DETERMINATION OF TRUE TEST OF PARTNERSHIP WITH

REFERENCE TO INDIAN PARTNERSHIP ACT, 1932

4.5 Law of Contract

Submitted by

Sourabh Roy

SM0115052

4th Semester, 2nd Year

National Law University & Judicial Academy, Assam

 Content

Table of Cases ..4

Table of Statutes........4

Table of Abbreviations..............4

Introduction5

Aim(s).8

Objectives (s)..8

Scope and Limitations....8

Review of Literature......8, 9

Research Questions....9

Research Methods applied .....9

Historical Overview....10

Nature of Partnership12

Advantage of Partnership over a Company........13

Purpose and Scope.14

Definition of Partnership.......15

Essentials of Partnership...15

Elements of Partnership..15

Partnership Agreement Oral, Written or By Conduct....16

Construction of Partnership Agreements....17

Determining the Existence of Partnership...17

Importance of Partnership....18

1
Conclusion and Suggestion....20

Bibliography.....21

Index of Authorities.............17

2
 Abstract

James Brown and Clarence Coe were in the jewellery business, working together as Brown
& Coe, partners. During the second year of their business together, they became financially
embarrassed and entered into the following arrangement with Lewis Meyer: Meyer agreed to
advance money to the firm, to the maximum amount of $10,000, at the rate of $500 per
month. Brown & Coe agreed to give Meyer one-third of the net profits of the business, and to
allow him to personally aid in it management and to have a voice in its policy and control,
particularly with reference to sales on credit; also, they gave him a chattel mortgage on the
property in stock, for the money he put into the business. While they were operating under
this contract, Brown and Coe made a large purchase of jewellery which, it developed later,
was not paid for. The vendor of the jewellery, thereupon, brought suit against Brown, Coe
and Meyer, as partners. To sustain the evidence of Meyer's partnership, his contract with
Brown & Coe was submitted. Does this contract make them partners? This project gives a
brief analysis of relationship of partners and their obligations for each other in reference to
Indian Partnership Act, 1932.

3
 TABLE OF CASES

1. Poppatlal Shah v. State Of Madras

2. Tribhuban Parkash Nayyar v. Union Of India
3. Dulichand Laxminarayan v. CIT
4. Pratibha rani v. Surajkumar
5. Sanjay Kanubhai Patel v. Chief Controlling Revenue Authority
6. Hemchandra Dev v. Dhirendra Chandra Das
7. Birdichand v. Harakchand
8. CIT v. Kedarmal Keshardeo
9. Bodinayakanur v. State of Madras
10. Poppatlal Shah v. State Of Madras
11. Tribhuban Parkash Nayyar v. Union of India
12. Dulichand Laxminarayan v. CIT
13. Pratibha rani v. Surajkumar
14. Sanjay Kanubhai Patel v. Chief Controlling Revenue Authority
15. Rampratap v. Durgaprasad
16. Hemchandra Dev v. Dhirendra Chandra Das
17. Birdichand v. Harakchand
18. Deputy Commr Of Sales Tax (Law) Board Of Revenue (Taxes) v. K Kelukutty
19. CIT v. Kedarmal Keshardeo
20. Tarsem Singh v. Sukhminder Singh
21. Ross v. Parkyns

