CASE NO.:
Appeal (civil) 1786 of 2000
PETITIONER:
HALDIRAM BHUJIAWALA AND ANR.
RESPONDENT:
ANAND KUMAR DEEPAK KUMAR AND ANR.
DATE OF JUDGMENT: 28/02/2000
BENCH:
M. JAGANNADHA RAO & A.P. MISRA
JUDGMENT:
JUDGMENT
2000 (1) SCR 1247
The Judgment of the Court was delivered by M. JAGANNADHA RAO, J. Leave
granted
This appeal has been preferred by the two defendants, M/s. Hal-diram
Bhujiawala and Sri Ashok Kumar against the judgment of the Delhi High Court
in FAO 365 of 1999 dated 30.11.1999. By that order the High Court summarily
dismissed the appellants' appeal against the order of the learned Single
Judge dated 2.11.1999 in IA 5996/99 in Suit No. 635/92. The IA was filed
under Order 7 Rule 11 CPC by the appellants for rejection of the plaint
filed by two plaintiffs, Anand Kumar Deepak Kumar trading as Haldiram
Bhujiawala and Shiv Kishan Agarwal, - on the ground that the 1st plaintiff
was a partnership not registered with the Registrar of Firms on the date of
suit i.e. on 10.12.91 and that the subsequent registration of the firm on
29.5.92 would not cure the initial defect.
The suit was filed by the plaintiff (1) for permanent injunction
restraining the defendants - appellants, their partners, servants etc. from
infringing the trade-mark No. 285062 and from using the trademark/name
'HALDIRAM BHUJIA WALA' or any identical name/mark deceptively similar
thereto (2) for damages in a sum of Rs. 6 lakhs and (3) for destruction of
the material etc.
As we are dealing with a matter arising under Order 7 Rule 11 CPC, it will
be necessary to refer to the plaint allegations. One Ganga Ram alias
Haldiram, carried on business in the name Maldiram Bhujia Wala, since 1941.
In 1965, he constituted a partnership with his two sons Moolchand, Shiv
Kishan and his daughter-in-law Kamla Devi, (wife of another son R.L.
Aggarwal) to carry on business under the same name. In December 1972, the
said firm applied for registration before the Registrar of Trade Marks for
registration of the name Haldiram Bhujia Wala - Chand Mal - Ganga Bishan
Bhujiawala, Bikaner. The Registrar of Trade Marks granted registration with
the No. 285062. On 16.11.1974, the partnership was dissolved and under the
terms of the dissolution deed the above trade mark fell exclusively to the
share of Mool Chand. son of Ganga Bishan and father of plaintiffs, for the
whole country (except West Bengal). Thus Sri Mool Chand became sole
proprietor of the trade-mark in the said area while Smt. Kamla Devi was
given ownership of the trade-mark rights for West Bengal. It is stated that
Sri Lala Ganga Bishan Haldi Ram executed his last will dated 3.4.1979 and
also reiterated the rights conferred by the dissolution deed on the
respective parties. Ganga Bishan died in 1980. His will was later acted
upon. Later, the testator's son, Sri Moolchand too died in 1985 leaving
being his lour sons, Shiv Kishan, Shiv Kishan, Manohar Lal and Madhusoodan.
All of them got their names recorded as subsequent -joint proprietors. The
latter three formed a partnership in 1983 and were running a shop in
Chandni Chowk, New Delhi selling various goods under the abovesaid trade
mark of Haldiram Bhujia Wala. In the meantime, on 10.10.77, Mool Chand's
brother Sri R.L. Aggarwal (husband of Kamla Devi) and his son Prabhu
Shankar, Calcutta applied for registration in this very name at Calcutta
claiming to be full owners of the said trade mark without disclosing the
dissolution deed dated 16.11.74. When the Registrar objected on 14.4.78,
they replied on 18.7.78 that they alone were trading in this name in
Calcutta. The defendants have no right to use the said trade beyond
Calcutta. The plaintiff s registered trade mark was, in the usual course,
renewed on 29.12.86 till 28.12.93. The plaintiffs have also acquired a
right on account of prior adoption and long user The 1st plaintiff firm,
consisting of three sons of Moolchand and the 2nd plaintiff (the fourth son
of Moolchand) are joint owners of the trade mark (except in West Bengal).
The 1st defendant firm is a namely constituted firm intending to start its
business and has been formed by Ashok Kumar, son of Kamla Devi. The 2nd
defendant is Ashok Kumar himself in his individual capacity. They have no
right to use this trade mark outside West Bengal. The plaintiffs came to
know of the violation of trade mark by defendants 1 and 2 in December 1991
when defendants opened a shop at Arya Samaj Road, Karol Bagh, New Delhi.
