effect of non-registration of a partnership firm

Q. (a) Discuss the effect of non-registration of a partnership firm. Whether the effect of non-registration of firm can be removed during pendency of the suit by getting the firm registered? (No)

(b) A, B, C and D are partners in a firm, which has not been registered. A is wrongfully expelled from the firm by the other partners. Can he successfully bring a suit against other partners for damages for wrongful expression and declaration that he continues to be a member of the firm? What remedies, if any, are open to A? (Both question were asked in UPHJS 2007)

Chapter VII of the Act deals with ‘Registration of Firms’ of which sections 56 to 65 deals with the procedure for registration. The purpose of these provisions is to protect the interest of those who deal with partnership firms in various commercial transactions. Effect of non-registration of partnership firm is given in Sec 69 of Partnership Act. This section neither declared that registration is must not provide any penalty for non-registration. But simply provides some disqualification to firm and its members. The matter of registration and maintainability of the suit should be decided as a preliminary matter and not at later stage.

Sec 69(1) provides disqualification to partners to sue other partner and 69(2) provides disqualification to partners and firm to sue third party. This disqualification is not to third party an a third party may file suit against unregistered firm. 69(3) clarify that sub-sections (1) & (2) shall apply also to a claim of set-off or other proceeding to. Other proceeding includes arbitration and arbitrator cannot be appointed. (see Jagdish Chander Gupta Vs Kajaria Traders (India) Ltd AIR 1964 SC 1882 and M/S Sunrise Industries & Ors Vs M/S Roshan Lal Aggarwal & Anr on 8 February, 2012). Though interim protection u/s 9 of Arbitration Act was given in Firm Ashok Traders And Anr. Etc vs Gurumukh Das Saluja And Ors. Etc on 9 January, 2004 But that is not a right judgment in view opinion of Hon’ble Supreme Court of India in BALCO Vs Kaiser Ammonium where it was held that protection of sec 9 cannot be given without a valid suit.

Both the sub-sec (1) & (2) together provide that –

No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by

(1) partner against other partner or

(2) partner or firm against any third party

unless

(1) the firm is registered and

(2) the persons suing are or have been shown in the register of firms as partners in the firm

If partnership is registered then non-registration of partnership deed does not have any effect and suit is maintainable. (see JK Finance And Chit Funds Vs R Surya Kumar And Anr, AIR 2004 AP 190)

It was observed by Hon’ble M H Kania, J in Shreeram Finance Corporation vs Yasin Khan And Others 1989 AIR 1769 that “the suit filed by the appellants is clearly hit by the provisions of sub-section (2) of section 69 of the said Partnership Act, as on the date when the suit was filed, two of the partners shown as partners as per the relevant entries in the Register of Firms were not, in fact, partners… Although the plaint was amended on a later date that cannot save the suit.” Thus registration or giving partners name after filing suit does not save the suit. The question as to whether the subsequent registration of the firm would cure the initial defect in the filing of the suit arose for consideration in DDA Vs Kochhar Construction Work and Anr (1998) 8 SCC 559. Hon’ble Court held that in view of the clear provision of the Act it was not possible to subscribe to the view that subsequent registration of the firm may cure the initial defect, because the proceedings were ab initio defective as they could not have been instituted since the firm in whose name the proceedings were instituted was not a registered firm on the date of the institution of the proceedings. (See Purushottam & Anr vs Shivraj Fine Art Litho Works & Ors on 7 November, 2006 and Ess Vee Traders And Ors Vs Ambuja Cement Rajasthan Limited, 131 (2006) DLT 341)

Exception to this disqualification

(1) Only apply for enforcement of right arises from contract (sec 69 sub clause 1 & 2). Thus it is very much clear by section itself that disqualification does not apply to enforcement of those rights, which do not arise from contract or arises from Tort, Criminal Law or any statutory provision. Filing a suit for possession against tenant who remains on lane after lease is  right under TPA and not a right arising from contract (see Raptakos Brett And Co Ltd Vs Ganesh Property on 8 September, 1998). Suit to prevent infringement of trademark is not barred by the section whether the firm is registered firm or not (see Haldiram Bhujiawala And Anr vs Anand Kumar Deepak Kumar And Anr on 28 February, 2000 and M/s Virendra Dresses Vs M/s Varinder Garments AIR (1982) Delhi 482)

(2) Does not apply 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 realize the property of a dissolved firm (sec 69 (3) (a)). Right to realize the property of firm include enforcing a claim arising from contract prior to dissolution. It was held by Hon;ble Gujrat High court on 20.02.13 that, “Even if the partnership was not registered, once the partnership firm is proved or is believed to be dissolved, the suit for accounts of dissolved firm even if unregistered is maintainable” (see Vinubhai Najibhai Chavda vs Maheshkumar Ramchandra)

(3) No effect to the powers of an official assignee, receiver or court to realize the property of an insolvent partner (sec 69 (3) (b))

(4) Not apply 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 (sec 69 (4)).

(5) Not apply to any suit or claim of set-off not exceeding one hundred rupees in value which (sec 69 (4)).

It was held in The Oriental Fire & General Vs The Union Of India on 19 April, 1990 AIR 1991 Pat 250 that claim in insurance policy is a claim for a right arising from contract and not by statute of Insurance.

In response to question no (b) it can be said that A can not ask for declaration that he is a partner as same would be a right arising from contract between partners of unregistered firm but A can file a suit for accounts as his expulsion means dissolution of firm.

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