M/S. Dream Machines vs HDFC Bank Limited

A. The Defendant Bank submits that from the cause title of the plaint it appears that the plaintiff is a partnership firm, represented by its partner Wasim Dhalech, however there is neither any averment in the plaint, nor any document annexed to the plaint to show that the plaintiff is a registered Partnership Firm. In the affidavit-in-opposition the plaintiff has not denied the fact that the plaintiff is not an unregistered partnership firm. At the same time, there is also no assertion from the plaintiff’s side that the plaintiff is a registered partnership firm. Therefore, the suit is barred, as under the Section 69(2) of the Indian Partnership Act, 1932 as an unregistered partnership firm is legally barred from filing or maintaining a suit against a third party to enforce rights arising from a contract. A sale by auction is on the bid being accepted a contract. The claim of the plaintiff is for refund of money for breach of contract and as such the bar under Section 69(2) of the 1932 Act gets attracted. Unless a firm is registered on the date of institution of the suit, the bar operates once the suit is for enforcement of a right arising out of the contract. No evidence is also necessary in the facts of the instant case where there is no denial from the side of the plaintiff that it is not a registered firm.

B. The Defendant relies on Raptakos Brett And Company Limited vs. Ganesh Properties reported in (1998) 7 SCC 184 to argue that once the bar of Section 69(2) of the Indian Partnership Act, 1932 is attracted the corollary will be that the suit is incompetent at the very threshold. Relying on Raptakos (Supra), the Defendant argues that for the bar of Section 69(2) to apply the following three parameters must be satisfied: i. The firm must be unregistered on the date of filing of the suit; the persons suing are not shown in the Register of Firms.

Suit must be against a third party; and

Suit must be for enforcement of right arising from a contract with such third party.

C. According to the Defendant there is no dispute with respect to the first two conditions above, and the only issue is whether the claim is “arising from a contract”. The Defendant argues that transaction was a concluded contract for sale, finalized when the plaintiff was successful in the auction and paid the bid money of Rs. 10,76,000/ within the time frame provided. The plaintiff's claim for refund as in the suit arises from this transaction and not from any other statute or common law. The Bank argues the suit is contractual in nature, making the statutory bar under Section 69(2) of the 1932 Act fully applicable.

D. The Defendant relying on Mahinder Kumar Chaudhary & Anr v. Balasara Hygiene Products Ltd reported in MANU/DE/1838/2001, Eskay Hospitality Services India Pvt. Ltd and Ors vs. Sterling Hospitality through Pranay Goyal reported in 2025 SCC Online Bom 385, Hirendra Bhola vs. Gulati Marketing Co and Anr. reported in AIR 2007 MC 165, Chennai Law Firm v. Reyvish Associates (P) Ltd, reported in 2024 SCC Online Mad 12330 which was affirmed by the Supreme Court in Chennai Law Firm vs. Reyvish Associates (P) Ltd in SLP (Civil) Diary no. 57293 of 2024 has argued that the refund sought by the Plaintiff is a right akin to enforcement of a right arising from a contract and the bar under Section 69(2) of the Indian Partnership Act, 1932 will mandatorily be attracted.

E. Further, the Defendant relied on the Deed of Indemnity / Indemnity Bond executed by the plaintiff on 16th June, 2020 to contend that under the "as is where is" clause and the executed indemnity terms, the Plaintiff accepted the vehicle's condition, and agreed that the Defendant Bank would not be responsible for any deterioration, and waived the right to claim any refund or return the assets once payment was complete.

F. The Defendant specifically denied that the garage of M/s. S. N. Nundy Garage is managed and controlled by the defendant bank Submissions on behalf of Plaintiff:

I. The Plaintiff argues that after having deposited the full bid amount of Rs. 10,76,000/- on 18th March, 2020, they sought to take delivery of the said car on 20th June, 2020 when they found out that the said car had been rendered completely dilapidated and damaged while lying at the garage of M/s S.N. Nundy Garage, which the Plaintiff alleged is managed and controlled by the defendant bank. Upon enquiry from the representatives of M/s. S.N. Nundy Garage, the Plaintiff learned that the garage was flooded during the “Amphan” cyclone, which hit Kolkata on 20th May 2020 causing the damage to the car. Further, the said damage was reportedly communicated to the defendant by the garage representatives. The defendant having failed to make available the said car for handing over in the auctioned condition, the Plaintiff refused to take delivery of the said car.

