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Submitted to : Submitted by :
Mr. Eqbal Hussain Ziaul Haq
Incharge : Contract
B.A.LLB(Hons)1st Year
Faculty of Law
Jamia Milia Islamia
New Delhi
Acknowledgement
It gives me immense pleasure and gratitude to thank my contract’s
teacher Sir Eqbal Hussain who has helped me in each possible way
that one could . My project without his help would have been a much
difficult task.
I would like to thank staff of the faculty of law library of Jamia
Millia Islamia for helping me in searching valuable information .
I would also like to extend my thankfulness to my colleague
Pancham for giving me valuable advice.
Your’s Sincearly
Ziaul Haq
REGISTRATION OF FIRMS
Sections (56-71)
The Partnership Act does not provide for the compulsory registration of firms.
Therefore, an unregistered firm is not an illegal association. But non-registration
of partnership gives rise to a number of disabilities which have a persuasive
pressure for its registration.
1
Govindmal v. Kunj Biharilal, A.I.R. (1954), Bom. 364.
2
Gopinath v. Ramdas, A.I.R. (1936), Cal. 133.
3
Goverdhandass v. Abdul Rahiman (1942) Mad. 775.
4
Kuldeep Thakur v. Sheomangal Prasad, A.I.R. (1957), Pat.4.
5
Jalal Mohamad Ibrahim v. Kakka Mohamad, A.I.R. (1972), Mad. 56
of the firm is situated or proposed to be situated, a statement in the
prescribed form and accompanied by the prescribed fee, stating :
(c)The names of any other places where the firm carries on business,
The statement shall be signed by all the partners or by their agents specially
authorised in this behalf.
(2)Each person signing the statement shall also verify it in the manner
prescribed”
S.58(2) stipulates :
“Each person signing the statement shall also verify it in the manner
prescribed.”
In other words, where dissolution occurs by death, notice by a partner who had
taken his place would be sufficient to keep the continuity of the firm insofar as
registration goes. The firm must be taken to be still registered and as long as the
partners suing are shown in the register as partners, then notwithstanding the
retirement of the original partners, it remains a registered firm. 6
CONSEQUENCES OF NON-REGISTRATION
Non-registration of partnership gives rise to a number of disabilities which are
set out in Sec. 69 of the Act. This section is mandatory in character. 7 Either the
firm or the partner suffers from these disabilities if the firm is not registered :
(1) Suits between Partners and the Firm : A partner of an unregistered firm
cannot file a suit (against the firm or any partner thereof) for the purpose
of enforcing a right arising from the contract or a right conferred by the
Partnership Act.8
(i)Any suit in which a partner sues his co-partner, or the firm to enforce
any right arising from the contract between the partners as such, or
6
Firm Paras Ram Swarup v. Firm Baldev Sahai Ram Bhagat, A.I.R. 1963 Punj. 215.
7
Ghanshyam Vijay Oil Mills v. Thackar Ranchhodas Ratanshi A.I.R. 1985, NOC. 17 (Guj.);
Loonkaran Sethia v. Mr. Ivan E. John A.I.R. 1977 SC 336
8
Ram Adhar v. Ram Kirat Tiwari A.I.R. 1981ALL. 405.
(ii) to enforce any right which the Act can be said to have conferred on
partners
The contract would be the contract of partnership regulating their rights and
obligations inter se.
Thus, the right of a partner to compel his co-partner to effect registration would
be a right arising from a contract, and suit to enforce such a right brought by
one partner against the other partners of an unregistered firm is non
maintainable under this Section.9
EXAMPLE :
In conclusion it can be said that the plain terms of S.69(2) bar the
institution of a suit to enforce a right arising out of a contract unless the firm is
registered and the persons suing are or have been shown in the register of firms
as partners in the firms. Subsequent registration cannot and does not cure the
initial defect in the institution of the suit.12
A plaint filed by an unregistered firm would not be a plaint at all and all
the proceedings thereunder will be without jurisdiction. It was held that the
9
Singer Sewing Machine Co. v. Surath Singh, A.I.R. 1941, Rang. 196.
10
Guno Prasad v. Abhoy Hari (1947) 52 Cal. W.N. 15.
11
Badri Prasad v. Nagarmal A.I.R. 1959, S.C. 559.
