Suits by or Against Unregistered Partnership Firms: An Exploration of Section 69 of the Indian Partnership Act

 

Introduction

The question of whether an unregistered partnership firm can initiate legal proceedings has long been a matter of significant debate within Indian jurisprudence. The Indian Partnership Act, 1932, while not making registration mandatory for partnership firms, imposes certain disabilities on unregistered entities that substantially affect their ability to seek legal remedies. At the heart of this discussion lies Section 69 of the Act, which delineates the restrictions placed on unregistered partnership firms when attempting to enforce rights through judicial proceedings. This legislative provision represents a unique approach where the law does not prohibit the existence or operation of unregistered firms but creates practical compulsions for registration by limiting their legal recourse. Understanding these limitations and their exceptions has become essential for legal practitioners and business entities alike, particularly given the evolving judicial interpretation of what constitutes a prohibited suit under this provision.

The Legislative Framework: Understanding Section 69

Section 69 of the Indian Partnership Act, 1932, creates a statutory framework that restricts the legal remedies available to unregistered partnership firms. The provision is divided into three sub-sections, each addressing different aspects of these restrictions. Sub-section (1) provides that “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.”[1] This creates a bar on inter-partner litigation within unregistered firms. Sub-section (2) extends this restriction by stating that “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 firm.”[1] These provisions together create what appears to be an absolute bar on contractual litigation by unregistered firms.

However, the legislative scheme provides certain exceptions under sub-section (3), which clarifies that the restrictions in sub-sections (1) and (2) do not affect the enforcement of any right to sue for dissolution of a firm, for accounts of a dissolved firm, or any right to realize the property of a dissolved firm.[1] The rationale behind this legislative approach stems from the legislature’s intent to encourage registration while not completely nullifying the legal personality of unregistered entities. The Special Committee report that preceded the enactment of the Partnership Act reveals that the objective was to create a system where registration, though optional, would be incentivized through tangible legal benefits rather than through punitive measures or compulsory registration requirements.

Judicial Interpretation: The Haldiram Precedent

The Supreme Court’s landmark judgment in Haldiram Bhujiawala and Another v. M/s. Anand Kumar Deepak Kumar and Another (2000) fundamentally shaped the understanding of Section 69(2) and its application to suits filed by unregistered partnership firms.[2] The case arose from a trademark dispute involving the famous “Haldiram Bhujiawala” brand, where the plaintiff firm filed a suit for permanent injunction and damages against alleged trademark infringement despite being unregistered at the time of filing the suit. The defendants sought rejection of the plaint under Order 7 Rule 11 of the Code of Civil Procedure, arguing that the suit was barred under Section 69(2) since the firm was not registered when the suit was instituted. The Single Judge of the Delhi High Court dismissed this application, and the Division Bench upheld this decision, leading to an appeal before the Supreme Court.

The Supreme Court examined whether Section 69(2) bars a suit by an unregistered firm when the relief sought pertains to statutory rights under the Trade Marks Act or common law rights based on passing off principles. After examining the legislative history and the Report of the Special Committee, the Court held that the phrase “arising from a contract” in Section 69(2) must be interpreted narrowly. The Court concluded that this provision applies only to contracts entered into by the unregistered firm with the third-party defendant during the course of the firm’s business dealings.[2] Critically, the Court ruled that when a suit seeks to enforce statutory rights or common law rights rather than contractual rights, Section 69(2) does not operate as a bar. Since the trademark infringement suit was based on statutory rights under the Trade Marks Act and common law principles of passing off, which sound in tort rather than contract, the Court held that the suit was maintainable despite the firm’s unregistered status at the time of filing.

Evolution Through the Shiv Developers Case

The principles laid down in Haldiram were further refined and clarified by the Supreme Court in Shiv Developers through its Partner Sunilbhai Somabhai Ajmeri v. Aksharay Developers and Others (2022).[3] This case involved an unregistered partnership firm engaged in construction business that filed a suit seeking perpetual injunction and declaration that a sale deed executed in favor of the defendant was null and void. The defendants moved an application for rejection of the plaint on the ground that the plaintiff firm was unregistered and therefore barred under Section 69(2) from filing the suit. The Trial Court rejected this application, but the Gujarat High Court reversed this decision and ordered rejection of the plaint. The matter then came before the Supreme Court on appeal.

The Supreme Court in this case conducted an extensive analysis of the scope and ambit of Section 69(2). Drawing upon the precedents in Haldiram Bhujiawala and Raptakos Brett & Co. Ltd. v. Ganesh Property (1998), the Court established that for Section 69(2) to apply, two conditions must be satisfied: first, the contract in question must be one entered into by the firm with a third party; and second, the contract must be entered into by the firm in the course of its business dealings.[3] The Court emphasized that the legislative intent behind Section 69(2) was to ensure that third parties who engage in business transactions with a firm should be able to ascertain the identity of the persons with whom they are dealing. However, this rationale does not extend to situations where the suit does not arise from business dealings but from independent transactions.

