BUSINESS LAW ASSIGNMENT THE INDIAN PARTNERSHIP ACT 1932

SUBMITTED BY: DYUTI DIXIT (D-11) MEHAK DOGRA (D-12) TANMAYE GUPTA (D-15) ROMMEL MAJUMDAR (D-30) ABHISHEK PARASHAR (D-36) SYED ZAIDI (D-61)

THE INDIAN PARTNERSHIP ACT, 1932
Partnership is a time-honoured form of business organisation and one that is still much in use in India. The law relating to partnership in India is contained in the Indian Partnership Act, 1932. Prior to the enactment of this Act, it was embodied in Chapter XI of the Indian Contract Act. A contract of partnership is a special contract. Therefore, Sec.3 provides that the provision of the Indian Contract Act, 1872, shall apply to the contract of partnership unless any provision thereof is inconsistent with the provisions of the Indian Partnership Act, 1932.

Meaning and Nature of Partnership

A partnership is defined as “the relationship between persons who have agreed to share profits of a business carried on by all, or by any of them acting for all”. On analysis of the definition, certain essential elements of partnership emerge. These elements must be present so as to form a partnership and are discussed below. 1. Partnership is an association of two or more than two persons. There must be at least two persons who should join together to constitute a partnership, because one person cannot become a partner with himself. These persons must be natural persons having legal capacity to contract. Thus, a company (which is an artificial person) cannot be a partner. Similarly, a partnership firm cannot be a partner of another partnership firm. As regards maximum number of partners in a partnership firm, Sec.11 of the Companies Act, 1956, puts the

limit at 10 in case of banking business and 20 in case of any other business. owed money to several creditors. He agreed to pay his creditors out of the profits of his business (run under the creditors‟ supervision) what he owed to them.. The joint carrying on of a business alone is not enough. a person may become a partner with another even in a particular adventure or undertaking (Sec. sharing of profits also involves sharing of losses. it will not amount to partnership. 3. Unless otherwise so agreed. the arrangement did not make creditors partners with A in business [Cox v. Hickman. sharing of losses is not.8). Example: A. a trader. Unless the person joins for the purpose of carrying on a business.L. occupation or profession [Sec. Held. The agreement must be to carry on some business. As mentioned above. 2. . Partnership is the result of an agreement between two or more persons (who are known as partners after the partnership comes into existence). 268]. a partnership to arise. Partnership must be the result of an agreement between two or more persons. Though the word „business‟ generally conveys the idea of numerous transactions. (1860) 8 H. 4. An agreement presupposes a minimum number of two persons. The agreement must be to share profits of the business. The term „business‟ includes every trade.2(b)]. there must be an agreement to share profits arising from the business. at least two persons must make an agreement.C. But whereas the sharing of profits is an essential element of partnership.

However. oral or writing) or implied and the latter may be inferred from the conduct or the course of dealings of the parties or from the circumstances of the case.. A partnership is an extension of agency for which no consideration is necessary. A person of unsound mind is not competent to enter into a partnership. MEHAK DOGRA (D-12) . The Act provides that a minor may be admitted to be benefits of partnership. 6. A company. 4.e.Formation of partnerships All the essential elements of a valid contract must be present in a partnership as it is based on an agreement. 3. it is always advisable to have the partnership agreement in writing. An alien friend can enter into partnership. The following points must be kept in mind: 1. No consideration is required to create partnership. Therefore. an alien enemy cannot. 1956 can enter into a contract of partnership. The partnership agreement may be express (i. incorporated under the Companies Act. 5. 2. while constituting a partnership.

Therefore such a partnership has no fixed or definite date of termination. (ii) There is no provision made as to the determination of partnership in any other way. It may be constituted even for a particular adventure. Such a partnership is usually dissolved on the completion of the adventure or undertaking.8 a particular partnership is one which is formed for a particular adventure or a particular undertaking. a partnership is called a partnership at will where: (i) It is not constituted for a fixed period of time. Limited partnership In this type of partnership.Duration of partnership The duration of partnership may or may not be fixed. Accordingly death or retirement of a partner does not affect the continuance of such a partnership. Partnership at will In accordance with Sec.7. Particular partnership In accordance with Sec. the liability of certain partners is limited to the amount of capital which they have agreed to .

