2. Indian Partnership
• The law relating to partnership was contained
in section 239 and 266 of Chapter xi of the
Indian Contract Act, 1872. but with a view to
develop modern law of partnership separately
these sections were repealed and a separate
act namely, the Indian Partnership Act, 1932
was enacted.
3. Definition
• Section 4: Partnership is the relation between
persons who have agreed to share profits of a
business carried on by all or any of them
acting for all.
• 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.’
4. Essential elements
• An agreement between the persons
concerned
• This agreement should be for sharing of a
business profits.
• The business should be carried on by all or any
of them acting for all.
• Thus based on above three elements following
elements can be established
6. Agreement
• Section 5: relation of partnership arises from
contract and not from status.
• Agreement must be in writing.
• It is the basis of partnership
7. Business
• Section 2(b): business includes every trade, occupation and
profession.
• It is not necessary that the business should be for long
standing and permanent.
• A single commercial transaction may constitute a business.
• If two persons join together, share profits and losses of a
particular transaction, they may be partners for the said
transaction.
• It is necessary that the business must be in existence. If a
business has simply been contemplated and has not been
started, the partnership shall not be deemed to be in
existence.
8. Ram Proya Saran V Ghanshyam Das
• The plaintiff and the defendant agreed that after the
acceptance of their tender, they shall construct the dam in
partnership. In order to deposit earnest money the plaintiff
gave Rs 2000 to the defendant. The tender was not accepted.
The question for consideration before the court was whether
the partnership has come into existence?
• All HC: the partnership was to start after the acceptance of
the tender and work would start in its pursuance. Since the
tender was not accepted, work did not commence and the
partnership did not come into existence between the parties.
hence the Plaintiff is entitled to receive the earnest money
from the defendant.
9. Sharing of Profits
• Sharing of profits is one of the essential element.
Before 1860 this essential element was considered
so much that if two or more persons agreed to carry
out a business with the objective of sharing profits, it
was considered to be decisive of constituting a
partnership between them.
• In 1860 the decision of Cox V Hickman brought a
revolutionary change.
• Where Lord Cranworth : sharing of profits is prima
facie evidence of partnership. But decisive test is
mutual agency. The real basis of liability is that the
business is being carried on behalf of the persons
sharing profits.
10. Mutual Agency
• Cox V Hickman
• Two persons (Benjamin Smith & Josiah Smith) carried on
business in partnership under the name Smith & Co. Due to
financial crises they obtained loan. Having not been able to
repay the debts, they executed a trust deed in favour of
creditors. Some of the creditors were made trustees of the
business. These included Cox and Wheatcroft. Under the deed
the property was assigned to the trustees and they were
empowered to enter into contract and executed instruments
to carry on business and to divide the profits among creditors.
This deed was executed for the realization of the debts given
by the creditors. After recovery of debts, the property was to
be resorted to the above- mentioned two partners.
11. Continued..
• Cox never acted as trustee and retired. Wheatcroft acted as
trustee for some time and then retired. Other trustees who
were carrying on business became indebted to Hickman and
executed a bill of exchange. The bill was not paid and Hickman
sued the trustees for recovery of money on account of goods
delivered.
• House of lords: they were not partners and hence not liable.
For the purpose of business all partners are agent for others.
Here the trustees are not partners.
• The deed is merely an arrangement between creditors and
Smith to repay the debt.
12. Mode of determining existence of partnership
• Section 6: in determining whether a group of persons is or not
a firm or whether a person is or is not a partner in a firm,
regard shall be had to the real relation between the parties as
shown by all relevant facts taken together.
• Khan V Miah
• certain persons obtained loan from Bank in joint names to
purchase premises for restaurant. They also entered into
contract for purchase of equipment and laundry for the
restaurant but their relationship terminated before the
opening of the restaurant.
• The trial judge held that business existed between them and
they was partnership.
• The court of appeal reversed this decision by a majority
holding that they had not become partners in a restaurant
business by the date when relationship was terminated.
13. House of lords
• The main question before house of lords was
whether there existed a partnership before
the relationship broke down.
• Persons who agree to carry on a business
activity as a joint venture do not become
partners until they actually embark on the
activity in question.
