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ASSIGNMENT ON

LAW OF
CONTRACT

INDIAN
PARTNERSHIP ACT ,
1932

GUIDED BY:
EQBAL HUSAIN

SUBMITTED BY:
SHUJA HAIDER RIZVI

ACKNOWLEDGEMENT

It is my imperative duty to thank the following people for


the successful completion of my Contract law project that
is Indian Partnership Act, 1932:

Dr. (Prof.) Eqbal Husain for the clarity he brings into


teaching thus enabling us to have a better
understanding of his subject. I also feel obliged to
thank him for providing us with such wonderful
topics to choose from.
The very cooperative and friendly staff members in
the Law Library who were instrumental in our finding
the necessary books without wasting much time.

List of Contents

ACKNOWLEDGEMENT.. 1
LIST OF CONTENTS ....... 2

TABLE OF CASES. 3

TABLE OF TREATISE.. 4
TABLE OF ABBREVIATIONS. 4
BACKGROUND...... 5
NATURE OF PARTNERSHIP....... 5
DEFINITION OF PARTNERSHIP... 6
ESSENTIALS OF PARTNERSHIP....... 7
RELATION OF PARTNERS INTER SE. 10
RIGHTS OF PARTNERS.. 12
DUTIES OF PARTNERS... 14
DISSOLOUTION OF FIRM.. 17

TABLE OF CASES

Agarwal Jorwarmall v. Kasam AIR 1937 Nag.


Arunachalam & Co. v. M. Sadasivam AIR 1985 Mad. 345
Blisset v Danial (1853) 68 ER 1022
Burton v. Wookey (1822) 56 ER 1131
Cox v. Hickman(1860) 8 HLC 268 : 125 RR 148
Gobardhan Chakraborty v. Abani Mohan AIR 1991 Cal. 195.
Harsant v. Blaine (1887) 3 TL Rep. 689
Hugh Stevenson & Sons v. Aktiengesellschaft (1918) AC 239
Hukumchand v. Hansraj (1938) @ MLJ 966
Jones v. Llyod (1874) LR 18 Eq. 265.
K. Jaggaiah v. Kokumanu AIR 1984 A.P 149
McLeod v. Dowling (1927) 43 TLR 655.
Mahommed Kamil v. Hafeyatullah AIR 1926 Cal. 380.
Marshal & Co. v. Naginchand (1918) ILR 42
Maung Tha v. Mah Thein (1901) ILR
Maung Tha Hurjum v. Ma Than Yeikh (1900) ILR 28 Cal.
Nawell v. Nawell (1869) 7 Eq. 538.
Pabita Construction Co. v. UCO Bank AIR 2008 Cal. 103.
Peacock v Peacock (1808) 33 ER 902
Ram Singh v. Ram Chand (1923) ILR 5 Lah. 23
Re. Albion Life Assurance Society (1880) 16 CH.D 83
Reghunandan v. Hormasjee (1927) 51 ILR Bom 342.
Rodriguez v. Speyer Bros. (1919) AC 59
Sathappa v. Subrahmanyam 101 IC 17

TABLE OF TREATISE

The law of Contracts & Tenders, Sixth Edition, T.S Venkatesa Iyer

Contract-II, Dr. R.K Bangia

TABLE OF ABBREVIATIONS

A.C. Appeal Cases


All E.R. All England Reports
A.I.R. All India Reports
Del. Delhi High Court
Ex. Court of Exchequer Chamber
K.B. Kings Bench
N.Z.L.R. New Zealand Law Reports
Q.B. Queens Bench
S.C.C. Supreme Court Cases
W.L.R. Weekly Law Report

Background :
The Indian Partnership Act as stated under Section 11 was enacted in 1932
and it came into force on 1st day of October 1932. This act superseded the
1 Sec. 1. The Act came into force on the 1st day of October 1932, except Section 69, which
came into force on the 1st day of October, 1933.

