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The author is Prachi Mathur, a third year student at National Law School of India University (NLSIU), Bangalore.
Introduction
A passing-off suit can be brought against a person who tries to pass off a product or falsely impress upon the minds of others that the product is owned by the person as opposed to the actual owner of the product. Essentially, a passing-off suit is used to protect or safeguard the goodwill attached to an unregistered trademark. This paper examines whether a passing-off suit can be maintained by an unregistered firm. According to the Indian Partnership Act, 1932 (‘IPA’), a registered firm is a firm, firstly, registered as per, and under IPA; and, secondly, the Registrar of Firms mentions the persons seeking to enforce a contractual right as ‘partners’ in the firm. However, an unregistered partnership does not enjoy the same rights as a registered partnership. Thus, in this blog, I examine whether a passing-off suit by an unregistered firm is maintainable under Section 69(2) of the IPA.
Statutory Bar on Filing of Suits – A Restrictive Choice
Overview of Section 69(2)
Section 69 of IPA deals with the effect of the non-registration of firms. The effect, essentially, extends to a general bar on the filing of suits by an unregistered firm. (The burden of proving that the firm is registered is on the firm itself or the partner suing on its behalf.) Whereas sub-section (1) deals with suits between the firm and its partners, sub-section 2 deals with suits between the firm and third party. Section 2 (d), IPA defines a ‘third party’ as anyone who is not a partner of the firm.
Section 69(2) of IPA bars the filing of suits by an unregistered firm against a third person for a right arising out of a contract between the firm and the third party. The contract is one entered into during mutual business dealings. In other words, a suit by a non-registered firm is not maintainable if, first, the firm is not registered; second, the suit is against a third party, and third, the suit is for the enforcement of a right arising out of contract. This has been held in Raptakos Brett & Co. Ltd. v Ganesh Property (hereinafter, ‘Raptakos’), and Farooq v Sandhya Anthraper Kurishingal. All these 3 conditions must be satisfied to bar the filing of a suit by a non-registered firm. In Bhardia Bros v Union of India, the court interpreted Section 69(2) in absolute and strict terms. All the three conditions mentioned in the sub-section need to be satisfied to maintain a suit. Under Section 69(2), ‘registration’ means that firstly, the firm is registered; and secondly, the Registrar of Firms mentions the persons seeking to enforce a contractual right as ‘partners’ in the firm. It is pertinent to note here that Raptakos highlighted that Sections 56-59 also need to be factored in to understand the whole meaning and scope of Section 69.
To analyse the maintainability of a passing-off suit under Section 69(2), the relevant part to evaluate is ‘right arising from a contract’ which concerns the third condition of this sub-section. The meaning of ‘contract’ in this sub-section can be interpreted in light of Section 2(h) of the Indian Contract Act, 1872 which defines a contract as an ‘agreement enforceable by law’. The Indian Contract Act applies to IPA to the extent that the two are consistent.
The Object of the Section – A Comparative analysis
In India, registration of a partnership firm is not compulsory. Though there is no penalty for non-registration, the legislature has incentivized registration through provisions such as Section 69 by limiting the capacity of the unregistered firm to sue. Although this Section is intended for general public benefit, it is particularly pertinent for those who deal with partnership firms in ascertaining the composition of the partnership. Registration is in the interest of third parties in that the unregistered partnership firm may plead denial of the partnership itself. So, registration precludes evasion of responsibility and liability by serving as conclusive evidence of its existence and composition.
The Select Committee on the Partnership Bill pointed out that in the Indian context, it would have been highly cumbersome to make it mandatory for every small firm to register, and the discretion of registration should be left to the partnership firm.[1] Also, it remarked that the incentives for registration created by IPA are strong enough. On the contrary, the Law Commission (paras. 10-15) differed from the Select Committee, and suggested that all the partnerships which have their agreements in writing should be mandatorily registered. It opined that the time was ripe (when the report came out in 1957) for compulsory registration in India to take effect. However, the recommendations of the Law Commission have not been adopted.
Also, it is important to highlight that this Section does not alter the rights of third parties. They have the same rights to sue in the case of both registered and unregistered firms. IPA does not invalidate any transaction by an unregistered firm. Additionally, there is no bar on filing a new suit on the same cause of action after a firm obtains registration.
Finally, although IPA is based on the English Partnership Act of 1890, in England, it is compulsory under Section 1 of the Registration of Business Names Act, 1916. Thus, the issue of maintainability for an unregistered firm does not arise in English law. The unsuitability of the English framework for India has also been highlighted in V. Subramaniam v Rajesh Raghuvendra Rao.
Contractual Rights as Rights Arising from a Contract
At the outset, the phrase ‘a right arising from a contract’ is not all-encompassing; it does not include every contract with a third party. The scope of this Section is restricted to contracts entered into during usual business transactions between the unregistered firm and the third party. Besides, the subject matter of the suit has no bearing on the maintainability of such a suit.
To illustrate, in consignment contracts, the consignor cannot sue the carrier for damages for a reduction in the value of the consignment due to damage to the ship. This is because a suit for enforcing contractual damages is ‘a right arising from contract’.[2] Likewise, in construction contracts, the contractor/ someone else could not sue for rights arising out of the building or construction contract. Ram Adhar v Rama Kirat Tiwari, and Abani Kanta Ray v State of Orissa clarified that if an unregistered partnership firm sues the purchaser for the recovery of the price of the goods sold to them, the suit would be barred.
Non-contractual Rights as Rights not Arising from a Contract
This sub-section bars suits only to the extent of the Indian Contract Act. Consequently, non-contractual rights, or rights arising independently of any contract are enforceable. Such non-contractual rights include statutory rights and common law obligations not arising out of contract. For instance, suits for enforcing rights arising from other legislations like the Copyright Act, 1957; Trademark Act, 1999; the Transfer of Property Act, 1882; Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act (SARFAESI Act), 2002; Motor Vehicles Act, 1988 are not barred by Section 69(2). Interestingly, a suit by an unregistered firm disputing the partnership agreement itself is valid as it does not fall under the definition of a ‘right arising from a contract’. Also, recovery of a loan suit which is unrelated to any right arising out of a contract is also maintainable.
Furthermore, in Hotel Satkar v Krishnanath Nanu Chavdikar, the plaintiff's unregistered firm, had given a license to the defendants to operate on their premises. Later, the plaintiff terminated the license agreement with the defendant; and thereafter, sued the defendant for trespass and sought possession of the premises. The Court held that after the license to use the premises was terminated, the defendant was no longer a licensee. As such, if the defendant continued using the premises, a trespass suit, being a non-contractual tortious claim, can be maintained by an unregistered firm against the defendant.
Part-2 will evaluate the nature of the passing-off suit to analyse whether it falls under the definition of ‘a right arising from of contract’.