• May
  • 22
  • 2012

Effect of Non Registration of Partnership Firm

This paper attempts to study the impact of non registration of firms i.e., partnership firms. The whole idea of the paper is that all others who are transacting with the firm must be aware of the constitution of the firm and thus the documents which are available with the registrar of companies are public documents and people dealing with the firm are said to have constructive notice of the details about the firm. INTRODUCTIONThe Indian Partnership Act, 1932 (“the Act”) was enacted by the Parliament repealing the relevant sections from the Indian Contract Act, 1872 keeping in mind the conditions and the special nature of business in India [1] . It was thought proper to define and amend the law relating to partnership [2] . Registration of the partnership is a very important area which has been dealt in Chapter VII of the Act, and due to its special nature, that the disabilities resulting from non-registration came in to effect a year after the Act [3] .

Chapter VII of the Act deals with ‘Registration of Firms’ of which sections 56 to 65 deals with the procedure for registration. Section 66, relates to inspection of register, section 67 to grant of copies to ‘any person’ and section 68 with ‘rules of evidence’. The purpose of these provisions is to protect the interest of those who deal with partnership firms in various commercial transactions. Third parties who deal with a firm on its name or with a partner or managing partner as representative of the firm must be in a position to know who the partners are and what are their respective shares in the partnership, the details, if any, as to the capital investment by partners, and the details, if any, of the partnership property. That would enable them to have an idea of the competence, status and solvency of the partners of the firm.

If the partnership firm does not choose to get itself registered, then the firm as well as the partners are under the disabilities which are extremely inconvenient [4] . There is no direct compulsion but a pretty strong persuasive pressure to come on the register of firms. No member of an unregistered firm can enforce his rights under the partnership contract against either the firm or any present or past member of it, nor can the firm sue its customers on their contracts [5] .

HISTORY

In order to compel partners to register their partnership firms so that all relevant information could be obtained by inspection of the register or by obtaining a certified copy thereof, a suitable legal provision is needed. Under the UK Registration of Business Names Act, 1916 [6] , there was a penal provision and also a provision which created certain disability in respect of enforcement of certain rights in Courts. However, under the Indian Partnership Act, there is no penal sanctions for non-registration (as in UK), but only a provision that creates certain disabilities in respect of enforcement of rights in Courts [7] .

Under the Act, registration of firm is not mandatory. It is utterly on the will of the partners to get it registered with the Registrar of the Firm or not to do the same. The object and the reason as to why registration is not made compulsory are, in brief difficulties related to Hindu undivided family business, short lived partnership and firm in a small way of business [8] . Although there is no penalty for non-registration, yet registration becomes necessary at one time or the other, because Section 69 of the Act seriously cuts short the capacity of an un-registered firm and its partner to sue and be sued (which would prevent other parties from transacting).

It was on the basis of the Report of the Special Committee that the Partnership Act 1932 was passed by the Parliament [9] . Para 15 of the report stated that the Bill seeks to overcome class of difficulty by making registration optional and by creating inducements to register, which will only bear upon firms in a substantial and fairly permanent way of business [10] .

Business Names Act 1985 (English Act), has replaced the above the UK Registration of Business Names Act of 1916 and Section 4 of the new Act refers to the civil remedies for breach of Section 4. It provides for dismissal of the action to enforce a right arising out of a contract made in the course of a business, if the firm is not registered. [11]

The English precedent in so far as it makes registrations compulsory and imposes a penalty for non-registration has not been followed, as it is considered that this step would be too drastic for a beginning in India, and would introduce all the difficulties connected with small or ephemeral undertakings. Instead, it is proposed that registration should lie entirely within the discretion of the firm (or the partners) concerned; but following the English precedent, and firm which is not registered will be incapable to enforce its claim against third parties in the civil court; and any partner who is not registered will be unable to enforce his claims either against third parties or fellow partners [12] .

The English precedent referred to in Para 17 of the report of the Special Committee, which has been not followed in totality but followed in part in drafting section 69(2) is the one contained by the Registration of Business Names Act 1916. Section 7 of that Registration of Business Names Act 1916 refers to penalties for default in registration. As stated in the report, the penalty part of this Act has not been introduced in India but the provisions of Section 8 creating disabilities in the way of the firm in default is adopted [13] .

But once registration has been effected the statement recorded in the register regarding the constitution of the firm will be conclusive proof [14] of the facts therein contained against the partners making them and no partner whose name is on the register will be permitted to deny that he is not a partner with certain natural and proper exceptions. This should afford a strong protection to persons dealing with firms against false denials of partnership and the evasion of liability by the substantial members of a firm [15] .

A third party who deals with a firm and knows that a new partner has been inducted, can either make registration of the new partner a condition for further dealings or content himself with certain security from the other partners and the chance of proving by other evidence, the membership of the new but unregistered partner A third party who deals with a firm without knowing of the addition of a new partner counts on the credit of the old partners only and will not be prejudiced by the failure of the new partner’s registration. The rights of that defaulter under or arising out of any contract made or entered into by or on behalf of such defaulter in relation to the business in respect of which the particulars were required to be furnished. [16]

The above provision clearly signifies that the right that is sought to be enforced by the unregistered firm and which is barred must be a right arising out of a contract with a third party-defendant in respect of the firm’s business transactions.