earlier law relating to Partnership, which was contained in Chapter XI of


Indian Contract Act, 1872.
The Partnership arises from contract, and therefore, such a
contract not only by the provisions of the Partnership Act, but also by
general law of contract in such provisions. Section 3 of Indian Partnership
Act expressly talks that in so far general law of contract are inconsistent
with the provisions of this Act, shall continue to apply. On the other hand,
regarding the position of minor, since there is a specific provision contained
in Section 30 of Indian Partnership Act, the minors position is governed by
the provisions of Partnership Act.
Nature of Partnership :
Partnership is a form of business organization where two or more persons
join together for jointly carrying on some business. In Partnership, a number
of people could invest 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 burden also gets divided amongst various partners in a
Partnership.
Section 11 of Companies Act, 1956 imposes a limit as to
the maximum number of persons in a partnership. In a partnership for the
purpose of carrying on banking business, there can be maximum of 10
persons, whereas there can be maximum of 20 people in carrying on any
other business. If the number of member in any association exceeds the
abovestated limits, that must be registered as a company under the
Companies Act, otherwise that will be considered to be an illegal
association. As against Partnership, there could be possibly much larger
member in a Company.
In certain aspects, a partnership is a more suitable form
of business organization than a Company. For creation of a Partnership just
an agreement between various partners is all what is required, whereas in
case of a Company, there are a lot of procedural formalities which have to
be gone through before a Company is created.

Definition of Partnership:
The word partnership comes from a Latin word meaning to part, i.e, to
share. Though sharing is the central idea of a partnership, yet, as will be
seen later, it is not the sole test of a partnership. Partnership has been
defined in several ways and Lindley collects together as many as nineteen
definition in his book.
Section 4 of Indian Partnership Act 1932 defines Partnership2:
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.
Sir Fredrick Pollock defines Partnership as
the relation which subsists between persons carrying on business in
common with a view of profits.

Essentials of Partnership:
1. An Agreement
2. Carrying on of business
3. Sharing profits
1. An Agreement:
Partnership arises from an agreement between two or more persons for the
creation of this relation. The presence of an agreement has to be there,
2 The present definition replaces Section 239, Indian Contract Act, which defined
Partnership as under : Partnership is a relation which subsists between persons who
have agreed to combine their property, labor or skill In some business, and to share
the profits thereof between them.

through the same way be either express or implied. If the basis of the
relationship between certain persons is not an agreement, the association
would not be a partnership. Section 5 expressly provides that the relation of
partnership arises from contract and not from status. Thus, it is the element
of agreement which distinguishes a partnership from various other
relationships like members of a Joint Hindu Family, joint owners or joint
heirs.
The agreement to form partnership has to be between two
or more persons. Since the creation of partnership itself requires a contract
between persons, such persons, therefore, must be competent to contract. A
minor or a person of unsound mind, who are not competent to contract,
cannot become partners. There is nothing which prevents a person
incompetent to contract from accepting any benefit and hence the business
organization permits a minor to be admitted to the benefits of partnership.3
Such minor has a right to share of property and profits as may be agreed
upon.4 Such minors share is liable for the act of the firm, but the minor is
not personally liable for any such act.5

2. Carrying on of Business:
The object of every Partnership must be carrying on a business and sharing
of profits. It may be any business which is not unlawful. The Act defines
business as including every trade occupation or profession. The definition
is not exhaustive and is capable of including any kind of commercial
activity aimed at earning profits.

Particular Partnership [Section 8]:

3 See Sec. 30(1). The position of a minor has been discussed in details in Chapter 3.
4 Sec 30(2), Indian Partnership Act.
5 Sec. 30(3).

