Free Judiciary Notes · Partnership Act Notes
Partnership Act:- EFFECT OF NON-REGISTRATION OF PARTNERSHIP
6 min read
EFFECT OF NON-REGISTRATION OF PARTNERSHIP IN TABULAR FORM
The Partnership Act neither makes the registration of a firm compulsory nor does it impose any penalties for non-registration.
However, it provides certain disabilities for an unregistered firm and the partners of such a firm or the partners whose names have not been shown as registered partners even though the firm is registered.
69. EFFECT OF NON-REGISTRATION
1. No suit to enforce a right arising from a contract or conferred by this Act shall be instituted 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.
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 are or have been shown in the Register of Firms as partners in the firm.
1. SUITS BETWEENPARTNERSANDTHE FIRM
Section 69(1) bars a suit between partners or between partners and the firm if the firm is unregistered. Even if the firm is registered, only such partners can sue whose names appear in the Register of Firms.
Oriental Fire & General Insurance Co. Ltd. v. The Union of India, A.I.R. 1991
Mahendra Singh Chaudhary v. Tej Ram Singh
If the suit filed by the firm is dismissed on the ground of non-registration, fresh suit on same cause of action may be filed after the registration of the firm as the earlier suit is non est in the eyes of law.
ATMURI MAHALAKSHMI V. JAGDEESH TRADERS
In above case Andhra Pradesh High Court has held that if the firm is not registered when the suit is filed, but it gets registered during pendency of the suit, the plaint already filed can be treated as valid.
The court followed Madras High court which had held that after registration legislative requirements are met and there was no reason in equity for not permitting the continuity of the suit. Varadarajulu V. Rajmanika.
When suit is based on claim independent of the partnership business, the same is not barred. For example, when one partner is creditor of the other partner, he may be allowed to bring action for the same.
SUITS BETWEEN THE FIRM AND THE THIRD PARTIES
Section 69(2) bars an unregistered firm or persons whose names have not been shown as partners in the Register of Firms from instituting a suit to enforce a right arising from a contract against any third party.
In other words, following two conditions should be fulfilled for enabling a partnership firm or its partners to file suit against a third party to enforce a right arising from a contract
i. the firm must be a registered firm; and
ii. the persons suing must be shown in the Register of Firms as partners of the firm.
To enforce the rights against third parties, it is not enough that the firm is registered, it is further necessary that "the person suing is or has been shown in the Register of Firms as a partner in the firm".
MUTHU KUMARASWAMI V. KUMAR TEXTILES
In above case, it has been held that the provision contained in Sec. 69(2) is MANDATORY, and registration of the firm is a condition precedent to its right to institute a suit. Even if the defendant does not raise an objection, the provision contained in Section 69 cannot be flouted.
If a suit is filed by the partners of a firm which is not registered on the date of the institution of the suit, the same would be hit by the provisions of Section 69(2) of the Partnership Act and shall be dismissed.
Sub-section (2) of Section 69 has been held to be a PENAL PROVISION, which deprives the plaintiff of its right to get its case examined on merits by a court.
Simultaneously, it deprives the court of its jurisdiction to adjudicate on the merits of the controversy between the parties. It is, therefore, said that it would have to be strictly construed.
Further, What the section 69(2) bars is the suit to enforce rights arising out of contract between the firm and person proposed to be sued.
If suit is being brought not on the basis of any such contract but on other grounds such as for infringement of statutory right under Trade Mark Act (Haldiram v. Anand Kumar A.I.R. 2000 S.C. 1287) , same is not barred.
If it is based on tort, fraud or any other wrongful act, same is not barred.
Suits for damages for misconduct committed by any partner of the firm (Chandrayya Mutwayyatrabatti v. Sidram Gaupat Ingale)etcis not barred.
Similarly, prosecution by an unregistered firm in terms of Section 138 of the Negotiable Instruments Act, 1881 is also not barred by section 69(2) (Intrajit Gogoi v. Auto Sales and Service Station, A.I.R. 2008 (NOC) 1760 (Gau.).)
Like wise, the right to file a suit for eviction of a tenant under Transfer of Property Act is a statutory right and, therefore, an eviction suit can be filed by an unregistered firm.
ARBITRATION PROCEEDINGS NOT BARRED UNDER SECTION 69.
KAMAL PUSHPA ENTERPRISES V. D.R. CONSTRUCTION COMPANY
It has been held in above case by the Supreme Court, that bar under section 69 has no application to proceedings before the arbitrator Proceedings for enforcement of the arbitration award is not a right under contract.
It is well settled that the bar enacted by Section 69 of the Partnership Act, 1932 does not affect the maintainability ofan application underSection9 ofthe Arbitration and Conciliation Act, 1996.
The Apex Court in Firm Ashok Traders v. Gurumukh Das Saluja, A.I.R. 2004 S.C. 1433 said that the right conferred by Section 9 of Arbitration and Conciliation Act, 1996 could not be said to be one arising out of a contract.
NO DISABILITY AGAINST THIRD PARTIES
Section 69 (2), bars an unregistered firm or its partners and not the third party. Therefore, a third party can bring an action against an unregistered firm. Section 69 does not debar defending of any proceedings by an unregistered firm.