The Kerala High Court (Ernakulam Bench) has held that a person who was only a minor admitted to the benefits of a partnership firm cannot be treated as a defaulter for the firm’s loan liabilities during his minority. Where the firm stood dissolved under Section 42 of the Indian Partnership Act before such person attained majority, there is no question of requiring him to make an election under Section 30(5) to become or not become a partner. In such circumstances, the lending bank cannot validly report him to a credit information company as a defaulter or wilful defaulter, and any such adverse reporting is liable to be corrected.
Accordingly, the High Court directed Bank of India to issue the necessary communication to CIBIL within one month from receipt of a certified copy of the judgment, seeking removal of the adverse entries and reduction in credit score recorded against the petitioner at the bank’s instance. The Court further directed CIBIL to make the necessary corrections in the petitioner’s credit score and credit report within one month from receipt of the bank’s communication.
A Single Judge Bench comprising Justice M.A. Abdul Hakhim observed that although disputes involving civil rights are ordinarily left to civil proceedings, this case could be decided in writ jurisdiction because the relevant facts were admitted and clear from the record. The Court found that the petitioner became major only in 2008 and that, before he attained majority, two of the firm’s partners had died. In the absence of any clause in the partnership deed for continuation of the firm despite the death of partners, Section 42 of the Partnership Act operated and the firm stood dissolved.
On that basis, the Court rejected the bank’s reliance on Section 30(5). It observed that there was no need for the petitioner to elect whether to become a partner on attaining majority because the firm itself was no longer subsisting by then. Therefore, the bank’s stand that he automatically continued as a partner was not accepted.
The Court also attached significance to the bank’s conduct in the DRT proceedings. It noted that the bank had sought to implead the petitioner only as a legal heir of a deceased defendant, and not as a partner of the firm, and even that attempt was dropped. The Court further noted that the petitioner could not in fact be treated as the legal heir of the deceased defendant because he was only the grandson. Since the bank never pursued any case against him as a partner even after he became major, the Court held that he could not later be treated as a defaulter for the firm’s debt.
The Court further found that the bank’s communication to CIBIL stating that the petitioner was one of the signatories to the firm’s account was factually incorrect on the materials before it. It also examined the bank’s reliance on an earlier communication dated Feb 21, 2003 calling the petitioner a wilful defaulter, and pointed out that even that communication described him as “Master Dhruv Hitesh Dattani,” showing that he was a minor at that time. The Court made it clear that a minor admitted only to the benefits of partnership is not liable for the liabilities of the firm during minority and therefore cannot be termed a defaulter on that basis.
Briefly, a petition was filed by Dhruv Hitesh Dattani, who sought correction of his credit report and credit score by removal of the remarks “Suit Filed” and “Wilful Default” appearing in his CIBIL report. He contended that these adverse remarks had been reported at the instance of Bank of India even though he was not personally liable for the loan of the borrower firm, M/s Nanji Topanbai & Company.
The case arose from a loan availed by the firm from Bank of India. The petitioner had only been admitted to the benefits of the partnership when he was a minor. When the bank filed recovery proceedings before the Debts Recovery Tribunal, the petitioner was not originally made a party. Later, the bank tried to implead him as one of the legal heirs of a deceased defendant, but that attempt was not pursued, and the final DRT order did not include him as a party.
The petitioner argued that he became a major only in 2008 and that, before that, some partners had already died, resulting in automatic dissolution of the firm under Section 42 of the Indian Partnership Act, 1932. He relied on the Registrar of Firms extract to show that he had been admitted to the benefits of the firm as a minor in 1991 and had ceased to be connected with the firm on 30.09.2003. His case was that a minor admitted only to the benefits of partnership could not be branded a defaulter for the firm’s liabilities.
CIBIL stated that it had acted only on the information supplied by the bank and that any correction in the petitioner’s credit profile could be made only if Bank of India issued a revised communication. The bank, on the other hand, argued that under Section 30(5) of the Partnership Act, the petitioner had not elected within six months of attaining majority not to become a partner, and therefore he continued as a partner and remained liable for the firm’s default. The bank also argued that the dispute involved civil rights and liabilities and should not be decided in writ proceedings.
