UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY, CHANDIGARH

SUBJECT- BUSINESS LAW

PROJECT TOPIC- PROCEDURE OF REGISTRATION OF FIRM AND

Submitted to – Mrs. AMITA VERMA Submitted by- RIYA

B.COM.LL.B

Semester- 7th Section E

I would like to express my gratitude to the University Institute of Legal Studies, Panjab
University, Chandigarh for giving me the opportunity to make this project in the first
instance and to do the necessary research work. I have furthermore to thank the library
staff and the computer staff of the department which provided me with necessary
resources required for the project. I am grateful to all the people who provided me with
their valuable guidance and encouragement to move ahead with the project.

I am deeply indebted to Mrs Amita Verma, University Institute of Legal Studies, Panjab
University, Chandigarh. Her stimulating suggestions and encouragement always helped
me during research and writing of this project.

I acknowledge the help of all those who have directly or otherwise facilitated in the
completion of this project.

Thank you.
 TABLE OF CONTENTS
Page no.

1. Introduction 4

What is a Firm?

When is a Partnership registered?

2. Registration of a Firm 4-7

Procedure for Registration

Change in Particulars

Penalty for False Particulars

Rules of Evidence

3. Effects of Non-Registration of Firm 7-12

Suits between Parties and Firm

Suits between Firm and Third Parties

Set-off and other proceedings

Exceptions

4. Conclusion 13

5. Bibliography 14
 INTRODUCTION

 What is a firm?
Section 4 of the Indian Partnership Act, 1932 lays down that when two or more partners come in
contact with each other to carry out activities are called a partnership, and when such partners come
together collectively then it is called a firm. To understand it in a simpler way a firm means a
collection of partners coming together to perform or carry out business activities.

 When is a partnership registered?

The registration of a partnership is at the sole discretion of the partners. The Partnership Act does not
demand registration as a mandatory process that has to be adhered to. However, it is always advisable
to register the firm under the act since it gives the firm other advantages that send an implied message
of the act favoring registered firms than the unregistered. Only registered firms are considered legally
existing. The firm can be registered at any time before the existence or during the continuance of the
partnership. However, if a firm wishes to enforce a legal right arising out of any legal document by
filing a case, the firm shall do so only after the registration of the partnership deed is done. Another
instance where registration of the firm becomes compulsory is when the firm wishes to adopt a new
form of organization such as LLP or company more easily. The firm is registered when the registrar of
firms is satisfied with the compliance of section 58 of the partnership act. This compliance with
section 58 shall be discussed in detail later in the project report. It is important to note that registration
at the income tax department is still mandatory for both registered and unregistered firms by the
registrar.

REGISTRATION OF FIRMS

 Procedure of Registration

Section 58 of the Indian Partnership Act.1932 deals with the procedure for incorporation of a

firm. The Partnership Act authorizes the State Government to appoint Registrar of Firms for the
purpose of registering partnership firms. Accordingly, an office of the Registrar of Firms exists in
 every state. Registration is obtained by filing and application with the registrar. The

application should be on the prescribed form and accompanied by the prescribed fee. The application
must state the:

i. The name of the firm.

ii. The place of principal place of business of the firm.

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

iv. The date when each partner joined the firm.

v. The name in full and permanent addresses of the partners.

vi. The duration of the firm

The application form should be signed and verified by each partner or his duly authorized agent. If a
partner refuses to sign the application form, registration can then be obtained only by dropping his
name from the firm.

In Gandhi & Co v Krishna Glass (P) Ltd 1, where the name of the partner was not shown in the
register of firms on the date of filing of the suit the Bombay High Court held that the suit of the form
was not maintainable.

In Prayagchand Hariram v Deota Cloth Centre2, where the principal place of business was
mentioned but not the branch office, the court said that it did not affect the maintainability of the suit.

If the registrar is satisfied that the requirements as to registration have been complied with, he registers
the firm and enters its name in the Register of firms as per the provisions of Section 59 of the Act. He
then issues under his hand the certificate of Registration. This means that when the formalities
prescribed by the section 58 has been

complied with, the registrar becomes bound to register the firm. He cannot refuse it simply on the

1
AIR 187 Bom 248
2
2004 1 Mah LJ 250 (Bombay)
 ground that the firm has still not commenced business.3

 Change of Particulars

Any change of name of the location of the principal place of business requires almost a new
registration and therefore, statement to that effect signed by all the partners and accompanied by
prescribed fee should be sent to the registrar (Section 60). There is no time limit prescribed for filing
the particulars. The registrar cannot reject them only on account of delay (Section 64). The attempt of
some legislators to prescribe the time limit under the rulemaking power has not been allowed by the
courts.4

So, when the business of the form is discontinued at one place or extended to a new place (Section 60),
or when a partner changes his name or permanent address (Section 62), or when the firm is dissolved,
or a partner retires or joins or a minor having been admitted elects to become or not to become a
partner, the registrar should be informed (Section 63).

In Shubash Chandra v Asstt Registrar of Firms Societies and Chitts, the firm was reconstituted by
the remaining partners after the retirement of some of them and there was a provision in the agreement
that the firm will not to be dissolved on such a happening, the registration of the form by the registrar
was held to be proper.