II. The Plaintiff argues that even though they had taken part in the auction process and fulfilled their end of the bargain by making the due payment, the contract became incapable of performance because the said car was severely damaged and rendered dilapidated while in the Bank's custody prior to delivery, and as such that contract was vitiated by law. Relying on Section 56 of the Indian Contract Act, 1872 the Plaintiff contends that when a contract becomes impossible to perform due to a supervening event, such as damage caused by Cyclone Amphan while in the garage, the said contract is rendered void in law. The Plaintiff cannot be legally compelled to accept a deteriorated asset in place of the vehicle auctioned.

III. Further, the Plaintiff argues that their claim is basis the underlying transaction, i.e., the goods having been damaged before the delivery of the same has fundamentally voided the contract. The goods never became capable of delivery and performance could not take place, and thus the Defendant is legally bound to restore the advantage under Section 65. The suit is strictly restitutionary in nature to recover their own money, due to failure of consideration on the part of the Defendant and not a suit to enforce a subsisting commercial contract. Thus, the suit is not barred by Section 69(2) of the Partnership Act, and rather falls within the exceptions. The Plaintiff relies on Haldiram Bhujiawala & Anr. vs. Anand Kumar Deepak Kumar & Anr., (2000) 3 SCC 250 and Shiv Developers through Partner Sunilbhai Somabhai Ajmeri vs. Aksharay Developers & Ors. (2022) 13 SCC 772 to argue that Section 69(2) of the Partnership Act does not apply when the suit is for enforcement of a statutory right or common law right and also that it can apply only when the right sought to enforced is arising from a contract entered into by the firm in the course of business.

IV. The Plaintiff further argued that since the said car was never received by the Plaintiff or that its delivery was never completed, and according to Section 26 of the Sale of Goods Act, 1930 the goods remained at the seller's risk until property/ownership is transferred to the buyer. Since the vehicle was never delivered in the auctioned condition, ownership never passed, and the risk of deterioration remained entirely with the Bank. The plaintiff was therefore legally entitled to refuse delivery and demand a refund.

V. With regards to the indemnity bond signed, the Plaintiff contends that the Deed of Indemnity was a procedural requirement executed on the premise that the vehicle would be delivered in the same condition as at the time of the auction, and does not constitute consent to accept a damaged vehicle. Further the "as is where is" clause applies only to the condition of the asset at the time of the auction and cannot cover subsequent destruction or material damage occurring in the Defendant's custody before possession was handed over.

VI. The plaintiff argues that the Car Dekho page relied on by the Defendant to contend that the sale stood concluded, is merely a third-party document confirming the bid and does not record the complete bargain or auction terms, nor does it override the legal consequences of damage before delivery.

VII. The Plaintiff has also stated that whether the partnership firm is registered or not is a mixed question of law and fact, which cannot be decided upon at the interlocutory stage and must be decided in trial.

Whether the present suit filed is a suit to “enforce a right arising from a contract” and thus barred under Section 69(2) of the Indian Partnership Act, 1932?

Whether the plaintiff’s claim for refund of the total consideration money with interest is an enforcement of contractual terms, or a statutory/equitable claim for restitution under Section 65 of the Indian Contract Act, 1872, which falls outside the ambit of the Section 69(2) bar?

The instant application is one under the provisions of Order VII Rule 11(d) of CPC i.e., the suit is barred by law. The Court while considering an application for rejection of a plaint under Order VII Rule 11 CPC, must confine its scrutiny exclusively to the averments made in the plaint by taking them as a whole and treating them to be true and correct. In addition thereto can look into the documents annexed to the plaint.

The defence raised by the Defendant, however strong or legally sound it may appear, is wholly irrelevant at the stage of deciding a demurrer application. Consequently, the Bank’s reliance on the “as is where is” clause and the Deed of Indemnity constitutes a defence on the merits requiring trial evidence, and cannot justify summary rejection.

