Minor and Partnership Firm (Detailed Analysis for

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Minor and Partnership Firm (Detailed Analysis for LLB Students)

The Indian Partnership Act, 1932 governs all matters related to partnerships in India, including the rights and liabilities of partners. One important area under this Act deals with minors in a partnership firm — whether they can become partners, what rights they have, and what happens when they become major.

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1. Who is a Minor?

A minor is a person who has not attained the age of 18 years (according to the Indian Majority Act, 1875).
A minor is considered incompetent to contract under Section 11 of the Indian Contract Act, 1872, meaning they cannot enter into any valid contract on their own.

Since a partnership is a contract between two or more persons who agree to share the profits of a business, a minor cannot become a full partner because they lack contractual capacity.

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2. Admission of a Minor in a Partnership Firm (Section 30 of the Partnership Act, 1932)

Even though a minor cannot enter into a partnership contract, Section 30 allows a minor to be admitted to the benefits of partnership with the consent of all existing partners.

This means:

• A minor cannot be a full partner, but
• He can share the profits of the firm and enjoy some rights.

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Rights of a Minor Partner

1. Right to share profits:
   The minor has a right to receive his agreed share of profits of the firm.

2. Right to inspect books:
   The minor has a right to access and inspect the books of accounts of the firm.

3. Right to sue for profits (on attaining majority):
   If he is denied benefits, the minor can sue the firm for his share.

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Liabilities of a Minor Partner

1. Limited Liability:
   A minor’s liability is only up to the extent of his share in the firm.
   He is not personally liable for the firm’s debts.

2. After Attaining Majority:
   When the minor becomes a major, he must decide within six months whether he wants to continue as a partner or not.

   • If he opts to become a partner, he becomes personally liable for all the firm’s acts since he was admitted to the benefits of partnership.
   • If he opts not to become a partner, he must give a public notice of his decision.

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Effect of Not Giving Public Notice

If the minor fails to give public notice within six months after attaining majority, he is deemed to have become a partner automatically, and his liability becomes unlimited from that date.

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3. Important Case Laws

1. CIT v. Dwarkadas Khetan & Co. (1961) AIR SC 264

   • In this case, the Supreme Court held that a minor cannot be a full-fledged partner, though he can be admitted only to the benefits of partnership.
   • A partnership deed making a minor a full partner is invalid in law.

2. Sanyasi Charan Mandal v. Krishnadhan Banerjee (1922)

   • The Calcutta High Court ruled that a minor cannot be personally liable for losses of the firm; his liability is only limited to his share in profits and property.

3. CIT v. Shah Mohandas Sadhuram (1965) 57 ITR 415 (SC)

   • The Court clarified that a partnership deed is not invalid merely because it mentions a minor’s name, as long as he is admitted only to benefits and not as a full partner.

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4. Non-Registration of a Partnership Firm (Effect)

Under Section 69 of the Indian Partnership Act, registration of a partnership firm is not compulsory, but non-registration causes several legal disabilities.

Effects of Non-Registration:

1. Firm cannot file a case against a third party.
   An unregistered firm cannot sue outsiders to enforce its rights.

2. Partners cannot sue each other.
   Partners of an unregistered firm cannot take legal action against each other for disputes related to the firm’s business.

3. No right to claim set-off.
   The firm cannot claim adjustment of any amount due from another party in court.

4. However, an unregistered firm can still:

   • Be sued by third parties,
   • Sue for dissolution of firm, and
   • Recover the share of property after dissolution.

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5. Case Law on Non-Registration

M/s Shreeram Finance Corporation v. Yasin Khan (1989)

• The Court held that an unregistered firm cannot sue to recover money due from another party under a contract.

Raptakos Brett & Co. Ltd. v. Ganesh Property (1998)

• The Supreme Court held that Section 69 does not bar suits based on rights arising independently of a contract, such as statutory rights.

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6. Conclusion

A minor cannot enter into a contract, but can be admitted to the benefits of a partnership with the consent of all partners.
His liability remains limited until he becomes a major, after which he can choose to continue or withdraw.
While registration of a firm is optional, non-registration severely restricts the firm’s ability to enforce legal rights.
Thus, it is always advisable for firms to get registered to avoid future legal problems.

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1. Dwarkadas Khetan & Co. v. CIT (1961) AIR SC 264

Facts:
A partnership firm was formed where a minor was included as a full partner in the partnership deed. The Income Tax authorities refused to register the firm, stating that a minor cannot be a full partner since he is not competent to contract.