12
Puram Mal v. Central Bank Of India, A.I.R. (1953) Punj. 235; Ghanshyam Vijay Oil Mills v. Thackar
Ranchhodas Ratanashi A.I.R. 1985 NOC 17 (Guj).
decree obtained by an unregistered firm was a nullity and cannot be executed, 13
nor can such void plaint be amended under 0.6 R.17 C.P.C.14
The Act does not contemplate the registration of dissolved firm, 15 but an
unregistered firm can certainly give a valid notice under S.80 of C.P.C.16
(2)Suits between firms and third parties : No suit can be filed on behalf of an
unregistered firm against any third party for the purpose of enforcing a right
arising from a contract.
(a) Bringing an action for the dissolution of the firm or for accounts of
a dissolved firm, and
(b) Enforcing any right or power to release the property of a dissolved
firm. “it seems that the intention of the Legislature was to inflict
disability for non-registration for only during the subsistence of the
partnership.20
EXAMPLE :
13
Sunderlal & Sons v. Yogendra Nath Singh A.I.R. (1976) Cal. 471.
14
In the matter of Abani Kanta Pal A.I.R. 1986 Cal. 143.
15
Shri Baba Commercial Syndicate v. Channamma Sethi Dasu, A.I.R. 1968, A.P. 378.
16
Bhattacharjee & Co. v. Union Of India, A.I.R.1957, AII. 159.
17
Sonalal v. Sadasiv (1937) Nag. 430.
18
Surajmal Daguraniji v. Shrikisan Ramkisan, 75, Bom, L.R. 186.
19
Re. Arunagiri Mudaliar (1936), Mad. 697.
20
Pollock and Mulla on Sale Of Goods and Partnership Act, 388 (3rd Ed. By Pritt, 1966).
having been closed on the sale of the taxi, the action was for realisation of the
assets of a dissolved firm and therefore maintainable.21
The words “other proceedings” have given rise to a several conflicting decisions
and the Supreme Court has put at rest as to whether they included “arbitration
proceedings”, by its decision in Jagdish Chandra Gupta v. Kajaria Traders
(India) Ltd;22
The proper course, therefore, may be to get the firm registered before an action
is brought.24 It may be noted that an action brought by an unregistered firm is
liable to be dismissed and it cannot be rectified by subsequent registration. In
that case, a fresh suit will have to be filed after necessary registration provided
here it is still within the period of limitation.
Some of the High Courts are of the view that an action brought before
registration can be validated by subsequent registration,25 while some are
against the view.26 The view of the Bombay High Court27 is that the period
during which an unregistered firm was pursuing a suit under a bona fide mistake
of fact should be excluded.
21
See Basant Lal v. Chandrajit Lal A.I.R. 1968, Pat. 96.
22
A.I.R. 1964., S.C. 1882.
23
Meghraj v. Raghunath, A.I.R (1955) Cal. 178.
24
State of U.P v. M/S Hamid Khan & Bros. A.I.R. 1986, AII, 130.
25
Varadarajula Naidu v. Rajamanika Mudaliar, A.I.R. 1937, Mad. 767
26
Puran Mal v. Central Bank Of India, A.I.R. 1939, Punj. 235.
27
Surajmal v. Srikishan, A.I.R. 1973 Bom. 313.
(1) A partner of an unregistered firm can file a suit for the dissolution of the
firm and for accounts.
(2) Suits can be filed for the realisation of the properties of a dissolved firm
even though it was unregistered. [S. 69(3) (a).]
(4) A partner of an unregistered firm may sue or claim a set-off provided the
amount of the claim does not exceed Rs.100 in value in respect of matter
otherwise triable by the Small Cause Courts [S. 69(4)(b).]
(5) A partner of an unregistered firm may bring a suit to enforce a right arising
otherwise than out of a contract. i.e. in respect of torts, breach of patent etc.
(6) The third party may however bring a suit against the unregistered firm or
any of its partners. S. 69(2) is designed to protect the interest of third party
parties. However, an unregistered firm is free to enter into a contract with a
third party. The disability created by this clause is with regard to the right to file
a suit and not with regard to the right to enter into a contract
(7) The disabilities of an unregistered firm do not attach to a firm whose place
of business are all outside are all outside India. [S. 69(4)(a)].
S. 69(4) exempts from the operation of this section, firms, whose place of
business are all outside India or in areas exempted from the operation of this
Chapter under S.55. Such firms can institute suits or other legal proceedings or
plead set-offs, without being registered in any court, in India otherwise having
jurisdiction to entertain the suit or other legal proceedings.