In the Shiv Developers case, the Court found that the transaction in question—the sale of the firm’s share in immovable property—was not one entered into by the plaintiff firm during the course of its regular business of building construction. Instead, it was an independent transaction involving the disposal of the firm’s asset. Moreover, the suit sought common law remedies alleging fraud and misrepresentation, along with statutory reliefs of injunction and declaration under the Specific Relief Act, 1963, and the Transfer of Property Act, 1882.[3] The Court held that since the suit was not for enforcement of contractual rights arising from business dealings but for statutory and common law remedies, the bar under Section 69(2) did not apply. This decision significantly expanded the scope of litigation available to unregistered firms by clarifying that transactions falling outside the ordinary course of business and suits seeking non-contractual remedies are not barred by the provision.

Passing Off Actions and Tort-Based Claims

One of the most significant exceptions recognized by courts to the Section 69(2) bar relates to passing off actions and other tort-based claims. In M/s. Bestochem Formulation v. Dinesh Ayurvedic Agencies, it was held that Section 69(2) would not apply to a passing off action because such suits are founded on principles of tort law rather than contract law.[4] Passing off is a common law tort that protects the goodwill and reputation associated with a business or brand from misrepresentation by competitors. The essence of a passing off claim is that the defendant has made false representations that lead consumers to believe their goods or services originate from the plaintiff’s business, thereby causing damage to the plaintiff’s goodwill.

The rationale for excluding passing off actions from the Section 69(2) bar lies in the fundamental distinction between contractual rights and common law rights. While Section 69(2) explicitly refers to suits to “enforce a right arising from a contract,” passing off actions do not arise from any contractual relationship between the parties. Instead, they arise from the defendant’s tortious conduct in misrepresenting their products or services. This distinction was crucial in the Haldiram case, where the Supreme Court recognized that even though the plaintiffs traced their title to the trademark through a dissolution deed (which was a contract), the suit itself was not for enforcement of contractual rights but for protection of proprietary rights in the trademark and for redress against the tortious act of passing off.[2]

Suits for Statutory Rights and Intellectual Property

Another important category of exceptions relates to suits filed to enforce statutory rights, particularly in the realm of intellectual property. The Haldiram judgment established that when reliefs of permanent injunction or damages are claimed based on a registered trademark and its infringement, the suit must be treated as one based on statutory rights under the Trade Marks Act rather than contractual rights.[2] The Court observed that the purpose behind Section 69(2) was to impose a disability on unregistered firms to enforce rights arising out of contracts entered into by the plaintiff firm with third-party defendants in the course of business transactions. However, this purpose does not extend to situations where statutory rights conferred by legislation are being enforced.

The distinction between contractual rights and statutory rights becomes particularly important in intellectual property litigation. Trademark rights, whether arising from registration under the Trade Marks Act or from long-standing use under common law, exist independently of any contract between the parties. When an unregistered firm seeks to protect its trademark against infringement, it is not enforcing any contractual obligation but rather asserting proprietary rights that exist by virtue of statute or common law. Similarly, patent rights, copyright protections, and other forms of intellectual property represent statutory rights that can be enforced by unregistered firms without running afoul of Section 69(2). This interpretation ensures that unregistered firms are not stripped of the ability to protect their intellectual property assets, which would create an untenable situation where valuable business assets could be misappropriated with impunity simply because the firm had not completed registration formalities.

The Significance of “Course of Business” Requirement

The Shiv Developers judgment introduced an important clarification regarding the phrase “course of business” in the context of Section 69(2). The Supreme Court emphasized that for the bar to apply, the contract in question must not only be entered into by the firm with a third party but must also be entered into in the course of the firm’s business dealings.[3] This requirement adds a significant qualification to the scope of Section 69(2) and creates an additional avenue through which unregistered firms can pursue litigation. The Court’s analysis makes clear that not every contract involving a partnership firm falls within the ambit of Section 69(2), but only those contracts that form part of the regular business activities for which the firm was constituted.

In practical terms, this means that when a construction partnership firm sells immovable property that it owns, such a transaction does not necessarily constitute part of its “course of business” if the firm’s business is construction and development rather than property trading. Similarly, when a firm enters into contracts for acquiring assets, dissolving the partnership, or settling disputes among partners, these transactions may fall outside the “course of business” even if they involve contractual arrangements. The distinction drawn by the Court protects unregistered firms from being completely disabled from litigation by recognizing that firms engage in various types of transactions, not all of which should be subject to the registration requirement. This interpretation gives effect to the legislative intent that Section 69(2) should encourage registration for firms that regularly deal with third parties in business transactions, without creating an absolute bar on all forms of litigation.

