The Effect of Not Registering
Chapter Eleven
Syllabus topic 3, "Registration procedure of Partnership firms under The Partnership Act, 1932."
Pages 23 to 25 of 62
The section that makes registration unavoidable
Section 69 of the Indian Partnership Act 1932 does not fine an unregistered firm. It takes away its right to sue.
Sub-section (1): a partner cannot sue the firm or a co-partner
No suit to enforce a right arising from a contract or conferred by this Act shall be institutes in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.
Two conditions, and both must be satisfied.
- The firm is registered, and
- the person suing is or has been shown in the Register of Firms as a partner.
The second condition is the one that catches people. A partner admitted after registration whose name was never added to the Register cannot sue his own firm, though the firm is registered. Section 63 is why the Register has to be kept current, and this is what happens when it is not.
Sub-section (2): the firm cannot sue an outsider
No suit to enforce a tight arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.
This is the commercially fatal one. An unregistered firm that has sold goods on credit cannot sue the buyer for the price. The debt exists, the contract is good, and the court will not hear the firm.
Sub-section (3): set-off, and the two things it does not affect
The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect-
(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or a ay right or power to realise the property of a dissolved firm, or
(b) the powers of an official assignee, receiver or Court under the Presidency-towns Insolvency Act, 1909 (2 of 1909), or the Provincial Insolvency Act, 1920 (5 of 1920), to realise the property of an insolvent partner.
So the bar extends to a set-off, which matters: an unregistered firm sued by a supplier cannot even set off what the supplier owes it.
And two things survive. A partner may still sue for dissolution, for accounts of a dissolved firm, and to realise the property of a dissolved firm; and the insolvency machinery is untouched.
The Effect of Not Registering
Sub-section (4): where the section does not apply
(a) to firms or to partners in firms which have no place of business in the territories to which this Act extends, or whose places of business in the said territories are situated in areas to which, by notification under section 56, this Chapter does not apply, or
(b) to any suit or claim of set-off not exceeding one hundred rupees in value ...
Two exemptions: a firm with no place of business in the territories the Act extends to, or in an area the State has excluded under section 56; and a claim not exceeding one hundred rupees, which is a 1932 figure and is now of no practical use.
What an unregistered firm CAN still do
An answer that lists only the disabilities is incomplete. The firm is not an outlaw.
| It can | Authority |
|---|---|
| Be sued. A third party may sue an unregistered firm and its partners | Section 69 bars the firm from suing, not from being sued |
| Sue for dissolution, for accounts of a dissolved firm, and to realise a dissolved firm's property | Section 69(3)(a) |
| Sue on a right not arising from a contract, for example in tort, or for the infringement of a trade mark | Section 69 bars a suit on a contract or on a right conferred by the Act |
| Enforce a claim of a partner who has retired, in the circumstances the courts allow | Section 69(3)(a) and the case law |
| Register later, and then sue on a fresh cause of action | Registration under section 58 may be effected at any time |
But the last row has a trap. Registration is not retrospective for this purpose in the way a firm hopes. A suit instituted while the firm was unregistered is not cured by registering afterwards; the firm must register first and then sue.
Two other consequences that follow section 69
Section 71 allows the State Government to make rules and prescribe the fees, and section 70 punishes false particulars.
And in practice, an unregistered firm finds:
- banks reluctant to open a current account or to lend;
- counterparties reluctant to contract, because they know the firm cannot enforce;
- no way to prove who its partners are in a dispute, because the Register is the public record.
The answer to the question MU is asking
Her topic is the registration procedure. A complete answer runs:
- Registration is not compulsory under the Act; section 58 says it may be effected at any time.
- The procedure is the statement of six particulars under section 58, signed and verified by all the partners, with the fee, to the Registrar of the area; the Registrar records it in the Register of Firms under section 59.
- The register must be kept current under sections 60 to 63.
- But section 69 disables an unregistered firm from suing, on a contract or on a right conferred by the Act, against a co-partner or against a third party, and the bar extends to a set-off.
- So registration is optional in law and unavoidable in practice, and a firm that intends to give credit should register before it does.
The Effect of Not Registering
Point 5 is the sentence the examiner is looking for.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.