• It is necessary to identify the venture in order
to decide whether the parties have actually
embarked upon it.
14. continued
• Explanation 1 : sharing of profits or returns arising
from property by persons holding a joint or common
interest in that property does not itself make such
persons as partners.
• Ex: where joint owners collect rent out of properties.
• Explanation 2 : the receipt by a person of a share of
the profits of a business or of a payment contingent
upon the earnings of profits or varying with the
profits earned in business, does not itself make him a
partner with the person carrying on the business.
• Explanation 2(a) : if lender of money is paid through
the profits he does not become a partner.
15. Continued..
• Explanation2 (b): the receipt of share or payment by a
servant or agent as remuneration does not itself make
the receiver a partner with the persons carrying on the
business.
• A carried in his own name the business of loading and
unloading goods in railway wagons. He appointed B to
manage the business. A and B entered into an agreement
providing that B shall get 75% of net profits and A shall
get 25% of the net profits. The agreement further
provided that A shall not be liable for any loss. Here the
relation between A and B was not that of partnership but
it was that of Principal and Agent.
16. Continued….
• Explanation 2(c): The receipt of share or payment
by a widow or child of deceased partner as
annuity does not of itself make the receiver a
partner, with the persons carrying on the
business.
• Explanation2(d): the receipt of share or payment
by sale of good will: the receipt of share or
payment by sale of goodwill, does not itself make
him a partner with the persons carrying on the
business or does not itself make the receiver a
partner, with the persons carrying on the
business.
17. Distinction between partnership & co-ownership
Partnership Co-ownership
Created by agreement Not essentially by agreement
Partners cannot transfer whole
of his their interest to third
person without the consent of
other partners
Co owners can transfer their
interest
Partners are agent for each
other
They may not be agent for each
other
Proper remedy is the suit for
dissolution and accounts
Proper remedy is suit for
partition.
18. Distinction between partnership and Joint family
Partnership Joint family
1.Created by contract Created by status
2.New partner can be admitted when
all the partners consents
It is through birth
3.Death of partner dissolves the form It does not dissolve
4.All partners are entitled to
participate in the business of the firm
Management of business is usually in
the hands of the Kartha
5.Every partner is agent of other
partner
Kartha represents the whole family
6.Partners are jointly and severally
liable for the debts of the firm
7.Partners bind other partners
8.After dissolution partners can see
and demand accounts
9.Partners can sue for dissolution
A member of joint family is liable only
to the extent of his share
Members of family does not
Members of family after partition has
no right
Members can sue for partition
19. Partnership & company
Partnership Company
It is only group of persons
and identified through
partners
A separate juristic entity
and distinct from its share
holders
Each partner is agent of
the other
Liability of shareholders is
limited to the extent of
their shares
Partners cannot transfer
whole of his interest to the
other partner without the
consent of other partners
The shares of the company
can be sold freely
20. Kinds of Partnership
• Partnership may be of two types:-
• Partnership for fixed period
• Partnership at will
• Section 7: Partnership at will.—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’.
• Section 43: Dissolution by notice of partnership at will.—
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.
• 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 communication of the notice.
21. Continued..
• Thus a partnership can be partnership at will under
section7 if two conditions are fulfilled:-
• There must not be express or implied provision as
to the duration in the partnership agreement.
• The agreement must not contain any provision
regarding the termination of the partnership.
• But if there is a provision as to retirement of partner
and remaining partner continuing the business it is
not inconsistent with section 7.
22. Continued.
• Moss v Elphick
• The Plaintiff & defendant established a partnership, by a
written agreement on 14th August 1907 to carry on the
business of tobacco. The agreement provided that the
partnership could be terminated only by mutual agreement.
On 2nd March 1909, the Plaintiff gave two weeks notice to the
defendant expressing his intention to terminate the
partnership agreement. The defendant contended that the
notice was ineffective bcoz under clause 4 the agreement
could be terminated only by mutual agreement or
compromise.
• Court of Appeal: Defendant was correct. The agreement
contained a provision regarding the duration of the
partnership.