If two persons agree to share the profit of a money lending business, they are partners and form partnership to which section 69 applies [17] .

SCOPE AND METHOD OF REGISTRATION

Registration under the Indian Registration Act, 1908 or Income Tax Act, 1961 is different from registration under the Act [18] . Registration under the Act may be effected by sending a statement in the prescribed form to the Registrar, of the area in which any place of business of the firm is situated or proposed to be situated [19] . However, it has been held that omission to mention one of the other places of business when the principle place is mentioned will not vitiate the registration and the mistake can be rectified under Section 64 of the Act [20] . However the registration under the Act is not conclusive for purposes of Income Tax Act, 1961 [21] .

Sub section (1) of Sec 58 provides for the documents required for registration. Nothing of the internal economy of the firm need be disclosed beyond the mere names of the partners, and the duration of their partnership. It provides that when there is an application for registration of a firm, it shall contain a statement of matters enumerated in clauses (a) to (f) of this sub section. [22]

If an application for registration of partnership firm complies with the requirements of section 58 and the rules framed under the Act, the Registrar of the Firms is bound to record an entry of the statement under section 59 in the Register of Firms. He cannot refuse registration on the ground of the same or similar firm name having already been registered. [23] The registration of partnership cannot also be refused on the ground that some of the objects of partnership are unlawful; partnership may be registered for the valid objects of the partnership [24] . Registration of a firm cannot be refused on the ground that one of the partners of the firm is a “company” as a “company” is also a “person” within the meaning section 4 of the Act [25] .

Under the Partnership Law, it can be taken to have been settled that the registration of the firm takes place only when the necessary entry is made in the register of firms under section 59 of the Act, 1932 by the Registrar [26] . Mere dispatch of an application for registration under section 58 of the Act does not amount to registration of the partnership firm. [27]

The registration of the firm can be proved only by certified copy of entry relating to firm in registrar of the firms and not otherwise. Thus, acknowledgement of the registrar of firm cannot be accepted as proof relating to its registration [28] .

Section 66 of the Act, authorises any person to inspect the Register of Firms on payment of the prescribed fee. It also authorises inspection of all statements, notices and intimations filed under Chapter VII of the Act. This makes the person transacting with the firm aware of its composition and thus their creditability.

EFFECT OF NON REGISTRATION

Bar on suits by unregistered firms

Sub-section (1) of section 69 of the Act bars suits by partners against an unregistered firm or against any person alleged to be or to have been a partner of such a firm [29] . The bar applies to enforcement of (a) right arising out of a contract [30] , or (b) right conferred by the partnership Act. On the other hand, sub-section (2) of section 69 of the Act bars suits for enforcement of a right arising out of a contract by or on behalf of the unregistered firm against ‘third parties’. The operation of section 69 would extend to the suit in which a partner sues his co-partner or sues the firm to enforce any right arising from the contract between the partners [31] .

The Supreme Court has held that this section is mandatory in character and its effect is to render a suit by plaintiff in respect of a right vested in him or acquired by him under a contract which he had entered into as partner of an unregistered firm, whether existing or dissolved, is void [32] . In other words, a partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce a right arising out of a contract hit by the provision of section 69 [33] . However a suit by a partner to recover money from a third person is not barred by section 69 of the Act, if the transaction, involved in the suit, is in his own name only and the defendant had no notice of the existence of the partnership [34] . The conditions required by this section are mandatory, and the bar of the section applies both to suits by the firm as well as on behalf of the firm [35] .

In Jagdish Chandra Gupta’s case [36] , the Constitution Bench approved of a liberal and full meaning being assigned to the phrase ‘other proceedings’ in Sub-section (3) of section 69 of the Act untrammelled by the preceding words ‘a claim of set-off”. The Court refused to countenance the plea for interpreting the words ‘other proceedings’ ejusdem generis with the preceding words ‘a claim of set-off’. In M/s. Shreeram Finance Corporation [37] calls for the effect of bar created by Section 69 being determined by reference to the date of institution of the suit and not by reference to any subsequent event. In Delhi Development Authority’s case [38] , the Court held section 69 of the Act is applicable to an application under section 20 of the Arbitration Act, 1940 as such an application (under the scheme of that Act) would be included within the meaning of ‘other proceedings’ in Section 69(3) of the Act.

Section 8 of the above English Act is relevant and it speaks of the rights of that defaulter under or arising out of any contract made or entered into by or on behalf of such defaulter is in relation to the business for which particulars were required to be furnished for carrying on that business. [39] The above provision clearly signifies that the right that is sought to be enforced by the unregistered firm and which is barred must be a right arising out of a contract with a third party-defendant in respect of the firm’s business transactions.

For the purpose of deciding the point about the words ‘arising from a contract’ in section 69(2), it is necessary to go into the question as to what the legislature meant when it used it.

In this context it is important to refer to the Report of the Special Committee (1930-31) which examined the draft Bill and made recommendations to the legislature.