DISSOLUTION OF FIRMS
Sections (39-55)
S. 39 States:
‘Dissolution of the firm’ means the cession of jural relationship amongst all
the partners of the firm. A firm is not said to be dissolved by the fact if one
or more members ceasing to be partners in it while others continue to remain
in the firm, but only where all and every one of the members of the firm
cease to carry on its business in partnership, the firm is said to be dissolved.
Thus, it implies the complete breakdown of the relation of partnership
between all the partners.
Dissolution
As per the section a firm may be dissolved (i) with the consent of all the
partners or (ii) in accordance with a contract between the partners. Both
the above kinds of dissolution, namely, by consent and by agreement, are
provided for in the same section. But they are different. Partners can
consent to a dissolution regardless of what their previous agreements are.
But in dissolution by contract they have to follow their subsisting
agreement, whether the other partners consent or not.
EXAMPLE :
E and M were brothers and entered into an agreement to carry on
in partnership business. Subsequently, one of the partners agreed to retire from
the business. The Supreme Court held : “When the partnership consisted of only
two partners and one partner agreed to retire, there can be no doubt it will
amount to dissolution of the partnership.”28
The consent required for dissolution should be the consent of all partners.
In fact, majority of the partners have no power to dissolve the firm against the
wishes of the minority.
In law, there would be no difficulty in a dissolution of a firm being
followed by the constitution of a new firm by some of the erstwhile partners
who may take over the assets and liabilities of the old firm.29
“A firm is dissolved –
(a) By the adjudication of all the partners or of all the partners but one as
insolvent, or
(b) By the happening of any event which makes it unlawful for the
business of the firm to be carried on or for the partner to carry it on in
partnership :
Provided that, where more than one separate adventure or undertaking
is carried on by the firm, the illegality of one or more shall not of itself
cause the dissolution of the firm in respect of its lawful adventures and
undertakings”.
28
Erah F.D. Mehta v. Minoo F.D. Mehta, A.I.R. 1971 S.C. 1653 (1655)
29
I.T. Commr., W.B. v. Mis Pigot Chapman &Co.A.I.R. 1982 S.C. 1085 (1089)
(i)Insolvency : In the case of insolvency of one or more of the
partners, the firm might be continued with the other partners unless
there is contract to the contrary. It follows that if all the partners are
adjudged insolvent, or if all but one partner are declared insolvent, the
firm cease to exist, for a firm must consist of atleast two persons as
partners.
EXAMPLE :
A given partnership consisted of two partners. One of the terms in the partnership
agreement was that on the death of one partner his heirs should take his place. The question
that arose in this case was whether on death of one partner his heir would automatically
become a partner. Constructing S. 42, “on the death of a partner, a firm is dissolved ‘subject
to a contract between the parties’,” means, if there are more than two partners it may be
agreed that the might carry on the business. However, it was held that in case where there
were only two partners the partnership would be dissolved by the death of one of them.31
“(1) where the partnership is at will, the firm may be dissolved by any partner
giving notice in writing to all other partners of his intention to dissolve the
firm.
(2)the firm is dissolved as from the date mentioned in the notice as the date of
dissolution or, if no date is so mentioned, as from the date of the
communication of the notice.”
30
Keshavlal L. Patel v. Patel Bhailal N. A.I.R. 1968, Guj. 157
Shantaram Sadashiv v. Sripada Bhavani Shankar A.I.R. 1974, Kar. 110.
31
Commr, of Income –tax v. G.S.Mills, A.I.R.(1966) S.C. 24.
32
K.R.Mallesha v. Ramnath Gajanand A.I.R. 1974 AP 53.
33
Dayalal Trikamlal Mali v. Harjivandas Madhavji Mali, 1982, 23 (I) G.L.R. 305.
Requirements : the provision envisages three things:
Such a notice must be issued to all other partners of the firm. An oral notice or
notice to only some of the partners will not be sufficient. It must be explicit34
and not vague. Once a notice is given it cannot be withdrawn unless all the
partners consent to such withdrawl.
Effect : The firm is dissolved from the date mentioned in the notice as the
date of dissolution.35 If no date is mentioned, then from the date of the
communication of the notice is in transit or post, and if the partner serving the
notice dies, it has been held that the dissolution is by death and not by notice.
34
Chainkaran Sidhkaran Oswal v. Radhakishan V. Dixit, A.I.R. 1956, Nag. 56 (58).
35
Banarasidas v. Kanshi Ram A.I.R. 1963, S.C. 1165.
36
Sardar Hardutt Singh v. Ch. Mukha Singh A.I.R. 1973 J&K 46.