or delivering to the Registrar of Firms of the area in which any place of business of the firm is situated or proposed to be situated. He then issues under his hand a Certificate of registration. The statement must be signed by all the partners. When the Registrar of Firms is satisfied that the provisions of Sec. stating: (i) The firm‟s name. A partnership firm may be registered at any time by post. a statement in the prescribed form and accompanied by the prescribed fee.58-59) Application for registration Sec.59).58 lays down the procedure for registration of partnership firms. (ii) The place or the principal place of business of the firm. there will be at least one general partner whose liability is unlimited and one or more special partners whose liability is limited. or by their agents especially authorised in that behalf and duly verified. (iii) The names of any other places where the firm carries on business. In a limited partnership.contribute to the business. (v) The names in full and addresses of the partners. Registration of Firms (Secs. Registration . he registers the firm by recording an entry of the statement in a register called the Register of Firms and shall file the statement (Sec. (iv) The date when each partner joined the firm. (vi) The duration of the firm.58 have been duly complied with.

is effective from the date when the Registrar files the statement and makes entries in the Register of Firms.69 has effectively. USA and India. But in England. shall continue to apply to firms. 1899. Partnership agreements and contract law Sec. In France and Italy. ensured registration of firms by introducing certain disabilities that an unregistered firm suffers from. the law requires all partnership agreements to be in writing. written agreement is not compulsory. The partnership deed is required to be stamped according to the provisions of the Stamp Act. 1872 save in so far as they are inconsistent with the provisions of this Act. Registration of firms is optional The Act does not provide for compulsory registration of firms. Also Sec. But at the same time Sec. But in order to avoid misunderstanding and litigation. it is desirable to enter into a written agreement which is called Partnership deed or agreement.3 provides that the unrepealed provisions of the Indian Contract Act. The firm cannot. Partnership Deed A partnership can be formed either by oral or written agreement.2(e) provides that “expressions used but not defined in this . Each partner should possess a copy of the Deed. It is optional and there is no penalty for non-registration.

he is bound by the majority decision. To express his opinion on any matter. However. Relations of Partners to one Another The relation of the partners of a firm to one another arises through an agreement between them. the provisions of the Indian Contract Act. Rights of partners Subject to the contract between the partners. the relations of partners to one another as regard their rights and duties are governed by Secs.11(1)]. every partner has the following rights: 1.Act and defined in the Indian Contract Act. are applicable to it. but in case of difference of opinion regarding ordinary matters of the business. 1872.To take part [Sec. in the conduct of the firm‟s business 2. no . Where there is no specific agreement or where the agreement is silent at a certain point. Such an agreement may be express or may be implied from the course of dealings between them.9-17 of the Act. or where no agreement exists. As a partnership agreement is a contract. 1872. It may be varied by their consent and such consent may be expressed or may be implied by a course of dealings [Sec. shall have the meanings assigned to them in that Act”.12(a)].

6. To do. To be indemnified by the firm in respect of liabilities incurred by him in the ordinary course of business [Sec. To rank as a joint owner of the property of the firm. in an emergency. however.e.12(d)].13(b)]. To have access to and inspect and copy any of the books of the firm [Sec.change can be made in the nature of the business without the consent of all the partners [Sec.13(c)]..33(i)]. 5. To claim interest at 6 per cent per annum on any amount advanced by him beyond the amount of capital that he agreed to subscribe [Sec. i. all such acts as are reasonably necessary to protect the firm from loss. be expelled if a power to expel is conferred upon the partners and power is exercised bona fide by a majority of partners [Sec. To continue in the partnership. DYUTI DIXIT (D-11) . 4.12(c)]. To share equally in the profits [Sec. A partner may. not to be expelled. 3. 7. 9.13(e)]. 8.

Duties of Partners Sec. he shall account for and pay to the firm all profits made by him in that business [Sec. (iv) If restrained by an agreement with other partners. (b) To be just and faithful to each other. (ii) Every partner shall indemnify the firm for loss caused to it by his fraud in the conduct of the business of the firm (Sec.13(a)]. (v) If a partner carries on any business competing with that of the firm.11(2)].9 provides for general duties of partners. (i) They are bound to(a) Carry on the business of the firm to the greatest common advantage. a partner has a duty not to carry on any business other than that of the firm while he is a partner [Sec. (c) To render true accounts and full information of all things affecting the firm to any partner or his legal representative. (iii) To attend diligently to his duties in the conduct of the firm‟s business without any remuneration [Sec.16(b)]. .10).

when it is fixed between the partners by mutual agreement. Liabilities of a partner Liability of a partner stems from not complying with his duties under the Partnership Act. It is implied when the law impliedly gives certain powers to a partner.19 and 22 deal with the subject of implied authority of a partner. in view of Sec. a partner shall be liable for- (i) Not carrying on the business of the firm to the greatest common advantage. Secs.9. the law presumes that every partner has the power to do certain acts unless negative by an express agreement. be oral or written. Thus. It is express.e. (ii) Not being just and faithful to other partners . however. Implied authority of a partner A partner‟s authority may be express or implied. The agreement may.. i.Relations of Partners to Third Parties Subject to Sec.18 every partner is the agent of the firm for the purposes of the business of the firm.