There is a definite distinction between the certificate of registration given to a registered firm and any
alteration in the membership of the firm to be entered in the register. This suggests in no uncertain
terms are the changes in the membership of the firm will not affect the registration once made. It is not
required that every time a new partner is introduced a fresh registration has to be applied for and
obtained. As held by the SC in, Sharad Vasant v Ramnikal Mohanlal Chowda5the omission to give
notice of alteration will have this devastating effect that the ability of the firm and its partner

for legal proceedings will become affected in the same manner as if the firm was not registered.

Section 64 of the act states that the registrar always has the power to rectify any mistake in order to
bring entry in the register relating to any firm into conformity with documents relating to that firm.
The registrar can use this power suo moto or on an application of any other person including any
3
Registrar of Firms v. Tarun Manna, AIR 2010 Cal 79
4
Harjan Boat House v Registrar of Firms AIR Guj 168
5
1998 2 SCC 171
partner of the firm. The Registrar shall also be bound to make any amendment(s) in the entry of
Register of firms relating to a firm as ordered by a court deciding any matter relating to registration of
the said firm u/s 65.

Penalty for false particulars (Section 70) : The statements in the application form for amending
forms and in notice sent to the registrar should be true and complete. If any person knowingly or
without belief in its truth furnishes false or incomplete information, he is liable to a penalty u/s 70 of
the act which may amount to three months imprisonment or fine or both.

Rules of Evidence (Section 68): Section 68 of the act provides that any statement, notice or
intimation recorded with the registrar by any person is a conclusive proof against him of the facts
stated.

EFFECTS OF NON REGISTERATION OF FIRM

The provisions regarding the effects of non-registration of a firm are provided by Section 69 of the
Partnership Firm ,1932.

Section 69: EFFECT OF NON-REGISTRATION.

(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 realize
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 realize 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 realize the
property of a dissolved firm.

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

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

(b) the powers of an official assigned, receiver or Court under the Presidency Towns Insolvency Act,
1909, or the Provincial Insolvency Act, 1920, to realize 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 claim.

Registration not compulsory

Registration of firms is not compulsory. It is optional and there is no penalty for non-registration. Yet
registration becomes necessary at one time or the other, because section 69 seriously cuts short the
capacity of an unregistered firm and its partner to sue. The firm cannot for example sue any person for
the price of the goods supplied by it. 7The disability is too great a compelling force to bring the firm to
the register. As held in the landmark case of disabilities caused by this section Raptakos Bren &Co
 Ltd. v. Ganesh Property6, the are in the nature of a penalty for non-registration and therefore, the
provisions have to be strictly construed so as to cause only that much disability as seems to have
been legislatively sanctioned.

The effects of non-registration may now be stated:

1. Suits between Partners and Firms {Section 69(1)}

A partner of an unregistered form cannot sue the firm or his present or past copartners for the
enforcement of any right arising from a contract or conferred by the Partnership Act. Only a partner of
a register firm whose name appears in registration can sue for the enforcement of such rights. The
provisions of section 69 regarding this aspect are mandatory. This difficulty may be overcome by
getting the firm registered before an action is brought. But once a dispute between the partners has
arisen, all of them may not sign the application form and subsequently the firm may remain
unregistered. It is therefore advisable to have the form registered as soon as it is constituted.

In the case of P Ananda Rao v G. Raja Rao9, decided by the Andhra Pradesh high court, on the death
of a partner his interest devolved upon his sons who became partner. But this change was not
registered with the registrar and therefore for purposes of suit the firm became an unregistered firm.
The son found that the other partner sold his interest to an outsider. This was a breach of the
partnership agreement which provided for sale only to other partners. The sons attempted to enforce
the partnership agreement, but the suit was not allowed. The contention that they should be permitted
to sue as co-owners of the property was also not accepted. The only chance was dissolution and then
to realize the assets of the dissolved firm.

2. Suit between Firm and Third parties

An unregistered firm cannot sue any third party for the enforcement of any right arising from contract.
A suit can be brought only by or on behalf of a registered form and that also why persons whose name
appear as partners in the register of firms full stop where a firm is reconstituted the intimation of
reconstitution has to be given to the registrar within a reasonable time. An unregistered firm cannot sue

6
1998 7 SCC 184
 any third party for the enforcement of any right arising from contract.

As observe by SC in Shreeram Finance Corporation v Yasin Khan7a suit can be brought only by or
on behalf of a registered firm and that also by persons whose name appear as partners in the register of
firms.

In Vijay Kumar v Shrimram Industries 8, where a suit was filed by two partners but the name of one
of them was not there on the certificate of registration the court said that the suit was not maintainable.

This disability once again can be overcome by getting the form registered before an action is brought.
The action of an unregister ed firm is however liable to be dismissed and it cannot be rectified by
subsequent registration. A fresh suit will have to be filed after registration provided that is still within
the period of limitation.