23. Abott V Abott
• The partnership agreement between father and his 5 sons
inter alia provided that the death or retirement of any partner
shall not terminate the partnership and if any partner shall do
or suffer any act which would be ground for the dissolution of
the partnership by the court then he shall be considered as
having retired. One of them contended that since no duration
had been mentioned, it was a partnership at will and sought
the dissolution of the same through a notice. He filed a suit.
• Held: a single partner could not terminate the partnership by
a notice, although he could retire or cease to be a partner
allowing the partnership firm to continue thereafter and
hence it was not partnership at will and could not be
dissolved by a notice by any one partner.
24. K T Chettiar V Muthappa
• The agreement between two partners concerning
the business of managing agencies of mills inter alia
provided for carrying on the management in rotation
once in four years by the two partners. It further
provided that the partners and their heirs and those
getting their heirs should carry on the management
in rotation.
• Held: SC: the intention of the partners could not be
to create a partnership at will, but to have
partnership of some duration though the duration
was not expressly fixed in the agreement.
26. Relations of partners to one another
• The relation between partners is governed by mutual
agreement between them.
• Section 11(1): 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.
• Section 11(2) agreement in restraint of trade: a contract
may provide that a partner shall not carry on any
business other than that of the firm while he is a
partner.
• Section 27 of Indian Contract Act: every agreement by
which anyone is restrained from exercising a lawful
profession trade or business of any kind is to that extent
void.
27. Duties of partners
• 1. Section 9: partners are bound to carry on the business of
the firm to the greatest common advantage to be just and
faithful to each other, and to render true accounts and full
information of all things affecting the firm to any partner or
his legal representatives.
• Section 16: subject to the contracts between the partners
• If a partner derives any profit for himself from any transaction
of the firm or from the use of the property or business
connection of the firm name, he shall account for that profit
and pay it to the firm;
• If a partner carries on any business of the same nature as and
competing with that of the firm he shall account for and pay
to the firm all profits made by him in that business.
28. Duty to indemnify for loss caused by fraud
• Section 10: every partner shall indemnify the firm for any loss
caused to it by his fraud in the conduct of the business of the
firm.
• 3.Duty relating to the conduct of business
• Section 12(b) subject to the contract between the partners,
every partner is bound to attend diligently to his duties in the
conduct of the business.
• Section 12(c ): any difference arising as to ordinary business
may be decided by a 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 partners.
30. 4. Duty to indemnify the firm for loss caused to it by his willful neglect
• Section 13(f): a partner shall indemnify the firm for any loss
caused to it by his willful neglect in the conduct of the business
of the firm.
• Willful negligence: knowing that it will cause damage.
• 5. Duty in respect of personal profits earned by partners:
• Section 16(a): if a partner derives any profits for himself from
any transaction of the firm, or from the use of the property or
business of the firm or the firm name, he shall account for that
profit and pay it to the firm.
• 6. Duty not to compete with the business of the firm: section
16(b) if a partner carries on any business of the same nature as
and competing with that of the firm he shall account for and pay
to the firm all profits made by him in that business.
31. Continued
• 7. Duty in respect of application of the
property of the firm: section 15: the property
of the firm shall be held and used by the
partners exclusively for the purpose of the
business.
• Section 16(a) if a partner derives any profit for
himself from any transaction of the firm, or
from the use of the property or business or
business connection of the firm or the firm
name, he shall account for that profit and pay
it to the firm.
32. Property of firm/partnership property
• Section 14
• The property of the firm.—Subject to contract between
the partners, the property of the firm includes
• all property and rights and interests in property originally
brought into the stock of the firm, or
• acquired, by purchase or otherwise, by or for the firm, or
for the purposes and in the course of business of the
firm, and includes also the goodwill of the business.
• Unless the contrary intention appears, property and
rights and interests in property acquired with money
belonging to the firm are deemed to have been acquired
for the firm.
33. Partnership property
• Three types:-
• Property originally brought into the stock
of the firm:
• Property acquired by purchase or
otherwise by or for the firm
• Partner’s property in use of firm by or for
the firm
34. Property brought into stock of the firm
• Property brought at the commencement
of business of firm is partnership
property.
• Their contribution to capital is not
regarded as sale.
