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LAW OF
CONTRACT
INDIAN
PARTNERSHIP ACT ,
1932
GUIDED BY:
EQBAL HUSAIN
SUBMITTED BY:
SHUJA HAIDER RIZVI
ACKNOWLEDGEMENT
List of Contents
ACKNOWLEDGEMENT.. 1
LIST OF CONTENTS ....... 2
TABLE OF CASES. 3
TABLE OF TREATISE.. 4
TABLE OF ABBREVIATIONS. 4
BACKGROUND...... 5
NATURE OF PARTNERSHIP....... 5
DEFINITION OF PARTNERSHIP... 6
ESSENTIALS OF PARTNERSHIP....... 7
RELATION OF PARTNERS INTER SE. 10
RIGHTS OF PARTNERS.. 12
DUTIES OF PARTNERS... 14
DISSOLOUTION OF FIRM.. 17
TABLE OF CASES
TABLE OF TREATISE
The law of Contracts & Tenders, Sixth Edition, T.S Venkatesa Iyer
TABLE OF ABBREVIATIONS
Background :
The Indian Partnership Act as stated under Section 11 was enacted in 1932
and it came into force on 1st day of October 1932. This act superseded the
1 Sec. 1. The Act came into force on the 1st day of October 1932, except Section 69, which
came into force on the 1st day of October, 1933.
Definition of Partnership:
The word partnership comes from a Latin word meaning to part, i.e, to
share. Though sharing is the central idea of a partnership, yet, as will be
seen later, it is not the sole test of a partnership. Partnership has been
defined in several ways and Lindley collects together as many as nineteen
definition in his book.
Section 4 of Indian Partnership Act 1932 defines Partnership2:
Partnership is the relation between persons who have agreed to share
the profits of a business carried on by all or any of them acting for all.
Sir Fredrick Pollock defines Partnership as
the relation which subsists between persons carrying on business in
common with a view of profits.
Essentials of Partnership:
1. An Agreement
2. Carrying on of business
3. Sharing profits
1. An Agreement:
Partnership arises from an agreement between two or more persons for the
creation of this relation. The presence of an agreement has to be there,
2 The present definition replaces Section 239, Indian Contract Act, which defined
Partnership as under : Partnership is a relation which subsists between persons who
have agreed to combine their property, labor or skill In some business, and to share
the profits thereof between them.
through the same way be either express or implied. If the basis of the
relationship between certain persons is not an agreement, the association
would not be a partnership. Section 5 expressly provides that the relation of
partnership arises from contract and not from status. Thus, it is the element
of agreement which distinguishes a partnership from various other
relationships like members of a Joint Hindu Family, joint owners or joint
heirs.
The agreement to form partnership has to be between two
or more persons. Since the creation of partnership itself requires a contract
between persons, such persons, therefore, must be competent to contract. A
minor or a person of unsound mind, who are not competent to contract,
cannot become partners. There is nothing which prevents a person
incompetent to contract from accepting any benefit and hence the business
organization permits a minor to be admitted to the benefits of partnership.3
Such minor has a right to share of property and profits as may be agreed
upon.4 Such minors share is liable for the act of the firm, but the minor is
not personally liable for any such act.5
2. Carrying on of Business:
The object of every Partnership must be carrying on a business and sharing
of profits. It may be any business which is not unlawful. The Act defines
business as including every trade occupation or profession. The definition
is not exhaustive and is capable of including any kind of commercial
activity aimed at earning profits.
3 See Sec. 30(1). The position of a minor has been discussed in details in Chapter 3.
4 Sec 30(2), Indian Partnership Act.
5 Sec. 30(3).
Duration of partnership:
Partners are free to decide as to how long partnership between them shall
continue. It may be partnership for a fixed term, say for 2 years or 5 years,
or it may be until the completion of certain adventures or undertaking, for
instance until the production of a firm. When the partners have not decided
about the duration of partnership, such a partnership is known as partnership
at will
Partnership at will
According to Section 7:
Where no provision is made by contract between the partners
for the duration of their partnership or for the determination of
their partnership, the partnership is partnership at will.