The name of those filing a suit must appear in the registration. Thus, the Supreme Court laid down that
where on account of admission of some new partners and of some minors into the benefit of the firm
there was a discrepancy between the names on the register and the names included in suit was not
maintainable.9 This disability cannot allowed to be overcome by converting the action by amendment
of the plaint and substituting the names of individual partners as claimants in place of the firm while
the whole tenor of the body of the plaint showed the firm as the claimant and there was nothing to
show how and in what capacity the money was owed by the third party to the partners. The court held
that the action must fail.

3. Set off and other proceedings

The above two disabilities also apply to a claim of set off or other proceedings to enforce a right
arising from a contract. A 'claim of set off' means that if for example an unregistered firm is sued by a
third party to recover a sum of money the firm cannot say the money owing by that third party to the
firm should be a set off against the claim. The words "other proceedings" had created some difficulty
as to their import particularly in reference to the question where they included arbitration proceedings.
The supreme court by its decision in Jagdish Chandra Gupta versus Kajaria traders (India) Ltd10
7
1989 3 SCC 476
8
AIR 2017 MP 16

9
Shriram Finance Corp v Yasim Khan 1989

10
AIR 1964 SC 1882
settled the controversy. A clause in a deed of partnership provided that in case of a dispute between the
partners the matter would be referred to arbitration. A dispute having arisen one partner appointed an
arbitrator to which the other partner gave no response. An action was then comments to enforce the
arbitration clause of the agreement. The other partner contended that the form was not registered and
therefore the suit should be dismissed. The SC held that the suit was not maintainable. It is impossible
to think that the right to proceed to arbitration is not one of the rights which are founded on the
agreement of the parties. The words of section 69(3)” or other proceedings to enforce a right arising
from a contract” are sufficient to cover the present matter. This is a welcome decision if arbitration
proceedings were allowed, and unregistered form would by providing for arbitration in the partnership
deed is kept the disability contained in this section.

But where the arbitration clause in an agreement between an unregistered form and the other party was
activated and it resulted in an award the M.P. High Court allowed enforcement of the award and the
supreme court did not disturb this order. The court and the award had gone beyond the stage of the
agreement. It was then an award which sought to be enforced and not an agreement.11

11
Komal Pushp Enterprises v D.R. Constructive Co. (2000) 6 SCC 659
 Exceptions

Actions for dissolution and accounts- Firstly, an unregistered firm in its partners can bring an action
for the dissolution of the firm or for accounts. They can also enforce any right or power to release the
property of dissolved firm. Thus, the disability to sue disappears with the dissolution of the firm. A
and B purchase the taxi to ply it in partnership. They had done business for about a year when A
without the consent of B disposed off the taxi. B brought an action to recover his share in the sale
proceeds. A's only defense was that the firm was not registered. The court held that the business
having been closed on the sale of the taxi the action was for the realization of the Assets of the
dissolved firm and therefore maintainable.12

Recovery of insolvent's share: Secondly the official assignee receiver for Court acting for an
insolvent partner may bring an action for realization of the insolvent's share whether the firm was
registered or not.

Value of suit Rs 100: Thirdly an unregistered form or its partner may sue or claim a set of the
subject matter of the suit does not exceed Rs 100 value.

Statutory and non-contractual rights: Fourthly statutory and non-contractual rights are outside the
scope of the disability inflicted by this section. If a person damages the property of the firm, he can be
sued whether the form is registered or not. Thus, an unregistered firm may allowed to sue to enforce
the payment of a cheque in its capacity as a pair it being a statutory right under the Negotiable
Instruments Act.

Criminal proceedings: Criminal prosecution under section 138 Negotiable Instruments Act, 1881 for
dishonor of a cheque is not in the nature of a civil suit thus the bar of section 69 would not prevent an
unregistered firm from launching a prosecution under the act.

Suit by third parties Lastly third parties can always sue a firm whether registered or not. The
disability is that of the firm and not of persons outside it.

Non partnership matters: Where there is no evidence of a partnership example a lender a green to
take a share of the profits and losses of a business proceeding for the recovery of the loan would not
attract the provisions of section 69.

12
S. Ahmed Khan v. Turup Muhamed Hayat. AIR 1953 Mys 4
 CONCLUSION

Registration of a firm is affected by the Registrar of Firms by recording in the Register of Firms an
entry of the statement relating to registration furnished to him. The does not make the registration of
the firm compulsory, yet the effect of the rules relating to the consequences of non-registration is such
as practically necessitates the registration of the firm at one time or other.

Certain disabilities have been imposed on partners of an unregistered firm seeking to enforce certain
claims in the Civil Courts; and any partner who is not registered is not able to enforce his claims either
against third parties or against the fellow partners. An unregistered partner may, however, sue for the
dissolution of the firm or for accounts only if the firm is already dissolved.
 BIBLIOGRAPHY

BAREACT
 The Partnership Act, 1932

BOOKS
 Avatar Singh, Business Law 391, (EBC Lucknow, 11th Ed.)

 K.C.Garg V.K. Sareen, Business Laws (Kalyani Publications 1st Ed.)

WEBSITES

 https://blog.ipleaders.in/consequence-non-registration-firms/

 https://blog.ipleaders.in/registration-of-firms-under-the-indian-partnership-act/