Effects of Non-Registration
The Companies Act, 2013 evidently highlights that the main essential for any
organization to turn into a company is to get itself registered. A company cannot
come into existence until it gets registered. But no such obligation has been
imposed for firms by the Indian Partnership Act, 1932. If a firm is not registered
it does not cease to be called as a firm, it still exists in the eyes law. Certainly,
such a big advantage is not absolute but is subjected to a lot of limitations which
we will study further.
Non-registration of a firm simply means that the business skips the
formalities of incorporation and ceases to exist in the eyes of the law. section 58
of the Indian Partnership Act, 1932 deals with the procedure of incorporation.
Likewise, the meaning of non-registration is the exact opposite of registration,
meaning when a firm does not go through the procedure of incorporation or
start carrying on activities without getting registered.
Effects of Non-Registration
1. No Suit in a Civil Court Against a Third Party or Co-partner.
A partnership firm does not own the right to sue a third party until and unless
the firm itself is registered. Any partner or person on behalf of the firm cannot
file a complaint against that party either. As a consequence of the non-
registration of the firm, a partnership firm cannot approach the legal authorities
for help in case of any dispute or breach of contract. To do so, the firm or the
concerned partner has to have its name registered with the Registrar of Firms.
The case of Jagat Mittar Saigal vs Kailash Chander Saigal can be cited as an
instance of this effect of non-registration of the firm.
2. No suit to enforce rights against any third party
A non-registered firm cannot file a suit against a third party in any court, neither
can they file any suit against any party and nor any party can sue them if they
are registered in the registrar. No suit can be filed in any court of jurisdiction
3. No Relief Partners for Set-off Claim
Section 69(3) under the Indian Partnership Act specifies the set-off claims and
other proceedings. A set-off claim is an equitable defence to the whole or a part
of a plaintiff’s claim. Here, the debtor has the right to balance mutual debts with
the concerned creditor. Set-off claims also include arbitration proceedings.
4. 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.
5. Third Parties Can Sue the Firm
Even if a particular partnership firm is not registered under the law, a third party
can file a legal case against the firm. This is, again, an undesirable effect of the
non-registration of a firm. While the firm itself is restricted from filing
complaints against third parties, the partnership norms do not safeguard the firm
from facing third-party suits. An outsider or a third-party entity can sue an
unregistered company. But as an effect of the non-registration of the partnership
firm, it would not be rejected as invalid.