Exceptions To General Rule That An Unregistered Partnership Cannot Sue Or Be Sued

Posted On - 26 March, 2022 • By - Rohan Chinnappa

Taking into consideration the Indian Partnership Act, of 1932(“Partnership Act”), it is clear that an unregistered partnership is not a legal personality. So, does it mean that Unregistered Partnership Cannot Be Sued or sued? It is a settled principle of law and the language is sufficiently clear by applying the literal rule of interpretation that any suit filed by or against an unregistered partnership firm concerning a third party would be expressly barred if – on the date of the institution – the suit is not a registered firm under the Partnership Act.

An unregistered Partnership Cannot Be Sued

Suits cannot be instituted if the names of the partners are not mentioned in the records of the Register of Firms. It is to be noted that such suits are barred as it is directly in the light of the contracts entered into by the unregistered partnership firm during the course of its ordinary business dealings. Section 69(2)1 makes it clear that registration of a firm is necessary to give it a legal personality and hence, a pre-requisite or a conditional precedent exists to the institution of a suit by and or on behalf of the firm against a third party.

Reference can be made to the judicial precedent wherein the courts have prescribed an exception to Section 69(2) in the case of Haldiram Bhujiwala & Anr. Vs. Anand Kumar, Deepak Kumar & Anr. 2 The apex court, while looking into the trademark of an unregistered partnership, held that it is the statutory right of an unregistered partnership to file a suit for infringement.

Placing the legal right arising out of the common law principle of passing off, it was held by the court that the suit instituted cannot be barred under the provision of Section 69(2). The suit instituted by the unregistered partnership firm is not for enforcing any contractual right against third parties in the course of the firm’s business transaction but for claiming its statutory rights.

In the case of Afsal Baker v. Maya Printers3, the Court held that it was the statutory right of the unregistered partnership firm to claim a remedy under the Negotiable Instruments Act, 1881 in the case of a dishonoured cheque implying that it is the statutory right of the unregistered partnership firm to seek remedy and claim compensation. The suit instituted by the unregistered partnership firm cannot be dismissed on the grounds of Section 69(2) of the Partnership Act.

The logic behind the courts granting an exception to Section 69 (2) is that the provision would attract only in cases when the suit instituted is directly in connection with contracts with third parties in the ordinary course of business dealings. Although there are regulations that regulate partnerships in India; a vast majority of the partnerships are unregistered and in case of any statutory rights, an unregistered partnership firm would have no legal remedies available.