~By Devashish Vashishth
A First-Year student at Amity Law School, Noida
“A firm does not have a legal entity (legal rights or obligation) 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 (Indian Partnership Act, 1932). Yet the firms are sued or being sued by their names under order XXX of Civil Procedure Code, 1908. Suits brought against the Partnership business is common of fraud, contractual disputes, and breach of trust which are filed in the name of the firm or their partners, but most of them get delayed or, dismissed on the grounds of misdescription in the name of the accused or plaintiff, or nonexistence firm or person, as the plaint was a nullity. Sometimes with the intent of committing fraud, some firms enter into partnerships with other firms and try to avoid their liabilities and promises later. Because of which the aggrieved party finds it difficult to sue the guilty party for which Delhi high court in Shankar Housing Corp. V. Mohan, explained Rule 1 of order XXX,CPC saying that instead of suing the partner individually, the injured party can file a lawsuit against the firm making the whole company look liable.
In cases when the proceeding is halfway through or at the stage of the final hearing, the Respondents or the accused apply to the amendment of the plaint. The amendment sought was to the effect that the name of the firm as plaintiff or accused be struck off, as it was a misdescription and in its place, the names of partners of the firm should be brought on record under Order VI Rule17 r/w Order I Rule 10 along with section 151 of the code of civil procedure, 1908 to bring the controversy between the proper parties into clear relief. In Maniram Industrial Enterprises vs. B.R. Sreeram(SC), when evidence was in progress, landlord (plaintiff) filed the application requesting that he may be permitted to amend the cause title from partnership firm to partner's name and same was done in Purushottam Umedbhai & Co vs M/S. Manilal and Sons (SC) in which the defendant applied to strike off the firm’s name and in place of it the name of the partners should be added, that too after six years of proceeding of the case. The appeal was first made in the High court of Calcutta, the HC was first dissatisfied with the petition for amendment as it was filled after six years of the institution of the suit. The HC was in the opinion that the original plaint was no plaint in law and therefore was a mere nullity of a process. The proper course, when there is such a mistake, is not to amend, disregarding the conditions of Order I, Rule 10 of the Civil Procedure Code (addition of the parties), but to seek the Court's permission to withdraw the suit with liberty to file a fresh suit under order XXII Rule 1 of the Civil Procedure Code (withdrawal of the suit) on the ground of formal defect and which should be done before limitation. In their opinion, it was not a case of a misnomer or a misdescription or even a case of a nonexistent firm or a non-existent person or a wrong description, but it was of a legal bar; and when a plaint is filed showing that the plaintiff was not a legally recognized person at all, such a plaint must be regarded as a nullity and in the end the Division Bench allowed this amendment on the condition that all the costs of the appellant before them incurred up to the date of the judgment must be paid to it and the High Court of Bombay also come unto the same conclusion in Amulakchand versus Babu Lal noted that the plaintiffs may be allowed, on payment of costs, to amend the plaint by substituting the names of the members of the joint family firm where the suit is filed in the name of the joint Hindu family firm and also in the case of The High Court of Karnataka in State Government Houseless Harijan Employees Association versus State noted the difference between misstatement/misrepresentation and suppression of fact. The Court noted that former was a mistake or an inadvertent error. Whereas suppression of truth carried with it the doctrine of “suppression very and suggestion falsi” and relates to intentional suppression of material fact, thus, containing an element of fraud and malicious intent to it. But the Supreme Court, while deciding Purshottam Umedbhai & Co.versus Manilal & Sons held that where the suit is instituted in the name of the firm of partners, the same is only a misdescription of the plaintiff. Such a plaint is not a nullity and the same could be amended by substituting the name of the firm with the names of the partners. The explanation given was that the word,' firm" or the "firm name” in section 4 of the Indian Partnership Act, is merely a compendious description of all the partners collectively. Where a suit is filed in the name of a firm it is still a suit by all the partners of the firm unless it is proved that all the partners had not authorized the suit. The provision of Order XXX Rule. 1 & 2 of the Code of Civil Procedure are enabling provisions to permit several firms who are doing business as partners to sue or be sued in the name of the firm. As the Section 4 of the Indian Partnership Act defines the term 'Partnership' as the "relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all". It further states that "persons who were entered into a partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is earner on is called the 'firm name"'. Thus, a firm is not a separate legal entity, but, is only a collective or compendious name for all the partners and thus the court does not prevent the partners of a firm from suing or being sued in their names, nor do they prohibit the partners of a firm suing in India in their names individually. But some special provision is given to the partners of firms suing in India to be sued by their partner name or firm name although they are doing business outside India. Such privilege is not extended to people who are doing business as partners outside India, in their case, they still have to sue in their names. If however, under some misapprehension, persons doing business as partners outside India, do file a plaint in the name of their firm they are misdescribing themselves, as the suit instituted is by them, they being known collectively as a firm. A plaint filed in a court in India in the name of a firm doing business outside India is not by itself a nullity. It is a plaint by all the partners of the firm with a defective description of themselves for the Code of Civil Procedure. A civil court could permit under provisions of Section. 153 of the Code an amendment of the plaint to enable a proper description of the plaintiffs to appear in it to assist the court in determining the real question or issue between the parties. Neither Rule.10(1) nor Rule.10(2) of Order 1 have any application to a case of this kind, as the suit had been from its very inception a suit by the partners of the firm and no question of adding or substituting any person arises, the partners collectively being described as a firm with a particular name.
To summarize the whole conversation in one paragraph we can say that a firm is not under the law a legal entity, but is a succinct name for all the persons who are members of the firm(partners) the Rules of Order XXX make this clear. Rule 1 of Order XXX, in providing the mode or form of the suit, lay down the requirement that the two or more persons who, declare or being liable as partners, sue or be sued in the name of the firm must be the persons who were partners at the time of the cause of action. The effect of using the name of the firm, as provided in Rule 1, is merely to bring all the partners before the Court and the procedure indicated in Rules 1 and 2 of Order XXX is only a convenient method for showing the persons who constituted the firm at the time of the accruing of the cause of action, and a decree in favor of or against a firm, in the name of the firm, has the same effect as a decree in favor of or against all the partners. Which give us our answer that a partnership firm can be sued by their firm name or their partner’s names.
References:-
• Maniram Industrial Enterprises v. B.R. Sreeram, 1993 SCC Online Kar 44: ILR 1994 KAR 658
• Purushottam Umedbhai and Co. v. Manilal and Sons ,(1961) 1 SCR 982 (1961) 1 MLJ(SC) 38 (1961) 1 Ker LR 164 : AIR 1961 SC 325
• Amulakchand Mewaram v. Babulal Kanalal Taliwala, [1933] A.I.R. (Bom) 304
• State Govt.Houseless Harijan Employees’ Assn.v.State of Karnataka,(2001) 1 SCC 610 :AIR 2001 SC 437
• Shanker Housing Corporation ... vs Mohan Devi And Eight Ors. on 2 December, 1977, IR 1978 Delhi 255, 14 (1978) DLT 153, 1978 RLR 20