1

A PROJECT ASSIGNMENT ON THE

TOPIC OF

“Effect of Non Registration of

Firm”

Under the supervision of

Dr. Anurag Agrawal
Assistant Professor
SLG, CUSB

3rd Semester,BA.LLB(Hons.)
School of Law and Governance

Submitted By:

Samar Raghib
(CUSB2213125089)
Session - 2022-27
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At the outset, I take this opportunity to thank my teacher and guide, Dr. Anurag Agrawal from the bottom
of my heart who has been of immense help during moments of anxiety and torpidity while the project was
taking its crucial shape. Hence, I as a student am forever deeply indebted to him.

Secondly, I convey my deepest regards to the university administration who held the project in high esteem
by providing reliable information in the form of library infrastructure and database connections in times of
need.

Thirdly, the contribution made by my parents and friends by foregoing their valuable time is unforgettable
and highly solicited. Their timely advice and solid supervision paved the way for the successful completion
of this project.

Finally, I thank the Almighty who gave me the courage and stamina to confront all hurdles during the
making of this project. Words are insufficient to acknowledge the tremendous contributions of various
people involved in this project---as I know “Words are Poor Comforters”. I once again wholeheartedly
and earnestly thank all the people who were involved directly or indirectly during this project making
which ultimately paved the way for me to complete the task of project making within the stipulated time.

SAMAR RAGHIB
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Table of Contents

INTRODUCTION.............................................................................................................................................................4
HISTORICAL BACKGROUND...........................................................................................................................................5
Procedure for registration.............................................................................................................................................6
Statutory provisions on the effects of non registration.................................................................................................6
Effects of Non-registration............................................................................................................................................7
No suit to enforce rights under the Act.....................................................................................................................8
No suit to enforce rights against any third party.......................................................................................................8
No proper relief.........................................................................................................................................................8
 Partners cannot bring legal action against each other......................................................................................8
Powers which are given to the unregistered firms........................................................................................................8
Case laws relating to the effect of non registration:-....................................................................................................8
CONCLUSION...............................................................................................................................................................10
BIBLIOGRAPHY............................................................................................................................................................11
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INTRODUCTION
The 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. It was thought proper to define and amend the law relating to partnership. 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. 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. 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.
The Indian Partnership Act does not make registration of a firm compulsory nor does it impose any penalty
for non registration. It is optional for the firm to get itself registered or not. However, Section 69 1 puts
down certain disabilities to a non registered firm which normally forces the partners the partners to get the
firm registered.
These are:-
1. Disability of firm: Unregistered firm cannot file suit for the recovery of the dues or for
other matters against third parties.
2. Disability to partner: The partner of an un-registered firm cannot bring a suit for the
enforcement of right against a third party or his co-partner unless the firm is registered.
3. Ability against firm and partner: The third party has full right to file suit of their dues

1
Section 1, Indian Partnership Act, 1932
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against the un-registered firm and the partners.

HISTORICAL BACKGROUND
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. The Indian Partnership Act was enacted in 1932 and it came into force on 1 st day of October, 1932.
Under the UK Registration of Business Names Act, 1916, 2 there was a penal provision and also a provision
which created certain disability in respect of enforcement of certain rights in Courts (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). 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.2 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. 3 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). Business Names Act 1985 (English Act), has
replaced the above the UK Registration of Business Names Act of 1916.
The English precedent3 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.

Procedure for registration

2
Section 69, Indian Partnership Act, 1932
3
Pollock & Mulla, Partnership Act, 1sted. (1934), pg. 88
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Section 58 of the Indian Partnership Act.1932 deals with the procedure for incorporation 4 of a firm in
which the firm has to initially fill a form which shall contain different details about the firm which are as
follows:

 Name of the firm,

 The address of the underlining members,
 The duration of the firm,
 The original place of the firm, and
 The place where the firm will carry out all its functions.

After the registration is complete the form is submitted to the registrar, who then accepts the form and
registers the form by completing it through writing the details in the registration register. This process is
mentioned in section 59 of the Indian Partnership Act,1932. Another important essential which needs to be
taken care of during the incorporation is that the registration application must be duly signed by all the
members.