TABLE OF STATUTES

1872- Indian Contract Act

1932- Indian Partnership Act

2008- Limited Liability Partnership Act

TABLE OF ABBREVIATION

1. All India Reporter

AIR

2. Another
Anr

4. Ors
Others

4
 Introduction

Cox and Wheatcroft v. Hickman.1

Messrs. Smith were partners, engaged in the business of iron masters and corn merchants.
Being unable to meet their outstanding obligations, they made an assignment of all their
property to creditors, as trustees, upon trust, to carry on the business, and, after paying the
current expenses, to divide the net income ratably among the creditors of Messrs. Smith, as
often as there should be funds in hand sufficient to pay one shilling in the pound. After all the
creditors were paid in full, the property was to be reconveyed to Messrs. Smith.In the
assignment, the creditors, named as trustees, were given power to make such rules and
regulations as the majority saw fit for the proper management of the business, and even to
discontinue the business, in case it did not promise success under those circumstances. Cox
and Wheatcroft, among others, were named as trustees; Cox never accepted, and Wheatcroft,
after acting for six months, resigned. After the resignation of Wheatcroft, the other trustees,
who continued to act in the conduct of the business, incurred certain indebtedness to
Hickman; he brought the present action against the defendants, Cox and Wheatcroft included,
seeking to charge them as partners in the business, and, therefore, liable for the debts of the
business, incurred by the trustees after the assignment. The following quotation from Lord
Cranworth contains the decision of the Court "It was argued that as they - the creditors,
including Cox and Wheatcroft - would be interested in the profits, therefore, they would be
partners. It is often said that the test, or one of the tests, whether a person, not ostensibly a
partner, is, nevertheless, in contemplation of law, a partner, is whether he is entitled to
participate in the profits. This, no doubt, is in general a sufficiently accurate test; for a right to
participate in profits affords cogent, often conclusive, evidence that the trade in which the
profits have been made was carried on in part for, or on behalf of the person setting up such a
claim. But the real ground of the liability is that the trade had been carried on by persons
acting on his behalf. When that is the case, he is liable to the trade obligations, and entitled to
its profits, or to a share of them. It is not strictly correct to say that his right to share in the
profits makes him liable to the debts of the trade. The correct mode of stating the proposition
is to say that the same thing which entitles him to the one makes him liable to the other,
namely, the fact that the trade has been carried on on his behalf, i. e., that he stood in the
relation of principal towards the persons acting ostensibly as the traders, by whom the

1
Volume 8 House Of Lord Cases, Page 268

5
liabilities have been incurred, and under whose management, the profits have been
made."Taking this to be the ground of liability as a partner", continued Lord Cranworth, "It
seems to me to follow that the mere concurrence of creditors in an arrangement under which
they permit their debtor, or trustee for their debtor, to continue his trade, applying the profits
in discharge of their demands, does not make them partners with their debtors or the trustees.
The debtor is still the person solely interested in the profits, save only that he has mortgaged
them to his creditors. He receives the benefit of the profits as they accrue, though he has
precluded himself from applying them to any other purpose than the discharge of his debts.
The trade is not carried on by or on account of the creditors, though their consent is necessary
in such a case, for without it all the property might be seized by them in execution. But the
trade still remains the trade of the debtor or his trustee. The debtor or the trustees are the
persons by or on behalf of whom it is carried on."It was accordingly held, that Cox and
Wheatcroft were not partners in the business, and were not liable for the debts in question.

Ruling Law. Story Case Answer

What then shall we say is the true test in determining when and under what circumstances the
relation of partnership exists? Negatively, it may be said that no arbitrary rule can be
formulated which will solve all cases. The best that can be done is to select and emphasize
some of the more prominent features and elements of a true partnership relation. It is said by
some, that the intention of the parties will govern in determining this question. This may be a
good general test, provided the meaning of "intention" is properly understood. Thus, it is said,
that the legal intention, and not the actual intention, is the important thing. By legal intention
is meant, that if persons enter into an enterprise, which has all the characteristics and
attributes of a partnership, they will be treated as partners, regardless of what they actually
intended. In former times, it was held by the English courts that the mere fact that a person
shared in the profits of an enterprise made him a partner in the business, regardless of the
basis upon which he received the profits. But it seems now, that the real test is that persons
are held to be partners when they are engaged in a business as joint principals, and have a
community of interest in the subject matter of the partnership, and jointly share in the profits
of the business, and have equal or similar control in the management of the affairs. This
excludes a servant who receives a part of the profits by way of compensation; a landlord who
receives a part of the profits by way of rent; a lender who receives a part by way of return of

6
his money and interest; and all others who may share in the profits upon any other basis than
as joint principals.

In the Story Case, the contract showed that Meyer has a control in the business that he is to
share in the profits, but, because a chattel mortgage was given to Meyer, it is difficult to say
that they are in the business as joint principals, and have a community of interest in the
property. If it can be proven that the chattel mortgage covered a real interest as a principal
owner, then a partnership exists. The Court might say that this was the effect of the mortgage
and, therefore, was a partnership. Under the case of Cox vs. Hickman, however, merely a
debtor and creditor relation exists, since a community of interest as joint owners cannot be
shown.