Before going into the above report of the special committee which preceded the Act, it will be necessary to refer to the case in Commissioner of Income Tax, AP v Jayalakshmi Rice and Oil Mills Contractor Co. [40] where the Supreme Court refused to refer to this very report for construing section 59 of the Act. But, that decision is no longer good law as it was clearly dissented on this aspect in the judgment of the Constitution Bench in RS Nayak v AR Antulay [41] . In number of later judgments, the court referred to the reports of committees or commissions. [42]

The Constitution Bench of the Supreme Court for understanding the legislative intent relied upon Hyderabad Industries Ltd v Union of India [43] . The English Law has changed completely after Pepper v Hart [44] in favour of admissibility of such material.

A restricted view was no doubt expressed in PV Narasimharao v State [45] that such reports can be looked into for the purpose of knowing the historical basis or mischief sought to be remedied, but not for construing the provision unless there is ambiguity.

Even going by this restricted view, we find that there is considerable ambiguity in section 69(2) (unlike the English Statutes of 1916 and 1985) as to what is meant by the words ‘arising out of a contract’ in as much as the provision does not say whether the contract in section 69(2) is one entered into by the firm with the defendant or with somebody else who is not a defendant, nor to whether it is a contract entered into with the defendant in business or unconnected with business. Hence, it should thus be permissible to look into the report even for purpose of construing section 69(2).

A question has arisen whether the words ‘enforce a right under a contract’ would include rights arising out of contracts with third parties not in connection with the day-to-day business or commercial transactions entered into by the unregistered firm. The view was expressed by the Supreme Court in Raptakos Brett Co Ltd v Ganesh Property [46] the Court held that the right to evict a tenant was not a right arising from a contract but was a statutory right under the Transfer of Property Act, 1882. The eviction proceeding was therefore not barred.

The Committee further suggested that Section 69 of the Act, as it stands presently, puts a partner in an unenviable situation of first suing for dissolution, before he could proceed to recover monies under the contract. The bar on suits should be restricted only to suits in respect of rights arising out of contracts entered in the course of business. Accordingly, it is recommended that amendments in the Act, on the lines suggested by the Law Commission of India, be initiated.

The Supreme Court following Raptakos Brett Co Ltd v Ganesh Property [47] in Haldiram Bhujiwala v Anand Kumar Deepak Kumar [48] held that a suit to prevent infringement of trademark is not barred by the section whether the firm is registered firm or not. The Court said that it is well settled that a passing off action is a common law action based on tort. Therefore, a suit for perpetual injunction to restrain the defendant from passing off the defendant’s goods as those of the plaintiff by using the plaintiff’s trademark and for damages is an action at common law and is not barred by Section 69(2).

But before the bar under Section 69 can be invoked by the defendant the defendant needs to establish that the person suing is a partner of a partnership firm within the meaning of Section 4 of the Act.

NON-REGISTRATION OF THE PARTNERSHIP FIRM HAS NO LEGAL BEARING ON THE CRIMINAL CASE

The menace of bouncing cheques has been tackled by an amendment to the Negotiable Instruments Act, 1881, providing for imprisonment of the offender and victims can approach courts under Section 138 of the Negotiable Instruments Act, 1881.

However, so far as a partnership firm is concerned, its rights would depend upon its legal status. In a recent case, the Karnataka High Court considered this issue in the case of a complaint filed by an unregistered firm Beacon Industries v Anupam Ghosh [49] . After receipt of the complaint filed by Beacon (revision petitioner in the aforesaid case), the Trial Court at Bangalore dismissed the complaint by holding that there was a bar under section 69 of the Act and that an unregistered firm could not prosecute any person or a firm.

The High Court observed that even a plain reading of section 69(2) of the Act, left no scope for doubt that what was barred by the said section was the institution of a suit. The court further observed that enforcing a right arising from a contract or conferred by the Act and suing, as a partner in a firm against the firm or any partner in the firm would not be possible unless the firm was registered firm.

The High Court remarked that a careful reading of section 69(2) of the Act clearly showed that an unregistered partnership firm was barred from filing a civil suit, while there was no such bar so far as filing of a private complaint was concerned.

The Court noted that in the case of a bounced cheque, there was purely criminal liability on the part of the person who had issued the cheque. The Court held that even if the cheque had been issued by a partner of an unregistered firm for a legally recoverable debt and if such a cheque was dishonoured, it would amount to a criminal liability.

Thus the contract by the unregistered firm referred to in section 69(2) must not only be one entered into between the firm and the third party-defendant but must also be one entered into by the plaintiff firm in the course of the business dealings of the plaintiff’s firm with such third party-defendant [50] .

DISPUTE RESOLUTION AND NON REGISTRATION

Prior to the Arbitration and Conciliation Act, 1996, the law was settled. An application under section 20 of the Arbitration Act, 1940 could not be filed to enforce ‘a right arising from a contract’ in respect of an unregistered firm; as it was barred by the provisions of section 69(2) of the Act [51] .