• When partner brings his assets to the
firm as capital it is subject to the rights of
other partners in it.
35. Property acquired by purchase or for the firm
• All property and its rights earned by the use of firm
money are deemed to be earned for the benefits of
the firm
• Ex: buying sharers of company, insurance, lease of
property etc.
• Any thing purchased by using firm money will
become property of the firm.
• It also includes good will of the business.
36. Partners' property in use of firm by or for the firm
• Partner’s property which is being used by the firm or for the firm,
becomes the property of the firm.
• It depends on the intention of the parties.
• Boda Narayana Murthy & sons V Valluri Venkat Suguna & others
• Five persons purchased a building. Later on constructed a Cinema
Hall namely Minerva Talkies in the said building. The partnership
firm exhibited films in this cinema hall. There was no evidence of
firm money being used in the construction of cinema hall. Question
was whether hall was partnership property.
• AP HC: held: Minerva Talkies was not partnership property. It is not
essential that every partnership business must have its own
property for carrying on its business. It can use property of others
for the purpose of its business. The fact that firm exhibited film in
talkies does not make minerva talkies the property of the firm. The
property was never regarded as partnership property and was held
as co-owners.
37. Continued..
• 8. Duty to contribute equally to the losses:
section 13(b): partners shall contribute
equally to the losses sustained by the firm.
38. Rights of partners
• Right to take part in the conduct of the business-
section 12(a) every partner has a right to take part in
the conduct of the business. It is subject to contract
between partners.
• Right to have access to and to inspect and copy
books of the firm: section 12(d): inspect and copy,
any of the books of the firm
• Right to share equally in the profits earned: section
13(b): they are entitled to share equally in the
profits earned.
• Actus curiae neminem gravabit :
• the act of the court shall prejudice no one.
39. Continued..
• T.O Alias and others V T.O Abraham & Co
• The partners were litigating different matters before
court, in one of the suit the civil court ordered that
funds of firm could be utilized only after getting
majority decisions of partners. But without making
other partners as partners, two partners filed for
releasing amount from bank. Thus the government
amount was got released and utilized the same
without obtaining the approval of majority of
partners.
• Kerala HC: the conduct of two partners was an abuse
of process. They were directed to redeposit the
amount .
40. Continued..
• Right to receive interest in respect of payments
made and liabilities incurred.
• Section 13(c) where a partner is entitled to interest
on the capital subscribed by him such interest shall
be payable only out of profits;
• a partner making, for the purposes of the business,
any payment or advance beyond the amount of
capital he has agreed to subscribe, is entitled to
interest thereon at the rate of six per cent. per
annum; this is subject to contract between partners
41. Continued..
• Right to indemnity in respect of payments made
and liabilities incurred section 13(e)
• the firm shall indemnify a partner in respect of
payments made and liabilities incurred by him—
(i) in the ordinary and proper conduct of the
business, and
• (ii) in doing such act, in an emergency, for the
purpose of protecting the firm from loss, as
would be done by a person of ordinary prudence,
in his own case, under similar circumstances.
42. Right to receive remuneration
• Section 12(a): Subject to contract between the
partners, : a partner is not entitled to receive
remuneration for taking part in the conduct of the
business;
• Majority Rights: section 12 (c ):any difference arising
as to ordinary matters connected with the business
may be decided by a 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; and
43. Rights & duties-After change in the firm
• Rights and duties of partners.—Subject to contract between the
partners— Section 17
• (a) after a change in the firm.—where a change occurs in the
constitution of a firm, the mutual rights and duties of the partners in the
reconstituted firm remain the same as they were immediately before
the change, as far as may be;
• (b) after the expiry of the term of the firm, and.—where a firm
constituted for a fixed term continues to carry on business after the
expiry of that term, the mutual rights and duties of the partners remain
the same as they were before the expiry, so far as they may be
consistent with the incidents of partnership at will; and
• (c) where additional undertakings are carried out.—where a firm
constituted to carry out one or more adventures or undertakings carries
out other adventures or undertakings, the mutual rights and duties of
the partners in respect of the other adventures or undertakings are the
same as those in respect of the original adventures or undertakings.