The elements of a complete partnership are (1) control in the business; (2) share in the profits
and losses; and (3) likeness or community of interest in the property. If these characteristics
are present, no matter what the parties call themselves, they are partners. Of course,
partnership is often expressly and intentionally entered into, and by contract, one or more of
the parties agrees not to exercise the first element, or perhaps part of his right under the
second.

7
 Aims

This paper aims to understand the determination of true test of partnership with reference to
Indian Partnership Act, 1932.

Objectives

The objectives of this paper is to accost the issue of true test of partnership in commercial
practice.

Scope & Limitations

This paper is only a narrative on the topic of true test of partnership with reference to Indian
Partnership Act, 1932 and gender and is limited to a descriptive analysis of the issue.

Review of Literature

Avatar Singh, CONTRACT AND SPECIFIC RELIEF, Eastern Book Company, ed.
11
This popular book, now in its fifth edition, deals with the Contract Act, 1862 and the
Specific Relief Act, 1963. The purpose of one is to lay down principles for formation of
contractual relations and to provide the remedial measure of recovery of damages in the
event of one party's failure to keep his contractual commitments. The Specific Relief Act
of 1963, which replaced the earlier Act of 1877, provides the remedial measures for
forcing parties to perform their actual contractual commitments and not to get rid of them
by just paying compensation for their Acts. The present work provides a summary version
in a combined manner of all the statutory provisions and judicial pronouncements on
them. The presentation has been shaped as a text material. During the period between the
present and preceding editions, there have been no statutory changes. New trends in the
subjects have emerged only through judicial decisions.2
Tejpal Sheth, BUSINESS LAW, Pearson Education, ed. 2
Management, Ethics and Communication for CS Foundation is for students pursuing a
course in company secretary ship. It aims to provide an excellent grounding to students,
prospective managers and entrepreneurs to comprehend the various ideas about the
management, ethics and communication within the business and take sensible business

2
Rampratap v Durgaprasad AIR 1925 Pc 293;

8
 decisions. Spread over sixteen chapters under three sections, one each for management,
ethics and communication, this book covers the syllabus most comprehensively. With the
aim of providing in-depth knowledge and understanding to excel in the examination, the
book provides a variety of questions and their answers on almost all possible topics
covered in the syllabus.
Tejpal Sheth, LEGAL ASPECTS OF BUSINESS, Pearson Education India
Tejpal Sheth is an associate member of the Institute of Company Secretaries of India. He
holds an MBA degree in International Business and Diploma in Pharmacy. Apart from
practising Company Secretary, he is a dynamic and well-known educator in the
professional stream. He is a visiting faculty in any reputed MBA colleges and
professional institutes like ICSI, ICAI and ICWAI for more than 14 years. He has taught
many students on various topics like business law, mercantile law, corporate law,
business ethics and communication.

Research Questions

What is Partnership?
What is its nature?
What is the importance of partnership?
How to determine existence of partnership?

Research Methods applied

Approach to research

In this project, the researcher has adopted Doctrinal type of research. Doctrinal research is
essentially a library-based study, which means that the materials needed by a researcher
may be available in libraries, archives and other data-bases. The researcher has used
computer laboratory to get important data related to this topic. Help from various websites
were also taken.
Sources of data collection
Data has been collected from secondary sources like web sources. No primary sources like
survey data or field data were collected by the researcher.

9
 History of Indian Partnership Act, 1932

The Indian Partnership Act was enacted in 1932 and it came into force on 1st day of October,
1932. The present Act superseded the earlier law relating to Partnership, which was contained
in Chapter XI of the Indian Contract Act, 1872. The Act is not exhaustive. It purports to
define and amend the law relating to Partnership. A Partnership arises from a contract, and
therefore, such a contract is governed not only by the provisions of the Partnership Act in that
regard, but also by the general law of contract in such matters, where the Partnership Act
does not specifically make any provision. It has been expressly provided in the Partnership
Act that did not repeal provisions of the Indian Contract Act, 1872, save in so far as they are
inconsistent with the express provisions of this act, shall continue to apply.3 Thus, the rules
relating to offer and acceptance, consideration, free consent, legality of object,etc, as
contained in the Indian Contract Act are applicable to a contract of Partnership also. On the
other hand, regarding the position of minor, since there is specific provision contained in
Section 30 of the Indian Partnership Act, the minors position is governed by the provision of
the Partnership Act.