According to Section 8, there can be Particular Partnership between


partners whereby they engage in particular adventures or undertaking.
Thus, persons can be partners in the working out of a coal-mine or the
production of a film because although that may be a single adventure
but the same requires a series of transactions and continuous
relationship.
In K. Jaggaiah v. Kokumanu6, the plaintiff and the two
defendants joined together and obtained a contract for the
maintenance of road. There was held to be partnership in the road
building activity. Such activity through arising out of a single contract
was spread over a particular period and the firm had to employ certain
workers, supervise the work, prepare the bills and finally receive the
bills, and all that meant carrying on of business.
3. Sharing of profits:
The object of every partnership must be to carry on business
for the sake of profits and to share the same. Therefore,
clubs or societies which do not aim at making profits are not
partnerships. The term profits has not been defined in the
Act. It means net gain, i.e., the excess of return over outlay.
Although sharing of profits is one of the
essential elements of every partnership but every person
who shares the profits need not to be a partner. For
example, I may pay a share of profits to the manager of my
business instead of paying him fixed salary so that he takes
more interest in the progress of the business; such person
sharing the profit is simply my servant or agent but not my
partner. In Cox v. Hickman7 it was laid down that the
persons sharing the profits of a business do not always incur
6 AIR 1984 A.P 149.
7 (1860) 8 HLC 268 : 125 RR 148

the liability of partners unless the real relation between


them is that of partners. The principle laid down in Cox v.
Hickman forms the basis of the provisions of S.6 of Indian
Partnership Act, which gives a caution that the presence of
only some of the essentials of partnership does not
necessarily result in partnership.

Duration of partnership:
Partners are free to decide as to how long partnership between them shall
continue. It may be partnership for a fixed term, say for 2 years or 5 years,
or it may be until the completion of certain adventures or undertaking, for
instance until the production of a firm. When the partners have not decided
about the duration of partnership, such a partnership is known as partnership
at will
Partnership at will
According to Section 7:
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.
If the duration of partnership has been fixed but the partnership is made to
continue thereafter without specifying any fixed duration for the same, the
subsequently it becomes a partnership at will.8
When the duration of partnership cannot be found either by any express
provision in the partnership agreement or by implication, and the same is
dependent on a totally uncertain event like grant of permanent license for
running cinema business, it would be a partnership at will.9

8 Arunachalam & Co. v. M. Sadasivam AIR 1985 Mad. 345

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Since in a partnership at the will duration of partnership is not fixed, nor is


there any provision as regard his determination, the partners are not legally
bound to continue in partnership for any specified period, etc, and the
partnership can be ended at the sweet will of any of the partners. The
following provisions of the Partnership Act in this regard may be noted:
a) Where a partnership is at will, a partner may retire by giving a
notice to all the other partners of his intention to retire.10
b) Where the partnership is at will, the firm may be dissolved by any
partners giving notice in writing to all the other partners of his
intention to dissolve the firm.11 The firm is dissolved as from the date
mentioned in the notice as to the date of dissolution or, if no date is so
mentioned, as from the date of the communication of the notice.12
RELATION OF PARTNERS INTER SE:
Chapter III (Sections 9 to 17) of Indian Partnership Act contains provisions
concerning Relation of partners to one another, i.e. the rights and duties of
the partners as between themselves.
Section 11 of the Act contains the general rule that the mutual rights and
duties of the partners are to be determined by their mutual agreement. The
provision is as under:
11.Determination of rights and duties of partners by contract between
the partners.9 Gobardhan Chakraborty v. Abani Mohan AIR 1991 Cal. 195.
10 Sec. 32(10)(c)
11 Sec 43(1)
12 Sec. 43(2)

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(1) Subject to the provisions of this Act, 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.
Such contract may be varied by consent of all the
partners, and such consent may be expressed or may be
implied by a course of dealing.
(2) Agreement in restraint of trade- Notwithstanding anything
contained in Section 27 of the Indian Contract Act, 1872, such
contract may provide that a partner shall not carry on any
business other than that of the firm while he is a partner.
As it has been noted as above, this section incorporates the general principle
that the mutual rights and duties of the partners may be determined by the
contract between themselves. They may themselves decide that how much
investment or labour is to be put by whom, or whatever a partner will be
entitled to any remuneration, apart from sharing the profits, or what will be
the profit sharing ratio, etc. Such contract may be expressed or may be
implied by a course of dealing. The mutual rights and duties which may
have been agreed upon between the partners may be subsequently varied by
the consent of all the partners. Such variance or change in the mutual rights
and duties may also be made either expressly or by an implied consent
though a course of dealing between the partners.
In Pabita Construction Co. v. UCO Bank13, three partners opened a joint
account with the respondent Bank with special instructions that any of the
two partners would be entitled to operate the bank account. In the course of
business transactions, disputes arose between them and one of them gave
written instructions to the respondent bank, not to clear any cheque unless
all the three partners jointly operate the account in deviation from the earlier
instructions. The Bank, in view of such instructions, refused to clear two
cheques issued by two of the partners. The action taken by the Bank was
held as quite justified by the Court.
13 AIR 2008 Cal. 103.