Changes in a Firm The Act contemplates the following changes in a firm: (i) Change in the duration of a firm.26-27) Where.(iii) Failure to render true accounts and full information of all things affecting the firm to any partner or his legal representative. However.12(c) provides that subject to contract between the . by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm. (ii) Change in the nature of business or undertakings. it comes to an end. loss or injury is caused to any third party or any penalty is incurred. Liability of a firm for wrongful acts of a partner (Secs. (iii) Change in the constitution of a firm. the firm is liable therefore to the same extent as the partner. Sec. the partners may carry on the business even after the expiry of the fixed period and the partnership becomes „partnership at will‟. A partnership may be entered into for a fixed period of time. When the fixed period is over. or with the authority of his partners.

ABHISHEK PARASHAR (D-36) . 1872. Rights and liabilities of incoming partners Sec. This is because there is no privacy of contract between the creditor and the new partner. But such an agreement is binding only on the partners and does not give the right to any creditor of the firm to sue the new partner for past debts of the firm.partners no change may be made in the nature of the business without the consent of all the partners. no new partner can be introduced into a firm without the consent of all the existing partners.31 provides that subject to a contract between partners and to the provisions regarding minors in a firm. unless he agrees to be liable for obligations incurred by the firm prior to that date. At the same time. the acts of the old partners cannot be ratified by the new partner. the principal must be in existence at the time when the act was done. The liability of a new partner ordinarily commences from the date when he is admitted as a partner.196 of the Indian Contract Act. which provides that for the purpose of ratification of agency. Such a partner enjoys all the rights as are conferred upon him by the Act and by the contract between him and the existing partners. This is in accordance with Sec.

(ii) Where there is an agreement between the partners about retirement. a partner may retire by giving to his partners a notice of his intention to retire. Liability of the retired partner: Sec. He may be discharged from liability to any third party for the acts of the firm done before his retirement if- (a) There is an agreement made by him with such third party and the remaining partners. The firm is reconstituted by the remaining partners.Rights and liabilities of a retired partner An outgoing partner means a partner who has retired from a firm.32 clearly comprehends a situation where a partner may retire without dissolving the firm. viz. (i) He may retire at any time with the consent of all other partners.32 contemplates three ways in which a partner may retire from the firm. Sec. (iii) Where the partnership is at will. Sec. . (This implies the principle of novation). a partner may retire in accordance with the terms of that agreement.32 provides that a retired partner continues to be liable for all the acts of the firm done before his retirement unless he is discharged from his liability.

in good faith. Expulsion of a partner Sec.33 provides that a partner may not be expelled from a firm by a majority of partners except in exercise. . Such an agreement may be implied by a course of dealing between such third party and the remaining partners. The test of good faith will be satisfied if(a) The expulsion is in the interest of the partnership. Thus. a partner may be expelled from the firm if-: (i) The power of expulsion is conferred by a contract between the partners. (ii) The power is exercised by a majority of the partners.(b) There is an implied agreement to the above effect. of powers conferred by the contract between the partners. after the third party had knowledge of the retirement. (b) A notice of expulsion has been served on the partner. (iii) The power is exercised in good faith. (c) The partner to be expelled has been given an opportunity of being heard.

Proviso to Sec. he ceases to be a partner on the date on which the order of adjudication is passed whether or not the firm is thereby dissolved. the insolvency of a partner results in dissolution of a firm but the partners may specifically provide that on such a contingency the firm shall not be dissolved. the assignee of a partner‟s interest cannot enjoy the same rights and privileges as the assignor. in the absence of a contract to the contrary. Death of a partner Sec.34 provides that where a partner in a firm is adjudicated insolvent.42(c) provides that a firm is dissolved by the death of a partner. Sec. It is to be noted that ordinarily but not invariably.Insolvency of a partner Sec.29 provides .35 deals with a situation where after the death of a partner. A public notice of the death of a partner is not required. Transfer of partner’s interest A partner may transfer his interest in the firm by sale. The transfer may be absolute or partial. mortgage or charge. Sec.45 lays down an identical rule applicable to a case where the death of a partner has caused dissolution of the firm. But as the partnership relationship is based on mutual confidence. the firm continues its business without dissolution and provides that the estate of the deceased partner is not liable for any act of the firm done after his death.

or (iii) inspect books of the firm. is not entitled to- (i) interfere in the conduct of business of the firm or (ii) require accounts of the firm. but it would nevertheless be “dissolution of partnership”. dissolution of firm always implies dissolution of partnership. Dissolution of partnership may involve merely a change in the relation of the partners and not the dissolution of the firm. but dissolution of partnership need not lead to dissolution of firm. It follows that if the dissolution of partnership is not between all the partners. it would not amount to “dissolution of firm”.39 provides that the dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”. Thus. during the continuance of the firm. Dissolution Dissolution of firm and dissolution of partnership Sec.that the transferee. TANMAYE GUPTA (D-15) .