A creditor of the firm is not entitled to be added as a party in a suit for
dissolution and accounts, for, he is neither a necessary or proper party in such a
suit.37
At suit of a partner, the Court may dissolve a firm on any of the following
grounds, namely-
(a)Insanity : [S. 44(1)]
“(a) that a partner has become of unsound mind, in which case the
suit may be brought as well by the next friend of the partner who has
become of unsound mind as by any other partner;”
Insanity or lunacy ipso facto does not dissolve the firm, but it is a sufficient
ground for bringing a suit for dissolution of the firm. Since a partner must be
one capable of entering into a contract, it may not be permissible to carry on the
business when one partner becomes a lunatic. However in case of insanity of a
dormant partner the Court will not ordinarily order dissolution.
The relationship can exist on the basis that all partners would attend
diligently to the business of the partnership. If therefore, one of the partners is
permanently incapacitated, then the other partners may have recourse to the
Court for getting a dissolution. However, incapacity must be of permanent
nature. In Whitwell v. Arthur38a partner was attacked with paralysis which on
medical evidence was found to be curable. Hence, dissolution was not granted.
However, where a partner is imprisoned for a long period of time, the Court may
dissolve partnership.
Similarly, when one partner becomes blind or paralytic and thereby
thereby permanently incapacitated, the other partners may seek a dissolution.
37
Siddarth Kumar Modi v. Jagjit Singh Bindra, A.I.R. 1984 , Del. 116.
State Bank of Patiala v. Amar Nath (1982) 84, Punj. L.R. 479.
38
(1865) 35 Beau 140
(c) Misconduct : [S. 44 (c)]
“that a partner, other than the partner suing, is guilty of conduct which
is likely to affect prejudicially the carrying on of the business, regard being
had to the nature of the business;”
Utmost good faith is the essence of the relationship. In the decided English
cases, following acts have been held to be sufficient ground for directing
dissolution. Persistent refusal or neglect to attend to the business, neglect to
accounts, taking away of partnership books, continued quarrelling without any
hope of reconciliation. Thus, where a partner makes up a false balance sheet or
keeps erroneous accounts, or quarrels continuously, or is guilty of conduct
which leads to misunderstanding, it has been held that that the other partners are
entitled to dissolution.
Only the transfer of entire interest of the partner gives ground for action. The
transfer of a part of the partner’s interest is not covered up by the present sub
clause. In other words, the formation of a sub-partnership is not a valid ground
for dissolution.
“(f) that the business of the firm cannot be carried on save at a loss.”
39
Smith v. Jayes (1841) 49 E.R. 433.
Every partnership exists for the sake of gain. If, therefore, the business cannot
be carried on save at a loss, or the attainment of the common end, with a view to
which the partnership was formed, becomes impossible, or there is no
reasonable likelihood of earning the profit, in all such cases, the court may order
dissolution, because the continuance of the business is not advantageous.
“on any other ground which renders it just and equitable that the firm
that the firm should be dissolved.”
One of the partners may feel that the partnership ought to be dissolved in the
interest of all concerned. To meet such a situation, S. 44(g) enables the Court to
dissolve the partnership. The jurisdiction of the Court under this clause is very
wide and is not confined to the matters which would fall under the previous
clauses of this section. Want of co-operation or mutual confidence and chronic
disputes40or state of tensed feelings between partners41would entitle a court to
order dissolution under this clause. Though the power of the Court under S.44
should be invoked only where other modes of dissolution are unavailing, yet
this does not militate against the discretionary power of the court under the
section.42
40
Babu Lal v. Kanhaiya Lal (1953) A.U.P. 43.
41
Hasham v. Nriman (1924) A. Bom. 57.
42
Sat Pal Anand v. R.K.Ahuja,A.I.R 1973 P&H 197
43
Narinder Singh Randhawa v. Hardial Singh Dhillon A.I.R. 1985 P & H 41.
STEPS TO BE TAKEN ON DISSOLUTION
The above provisions of the partnership Act suggests the following steps to be
taken on dissolution of the firm.
(1) All the assets of the firm , including goodwill are sold or disposed off in
any other way (E.g. a partner may take over an asset)
(2) The amount so realized is applied in paying off third party liabilities in
the first balance.
(3) If any one or more partners have advanced loan to the firm in addition
to his capital, then these loan are repaid next after repayment of third
party liabilities.
(4) Now, partners will be paid what is due to them on capital accounts. If
the surplus is not enough to return the full amount of capital, then the
partner are paid retably.
(5) Surplus, if any, left after returning capitals is paid to the partners in their
profit sharing ratio.
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