The Supreme Court ruled that a proprietorship is only a trade name and not a juristic person with separate legal status, holding that while such a concern can be sued, it cannot itself initiate legal proceedings.
New Delhi: The Supreme Court clarified that a proprietorship concern is merely a trade name for an individual conducting business and does not qualify as a separate legal entity.
Emphasizing that such a business name lacks independent legal identity apart from its owner, the Court determined that while a proprietorship cannot initiate legal action, it can be sued under the provisions of the Code of Civil Procedure, 1908.
This ruling was delivered on August 26, 2025, by Justices Vikram Nath and Sandeep Mehta in the case of Dogiparthi Venkata Satish and Another v. Pilla Durga Prasad and Others.
The case arose from a dispute regarding leased premises.
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The appellants had leased their property to Aditya Motors, a sole proprietorship owned by Pilla Durga Prasad, under a registered lease agreement executed on April 13, 2005. After the lease expired, the lessee did not vacate the premises, prompting the appellants to file an eviction suit.
During the proceedings, the plaint was amended to replace Aditya Motors with Pilla Durga Prasad. This amendment was allowed and finalized. However, the defendant later filed an application under Order VII Rule 11 CPC to reject the plaint, arguing that the cause of action was against Aditya Motors, not against Pilla Durga Prasad personally.
The trial court dismissed this application, but the High Court had a differing opinion, stating that the proprietorship should have been included as a party and allowed the revision petition, ultimately rejecting the plaint.
Unsatisfied, the appellants took their case to the Supreme Court. The central issue before the Supreme Court was whether a proprietorship, which is not recognized as a separate legal entity like a corporation or partnership, can sue or be sued in its own name, and whether including just the proprietor would suffice legally.
The Court referenced the text of Order XXX Rule 10 CPC, which states that any person conducting business under a name other than their own, or a Hindu undivided family operating under any name, may be sued in that name as if it were a firm name. All the rules under Order XXX are applicable as far as the case allows. Interpreting the wording of the provision, the Bench noted that the use of can indicates that a proprietorship concern may indeed be a party to legal proceedings.
However, this does not imply that merely including the proprietor would be inadequate. The Court pointed out that since a proprietorship has no existence independent of its owner, any legal action must be managed by the proprietor alone. Once the proprietor is included, no prejudice arises, as the interests of the proprietorship are effectively represented by the individual who manages and owns it.
The Court characterized the High Court’s decision to reject the plaint as a “completely hyper technical view” that lacked support from the provisions of the CPC. It determined that no prejudice occurred in this case since the lease deed was exclusively signed by the proprietor on behalf of Aditya Motors, with no third parties involved whose rights might have been at stake.
The Court emphasized that once the proprietor was included in the record, no further action was necessary.
To substantiate its reasoning, the Supreme Court referenced prior case law. It cited Ashok Transport Agency v. Awadhesh Kumar (1998), which established that a proprietary concern is merely the business name under which the proprietor operates.
A lawsuit involving a proprietary concern is, in legal terms, a suit involving the proprietor. Similarly, in Shankar Finance and Investments v. State of Andhra Pradesh (2008), the Court acknowledged that while actions may be initiated in a trade name or through an authorized representative, the proprietor remains the true party in interest. These precedents reinforce the principle that a sole proprietorship does not possess a separate legal identity apart from its owner.
Applying these principles to the current facts, the Supreme Court concluded that the High Court had made an error in overturning the trial court’s ruling. It allowed the appeal, reinstated the trial court’s decision, and directed that the suit continue in accordance with the law on its merits.
This ruling clearly distinguishes proprietorships from other recognized business entities. Unlike companies, which are incorporated and possess a legal personality distinct from their shareholders, or partnerships treated as firms with their own rights and liabilities, a proprietorship is essentially an extension of its proprietor.
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The judgment eliminates any ambiguity by affirming that impleading the proprietor is legally adequate, as the proprietorship cannot operate independently of the owner.
This ruling provides important clarity for civil cases involving small businesses and sole proprietors, ensuring that procedural technicalities do not hinder substantive justice.
By concluding that proprietorships can be sued in their trade name under Order XXX Rule 10 but cannot initiate lawsuits independently, and that including the proprietor is sufficient, the Court has reaffirmed the established understanding of proprietorships within Indian civil law.
Case Title: Dogiparthi Venkata Satish and Anr. v. Pilla Durga Prasad & Ors.
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