Consequences of Non-Registration of Firm

While the English Law makes registration of firms compulsory and levies a fine for non-registration, the Indian Partnership Act, 1932 has no such compulsions for firm registration and no fines for non-registration either. However, under Section 69 of the Act, certain disabilities are imposed on non-registered firms. These disabilities have a persuasive pressure on firms for registration. In this article, we will discuss these aspects in detail.

Browse more Topics under The Indian Partnership Act

• True Test of Partnership
• Elements of a Partnership
• Kinds of Partnerships
• Types of Partners
• Relation of Partners to One Another
• Relation of Partners to Third Parties
• Partnership Property
• Minors admitted to Benefits of partnership
• Rights of Outgoing Partner
• Legal Consequences of Admission or Retirement of a Partner
• Dissolution of a Firm
• Consequences of Dissolution of a Firm

Consequences of Non Registration of Firm

Section 69 of the Indian Partnership Act, 1932 offers a detailed explanation of the consequences of not opting for firm registration. These are:

1] No suit in a civil court by the firm or other co-partners against any third party

If the firm registration is not done, then the firm or any other person on its behalf cannot file a suit against a third party for breach of contract which the firm has entered into. Further, the person filing the suit on behalf of the firm should be in the register of the firm as a partner.

2] No relief to partners for set-o­ff of claim

Without firm registration, any action brought against the firm by a third party having a value of more than Rs. 100 cannot be set-off by the firm or any of its partners. Pursuance of other proceedings to enforce rights arising from the contract cannot be done either.

3] An aggrieved partner cannot bring legal action against other partner or the firm

A partner of the firm or any person on his behalf cannot bring legal action against the firm or against any partner (or alleged to be a partner) if firm registration is not done. However, if the firm is dissolved, then such a person can sue the firm for dissolution it accounts and realization of his share in the firm’s property.

4] A third party can sue the firm

Even if the firm registration is not done a third party can bring legal action against the firm.

It is also, important to note that despite these disabilities, the non-registration of a firm does not affect the following rights:

1. The right of a third party to sue the firm or any partner
2. Partners’ right to sue the firm for dissolution or settlement of accounts (in case of dissolution)
3. The power of the Official Assignees, Receiver of Court to release the property of the insolvent partner and bring an action
4. The right of the firm and partners to sue or claim set-off of the value of the suit does not exceed Rs. 100.

Solved Example on Non-Registration of a Firm

Question: PJO & Co. is a registered partnership firm. The registration was done in 2015. Peter, John, and Oliver are partners of the firm. In 2016, Peter dies. A year later, in 2017, John and Oliver sue Richard on behalf of PJO & Co. without fresh registration.

1. Is the suit maintainable?
2. John and Oliver take a new partner, Louis, in 2017 and then file a suit against Richard without fresh registration. Is this suit maintainable?

Answer: According to Section 69, of the Indian Partnership Act, 1932, the plaintiff needs to fulfill the following two conditions:

• The suit is instituted by or on behalf of a registered firm
• The person suing is a partner in the firm on record

In the example above, the case is filed by John and Oliver on behalf of PJO & Co., which is a registered firm. Also, both John and Oliver are partners of the firm on record. Hence, the suit filed by them against Richard is maintainable.

It is mandatory to notify the Registrar when a new partner is introduced in a firm. The Registrar makes a note of it in the Register of Firms. All partners mentioned in this register are partners permitted to take legal action against a third party. In the example above, since Louis’ name has not been included as a partner with the Registrar, PJO & Co. cannot sue Richard.