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Can a proprietorship sue in its own name?

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Can a proprietorship sue in its own name?

Similar questions

Proprietorship firm cannot sue in its name? Sole proprietorship can sue in its name?

Introduction

A sole proprietorship is one of the simplest and most common forms of business structures, especially among small and medium-sized enterprises. It is characterized by a single individual owning and operating the business.

Unlike corporations or partnerships, a sole proprietorship does not establish a separate legal entity distinct from its owner. This fundamental characteristic raises important legal questions, particularly concerning the capacity to initiate or defend legal proceedings. A pertinent question that arises is: Can a proprietorship sue in its own name?​

Understanding the Legal Status of a Sole Proprietorship

In legal terms, a sole proprietorship is not recognized as an entity separate from its proprietor. This means that the law does not view the business and the owner as distinct persons. Consequently, all rights, obligations, assets, and liabilities of the business are inherently those of the proprietor. This lack of separate legal identity has significant implications, especially when it comes to legal proceedings.​

Earlier Legal Precedents and Judicial Interpretations

Indian courts have consistently addressed the issue of whether a sole proprietorship can initiate legal proceedings in its business name.

Earlier there has been clear consensus that a sole proprietorship, lacking a separate legal identity, cannot sue or be sued in its own name, and that Legal actions must be instituted by or against the proprietor personally, albeit with reference to the trade name if necessary.

Shift of Judicial opinions

However, in recent times there has been shift to the judicial opinion.

While one hand Delhi High Court in the case of Svapn Constructions vs. IDPL Employees Co-Operative Group Housing Society Ltd. & Ors. [2005 SCC OnLine Del 1392]: dealing with an application under section 11 of the Arbitration & Conciliation Act, 1996 ruled that

-a petition filed in the name of a sole proprietorship firm, which is not a legal entity, is not maintainable.

– The suit must be instituted by the proprietor themselves.

In a recent Judgement of Delhi High Court in case titled “M/s SK Agencies vs. DFM Food” ARB. P. 1201/2022

• There is again no merit in the contention of the respondent that the present petition is liable to be dismissed since the petitioner is a sole proprietorship firm.
• In Svapn Constructions, relied upon by the respondent, it has been held that a sole proprietorship firm does not have any legal status and in case sole proprietorship firm wants to file a suit, it has to be in the name of the proprietor on behalf of the sole proprietorship firm and not in the name of sole proprietorship firm.
• The said decision is distinguishable inasmuch as in the present case, it has been averred in the petition that Mr. Satyendra Kumar Dixit is the proprietor of the M/s S.K Agencies. The affidavit in support of the petition and statement of truth has been filed by Mr. Satyendra Kumar Dixit.
• Therefore, the present petition is instituted by Mr. Satyendra Kumar Dixit as the proprietor of M/s. S. K. Agencies.

In the case of “Devendra Surana vs Bank of Baroda & Ors” [W.P. No. 5521 (W) of 2017) the Calcutta High Court observed that:

• A natural person and his sole proprietorship firm are the same legal entity.
• The liability of the sole proprietorship firm is that of the natural person carrying on business under its name.
• The sole proprietorship firm of a natural person and the natural person owning the firm do not enjoy the benefit of being treated as separate legal entities.
• They are the one and the same legal entity.

In a recent case National Company Law Appellate Tribunal (NCLAT) in case i.e. Neeta Saha vs. Mr. Ram Niwas Gupta 191(IBC)156/2020, held that

• Sole Proprietorship Firm is eligible to file Application Under Section 7 and Section 9 of Insolvency and Bankruptcy Code, 2016 and entitled to initiate Corporate Insolvency Resolution Process against Corporate Debtor

The Punjab and Haryana High Court in the case titled as “Radha Raman Industries vs. Manoj Trading Company” [RSA No.351 of 2016 (O&M)] held that:

• a suit by a proprietary concern of sole proprietor or by the assumed business name or style of a person is very much maintainable.
• However, since the sole proprietary concern or the assumed business name is owned by a single individual, so while filing a suit in the name of proprietary concern or assumed business name the complete details of the owner of the proprietary concern or assumed business name shall be required to the disclosed in the plaint as required Under Order 7 Rule 1 of the Code of Civil Procedure to establish the identity of the owner of the proprietary concern or the assumed business name.
• In case of proprietary firm, if the relationship between the firm and the proprietor is clear and not in dispute then it does not matter whether the suit is brought in the name of the firm or the proprietor, which is one and the same thing.  
• In the present case also the suit by the proprietary firm is through sole proprietor giving complete details. So the suit by the proprietary concern in the present case is maintainable.

In the case of: “Executive Engineer, Dal Lake Division I vs. Mousvy Industries Budgam and Ors” the High Court of Jammu & Kashmir and Ladakh held that:

• a suit by a proprietary concern of a sole proprietor or by the assumed business name or style of a person seems to be maintainable; only legal requirement being that when such a suit is filed, complete details of the owner of the proprietary concern or assumed business name should be disclosed in the plaint as required under Order 7 Rule 1 of the Code to establish the identity of the owner of the proprietary concern or the assumed business name.

In case of Vinayak Purshottam Dube (Deceased) Through LRs. Versus Jayashree Padamkar Bhat & Others [CIVIL APPEAL NOS.7768-7769 OF 2023] the Hon’ble Supreme Court of India held / observed that:

• a proprietary concern is only the business name in which the proprietor of the business carries on the business.
• A suit by or against a proprietary concern is by or against the proprietor of the business.

 

In the case of Rasiklal Manickchand Dhariwal & Anr vs M/S M.S.S. Food Products (Civil Appeal No. 10112 of 2011,  the Hon’ble Supreme Court of India held / observed that:

• The plaint filed by the plaintiff describes the title of the plaintiff as follows:

“Messrs. M.S.S. Food Products, Plot No. D, Sector-E, Sanver Road Industrial Area, Indore, Through – Proprietor – Nilesh Vadhwani, Son of Shri Ashok Vadhwani, aged 27 years, Occupation – Business.”

• The above description of the plaintiff in the plaint at best may be called to be not in proper order inasmuch as the name of Nilesh Vadhwani must have preceded the business name in the cause title.

• This is not an illegality which goes to the root of the matter.

Practical Implications for Sole Proprietors

Given the legal stance, sole proprietors must be meticulous when initiating legal proceedings:

Filing Lawsuits:

1. If a law suit is being filed by the proprietorship concern in its own name, the name of the proprietor (as proprietor) should clearly come in memo of parties.

2. The plaint or petition must be signed and verified by proprietor.

3. The proprietor description and details relating him to the proprietorship must be there in the plaint /petition.

4. The proprietor must file supportive affidavit.

5. Any document relation to the proprietorship relating the firm the proprietor can also be filed e.g. GST certificate.

Defending Lawsuits:

1. Similarly, if suit is being filed against the proprietorship the name of the proprietor (as proprietor) should clearly come in memo of parties.

2. The proprietor’s description and details relating him to the proprietorship must be there in the plaint /petition

3. Any document relation to the proprietorship relating the firm the proprietor can also be filed e.g. GST certificate.

Contracts and Agreements:

If any legal document is being executed in the name of proprietorship concern it must be signed by the proprietor, as the proprietor of the proprietorship concern.

Conclusion

If any action is being taken by the proprietorship concern or against it, certain precaution is necessary. Sole proprietors should consistently represent themselves appropriately in all legal and contractual matters to avoid potential legal pitfalls