By its decision in Jagdish Chandra Gupta v Kajaria Traders (India) Ltd [52] , the Supreme Court had settled the law. A clause in a deed of partnership provided that in case of dispute between the partners; the matter will be referred to arbitration. A dispute having arisen, one partner appointed an arbitrator to which the other partner gave no response. An action was then commenced to enforce the arbitration clause of the agreement.

The other partner contended that the firm was not registered and therefore the suit should be dismissed. The Supreme Court held that the suit was not maintainable and the Court observed that

“It is impossible to think that the right to proceed to arbitration is not one of the rights which are founded on the agreement of parties. The word of section 69(3) or other proceedings to enforce a right ‘arising from a contract’ are sufficient to cover the present matter”.

If arbitration proceedings were allowed, unregistered firm would, by providing for arbitration in the partnership deed, to escape the disability contained in the section.

But the Supreme Court in Smt. Prem Lata and anothers v M/s Ishar Dass Chaman Lal and Others [53] , opined that proceedings under clause (a) and (b) of sub section (3) of section 69, could be referred to arbitration and the bar of section 69 is not applicable then.

In K.L. Verma and Anr .v Shri V.K. Sharma and Anr [54] , the appellant and the respondent were partners. There having arisen certain disputes between the parties, appellant filed a suit for dissolution and rendition of accounts of the partnership. On being served with summons in the suit, the respondent filed an application under section 34 of the Arbitration Act stating inter alia that as the matter in dispute between the parties was covered by an Arbitration Agreement, the suit cannot proceed and was liable to be stayed. The Court allowed this application and stayed the proceedings in the matter. After the proceedings were stayed, the appellant filed application under section 20 of the Arbitration Act for filing the Arbitration Agreement in Court and for reference of disputes to the Arbitrator. In the written statement besides other objections one of the objections taken by the respondent was that as the partnership was not registered under the provisions of the Act, the suit was not maintainable and was barred under section 69 of the said Act. The court observed that a bare reading of Clause 2(a) of section 69 (3) shows that a suit to enforce a right to sue for dissolution and rendition of accounts is not barred by provisions of section 69 of the Act and even if the firm is not registered and the person suing has not been shown as a partner of the firm, the partner can still enforce his right to enforce dissolution of firm and rendition of accounts irrespective of the bar under section 69 (1) of the Act.

In U.P. State Sugar Corporation Ltd. v Jain Construction Co. and Anr [55] , an agreement was entered into between parties for execution of certain civil works in a unit belonging to appellant. On a dispute having arisen between parties, application was filed by the respondent for appointment of an arbitrator, which was dismissed on ground that same was not maintainable in view of section 69 of the Act, as respondent firm was not registered partnership firm. Appeal was however allowed by High Court on ground that parties could avail appropriate remedy to relegate as Arbitration & Conciliation Act, 1996 had come into force. The Supreme Court opined that it is true that under section 69 arbitral proceedings would not be maintainable at instance of an unregistered firm. Impugned judgment of High Court held was unsustainable.

The Court held that if the firm is not a registered one, the application for appointment of an arbitrator both under the 1940 Act and the Arbitration and Conciliation Act, 1996 was not maintainable. Reliance, in this connection, had been placed on Firm Ashok Traders and Another v Gurumukh Das Saluja and Other [56] . The same has been held in Jagdish Chandra Gupta v Kajaria Traders (India) Ltd [57] .

In Firm Ashok Traders and Anr. v Gurumukh Das Saluja and Ors [58] , here the dispute was among 12 persons who were, or are alleged to be, or claim to be partners in the firm M/s
Ashok Traders. The registration of the partnership deed showed seven partners. The new partners were added and the same was not registered. The dispute arose amongst partners.

The civil suit was filed by one Group of partners, which was held not be maintainable in view of section 69 (3) of the Act, as name of partners were not been shown in Register of Firms as a partner of the firm. Further an application was filed under section 9 of Arbitration and Conciliation Act, 1996 for appointment of receiver, to take charge of business of firm, which being hit by section 69 (3) was dismissed. The issue was whether enactment by section 69 of the Act, does or does not affect maintainability of application under Section 9 of Arbitration and Conciliation Act, 1996?

On the question of maintainability of application under section 9 of Arbitration and Conciliation Act, 1996 as moved by a partner of an unregistered firm or by a person not shown as a partner in the Register of Firms, the High Court, for upholding the maintainability, relied on the decision of this Court in Kamal Pushpa Enterprises v.D.R. Construction Company [59] . The learned counsel for Group “B” argued that Sub-sections (1) and (2) of section 69 of the Act strike at the very root of the jurisdiction of the Court to entertain a suit to enforce a right arising from a contract, if the applicability of section 69 is attracted. By virtue of Sub-section (3), the bar enacted by Sub-sections (1) and (2) applies also to a claim of set-off or ‘other proceedings to enforce a right arising from a contract’ which, includes a proceeding commencing on an application under section 9 of the Arbitration & Conciliation Act, 1996. The right arising from the partnership deed or conferred by the Partnership Act is being enforced in the arbitral tribunal; the Court under section 9 of the Arbitration & Conciliation Act, 1996 is only formulating interim measures so as to protect the right under adjudication before the arbitral tribunal from being frustrated. Section 69 of the Act has no bearing on the right of a party to an arbitration clause to file an application under section 9 of the Arbitration & Conciliation Act, 1996.