The law as laid down by the Hon’ble Supreme Court in 2015(4) SCC 371 (Om Aggarwal v. Haryana Financial Corporation & Ors.) indicates a procedure as to how an application under Order VII Rule 11(d) of CPC has to be considered. It is no more res integra that the provisions of Section 69(2) of the 1932 Act is a clear bar on an unregistered partnership firm from filing a suit for enforcement of a right arising out of a contract. In this perspective it is to be seen on considering the averments of the plaint as a whole with the documents annexed thereto as to whether the suit is for enforcement of contract particularly when the plaintiff has neither asserted to be a registered partnership firm nor have the plaintiff produced any document to show registration on being specifically alleged by the defendant to be an unregistered firm. The plaintiff has in fact not denied to be an unregistered firm.

The issue as to a partnership firm being registered or unregistered does not detain one to call for any detailed evidence. Either one has a license or do not have the same. The plaintiff, if is a partnership firm has to produce the certificate, if called for or can produce the same on having pleaded to be a registered partnership firm at the time of trial. In the instant case the plaintiff has not pleaded to be a registered partnership firm. Unless pleaded it is settled law that evidence on being led cannot be considered. Assuming without admitting that the plaintiff can lay evidence as to their registration but they have neither produced the certificate of registration nor denied that they are not an unregistered partnership firm or even in affidavit-in-opposition have asserted to be a registered firm. This issue, therefore, is not an issue involving mixed question of law and fact. This issue can be, therefore, decided without setting down the same for trial as held in Om Aggarwal (supra).

Now, going to the transaction between the parties it is noticed that the defendant bank had put up the said car for sale through auction wherein the plaintiff was a successful bidder whose offer was accepted. Auction sale is elucidated in Section 64 of the sale of Goods Act, 1930 (hereinafter referred to as the 1930 Act). Under the provision of Section 64(2) of the 1930 Act a contract comes into operation between the seller and the successful bidder on the completion of the auction, if there is no other stipulation as contained in the other sub-Sections of Section 64 of 1930 Act.

Although, the provisions of Section 64(2) of the 1930 Act does not indicate as to when the property in the goods get transferred from the seller to the buyer but the Hon’ble Supreme Court has in AIR 1973 SC 376 (Chowringhee Sales Bureau (P) Ltd. v. CIT, West Bengal) held in paragraph 10 thereof-“An auction sale in view of the provisions of Section 4 read with Section 64 of the Sale of Goods Act would have to be considered as sale for the purpose of Sale of Goods Act.” The Hon’ble Supreme Court in its judgment reported in AIR 2011 SC 224 (State of Uttaranchal & Ors. v. Khurana Brotheres) have further explained this in paragraph 7 thereof which reads as follows:

In an auction sale like the case in hand, the goods are ascertained goods. The transfer, therefore, should have taken place immediately. On a reading of terms of the Deed of Indemnity annexed to the plaint, it, however, appears that certain other terms and conditions were to be fulfilled after the auction took place thereby effecting the transfer. It can, therefore, be construed in the instant case that it was an agreement for sale which become a contract for sale on fulfilment of the other conditions. If it is an agreement for sale then the property in the goods at the highest stood transferred on 16^th June, 2020 when the indemnity bond was executed. The plaintiff also could not have taken delivery of the said Car unless the delivery order was issued by the bank permitting the plaintiff to take delivery with an instruction to M/s S.N Nundy where the car was lying to make over the same to the plaintiff. So the defendant bank was liable to deliver the said car under the provision of Section 31 of the 1930 Act irrespective of the fact that the property in the goods stood transferred on the completion of the auction or on fulfilment of further conditions that is on 16^th June, 2020. Any further analysis in this regard is not necessary at this stage as it may lead to a mini trial which is impermissible while deciding an application under Oder VII Rule 11 of CPC.

