The Supreme Court has struck down as "unconstitutional" a Maharashtra Government's rule which prohibited partners from approaching the courts to seek dissolution of their firm or recover property from the estranged partner.
"A dishonest partner, if in control of the business, or if simply stronger, can successfully deprive the other partner of his dues from the partnership. It could result in extreme hardship and injustice. Might would be right.
An aggrieved partner is left without any remedy whatsoever. He can neither file a suit to compel the mischievous partner to cooperate for registration, as such a suit is not maintainable, nor can he resort to arbitration," the apex court observed.
A bench of Justices Markandeya Katju and G S Singhvi in a judgement said the impugned rule was violative of various Constitutional provisions guaranteed to a citizen under Articles 300A, 14 and 19 (1) G.
The impugned rules relates to the amendment carried out by the state government in 1985 to the Indian Partnership Act by inserting Section 2 A.
Under the said section, a partner of an unregistered firm cannot approach a court for enforcing a suit to dissolve the business or recover the property from the other.
According to the Maharashtra Government, the move was aimed at discouraging unregistered partnership firms and encourage registration of partnership firms.
The rule was challenged by an aggrieved partner V Subramaniam but the Bombay High Court upheld the provision on the ground that there was nothing unconstitutional, following which he appealed in the apex court.
Upholding Subramaniam's plea the apex court said the rule can result in a situation where in case of disputes amongst the partners the relationship of partnership cannot be put to an end by approaching a court of law, nor help a partner take back his legitimate assets from the firm.
"In our opinion sub-section 2A of Section 69 inserted by the Maharashtra Amendment violates Articles 14, 19(1)(g) and 300A of the Constitution of India," the bench said.
Article 300A of the Constitution of India states that "No person shall be deprived of his property save by authority of law."
"Sub-section 2A virtually deprives a partner of a firm from his share in the property of the firm without any compensation. Also, it prohibits him from seeking dissolution of the firm although he may want it dissolved," the bench said.
According to the apex court, the rule was also violative of Articles 14 and 19(1)(g) of the Constitution.
Article 14 guarantees the right to equality and states that "The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India."
Under Article 19(1)(g) of the Constitution all persons have the right to practice any profession or to carry on any occupation, trade or business.
"Since in our opinion sub-section 2A of Section 69 as introduced by the Maharashtra Legislature clearly violates Articles 14, 19(1)(g) and 300A of the Constitution, it is in our opinion ultra vires and is hence declared unconstitutional," the apex court said.