The provisions of section 69(3) are not applicable to proceeding which arises from the filing of an award [60] . Once the matter is referred to an arbitrator without intervention of the Court, and so long as the award is given, the Court never comes into picture. The involvement of the Court comes, for the time, when the award is filed by the arbitrator. So long as the proceedings remain with the arbitrator section 69 cannot be put forward [61] .

In Kamal Pushpa Enterprises v D.R. Construction Company [62] , the Supreme Court held that the bar under section 69 of the Act is not applicable at the stage of enforcement of the award by passing a decree in terms thereof because the award crystallises the rights of the parties and what is being enforced at that stage is not any right arising from the objectionable contract.

So the law has taken a turn to which not all would approve of. The critics welcomed the decision of Firm Ashok Traders [63] as laying down further disability and thus making registration even more urgent. But now though a suit is not maintainable in a Court of law but arbitration proceeding is not hit by the bar. So a short cut has been given to the partnership firms which is un- called for. The report of the Special Committee which though not made registration mandatory but intended that any business not for very short duration and too small; be registered has been not kept in mind while deciding Firm Ashok Traders [64]

REGISTRATION OF CHARGES

The Indian Partnership Act does not contain provisions for registration of charges, analogous to those contained in Sections 124 to 145 of Indian Companies Act, 1956. In order to facilitate financing and growth of small scale industries and businesses in India, it seems necessary to put in place a mechanism for registration of charges in respect of even partnership firms.

The Indian Banks’ Association in their representation pointed out that this omission is a handicap to partnership firms, which find it difficult to obtain finances on more or less the same terms as applicable to corporate’s, since it is impossible for lenders to verify the charges already created on the properties of the firm. Similarly, third parties proposing to deal with the firm are not able to access relevant records for conducting due diligence. In order to facilitate financing and growth of small scale industries and businesses in India, it seems necessary to put in place a mechanism for registration of charges in respect of even partnership firms. Being convinced of this, and being aware of the inadequate state of record-keeping in the offices of the Registrar of Firms, it is recommended that:

1. The Partnership Act should be appropriately amended to provide a legal framework for registration of charges, on the lines of the provisions of the Companies Act, 1956 or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

2. Banks and financial institutions also should be permitted to file the papers for registration of charge, wherever they provide assistance against the security of asset/s. The firms can, of course, themselves get the charge/s registered. In either case, the documents would have to be authenticated by both the secured creditor and the lender.

Charges should be registered either with the Registrar of Companies (ROC), if the Department of Company Affairs (DCA) is able to implement its comprehensive computerisation programme (DCA 21); alternatively, they can be registered with the Central Registry envisaged in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, if legally permissible and if the Registry is set up in time and has adequate reach across the country.

CONCLUSION

Registration of a partnership firm has been given significant attention by the legislature by incorporating it in a whole chapter in the Act. Though the Act never makes registration compulsory but it would become too onerous for a firm to conduct its operations. Even routine activities like suing a third party for monies due to the firm would be not allowed and thus any partnership with relatively long period of operation would have to get themselves registered. The registration of firm is condition precedent to its right to institute a suit and thus a court of law cannot proceed with the trial of a suit when the condition precedent has not been fulfilled [65] . In order to institute a suit, a partnership firm must not only be a registered firm but all the persons, who are partners in the firm at the time of institution of suit, must also be shown as such in the register of firms. If one or more of the partners of the partnership firm have not been shown in the register of firms when the suit is instituted by the firm, the suit is not maintainable [66] .

The whole idea is that consumers and all others who are dealing with the firm must be aware of the constitution of the company and thus the documents which are available with the registrar of companies are public documents and people dealing with the firm are said to have constructive notice of the details about the firm.

But the bar does not apply to the suit for dissolution of the firm and thus arbitration proceeding are also allowed for the purpose of dissolution (for all other purpose as arbitration is also a right arising out of contract and thus is barred). But the Maharashtra amendment to the Act has barred suits even for (a) The dissolution of the firm; (b) The settlement of the accounts of the dissolved firm; or (c) The realization of the property of the dissolved firm.

The Law Commission (One Hundred and Seventy Eighth report) is of the view that
so far as partners of an unregistered firm are concerned, they must have the benefit of the 1996 set, for the limited purposes of obtaining dissolution of the firm for settlement of accounts of the unregistered firm or for realization of the property of the dissolved firm. In other respects, that is to say, except for purposes of the 1996 Act, section 69(2A) and 3 can remain. The Commission was of the view that these limited classes of disputes inter-se partners should be allowed to be resolved under the 1996 Act notwithstanding the Maharashtra Amendment Act of 1984. This would obviate the need for passing a preliminary decree for accounts and then a final decree for accounts.

[1] The Special Committee which was set up for the purpose of reforming the Law relating to partnership, discussed it in Para 15 of its report. Some of the conditions it mentioned were the typical nature of Hindu Joint Family business.

[2] Preamble to Indian Partnership Act, 1932.