The cause of action for the suit is the fact that defendant acted :
'"in violation of the common law and contractual rights of the plaintiff.
On these grounds, defendants are to be restrained by permanent injunction
from using the trade mark and a sum of Rs. 6 lakhs is payable as damages.
The defendants, as already stated, have filed the application under Order
7, Rule 11, CPC pleading Section 69(2) of the Partnership Act, 1932 as a
bar to maintainability of the suit. The learned Single Judge dismissed the
application after referring to M/s. Virendra Dressers Delhi v. M/.v.
Varinder Garments, AIR (1982) Delhi 482 and to M/s. Bestochem For-malities
v. M/s. Dinesh Ayurvedic Agencies and Ors., RFA (OS) 17/99 dated 12.7.99
rendered by the Division Bench of the Delhi High Court on the ground that
the right to injunct the defendants in respect of the plaintiffs' Trade
Mark was based on principles applicable to a passing off action and the
said right was a common law right and did not arise under any contract. The
learned Judge also relied upon a judgment to this Court in M/.s. Raptakos
Brett & Co. Ltd. v. Ganesh Property, [1998] 7 SCC 184. The application
under Order 7, Rule 11, CPC was dismissed by an order dated 2.11.99. This
order was confirmed by a Division Bench of the Delhi High Court on
30.11.99, as already stated.
In this appeal, learned senior counsel for appellants, Sri Ashok Desai and
Sri R.F. Nariman contended that the 1st plaintiff firm was not registered
with the Registrar of Firms on the date of suit, that the plaint repeatedly
referred to the proprietary right of late Moolchand as having arisen out
the dissolution deed dated 16.11.1974 and that without reference to the
said document - which was a contact - the plaintiffs could not prove their
right to the trade mark through Moolchand and the suit was barred since
Section 69(2) referred to a right "arising from a contract'. The plaintiffs
right was based on the contract dated 16.11.74. The words 'arising from a
contract' were akin to the words 'arising out of a contract' used in Ruby
General Insurance Co. Ltd. v Pearey Lal Kumar and Anr, [1952] SCR 501
wherein while construing those words in relation to an arbitration clause,
this Court held that the said words held to be construed widely. The
learned counsel contended that, on the facts of this case and as stated in
the plaint at several places, the 1st plaintiff was compelled to rely on
the contract of dissolution dated 16. 11.74 to prove title to the trade
mark and thereby for an injunction and hence it was not a right claimed
under Common Law or under any statute, like the Trade Marks Act.
On the other hand, learned senior counsel lor the respondents -plaintiffs,
Sri Copal Subramanium supported the view of the High Court by contending
that the suit for injunction was based upon two rights, one being statutory
under the Trade Marks Act arising out of prior registration of trade mark
and alternatively, the suit was also based on Common Law right available in
a passing-off action. The suit was not based on any contract between
plaintiffs and defendants. The provision in Section 69(2) did not apply if
the right sought to be enforced did not arise out of a contract between the
plaintiffs' firm and the defendants. The reference in the plaint to the
dissolution deed dated 16.11.74 was merely a reference to a historical fact
that that was the source of the right of Moolchand and on his death, the
said right to the trade mark devolved on his sons, three of whom are joined
in a firm (i.e. 1st plaintiff) and the fourth son is the second plaintiff.
The plaintiffs were not parties to (he deed of dissolution. The defendants
too were not parties to the dissolution deed though their mother was.
Hence, the bar under Section 69(2) did not apply.
The points that arise for consideration are :
(i) whether Section 69(2) bars a suit by a firm not registered on the date
of suit where permanent injunction and damages are claimed in respect of a
trade marks as a statutory right or by invoking Common Law principles
applicable to a passing-off action?
(ii) whether the words 'arising from a contract' in Section 69(2) refer
only to a situation where an unregistered firm is enforcing a right arising
from a contract entered into by the firm with the defendant during the
course of its business or whether the bar under Section 69(2) can be
extended to any contract referred to in the plaint unconnected with the
defendant, as the source of title to the suit property?