Recent Developments: The Sunkari Tirumala Rao Case

The Supreme Court’s recent decision in Sunkari Tirumala Rao & Ors. v. Penki Aruna Kumari (2025) reaffirmed the mandatory nature of Section 69 and its application to inter-partner disputes within unregistered firms.[5] This case involved partners of an unregistered firm who filed a suit seeking recovery of money allegedly contributed toward a stone crusher business under a partnership agreement. The partnership firm was never registered despite the execution of a formal partnership deed. When the defendant partner failed to fulfill obligations under the agreement, the plaintiffs filed a suit for recovery of their contribution. The Trial Court dismissed the suit on the ground that it was barred under Section 69(1), a decision that was upheld by the Andhra Pradesh High Court and subsequently by the Supreme Court.

The Supreme Court in this case emphasized that Section 69(1) is mandatory in character and creates an absolute bar on suits between partners of unregistered firms to enforce contractual rights. The Court distinguished such recovery suits from suits for dissolution of the firm or rendition of accounts, which are expressly exempted under Section 69(3).[5] The judgment clarified that the fact that business operations had not actually commenced did not dilute the application of Section 69(1), as the existence of a partnership agreement and the assertion of rights under it brought the case squarely within the provision’s scope. The Court suggested that the plaintiffs could have sought alternative relief through a suit for dissolution of the firm, which would have been maintainable under the exceptions provided in Section 69(3). This decision serves as an important reminder that while courts have interpreted exceptions to Section 69(2) liberally in cases involving third parties, the bar on inter-partner litigation under Section 69(1) remains robust and is strictly enforced.

Implications for Practice and Policy

The judicial interpretation of Section 69 creates a nuanced legal landscape that requires careful consideration by partnership firms and their legal advisors. While the Act does not mandate registration, the practical disabilities imposed by Section 69 create strong incentives for firms to register, particularly those engaged in regular business dealings with third parties. For firms that remain unregistered, whether by choice or oversight, understanding the boundaries of permissible litigation becomes crucial. The case law makes clear that unregistered firms retain substantial rights to pursue litigation in several important categories: suits based on statutory rights, common law actions sounding in tort, proceedings for dissolution and accounts, and litigation arising from transactions outside the firm’s regular course of business. These exceptions ensure that unregistered firms are not rendered completely defenseless in legal disputes.

However, the strict application of Section 69(1) to inter-partner disputes and Section 69(2) to contractual claims arising from business transactions means that unregistered firms face significant limitations in core business disputes. A firm engaged in regular trading activities, for instance, would find itself unable to sue customers for payment of goods sold or to sue suppliers for breach of supply contracts unless it first secures registration. Similarly, partners in unregistered firms cannot sue each other for enforcement of partnership obligations, recovery of capital contributions, or distribution of profits, though they retain rights to seek dissolution and accounts. These restrictions underscore the legislative policy of using practical disabilities rather than penal consequences to encourage registration. From a policy perspective, this approach respects freedom of contract and association while creating clear advantages for registration that most firms operating in the formal economy would find compelling. The judicial interpretation has further refined this balance by ensuring that the restrictions do not overreach into areas—such as intellectual property protection and tort claims—where the legislative rationale for the restrictions has diminished relevance.

Procedural Considerations and Remedies

When faced with a suit filed by an unregistered firm that allegedly falls within the Section 69 bar, defendants typically move an application under Order VII Rule 11 of the Code of Civil Procedure for rejection of the plaint. Courts examining such applications must determine whether the suit seeks to enforce contractual rights arising from business dealings or falls within one of the recognized exceptions. The burden lies on the plaintiff firm to demonstrate that the suit is maintainable, which may require establishing that the firm is registered (and that the suing partners are shown in the register) or, alternatively, that the suit falls outside the scope of Section 69. In cases where registration has occurred after the filing of the suit, courts have held that subsequent registration can cure the defect only if it has retrospective effect, as registration typically operates from the date of application rather than from some earlier date.[6]

For unregistered Partnership firms that discover they are barred from pursuing a particular claim, the remedy typically involves completing registration formalities before filing suit. The registration process itself is relatively straightforward, requiring the submission of a statement signed by all partners containing the firm’s name, place of business, partners’ names and addresses, and the date of joining. Once the Registrar of Firms is satisfied that the statement is in order, registration is granted, and the firm becomes eligible to file suits for enforcement of contractual rights. It is important to note that registration does not have retrospective effect for the purpose of validating suits filed before registration, though it enables the firm to pursue new litigation going forward. In urgent situations where immediate relief is needed but registration has not been completed, firms may need to restructure their claims to rely on statutory or common law grounds rather than contractual grounds, or to frame the dispute as seeking dissolution and accounts rather than specific performance or damages for breach of contract.

