Registration of Partnership Firm in India and Effect of Non-registration of Partnership Firm | Law Optional Notes for UPSC PDF Download

Introduction

Registration involves the formal process of getting a partnership firm officially registered with the registrar of firms. In India, the registration of partnership firms is governed by the Indian Partnership Act, 1932. Initially, the Act left the decision of registration as optional and entirely up to the partners.

Types of Partnership Firms

According to the Indian Partnership Act, 1932, not every partnership firm is required to undergo registration. The Act outlines two main types of partnership firms:

• Unregistered firms
• Registered firms

Unregistered Firms

• An unregistered firm is established through an agreement between two capable individuals, referred to as partners. 
• In this type of firm, registration with the registrar of firms is not pursued initially.

Registered Partnership Firm

• A Registered Partnership Firm is one that later chooses to register with the registrar of firms by submitting a copy of the partnership deed. This formalizes the existence of the partnership in a legal context.
• Chapter VII (Section 56-71) of the Indian Partnership Act, 1932 specifically addresses the process and requirements for the registration of partnership firms.

Laws Governing Registered Partnership Firms

An overview of the regulations from sections 56 to 71 is essential to understand the governance of registered Partnership Firms.

• Sec. 56: This section grants the authority to exempt from the application of this Chapter.
• Sec. 57: Involves the process of appointing Registrars for the firms.
• Sec. 58: Deals with the application of Registration for the partnership.
• Sec. 59: Focuses on the Registration process itself.
• Sec. 60: Involves the recording of alterations in the firm's name or principal place of business.
• Sec. 61: Covers the noting of closing and opening of branches.
• Sec. 62: Involves noting changes in names and addresses of partners.
• Sec. 63: Concerns recording changes in and dissolution of the firm & withdrawal of a minor partner.
• Sec. 64: Involves rectification of mistakes in the firm's records.
• Sec. 65: Details the amendment of the Register through a court order.
• Sec. 66: Covers the inspection of the Register and filed documents.
• Sec. 67: Involves the granting of copies of key documents.
• Sec. 68: Details the rules of evidence applicable in partnership matters.
• Sec. 69: Discusses the implications of non-registration of the partnership.
• Sec. 70: Outlines penalties for providing false information during registration.
• Sec. 71: Empowers the formulation of rules governing partnership firms.

For a clearer comprehension of these sections, let's delve deeper:

Elaboration of Key Sections

• Sec. 56: Power to Exempt: This section provides the authority to waive certain regulations for specific cases. For instance, small partnerships may be exempt from certain formalities to ease administrative burdens.
• Sec. 59: Registration Process: Registration is a crucial step where the partnership formalizes its existence under the law. It involves submitting necessary documents and information to the relevant authorities.
• Sec. 64: Rectification of Mistakes: In case of errors in the partnership records, this section allows for corrections to be made to maintain accurate and updated information.
• Sec. 69: Effect of Non-Registration: Non-registration can have serious consequences, such as the partnership not being able to enforce its rights in a court of law. It is vital for partnerships to comply with registration requirements to avoid legal pitfalls.

Section 56: Power of the State Government

• Section 56 discusses the authority of the State Government to exempt the application of chapter VII within a specific state or any of its parts.
• Note: The State government can do this through an official notification in the gazette.

Section 57: Appointment of the Registrar

• Section 57 deals with the appointment of Registrars of Firms by the State Government as required by the Act.
• It further mentions that the State Government has the power to define the areas within which these Registrars will exercise their powers and fulfill their duties.
• Additionally, it specifies that every registrar is considered a public servant as per the meaning in section 21 of the Indian Penal Code.

Registration Process for a Partnership Firm

Applying for the registration of a partnership firm (as per Section 58) involves a specific procedure that needs to be followed diligently.
Below is a detailed explanation of the process:

• Submission of Form and Fees: To initiate the registration process, a form along with the requisite registration fees must be submitted to the Registrar of Firms. This official is appointed by the State government in accordance with Section 57.
• Timing of Registration: It is not mandatory for a firm to be registered from its inception. Registration can be pursued at any point by sending, posting, or delivering the necessary documents to the registrar of the area.
• Filing of Statement: When partners decide to register the firm, they are required to file a statement as per Section 58 of the Indian Partnership Act, 1932.
  This statement should include:
  • The firm's name
  • The principal place of business
  • Names of other places of business
  • Date of joining of each partner
  • Full names and permanent addresses of the partners
  • Duration of the firm
• Authorization and Verification: The statement mentioned above must be signed by all partners or by their authorized agents. This step is crucial for the validation of the registration process.
• Registrar's Approval: Upon satisfaction that all necessary provisions have been met, the registrar will officially record the statement in the register and proceed with filing the same.

It is important to ensure that all the required details are accurately provided in the registration process to establish the partnership firm effectively.

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

When changes are made to either the firm's name or the location of its main place of business:

• Changes can occur in the firm's name.
• Changes can occur in the location of the principal place of business of a registered firm.

A formal statement detailing the alteration needs to be submitted to the registrar. This statement must be signed and verified as per the requirements outlined in section 58 and should be accompanied by the necessary fee.

Once the registrar confirms that the requirements of the first subsection have been met, the entry pertaining to the firm in the register of firms will be updated.

Note: Any subsequent alterations such as changes in the firm's name, location, structure, etc., that may arise during its operation must also be officially registered.