[3] Section 1(3) of the Indian Partnership Act, 1932.

[4] Badri Prasad & Ors v. Nagarmal & Ors, AIR 1959 SC 559

[5] Afsar Hussain v.Trilokchand Premchand , AIR 1975 Ori 84

[6] The UK Registration of Business Names Act, 1916 makes it compulsory not just firms but also individuals carrying on business to register both the business names and the personal names of the parties in the form therein prescribed. Registration is not called for in case of a firm name consisting only of the usual names of the partners, but in practise the great majority of firms have to be registered.

[7] These disabilities are contained in Section 69 of the Indian Partnership Act.

8 Mulla, Partnership Act, Ist edn. 1934, Page 88.

[9] The committee consisted of Sir Brojendra Lal Mitter, Sir Dinesh F Mulla, Sir Alladi Krishnaswamy Iyer and Mr Arthur Eggar. Earlier the law governing partnership was contained in the Indian Contract Act, 1872.

[10] Mulla, Partnership Act, 1st edn. 1934, Page 167, 176-177.

[11] See Halsbury Statutes, 4th edn., Vol 48 at p 101

[12] Mulla, Partnership Act, 1st edn. 1934, Page 167, 186-187. Para 23 of the Report of the Special Committee also refers to those who deal with the firm.

[13] Para 23 of the Report of the Special Committee.

[14] Section 68(1) Indian Partnership Act, 1932. The Special Committee Report, Para 18. See also Bhardia Brothers v. Union of India, AIR 1973 Ori 28

[15] The Report of the Special Committee, reference to Paras 18 and 19

[16] Halsbury Statutes, 3rd edn. Vol 37 p 867

[17] Gokuldas Rampratap Marwadi v.Kesheorao Janurao Marathe, AIR 1937 Nag 134.

[18] Girdharilal v.Speedding Dinga Singh & Co., AIR 1954 HP 52

[19] Bilasroy v.Scindia Steam Navigation Company Ltd., AIR 1940 Ran 294

[20] Girdharilal v. Speeding Dinga Singh & Co., AIR 1954 HP 52

[21] ILR (1961) Bom 159

[22] Section 58(1) clause (a) to (f) provide the following to be mentioned in the application for registration:(a) The firm name, (b) the place or the principle place of business of the firm, (c) the names of any other places where the firm carries on business, (d) the date when each partner joined the firm, (e) the names in full and permanent addresses of the partners, and (f) the duration of the firm.

[23] Hiralal Agarwal v.State of Bihar, AIR 1972 Patna 507 (DB)

[24] Oudh Cocogem & Provision Stores v CIT, 1969(69) ITR 819

[25] 1984 Ker LT 420

[26] Law of Partnership: C.L.Gupta, 3rd Edn., Modern Law Publications, Allahabad 2001: see also Commissioner of Income Tax Andhra Pradesh v. Jayalakshmi Rice & Oil Mills. AIR (1971) SC 1015

[27] Sitaram Agarwal v.Haranath, AIR 1970 Raj 99.

[28] Narendra Kumar Saxena v. Paper Traders, AIR 2003 MP 193.

[29] Jagat Mittar Saigal v.Kailash Chander Saigal, AIR 1983 Del 134,136

[30] The Law Commission of India, in its One Hundred and Seventy Eighth report, taking into account certain judgements of the Supreme Court of India, and to avoid any uncertainty, had expressed a view that the bar should be restricted to suits by the unregistered firm (or claims to set off or other proceedings) in respect of the rights arising out of contracts entered into in the course of business. It accordingly had proposed the addition of an explanation to Section 69 of the Partnership Act to the effect that ‘a right arising from a contract’ shall mean a right arising from a contract made in the course of business.

[31] Law of Partnership: C.L.Gupta, 3rd edn., Modern Law Publications, Allahabad 2001,p 563

[32] Pollack & Mulla on The Indian Partnership Act by R.K.Abhichandani, 5th edn. N.M.Tripathi Private Ltd. Bombay ,1987

[33] Loonkaram Sethia v Mr.Ivan E.John and Ors, AIR 1977 SC 336,347;

[34] 1958 Jab LJ 624, as per Law of Partnership: C.L.Gupta, 3rd Edn., Modern Law Publications, Allahabad 2001.

[35] Bharat Sarvodaya Mills Co. Ltd v. M/s Mohatta Brothers, AIR (1969) Guj 178

[36] AIR 1964 SC 1882

[37] (1989) 3 SCC 476

[38] (1998) 8 SCC 559

[39] Halsbury Statutes, 3rd edn. Vol 37, p 867

[40] (1971) 1 SCC 280,

[41] (1984) 2 SCC 183

[42] GP Singh’s Interpretation of Statutes, 7th edn., 1999 pp 196-197.

[43] (1995) 5 SCC 15 (Para 15),

[44] [1993] 1 All WR 42 (HL)

[45] (1998) 4 SCC 626 (at 691-692)

[46] Raptakos Brett Co Ltd v Ganesh Property, AIR 1998 SC 3085

[47] id

[48] AIR 2000 SC 1287: (2000) 3 SCC 250

[49] (2004) 52 SCL 345 (Kar)

[50] Para 23 of the Report.

