Haldiram Bhujiawala v. Anand Kumar Deepak Kumar (2000)

Section 69(2) bars a suit by an unregistered firm against a third party to enforce a right arising from a contract. Two questions follow, and Haldiram answers both.

First, does the bar apply where the firm is enforcing a statutory or common law right rather than a contractual one? Note the deliberate difference of wording between s. 69(1) and s. 69(2): sub-section (1) covers a right arising from a contract or conferred by this Act, while sub-section (2) covers only a right arising from a contract.

Second, if the plaint has to mention a contract in order to explain how the firm came by the thing it is suing about, does that mention pull the suit into s. 69(2)?

The answers — no, and no — make s. 69(2) a much narrower bar than a first reading suggests, and give the student a clean two-step test.

One Ganga Bishan, also called Haldiram, carried on business in the name Haldiram Bhujiawala from 1941. In 1965 he constituted a partnership with his two sons Moolchand and Shiv Kishan and his daughter-in-law Kamla Devi, to carry on business under the same name. In December 1972 that firm applied to the Registrar of Trade Marks for registration of the name, and registration was granted under No. 285062.

On 16 November 1974 the partnership was dissolved. Under the terms of the dissolution deed the trade mark fell exclusively to Moolchand for the whole country except West Bengal, while Kamla Devi was given the trade mark rights for West Bengal. Ganga Bishan's will of 3 April 1979 reiterated those rights; he died in 1980. Moolchand died in 1985 leaving four sons, who had their names recorded as subsequent joint proprietors; three of them formed a partnership and ran a shop in Chandni Chowk selling goods under the mark.

Meanwhile, in October 1977, Kamla Devi's husband and their son applied at Calcutta to register the same name, claiming to be full owners and not disclosing the dissolution deed. The plaintiffs' registered mark was renewed in 1986.

The plaintiffs learned in December 1991 that the defendants — a newly constituted firm formed by Ashok Kumar, son of Kamla Devi, and Ashok Kumar personally — had opened a shop at Karol Bagh, New Delhi, using the mark outside West Bengal. The plaintiffs sued on 10 December 1991 for a permanent injunction against infringement of Trade Mark No. 285062 and against use of the name, for damages of Rs 6 lakhs, and for destruction of material.

The defendants applied under Order 7 Rule 11 of the Code of Civil Procedure to reject the plaint, on the ground that the first plaintiff was a partnership not registered with the Registrar of Firms on the date of suit — it was registered only on 29 May 1992 — and that the subsequent registration would not cure the initial defect. The Single Judge and the Delhi High Court refused rejection. The defendants appealed.

For the defendants. The plaint repeatedly relies on the proprietary right of the late Moolchand as arising out of the dissolution deed of 16 November 1974, which is a contract. Without reference to that document the plaintiffs cannot prove their title to the trade mark through Moolchand. The right enforced is therefore not a common law or statutory right but one arising from a contract, and s. 69(2) applies. The words arising from a contract are akin to the words arising out of a contract in an arbitration clause, which the Supreme Court had construed widely.

For the plaintiffs. The suit rests on two rights: a statutory right under the trade marks legislation arising out of prior registration, and, alternatively, a common law right in a passing-off action. It is not based on any contract between the plaintiffs and the defendants. The reference to the dissolution deed is merely a reference to a historical fact — the source of Moolchand's right, which devolved on his sons. Neither the plaintiffs nor the defendants were parties to that deed.

1. Does s. 69(2) bar a suit by a firm unregistered on the date of suit where a permanent injunction and damages are claimed in respect of a trade mark, as a statutory right or by invoking the common law of passing off?
2. Do the words arising from a contract in s. 69(2) refer only to a contract entered into by the unregistered firm with the defendant in the course of the firm's business, or can the bar be extended to any contract mentioned in the plaint, unconnected with the defendant, as the source of title to the suit property?

The appeal was dismissed. The suit was not barred by s. 69(2).

Point 1: statutory and common law rights are outside the bar

Section 69(2) cannot bar the enforcement by way of suit by an unregistered firm of a statutory right or a common law right. In an earlier decision the Court had held that the right to evict a tenant on the expiry of a lease was not a right arising from a contract but a common law or statutory right, and that the reference in the plaint to the lease and its expiry made no difference — the reference to the lease was treated as a historical fact.

Applying that, a passing-off action is a common law action based on tort. A suit for a perpetual injunction restraining the defendants from passing off their goods as those of the plaintiffs by using the plaintiffs' trade mark, and for damages, is an action at common law and is not barred by s. 69(2). Likewise, if injunction or damages are claimed on the basis of a registered trade mark and its infringement, the suit is one based on a statutory right and is not barred.

The Court also rejected the analogy with arising out of a contract in an arbitration clause: a wide construction of those words in an arbitration context has no relevance to interpreting arising from a contract in s. 69(2).

Point 2: the contract must be with the defendant, and in the course of business

The Court traced the purpose of the provision and stated it in terms worth learning: the purpose behind s. 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 the third-party defendants in the course of the firm's business transactions.

Two conditions therefore attach to the contract:

1. It must be a contract entered into by the plaintiff firm not with anybody else, but with the third-party defendant; and
2. It must be one entered into by the plaintiff firm in the course of its business dealings with that third-party defendant.

Neither was satisfied here. Under s. 2(d) third parties are persons who are not partners of the firm, and the defendants were third parties to the first plaintiff firm. They were also third parties to the dissolution deed of 1974: their mother was a party, but they were only claiming a right said to have accrued to her and then to them. The deed was not a contract to which the plaintiff firm, its partners or the second plaintiff were parties either — their father Moolchand was, and his right devolved on them.

The Court then gave the reason of policy: the legislature was referring to a contract entered into in the course of business transactions by the unregistered plaintiff firm with its defendant customers, and the idea is to protect those in commerce who deal with such a partnership firm in business — such third parties ought to be enabled to know the names of the partners before they deal with them.

The motor car illustration

The Court's own example is the one to reproduce in an answer. Suppose the plaint of an unregistered firm refers to the source of the firm's title to a motor car, stating that the firm purchased and received the car from a foreign seller under a contract, and that the defendant has unauthorisedly removed it from the firm's possession. The relief for possession does not arise from any contract the defendant entered into with the firm in the course of its business; it is based on the unauthorised removal. The fact that the unregistered firm bought the vehicle from somebody else under a contract has absolutely no bearing on the firm's right to sue the defendant for possession. Such a suit is maintainable and s. 69(2) is no bar, even if the firm is unregistered on the date of suit.

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. A reference of that kind is a historical fact.

A practical rescue

The Court added a point of great practical value. The Act does not make transactions or contracts entered into by an unregistered firm bad in law. Where a firm is unregistered on the 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, it is open to the plaintiff to seek withdrawal of the plaint with leave and to file a fresh suit after registration, subject to the law of limitation. Section 14 of the Limitation Act 1963 will be available, because the defect of non-registration falls within the words other cause of like nature in that section.

Section 69(2) bars an unregistered firm's suit only where the right sued on arises from a contract entered into by that firm with the defendant, in the course of the firm's business dealings with him. It does not bar the enforcement of a statutory right or a common law right, and a contract mentioned in the plaint merely as the historical source of the firm's title does not attract the bar.