3
Pratibha rani v. Surajkumar AIR 1985 SC 628

10
 Nature of Partnership

Partnership is a form of business organization, where two or more persons join together for
jointly carrying on some business. It is an improvement over the Sole trade business ,
where one single individual with his own resources, skill and effort carries on his own
business. Due to the limitation of resources of only a single person being involved in the sole-
trade business, a larger business requiring more investments and resources than available to a
sole-trader, cannot be thought of in such a form of business organisation. In partnership, on
the other hand, a number of persons could pool their resources and efforts and could start a
much larger business, than could be afforded by any of these partners individually. In case of
loss the burden gets divided amongst various partners in a Partnership4.

Criteria of Partnership:

Any two or more than two persons can join together for creating Partnership. Section 11 of
the Companies Act, 1956 imposes limit as to maximum number of persons in a partnership
for the purpose of carrying:

Banking Business There can be maximum of 10 persons

Any other purpose There can be maximum of 20 persons.

If the number of members in any association exceeds the above stated limit, that must be
registered as a company under Companies Act, 1956 otherwise that will be considered to be
an illegal association. As against partnership, where the maximum number of partners can be
10 or 20, depending on the nature of partnership business, there could be possibly much
larger number of members in a company.

In Private Company Here there can be maximum of 50 members

In Public Company - Here there is no such limit to the maximum number.

Therefore, if a much larger business than could be afforded by only 10 or 20 persons, is

sought to be carried on, a company works out to be better form of business organization than
partnership. For instance , there could be a public company having 1,00,000 members , each
one of them having contributed just Rs.10 , and thus having a capital of Rs. 10,00,000 for its
business. A Company, as a form of business organization may be better than a partnership in

4
Sanjay Kanubhai Patel Vs. Chief Controlling Revenue Authority AIR 2005 Bom 57

11
another way also. It is an artificial person, distinct from its members, and has much longer
life than that of a partnership, whereas the partnership being nothing but an aggregate of all
the partners, partnership has much smaller span of life than a company. In the case of a
Company, the liability of a member (shareholder) is limited to the extent of the amount of
shares purchased by him, whereas in case of Partnership, the liability of every partner in
unlimited, and this factor is of great advantage in case of a Company, from the point of view
of risk of investors in the business.

12
 Advantage of Partnership over a Company:

1. For the creation of partnership just an agreement between various persons is all what you
require. In case of a company a lot of procedural formalities which have to be gone through
before a company is created.

2. The partners are their own masters for regulating their affair. A company is subject to a lot
of statutory control. The liability of the members of a company is limited but the liability of
the partners is unlimited

3. For dissolution of partnership, a mere agreement between the partners is enough but that is
not the case of a company which can be wound up by only after certain set of procedure is
followed.

4. Since all the profits are to be pocketed by the partners in a partnership firm, there is a great
incentive for the partners to make business successful but that is not in case of a company.

5. In a Partnership the persons who have entered into are individually called partners and
collectively a firm. A partnership firm does not have a separate legal personality. A company
is a legal entity different from its members.

6. A partnership firm means all the partners put together, if all the partners cease to be
partners, e.g., all of them die or become insolvent, the partnership firm gets dissolved. A
company being a person different from the members, the members may come and go but the
companys life is not affected thereby.

7. The shareholder of a company can transfer his share to anybody he likes but a partner
cannot substitute another person in his place unless all the other partners agree to the same.
Similarly, on the death of a member of a company his legal representatives will step into his
shoes for the purpose of the rights in the company, but on the death of a partner his legal
representatives do not get substituted in his place of partnership.

8. The minimum number of members in partnership in two and maximum in case of

partnership carrying on banking business is 10 and in case of any other business is 20.In the
case of a private company the minimum number is 2 and the maximum is 50 whereas in the
case of a public company the minimum number should be 7 but there is no limit to the
maximum number and therefore, any number of persons can hold shares in a public company.

