The Indian Partnership Act does not make registration of a firm compulsory nor does it impose any penalty for non registration. It is optional for the firm to get itself registered or not. However, Section 69 puts down certain disabilities to a non registered firm which normally forces the partners the partners to get the firm registered. The effects of non registration are as follows:
(a) No suit by a partner against other partners or firm – a partner of a unregistered firm cannot sue the firm or any partner of the firm to enforce a right arising from the contract or conferred by the Partnership Act. He can do so only if the firm is registered and the person suing is shown as a partner in the register of firms.
(b) No suit against any third party – an unregistered firm cannot sue a third party to enforce a right arising from a contract. The firm can only do so if the firm is registered and the person suing is shown as a partner in the register of firms.
(c) No right to counter claim or to claim setoff – an unregistered firm or any partner thereof cannot claim setoff in the proceedings instituted against a firm by a third party to enforce a right arising from a contract. Setoff means a claim by the firm which would reduce the amount of money payable to the claimant.
(d) Arbitration proceedings – in Jagdish Chandra Gupta Vs. Kajaria Traders (India) Limited it was held that arbitration proceedings were barred if the firm was unregistered.
Non registration of the firm however, does not effect the following rights: (i) The right of a third party to sue the unregistered firm or its partners.
(ii) The right of a partner to sue for dissolution of a firm or for accounts of a dissolved firm or any right to realise the property of the dissolved firm.
(iii) The Power of a official assignee or court receiver to realise the property of an insolvent partner. (iv) The right of a firm or partners of a firm having no place of business in India.
(v) The right of a unregistered firm to enforce a right arising otherwise then out of a contract. (vi) One partner can bring a suit for damages for misconduct against the other partner.
(vii) The right to claim Setoff in a suit for an amount not exceeding Rs.100/- in value.