. Sec.Dissolution of firm When the relationship existing between all the partners of the firm comes to an end. The contract providing for dissolution may have been incorporated in the partnership deed itself or in a separate agreement.41 calls this as compulsory dissolution. 2. By mutual consent. at any time. 4. be dissolved with the consent of all the partners. Sec. But.41 provides that a firm is dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.40 also provides for the dissolution of a firm in accordance with a contract between the partners. By agreement. Sec. 3. if the partnership relates to more than one adventure. there is dissolution of the firm. This applies to all cases whether the firm is for a fixed period or otherwise. A firm may be dissolved in any of the following ways: 1. By business becoming illegal.40 provides that a firm may. If all the partners or all the partners but one become insolvent. it is called dissolution of the firm. It naturally involves closing down the business. Sec. By the insolvency of all the partners but one. the illegality of one or more of them does not prevent the lawful adventure from being carried on by the firm. There is no question of „reconstituted firm‟ in such a case.

unless a very special case is made out for dissolution. in such a case. The court may order for dissolution of partnership. The application for dissolution. In the case of insanity of a dormant partner. The application in this case may be made by any of the partners or by the next friend of the insane partner. c) Misconduct of a partner affecting the business. In such a case partnership is dissolved.41 also covers cases of partnership between persons some of whom become alien enemies by a subsequent declaration of war. the court may dissolve a firm on any of the following grounds: a) If a partner has become of unsound mind. if a partner becomes permanently incapable of performing his duties as a partner. Partners becoming alien enemies.5. may be made by any of the partners and not by the incapacitated partner. Dissolution by court (Sec. because trading with an alien enemy is against public policy. the court will not order dissolution. If a partner is guilty of conduct which is likely to affect prejudicially the carrying on of the business of the firm. Sec.44) At the suit of a partner. b) Permanent incapacity of a partner. the court may order dissolution. .

transfer even the whole of his share to a partner in the firm. have been held to be sufficient reasons for dissolution. The suit for dissolution under this ground can be brought by a partner other than the guilty partner. mortgage or charge). If a partner wilfully and persistently commits a breach of the partnership agreement regarding management. 42 Bom. If a partner transfers. the court may order dissolution. Price. by sale. The court can order dissolution even though the partnership is for a fixed period [Rehmat-un-nisa-v. f) The court can also dissolve partnership where the business of the firm cannot be carried on save at a loss. the court may dissolve the partnership. A partner can. in any way (e. Continuous refusal by a partner to attend to his duties in the partnership business. 380].d) Wilful and persistent disregard of partnership agreement by a partner. The court can order dissolution on any other ground which in the opinion of the court is a fit ground .. e) Transfer of interest or share by a partner. The transfer of a part of his share by a partner to any third party is not permissible unless otherwise agreed. because no new partner is introduced thereby. g) Just and equitable. the fact of hostility between the partners which makes cooperation between them impossible. or otherwise conducts himself in such a way that is not reasonably practicable for the other partners to carry on business in partnership with him. his whole interest in the partnership to a third party (outsider) or allows his share to be charged in execution of a decree against him or allows the same to be sold for arrears of land revenue or for charges recoverable as land revenue.g. however.

Dissolution on this ground has been granted in case of deadlock in the management. disappearance of the substratum of the business. partners not on speaking terms. etc.for dissolution of partnership. SYED ZAIDI (D-61) .

Versus - Gammon India Limited. Bhangale IN THE HIGH COURT OF JUDICATURE AT BOMBAY SUMMONS FOR JUDGMENT NO.A. Rohit Chambers. Mumbai .P.122 OF 2008 IN SUMMARY SUIT NO. a Public Limited Company duly incorporated under the provisions of the Companies Act I of 1956 having its registered office at Gammon House. Veer Savarkar Marg.3037 OF 2007 Harilal & Co. 1932. S. .. Brelvi Road.400 025 (Defendants). . having their office at 18. Prabhadevi. a partnership firm duly registered under the provisions of the Indian Partnership Act. Mumbai400 001 (Plaintiffs). Fort. 2010 Bench: A.CASE STUDY Harilal & Co vs Gammon India Limited on 6 May.