13
 Purpose and Scope

The preamble is an admissible aid to construction. It throws light on the intent and design of
the legislature and indicates the scope and purpose of the legislation itself.[4] But it cannot be
used to control or qualify precise and unambiguous language of the enactment . It is only
when there is a doubt as to the meaning of a provision, that recourse may be had to the
preamble to ascertain the reasons for the enactment and hence, the intention of Parliament.
The scope of a partnership is primarily a question of the intention of the partners. There is no
restriction on the exercise of such powers as it chooses at any time to exercise, except such
prohibitions on illegal, immoral or fraudulent conduct as apply equally to individuals.

1- A partnership may itself be a member of another firm if the partners of the constituent firm
consent thereto.

2- If it appears that all the partners have either authorized or ratified the contract, no further
question as to its validity ordinarily remains.5 The cases where the question of the validity of
partnership contract arises is where one partner has made the contract without specific
authority from his co-partners. As to their implied scope partnerships may he divided into the
classes of the non-trading and the trading. Some powers can be exercised by partners in
partnership of either type. Thus a partner may retain an attorney protect the interests of the
firm

5
Hemchandra Dev v. Dhirendra Chandra Das AIR 1960 Cal 691.

14
 Definition of Partnership:

Section 4 of the Indian Partnership Act, 1932 defines Partnership as under

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

Essentials of Partnership:

According to Section 4, the following essentials are necessary to constitute a Partnership.

1. There should be an agreement between the persons who wants to be partners.

2. The purpose of creating partnership should be carrying on of business

3. The motive for the creation partnership should be earning and sharing profits.

4. The business of the firm should be carried on by all of them or any of them acting for all,
i.e., in mutual agency. When all the above elements are present in certain relationship that is
known as partnership. Persons who have entered into partnership with one another are
called individually partners and collectively a firm and the name under which their
business is carried on is called the firm name.

Elements of Partnership:

The definition of partnership contains three elements:

1. There must be an agreement entered into by all the persons concerned.

2. The agreement must be to share the profits of business; and

3. The business must be carried on by all or any of the persons concerned, acting for all.

15
 Partnership Agreement Oral, Written or By Conduct

The Supreme Court has, construing the provisions of section 4 , observed that a partnership
agreement is the source of a partnership , and it also gives expression to the other ingredients
defining the partnership , specifying the business agreed to be carried on ,the persons who
will actually carry on the business , the shares in which the profits will be divided , and
several other considerations which constitute such an organic relationship . A partnership
agreement therefore, identifies the firm and each partnership agreement may constitute a
distinct and separate partnership. That is not to say that a firm is corporate entity or enjoys a
juristic personality in that sense. However, each partnership is a distinct relationship. The
partners may be different and yet the nature of the business may be the same, the business
may be different and yet the partners may be the same. The intention may be to constitute two
separate partnerships and therefore, two distinct firms, or to extend merely a partnership,
originally constituted to carry on one business, to the carrying on of another business. The
intention of the partners will have to be decided with reference to the terms of the agreement
and all the surrounding circumstances, including evidence as to the interlacing or interlocking
of management, finance and, other incidents of the respective business.6

Agreement of partnership need not to be express, but can be inferred from the course of
conduct of the parties to the agreement. The firm rule is that once the parties entering into the
partnership are clearly described in the instrument , there is no scope for further inquiry to
find out by some process or casuistry , if any of the parties has got obligation to others for the
purpose of inducting those others to whom any of the parties may be accountable in law , into
the arena of partnership and for treating them as partners under the law.If , the parties to an
agreement have not agreed on the date of commencement of the partnership , it cannot be
said that they have become partners. The Supreme Cour, in Tarsem Singh v Sukhminder
Singh has held that it is not necessary under the law that every contract must be in writing.
There can be an equally binding contract between the parties on the basis of oral agreement,
unless there is a law which requires the agreement to be in writing. The relations inter se ,
among the promoters of a company , are not the same as the relations between partners.
Persons entering into contract are not, on the authority of Keth Spicer Ltd v Mansell,

6
Rampratap v. Durgaprasad AIR 1925 Pc 293;

16
necessarily to be viewed as partners.7 However, if they perform a large number of acts as part
of the promotion, the court might come to a different conclusion.