Point 1 :
The question whether Section 69(2) is a bar to a suit filed by an
unregistered firm even if a statutory right is being enforced or even if
only a Common Law right is being enforce came up directly for consideration
in this Court in M/s. Raptokas Brett Co. Ltd. v. Ganesh Property, [1998] 7
SCC 184. In that case, Majmudar, J. speaking for the Bench clearly
expressed the view that Section 69(2) cannot bar the enforcement by way of
suit by an unregistered firm in respect of a statutory right or a common
law right. On the facts of that case, it was held that the right to evict a
tenant upon expiry of the lease was not a right 'arising from a contract'
but was a common law right or a statutory right under the Transfer of
Property Act. The fact that the plaint in that case referred to a lease and
to its expiry, made no difference. Hence, the said suit was held not
barred. It appears to us that in that case the reference to the lease in
the plaint was obviously treated as a historical fact. That case is
therefore directly in point. Following the said judgment, it must be held
in the present case too that a suit is not barred by Section 69(2) if a
statutory right or a common law right is being enforced.
The next question is as to the nature of the right that is being enforced
in this suit. It is well settled that a passing off action is a common law
action based on tort (vide) Bengal Waterproof Ltd. v. Bombay Waterproof
Manufacturing Company and Anr., [1997] 1 SCC99. Therefore, in our opinion,
a suit for perpetual injunction to restrain the defendant not to pass-off
the defendant's goods as those of plaints by using the plaintiffs' trade
mark and for damages is an action at common law and is not barred by
Section 69(2). The decision in M/s. Virendra Dresses Delhi v. M/s. Varinder
Garments, AIR (1983) Delhi 482 and the decision of the Division Bench of
the Delhi High Court in M/s. Bestochem Formulation v. M/s. Dinesh Ayurvedic
Agencies and Ors., RFA (OS) 17/99 dt. 12.7.99) state that Section 69(2)
does not apply to a passing-off action as the suit is based on tort and not
on contract. In our opinion, the above decisions were correctly decided.
(The special leave petition No. 18418 of 1999 against the latter was in
fact dismissed by this Court on 28.1.2000.) The learned senior counsel for
the appellants no doubt relied upon Ruby General Insurance Co. Ltd. v.
Pearey Lal Kumar and Anr., [1952] SCR 501. That was an arbitration case in
which the words "arising out of a contract" were widely interpreted but
that decision, in our view, has no relevance in interpreting the words
"arising from a contract" in section 69(2) of the Partnership Act.
Likewise, if the reliefs of permanent injunction or damages are being
claimed on the basis of a registered trade mark and its infringement, the
suit is to be treated as one based on a statutory right under the Trade
Marks Act and is, in our view, not barred by Section 69(2).
For the aforesaid reasons. In both these situations, the unregistered
partnership in the case before us cannot be said to be enforcing any right
"arising from a contract". Point 1 is therefore decided in favour of the
plaintiffs-respondents.
Point 2 :
Question however arises as to what is the scope of the words 'enforc-ing a
right arising under the contract' used in Section 69(2)? Learned senior
counsel for the appellants repeatedly drew our attention to the allegation
in the plaint at various places that it was only under the deed of
dissolution dated 16.11.1974 that Moolchand, - the father of the partners
of the 1st plaintiff firm and the 2nd plaintiff - became proprietor of the
trade mark lor the whole of India (except West Bengal). That right develop
on the plaintiffs on the death of Moolchand. Therefore, it was contended
that the 1st plaintiff firm was definitely seeking to enforce a right
"arising from a contract", namely, the contract of dissolution dated
16.11.74. It was argued that the 1st plaintiff could not claim any
injunction or damages unless reliance was placed on the said contract and
hence the suit was barred by Section 69(2).
For the purpose of deciding this point, it is necessary to go into the
question as to what the legislature meant when it used the words 'arising
from a contract' in Section 69(2).
In our view, it will be useful in this context to refer to the Report of
the Special Committee (1930 -31) which examined the draft Bill and made
recommendations to the legislature.
Before going into the above Report of the Special Committee which preceded
the Partnership Act, 1932, it will be necessary to refer to the case in
Commissioner of Income Tax, AP v. Jayalakshmi Rice and Oil Mills Contractor
Co., [1971] 1 SCC 280, where this Court refused to refer to this very
Report for construing Section 59 of the Partnership Act. But, in our view,
that decision is no longer good law as it was clearly dissented on this
aspect in the judgment of the Constitution Bench in R.S. Nayak v. A.R.
Antulay, [1984] 2 SCC 183. In number of later judgments, this Court has
referred to the Reports of similar Committees or Commissions (vide G.P.
