Introduction

• This case deals with Section 69 of the Indian Partnership Act, 1932 of Indian Partnership Act, 1932 which talks about the effects of non-registration of a partnership firm.

Facts

• This appeal stems from a case filed in the Bombay City Civil Court by the appellant seeking, among other things, the dissolution of an unregistered partnership firm with the respondent.
• The defendant argued that a suit was not maintainable under to sub-section (2A) of Section 69 of the Indian Partnership Act, 1932.
• The sub-section provides suits for dissolution or accounts of a dissolved firm, or to realize its property, cannot be filed by a non-registered partner unless listed in the Register of Firms.
  • The registration requirement does not extend to suits brought by heirs or legal representatives of a deceased partner for accounts or property realization of a dissolved firm.
• The Bombay City Civil Court deemed this sub-section, introduced by the Maharashtra Amendment, 1984 to Section 69 of the Indian Partnership Act, 1932, unconstitutional under Articles 14 and 19(1)(g) of the Constitution of India, 1950.
• Consequently, the court referred the matter to the High Court under Section 113 of the Civil Procedure Code.
• The High Court, however, in its ruling, deemed sub-section 2A of Section 69 of the Indian Partnership Act, 1932, constitutional.
• Thus, the appellant preferred an appeal before the Supreme Court challenging this decision.

Issue Involved

• Whether sub-section 2A of Section 69 of the Indian Partnership Act, 1932 inserted by the Maharashtra Amendment is constitutionally valid?

Observation

• The SC said that registration of a firm primarily aims to safeguard third parties from difficulties in identifying partners and proving partnerships.
  • Earlier, third parties faced expenses and delays in proving partnership, leading to protection issues.
  • Registration shields third parties against false partnership denials and liability evasion.
• Registered firm statements are conclusive proof of partnership facts against partners.
• While registration is not compulsory, the Maharashtra Amendment imposes strict disabilities on unregistered firms, barring enforcement of claims against third parties.
  • Unregistered partners could not enforce claims against third parties or fellow partners, except in dissolution suits or property recovery.
• The 1984 Amendment extended restrictions to dissolution or property recovery suits.
• This could lead to unfair situations where a dishonest partner might exploit the lack of registration, depriving others of dues.
• The Maharashtra Amendment's restrictions were deemed arbitrary and unreasonable, violating constitutional provisions.

Conclusion

• The court declared the amendment unconstitutional, allowing suits to proceed without considering the invalidated section.

Note

• Section 69 of the Indian Partnership Act, 1932: Effect of non-registration -
  • 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:
  • 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 firms.
• Sub-section 2A which was introduced by the Maharashtra Amendment 1984 -
  • No suit to enforce any right for the dissolution of a firm or for accounts of a dissolved firm or any right or power to realize the property of a dissolved firm 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 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:
  • Provided that the requirement of registration of firm under this sub-section shall not apply to the suits or proceedings instituted by the heirs or legal representatives of the deceased partner of a firm for accounts of a dissolved firm or to realize the property of a dissolved firm.