PROJECT REPORT SUBMITTED AS A PART OF INTERNAL ASSESSMENT FOR SEMESTER

7 FOR THE SESSION 2024-2025

FOR THE SUBJECT OF BUSINESS LAWS

TOPIC: REGISTRATION AND EFFECTS OF NON REGISTRATION

SUBMITTED TO : SUBMITTED BY:

MS.ATAMBIR , MS.NIKITA SRISHA R. MAHENDRU

ASSISTANT PROFESSOR. SEM 6-B.A.LL.B (HONS.)

UNIVERSITY INSTITUTE OF LEGAL STUDIES ROLL NUMBER: 157/21

PANJAB UNIVERSITY,CHANDIGARH.
 ACKNOWLEDGEMENT

I Srisha R Mahendru, am overjoyed as it brings me great pleasure to work and

research on the subject of REGISTRATION AND EFFECTS OF NON REGISTRATION .
After researching on this project for a while I have gained invaluable insight and
reached a successful conclusion. In acknowledging the help I have received from
others in the work presented here, I must begin by recalling my sincerest appreciation
to my teachers MS.ATAMBIR and MS.NIKITA who enlightened me to elucidate and
ponder over the research topic. Without his help, it would have been impossible for
me to string even a few paragraphs.

I would also like to extend my warmest gratitude to the staff and administration of
University Institute of Legal Studies who provided to us online resources for research
to get quality information on the subject that have been a great help to me.

I would also like to convey my heartfelt regards to my parents for their motivation
and support at all times along with my friends who have helped me throughout this
great experience.

Thank You

Srisha R Mahendru
 Table of Contents
Table of Contents 3

Introduction 4

When is partnership registered 5

Statutory Provisions for registration under the Indian Partnership Act 5

Advantages of registration 8

Procedure of Registration 10

Effect of Non-Registration of a Partnership Firm 11

Conclusion 14
 Introduction

The fundamental premise of understanding of the statutory provisions associated with the area of
partnership is principally derived from the understanding of the Indian Partnership Act 1932. This
was one of the earlier precedent set in the Indian statutory history which fundamentally evaluates
and analyses the critical junctures associated with the process of partnership in India. However this
is essentially a relic of our colonial past which is undoubtedly a no forged one. The fundamental
notion of partnership as an act of mutual trust is essentially not codified.

However, the principle notion associated with the development of such is act is critically evaluated
as major milestone in the statutory history of Indian jurisprudence which undoubtedly requires
major changes in its modus operandi. Although many judicial precedents have been in resolute,
however none of them have critically made a justification. The fundamental notion of this
understanding is based on the fact that partnership as an act is invariably based on the fact that
partnership as an act requires a factor of mutual trust and dignity in an amicable manner which is
needed in an amicable manner and can’t be forfeited. However a codification of such a document
requires an invariable amount of flexibility as it necessitates a laudable amount of combination of
statutory compliance and values.1 However in a rapidly changing business environment where the
impersonal business entity such as a company are in prominence, the concept of partnership as a
business needs much modification to gain legitimacy and value in changing business environment.

Having said that, among the number of pros and cons, the legitimacy of the partnership as a
business entity needs particular speculation and analysis of the business environment as a new form
of business known as the “Limited Liability Partnership” has evolved into a mainstream business
establishment model where the concerned business developers can opt for a relative term of risk and
liability which was fundamentally missing in the partnership agreement and was a much needed
change, which is particularly appreciated by the business communities across the world for the
amount of flexibility it provides for the new business commodities such as startups and other
ventures.2

1.Madhusudan Saharay, Textbook on Indian Partnership Act with Limited Liability Partnership
Act (2010).
2PARTNERSHIP LAWS IN INDIA – AN OVERVIEW, Journal of Legal Research and Juridical Sciences,
VOL. 1 ISSUE 4
 When is 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 favouring 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.

Statutory Provisions for registration under the Indian Partnership Act

Section 56: Power to exempt from application to this chapter

“The State Government of any State may by notification in the Official Gazette, direct that the
provisions of this chapter shall not apply to that State or to any part thereof specified in
the notification. 3

The purpose underlying this provision was to exempt any undeveloped area to which its provisions
may not be suited. So section 56 authorises the State Government of any State to exempt
that State from the operation of this chapter, operation of the Act.