If the duration of partnership has been fixed but the partnership is made to
continue thereafter without specifying any fixed duration for the same, the
subsequently it becomes a partnership at will.8
When the duration of partnership cannot be found either by any express
provision in the partnership agreement or by implication, and the same is
dependent on a totally uncertain event like grant of permanent license for
running cinema business, it would be a partnership at will.9
10
11
(1) Subject to the provisions of this Act, the mutual rights and
duties of the partners of a firm may be determined by contract
between the partners, and such contract may be expressed or
may be implied by a course of dealing.
Such contract may be varied by consent of all the
partners, and such consent may be expressed or may be
implied by a course of dealing.
(2) Agreement in restraint of trade- Notwithstanding anything
contained in Section 27 of the Indian Contract Act, 1872, such
contract may provide that a partner shall not carry on any
business other than that of the firm while he is a partner.
As it has been noted as above, this section incorporates the general principle
that the mutual rights and duties of the partners may be determined by the
contract between themselves. They may themselves decide that how much
investment or labour is to be put by whom, or whatever a partner will be
entitled to any remuneration, apart from sharing the profits, or what will be
the profit sharing ratio, etc. Such contract may be expressed or may be
implied by a course of dealing. The mutual rights and duties which may
have been agreed upon between the partners may be subsequently varied by
the consent of all the partners. Such variance or change in the mutual rights
and duties may also be made either expressly or by an implied consent
though a course of dealing between the partners.
In Pabita Construction Co. v. UCO Bank13, three partners opened a joint
account with the respondent Bank with special instructions that any of the
two partners would be entitled to operate the bank account. In the course of
business transactions, disputes arose between them and one of them gave
written instructions to the respondent bank, not to clear any cheque unless
all the three partners jointly operate the account in deviation from the earlier
instructions. The Bank, in view of such instructions, refused to clear two
cheques issued by two of the partners. The action taken by the Bank was
held as quite justified by the Court.
13 AIR 2008 Cal. 103.
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RIGHTS OF PARTNERS:
It has been noted above that various rights and duties of the partners
contained in Section 12 to 17 are subject to contract between the partners.
Therefore, unless it has been agreed otherwise, rights are as follows:
1. Right to take part in the conduct of the business [Section 12(a)]
According to Section 12(a), every partner has a right to take part in the
conduct of the business. Since the business of partnership belongs to all the
partners, every partner is entitled to take part in conduct of business. If such
a right is wrongfully denied to a partner, he can seek the enforcement of the
right trough court of law.
2. Right to express opinion [Section 12(c)]
Section 12(c) contains following provision:
(c) Any difference arising as to ordinary matters connected with
the business may be decided by the majority of the partners, and
every partner shall have the right to express his opinion before
the matter is decided. But no change may be made in the nature
of the business without the consent of all the partners.
When the difference of opinion pertains to an ordinary or routine matter
connected with the business, the same way is resolved by a decision of
majority of the partners. But before the matter is decided every partner must
be provided with an opportunity to express his opinion.
When the matter is not an ordinary or a routine matter but is of
fundamental importance, consent of all the partners is needed.
3. Right to have access to books of firm. [Section 12(d)]
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Every partner has a right to have access to and to inspect and copy any
books of the firm. The right is available to both active and dormant partners.
The right is not only in respect of books of the accounts but in respect of any
books of the firm. A partner could exercise the right either personally or by
engaging an agent.
4. Right to share profit [Section 13(b)]
Every partner has a right to share the profit. Usually partners provide in their
agreement as to what will be the proportion in which they will share the
profit.
According to Section 13(b), in absence of such agreement, the
partners are to share the profit equally to the losses sustained by the firm and
not in the proportion the various partners contributed capital.
5. Right to Indemnity [Section 13(e)]
A partner acting on the behalf of the firm may make certain payments and
also incur some liabilities. According to Section, he is entitles to claim
indemnity for the same. The indemnity claimed for the acts done by a
partner in ordinary and proper conduct of business and also for doing the
same act in an emergency for the purpose of protecting the firm from the
loss.
DUTIES OF PARTNERS:
Section 9 and 10 incorporate certain duties of the partners which are not
subjected to contract between the partners, whereas certain duties have been
provided from Section 12 to 17, each one of those provisions has been
subject to contract between the partners. Duties are as follows:
1. Duty to carry on the business to the greatest common advantage
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DISSOLOUTION OF FIRM:
Dissolution of partnership means coming to an end of the relationship
known as partnership, between various partners. When one or more partner
ceases to be partners but the others continue the business in partnership,
there is dissolution of partnership between the outgoing partners on the one
hand and remaining partners on the other.
