Procedure to Institute a Suit By or Against a Partnership Firm

The Code of Civil Procedure is a complete procedural encyclopaedia for taking civil actions in a court of law. It deals with suits by or against individuals, suits by or against firms and government or public officers. This article deals with the analysis of the procedure to institute a suit by or against a partnership firm and its partners.

Introduction

A partnership firm is defined under the Partnership Act, 1932 as an entity where two or more persons come together with the object of carrying on the business of the firm and sharing the profits and losses incurred by the business carried on all or anyone acting for all. It is well known that a firm does not have a separate legal entity of its own. It means that a firm is not a legal person and does not have any independent right to sue or be sued by anyone.

A firm is known by its partners and the partners and the firm can sue or be sued together under the name of the firm or individual partners. If the firm is found to be liable for any act, the partners are personally liable to pay the damages occurred and ordered by the court.

Contractual disputes, fraud, breach of trust, etc. are very common to be heard about partnership business today. Firms enter into an agreement and try to avoid their promises and liability later with the intent of committing fraud. To regulate these actions, Order XXX of the Code of Civil Procedure, 1908 provides for the procedure to sue and be sued by a firm and how to proceed with such suits.

Institution of Suit

Rule 1 of Order XXX provides for the procedure to instate a suit for legal action either by the firm or against the firm. According to the provision, if the partners of the firm are aggrieved by the action of certain persons or if certain persons are aggrieved by the actions of the partners, the partners can sue or be sued in the name of the firm. It means that the suit shall be titled in the name of the firm but the partners shall be the ones liable for the execution of any order of the court.

In Purushottam Umedbhai & Co. v. Manial & Sons[1], the apex court observed that Order XXX of the code does not apply firms carried on the name of the owner himself such as a sole proprietorship firm. It applies to situation where firms are carried on the names of other persons such as partnership.

The rule requires that at the time when the action led to the rise of a cause of action, the persons should be the partners of the firm or claim to be the partners of the firm to sue or be sued. It means that a partner who has retired from the firm cannot sue or be sued in the name of the firm.

In Shankar Housing Corp v. Mohan[2], the Delhi High Court explained the purpose of Rule 1 and stated that Rule 1 requires suing the firm to avoid the difficulty of finding the guilty partner and suing him/her separately. The aggrieved person can sue the firm and all the partners will be held equally and jointly liable.

Further, Rule 1 allows the aggrieved party to request the court for issue of names, addresses and other details of the partners of the firm who were associated with the firm at the time when the cause of action had arisen. Moreover, when the partners of a partnership are the plaintiff and sue the third party, the defendant in such case can also apply before the court for the details of the partners of the firm at the time when the cause of is claimed to have arisen by the partners. This is provided under Rule 2 of the Order.

The Rajasthan High Court while discussing the effect of non-disclosure of the names and details of the partners of the firm, observed that if the firm discloses only certain names, the suit shall not be dismissed but it will be deemed that the suit is against the named partners and they shall be personally liable to fulfil the orders of the court.

Further, if the firm files a suit and discloses names of certain persons as partners who are not mentioned in the register of partners, this shall amount to fraud on the court and the suit shall be dismissed with no cost to the plaintiff partners[3].

Issue and Service of Processes

Since this is a civil suit, there are no warrants. The processes issued by the court includes court summons. Rule 3 deals the process and manner of issue and service of summons to the partnership firm. The rule recognizes the following four manners of service of summons depending on the situation and need:

1. Service on the Partner: The plaintiff may opt to serve the summons issued by the court upon one or more of the partners of the firm at their place of residence respectively. If the summon is duly received by even one partner with acknowledgement, it will be deemed to be served upon the firm and all the partners thereof. If the partner refuses to receive the summon, the court at its discretion may deem it to be served.
2. Service at the Place of Business: The plaintiff may serve the summon upon the firm by sending it to the place of business from where the firm carries on its business and serving it upon the person in the management of the firm at that time. The plaintiff should serve the summon upon the place of business at the time stipulated by the court itself.
3. Service to Third Person: In R.D. Khan v. Bombay Iron Syndicate[4], the Bombay High Court held that in the above two situations when the summon is served to the partners or upon the firm manager and the partners are out of India at the time of receipt, the receipt of the summon by the third person shall be deemed to be complete service as it shall be the duty of the third party to inform the partners of the firm.
4. Service in Case of Dissolution: When the firm has dissolved, i.e. ceased to carry on business and it is within the knowledge of the plaintiff, then the plaintiff shall serve the summons on the individual partners of the dissolved firm who were associated with it at the time when the cause of action arose. The plaintiff shall decide which partners were liable or whom he seeks to make liable and serve the summons upon them. In P. Sen (Engineering) Pvt. Ltd. v. Delite Builders[5], the court held that service of such summon shall be complete even if it is received by someone acting on behalf of the partners.

Appearance before the Court

According to Rule 5 of the Order, the plaintiff must serve notice right after the summons is served. The object of the notice is to let the partners of the firm know the capacity in which they have been sued. Now, imagine A is a managing partner of the firm named AZB & Partners. His main function is to take care of day to day management of the firm but, however, he can also transact with the customers of the firm.

Therefore, he can be sued by his fellow partners for mismanagement, he can be sued by an aggrieved employee for mismanagement, he can be sued by a customer for breach, etc. In the first two circumstances, he is sued in the capacity of the manager while in the third circumstance, he is sued in the capacity of the partner. This needs to be informed to the sued partner as it is vital for the purpose of the appearance in court.

In Srinath Brothers v. Century Mills[6], the court observed that notice under Rule 5 must be issued in both the situations; when the person is sued in the capacity of the partner or when he is sued in the capacity of the manager.

According to Rule 7 of the Order, the partners are required to be present in the court at the time of hearing provided they are sued in their capacity as partners.

It means that if the partners are sued in the capacity of a manager, they are not required to appear before the court mandatorily but as a partner, it is mandatory to appear. However, the suit shall proceed in the name of the firm itself but the firm shall be represented by the partners throughout the proceedings of the court.

---

References:

1. Dinshaw F. Mulla, the Key to Indian Practice: A Summary of the Code of Civil Procedure, 1908, (11^th 2015).
2. Shantanu Dey, Legal Provisions of Order XXX of Code of Civil Procedure, 1908 (C.P.C.), India.

[1] Purushottam Umedbhai & Co. v. Manial & Sons, AIR 1961 SC 325.

[2] Shankar Housing Corp v. Mohan, AIR 1978 Del 255.

[3] Alwar Iron v. Union of India, AIR 1970 Raj 86.

[4] R.D. Khan v. Bombay Iron Syndicate, AIR 1953 Bom 23.

[5] P. Sen (Engineering) Pvt. Ltd. v. Delite Builders, AIR 1993 Cal 28.

[6] Srinath Brothers v. Century Mills.

---

1. Comprehending the Concept of Foreign Judgment under the CPC, 1908(Opens in a new browser tab)
2. Meaning and Procedure of Review under the Code of Civil Procedure, 1908(Opens in a new browser tab)