Effects of Non-Registration in Partnership

As stated earlier, though registration of firms in India is not compulsory. But it is considered desirable because if the firm is not registered, it suffers from many disabilities. These disabilities have been clearly stated in Section 69 of the Act and are termed as ‘effects of non-registration’. These are summarised below.

 


1. No suit can be filed in a civil court by a partner against the firm or the other partners: If any dispute arises among the partners or between a partner and the firm or between a partner and the ex-partners, and the dispute is related to the rights arising from the partnership agreement or to the rights conferred by the Partnership Act, a partner of an unregistered firm cannot file suit against the firm or the partner/partners. This is possible only when the firm is registered and the person 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 the court. However, criminal proceedings can be brought by one partner against the other(s). For example, 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.

 

2. No suit in a civil court by the firm against third parties: An unregistered firm cannot file a suit against a third party to enforce any right arising from contract. For example, such firm cannot go to the court for the recovery of the price of goods supplied. Of course, criminal proceedings can be brought against the wrong doers. It may be noted that if the third party has any claim against the firm or its partners it can certainly file a suit. Thus, it is only a suit by the firm or its partners against a third party which is prohibited and not a suit by the third party against the firm or its partners.

 

3. The firm or its partners cannot make a claim of set-off or other proceedings based upon a contract: The above two disabilities also apply to a claim of set-off or other proceedings to enforce any right arising from a contract. Thus, if a third party sues the firm to recover a sum of money, the firm cannot claim a set-off, i.e., the firm cannot say that since the third party also owes some money to the firm the same should be adjusted against the claim in question.

 

Exceptions

Non-registration of a firm does not however, affect the following rights:

1. The right of third parties to sue the firm or any partner.

2. The right of the firm to institute a suit or claim of set-off if the value of suit does not exceed Rs. 100.

3. The right of partners to sue for the dissolution of the firm or for the accounts of a dissolved firm, or the right or power to realise the property of a dissolved firm i.e., for claiming share of the assets of a dissolved firm or for recovering money from the firm’s debtors.

4. The power of an official Assignee, Receiver or Court to realise the property of an insolvent partner and to bring an action on behalf of the insolvent partner.

5. The rights of the firm or the partners of the firm having no place of business in India.

6. The right of an unregistered firm to bring a suit to enforce a right arising otherwise than out of a contract.

It must now be clear to you that though there is no compulsion under the law that a firm must be registered, the disabilities that beset a firm make it advisable to register it.

Post a Comment

Previous Post Next Post