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Context:

The Supreme Court recently ruled that partners of an unregistered firm cannot enforce contractual rights against each other under Section 69(1) of the Indian Partnership Act, 1932.

Details

The central issue was whether partners of an unregistered firm could enforce contractual rights against each other under Section 69 of the Indian Partnership Act, 1932. The Supreme Court ruled that such suits are barred unless they concern dissolution or rendition of accounts.

The petitioners sought the recovery of ₹30 lakh, which they claimed was their contribution to a stone crusher business under a partnership agreement.

The Supreme Court dismissed the suit because the partnership firm was unregistered.  

About the Section 69(1) of the Indian Partnership Act 1932

Section 69(1) prohibits partners of unregistered firms from filing suits to enforce any rights arising out of a partnership agreement. 

The section is mandatory, meaning that if the firm is unregistered, no suit can be maintained to enforce contractual rights. However, Section 69(3) provides an exception, allowing suits for dissolution of the firm or for rendition of accounts, even if the firm is unregistered.

The non-commencement of business does not affect the applicability of Section 69(1). The Supreme Court in the present case has rejected the argument that the business had not started, stressing that once a partnership agreement is made, the firm must be registered for any suit arising from that agreement to be enforceable.

Source: 

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