Registration of firms and effects of non-registration under Indian Partnership Act, 1932

Chapter 7th [Section 56-71] deals with the registration of partnership firms under the Act. However, the Act doesn’t register any firm partnership mandatory in India, nor does the Act impose any penalties in non-registration. However, specific disabilities are provided in section 69 of the Act for any unregistered firm and partners. The procedure for registration of any firm is effortless, and the disadvantages of nonregistration are so significant that generally, the partners of any firm would like to get registered. 

A partnership is defined as the relationship between persons who have agreed to share a business’s profits carried on by all or any one of them acting for all. Essential of Partnership: According to section 4 of the Act, there are the following essentials of any valid partnership

1. There should be an agreement between the persons who want to be partners. 

2. The purpose of creating a partnership should be carrying on a business. 

3. The motive for the creation of any partnership should be earning and sharing the profits. 

4. The firm’s business should be carried on by all of them, acting for all, mutual agency. 

PROCEDURE FOR REGISTRATION: 

Section 58 and 59 of the Act deals with the registration process. The firm’s registration may be affected by submitting to the Registrar of firms a statement in the prescribed format and accompanied by the fees. 

The state government has been authorized to make the rules for prescribing the practices and fees, but the same shall not exceed the maximum fees specified in schedule 1, which is Rs 3/- for the purpose. The application must state the following

1. The firm name; 

2. The place or principal place of business of the firm; 

3. The names of any other places where the firm carries on business; 

4. The date when each partner joined the firm; 

5. The names in full and permanent addresses of the partner; 

6. The duration of the firm. 

The assertion will be endorsed by all the accomplices or by their agents, exceptionally authorized for his benefit. A firm might be got enlisted whenever after the production of the organization. It shouldn’t be enrolled at the hour of development, as it were. It is relevant to note here that Act doesn’t set out any time limit under which the firm should be enrolled. In this manner, there is no time of constraint either for the first enlistment or recording resulting changes as considered in section 63 of the Act. The Registrar of firms can’t dismiss an application for recording changes in the company’s constitution on the ground of unreasonable deferral in applying. 

NO SEPARATE REGISTRATION NECESSARY: 

The Kerala H.C. ruled that no separate registration in case of reconstitution of the firm; what is required is only an intimation to the Registrar of the firms about change as provided under sections 60-67 of the Act. 

DISSOLUTION OF PARTNERSHIP DUE TO RETIREMENT OF PARTNERS: 

The retired partner had denied his signatures on a letter of retirement and the dissolution deed’s execution. He sought quashing of changes recorded by the Registrar based on said dissolution deed. Retired partners were, however, said to have admitted his signatures before the arbitrator. Hence the dispute referred to the arbitrator was also pending. As the petition raises the highly disputed question of facts, Held said facts being under adjudication, the petitioner was not entitled to writ prayed for. 

PENALTY FOR FURNISHING FALSE PARTICULARS: 

Information given to the Registrar through various documents filled with him in connection with the firm’s registration serves to make the third parties conversant with the firm and partners so that third parties dealing with the firm are not misled. Correct & complete information should be available with the Registrar. Section 70 imposes a penalty for making any false declaration in any document filed with the Registrar. 

According to section 70: Any person who signs any statement, amending statement notice or intimation under this chapter containing any particular which he knows to be false or does not believe to be accurate, or having an individual which he knows to be incomplete, shall be punishable with the imprisonment which may be extended to three months, or fine, or with both. Hence it is pertinent to note that The Indian Partnership Act,1932 provides the necessary provision for the penalty if any wrong information is furnished by the partners while registering their firms. 

POWER TO MAKE RULES: 

Section 71 grants power to the state government to make rules prescribing the fees payable, statements submitted, regulating the procedure to be specified by the Registrar when dispute rise filling of documents, an inspection of documents, and with regard carrying out the purpose of chapter 7th concerning the registration of the firm. 

SALEM CHIT FUNDS V. STATE OF TAMILNADU: 

It has been held by the madras H.C. that rule 3A of the T.N. Partnership Rules, 1932, requiring each enlisted firm to record with the Registrar a presentation such that enrolled firm had been carrying on its business or has been inactivity during the monetary year is intra vires rules making power. Therefore, the requirement of the filing of the return every year was held to be valid. 

EFFECTS OF NON REGISTRATION: 

[SECTION 69] Section 69 contains the provisions describing the effects of non-registration of any partnership firm. 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 have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Registrar of firms as a partner in a firm. 

MAHENDRA SINGH CHAUDHARY V TEJ RAM SINGH: 

One of the firms, i.e., A, brought an action for the injunction requiring that the cheques for payment to the form should not be paid singly to the other partner B but should be paid in the joint account of A and B so that money could reach the coffers of the firm. The said company was unregistered. It was held that the suit brought by A was for the benefit of the firm, and the firm being unregistered, the case was not viable under area 69. 

SAPNA GANGLANI V. M/S R.S. ENTERPRISE: 

In the instant case, it was seeking that enforcement of any contract by the partnership firm, the plaint filed by an authorized signatory of firm who was not a partner but the authorizations were given to him by the partners of the said firm, was held to have authority even if signed by only one of the partners of the firm. 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. The person suing is to have been shown in the register of firms as partners in the firm. 

MUTHU KUMARASWAMI V KUMAR TEXTILES: 

It has been held that the provisions contained in section 69[2] are mandatory, and registration of the firm is a condition precedent to its right to institute a suit. Even if the defendant does not object, the provision contained in 69 cannot be flouted. 

The trial court is to find if the plaintiff firm is registered, and for that purpose, the court should enable the parties to adduce evidence to that effect. 3. The provisions of subsections 1 and 2 shall also apply to claim of set-off or other proceedings to enforce a right arising from a contract. It may be noted that the partnership act neither makes the registration of a firm compulsory nor does it impose any penalties for non-registration. However, it provides specific disabilities for an unregistered firm and such a firm’s partner or the partners whose names have not been shown as registered partners even though the firm is registered. 

• According to section 69 of the Indian partnership act, 1932, registration is optional, but registration is mandatory for the suit. 

• It is pertinent to note here that it would not affect the pending suit in case of any subsequent registration of any firm.

 • A partner of an unregistered firm cannot sue the firm or his present or past co-partners to enforce any right. 

• Any unregistered firm’s action is liable to be dismissed and cannot be rectified by subsequent registration. 

• The prohibition contained in section 69(3) does not apply to the proceedings before an arbitrator. 

CLAIM UNDER SECTION 65, INDIAN CONTRACT ACT ALSO BARRED:

In Brijenda Prasad v. Duleshwari Devi, a partnership firm enacted on 3-07- 1954 was not registered. The firm consisted of the plaintiffs and three minors, now defendants, whereby the three minor sons were given a share of profits under their father’s guardianship. The question arose whether an action could be brought against these minors to return the benefit received by them under section 65 of the Indian Contract Act, 1872. 

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