Final Project Submitted

ON

Registration of Partnership- A Boon or a Curse

IN COMPLIANCE TO THE PARTAIL FULFILLMENT OF THE MARKING SCHEME, FOR

TRIMESTER IV OF 2017-18, IN THE SUBJECT OF CONTRACT II

SUBMITTED TO: - SUBMITTED BY:-

Professor Sunil George Pragya Mishra

(A041)

BBA LLB (Hons.)

(Second Year)

Received by………………. On date ……………. Time……..

On date ……………... Time……..

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 Table of Contents

Contents
TABLE OF CASES ------------------------------------------------------------------------------------------- 3

INTRODUCTION -------------------------------------------------------------------------------------------- 4

LEGAL ANALYSIS: PROVISIONS IN PARTNERSHIP ACT, 1932 ------------------------------- 6

COMPARATIVE STUDY: ADVANTAGES OF REGISTERED FIRM ---------------------------- 7

ROLE OF JUDICIARY ------------------------------------------------------------------------------------- 10

CONCLUSION ----------------------------------------------------------------------------------------------- 11

BIBLIOGRAPHY -------------------------------------------------------------------------------------------- 13

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 Table of Cases

Chimanlal v. Firm New India Trader, AIR 1962 Patna 25 ---------------------------------------------- 7

Haldiram v. Anand Kumar, AIR 2000 SC 1287 ---------------------------------------------------------- 8
Mahendra Singh Chaudhary v. Tej Ram Singh, AIR 1987 All. 152 ----------------------------------- 7
V. Subramanium v. R. Rao, MANU/SC/0417/2009 ----------------------------------------------------- 9

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 Introduction

The law relating to a partnership firm is contained in the Indian Partnership Act, 1932. The
Indian Partnership Act was enacted in 1932 and it came into force on 1st day of October, 19321.
The present Act superseded the earlier law relating to Partnership, which was contained in
Chapter XI of the Indian Contract Act, 1872. The Act is not exhaustive. It purports to define and
amend the law relating to Partnership2.

Chapter VII deals with the registration the registration of the partnership firms. The Act does not
make the registration of partnership firm compulsory in any state of India except Maharashtra
nor does it impose any type of penalties for non-registration. However, certain disabilities are
provided in Sec 69 of the Act for unregistered firms and their partners.

Section 58 and 59 which deal with registration cannot be read separately as they provide for two
essential conditions to be fulfilled for successful registration of partnership. Section 58 is based
on section 3 of the Registration of Business Names Act,1916 which talks about particulars to be
supplied for the application of registration of partnership which are reduced to the least furnished
information to third parties for their benefit without disclosing any confidential information
about the firm3.

The first step in the registration of partnership firm is to send an application filling Form No. 1.
As per the provision of section 58 it should contain following details:

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 4.business the date when each
partner joined the firm,
4. the names in full and permanent addresses of the partners, and

1
Sec 1 of Partnership Act,1932
2
Preamble of the Act
3
P. C. Markanda, P C Markanda: The Law of Partnership in India – 2010,571 (3rd edn., 2010)

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 5. the duration of the firm. The statement shall be signed by all the partners, or by their
agents specially authorized in this behalf.4

Secondly following documents to be annexed to the application form:

1. Application for registration with duly filled details in Form No. 1.

2. Duly filled Specimen of Affidavit

3. Certified true copy of partnership deed. Partnership deed can be written on stamp paper
and registered in Sub Registry Office like any other document.

4. Ownership proof of principal place of business or rental/lease agreement thereof.

5. As per the section 58(3), if firm uses a business name which indicates royal or
government sanction or patronage like “Crown”, “Emperor”, “Empress”, “Empire”,
“Imperial”, “King”, consent to the use of such words as part of the firm name by order in
writing should attach5.

Thirdly, all partners must sign the application form or their agents specially authorized in this
behalf in the presence of a witness who must be either Gazetted Officer, Advocate, Vakil,
Magistrate of Registered Accountant. If a partner refuses to sign the application form,
registration cannot take place unless that partner’s name is dropped.