Issue:
Can a minor be a full partner in a partnership firm?

Judgment:
The Supreme Court held that a minor cannot become a full partner in a firm because he is legally incapable of entering into a contract under Section 11 of the Indian Contract Act, 1872.
However, Section 30 of the Partnership Act allows a minor to be admitted to the benefits of an existing partnership with the consent of all partners.

Principle (Ratio):
A minor cannot be a full partner but can be admitted to the benefits of partnership. Any partnership deed making a minor a full partner is invalid in law.

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2. Sanyasi Charan Mandal v. Krishnadhan Banerjee (1922) ILR 49 Cal 560

Facts:
A minor was admitted to a partnership firm, and the question arose whether he could be held responsible for losses incurred by the firm.

Issue:
Can a minor be held personally liable for losses of a firm?

Judgment:
The Calcutta High Court held that a minor’s liability is limited only to his share in the profits and property of the firm. He cannot be personally made to pay for the firm’s debts or losses.

Principle:
A minor partner’s liability is limited, and he cannot be held personally responsible for firm losses.

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3. CIT v. Shah Mohandas Sadhuram (1965) 57 ITR 415 (SC)

Facts:
A firm included minors admitted to the benefits of partnership and applied for registration under the Income Tax Act. The authorities objected, claiming that the inclusion of minors made the partnership invalid.

Issue:
Is a firm invalid if it admits minors to the benefits of partnership?

Judgment:
The Supreme Court ruled that a partnership firm remains valid even if minors are admitted to its benefits, as long as the deed clearly states that they are not full partners.
Registration under the Income Tax Act can be granted in such cases.

Principle:
Admitting a minor to the benefits of partnership does not make the firm invalid or unregistrable.

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4. Kesar Devi v. CIT (1999) 153 CTR (SC) 146

Facts:
A minor was admitted to the benefits of a partnership and, after becoming major, failed to give public notice regarding his decision to continue or withdraw from the firm within six months.

Issue:
What happens if a minor does not give public notice after attaining majority?

Judgment:
The Supreme Court held that if a minor does not give public notice within six months after attaining majority, he will be deemed to have become a full partner automatically.
From that date, he becomes personally liable for all the acts of the firm.

Principle:
Failure to give public notice after majority results in automatic conversion into a full partner, with unlimited liability.

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5. CIT v. Dwarkadas V. Harivallabhdas (1975) 98 ITR 557 (Bom.)

Facts:
A minor was admitted to the benefits of a partnership, and the question was whether the income earned by the minor could be taxed in his own hands or in the hands of his guardian.

Judgment:
The Bombay High Court held that since the minor had a separate share in the partnership profits under Section 30, the income was taxable in the minor’s own hands, not in the hands of the guardian.

Principle:
Income earned by a minor admitted to partnership benefits is his own separate income.

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6. CIT v. R.M. Chidambaram Pillai (1977) 106 ITR 292 (SC)

Facts:
In this case, the firm had minors admitted to benefits. The dispute was about whether remuneration paid to partners (including minors) could be treated as business expenditure.

Judgment:
The Supreme Court clarified that minors cannot actively contribute to the business or render services as partners; hence, remuneration paid to minors cannot be treated as business expenditure or as income from professional services.

Principle:
A minor’s share in profits is only a passive income; they cannot earn remuneration for services since they are not capable of contracting.

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7. CIT v. J.M. Sheth (1982) 137 ITR 350 (Bom.)

Facts:
A minor was admitted to the benefits of partnership, and after attaining majority, no public notice was given regarding his continuation.

Judgment:
The Bombay High Court followed the same principle as in Kesar Devi’s case:
A minor becomes a full partner automatically if no public notice is given within six months after attaining majority.

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Summary Table (for Revision)

Case Name	Key Principle
Dwarkadas Khetan & Co. (1961)	Minor cannot be full partner; can be admitted to benefits only.
Sanyasi Charan Mandal (1922)	Minor’s liability limited to his share.
Shah Mohandas Sadhuram (1965)	Admission of minors to benefits does not make firm invalid.
Kesar Devi (1999)	Failure to give public notice → deemed full partner.
Dwarkadas Harivallabhdas (1975)	Minor’s profit share taxable in his own hands.
R.M. Chidambaram Pillai (1977)	Minors cannot receive salary; only share in profit.
J.M. Sheth (1982)	No public notice → automatic partner with unlimited liability.