[51] Syed Wahid Hussain v Mahmud Hasan Khan, AIR 1961 All 409,413 (DB)

[52] AIR 1964 SC 1882

[53] AIR 1995 SCW 505

[54] FAO No. 206/1997 Decided On: 19.11.2003

[55] Civil Appeal No. 5479 of 2004 ( Arising Out of SLP ( C) No. 4459 of 2004 Decided on 25.08.2004

[56] (2004) 3 SCC 155

[57] AIR 1964 SC 1882

[58] (2004) 3 SCC 155

[59] AIR 2000 SC 2676

[60] Kamal Pushpa v D.R. Construction Company AIR 1996 M.P. 139, 140, 141

[61] Kamal Pushpa v D.R. Construction Company AIR 1996 M.P. 139, 141: See also Krishnan Motor Service v. H.B. Vittal Kamath AIR 1996 SC 2209; Prem Lata v Ishar Das Chaman Lal AIR 1995 SCW 505

[62] AIR 2000 SC 2676

[63] (2004) 3 SCC 155

[64] (2004) 3 SCC 155

[65] Nand Kishore v Maheshwari Mills, AIR 1953 MB 42, 43

[66] Law of Partnership: C.L.Gupta, 3rd Edn. Modern Law Publications, Allahabad 2001 p 580.

ARTICLE WAS FIRST PUBLISHED ON 16.10.2008


25 Responses to “Effect of Non Registration of Partnership Firm”

  1. Deivanai Ganesan says:

    We have not registered our partnership deed. But we have forwarded letter to all partners stating that we are going to retired from the partnership and requesting them to settle the accounts. But they are cheating us and telling that we cannot do anything since our partnership deed is not registered. But we have availed loan from nationalized bank to do the business. This is a construction company. One among the partner signed and registered the documents as sale proceed. Some of the buyers purchased Flats without the concerned of all the partners.
    We have filed a suit and the case is moving slowly. with this Registrar office and Nationalised bank involved.Can we have the minimum cut off time to get monetary benefits. What will be consequences in this particular case. If you have any further doubt on this kindly give us the mail. We are ready to provide answers.

  2. ravi says:

    A firm with 2 partners was formed. It was not registered. Later one more partner has been added. One of the partners died. The firm was reconstituted vide a Reconsitution deed with the 2 partners. We want to register the firm now with the present 2 partners. The Registrar of Firms says that this cannot be done as the first partnership deed has not been registered and all of the original partners are not alive now. Is this view correct as the law says that the firm can be registered at any time by submitting the required details? Can we not register the partnership firm on the basis of the Reconstitution deed?
    Reply to my e-mail ravi_8001@yahoo.com
    Thank u

  3. Rajgopal says:

    A firm with 4 partners was formed in 1995. It was not registered. One of the partners died in 2006 and the firm was reconstituted vide a Reconsitution deed with the old 3 partners and the addition of 2 more partners. We want to register the firm now with the present 5 partners. The Registrar of Firms says that this cannot be done as the first partnership deed has not been registered and all of the original partners are not alive now. Is this view correct as the law says that the firm can be registered at any time by submitting the required details? Can we not register the partnership firm on the basis of the Reconstitution deed?

  4. sandeep bajaj says:

    We partners were running unregistered partnership firm and due to huge losses one of the partner had committed cheating and had stolen 2 blank cheques duly signed by other partners (those were to be paid to a company from which our firm was seeking franchise) and put his name as payee and needless to say that cheque got bounced and this guy sent a legal notice that the unregistered firm had been dissolved orally and this cheque was given by the remaining partners in consideration of his share in the partnership firm…… Needless to say that no other partners were given any amount of money.
    So now my request is to send few related judgments; those may help me in my case.
    Send me details at sandeepbajaj6@gmail.com … Mobile No. 08224821000

  5. sandeep bajaj says:

    We partners were running unregistered partnership firm and due to huge losses one of the partner had committed cheating and had stolen 2 blank cheques duly signed by other partners (those were to be paid to a company from which our firm was seeking franchise) and put his name as payee and needless to say that cheque got bounced and this guy sent a legal notice that the unregistered firm had been dissolved orally and this cheque was given by the remaining partners in consideration of his share in the partnership firm…… Needless to say that no other partners were given any amount of money.
    So now my request is to send few related judgments; those may help me in my case.

  6. Deepak Mohan says:

    A registered firm of 1976 closed the business in 1979 and the assets (Land) of the firm was sold in August 2009. the sale consideration is divided amongst the partners according to the share ratio. Each partner filed his/her return showing the income after the deduction of investment and income taken in the head of Capital Gain, with cost index as per his/her investment as on 1979 at the time of closed the firm and the same came capital loss. ITO, during the assessment proceedings, wants to add the amount of sale consideration, as an income from firm. Whereas firm is neither an existing assessee nor existing more since 1979. Please guide us about the income should be computed as per Indian Income Act.

  7. Navneet Monga says:

    In a unregistered partnership deed can all the family members are the owner of tenanted shop. one of those partners have personal PAN no. (who is the original owner of the shop)& have no other source of Income.