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RIGHTS OF PARTNERS:
It has been noted above that various rights and duties of the partners
contained in Section 12 to 17 are subject to contract between the partners.
Therefore, unless it has been agreed otherwise, rights are as follows:
1. Right to take part in the conduct of the business [Section 12(a)]
According to Section 12(a), every partner has a right to take part in the
conduct of the business. Since the business of partnership belongs to all the
partners, every partner is entitled to take part in conduct of business. If such
a right is wrongfully denied to a partner, he can seek the enforcement of the
right trough court of law.
2. Right to express opinion [Section 12(c)]
Section 12(c) contains following provision:
(c) Any difference arising as to ordinary matters connected with
the business may be decided by the 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.
When the difference of opinion pertains to an ordinary or routine matter
connected with the business, the same way is resolved by a decision of
majority of the partners. But before the matter is decided every partner must
be provided with an opportunity to express his opinion.
When the matter is not an ordinary or a routine matter but is of
fundamental importance, consent of all the partners is needed.
3. Right to have access to books of firm. [Section 12(d)]

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Every partner has a right to have access to and to inspect and copy any
books of the firm. The right is available to both active and dormant partners.
The right is not only in respect of books of the accounts but in respect of any
books of the firm. A partner could exercise the right either personally or by
engaging an agent.
4. Right to share profit [Section 13(b)]
Every partner has a right to share the profit. Usually partners provide in their
agreement as to what will be the proportion in which they will share the
profit.
According to Section 13(b), in absence of such agreement, the
partners are to share the profit equally to the losses sustained by the firm and
not in the proportion the various partners contributed capital.
5. Right to Indemnity [Section 13(e)]
A partner acting on the behalf of the firm may make certain payments and
also incur some liabilities. According to Section, he is entitles to claim
indemnity for the same. The indemnity claimed for the acts done by a
partner in ordinary and proper conduct of business and also for doing the
same act in an emergency for the purpose of protecting the firm from the
loss.

DUTIES OF PARTNERS:
Section 9 and 10 incorporate certain duties of the partners which are not
subjected to contract between the partners, whereas certain duties have been
provided from Section 12 to 17, each one of those provisions has been
subject to contract between the partners. Duties are as follows:
1. Duty to carry on the business to the greatest common advantage

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Partnership is based upon mutual confidence and trust. It is, therefore,


necessary that no partner should gain any personal advantage at the cost of
others. One of the duties mentioned in Section 9 is that partners must carry
on the business to the greatest common advantage. 14
2. To be just and faithful
Every partner is bound to be just and faithful to the others persons.15 As
already observed, partnership being a fiduciary relationship, it is absolutely
necessary that each partner must be just and faithful to others. It is however
to be noted that such a provisions is not found in the English Partnership Act
and Section 9 of Indian Partnership Act has taken this from Section 257 of
Indian Contract Act Section 10 and 13(f) elaborate the duty of just and
faithful.
3. To keep and render true and correct accounts
It is the duty of the partners not only to maintain true, proper and correct
accounts of the partnership16 but to allow the other persons to have free
access to such accounts, to inspect them and to take copies of them either by
themselves or by their agent at all reasonable times. If he fails to maintain
proper accounts or mixes up his private affairs with those of partnership he
will have to account for the same.17. Beyond submitting statements of
accounts he will have to hand over the firm which may have come in his
hands.18