Section 57: Appointment of Registrars

Explain the appointment of Registrars.4

(1) The State Government may appoint Registrars of firms for the purpose of this Act and may
define the areas within which they shall exercise their powers and perform this duties.

(2) Every Registrar shall be deemed to be a public servant within the meaning of section 21 of the
Indian Penal Code, 1860 (XLV of 1860).

3 Section 56 of Indian Partnership Act,1935.

4 Section 57 of Indian Partnership Act,1935.
Provision has been made under this section regarding the appointment of Registrar. Powers have
been given to the State Government to appoint Registrar of firms for the purpose of this
Act and may define the areas within which they will exercise their powers. Sub-clause (2)
lays down that the Registrar shall be deemed to be public servant within the meaning of
section 21 of Indian Penal Code.

Section 58: Application for Registration5

What are the points which need to be mentioned in application for Registration.

(1) The Registration of a firm may be effected at any time by sending by post or delivering to the
Registrar of the area in which any place of business of the firm is situated or proposed to
be situated, a statement in the prescribed form and accompanied by the prescribed fee
stating—

(a) the firm name,

(b) the place or principal place of business of the firm,

(c) the name of any other places where the firm carries on business,

(d) the date when each partner joined the firm,

(e) the names in full and permanent addresses of the partners, and

(f) the duration of the firm.

The statement shall be signed by all the partners, or by their agents specially authorised in their
behalf.

(2) Each person signing the statement shall also verify it in the manner prescribed.

(3) A firm name shall not contain any of the following words namely—

“Crown “Emperor”, Empress, Empire, Imperial, King, Queen, Royal or words expressing or
implying the sanction, approval or patronage of Government except cover the

5 Section 58 of Indian Partnership Act,1935.

 State Government signifies its consent to the use of such words as part of the
firm name by order in writing”.

This section gives executive directions which speaks plainly for themselves. It can be taken to have
been settled that the registration of a firm takes place only when the necessary
entry is made in the Register of firms under section 59 by the Registrar.

Section 59: Registration

Define section 59

“When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he
shall record an entry of the statement in a register called the Register of firms, and shall
file the statement.” 6

Arvind Construction Co. Pvt. Ltd. v. Kalinga Mining Corporation: 7

“The Supreme Court held that re-registration of firm in the same name does not affect its status. In
this case, the firm had been constituted in the year 1949. The appellant
company had a contract with the said firm. It was being reconstituted from
time-to-time. The fact that foolish or otherwise, a firm in the same name was
again registered in the year 2005. It was held that it does not affect the status of
the firm.

This section lays down that the Registrar shall record an entry of the statement in the register
known as Register of firms only when he is satisfied that the provisions of this section
have been duly complied with.

6 Section 59 of Indian Partnership Act,1935.

7 MANU/SC/7697/2007 : AIR 2007 SC 2144
 Advantages of registration

Benefits to Partner

Any partner of the firm can sue the other partner, ex-partner or the firm when there is a dispute
arising out of the partnership deed which is a contract or any right arising out of the partnership act
for such purpose. On the contrary, the partner can’t exercise such powers if the firm is not
registered.

If partners wish to file a suit against any third party to exercise any right arising out of a contract or
any other legal instrument, it is necessary that the firm is registered and partner so doing must be a
partner whose name is registered in the register of firms. The same does not apply for third parties
to sue against a firm. 8

However, this immunity does not apply in case of criminal liability of the partner against others.

Partners of a registered firm can exercise their right to set-off debt against creditors.

Illustration: if x firm and a creditor y mutually owe Rs 20,000 to each other then the firm shall
exercise the power of set-off their debt against y’s outstanding debt.

Benefits to creditors

A creditor shall on-demand request any partner to repay the debts of the firm. All the partners who
have their names written on the deed are equally responsible to repay the debt to the third party.
This allows the creditors to claim their money due to them by the firm.

Since creditors enjoy such benefits from the registered firm, the credibility of the firm increases
drastically. Though both registered and unregistered firms are valid in the eyes of law, creditors
prefer to advance loans to such type of firms.

