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2009 DIGILAW 937 (CAL)

REGISTRAR OF FIRMS v. TARUN MANNA

2009-12-23

BHASKAR BHATTACHARYA, PRASENJIT MANDAL

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BHASKAR BHATTACHARYA, ACJ. ( 1 ) THIS Mandamus-Appeal is at the instance of the Registrar of Firms, Societies and Non-Trading Corporations, West Bengal, and is directed against an order dated 28th October, 2009 passed by a learned Single Judge of this Court by which His Lordship disposed of the writ-application by directing the appellants to grant registration of the partnership firm of the writ-petitioners within a fortnight from the petitioners' compliance with the requisite formalities. Being dissatisfied, the Registrar of Firms, Societies and Non-Trading corporations, West Bengal, has come up with the present appeal. It appears that the writ-petitioners prayed for a direction upon the appellant to register their partnership firm, named, "sri Hari Trading Company" on the allegation that in spite of complying with all the formalities required under law, the registering Authority was not granting registration of the firm which was desirous of carrying on business in foreign liquor as wholesaler. At the time of hearing of the application before the learned Single Judge, it was argued on behalf of the appellants that under the provision of Section 4 of the Indian partnership Act, 1932 unless a firm had started carrying on business, the same could not be registered and in the present case the undisputed position being that the writ-petitioners have not yet obtained any valid licence from the concerned authority to start the business, no question of registration of the firm arose. ( 2 ) THE learned Single Judge, however, overruled such contention on the ground that law did not require, that in order to register a partnership agreed to by the parties, the same must actually carry on business. ( 3 ) MR. Mukhopadhyay, the learned Junior Standing Counsel appearing on behalf of the appellants, vehemently contended before us that the learned Single Judge erred in law in passing direction for registration of the firm notwithstanding the fact that the formalities required under Section 4 of the Indian partnership Act were not complied with. Mr. Mukhopadhyay strongly relied upon the phrase "carried on", appearing in Section 4 of the Indian Partnership Act, and contends that so long the business is not actually carried on, there cannot be any valid partnership in the eye of law. Apart from the aforesaid fact, Mr. Mr. Mukhopadhyay strongly relied upon the phrase "carried on", appearing in Section 4 of the Indian Partnership Act, and contends that so long the business is not actually carried on, there cannot be any valid partnership in the eye of law. Apart from the aforesaid fact, Mr. Mukhopadhyay also draws our attention to a term of the partnership deed which indicates that the said deed would be effective from the date of grant of licence by the Government and according to him, in this case, the licence not having been granted, the deed is not inexistence in the eye of law and, therefore, no question of registration arises. In support of his contention, Mr. Mukhopadhyay relies upon the decisions of the Supreme Court in case of State of punjab vs. Bajaj Electricals Limited reported in AIR 1968 SC 739 and in the case of Bengal and Assam Investors Limited vs. Commissioner of Income Tax, West bengal, Calcutta reported in AIR 1966 SC 1514 . ( 4 ) MR. Dutta, the learned advocate appearing on behalf of the writ- petitioners, has, however, supported the order passed by the learned Single Judge. ( 5 ) THEREFORE, the only question that arises for determination in this appeal is whether in order to have registration of a partnership firm under the provision of the Indian Partnership Act, it is necessary that the firm must commence the business agreed upon. ( 6 ) IN order to appreciate the aforesaid question, Section 4 of the Indian partnership Act is quoted below: "4. Definition of partnership, partner, firm and firm name. Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually partners and collectively a firm, and the name under which their business is carried on is called the firm name. " At this stage, it will be also profitable to refer to the provisions contained in Sections 58 and 59 of the Act which are quote below:" 58. Application for registration. " At this stage, it will be also profitable to refer to the provisions contained in Sections 58 and 59 of the Act which are quote below:" 58. Application for registration. (1) The registration of a firm may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating (a) the firm name, (b) the place or principal place of business of the firm, (c) the names of any other places where the firm carries on business, (d) the date when each partner joined the firm, (e) the names in full and permanent addresses of the partners, and (f) the duration of the firm. The statement shall be signed by all the partners, or by their agents specially authorised in this behalf. (2) Each person signing the statement shall also verify it in the manner prescribed. (3) A firm name shall not contain any of the following words, namely: "crown", "emperor", "empress", "empire", "imperial", "king", "queen", "royal", or words expressing or implying the sanction, approval or patronage of government], except when the State Government signifies its consent to the use of such words as part of the firm name by order in writing. (Emphasis supplied by us ). 