Singh's Interpretation of Statute, 7th Ed, pp. 196-197). In the latest case
in Hyderabad Industries Ltd. v. Union of India, [1995] 5 SCC 15 para 15,
notes on clauses were relied upon by the Constitution Bench for
understanding the legislative intent. The English Law has changed
completely after Pepper v. Hart, (1993) 1 All ER 42 (HL) in favour of
admissibility of such material. A restricted view was no doubt expressed in
P.V. Narasimharao v. State, in [1998] 4 SCC 626 (at. 691-692) that such
Reports can be looked into for the purpose of knowing the historical basis
or mischief sought to be remedied, but not for construing the provision
unless there is ambiguity. Even going by this restricted view, we find that
there is considerable ambiguity in Section 69(2) (unlike the English
Statute of 1916 and 1985) as to what is meant by the words 'arising out of
a contract' inasmuch as the provision does not say whether the contract in
Section 69(2) is one entered into by the firm with the defendant or with
somebody else who is not a defendant, nor to whether it is a contract
entered into with the defendant in business or unconnected with business.
Hence, in our view, it is permis-sible to look into the Report even for
purpose of construing Section 69(2).
We may state that it was on the basis of the Report of the Special
Committee that the Partnership Act, 1932 was later passed by the Legisla-
ture. The Committee consisted of Sir Brojendra Lal Mitter, Sir Dinshah F.
Mulla, Sir Alladi Krishnaswamy Iyer and Mr. Arthur Eggar. Para 16 of the
Report states that the 'Bill seeks to overcome this class of difficulty by
making registration optional, and by creating inducements to register which
will only bear upon firms in a substantial and fairly permanent way of
business. Paras 17, 18 and 19 of the Report are important. (See Mulla,
Partnership Act, 1st Ed. 1934, p. 167 at PP.176-177). Para 17 reads :
"17. The outlines of the scheme are briefly as follows. The English
precedent, in so far as it makes registration compulsory and imposes a
penalty for non-registration has not been followed, as it is considered
that this step would be too drastic for a beginning in India, and would
introduce all the difficulties connected with small or ephemeral
undertakings. Instead, it is proposed that registration should lie entirely
within the discretion of the firm or partner concerned; but, following the
English precedent, any firm which is not registered will be unable to
enforce its claim against third parties in the civil Court; and by partner
who is not registered will be unable to enforce his claims either against
third parties or against fellow partners".
It will be noticed that the above extract refers to the English precedent
which is partly not followed and which is partly followed. We shall be
referring to the said English precedent shortly but before we do so, we
have also to refer to paras 18 and 19 of the said Report.
The Report states in para 18, 19 and follows :
"18. Once registration has been effected the statement recorded in the
register regarding the constitution of the firm will be con-clusive proof
of the facts therein contained against the partners making them and no
partner whose name is on the register will be permitted to deny that he is
a partner - with certain natural and proper exceptions which will be
indicated later. This should afford a strong protection to persons dealing
with firms against false denials of partnership and the evasion of
liability by the substantial members of a firm".
19...............On the other hand, a third party who deals with a firm
and knows that a new partner has been introduced can either make
registration of the new partner a condition fur further dealings, or
content himself with the certain security of the other partners and the
chance of proving by other evidence, the partnership of the new but
unregistered partner. A third party who deals with a firm without knowing
of the addition of a new partner courts on the credit of the old partners
only and will not be prejudiced by the failure of the new partners to
register"
Similarly, para 23 also refers to those who deal with the firm.
The English precedent referred to in para 17, which has been not followed
in part but followed in part in drafting Section 69(2) is the one contained
by the Registration of Business Names Act. 1916. Section 7 of that Act
refers to penalties lor default in registration. As stated in the Report,
the penalty part of that Act has not been introduced in India but the
provisions of Section 8 creating disabilities in the way of the firm in
default is adopted. Section S of the above English Act is relevant and it
speaks of:
"the rights of that defaulter under or arising out of any contract made or
entered into by or on behalf of such defaulter in relation to the business
in respect to the carrying on of which particulars were required to be
furnished" (See Halsbury Statutes, 3rd Ed. Vol.37, p.867).
The above provision clearly signifies that the right that is sought to be
enforced by the unregistered firm and which is barred must be a right
arising out of a contract with a third party - defendant in respect of the
firm's business transactions.
Business Names Act, 1985 has replaced the above Act of 1916 and Section 4
of the new Act refers to the "Civil Remedies for breach of Section 4". It
provides for dismissal of the action "to enforce a right arising out of a
contract made in the course of a business" if the firm is not registered.
(see Halsbury, Statutes, 4th Ed, Vol. 48 at p.101).
