Registration of Partnership Firm and Effects of Non Registration

REGISTRATION OF PARTNERSHIP FIRM AND EFFECTS OF NON REGISTRATION

Under the Partnership Act, 1932 registration of firms is not mandatory under law. If the legal rights are to be exercised it is statutorily compulsory to register the firms and an unregistered firm cannot sue outsiders although the outsiders have the ability to sue the firm. Registration grants the legal entity of the firm recognition of solid and compact legal personality for being represented in the court of law.

Registration of Firms

Registration has to be obtained by filing an application with the Registrar of Firms in the prescribed form accompanied by prescribed fee with the following particulars.

  1. The name of the firm
  2. The place of the principal business of the partnership firm
  3. The names of any other places where the firm carries on business
  4. The duration of the firm
  5. The details of the partners like name and address

The application form should be signed and verified by each partners of the firm or by his authorized agent. If the partner refuses to sign the application form, the registration can be obtained only by dropping the name of the dissenting partner from the firm. The status of the firm is held to be registered when both the firm and all the names of all the partners are in the Register of Firms. If the Registrar of Firms is satisfied that the requirements as to the registration have been complied with, the Registrar registers the firm and enters the name in the Register of Firms and then issues a certificate of registration.

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Though compulsory registration is not provided in the act though the situation is different in the State of Jammu and Kashmir where the registration of the firm is compulsory.

Section 60: Change of Particulars

When an alteration is made in the firm name or in the location of the principal place of business of a registered firm, accompanied with the prescribed fee specifying the alteration and signed and verified has to be sent to the Registrar of Firms.

When the place of the business is relocated or the business of the firm is discontinued at one place or extended to a new place or when the partner changes the address of the firm or when the firm is dissolved, the Registrar should be intimated.

In a case before the Delhi High Court, the retiring partner denied his signature on the letter f allotment and denied the execution of the dissolution deed.. Questioning the validity of the changes recorded at the Registrar of the Firms under Section 63, he admitted his signature in the pending arbitration proceedings.

The court held that the writ petition raised highly dispute questions of fact and the matter being already under the adjudication, the petitioner was not entitled to a writ remedy.

Section 64: Rectification of mistakes

It is the power of the Registrar shall have the power to rectify the mistakes in order to bring the entry in the Registrar of Firms and on application made by all the parties, the Registrar may rectify the mistake in such document.

Section 66: Inspection of register and filed documents

The Register of Firms shall be open to inspection like all the statements, notices and intimations filed subject to conditions and payment of prescribed fees.

Effects of Non Registration

Registration of the firms is voluntary and does not involve penalty for non-registration or else the Section 69 cuts short the capacity of an unregistered firm and the partners to sue thus compelling to register the firms.

  1. Suits between partners and firm

A partner of the unregistered firm cannot sue the firm of the present or past copartners for the enforcement of a right arising out of the contract under the Partnership firm. Only a partner of a registered firm can initiate proceedings for enforcement of such rights.

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In a case before Andhra Pradesh High Court,

On the death of a partner, his interest devolved upon his sons who became partners but this change was not registered with the Registrar thus for the purposes of suits the firm became an unregistered firm.

The main reason for this provision is to put the partners and the firm consequently in disability thus encouraging the process of registration.

  1. Suit between the firm and third parties

An unregistered firm cannot sue the third party for the enforcement of any right arising from the contract and can be brought about behalf of a registered firm along with the partners whose name appears in as the partners with the Registrar of Firms.

In Haldiram Bhujiwala vs. Anand Kumar Deepak Kumar,

The Supreme Court held that a suit to prevent an infringement of a trademark is not barred by the section whether the firm is registered or not, thus a suit for perpetual injunction to restrain the defendant from passing of the defendant’s goods is an action at common law and is not barred by Section 69(2) of the Partnership Act.

Thus the suits filed by the unregistered firms like specific performance of contract, suit for possession are not maintainable if it is filed by an unregistered firm against a third party.

  1. Set off and other Proceedings

A claim of set-off or other proceedings to enforce a right arising from a contract, acts in consonance with the other disabilities. A claim of set off for instance can be explained as an unregistered firm is sued by a third party to recover a sum of money, the firm cannot say that the money owing by that third party to the firm should be set off against the claim.

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Bar under the Section 69 of the Act extends to any proceedings before a Court and this is not applicable where the proceedings are not before a Court.

Exceptions

  1. Actions for dissolution and accounts: An unregistered firm and its partners can bring on an action for dissolution of the firm or for the accounts of a dissolved firm. As a result the disability to sue disappears with the dissolution of the firm.
  2. Recovery of insolvent’s share: The official assignee or court acting for an insolvent partner can bring an action for the realization of the insolvent’s share irrespective of the firm is registered and unregistered.
  3. Value of suit Rs. 100: If the subject matter of the suit does not exceed 100 rupees, the unregistered firm or partners may sue or claim a setoff.
  4. Statutory and Non Contractual Rights: Statutory or Non contractual rights like if a person damages the property of the firm can sue the person irrespective of the registration status of the firm. An unregistered firm has been allowed to exercise its property rights as protected by the Transfer of Property Rights.
  5. Interim Relief: An application before the Court for interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 has been held to be maintainable irrespective of the firm is registered or not.
  6. Suits by third parties: Any third party can sue the partnership firms for the defects in the event of business.
  7. Criminal Proceedings: The bar of Section 69 would not prevent an unregistered firm from initiating a proceeding.

Author: Aathira Pillai,
Dr. D. Y. Patil College of Law, BLS LLB 4th year

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