59. Registration. When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement. " ( 7 ) AFTER hearing the learned counsel for the parties and after going through the aforesaid provisions of the Act, we find that the Partnership is the relation between persons created by contract whereby the parties to such contract have agreed to share the profits of a business with further condition that the proposed business must be carried on by all or any of them acting for all. Therefore, the first condition of existence of a partnership is that there must be an agreement by the partners to share the profits of a business. Therefore, the first condition of existence of a partnership is that there must be an agreement by the partners to share the profits of a business. The other condition is that such business must be agreed to be carried on by all or any of them acting for all; in other words, there must be existence of agency among the partners of the proposed business as specifically recognized in Section 18 of the Act. ( 8 ) ONCE an agreement to run a partnership business is entered into and the partners have formally executed the deed incorporating the terms thereof, the next step is of registration of the firm which is, of course, optional and not compulsory; but in the absence of registration, it creates a lot of impediments in the smooth running of the proposed business as pointed out in Section 69 of the Act. Section 58 of the Act discloses the mode of making application for registration and Section 59 casts a duty upon the Registrar to register a partnership after being satisfied that the requirements of Section 58 are complied with by the applicants. A plain reading of Section 58 makes it clear that even if the actual transactions of the proposed business have not yet started, the partners of the proposed firm can make application for registration of the partnership before the Registrar of an area where the partners have agreed to start a proposed business. ( 9 ) IF a partnership is not registered, although in a given case, the running of the proposed business may not be illegal, yet, as pointed out by Section 69 of the Act, neither any suit to enforce any right arising out of a contract or conferred under the Act at the instance of a partner against the firm or other partners shall lie nor shall such unregistered partnership be entitled to file a suit against a third party with whom it has entered into any business contract. Thus, it is absurd to suggest that first a firm should start its business consciously being aware that if in the process of such business, it is defrauded by a third party, it will not be able to maintain a suit for the appropriate relief and only after taking such risk, it can apply for registration. Thus, it is absurd to suggest that first a firm should start its business consciously being aware that if in the process of such business, it is defrauded by a third party, it will not be able to maintain a suit for the appropriate relief and only after taking such risk, it can apply for registration. It is now settled law that the bar created by Section 69 cannot even cured by subsequent registration. The apex Court in the case of V. Subramanium vs. Rajesh Raghuvandra Rao reported in (2009) 5 SCC 608 while pointing out the object of registration observed as follows: "the primary object of registration of a firm is protection of third parties who were subjected to hardship and difficulties in the matter of proving as to who were the partners. Under the earlier law, a third party obtaining a decree was often put to expenses and delay in proving that a particular person was a partner of that firm. The registration of a firm provides protection to the third parties against false denials of partnership and the evasion of liability. Once a firm is registered under the Act the statements recorded in the register regarding the constitution of the firm are conclusive proof of the fact contained therein as against the partner. A partner whose name appears on the register cannot deny that he is a partner except under the circumstances provided. Even then registration of a partnership firm is not made compulsory under the Act. A partnership firm can come into existence and function without being registered. " ( 10 ) AS pointed out above, although a partnership firm can come into existence and function without being registered at its own risk and at the risk of a third party who deals with it, it is not the law that in order to have registration of the firm, the partners must be first exposed to risk of loss by dealing with the third party without having any registration, and then can only acquire the right to apply for registration. Moreover, there are various types of business which cannot be even undertaken without first taking licence from appropriate authority and thus, if we accept the contention of the appellants, a partnership firm, even after its formation by execution of a deed, will not be entitled to apply for licence on the ground that there is no partnership in the eye of law as the business has not commenced. We should bear in mind that partnership is the relation among partners created by agreement and the object of Section 