According to Section 39, when the dissolution of partnership
between all the partners of the firm occurs, this is called dissolution of the
firm.
Modes of dissolutions [Section 40-44]
1. By mutual consent:
Whether it is a partnership at will or one for a fixed period, a partnership
would be dissolved , if all the partners agree that it should be dissolved. Just
as a partnership is formed by the consent of all the partners, similarly a
partnership gets dissolved by all the partners agreeing to dissolution.
Section 40 of Indian Partnership Act
A firm may be dissolved with the consent of all the partners or in
accordance with the contract between the partners.
Under this Section all partnership including a partnership including a
partnership at will may be dissolved in the manner provided therein.24
Consent of the partners to dissolve the firm need not necessarily be
expressed but may be implied from the circumstances of the particular
case.25
Notice of dissolution of partnership given by one partner of the firm
accepted by the other partner and not replied to by him amounts to consent
24 Sathappa v. Subrahmanyam 101 IC 17
25 Maung Tha Hurjum v. Ma Than Yeikh (1900) ILR 28 Cal.
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to dissolution.26
2. By the insolvency of all the partners but one
Through the insolvency of one or more partners would only dissolve the
partnership so that it would be open to the remaining partners to enter into a
special agreement for continuing the business of the firm provided there be
at least two solvent partners left, yet if all partners but one have become
insolvent there must necessarily be a dissolution of the firm.
Section 41, Cl (a) of the Indian Partnership Act:
(a) by the adjudication of all the partners or of all the partners but one as
insolvent.
3. By business becoming illegal
Whether it is a partnership at will or for fixed period, if the business of the
partnership is prohibited by law or becomes illegal, then partnership gets
dissolved.27 It is possible that the business may be prohibited or become
illegal if, for example by the declaration of war, the partners become alien
enemies. Where the partners of the firm find that they are nationals of State
which have declared war on each other, all contract entered into before the
declaration of war would be abrogated if they ensure to the benefit of the
enemy or involve dealing with the enemy.28 After one of the partners
becomes an alien enemy if the other partner is now dissolved firm continues
the business making use of the capital of the erstwhile partner of firm, the
enemy partner can claim his share earned after the dissolution payment
being suspended while the war is on.29 Section 41, Clause (b) provides :
26 Agarwal Jorwarmall v. Kasam AIR 1937 Nag.
27 Rodriguez v. Speyer Bros. (1919) AC 59
28 Marshal & Co. v. Naginchand (1918) ILR 42
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(b) by happening of any event which makes it unlawful for the business of
the firm to be carried on or for partners to carry it on in partnership
4. By notice of dissolution
A partnership at will, weather originally so, or subsequently becoming one,
by a partnership for a term being continued beyond the stipulated period,
may be dissolved at any time by any of the partners giving notice of
dissolution to the other partners.30 This right of a partner to dissolve a
partnership at will by giving notice simplicities is a statutory right and is not
affected by his conduct or credentials. The right must however be exercised
in a bona fide and the partner giving notice will not allowed to gain any
particular advantage to himself by giving notice at an unreasonable
moment.31 Notice once given cannot be withdrawn expect with the consent
of the other partners.32
Section 43 of Indian Partnership Act provides thus:
(1)Where the partnership is at will, the firm may be dissolved by any partner
giving notice in writing to all the other partners of his intention to dissolve
the firm.
(2) The firm is dissolved as from the date mentioned in the notice as the
date of dissolution or, if no date is so mentioned, as from the date of the
notice.
If the partner giving notice dies while it is in course in the post, it has been
held that the dissolution is by death and not by notice.33
29 Hugh Stevenson & Sons v. Aktiengesellschaft (1918) AC 239
30 Ram Singh v. Ram Chand (1923) ILR 5 Lah. 23
31 Burdon v. Barkus (1862) 4 De GF
32 Jones v. Llyod (1874) LR 18 Eq. 265.
33 McLeod v. Dowling (1927) 43 TLR 655.
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