Noting of Closing and Opening of Branches (Section 61)

When a registered firm ceases operations at a location or initiates operations at a new location:

• Any partner or agent can notify the registrar about this change.
• The registrar will update the Register of Firms with this information and attach the notification to the firm's records filed under section 59.

How Changes in Partners' Names and Addresses are Managed (Section 62)

When a partner in a registered firm changes their name or address:

• A partner or agent can inform the registrar about the alteration.
• The registrar will handle this information as outlined in section 61.

Rectification of Mistakes (Section 64)

• The registrar is empowered to correct any errors to ensure that the entry in the firm register aligns with the documents submitted.
• Upon request from all involved parties who signed a document related to a firm, the registrar can rectify any mistakes in the document or its record in the firm register.

Register and Filed Documents Can Be Inspected

• According to Section 66, the Register of Firms is accessible for inspection by anyone.
• All statements, notices, and communications submitted under this section are available for scrutiny.
• It's important to note that details will be provided under specific conditions and upon the payment of prescribed fees.

Consequences of Not Registering a Partnership Firm

Partnership Registration Requirement in English versus Indian Law: Under English law, firm registration is obligatory with penalties for non-compliance. In contrast, the Indian Partnership Act doesn't mandate registration or enforce penalties for non-registration.
Effects of Non-Registration According to Section 69:

• No Ability to Sue for Contractual Rights: An unregistered firm cannot file suits to enforce contract-related rights. This includes the inability to sue other firms or third parties unless the suing party is a registered firm themselves.
• Lack of Remedy for Claims over ₹100: Claims exceeding ₹100 cannot be offset by third parties against unregistered firms. Only registered firms can enjoy this right.
• Partners Unable to Initiate Legal Actions Against Each Other: Partners in an unregistered firm lack the legal capacity to take actions against one another in court or enforce any rights. An instance where a petition was dismissed by the high court under section 69(2) due to the plaintiff not being a registered firm highlights the importance of registration for maintaining legal standing.
• Recommendation for Registration: It is strongly advised to register a partnership firm with the Registrar of Firms (ROF) to avoid the various legal incapacities associated with non-registration. Registration can be done at any time through the state government's Registrar of Firms office. The Registrar issues a Certificate of Registration and provides a copy of the firm's entry in the register of firms, officially recognizing the partnership.

Rights Not Affected By Non-Registration of Partnership Firm

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

1. The partner's right to sue for the dissolution of the firm or for accounts of and his share in the dissolved firm.
2. The rights of the firm or its partners who do not have a place of business in India.
3. Suits that do not exceed ₹100.
4. The authority of an official assignee to liquidate the assets of an insolvent partner.
5. Suits arising from matters other than contracts, such as a lawsuit against a third party for the infringement of the firm's trademarks.

To understand the rights of partners under the Indian Partnership Act, further details can be found here.

Penalty for Providing False Information

According to Section 70 of the relevant chapter, individuals face penalties for providing false information. If a person knowingly signs any statement, amendment, notice, or intimation under this chapter that contains false details, they can be subject to:

• Imprisonment for up to three months
• A fine
• Both imprisonment and a fine

Payment of Stamp Duty

• As outlined in Section 71 of the act, the state government has the authority to establish rules concerning the fees required to be submitted to the registrar along with other registration documents. 
• Different states impose varying stamp duties on partnership agreements and deeds. This means that when creating a partnership deed, partners must obtain stamp paper of the appropriate value as per the respective state's regulations, which should be attached to the agreement.

Advantages of Firm Registration

Registering a firm offers numerous benefits, not only to the firm itself but also to those engaging with it. The advantages of firm registration include:

• Benefits to the Firm: When a firm is registered, it gains an unequivocal right in civil suits against third parties to enforce its rights. Without registration, the firm lacks the ability to take legal action against former partners in court.
• Benefits to Creditors: Creditors have the ability to approach any partner to recover debts owed by the firm. All partners listed in the registration are individually liable to creditors, granting them the option to reclaim debts from any partner.
• Benefits to Partners: Partners can seek legal recourse in a court of law in the event of disputes among themselves. They also have the right to take legal action against external parties to recover owed amounts.
• Benefits to Incoming Partners: A new partner can assert their rights within the firm if it is registered. In the absence of registration, the new partner must rely solely on the trustworthiness of existing partners.

Benefits to Incoming Partners

• Upon joining a partnership firm, incoming partners experience various advantages such as shared responsibilities and workload.
• New partners benefit from the existing client base and reputation of the firm, easing the process of building relationships.
• They also gain access to the firm's resources, expertise, and established business networks.

Benefits to Outward-bound Partners

• When a partnership firm is registered, outward-bound partners, falling into two main categories, enjoy specific advantages:

Benefits on the Demise of a Partner

• Upon the death of a partner, their heirs are not held accountable for any debts or obligations incurred by the firm after the partner's passing.

Benefits on the Superannuation of a Partner

• In the case of a partner's retirement, they are liable for obligations until they provide public notice of their retirement.
• Once the retirement notice is given and recorded, the retiring partner's liabilities cease from that date onwards.
• Registering the firm is crucial to avail of this benefit effectively.

Conclusion

• Registration Process: Firms can voluntarily register with the Registrar of Firms by submitting a statement for entry into the Register of Firms. While registration is not mandatory, the legal implications of non-registration often make it necessary at some point.
• Legal Implications: Partners in an unregistered firm face limitations in enforcing certain claims in Civil Courts. Unregistered partners cannot pursue claims against third parties or fellow partners, except for seeking firm dissolution or accounts after dissolution.