A.31. a duly registered partnership firm. 2.4.377. 3. supplied and delivered goods valued at Rs.S/Shri Chirag Shah a/w A. This summons for judgment is taken out on 2-4-2008 in Summary Suit No. Jain for the Plaintiffs. the plaintiffs demanded the dues but the defendants failed to pay the same.98 under four different invoices which were received. 2010 JUDGMENT: 1. 2010 PRONOUNCED ON: MAY 06.3037 of 2007 which was instituted on 12-102007 under Order XXXVII of the Civil Procedure Code. 2004 the plaintiffs. Summons for judgment taken out by the plaintiffs on 2-42008 is resisted on the grounds that the suit is not . acknowledged and utilised by the defendants. 4. during the period between October-December. On on about 23-3-2006. RESERVED ON : MAY 03. sold. briefly stated is that. The defendants failed and defaulted to pay the price of the goods delivered. The case of the plaintiffs. S/Shri Karl Shroff a/w Subodh Kurdukar for the Defendants.

Akberali & Sons and others {CDJ 1994 BHC 057 = 1996 (1) Mah. 772 (FB)} as well as the decisions of learned single Judges in Maharashtra Paper Trading Company v. stated the principles applicable to cases covered by Order 37. Chatterjee. Das. in the form of the following propositions (at p. therefore.253): (a) If the defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to . both the learned counsel for the plaintiffs as well as for the defendants have placed reliance on a decision of the Supreme Court in M/s.R. pleading that there is substantive defence to resist the suit as instituted.maintainable as a summary suit under Order XXXVII of the Civil Procedure Code and that the plaintiffs have suppressed material facts from the Court. The defendants.S. Bombay Mercantile Co-operative Bank Limited v. 77}} and Wolstenholme International Limited v.C.P. 5. The para 8 of the said decision reads thus: In Sm.R.. v. J. Further. learned counsel for the plaintiffs has placed reliance on a Full Bench decision of this Court in Jyotsna K. Packers India & Ors.L. Twin Stars Industrial Corporation {CDJ 2001 BHC 1123 = 2001 (4) BCR 114}}. Heard submissions at the bar. prayed for unconditional leave to defend. It is also contended that there was no agreement between the parties for payment of interest. Kiranmoyee Dassi v. C. J. Sirohya Enterprises {CDJ 1991 BHC 264 = AIR 1992 (Bom) 60}. {CDJ 1999 BHC 282}. Dr. Valia v. Mechalec Engineers & Manufacturers v. Basic Equipment Corporation {AIR 1977 SC 577} and more particularly the para 8 thereof. Parekh & Co. after a comprehensive review of authorities on the subject. Indian Rayon and Industries Ltd. T.C. In support of his submissions. M/s.253. (1945) 49 Cal WN 246 at p. {2007 (3) Bom.

the Court may protect the plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the defendant on such condition. shows such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff s claim the plaintiff is not entitled to judgment and the defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.leave to sign judgment and the defendant is entitled to unconditional leave to defend. and thereby . (e) If the defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the plaintiff is entitled to leave to sign judgment. that is to say. (d) If the defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the plaintiff is entitled to leave to sign judgment and the defendant is not entitled to leave to defend. although the affidavit does not positively and immediately make it clear that he had a defence. (b) If the defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the defendant is entitled to unconditional leave to defend. (c) If the defendant discloses such facts as may be deemed sufficient to entitle him to defend. yet.

The defendants have raised contentions attacking the plaintiffs case regarding overcharging of goods. I pass the following order: ORDER- (a) The summons for judgment are rejected. In my view. in the facts and circumstances of the case. etc. 6. Mechalec Engineers case (supra). may go to root of the suit. fraudulent approach. the case of the defendants would fall in category (c) above as the defendants may be able to substantiate their defence and may successfully resist the suit claim. challenge to jurisdiction.. suppression of facts. ROMMEL MAJUMDAR D-30 .show mercy to the defendant by enabling him to try to prove a defence. The defendants shall co-operate for early hearing and disposal of the suit by filing written statement. if accepted. (b) Conditional leave to defend is granted. I think the contentions in defence prima facie appear bona fide and cannot be overlooked. limitation. Defence. Hence. The trial be heard as expeditiously as possible and in any event within three months upon the date of framing issues. latest within eight weeks. non-obtaining leave under Clause 12 of the Letters Patent. Considering the nature of the suit claim and rival contentions advanced at the bar and so also the ruling by the Supreme Court in M/s.

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