Lastly, the aforementioned application has to be sent to the Registrar at the specified address
along with the fees. As per section 71 of Indian Partnership Act, states are empowered to make
their own rules regarding the fee structure for registration of partnership. However, Schedule I of
Indian Partnership act prescribes the maximum fees that can be levied by the states. As pre
Schedule, I the registration maximum fees for a statement under section 58 are Rs 5256.

4
Sec. 58(1), Indian Partnership Act,1932.
5
Sec. 58(3), Indian Partnership Act,1932.
6
Avtar Singh, Law of Contract,578 (11th edn. 2013).

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 Legal Analysis: Provisions in Partnership Act, 1932

Sec. 69 contains the provision describing the effects of non registration of a partnership firm. Sec
69 states that:

(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 a behalf of any persons 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;

Provided that the requirement of registration of firm under this sub-section shall not apply to the
suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a
firm for accounts of the firm or to realise the property of 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 suing are or
have been shown in the Register of Firms as partners in the firm.

(2A) No suit to enforce any right 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 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 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;

Provided that the requirement of registration of firm under this sub-section shall not apply to the
suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a
firm for accounts of a dissolved firm or to realise the property of a dissolved firm.

(3) The provisions of sub-sections (1), (2) and (2A) shall apply also to a claim of set-off or other
proceedings to enforce a right arising from a contract but shall not affect

(a) the firms constituted for a duration upto six months or with a capital upto two thousand
rupees; or;

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(b) the powers of an official assigned, receiver or Court under the Presidency Towns Insolvency
Act, 1909, or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner.

(4) This section shall not apply:

(a) to firms or partners in firm 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, or

(b) to any suit or claim of set-off not exceeding one hundred rupees in value which, in the
presidency towns, is not of a kind specified in section 19 of the Presidency Small Cause Courts
Act, 1882, or outside the Presidency towns, is not of a kind specified in the Second Schedule to
the Provincial Small Cause Courts Act, 1887, or to any proceeding in execution or other
proceeding incidental to or arising from any such suit or claim7.

Comparative Study: Advantages of Registered Firm

1) Power to file case in a court by a partner against the firm or other co-partners: If any
dispute arises among the partners or between a partner and the firm or between a partner and ex-
partners, and the dispute is based upon the rights arising from contract (i.e. partnership deed) or
upon the rights conferred by the Partnership Act, then a partner of a registered firm can always
file a case in the court. This power is not available to the partner of an unregistered firm.
However, a criminal proceeding can be brought by a partner of an unregistered firm against the
other partner(s). Thus, if a partner steals the property of the firm or puts fire to the buildings of
the firm, any partner can prosecute him for the same.

According to Sec. 69(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 a behalf of any persons 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.

7
Sec. 69 of Partnership Act, 1932

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This provision bars a suit between the partners or between partners and the firm if the firm is
unregistered. Even if the firm is registered, only such partners can file a suit whose name appears
in the register of the firms. Therefore, if some partner join after the firm with certain other
partner has already been registered, unless the newly introduced partner is also shown in the
Register of the Firms, they suffer from disability because only the registered partners can get the
benefit of the decree8.

In Mahendra Singh Chaudhary v. Tej Ram Singh9, plaintiff-respondent 1 was a partner of a firm
run under the name and style of M/s. Chaudhari and Company, 4 Civil Lines, Meerut. According
to him the said firm existed prior to 31st Jan. 1984 with six partners under a partnership deed dt.
3rd April, 1982. The plaintiff was not a partner of that firm. His case further was that the old
partnership was dissolved on 31st Jan. 1984. With effect from 1st Feb. 1984 the above firm was
reconstituted whereby two old partners retired and six new partners including the plaintiff were
included into the partnership. The case of the plaintiff-respondent further was that M/s.
Chaudhari and Company had entered into a contract with the State Government for construction
of a canal and that the Executive Engineer Meerut Division, Ganga Canal, Meerut, defendant 1
was the Engineer in charge, who was supervising the work of construction of the said canal. In
connection with that contract payments were made by defendant 1 to M/s. M.S. Chaudhary and
Company. The relief prayed for in the suit as also in the application for temporary injunction was
that defendant 1 may be restrained from delivering the cross or payees account cheques of M/s.
M.S. Chaudhary and Company in respect of the aforesaid constructions work to Sri Mahendra
Singh Chaudhary or anybody else or any of the partners itself except to the plaintiff and Sri
Mahendra Singh Chaudhary.