Construction of Partnership Agreements:

It is settled canon of construction that a contract of partnership must be read as a whole and
the intention of the parties must be gathered from the language used in the contract by
adopting harmonious construction of all the clauses contained therein. The cardinal principle
is to ascertain the intention of the parties to the contract through the words they have used,
which are key to open the mind of the makers. It is seldom that any technical pedantic rule of
construction can be brought to bear on their construction. The guiding rule really is to
ascertain the natural ad ordinary sensible meaning to the language through which the parties
have expressed themselves, unless the meaning leads to absurdity. A partnership deed must
be constructed reasonably.

Determining the Existence of Partnership:

In Ross v. Parkyns Jessel, M.R., stated the law as follows: It is said (and that there is no
doubt) that the mere participation in profit inters se affords cogent evidence of partnership.
But it is now settled by the case of Cox v. Hickman, Buller v. Sharp that although a right to
participate in profits is a strong test of partnership, and there may be cases where upon a
single presumption, not of law, but of fact, that there is a partnership, yet whether the relation
of partnership does or does not exists must depend upon the whole contract between the
parties, and that circumstances is not conclusive. . 8
The law as stated above has been
restated in this section. The section also indicates the manner in which the general principle
to be applied to a particular circumstances. The question whether the relation of partnership
does or does not exist, must depend on the real intention and contract of the parties.

Explanation I - The mere fact that a person is entitled to a share in the profits does not make
him a partner, because the real relationship may be one of debtor and creditor.

7
Birdichand v. Harakchand 190 IC 613 , AIR 1940 Nag 211
8
Deputy Commr Of Sales Tax (Law) Board Of Revenue (Taxes) v. K Kelukutty AIR 1985 SC 1143 , from (1978)
2 ILR Ker 82

17
 Importance of Partnership:

A Partnership Agreement is a voluntary contract between two or more persons to enter into a
business relationship between or among one another with the intention of carrying out the
said business and sharing its profits/losses among themselves as agreed to in the document.
The parties to the agreement are referred to as Partners. The Partners agree to put all their
capital, labour and skills towards achieving maximum gains from the venture. A Partnership
Agreement will also spell out the manner in which it may be dissolved and must be signed
and followed by each of the Partners. 9A Partnership Agreement is defined as being an
arrangement that is agreed to by all parties to the transaction and is an effectual method of
helping each of the partners to:

Agree to share a vision to collaborate together

Set up mutually acceptable goals

Specify the basis on which to begin working together

Make sure that each of the partners are clear about about what needs to be achieved

Assess the effectiveness of the agreement

Bring out issues related to accountability and responsibility

Lay a strong foundation that can sail through difficulties and testing times ahead

10
A partnership should begin small and slowly expand. It should be growing from year to
year with annual reviews along the way to continuously improve it. There is no hard and fast
way of writing out a Partnership Agreement but face to face discussions among partners,
specifying special issues and setting these down in writing before actually drafting them into
the document are some worthwhile preliminary steps worth following. The document, and
any changes thereto, should be formally approved and signed by all the partners and dated.
The Partnership Agreement should begin with the name of the business as well as the nature
of the business. The principle place of business should be to the address of the place of
business. The date when the arrangement was made between the Partners and the term of its

9
CIT v Kedarmal Keshardeo AIR 1968 A&N 68, Bodinayakanur v State Of Madras (1962) 2 Mad LJ 294.
10
Poppatlal Shah v. State Of Madras AIR 1953 SC 274

18
operation need to be expressly laid down in the agreement. The amount of capital that the
Partners will invest in the business will be held in a separate capital account and neither of
the Partners will be able to withdraw any money from it. And, finally each individual capital
account will be maintained in accordance with the profit sharing capabilities of the Partners
as set forth in the agreement. The income statement of the partnership shall be made
individually in the names of each Partner and the profits/losses will be shared in accordance
with the terms agreed to by each individual. Partnership profits or losses will be charged to
the individual income accounts of the Partners. 11Partners are not entitled to draw any salary,
but may draw upon their income accounts for any monies needed as defined in the
partnership agreement. The partnership may be voluntarily dissolved at any time with the
mutual consent of the partners. In such an eventuality, the withdrawing partner should move
reasonably swiftly to facilitate the liquidation. In case a partner was to die, the remaining
partners will have the option to either liquidate the partnership or to buy out the share of the
deceased partner.

