According to Section 69(2) of the Indian Partnership Act, 1932, an unregistered firm cannot sue any third party for enforcement of a right arising from the contract. Explain the scope of limitation on the litigation by the partners against a third party with the help of decided cases.

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⭐ QUESTION 4(a)

According to Section 69(2) of the Indian Partnership Act, 1932, an unregistered firm cannot sue any third party for enforcement of a right arising from the contract. Explain the scope of limitation on the litigation by the partners against a third party with the help of decided cases.

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1. INTRODUCTION

Registration of a partnership firm in India is not compulsory.
However, the law penalizes unregistered firms by putting severe restrictions on their right to file suits.

The most important provision is Section 69, which imposes disabilities on unregistered firms.

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⭐ 2. WHAT IS SECTION 69(2)? (CORE PROVISION)

Section 69(2), Partnership Act, 1932

An unregistered firm or any partner of such firm cannot file a suit in any court
against a third party
to enforce a right arising from a contract.

This means:

👉 If a firm is not registered,
👉 It cannot sue outsiders for breach of contract, recovery of money, damages, etc.

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⭐ 3. ESSENTIAL ELEMENTS OF SECTION 69(2)

To apply S. 69(2), the following conditions must be satisfied:

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(1) The firm must be unregistered

If the firm is registered, S. 69(2) does NOT apply.

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(2) Suit must be filed by the firm or any partner

• If firm files a case → barred
• If partner files a case on behalf of the firm → barred

Even if only one partner files, the bar still applies.

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(3) Suit must be against a “third party”

Third party means any person other than the partners of the firm.

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(4) Suit must be for enforcement of a “right arising from a contract”

The disability applies only to contractual rights, such as:

• Recovery of price of goods
• Recovery of loan
• Breach of contract claims
• Damages
• Delivery of goods

If the right does NOT arise from contract, S. 69(2) does NOT apply.

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⭐ 4. RIGHTS THAT ARE BARRED UNDER SECTION 69(2)

An unregistered firm CANNOT sue for:

✔ Recovery of money due under a contract

✔ Damages for breach of contract

✔ Enforcement of an agreement

✔ Enforcement of contractual rights (supply of goods, services)

✔ Enforcement of credit transactions

✔ Enforcement of agency contracts

Meaning:
If the firm is unregistered, it cannot go to court even if the outsider is clearly at fault.

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⭐ 5. RIGHTS NOT BARRED UNDER SECTION 69(2)

There are some important exceptions:

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(1) Non-contractual rights

Suits based on:

• Tort
• Criminal breach
• Negligence
• Fraud
• Conversion

➡ Can be filed by unregistered firms.

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(2) Enforcement of statutory rights

Example: Right under Sales Tax Act, Rent Act, Electricity Act, etc.

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(3) Suits of minor partners

Minor admitted to benefits — can sue.

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(4) Right to claim set-off (if small claim)

Set-off up to Rs. 100 is allowed.

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(5) Suits filed by third parties AGAINST unregistered firm

The law only bars suits by firm;
but outsiders can sue an unregistered firm.

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⭐ 6. IMPORTANT CASE LAWS (WITH EXPLANATION)

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1. Jagat Mittar Saigal v. Kailash Chandra (1967)

Court held:

• If the firm is unregistered, no suit can be filed against third party.
• Even if the contract is genuine, the bar will apply.

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2. Raptakos Brett & Co. v. Ganesh Property (1998) – Supreme Court

KEY RULING:
Section 69(2) applies only to contractual rights.
If a firm tries to enforce non-contractual or statutory right, suit is maintainable.

This case widened the exceptions.

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3. Shreeram Finance Co. v. Yasin Khan (1989)

Unregistered money-lending firm tried to recover loan amount.
Held: Suit is barred under S. 69(2).

Loan recovery is a contractual right → NOT allowed.

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4. Dulichand Laxminarayan v. CIT (1956)

Though this case dealt with tax issues, Supreme Court recognized importance of registration for legal enforceability.

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5. Purushottam & Co. v. Shivraj Fine Art Litho Works (2007)

Suit filed by unregistered firm → barred.
Even if the firm registers after filing, the defect is not cured.

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⭐ 7. ILLUSTRATIONS

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Illustration 1 (Suit barred)

A & B have an unregistered partnership firm.
X purchases goods worth Rs. 50,000 from the firm but does not pay.

Firm files a case.

✔ Right arises from a contract
✔ Firm is unregistered

➡ Suit is barred under Section 69(2).

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Illustration 2 (Suit allowed)

Unregistered firm sues Y for damages caused by negligence.

✘ This is not a contractual right
✔ This is a tort

➡ Suit is maintainable.

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Illustration 3 (Statutory right)

Unregistered firm sues Municipal Corporation for refund of illegal tax.

➡ Not based on contract
➡ Suit is allowed.

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⭐ 8. PURPOSE OF SECTION 69(2)

• Encourages partnership firms to register themselves
• Ensures proper maintenance of partnership records
• Protects third parties
• Prevents fraud
• Promotes transparency in business

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⭐ 9. CONCLUSION (Perfect for exam)

Section 69(2) of the Indian Partnership Act imposes a legal disability on unregistered firms by prohibiting them from filing suits against third parties to enforce contractual rights.
This restriction applies irrespective of:

• the value of the claim
• genuineness of the contract
• fault of the third party

The object is to compel registration of firms and ensure legal transparency.
However, suits related to:

• non-contractual rights,
• statutory rights,
• rights of minor partners,
  are not barred.

Courts in several cases such as Raptakos Brett, Shreeram Finance, and Jagat Mittar Saigal have clearly held that legal action by an unregistered firm for enforcement of a contract is not maintainable.

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