2) Power to file case in court by firm against 3rd parties: The partners of a registered firm can
always file a case in the court (if required), to enforce any right arising from contract e.g. for the
recovery of the price of goods supplied. This power is not available to the partners of an
unregistered firm (except in case of criminal proceeding). It should however be noted that
although an unregistered firm cannot file case against 3 rd party, the 3 rd party always has the
power to file a case against both registered as well as unregistered firm.

8
Chimanlal v. Firm New India Trader, AIR 1962 Patna 25
9
Mahendra Singh Chaudhary v. Tej Ram Singh, AIR 1987 All. 152

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According to Sec 69(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 suing are or have been shown in the Register of Firms as partners in the firm.

To enforce the rights against the third party 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 the firms as a
partner in the firm.

In Haldiram v. Anand Kumar10, the empahasis was on the words “right arising from contract” in
Sec 69(2). After looking into the report of the Special Committee which proceeded the Act, the
Apex Court ruled that:

“It is referring to a contract entered into in course of business transaction by the unregistered
plaintiff firm with its customers - defendants and the idea is to protect those in commerce who
deal with such a partnership firm in business. Such third parties who deal with the partners ought
to be enabled to know what the names of the firm are before they deal with them in business”11.

Moreover this case also ruled that suit against infringement of trade mark is not barred under Sec
69(2).

3) Power to claim set-off: If a 3 rd party sues the firm to recover a sum of money the registered
firm can always claim a set-off i.e. the registered firm can say that the 3 rd party also owes some
money to the firm and the same should be adjusted against the claim in question. This power is
not available to an unregistered firm.

EXCEPTIONS

The disabilities discussed above are not applicable to unregistered firm in the following cases:

1. Suit for Dissolution: Sec 69 of the Partnership Act, 1932permits the suit even by the non-
registered firms to sue for the dissolution of a firm or for the accounts of a dissolved firm.
In case the firm has already been dissolved, the partners of the unregistered firm can
realize the property of the dissolved firm.

10
Haldiram v. Anand Kumar, AIR 2000 SC 1287
11
Ibid

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 2. Suit on behalf of an insolvent partner: Sec 69(3)(b) mentions another exception when an
action would be bought on behalf of the insolvent partner against an registered firm. It
provides that an official assignee, receiver, of Court have a power to bring an action to
realize the property of the insolvent partner.

Role of Judiciary

12
In a judgment V. Subramanium v. R. Rao (Civil Appeal 7438/2000), the Supreme Court
declared unconstitutional a significant state amendment to the Partnership Act, 1932. Through a
state amendment, the State of Maharashtra introduced sub-section (2A). Till the introduction of
sub-section (2A), a partner in a firm could file a suit for dissolution of an unregistered
partnership firm, or for accounts of the dissolved firm, or to recover the properties of the
dissolved firm. With the coming into force of the sub-section in 1985, a partner in an
unregistered partnership firm in Maharashtra could not file even those types of suits. The
question regarding the constitutionality of the sub-section was referred to the Bombay High
Court, which upheld the section. An appeal was preferred against this judgment before the
Supreme Court.

The Supreme Court (Markandey Katju and G.S. Singhvi JJ.) struck down the impugned sub-
section (2A) as violative of Articles 14, 19(1)(g) and 300A of the Constitution.

