Statutory restitution for a void contract does not attract the Section 69(2) partnership bar.

On 12 March 2020, the plaintiff, described in the cause title as a partnership firm represented by its partner, successfully bid ₹10,76,000 for an Audi A6 offered for sale by HDFC Bank through an online auction. The vehicle was a secured asset repossessed by the Bank. The plaintiff paid the entire bid amount on 18 March 2020.

The Bank issued a delivery order on 16 June 2020, but when the plaintiff went to collect the vehicle from S.N. Nundy Garage, it allegedly found the vehicle severely damaged during Cyclone Amphan while in the garage’s custody. The plaintiff refused delivery, sought a refund, and thereafter instituted the present suit on 5 October 2024 for restitution of ₹10,76,000 with interest, along with attachment and injunction reliefs.

After service of summons on 18 December 2024, the Bank applied under Order VII Rule 11(d) CPC, contending that the suit was barred by Section 69(2) of the Indian Partnership Act, 1932 because the plaintiff was an unregistered partnership firm seeking to enforce contractual rights.

The Bank also relied on the auction’s “as is where is” terms and the indemnity bond executed on 16 June 2020.

The plaintiff contended that the contract had become void owing to supervening impossibility and that the claim was statutory restitution under Section 65 of the Indian Contract Act, 1872, rather than enforcement of a contractual right.

1. Whether the suit was for enforcement of a right arising from a contract and was consequently barred under Section 69(2) of the Indian Partnership Act, 1932.

2. Whether the plaintiff’s claim for refund of the consideration, with interest, constituted enforcement of contractual terms or a statutory/equitable claim for restitution under Section 65 of the Indian Contract Act, 1872, outside the scope of Section 69(2).

The Court applied Order VII Rule 11(d) CPC, under which a plaint may be rejected only where, on a reading of the plaint as a whole and the documents annexed to it, the suit is clearly barred by law; the defendant’s merits-based defence cannot ordinarily be considered at this stage.

Section 69(2) of the Indian Partnership Act, 1932 bars an unregistered partnership firm from instituting a suit against a third party to enforce a right arising from a contract. Relying on Raptakos Brett & Co. Ltd. v. Ganesh Property, (1998) 7 SCC 184, the Court noted the three requirements for the bar: the firm must be unregistered, the suit must be against a third party, and the suit must enforce a contractual right.

Under Haldiram Bhujiawala v. Anand Kumar Deepak Kumar, (2000) 3 SCC 250, and Shiv Developers through Partner Sunilbhai Somabhai Ajmeri v. Aksharay Developers, (2022) 13 SCC 772, Section 69(2) does not bar enforcement of an independent statutory or common-law right, and not every contract mentioned in a plaint attracts the bar.

Section 64 of the Sale of Goods Act, 1930 recognises the formation of a contract in an auction upon completion of the auction, subject to the applicable terms; Sections 26 and 31 concern allocation of risk and the seller’s obligation to deliver the goods.

Section 65 of the Contract Act requires restoration of an advantage received under an agreement that has become void.

The Court held that the application had to be decided primarily from the plaint’s averments and annexures. Although the plaintiff had not pleaded or produced material showing that it was a registered firm, and had not effectively denied the Bank’s assertion that it was unregistered, the decisive question was whether the suit sought enforcement of a subsisting contractual right.

The auction and subsequent execution of the indemnity bond and issuance of the delivery order raised factual and legal questions concerning when the contract was completed, when property in the vehicle passed, and whether the Bank remained obliged to deliver the vehicle in the auctioned condition.

The plaintiff’s case was that the vehicle was materially damaged before delivery, rendering performance impossible and entitling it to restitution under Section 65. Such a claim, if established, would arise from statute rather than from enforcement of a contractual promise or claim for damages for breach.

The Court also found that the Bank’s reliance on the “as is where is” clause and indemnity bond constituted a defence on the merits, requiring evidence and potentially a trial.

Whether the vehicle was damaged while in the Bank’s custody, whether the relevant risk had passed, and whether the auction constituted a completed sale or merely an agreement for sale were mixed questions of law and fact that could not justify rejection of the plaint at the threshold.

The claim was capable of being characterised as a statutory restitutionary claim under Section 65 arising from an allegedly void or frustrated transaction, and the relevant factual questions required adjudication at trial.

GA/2/2025 was accordingly dismissed, with the parties permitted to agitate all legally available points at trial.