8 Barathwaz T,Registration of Firms under the Indian Partnership Act ,ipleaders.com

Benefits to the work

The partnership has its own advantages and disadvantages when the firm feels the disadvantages of
the partnership form is greater than its advantages they tend to gravitate towards another form of
organization. This process shall be undertaken only if the firm is a registered firm.

A registered firm can claim tax benefits under the Income Tax Act, which can save a lot of bucks
that can be otherwise utilized for the growth of the firm.

Benefits to an incoming partner

The incoming partner shall enforce his dues against the existing partners if defaulted. If there is no
registration of the firm the same shall not be enforced against the existing partners.9

Again, this increases the credibility of the firm in the eyes of others. This credibility is very
important to the firm as an incoming partner does not only share the profits but also contributes
additional capital to the firm. A simple registration can cost a fortune. The registration of
partnership cost somewhere around Rs 3000 to 6000. 10

9 ibid
10 rof.mahaonline.gov.in
 Procedure of Registration
According to the India Partnership Act 1932, there is no time limit as such for the registration of a
firm. The firm can be registered on the date when it is incorporated or any such date after so. The
requisite fees and fines must be paid. The procedure for such a registration is as follows,

1] Application to the Registrar of Firms in the prescribed form (Form A). Nowadays this facility is
even available online. Such an application must contain certain basic details about the firm such as,

• Name of the Partnership Firm

• Name and address of all partners

• Place of business (address of main and branch offices)

• Duration of the partnership

• Date of joining of partners

• Date of commencement of business

2] The duly signed copy of the Partnership Deed (which contains all the terms and conditions) must
be filled with the registrar

3] Deposit/pay the necessary fees and stamp duties

4] Once the registrar approves the application, the firm will be entered into the records. And the
registrar will also issue a certificate of incorporation.

And this is how the process of registration will be completed and the firm will attain legal
recognition. 11

11Registration_of_Partnership_Firm_Checklist, pbindustries.gov.in
 Effect of Non-Registration of a Partnership Firm
Partnership Act of 1932 does not require partnership licensing, the suggestion that partnership firms
be registered should cause one to consider the advantages and disadvantages of not doing so. The
Act gently exerts convincing demand on partnership businesses to register. The Act’s Section 69
outlines a few drawbacks of failing to register the business. This section outlines the drawbacks of
not registering the partnership and is fairly detailed and explanatory. Perhaps the statute’s purpose
was to make registering partnership firms quietly compulsory.

Section 69 of the Indian Partnership Act: Effect of Non registration 12

It is not required for businesses to register. There is no cost associated with not registering, and it is
voluntary. English law mandates mandatory registration. But in this case, it wasn’t done so. It
would have been too extreme and would have presented new challenges. However, registration is
eventually required since Section 69 severely restricts the ability of an unregistered business and its
members to bring a lawsuit. For instance, the business is prohibited from suing anyone over the cost
of the items it provides. Section 69 has a required nature. Its result is that a partner will not be able
to sustain a lawsuit about a right that was granted to him or obtained below a contract whenever he
joined as a partner. Third parties are protected by licensing from fictitious claims of association and
responsibility avoidance. Registration serves as a definitive documentation of the identity of any
partners and the make-up of the partnership. The firm or the suing partner has the burden of
demonstrating that the firm is listed as stipulated by the Act.

What are the consequences of the non-registration of 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 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.

2) (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.

12 Section 69 of Indian Partnership Act,1935

 3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set off or other
proceeding to enforce a right arising from a contract, but also not affect,—. (a) the
enforcement of any right to sue 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, or (b) the powers of an
official assignee, receiver or court under the Presidency Towns Insolvency Act, 1909 (3 of
1909) or the Provincial Insolvency Act, 1920 (5 of 1920) to realise the property of an insolvent
partner.

4) This section shall not apply—

This section lays down a nugatory principle. It means that no action will lie against partners or
even against third person when the rm is not registered. Court is bound to observe this
principle and no amount of agreement between partners can change. It is not only necessary
that the rm should be registered but it is also necessary that all partners at the time of
institution of suit must be or have been shown as such in the Register of rms.
Badrimal Ramcharan & Co. v. Gana Kaul13: The object of this section is to make sure that the
general policy of the Legislature that all partners should be registered should be carried out.

