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CA Foundation · Business Laws · The Indian Partnership Act, 1932

Mohan and Nisha are partners in an unregistered firm. A customer, Oberoi Traders, owes the firm Rs 40,000 under a contract made in the firm's name. The firm files a suit in court to recover it. What is the likely outcome?

The suit is barred. An unregistered firm, or any partner on its behalf, cannot sue a third party to enforce a right arising from a contract. Recovering the price under a contract made by the firm falls squarely within this restriction.

  1. AThe suit is barred because the firm is unregistered and the claim arises from a contractCorrect
  2. BThe suit succeeds because a customer's debt is always recoverable
  3. CThe suit succeeds only if the amount exceeds Rs 1,00,000
  4. DThe suit is barred only if Mohan alone files it

Explanation

An unregistered firm, or its partners, cannot sue a third party to enforce a right arising from a contract. The Rs 40,000 claim is a contractual right, so the suit is barred. The Rs 1,00,000 threshold is not a rule of the Act for this bar.

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