The above Report and provisions of the English Acts, in our view, make it
clear that the purpose behind Section 69(2) was to impose a disability on
the unregistered firm or its partners to enforce rights arising out of
contracts entered into by the plaintiff firm with third party - defendant
in the course of the firm's business transactions.
In Raptokas Brett and Co., [1998] 7 SCC 184 it was clarified that the
contractual rights which are sought to be enforced by plaintiff firm and
which are barred under section 69(2) are "rights arising out of the
contract" and that it must be a contract entered into by the firm with the
third party defendants. Majmudar, J. stated (at p.191) as follows :
"A mere look at the aforesaid provision shows that the suit filed by an
unregistered firm against a third party for enforcement of any right
arising from a contract with such a third party would be barred........"
From the above passage it is firstly clear that contract must be a contract
by the plaintiff firm not with anybody else but with the third party
defendant.
The further and additional but equally important aspect which has to be
made clear is that - the contract by the unregistered firm referred to in
section 69(2) must not only be one entered into by the firm with the third
party - defendant but must also be one entered into by the plaintiff firm
in the course of the business dealing of the plaintiffs firm with such
third party - defendant.
It will also be seen that the present defendants who are sued by the
plaintiff - firm are third parties to the 1st plaintiff firm. Section 2(d)
of the Act defines 'third parties' as persons who are not partners of the
firm. The defendants in the present case are also third parties to the
contract of dissolution dated 16.11.74. Their mother, Kamla Devi was no
doubt a party to the contract of dissolution. The defendants are only
claiming a right said to have accrued to their mother under the said
contract dated 16.11.74 and then to the defendants. In fact, the said
contract of dissolution is not a contract to which even the present 1st
plaintiff firm or its partners or the 2nd plaintiff were parties. Their
father Moolchand was a party and his right to the trade mark devolved in
plaintiffs. The real crux of the question is that the legislature when it
used the word "arising out of a contract" in Section 69(2), it is referring
to a contract entered into in course of business transaction by the
unregistered plaintiff firm with its customers - defen-dants and the idea
is to protect those in commerce who deal with such a partnership firm in
business. Such third parties who deal with the partners ought to be enabled
to know what the names of the firm are before they deal with them in
business.
Further Section 69(2) is not attracted to any and every contract referred
to in the plaint as the source of title to an asset owned by the firm. If
the plaint referred to such a contract it could only be as a historical
fact. For example, if the plaint filed by the unregistered firm refers to
the source of the firm's title to a motor car and states that the plaintiff
has purchased and received a Motor Car from a foreign buyer under a
contract and that the defendant has unauthorisedly removed it from the
plaintiff firm's possession, it is clear that the relief for possession
against defendant in the suit does not arise from any contract with
defendant entered into in the course of plaintiff firm's business with
defendants but is based on the alleged unauthorised removal of the vehicle
from the plaintiff firm's cus- tody by the defendant. In such a situation,
the fact that the unregistered firm has purchased the vehicle from somebody
else under a contract has absolutely no bearing on the right of the firm to
sue the defendant for possession of the vehicle. Such a suit would be
maintainable and Section 69(2) would not be a bar, even if the firm is
unregistered on the date of suit. The position in the present case is not
different.
In fact, the Act has not prescribed that the transactions or contracts
entered into by a firm with a third party are bad in law if the firm is an
unregistered firm. On the other hand, if the firm is not registered on date
of suit and the suit is to enforce a right arising out of a contract with
the third party- defendant in the course of its business, then it will be
open to the plaintiff to seek withdrawal of the plaint with leave and file
a fresh suit after registration of the firm subject of course to the law of
limitation and subject to the provisions of the Limitation Act. This is so
even if the suit is dismissed for a formal defect. Section 14 of the
Limitation Act will be available inasmuch as the suit has failed because
the defect of non-registra-tion falls within the words "other cause of like
nature" in section 14 of the Limitation Act, 1963. See Surajmal Dagduramji
Shop v. M/s. Srikishan Ram Kishan, AIR (1973) Bom. 313.
For all the reasons given above, it is clear that the suit is based on
infringement of statutory rights under the Trade Marks Act. It is also
based upon the common law principle of tort applicable to passing-off
actions. The suit is not for enforcement of any right arising out of a
contract entered into by or on behalf of the unregistered firm with third
parties in the course of the firm's business transactions. The suit is
therefore not barred by section 69(2).
For the aforesaid reasons, the appeal fails and is dismissed without costs.
We should not be understood as having said anything on the merits of the
case for we have confined ourselves to the allegations in the plaint as we
are here only dealing with an application filed by the appellants under
Order 7 Rule 11 CPC.