11
Tribhuban Parkash Nayyar v. Union Of India (1969) 3 SCC 99.

19
 Conclusion & Suggestion

In my opinion Partnership is very important because in day to day activities we enter into
partnership agreements and by making partners big goals are achieved with the help of joint
and more number of people. The joint efforts of all the member results in successful
accomplishment of tasks and that task or job can be easily afforded. Division of work leads to
increase in efficiency at work among different partners. When some job is done by consent of
all the members and if some profit is earned then it is shared among the different partners.
And similar is the case when some loss occurs then that is also beard among all the members
and its not that only one has to take responsibility or give compensation. So in my view
Partnership is a good form of doing business than a company which is owned by a single
person. Partnership is one of the oldest forms of business relationships. Though limited
liability companies have replaced partnership firms in complex businesses, partnerships are
still preferred by professionals and small trading and business enterprises in India and abroad.
The Indian partnership act of 1932 provides for a general form of partnership which is the
most prevalent form in India, but, over time the general form of partnership has lost its charm
because of the inherent disadvantages in it, the most important is the unlimited liability of all
partners for business debts and legal consequences, regardless of their holding, as the firm is
not a legal entity. General partners are also jointly and severally liable for tortuous acts of co-
partners. Each partner has the exposure of their personal assets being appropriated and
liquidated to meet partnership dues. These are statutory position, which cannot be altered by
contract inter-se, though at times subterfuges are resorted to by unscrupulous partners to
avoid personal liability. General partnership holdings are not easy to transfer; typically all
other partners have to agree. Yet partnership is preferred in India, because of the ease of
formation and lack of compliances involved.

20
Bibliography

Books:

Avatar Singh, CONTRACT AND SPECIFIC RELIEF, Eastern Book Company, ed. 11
Tejpal Sheth, BUSINESS LAW, Pearson Education, ed. 2
Tejpal Sheth, LEGAL ASPECTS OF BUSINESS, Pearson Education India

Index of Authorities
Poppatlal Shah v. State Of Madras AIR 1953 SC 274
Tribhuban Parkash Nayyar v. Union Of India (1969) 3 SCC 99.
Dulichand Laxminarayan v. CIT AIR 1956 SC 354 ,Para 11
Pratibha rani v. Surajkumar AIR 1985 SC 628
Sanjay Kanubhai Patel v. Chief Controlling Revenue Authority AIR 2005 Bom 57,
Rampratap v. Durgaprasad AIR 1925 Pc 293;
Hemchandra Dev v. Dhirendra Chandra Das AIR 1960 Cal 691.
Birdichand v. Harakchand 190 IC 613 , AIR 1940 Nag 211
CIT v. Kedarmal Keshardeo AIR 1968 A&N 68
Bodinayakanur v. State of Madras (1962) 2 Mad LJ 294.
Poppatlal Shah v. State Of Madras AIR 1953 SC 274
Tribhuban Parkash Nayyar v. Union of India (1969) 3 SCC 99.
Dulichand Laxminarayan v. CIT AIR 1956 SC 354 ,Para 11
Pratibha rani v. Surajkumar AIR 1985 SC 628 ,(1985 ) 2 SCC 370
Sanjay Kanubhai Patel v. Chief Controlling Revenue Authority AIR 2005 Bom
57,para 8.
Rampratap v. Durgaprasad AIR 1925 Pc 293
Hemchandra Dev v. Dhirendra Chandra Das AIR 1960 Cal 691.
Birdichand v. Harakchand 190 IC 613 , AIR 1940 Nag 211
Deputy Commr Of Sales Tax (Law) Board Of Revenue (Taxes) v. K Kelukutty AIR
1985 SC 1143 , from (1978) 2 ILR Ker 82
CIT v. Kedarmal Keshardeo AIR 1968 A&N 68
Tarsem Singh v. Sukhminder Singh (1998) 3 SCC 471 ,Para 13
Ross v. Parkyns (1875) L.R. 20 Eq.331,335

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