The Court reasoned that not allowing a partner to file a suit for accounts and recovery of
property essentially deprived a partner of an unregistered firm of his right to property in the firm
without any compensation. Therefore, the sub-section was in violation of Article 300A of the
Constitution (“No person shall be deprived of his property save by authority of law”). Following
a line of precedents, it was held that “law” contemplated in Article 300A cannot include a law
which is arbitrary in nature. Additionally, the stringency of the law meant that it violated Articles
14 and 19 as well. The reasoning of the Court is seen through the following paragraph from the
judgment:

12
V. Subramanium v. R. Rao, MANU/SC/0417/2009

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“……..…Even then registration of a partnership firm is not made compulsory under the Act. A
partnership firm can come into existence and function without being registered. However,
the Maharashtra Amendment effects such stringent disabilities on a firm as in our opinion are
crippling in nature……………….

………….The effect of the Amendment is that a partnership firm is allowed to come into
existence and function without registration but it cannot go out of existence (with certain
exceptions). This can result into a situation where in case of disputes amongst the partners the
relationship of partnership cannot be put an end to by approaching a court of law. A dishonest
partner, if in control of the business, or if simply stronger, can successfully deprive the other
partner of his dues from the partnership. It could result in extreme hardship and injustice. Might
would be right. An aggrieved partner is left without any remedy whatsoever…the restrictions
placed (by the impugned section) are arbitrary and of excessive nature and go beyond what is in
the public interest. Hence the restrictions cannot be regarded as reasonable.”

Accordingly, Section 69(2A) introduced by the Maharashtra state amendment was declared to be
unconstitutional.

Conclusion

After referring to Para 15, Special Committee report on the drafting of Indian Partnership Act it
was learned that like the UK making registration of partnerships compulsory in India in India
would be too drastic considering emerging industrial nature of the economy. Most of these
emerging partnerships were for small term registration and were for the single venture, thus
benefits of compulsory registration were much lesser than disadvantages of clerical difficulty and
registration was kept optional13.

Registration of firms will create uniformity in laws. Once the company’s registration has been
done, the statements recorded in the register will be taken to be conclusive proof against the
partners making them. Third parties would be in a position to know who the partners are, their

13
Universal Law Publications, Indian Partnership Act,1932, 4 (2011)

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competency, status, and solvency etc. Further, no one whose name is on said register can later be
allowed to deny his involvement in the partnership and thereby evade liability.

But there are some problems as well. There are some partnerships in India which are of small
duration, single venture or low capital. Making registration compulsory for them will be
very inconvenient and cause administrative delays and difficulties. Thus, considering the 7th
report of Law Commission, the researcher is of the opinion that partnerships completing within 6
months from the day of their commencement or having capital less than Rs. 500 may not
necessarily be registered. For all these partnerships provisions of Section 69 of Indian
Partnership Act should be applicable and reliance should be given to English law replacing term
‘right arising out of contract’ with”right arising out of contract in relation to business’ which will
reduce the present ambiguity considerably. Furthermore, the possibility of administrative
difficulty of making registration compulsory for firms with small venture or for a short duration
cannot be ignored.

While interpreting a law, it is important that one keeps in mind the intentions of the framers of
the law. The intention of framers of partnership law was to make registration mandatory but due
to the unfavorable economic conditions of that time they could not make it mandatory. However,
with changing time law should also evolve and be enforced with all the fairness it deserves.
There should be no ambiguity, no vagueness, and above all, no scope for loopholes. The
researcher looking forward for that day.

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 BIBLIOGRAPHY

Books referred:

 Akhileshwar Pathak , Legal Aspects of Business, McGraw Hill Publication

 Avtar Singh: Law of Contract, Eastern, Lucknow. Eighth Edn
 K. R. Bulchandani, Business Law , Himalaya Publishing House

Websites referred:

 http://www.charteredclub.com/register-partnership-firm/
 http://racolblegal.com
 http://indiacorplaw.blogspot.in/2009/03/partnerships-and-effects-of-non.html

Statutes referred:

 Indian Contract Act, 1872

 Indian Partnership Act, 1932

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