Page 159 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes It is to be reiterated that a partnership firm can be formed and brought into existence without
any registration with whatsoever authority. In other words, registration with the Registrar of
Firms does not create a partnership firm. A firm already in existence can get itself registered at
any time to protect itself and the outsiders dealing with it.

6.2.3 Effects of Non-registration

Section 69 lays down the consequences of non-registration of a firm. There are:
(i) Suits between partners and firm: A partner of an unregistered firm cannot sue the firm or
his present or past copartners for the enforcement of any right (a) arising from a contract
or (b) conferred by the Partnership Act. He can do so if (a) the firm is registered and (b) he
is or has been shown in the Register of Firms as a partner in the firm. Thus, if a partner of
an unregistered firm is not paid his share of profits, he cannot claim it through a suit in the
court. However, if a right is conferred upon a partner under any other law, he can enforce
such a right. Thus, in the case of an unregistered firm, a partner can file a petition for
enforcement of an arbitration clause included in the partnership agreement. Also an
unregistered firm cannot file a suit against its own partners.

(ii) Suits between firm and third parties: No suit can be filed, if it is for more than ` 100, on
behalf of an unregistered firm against any third party for the purpose of enforcing a right
arising from a contract until the firm is registered and the name of the person filing the
suit appear as a partner in the Register of Firms.

Example: An unregistered firm supplies goods worth ` 10,000 to Shyam. He refuses to
pay the amount due. The firm has no legal remedy against him.

A suit can be brought only by or on behalf of a registered firm and that also by one whose name
appears as a partner in the Register of Firms. Third parties are at full liberty to file suits against
the firm and the partners.
(iii) Claim of set-off: An unregistered firm or any partner thereof cannot claim a set-off in a
proceeding instituted against the firm by a third party to enforce a right arising from a
contract, until the registration of the firm is effected.

Example: Shyam buys certain goods worth ` 20,000 from an unregistered firms Sunil
& Co. The firm is already indebted for ` 25,000 to Shyam. The firm, being an unregistered firm,
cannot compel Shyam to accept ` 5,000 as the final settlement, i.e., the difference between
` 25,000 and ` 20,000, the right of set-off being not available to the firm.
However, non-registration does not affect certain transactions. These are:
(a) The right of a third party to file suit against the firm and its partners.

(b) The right of a firm to enforce rights arising otherwise than from contracts.

Example: Gyan infringes the trade mark of Khosla & Co., an unregistered firm. The firm
has a right to sue Gyan for the infringement of its trade mark.
(c) The enforcement of any right of a partner 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.
(d) The powers of an Official Assignee (or Receiver) or Court under the Presidency Towns
Insolvency Act, or the Provincial Town Insolvency Act, to realise the property of an
insolvent partner.

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