and cannot be said to be in the interest of general public. We regret we cannot accept this contention at all. From 1st January 1985, every citizen is deemed to have known the law including the consequences of non-registration. He is deemed to know the disability brought into effect by the parent Act as extended in operation by the amending Act. Thus, a citizen is given the freedom of so organising his business by registering the partnership or carrying on business as an unregistered partnership firm with the risk of the disability under Section 69(2A) of the Act arising in future. Knowing these circumstance, if the citizen chooses the latter alternative, he cannot be heard to complain if the stringent consequences contemplated by sub-section (2A) of Section 69 of the Act are visited on him at some time in future. Far from being arbitrary, excessive or unreasonable, these are reasonable restrictions intended to protect the interests of general public and must be upheld as constitutionally permissible.

34. The different learned Counsel who appeared before us cited a large number of other authorities, both in their oral and Written Submissions, in support of propositions which have by now become well established in constitutional law. We have not dealt with all such authorities, for, in our view, there is no gain to be achieved by multiplying authorities on principles of constitutional law which are too well embedded to need backing up of authorities.

35. Thus, in our view, the challenges to the amendments made in the Indian Partnership Act, 1932 by the Maharashtra Act No. XXIX of 1984 have no substance and must fail. We have no hesitation in upholding the constitutional validity of the provisions of those State amendments to the Indian Partnership Act, 1932.

36. For the aforementioned reasons, we answer the Reference as under :

"The Maharashtra amendments to Section 69 of the Indian Partnership Act, 1932 are not ultra vires the Constitution of India and do not violate the fundamental rights guaranteed under Article 14 and Article 19(1)(g) of the Constitution of India."

37. Issuance of certified copy expedited.

Reference answered accordingly.