Quick Referencer for Judicial Service

Q. ‘A’ and ‘B’ were partners in an unregistered firm carrying on the business of sugar manufacturing. ‘C’ was advanced Rs. 10,000 by the firm in lien of his promise to supply sugarcane. There was short supply of sugarcane and Rs. 7000 were due from ‘C’ to the partnership firm. The partnership was afterwards dissolved and in a division of the assets of partnership this debt of Rs. 7000 was allotted to ‘A’. Can ‘A’ sue ‘C’ to recover the amount?

Civil Services (I.A.S.) Exam. 1964
Civil Services (I.A.S.) Exam. 1967 (Similar problem).
21st Bihar Judicial Service Exam. 1984 (Similar problem).
20th Bihar Judicial Service Exam. 1980 (Similar problem)
U.P. Higher Judicial Service (A.D.J.) Exam. (Similar problem)

Ans: Yes, ‘A’ can sue to recover the amount from ‘C’—Section 69 (Effect of non-registration) And Bihari Lal v. Union of India, AIR 1960 Pat 397.

Reasons: According to Section 69 the general rule is that unregistered partnership firm cannot sue either partners inter se or to a third party.

But relevant part of Section 69(3) on which this problem is based states that the aforesaid general rule will not apply in case of enforcement of any right or power to realise the property of a dissolved firm.

In the famous case of Bihari Lal v. Union of India referred above, the plaintiffs claimed damages for non-delivery of a bale of cloth despatched from Ahmedabad to Muzaffarpur through railway. This action was brought after the dissolution of the firm which was unregistered. In this case Patna High Court held that the partners of the dissolved firm are entitled to bring an action for compensation from the railway for the non-delivery of bale of cloth—in view of provision made in Section 69(3).

Thus, in view of provision made in Section 69(3) and decision given by Patna High Court in Bihari Lal v. Union of India it can be said that in the given problem A’ can sue to recover the amount from ‘C’.

Source: Kishor Prasad

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