Supreme Court clarifies maintainability of consumer complaint by a partner against partnership firm: Annapurna B. Uppin & Ors. vs. Malsiddappa & Anr. (2024) INSC 276 (05 April 2024)

Introduction

Date of the Judgment: 05 April 2024

Citation: (2024) INSC 276

Judges: Justice Vikram Nath and Justice Satish Chandra Sharma.

Can a partner in a firm, who has also invested in the same firm, file a consumer complaint against the firm for deficiency in service? The Supreme Court of India recently addressed this question, clarifying the scope of the Consumer Protection Act, 1986 in relation to partnership disputes. This judgment provides important insights into the maintainability of consumer complaints in cases involving partnership firms. The bench comprised of Justice Vikram Nath and Justice Satish Chandra Sharma. The judgment was authored by Justice Vikram Nath.

Case Background

The case involves a dispute arising from an investment made by Malsiddappa (Respondent No. 1) in the partnership firm M/s Annapurneshwari Cotton Co. on 21.05.2002. Malsiddappa invested Rs. 5 lakhs, which was to be repaid after 120 months with an interest of 18% per annum. When the firm failed to repay the amount upon maturity, Malsiddappa issued a notice on 12.02.2014, and subsequently filed a complaint before the District Consumer Disputes Redressal Forum (DCDRF) alleging deficiency in service. The appellants are the legal heirs of Basavaraj Uppin, a deceased partner of the firm. The respondent No. 2 was the other partner in the firm. The appellants contended that Malsiddappa, being a partner himself, could not maintain a consumer complaint against the firm. They also argued that the legal heirs of a deceased partner could not be held liable for the firm’s debts.

Timeline

Arguments

Appellants’ Submissions:

• The appellants argued that the complainant, Malsiddappa, was a partner in the firm as per the registered partnership deed dated 27.05.1996.
• They contended that a partner cannot maintain a consumer complaint against the partnership firm for disputes related to the firm.
• The appellants submitted that the dispute was commercial in nature and should have been taken to a civil court, not a consumer forum.
• They argued that legal heirs of a deceased partner cannot be held liable for the firm’s debts unless a fresh partnership deed was executed with them as partners.

Respondent’s Submissions:

• The respondent argued that the appeal is not maintainable due to the availability of an alternative remedy under Article 226 of the Constitution, citing the judgment in Universal Sompo General Insurance Company Ltd. vs. Suresh Chand Jain and Another [(2023) SCC Online SC 877].
• The respondent contended that the registered partnership deed of 27.05.1996 was not valid due to an intervening unregistered partnership of 13.09.1994.
• The respondent argued that the refusal to return the invested amount constituted a deficiency in service, making the complaint maintainable.
• The respondent submitted that the appellants inherited the estate of the deceased managing partner and are liable to pay the dues.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issues addressed by the court were:

1. Whether a partner of a registered partnership firm can maintain a consumer complaint against the firm for deficiency in service.
2. Whether the legal heirs of a deceased partner are liable for the debts of the partnership firm.

Treatment of the Issue by the Court

Authorities

The court considered the following authorities:

• Universal Sompo General Insurance Company Ltd. vs. Suresh Chand Jain and Another [(2023) SCC Online SC 877] – This case was cited by the respondent to argue that the appeal was not maintainable because an alternative remedy was available under Article 226 of the Constitution. The Supreme Court distinguished the case and stated that it would apply prospectively and not to pending matters.

Authorities Considered

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The court emphasized that the complainant, Malsiddappa, was a partner in the firm at the time of investment, as per the registered partnership deed dated 27.05.1996. This fact was crucial in determining that he could not be considered a ‘consumer’ under the Consumer Protection Act, 1986.
• The court found that the investment made by the complainant was for deriving benefit by getting interest at the rate of 18% per annum, which made it a commercial transaction. Commercial disputes are not within the purview of the Consumer Protection Act, 1986, and should be resolved in a civil court.
• The court reiterated the settled law that the legal heirs of a deceased partner are not liable for the firm’s debts unless they have become partners in a reconstituted firm. There was no evidence of a fresh partnership deed involving the appellants.

Logical Reasoning

Judgment

The Supreme Court held that the District Forum, State Commission, and National Commission erred in allowing the complaint. The court stated, “once there was a registered partnership deed dated 27.05.1996, there is no further document placed on record by the complainant -respondent No.1 regarding dissolution of the said registered deed which continued till the time when the investment was made by the complainant respondent No.1 on 21.05.2002 and hence the complainant respondent No.1 would be deemed to be partner of the firm.”

The court further reasoned, “the investment made by the respondent No.1 complainant was for deriving benefit by getting an interest on the same at the rate of 18 % per annum, therefore, it would be an investment for profit/gain. It was a commercial transaction and therefore also would be outside the purview of the 1986 Act.”

Regarding the liability of legal heirs, the court clarified, “there was no evidence on record to show that a fresh partnership deed was executed reconstituting the firm in which the present appellants had become partners so as to take upon themselves the assets and liabilities of the firm. The law is well settled that legal heirs of a deceased partner do not become liable for any liability of the firm upon the death of the partner.”

The court also clarified that the judgment in Universal Sompo General Insurance Company Ltd. vs. Suresh Chand Jain and Another [(2023) SCC Online SC 877] would apply prospectively and not to pending matters.

The court allowed the appeal, set aside the impugned orders, and dismissed the complaint, but left it open for the respondent to avail other remedies under law.

Key Takeaways

• A partner of a registered partnership firm cannot file a consumer complaint against the firm for disputes related to the partnership.
• Investments made with the intention of earning profit or interest are considered commercial transactions and are outside the purview of the Consumer Protection Act, 1986.
• Legal heirs of a deceased partner are not liable for the firm’s debts unless they become partners in a reconstituted firm.
• The judgment in Universal Sompo General Insurance Company Ltd. vs. Suresh Chand Jain and Another [(2023) SCC Online SC 877] regarding alternative remedies under Article 226 applies prospectively.

Directions

The Supreme Court did not give any specific directions, but it allowed the respondent No. 1 to pursue other remedies available under law before a competent forum.

Specific Amendments Analysis

Not Applicable as no specific amendment was discussed in the judgment.

Development of Law

The ratio decidendi of this case is that a partner of a registered partnership firm cannot maintain a consumer complaint against the firm for disputes arising from their partnership. This judgment reinforces the principle that commercial disputes should be resolved through civil courts and not consumer forums. It also reiterates that legal heirs are not automatically liable for the debts of a firm upon the death of a partner.

Conclusion

The Supreme Court’s judgment in Annapurna B. Uppin & Ors. vs. Malsiddappa & Anr. clarifies that a partner of a registered partnership firm cannot file a consumer complaint against the firm for disputes related to the partnership as the transaction is commercial in nature. The court emphasized that such disputes should be addressed in civil courts, not consumer forums. Additionally, the court reiterated that legal heirs of a deceased partner are not liable for the firm’s debts unless they have become partners in a reconstituted firm. This judgment provides important clarity on the scope and applicability of the Consumer Protection Act, 1986 in the context of partnership disputes.