Partnership firm banking business and registration under company law restrictions held permissible where the firm was lawfully constituted.

Section 11 of the Companies Act, 1956 was considered in relation to a partnership firm carrying on banking business with more than ten partners. Read with section 5(b) of the Banking Regulation Act, 1949, the prohibition was treated as applying only where the firm was not lawfully constituted under the governing law. Because the firm was registered under the Indian Partnership Act and held a licence under the Money Lenders Act, the statutory bar was held not to apply. The assessee was therefore found entitled to registration, and the reference was answered in its favour.

---

---

Issues: Whether a partnership firm with more than ten partners carrying on banking business was hit by section 11 of the Companies Act, 1956 and, if not, whether it was entitled to registration.

Analysis: Section 11 of the Companies Act, 1956 prohibits a partnership consisting of more than ten persons from carrying on banking business unless it is registered as a company or is formed under some other Indian law. Read with section 5(b) of the Banking Regulation Act, 1949, the provision was held to be attracted only where the firm was not legally constituted under the governing law. The firm in question was registered under the Indian Partnership Act and also held a licence under the Money Lenders Act, so the statutory inhibition was treated as not attracted.

Conclusion: The assessee was entitled to registration, and the question referred was answered in the affirmative in favour of the assessee and against the Revenue.

---