How can an Unregistered firm
recover the money?
[4 mins read, 500 words]
A partner in a partnership firm can institute a suit only if the partnership is registered. The s. 69 of the Partnership Act (hereinafter, “the Act”) requires the name of Partners in the “Register of firms” at the time of institution of the suit.
Despite s. 69, being clear upon the effect of non-registration. The partnership firms keep neglecting the registration of partnership.
What does section 69 of the Act say? It states that if a Partnership is not registered, it cannot sue a third party for any claim (such as recovering money). This means that if an unregistered partnership firm has done business worth Rs. 10 Lakhs, then it cannot sue the other party to recover its money. However, if the same money is due by an unregistered partnership firm, then that other party can sue the unregistered firm.
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Sounds unfair, right?
Does that mean that the third party would be unjustly enriched? Not really. Before getting into the solution, let me share where parties make mistakes.
Often, the Unregistered firm directly files the suit right away. After filing the suit, they register the firm. As we all know, the suit will be barred by s. 69 of the Act. The reason is that subsequent registration of the partnership firm could not cure the defect. As at the time of the suit's institution, the partnership was not registered, and this subsequent change could not relate back and cure the defect. Therefore, the suit will mandatorily be dismissed.
The question is what are the remedies if someone has unknowingly filed a suit without registering the partnership?
The s. 69, nowhere requires the partnership to be registered when the Cause of Action has arisen (COA). It only requires the name of Partners in the “Register of firms” at the time of institution of suit. That means a party can still register the firm even after the cause of action has arisen, but it has to be registered before the institution of the suit.
The following are the remedies if an unregistered partnership firm has filed a suit:
1. To get the firm registered, then withdraw the suit and then file for a fresh suit.
2. If the suit is dismissed because of the bar, then also the aggrieved person can file a fresh suit. (have to get the partnership registered before the filing of a fresh suit)
Now you may think that res judicata will apply to the fresh suit. But the res judicata will not apply in either of the cases as the matter has not been heard on merits and has been withdrawn/dismissed on technical grounds only.
Moreover, while filing a fresh suit the party will also get the benefit of exclusion (time wasted in previous suit) under s. 14 of the Limitation Act, for the purpose of calculating the period of limitation. [Haldiram Bhujiawala and Ors. v. Anand Kumar Deepak Kumar and Ors. AIR 2000 SC 1287]
Concluding remarks: To make sure that the partnership is registered at the time of institution of suit. Now you may think, why to worry when there is a remedy to withdraw and file a fresh suit? There is a problem with that, and that is, that you have to pay the court fees again.
Disclaimer: The information provided in this article is for general informational purposes only and is not intended to be legal advice. It should not be relied upon as a substitute for professional advice. It is recommended that you consult with a lawyer.