Statutory provisions on the effects of non registration

Section 69 contains the provisions describing the effects of non registration of a partnership
firm.
Section 69- Effect of non-registration:-
(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted 5 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 Register6 of Firms as a partner in the firm.
The sub section (1) bars any suit or action by the partner of an unregistered firm against that
firm or against any other partner of that firm.
(2) No suit to enforce a right 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 firms.
The sub section (2) bars any suit or action by the unregistered firm against any third party.

4
Oriental Fire & General Insurance co. Ltd v. U.O.I, AIR 1991 Pat. 250
5
AIR 1937 Bom 225
6
AIR 1987 All. 152
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The operation of section 69 would extend7 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.
(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of setoff or other proceedings 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
any right or power to realise the property of a dissolved firm, or, (b) the powers of an official assigned,
receiver or Court under the Presidency Towns Insolvency Act, 1909, or the Provincial Insolvency Act,
1920, to realise the property of an insolvent partner.

The sub section (3) says that the disabilities mentioned in the above sub sections also apply to a claim of
set off or other proceedings to enforce a right arising from a contract. But the further sub clauses of this
section contain exceptions.

(4) This section shall not apply:

(a) to firms or partners in firm 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 which, in the presidency
towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts Act, 1882, or outside
the Presidency towns,8 is not of a kind specified in the Second Schedule to the Provincial Small Cause
Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any
such suit or claim.
Sub section (4) also contains some exceptions.

Effects of Non-registration
As mentioned above that the working of a firm without the process of incorporation is an advantage but it
is subjected to limitations. A non-registered firm does not have all the rights of a registered firm. Its
working is different from that of a registered firm and the right of a non-registered firm is restricted. The
effect on a firm for not being a registered one is mentioned under section 69 of the Indian Partnership
Act,1932. There are certain consequences to it which are as follows:

7
Raptakos Brett v Ganesh Property, AIR 1998 SC 3085
8
Avtar Singh, Law of Partnership, 3rd ed. (2001), pg. 617-618
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No suit to enforce rights under the Act

A firm which has not undergone the process of incorporation cannot file a suit against any other firm or
third party. A non-registered firm does not have the privilege to file a suit like all other registered firms.
Another important essential about this sub-point is that the person or the third party suing the non-
registered firm shall be already registered in the register as a firm.

No suit to enforce rights against any third party

A non-registered firm cannot file a suit against a third party in any court, neither can they file any suit
against any party and nor any party can sue them if they are registered in the registrar 9. No suit can be filed
in any court of jurisdiction within India.

No proper relief
If there is no registration of the firm, the claim exceeding Rs100 cannot be set off by a third party, So there
is no relief in this regard to the party. Such a right can be only enjoyed by the registered firm.
 Partners cannot bring legal action against each other10
An aggrieved partner of an unregistered firm cannot bring legal action towards each other as they are in no
position to file a suit in the court or have the power to enforce any right.

Powers which are given to the unregistered firms

Though being subjected to many limitations, unregistered firms 11 are still vested with some powers which
may not be as absolute as the registered ones but they do exist. Certain rights and power is given to the
unregistered firm are as follows:

1. Even if the firm is unregistered, a third party can still bring out a legal action towards them.
2. Unregistered firms give power to the partner to file a suit against another one in cases of dissolution
and for settling the accounts.
3. The court can release the insolvent property of the partner and bring legal action to it.

Case laws relating to the effect of non registration:-

9
AIR 2004 A.P. 190
10
Avtar Singh, Law of Partnership, 3rd ed. (2001), pg. 617-618
11
AIR 1964 SC 1882
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S.H Patel v. Hussenibhai Mohammad (1935)12

In this case, the court held that the right which the partner wants to enforce it is not an acquired right which
has been acquired by him as a partner which means that it does not actually regulate the rights of a person
but instead of all that it creates a new right and which is not based on the rights of what a partner may hold
while being one. The creation of a new right is an extremely different cause of action which may also be
allowed in unregistered firms.
D.D.A. v. Kochhar Construction Work and Anr (1996)
In this case, the court held that just because a proceeding has been filed in the court for its non-registration,
the obligation to it be registered as a company does not remove the initial defect as it may be a registered
firm now but it was not one in the institution of the proceeding. It was unregistered that is why the firm was
led to court if it is seen that the initial defect is settled the whole point of the proceeding will be
meaningless as well as it will be unjustified to the plaintiff too.