  8. subrahmoniam says:

    respected sir,
     My name is subrahmoniam and i am from trivandrum your site is very vry useful for lay man like us to know the implication of the laws.  can you just clarify to me the following point that how can i defend my self in the following situation
    one unregistered firm who was doing construction as party a and me and my wife as party b had signed a contract for building a home for us in 2009.  contract is one with the time was essence of the contract and it was 11 months,  we had paid almost 55% of the contract value for which the land is registered in our name and another 12% more as advance for construction. but there was no progress in the work and i had given a letter to them stating my displeasure during the lkast fag of the contract.  there was no reply from the firm.  and after the end of our contract pertiod and further 6 months more i had started applying for sanction from corpn authorities obtained permit and started construction my own after registering a case against the comapany for cheating. by the mean time the old unregistered company had changed their name and registered with a new name under roc chennai. with two partners(husband and wife).;  Now the new had filed a case against me in the civil court for permanent injunction represented by the lady who posses the authorisation from her husband in the capacity of MD of the new  firm through an e mail.  on verification of the documents with roc through authorised company secretary consultants  there is no information of takeover of the old firm or they did not file any returns with roc after 18 months of the new registration too i hopwe they had not even submitted m.a.a also  please guide me i am contactable at 9746769831   

  9. vswami says:

    @vswami
    in third line ( from top)  to correct and read – ..but deregistered…

  10. vswami says:

    Besides the areas sought to be covered , there could be several others ; particularly, from the point of view of rights and interests of third parties having dealings with an unregistered firm, or a firm originally registered but registered at a later date for any special reason . 

    Third party’s rights and interests, without a proper safeguard, might be in peril should he deal with a power of attorney holder of an unregistered partnership Firm.

    For some such areas not commonly thought of and taken care, one may look up for clues, the published article – INVESTOR PROTECTION – A MYTH ? (2005) PART -11, KLJ  ISSUE OF 1ST JUNE 2005.

     

  11. punaammehta says:

    can a partner from unregistered partnership firm become a propritor of the firm without disposing the capital and assets to the legal heirs of the deseased partner.

  12. Shaik Nazim Ahmed Shafi says:

    Clarification on Sec. 69 of Indian Partnership Act, 1930.

    A, B, C, D and E are partners.
    They run partnership business.
    But the firm is not registered.
    Partner A, B, C and D take a decision to trample the partnership business causing loss to the firm. A, B, C and D’s decision is a majority decision where as E is in a minority decision whose intention is good and is against the majority decision.
    Under these circumstances, can E go to a Court of law and get an Order of Injunction to stop the other partners.
    Being an unregistered firm, can E has to right to challenge the majority decision.
    Please reply.
    Shaik Nazim Ahmed Shafi.

  13. Dilip Chavan says:

    We have a firm as on name of Laxmi bar . but our partnership deed is not registerd and our one partner cheat me can I go to court?

  14. Rajesh Dewangan says:

    What is the legal status of lending bank, in case of lending to un registered partnership firm in Maharashtra.

  15. faisal khan says:

    SCOPE AND METHOD OF REGISTRATION

    Registration under the Indian Registration Act, 1908 or Income Tax Act, 1961 is different from registration under the Act [18] . Registration under the Act may be effected by sending a statement in the prescribed form to the Registrar, of the area in which any place of business of the firm is situated or proposed to be situated [19] . However, it has been held that omission to mention one of the other places of business when the principle place is mentioned will not vitiate the registration and the mistake can be rectified under Section 64 of the Act [20] . However the registration under the Act is not conclusive for purposes of Income Tax Act, 196

  16. Prabhakar says:

    Will a case against a employee is valid if its been imposed on vengence by an un registered firm?

  17. K. rajan says:

    1. Can a Govt. department or govt enter in to a valid agreement with unregistered firms.
    2. is it necessarry a managing partner in a firm

  18. Sumangala Deshopande says:

    Judgment of a Partnership Firm after expelling a partner from the Firm for selling the property of the firm. Please let me know is there any judgment passed by the Court in Karnataka

  19. Govind Sharma says:

    Very helpful

  20. Govind Sharma says:

    Very helpfull to me

  21. amar s waghmare says:

    can any registered agreement signed by partners of unregistered firm with third party be held valid when the firm was not registered at that time

  22. Anil says:

    Does a private limited company in the business of advancing loans and receiving interest would come within the purview of non-banking financial company and should it be regd with RBI and also obtain a licence under the Bombay Money Lenders Act, 1946?

  23. Anil says:

    What is the meaning of the term "sleeping partner" when they don't find any place in the Indian Partnership Act? Do they have any legal backing?

  24. Anil says:

    Does a partnership need mandatory registration under Karnataka Samp Duty and Registration Act though it may not under Indian Registration Act. If one partner leaves the firm and gets his share in the form of property, is stamp duty payable and registration compulsory? Who pays the stamp duty. If the deed is not registered under above law, can it be treated as evidence in a court of law or its validity will be challenged.

  25. venky says:

    you have not mentioned the Forms for change in constitution of firm in karnataka

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