I am not entirely sure I understand your message.

The simplest way of displaying your time is with hexadecimal:

// **** EDIT ****
// CLARIFIED FOR THE BENEFIT OF MR MALUND 
// read all the registers into a buf[] with i2c_read()
// then display with:
printf("%02x:%02x:%02xr", buf[2], buf[1], buf[0]);

 

If you use decimal display, you will get strange values unles you convert with a bcd2bin() function.

If you are missing the least significant bits from the hour register, but can read the least significant bits from the seconds register you must have a broken chip. If both registers lose the LSBs you have got a duff i2c_read() function.

David.