58 of the Act is to register such agreement by keeping note of the particulars of the agreement arrived at by the parties for the benefit of the partners as well as third parties who propose to deal with such firm. ( 11 ) THE other submission of Mr. Mukhopadhyay that the partnership deed is yet to be final is equally devoid of any substance. All that has been meant by the clause pointed out by Mr. Mukhopadhyay is that the business would start the moment licence would be available from the government for running the proposed business. But the fact remains that there is a complete agreement between the partners to share the profit of the proposed business and thus, the writ-petitioners were entitled to apply for registration of their firm and mere fact that the transaction of business has not yet started is no ground of refusing to register the firm. Even if the contract is dependent on grant of licence by the state, for that reason, the same cannot be said to be void and consequently, such factor cannot be a bar in refusing registration of the agreement between the parties. If no licence is given by the State in the long run, the contract will not be 9 enforceable at the instance of the parties to the same but such fact is no ground of refusing the registration of the said agreement. We now propose to deal with the decisions cited by Mr. Mukhopadhyay. In the case of State of punjab and another vs. M/s. Bajaj Electricals Ltd. reported in AIR 1968 SC 739 , the respondent, a Joint Stock Company, had its, principal place of business in bombay, and a branch office in New Delhi. The respondent had no branch office or any other place of business in the State of Punjab. Mukhopadhyay. In the case of State of punjab and another vs. M/s. Bajaj Electricals Ltd. reported in AIR 1968 SC 739 , the respondent, a Joint Stock Company, had its, principal place of business in bombay, and a branch office in New Delhi. The respondent had no branch office or any other place of business in the State of Punjab. It had also not appointed any agent or representative to carry on business on its behalf within that State. The respondent supplied goods to the Government of Punjab and certain "semi-Government bodies" in the State in execution of orders received at its branch office at Delhi. The goods were despatched from Delhi by rail or by public motor transport. Pursuant to the terms and conditions of the "rate contract" between the respondent and the Controller of Stores for the State of punjab, the respondent consigned the goods sold by it to the appropriate government Department F. O. R. destination. Inspection of the goods was made within the State of Punjab. The price for the goods sold was collected by presenting bills or railway receipts through Banks to the consignees. In such a case, the question was whether the respondent could in law be regarded as carrying on trade within the State of Punjab and was liable to be assessed to tax under the Punjab Professions, Trades, Callings and Employments Taxation Act (7 of 1956 ). The said question was answered in negative on the ground that the respondent had no shop or office within the State of Punjab and notwithstanding the fact that the respondent, no doubt, supplied goods within the State pursuant to orders received and accepted at New Delhi, and also received price for the goods within the State. Those were found to be ancillary activities and did not amount to carrying on trade within the State of punjab. We do not find any relevance of the said decision on the question involved in this appeal. Those were found to be ancillary activities and did not amount to carrying on trade within the State of punjab. We do not find any relevance of the said decision on the question involved in this appeal. ( 12 ) IN the case of Bengal and Assam Investors Limited vs. Commissioner of Income tax, West Bengal, Calcutta (supra), the question involved therein was as follows: according to Section 10 of the Income Tax Act, 1922, in order that the dividends on share could be assessed, be it an individual or a company or any other entity, must carry on business in respect of shares, that is to say, the assessee must deal in those shares. In that context, it was held that the fact that a company is incorporated to carry on investment did not necessarily indicated that the company was carrying on business. It was pointed out that the objects of an incorporated company, as laid down in the Memorandum of association, were certainly not conclusive on the question whether the activity of the company amounted to "carrying on of business". We do not for a moment dispute the aforesaid proposition. We have already pointed out that in the similar way, the formation of a partnership also does not necessarily mean actual carrying on of business and, therefore, it has no relation with the question as to whether such a partnership is entitled to have registration, if applied for. ( 13 ) ON consideration of the entire materials on record, we thus find no merit in this appeal and the same is dismissed. The appellant No. 1 is directed to dispose of the application of registration of the respondent firm within seven days from today in accordance with the decision of the learned Single Judge and in the light of our observations made above. ( 14 ) IN the facts and circumstances, there will be, however, no order as to costs.