Indian Partnership Act, 1932 – First Unit
1. Introduction
- Before 1932, partnership law was part of the Indian Contract Act, 1872.
- Because partnership needed special rules, a separate Act was passed.
- Indian Partnership Act, 1932 came into force on 1st October 1932.
- Extends to the whole of India except Jammu & Kashmir (before 2019).
- Governs rights, duties, liabilities of partners, partnership firm, registration, and dissolution.
2. Definition of Partnership (Sec. 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.”
Essential elements:
- Agreement between persons (oral or written).
- Carrying on business (trade, profession, or occupation).
- Profit-sharing – main test of partnership.
- Mutual agency – business carried by all or any one of them acting for all.
👉 Case Law: Cox v. Hickman (1860) – Profit-sharing is only evidence of partnership, but the real test is mutual agency (ability to bind others).
3. Nature of Partnership
- It is a contractual relationship, not created by status.
- Partners are agents and principals for each other.
- Partnership firm is not a separate legal entity, unlike a company.
👉 Case Law: Malabar Fisheries Co. v. CIT (1979) – A partnership firm is only a collective name of partners; it has no separate legal personality.
4. Types of Partnership
- Partnership at will (Sec. 7) – no fixed period, can be dissolved anytime by notice.
- Particular Partnership (Sec. 8) – formed for a specific venture or period.
- General Partnership – formed for general business without limitation.
5. Types of Partners
- Active Partner – takes part in business.
- Sleeping Partner – invests but doesn’t participate.
- Nominal Partner – lends his name but no capital invested.
- Partner in Profits Only – shares only profits.
- Minor Partner (Sec. 30) – admitted to benefits of partnership with consent of all partners.
👉 Case Law: CIT v. Dwarkadas Khetan & Co. (1961) – A minor cannot become a full-fledged partner; can only be admitted to benefits.
6. Partnership vs Other Relations
- Partnership vs Co-ownership: Co-owners may not have profit motive or mutual agency.
- Partnership vs Company: Company is a separate legal person; partnership is not.
- Partnership vs Hindu Undivided Family (HUF): HUF is created by status, partnership by contract.
7. Partnership Deed
- Written agreement among partners.
- Contains terms about profit-sharing, capital contribution, rights, duties, duration, dissolution.
- Not compulsory, but important for avoiding disputes.
8. Registration of Firm (Secs. 58–59)
- Registration is optional but advisable.
- Procedure: Submit application + prescribed fee to Registrar of Firms.
- Effects of non-registration (Sec. 69):
- Firm cannot sue third parties.
- Partners cannot sue firm or each other.
- Only third parties can sue the firm.
👉 Case Law: Jagat Mittar Saigal v. Kailash Chand (1967) – unregistered firm cannot sue for enforcement of contract.
9. Rights and Duties of Partners
- Rights:
- To take part in business (Sec. 12).
- To share profits (Sec. 13).
- To access accounts (Sec. 12).
- Duties:
- Duty to carry on business honestly (Sec. 9).
- Duty to indemnify for fraud (Sec. 10).
- Duty to account for personal profits (Sec. 16).
10. Liability of Partners
- Partners have unlimited liability.
- Liability is joint and several (Sec. 25).
- A partner is bound by acts of another partner (Sec. 18–19).
👉 Case Law: Sanganer Dal Mills v. Food Corporation of India (1992) – Firm is liable for wrongful acts of partner done in ordinary course of business.
Conclusion
The Partnership Act, 1932 (First Unit) lays the foundation:
- Defines partnership (Sec. 4),
- Explains nature, types, partners, and registration,
- Clarifies rights, duties, and liabilities.
Important Case Laws – Partnership Act, 1932 (First Unit)
1. Cox v. Hickman (1860)
- Facts: Business of a firm went bankrupt. Creditors were allowed to manage the business and share profits until debts were cleared. A question arose whether creditors became “partners” simply because they shared profits.
- Issue: Does profit-sharing automatically create partnership?
- Judgment: House of Lords held profit-sharing alone does not make a person a partner. The real test is mutual agency (whether the person can bind others as a partner).
- Principle: Mutual agency is the true test of partnership (Sec. 4).
2. Malabar Fisheries Co. v. CIT (1979)
- Facts: A partnership firm was dissolved and assets distributed among partners. Question arose whether the distribution amounted to a “transfer” for capital gains tax.
- Issue: Is a partnership firm a separate legal entity?
- Judgment: Supreme Court held that a partnership firm is not a separate legal person; it is only a collective name for partners. Distribution of assets is not a transfer.
- Principle: Firm has no legal existence apart from its partners.
3. CIT v. Dwarkadas Khetan & Co. (1961)
- Facts: A partnership deed made a minor a full partner (not just admitted to benefits). Income-tax authorities refused to register the firm.
- Issue: Can a minor become a full partner?
- Judgment: Supreme Court held a minor cannot be a partner. He can only be admitted to benefits of partnership (Sec. 30).
- Principle: Minor cannot contract, so cannot be a partner.
4. Jagat Mittar Saigal v. Kailash Chand (1967)
- Facts: A firm was not registered under the Partnership Act. It filed a suit against a third party for recovery of money.
- Issue: Can an unregistered firm file a suit?
- Judgment: Allahabad High Court held that an unregistered firm cannot sue to enforce contractual rights (Sec. 69).
- Principle: Registration is optional, but non-registration limits rights of the firm.
5. Sanganer Dal Mills v. Food Corporation of India (1992)
- Facts: A partner entered into an agreement with FCI in the name of the firm. Later dispute arose whether firm was bound by partner’s act.
- Issue: Are partners liable for acts of one partner?
- Judgment: Court held firm is liable because the act was done in the ordinary course of business.
- Principle: Partners are agents of the firm (Sec. 18–19). Firm is bound by their acts.
6. Chandrakant Manilal Shah v. CIT (1992)
- Facts: Question whether a partnership between husband and wife carrying on business was valid or a sham.
- Judgment: Court held partnership valid as long as intention to carry on business and share profits exists.
- Principle: Partnership must be genuine with intention of business.
7. Dulichand Laxminarayan v. CIT (1956)
- Facts: A firm wanted to enter into partnership with another firm. Question arose whether a firm can be a partner in another firm.
- Judgment: Supreme Court held a firm is not a person, so it cannot be a partner. Only individuals can be partners.
- Principle: Partnership is between persons, not firms.
Summary for Exam Writing
- Always quote Section + Case + Principle.
- Example answer:
In Cox v. Hickman (1860), creditors managed business and shared profits. Court held profit-sharing alone does not create partnership; the true test is mutual agency (Sec. 4).
Comments
Post a Comment