Registration of Partnership Firm in India and Effect of Non-registration of Partnership Firm

Introduction

Registration means to get the partnership firm registered with the registrar of the firms. Before the registration of the partnership firm in India. Now the registration of partnership firms is governed by the Indian Partnership Act, 1932. This present Act made the registration of a partnership firm optional entirely at the discretion of the partners.

Types of Partnership Firms

Under the Partnership Act it is not necessary for every partnership firm to get itself registered. The partnership business is regulated under Indian Partnership Act, 1932 which prescribes two types of partnership firms:

• Unregistered firms, and
• Registered firms.

An Unregistered firm is formed by entering into an agreement between two competent persons, known as partners, where the firm is not registered with the registrar of the firms.

Whereas the firms which subsequently get registered with the registrar of the firms by submitting the copy of partnership deed is known as Registered Partnership Firm.

Chapter VII (Section 56-71) of the Indian Partnership Act, 1932 deals with Registration of partnership firms.

Laws governing registered Partnership Firms

An overview of the sections 56-71 is as follows:

• Sec. 56: Power to exempt from application of this Chapter.
• Sec. 57: Appointment of Registrars.
• Sec. 58: Application of Registration.
• Sec. 59: Registration.
• Sec. 60: Recording alterations in firm name or principal place of business.
• Sec. 61: Noting of closing and opening of branches.
• Sec. 62: Noting of changes in names and addresses of partners.
• Sec. 63: Recording of changes in and dissolution of the firm & Recording of withdrawal of a minor.
• Sec. 64: Rectification of mistakes.
• Sec. 65: Amendment of Register by order of Court.
• Sec. 66: Inspection of Register and filed documents.
• Sec. 67: Grant of Copies.
• Sec. 68: Rules of evidence.
• Sec. 69: Effect of non-registration.
• Sec. 70: Penalty for furnishing false particulars.
• Sec. 71: Power to make rules.

Now for the better understanding of the sections we are going to elaborate these sections.

Section 56 talks about the power of the State Government to exempt the application of chapter VII in that particular state or to any part of it.

NOTE: State can do so by notification in the official gazette.

Section 57 talks about the appointment of the registrar that the State Government may appoint Registrars of Firms for the purpose of this Act. And may define areas within which they shall exercise their powers and perform their duties.

Also, it states that every registrar shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code.

Application for Registration of a Partnership Firm (Section 58)

Section 58 and 59 deal with the procedure of registration of partnership firms. The form along with registration fees needs to submitted to Registrar of Firms who has been appointed in consonance with Sec. 57 by the State government.

The partnership firm registration may be affected at any time by sending or by post or by delivering to the registrar of the area. It is not essential that the firm should be registered from the very beginning.

When the partners decide to get the firm registered, as per the provisions of the section 58 of the Indian Partnership Act,1932 they have to file the statement in the prescribed form. The statement must be accompanied by the prescribed fee stating-

• The firm’s name,
• The principal place of business,
• The names of its other places of business,
• Date of joining of each partner,
•  Names in full and permanent addresses of the partners, and
• Duration of the firm.

The aforesaid statement is to be signed by all the partners or by their agents specially authorizes in this behalf.

When the registrar is satisfied that the above-mentioned provisions have been complied, he shall record an entry of this statement in the register and shall file the statement[1].

Recording of Alteration in Firm Name and Principal Place of Business (Section 60)

When an alteration is made-

• In the firm name or
• In the location of the principal place of business of a registered firm.

A statement may be sent to the registrar specifying the alteration and signed and verified in the manner required under section 58 accompanied by the prescribed fee.[2]

When the registrar is satisfied that the provisions of sub-section (1) have been duly complied with, he shall amend the entry relating to the firm in the register of firms.[3]

NOTE: Subsequent alteration as alteration in the name, place, constitution, etc., of the firm that may occur during its continuance should also be registered.

Noting of Closing and Opening of Branches (Section 61)

When a registered firm discontinues business at any place or begins to carry on business at any place-

Any partner or agent of the firm may send intimation thereof to the registrar, who shall make a note of such intimation in the entry relating to the firm in the Register of Firms and shall file the intimation along with the statement relating to the firm filed under section 59.

How the Change in The Name and Address of Partners is Made? (Section 62)

When any partner in a registered firm alters his name or permanent address-

An intimation of the alteration may be sent by any partner or agent of the firm to the registrar, who shall deal with it in the manner provided in the manner provided in section 61.

Rectification of Mistakes (Section 64)

The registrar shall have power at all times to rectify any mistake in order to bring the entry in the register of firms relating to any firm into conformity with the documents relating to that firm filed under this chapter.

On application made by all the parties who have signed any document relating to a firm filed under this chapter, the registrar may rectify any mistake in such document or in the record or note thereof made in the register of firm.

Register and Filed Documents Can Be Inspected

Section 66 gives power that-

The Register of Firms shall be open to inspection by any person.[4]

All statements, notices and intimations filed under this chapter shall be open to inspection.[5]

NOTE: The information is subject to be provided on such conditions and on the payment of such fee as may be prescribed.

