Supreme Court Upholds Bar on Suit by Unregistered Law Firm Against Client

Safiya Malik

The Supreme Court has dismissed a plea filed by an unregistered law firm seeking the recovery of professional fees from its client. The court observed that the suit was barred under Section 69(2) of the Indian Partnership Act, 1932, as the petitioner firm was not a registered entity. A bench comprising Justice Surya Kant and Justice Nongmeikapam Kotiswar Singh upheld the decision of the Madras High Court, which had set aside the trial court’s order in favor of the law firm.

The court stated, “We see no reason to take a different view than that of the High Court, in view of Section 69(2) of the Partnership Act, 1932.” The court also noted that the petitioner's reliance on the Legal Practitioners (Fees) Act, 1988, was misplaced since “no legal practitioner, juristic or otherwise, was the plaintiff before the Civil Court.” The special leave petition was dismissed, and all pending applications were disposed of.

The case arose from a dispute between a law firm and its client over unpaid legal fees. The petitioner firm, engaged by the respondent company for legal services, claimed that the respondent had agreed to pay 50% of the fees at the time of filing a petition under the SARFAESI Act and the remaining amount upon completion of the assignment. The firm alleged that the respondent failed to fulfill its payment obligations, leading to an outstanding amount of ₹6.57 lakh. The firm issued multiple demand notices, including one under the Insolvency and Bankruptcy Code, but received no response. Consequently, it filed a suit for recovery before the Chennai City Civil Court.

The trial court ruled in favor of the law firm and directed the respondent to pay the claimed amount along with interest. However, the respondent challenged this decision before the Principal District Court, which reversed the trial court’s judgment. The appellate court held that the suit was not maintainable as the firm was unregistered, thus violating Section 69(2) of the Indian Partnership Act. The section states that no suit can be instituted by or on behalf of an unregistered firm to enforce contractual rights against third parties.

The firm then approached the Madras High Court in a second appeal, arguing that the statutory bar under Section 69(2) of the Partnership Act did not apply to claims arising from professional services, as legal fees were remuneration rather than business income. The High Court rejected this argument, stating that the right to claim remuneration arose from a contractual agreement. Since the firm was unregistered and its partners were not listed in the register of firms, the suit was not maintainable under law. The High Court also noted that the firm had failed to produce a registration certificate, further weakening its case. The court recorded, "A reading of Section 69(2) of the Partnership Act would clearly show that no suit can be instituted by or on behalf of an unregistered firm to enforce any right arising from a contract against the third party unless a firm is registered and the persons suing are shown as partners.”

Before the Supreme Court, the petitioner argued that its claim was protected under the Legal Practitioners (Fees) Act, 1988, which governs the fees of legal practitioners. The petitioner contended that the Act recognized the right of legal professionals to recover fees for services rendered. However, the Supreme Court rejected this contention, observing that the petitioner was not a legal practitioner but an unregistered partnership firm. The bench stated, “The other contention raised on behalf of the petitioner, based upon provisions of the Legal Practitioners (Fees) Act, 1988, cannot be entertained as no legal practitioner, juristic or otherwise, was the plaintiff before the Civil Court.”

The Supreme Court, after examining the submissions and statutory provisions, found no reason to interfere with the decision of the High Court. The bench upheld the statutory requirement under Section 69(2) of the Partnership Act, stating that an unregistered firm could not enforce contractual rights through litigation. The special leave petition was accordingly dismissed, and all pending applications were disposed of.