Comparative Position Under Other Statutes

The application of Section 69 extends beyond the Partnership Act itself and intersects with various other statutory frameworks. Under the Insolvency and Bankruptcy Code, 2016, partnership firms—whether registered or unregistered are recognized as “persons” eligible to undergo the Corporate Insolvency Resolution Process. This means that an unregistered firm can be subjected to insolvency proceedings initiated by creditors or may itself initiate voluntary insolvency proceedings. The interplay between Section 69 and insolvency law raises interesting questions about whether creditors of unregistered firms face any disabilities in enforcing their claims, though the general view is that Section 69 restricts the firm’s right to sue rather than others’ rights to sue the firm.

Similarly, in the context of arbitration law, courts have held that the bar under Section 69 extends to arbitration proceedings since the right to invoke arbitration arises from a contract between the parties.[7] An unregistered firm therefore cannot invoke arbitration clauses in contracts entered into during the course of business unless the firm is registered at the time of initiating arbitration. However, if a dispute falls within the exceptions to Section 69—such as a dispute concerning dissolution or accounts—then arbitration would be permissible even for an unregistered firm. These cross-statutory considerations highlight the far-reaching impact of the registration requirement and underscore the importance of understanding how Section 69 interacts with the broader legal framework governing commercial disputes.

Conclusion

The legal framework governing suits by and against unregistered partnership firms under Section 69 of the Indian Partnership Act, 1932, represents a carefully balanced approach to encouraging registration while preserving essential legal remedies. Through judicial interpretation, particularly in landmark cases like Haldiram Bhujiawala and Shiv Developers, courts have developed a sophisticated understanding of when the bar under Section 69 applies and when unregistered Partnership firms retain the right to pursue litigation. The key principles that emerge from this body of law include the distinction between contractual rights and statutory or common law rights, the importance of whether a contract was entered into in the course of business, and the recognition that certain fundamental rights—such as the right to seek dissolution and accounts—cannot be taken away merely because a firm has not completed registration formalities. For legal practitioners and business entities, these principles provide a roadmap for navigating the complex terrain of partnership litigation and underscore the continuing importance of registration as a practical necessity for firms engaged in regular commercial transactions. As partnership law continues to evolve, particularly with the increasing recognition of limited liability partnerships and other hybrid business forms, the foundational principles established in the interpretation of Section 69 will continue to inform debates about the appropriate balance between regulatory requirements and freedom of association in commercial relationships.

References

[1] Indian Partnership Act, 1932, Section 69. Available at: https://indiankanoon.org/doc/797638/

[2] Haldiram Bhujiawala and Another v. M/s. Anand Kumar Deepak Kumar and Another, (2000) 3 SCC 250. Available at: https://indiankanoon.org/doc/614536/

[3] Shiv Developers through its Partner Sunilbhai Somabhai Ajmeri v. Aksharay Developers & Ors., 2022 SCC OnLine SC 114. Available at: https://www.livelaw.in/sc-judgments/shiv-developers-through-its-partner-v-aksharay-developers-ors-2022-livelaw-sc-104-section-692-partnership-act-190875

[4] M/s. Bestochem Formulation v. M/s. Dinesh Ayurvedic Agencies, RFA (OS) 17/99, Delhi High Court. Cited in Haldiram Bhujiawala (2000) 3 SCC 250.

[5] Sunkari Tirumala Rao & Ors. v. Penki Aruna Kumari, SLP (C) No. 30442/2019, Supreme Court of India (2025). Available at: https://lawtrend.in/partners-of-unregistered-firms-cannot-enforce-contractual-rights-against-each-other-under-partnership-act-supreme-court/

[6] Gwalior Oil Mills v. Supreme Industries, AIR 1999 SC 773. Available at legal databases.

[7] Uttar Pradesh State Sugar Corporation Ltd. v. Jain Construction Co., AIR 2004 SC 4335. Available at: http://student.manupatra.com/Academic/Abk/Indian-Partnership-Act/Chapter7and8.htm

[8] Raptakos Brett & Co. Ltd. v. Ganesh Property, (1998) 7 SCC 184. Available at legal databases.

[9] Purushottam and Anr. v. Shivraj Fine Art Litho Works and Ors., (2007) 15 SCC 58. Available at legal databases.