Suit Against A Firm Is A Suit Against All Persons Who Were Its Partners When Cause Of Action Occured: Kerala High Court

The Kerala High Court has last week held that a suit instituted by or against a firm is a suit by or against all the partners of the firm and that the firm's name stands for all who were partners at the time when cause of action arose.

A Division Bench of Justice P.B. Suresh Kumar and Justice C.S. Sudha pointed out that the policy underlying Order XXX (Suits by or against firms and persons carrying on business in names other than their own) CPC, is to avoid a long array of parties and to allow a convenient mode of institution of suits by/against partners collectively, who carry on business under a particular name.

"When a suit is instituted by or against a firm it is in reality a suit by or against all the partners of the firm. The firm name stands for all those persons who were its partners at the time of the accruing of the cause of action. In other words, the effect of using the name of the firm is to bring all the partners before the court. This enabling provision contained in Rule 1 of Order XXX does not, however, do away with the traditional method of bringing a suit by or against the partners individually."

The Kerala State Electricity Board had awarded the work of a hydroelectric project to the appellant firm. However, due to an inordinate delay in the execution of the work, this contract was terminated as well. Since the work had to be re-tendered due to the default of the appellant, the Board incurred quite a heavy loss.

The Board accordingly filed a money suit against the appellant firm and its partners before the Thiruvananthapuram Subordinate Court. This was partly decreed.

Meanwhile, the appellant firm also filed a suit against the Board seeking damages alleging illegal termination of the contract. However, before the suit was instituted, one of the partners of the firm retired and a new partner had come in. The court below relied on Order XXX Rule 1 CPC to conclude that the suit is not maintainable since one of the parties was not a partner when the cause of action arose and hence there was no privity of contract between the said partner and the Board.

Challenging this, the firm moved the High Court through Advocates P.T. Mohankumar, George Cherian and Rajesh Cherian Karippaparambil. Standing Counsel R. Lakshmi Narayan appeared for the respondents

The Court observed,

"A firm is a compendious collective name for the individual members who constitute the firm. The Code, however, does not treat the firm as a juristic person. It only confers a privilege on the individuals constituting the firm to sue or be sued in the name of the firm."

It was also found that Rule 1, Order XXX CPC provides only a convenient mode of describing in a suit two or more persons claiming/being liable as partners. The partners may adopt this method and bring the suit in their firm's name and simultaneously they may be sued in their firm's name.

Further, it was observed that the scope and ambit of the provisions of Rules 1 and 2 are different from the provisions of Section 69(2) of the Partnership Act. While Rules 1 and 2 are procedural, Section 69(2) is substantive and creates a bar at the threshold of the filing of a suit by or on behalf of a firm if the conditions mentioned therein are not fulfilled.

So if the parties had not been properly described or if there was a defective description of the parties, it was open to the court to have allowed or directed amendment of the pleadings. Therefore, if at all there was a defect in the cause title, it was held that an amendment could have been permitted by the court below. Such defect, if any, cannot be made a ground to hold the suit to be not maintainable, it was ruled.

"A decree passed against a Firm is binding on all persons who were partners on the day when the cause of action accrued. That being the position, at best, the consequence of a new person coming in would only mean that he would not be entitled to the fruits of the decree if any obtained by the persons who were partners at the time of the accrual of the cause of action," the order stated.

Case Title: M/S C.S Company & Ors v. Kerala State Electricity Board & Anr.

Citation: 2022 LiveLaw (Ker) 293

Click Here To Read/Download The Order