It may be noted that Partnership Act neither makes the registration of a firm compulsory nor does
impose any penalties for non-registration. However, it provides certain disabilities for an
unregistered firm and partners of such a firm or the partners whose names have not been shown as
registered partners even though the firm is registered.

Krishna Motors Service v. H.B. Vittala Kamath14: Section 69 is mandatory in nature. Its effect is
to render a suit by a partner in respect of a right vested in him or acquired under a contract which he
entered into as a partner to be maintainable.

(1) Suits between partners and firm – Sub-section (1)

If a firm is not registered whether a suit can be instituted by or against the firm?
According to section 69(1), no suit to enforce a right arising from a contract or conferred by the
Partnership Act can be instituted in any court unless the following two requirements are satisfied—
(i) the partnership firm is registered, and
(ii) the partners filing the suit have been shown in the Register of firms as the partners of the firm

13 AIR 1987 All 152

14 MANU/SC/0558/1996 : (1996) 10 SCC 88,AIR 1996 SC 220
fi
fi
fi
Loonkaran Sethia v. Mr. Iva E. John15: The the Supreme Court observed —“A bare glance at the
section is enough to show that it is mandatory in character and its effect is to render a suit by a
plaintiff in respect of a right vested in him acquired by him under a contract which he entered into
as a partner of an unregistered firm whether existing or dissolved void.
In other words, a partner of an erstwhile unregistered partnership firm cannot bring a suit to enforce
a right arising out of a contract falling within the ambit of section 69 of the Partnership Act.

(2) Suit only by an authorised person, to illustrate the same is the case of Popular Auto Mobiles v.
G.K. Channi16:
The suit was filed on behalf of the firm. The plaint was signed by the manager of the firm. No
power-of-attorney was given to him by the firm to verify and sign plaint on behalf of the firm, nor
his name appeared in the Register of firms as a partner. It was held that the suit was bad for non-
compliance of mandatory provision contained in section 69(2) requiring the filing of the suit by a
partner or an authorised person. Such suit is liable to be dismissed. Such defect cannot be cured by
subsequent incorporation of verification and signatures by a partner.

(3) Suits between firm and third parties section 69(2)

Section 69(2) deals with enforcing claims by the firm against third parties, and prohibits the
enforcing in a suit of any right arising from a contract against a 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.
One important point is to be noted in connection with this rule. This section does not affect the right
of a third party to proceed against the firm or its partners even though unregistered, nor does it
affect the right of the official assignee to realise the property of an insolvent partner.
It is also important to note that the Act does not lay down that any transaction of an unregistered
firm will be invalid, it merely says that a firm will not be allowed to take the assistance of a civil
court, except upon the condition precedent that it is registered.
Registration may be affected by a firm at any time before filing a suit or taking other civil
proceedings in a court against third parties.

15 MANU/SC/0048/1976 : AIR 1977 SC 336

16 MANU/KE/0119/2001 : AIR 2002 Ker 33
 Conclusion
The benefit given to the unregistered business is nevertheless unfortunate because they lack the
fundamental absolute right to operate as a firm. It has been noted that a company’s operation is
more complicated than a firms. The company will not consider doing business with an unregistered
corporation. In the perspective of the law, a corporation that has not through the registration process
does not even exist. The Indian Partnership Act of 1932 gave unregistered firms extensive
privileges despite the fact that being unregistered has several restrictions.

The main reason that many firms choose a partnership firm is because it is simple to set up and does
not need to be registered. However, the partners will pay a steep price if they decide to ignore it and
do nothing about it. Unregistered partnership firms are nonetheless lawful in the eyes of the law and
are still able to conduct business as usual, but they come with a lot more drawbacks than positives.
A business can’t operate in an ideal environment for very long since it is prone to dispute. When
this happens, the business and its associates will need to take legal action to resolve the issue, which
they wouldn’t be able to do without the firm’s registration. As a result, the partners must use caution
in their decision-making and establish their partnership business as soon as possible.