Image Source: https://rb.gy/hiddas

This article is written by Deepa Rishi.

Introduction

What is a partnership?

Indian Partnership Act, 1932 defines a partnership as an entity where two or more people join together with a common object of carrying out the firm’s business and share all the profits and losses incurred in the business carried out on all or anyone acting for all. A firm does not have a different legal entity of its own. That means a firm does not have any right to sue or to be sued by anyone independently since it is not a legal person. 

Order 30 of Civil Procedure Code, 1908

Fraud, contractual disputes, breach of trust, etc. are some very common which are heard in partnership businesses. Sometimes with the intent of committing fraud, some firms enter into partnerships with other firms and try to avoid their liabilities and promises later. Order 30 of the Civil Procedure Code, 1908, lays down certain procedures for suing a firm and being sued by a firm and how to conduct these suits.

The Hon’ble Supreme Court of India in Purushottam Umedbhai and Co. v. Manilal and Sons, stated that the provisions of Order 30 of the Civil Procedure Code are enabling provisions to allow different firms who are carrying out businesses as partners to sue or to be sued in the name of the firm and it does not restrict the partners of a firm from suing or being sued in their names, nor do they restrict the partners, who may be doing business outside India, from suing in their names individually in India.

Legal Provisions under Order 30 of Civil Procedure Code, 1908

The legal provisions under Order 30 of the Civil Procedure Code, 1908 are as follows;

  • Suing of partners in name of the firm

Rule 1 provides the basic idea of nature which the provisions of Order 30 seek to establish. It states that two or more persons who are liable to be partners can sue or can be sued in the name of the firm in which they were a part when the cause of action occurred. This helps in facilitating the litigation process where the individuals or the partners can seek relief by making the litigation entirely about the partnership firm rather than a single individual. 

It further provides for the application to the court, if needed, for the list of partners of that firm to verify the concerned partners during the time when the cause of action arose. 

In Shankar Housing Corp. v. Mohan, the Delhi High Court explained that Rule 1 is required to sue the firm to prevent the difficulty of finding the guilty partner. Instead of suing him/her separately, the aggrieved party can file a suit against the firm in which the partners can be held equally and jointly liable.

  • Disclosure of Partners’ name

Rule 2 of Order 30 provides that, when the partners sue in the name of the firm, the defendant may in writing demand for the disclosure of the names of the partners of the firm with their places of residence. The rule states that the suit shall proceed in the name of the firm but the decree passed by the court shall constitute the names of all the partners. This rule further provides that if the firm or the partners fails to comply with the demand made by the other party the proceedings may be stayed by the direction of the court.

In the case of Alwar Iron v. Union of India, it was observed that if a firm files for a suit and discloses the names of certain persons as partners who are not registered as partners of the firm, it will be considered fraud to the court and the suit shall be dismissed with no cost to the plaintiffs.

  • Service

Rule 3 of the Order deals with the way of service of summons on the partners of the firm, and provides that the service shall be made either;

  1. upon any one or more of the partners, or
  2. at the principal place where the partnership firm is conducted upon the person who at that time is in charge of the management of such place as directed by the court irrespective of the fact whether or not at that time any of the partners are in India.

However, if the Partnership of the firm has been dissolved and the plaintiff was aware of it, service of summons shall be made on the persons who are available in India at that time and who are sought to be made liable. 

In the case of R.D.Khan v. Bombay Iron Syndicate, the court held that if the summon is served to the partners or the firm manager and the partners are out of India during the time of receipt, it is the duty of the third party(who receives the summon) to inform the partners of the firm about the summon. The receipt of summon by him shall be deemed to be complete service. 

  • Rights of suit on death of partner

Rule 4 provides for the consequences upon the death of a partner. It states that before the institution of the suit or during the pendency of the suit if the partner dies it shall not be necessary to include the legal representative in the suit. However, this shall not limit or affect any rights of the legal representatives of the deceased which may have; 

  1. application to be made a party to the suit,
  2. enforcement of any claim against the survivor or the survivors. 

In the case of Upper India Cable Co. v. Bal Kishan, the question which arose in front of the Hon’ble Supreme Court was whether an appeal abates in the absence of heirs or legal representatives of the deceased partners of the firm. The court stated that the death has no impact on the proceedings and the appeal cannot be abated. Thus, the question of substituting heirs and legal representatives should not arise. 

  • Notice in what capacity served

Rule 5 of Order 30 puts an obligation on the part of the plaintiff to serve a notice in writing to the firm at the time of the service of summons. The main objective for serving such notice is to inform the partners of the firm in what capacity they have been sued.

In the case of Srinath Brothers v. Century Mills, the court observed that if a person is sued in the capacity of a partner or he is sued in the capacity of a manager, notice under Rule 5 must be issued in both cases. 

  • Appearance of partners

According to Rule 6 of Order 30 when the partners are sued in the name of the firm, each partner shall appear in the court in their own name. However, all the subsequent proceedings shall be continued in the name of the firm. 

  • No appearance except by partners

Rule 7 of the Order states that the persons who are sued in the capacity of a partner need to be present during the proceedings of the court. This means that if a person is sued in the capacity of a manager, he doesn’t need to appear before the court, but if he is sued in the capacity of a partner, he shall appear before the court.

  • Appearance under protest

Rule 8 of the Order states that the person who has been served with summons as a partner under Rule 3 may contest before the court by stating that he was not a partner at the material time by entering an appearance under protest. 

The plaintiff or the person entering the appearance may apply to the court to determine whether or not he was a partner to the firm and shall be liable as such. However, this shall be done at any time before the date fixed for hearing and final disposal of the suit. 

In case the court holds that the person was a partner at the material time, he can file a defense for denying the liability imposed on the firm in respect of the claim against the defendant. On the other hand, if the court holds that the person was not a partner at the material time and was not liable as such, the plaintiff is prevented from alleging the liability of the person as a partner in the execution of any decree that may be passed against the firm. However, the plaintiff is not prevented from serving a summon on the firm and proceeding with the suit.

  • Suits between co-partners

Rule 9 of Order 30 speaks about suits that are instituted between a firm and one or more partners therein or between firms that have one or more common partners. In such cases, no execution shall be issued without the leave of the court to safeguard the interest of all the partners. On an application of leave to issue such execution the court may direct accounts and inquiries during the time of execution. 

  • Suit against person carrying on business in name other than his own

Rule 10 of Order 30 explains its applicability in cases where a person is carrying on a business in a name or style other than his own or a Hindu Undivided Family which is carrying out a business in any name. In such cases, they may be sued in a manner as if it were a firm name and will be executed according to the provisions under this Order. 

The Supreme Court in Ashok Transport Agency v. Awadhesh Kumar said that Rule 10 of Order 30 makes the provisions under this Order applicable to proprietary concerns as well. It enables the proprietor of the business to be sued in the name of the firm of his proprietary concern.

Conclusion

The essence of Order 30 lays down the various distinctions of a civil suit concerning a firm at a non-individual level. The Order was instituted as an enabling provision to facilitate the filing of suits against firms, as the same is obligated to yield a just compensation if someone is wronged. According to The Indian Partnership Act, registration of a company is important. In case a company is unregistered, it cannot sue its partners or any individual.

If a partner of the firm is found committing fraud, which may include embezzlement or transferring of business assets for personal gains, revealing the intellectual property of the firm, or stops performing his liabilities, legal actions can be taken against them. Suits by or against firms or persons carrying on business in different names other than their own can be very well said to be parallel to the Company Law doctrine of distinct legal personality and the concept of piercing of the corporate veil. 


LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

LEAVE A REPLY

Please enter your comment!
Please enter your name here