Shriram Finance Corporation v. Yasin Khan and Ors. (1989)

In this case, it was held by the court that the suit filed by the current partners was not maintainable as the
current partners were recruited after the registration and their name was not mentioned under the register of
incorporation13 which makes them not in the position to file a suit. As it was mentioned under section 69(2)
of the Indian Partnership Act,1932 that for a third party to sue, their name shall be mentioned in the register
of registration as a firm. So that is why the suit was not held liable.

T. Savariraj Pillai v. R.S.S. Vastrad & Co. (1989)14

There is a clear view that the proceeding under Section 20 of the Arbitration Act will be void ab initio
meaning that it does not exist from its very inception; just because it has to register itself it does not mean
that there will be fair action and the suit will be maintainable, it will not cure the initial defect.
Padam Singh Jain v. Chandra Brothers 21 April 1989
The court was of the view that an unregistered firm can file a petition for eviction as it is not an
enforcement of right in an agreement that is not allowed to an unregistered firm instead it is a statutory
right and therefore section 69 of the Indian Partnership Act does not apply here.

12
Ramniklal Mohanlal Chawda v. Sharad Vasant Kotak, (1997) 2 Mah LJ 731 (Bom)
13
V. Subramanium v. R. Rao, (20th March, 2009)
14
Abhinav K. Mishra, Effect of non- registration of a firm, available at:
http://lawmanblog.blogspot.in/2012/09/effect-of-non-registration-of.html
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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 them 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. 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.
But there have been a number of situations where the court themselves have distinguished the facts of the
cases from the one quoted in precedent to such an effect that the case in question is one where there was a
new agreement altogether. It does not, therefore, admit of doubt that the suit is inextricably mixed up with
the partnership itself and arises out of the partnership contract. Hence the firm can conveniently be placed
outside the scope of Section 69.
Moreover, there is considerable ambiguity in Section 69(2) as to what is meant by the words 'arising out of
a contract. The courts in a number of cases has held that The suit is not for enforcement of any right arising
out of a contract entered into by or on behalf of the unregistered firm with third parties in the course of the
firm's business transactions. The suit is, therefore, fails to be barred by Section 69(2).
The whole idea of this section 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.
Further, subsequent registration cannot cure the initial defect. A plaint filed by an unregistered firm is in
fact no plaint at all, because Section 69 makes claims arising out of a contract unenforceable if the firm is
unregistered at the date of the institution of the suit. An unregistered firm has no right to sue and, therefore,
a plaint filed by it has no legal effect. If at the time the plaint is filed the claim is bound to fail, how
subsequent registration can improve the position. There will also be this further difficulty that once a
dispute between the partners has arisen, all of them may not sign the application form and consequently the
firm may remain unregistered and even if registration is obtained by dropping the names of adversaries,
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those whose names do not figure in the registration cannot still be sued as partners. It is, therefore,
advisable to have the firm registered when it is constituted.

BIBLIOGRAPHY
Books:
1. “Law of Partnership” by Avtar Singh
2. “Partnership Act” by Pollock & Mulla
3. “Law of Partnership” by C.L.Gupta
Cases:
1. S.H. Patel v. Husseinbhai Mohd. AIR 1937 Bom. 225
2. Oriental Fire & General Insurance co. Ltd v. U.O.I AIR 1991 Pat. 250
3. Mahendra Singh Choudhary v. Tej Ram Singh AIR 1987 All. 152
4. Raptakos Brett v Ganesh Property AIR 1998 SC 3085
5. Ruby General Insurance Co Ltd v Pearey Lal Kumar AIR 1952 SC 119
6. Haldiram Bhujiawala v Anand Kumar Deepak Kumar AIR 2000 SC 1287
7. J.K. Finance & Chit Funds v. R. Surya Kumar AIR 2004 A.P. 190

Websites
https://www.casemine.com/search/in/unregistered%20partnership%20firm
https://www.pathlegal.in/Landmark-Judgement-Effects-of-non-registration-of-partnershi-blog-1181082
http://www.legalserviceindia.com/articles/rn.htm
https://www.youtube.com/watch?v=5aprrEk-RRA
https://www.toppr.com/guides/business-laws/the-indian-partnership-act/consequences-of-non-registration-
of-firm/

Statutes:
1. Indian Partnership Act, 1932