Effect of Non-Registration of Partnership Firm

Under the English law, the registration of firms is compulsory. Therefore, there is penalty for non-registration of firms. But the Indian Partnership Act does not make the registration of the firms compulsory nor does it impose any penalty for non-registration.

However, under section 69, the consequences of non-registration of partnership firm includes a number of disabilities which are as follows:

1. No suit to enforce rights arising from a contract under this Act- A firm which has not undergone the process of incorporation cannot file a suit against any other firm or third party. A non-registered firm does not have the privilege to file a suit like all other registered firms. Another important essential about this sub-point is that the person or the third party suing the non-registered firm shall be already registered in the register as a firm.
2. No proper relief- If the firm is not registered, the claim exceeding ₹100 cannot be set off by a third party, so there is no relief in this regard to the party. Such a right can be only enjoyed by the registered firm.
3. Partners cannot bring legal action against each other– An aggrieved partner of an unregistered firm cannot bring legal action towards each other as they are in no position to file a suit in the court or have the power to enforce any right.

The high court dismissed the petition on the grounds of sec 69(2) as the plaintiff was not a registered firm thus the suit was not maintainable. [6]

Hence, it is strongly recommended to register the partnership firm with the registrar of firms (ROF). An unregistered firm can be registered at any time. Every state government has established the office of the registrar of firms, which is vested with the powers to register the firm and issue the Certificate of Registration of the Firm and a copy of the extracts of the register of firms where the partnership name has been entered.

Rights Not Affected By Non-Registration of Partnership Firm

Non-registration of the partnership firm does not affect the following rights:

1. The right of the partner to sue for dissolution of the firm or for accounts of and his share, the dissolved firm.

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

3. Suits not exceeding ₹100.

4. The power of an official assignee to realise the property of an insolvent partner.

5. Suits arising otherwise than under a contract, for example, a suit against the third party for infringement of trademarks of the firm.

To know the rights of partners under the Indian Partnership Act, click here.

What Is the Penalty for Furnishing False Particulars?

Section 70 of this chapter defines the penalty for furnishing false particulars.

When a person signs any statement, amending statement, notice or intimation under this chapter which he knows to be false – shall be punishable with imprisonment which may extend to three months or with fine or with both.

Payment of Stamp Duty

As per section 71 of the act, the State government is free to make rules regarding the fess to be given to the registrar along with the other documents for registration. Different states impose different stamp duty on the partnership agreements/deeds, it means while creating a partnership deed the partners must purchase stamp paper of appropriate value as may be applicable in in the respective state, to be annexed with the agreement.

Advantages of Registration of a firm

The registration of a firm is done not only for the benefit of the firm but also for those who deal with it. The following benefits are obtained from the registration of a firm:

1. Benefits to the Firm: The firm gets an unmitigated right towards the third parties in civil suits for getting its rights discharged. In the non-existence of registration, the firm is not entitled to sue outside partners in courts.

The mandatory requirements to be fulfilled before a suit against third party can be filed to enforce contractual rights by the firm or on behalf of the firm are-

(a)that the firm must be a registered firm and

(b)that the persons suing are or have been shown in the Register of Firms as partners of the firm.[7]

2. Benefits to Creditors: A creditor can employ any partner for recuperating his money due from the firm. All partners whose names are set in the registration are personally accountable to the unknowns. So, creditors can restore their money from any partner of the firm.

3. Benefits to Partners: The partners can seek the help of a court of law against each other in case of disagreement among partners. The partners can sue external parties also for restoring their amounts, etc.

4. Benefits to Incoming Partners: A new partner can contest for his rights in the firm if the firm is registered. If the firm is not registered then he will have to rely upon the trustworthiness of other partners.

5. Benefits to Outward-bound Partners: The registration of a partnership firm acts as an advantage to the outward-bound partners in numerous ways. The outward-bound partners may be divided into two categories:

(a) On the demise of a partner,

(b) On the superannuation of a partner.

On the demise of a partner his heirs are not accountable for the obligations acquired by the firm after the date of his demise. In case of a superannuation partner, he remains to be accountable up to the time he does not give public notice. The public notice is not recorded with the Registrar and he terminates his liabilities from the date of this notice. So, it is vital to get a firm registered for getting this benefit.

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.

For More Articles On Partnership Act, Click Here.

For Notes On Other Subjects, Click Here.

For Case Briefs And Analysis, Click Here.

[1] Section 59

[2] Sub-section 1 of Section 60

[3] Sub-section 2 of Section 60

[4] Section 66 (1)

[5] Section 66 (2)

[6] Pradhan Traders v Balaji Provision Stores, 2015

[7] Dwijendra Nath Singh V. Govind Chandra, 1952.

Author Details: Ayushi Saraswat. (Final year LLB Student at Y.C. LAW COLLEGE, Pune, Maharashtra).