On a preliminary analysis of fact it is apparent that the defendant bank did not refuse to deliver the said car at any point of time. In fact delivery order was issued with which the plaintiff went to take delivery and found the said car to be totally damaged. On the other hand the defendant says that the said car was sold in auction on “as is where is” and “whatever there is basis”. This leads to a situation where the condition of the said Car at the time of inspection and at the time of delivery becomes the most crucial issue which can be only decided at the trial. It is, however, clear up to the stage of taking delivery there is no breach. If the property in the goods stood transferred and delivery is refused it would give rise to a breach of the contract. This leads to two situations – (i) total failure of consideration giving rise to claim for damages and (ii) claim for compensation on account of loss by damage caused to the plaintiff.

At this stage one should not lose sight of the fact that the plaintiff is into car business, however unless evidence is laid it cannot be said as to what was the purpose of purchasing the said Car. In any event, the plaintiff’s allegation that it has suffered damages, however, remains. On the other hand, the said Car was a security against a loan and in default of repaying the loan, the said Car was put for sale by way of auction. The banks auction is under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFAESI Act) and Security Interest (Enforcement) Rules 2002 (hereinafter referred to as the 2002 Rules). The bank, therefore, is permitted to take steps against the auction purchaser under the SARFAESI Act and the 2002 Rules as held by the Hon’ble Supreme Court in 2024 (6) SCC 641 (Authorised Officer, Central Bank of India v. Shanmugavelu) The said judgment has also ruled out the application of Section 73 and 74 of the Indian Contract Act, 1872 in case of such a sale.

It is settled position of law that the bar under Section 69(2) of the Indian Partnership Act strictly applies to suits enforcing contractual rights when an unregistered partnership firm tries to enforce the same against a third party. In the instant case, the Defendant has argued that the plaintiff’s claim is one arising out of a completed contract of sale. Relying on Section 64 of the Sale of Goods Act, 1930 it was stated that “the sale is complete when the auctioneer announces its completion by the fall of hammer or in other customary manner”. And that the partnership firm being an unregistered firm squarely satisfies the requirement of Section 69(2) of the Indian Partnership Act.

The Apex Court in Raptakos (Supra), apart from enumerating the triple test for applicability of the bar under Section 69(2) of the Indian Partnership Act, 1932 has also held that that when the plaintiff has based the cause of action not only on the contract but also law of land then the bar under Section 69(2) of the Indian Partnership Act, 1932 is not attracted. In the said matter the landlord’s suit had two parts: A claim based on the covenants of the expired lease contract, and another based on the law of land. The Hon’ble Supreme Court explicitly held that while the first part based on the contractual covenants was indeed barred by Section 69(2), there is no such bar on claim based on the law of the land which is independent of the contract. Similarly, in Shiv Developers (Supra) reiterated that Section 69(2) does not bar a suit filed by an unregistered firm if the suit is for the enforcement of a statutory right or a common law right. Further, the Apex Court also clarified that to attract the bar under Section 69(2), the contract in question must be one entered into by the unregistered partnership firm with a third-party defendant in the course of its regular business dealings and that the bar is not attracted to any and every contract referred to in the plaint as a historical fact or as a source of title to an asset owned by the firm.

In the instant case, the Plaintiff has sought return of money paid under a contract that has become void, which is a right basis Section 65, Indian Contract Act, 1872, i.e., a statutory right as opposed to compelling performance or seeking damages for breach of a subsisting agreement under the terms of the contract. As the goods never became capable of delivery in the condition auctioned, the agreement became void, triggering an immediate right to restitution. Such a claim is not barred under Section 69(2) of the Indian Partnership Act, 1932.

Evaluating whether this specific transaction was a completed contract under Section 64 of the Sale of Goods Act, 1930, and the whether property actually passed to the Plaintiff, and how that interacts with the statutory allocation of pre-delivery risk under Section 26 of the Sale of Goods Act are a mixed question of law and fact. A mixed question of law and fact cannot serve as a ground for the summary rejection of a plaint.

It cannot, therefore, be said at this stage that the suit is for enforcement of rights under the contract thereby attracting the provisions of Section 69(2) of the 1932 Act and as such not maintainable since it is filed by an unregistered partnership firm, although the issue of bar under Section 69(2) of the 1932 Act as held hereinabove does not require detailed consideration but for the peculiar facts of this case, the issue has not remained a simplictor one.