14 Peacock v Peacock (1808) 33 ER 902


15 Burton v. Wookey (1822) 56 ER 1131
16 Blisset v Danial (1853) 68 ER 1022, Ram Nand v. Nand Kishor
17 Maung Tha v. Mah Thein (1901) ILR
18 Harsant v. Blaine (1887) 3 TL Rep. 689

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4. Duty to indemnify for fraud


Section 10 contains the following provisions :
10. Duty to indemnify for the loss caused by fraud- Every partner shall
indemnify the firm for any loss caused to it his fraud in the conduct of
the business of the firm.
The firm is liable for not only for the contract made by one of them on
behalf of other but also for the wrongful act or omission of the partner
acting in the ordinary course of business of the firm. If a partner commits a
fraud against a third party, the third party can make the firm liable for the
same. Section 10 entitles the firm to recover indemnity from the partner
guilty of fraud because of which the firm had to suffer the loss. It is
therefore, not possible for a partner to negative his liability towards the firm
for loss caused to firm due to his fraud. This section in absolute terms
provides that every partner shall indemnify the firm for any loss caused to
the firm by his fraud in the conduct of business of the firm.
5. To account for the profit of competing business
Ordinarily, through every partner is expected to attend diligently to the
business of the partnership, the partnership agreement may provide weather
a person is expected to give the whole of his time to the affairs of the
partnership, and if he is entitled to carry on any independent business. In the
absence of any such agreement, partners are free to be interested in a private
business of their own, provided the same does not compete with the business
of the partnership.19 It is however, open to the partners by an agreement, to
restrain a partner from carrying to any other business and such restraint, if
reasonable, will be valid and enforceable.
Section 11(2) of Indian Partnership Act provides:

19 Mahommed Kamil v. Hafeyatullah AIR 1926 Cal. 380.

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11. (2) Nothwithstanding anything contained in Section 27 of Indian


Contract Act, such contract may provide that a partner shall not carry on any
business other than that of the firm while he is partner.
If the partner fails to obtain consent and carries on a competing business
then, he must account for the profits of such business to the firm and must
also compensate the firm for any loss sustained by carrying on such
competing business.
6. To share losses
Every partner is bound to share the losses equally with others.20 If the
partnership arrangement provides for the proportion in which loses are to be
shared, then it would govern the transaction. In the absence of any such
arrangement, it is presumed that the partners share the losses in the same
proportion they share the profits.21 But if the arrangement does not provide
even as to the sharing of the profits, then, parties to agree that the profit or
the loss shall be joint22 or that one of the partners shall bear all the losses of
the business.23
7. Section 13(b) provides:The partners are entitled to share equally in the profits
earned, and shall contribute equally to the losses sustained by the firm.

20 Nawell v. Nawell (1869) 7 Eq. 538


21 Re. Albion Life Assurance Society (1880) 16 CH.D 83
22 Hukumchand v. Hansraj (1938) @ MLJ 966
23 Reghunandan v. Hormasjee (1927) 51 ILR Bom 342.

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DISSOLOUTION OF FIRM:
Dissolution of partnership means coming to an end of the relationship
known as partnership, between various partners. When one or more partner
ceases to be partners but the others continue the business in partnership,
there is dissolution of partnership between the outgoing partners on the one
hand and remaining partners on the other.
According to Section 39, when the dissolution of partnership
between all the partners of the firm occurs, this is called dissolution of the
firm.
Modes of dissolutions [Section 40-44]
1. By mutual consent:
Whether it is a partnership at will or one for a fixed period, a partnership
would be dissolved , if all the partners agree that it should be dissolved. Just
as a partnership is formed by the consent of all the partners, similarly a
partnership gets dissolved by all the partners agreeing to dissolution.
Section 40 of Indian Partnership Act
A firm may be dissolved with the consent of all the partners or in
accordance with the contract between the partners.
Under this Section all partnership including a partnership including a
partnership at will may be dissolved in the manner provided therein.24
Consent of the partners to dissolve the firm need not necessarily be
expressed but may be implied from the circumstances of the particular
case.25
Notice of dissolution of partnership given by one partner of the firm
accepted by the other partner and not replied to by him amounts to consent
24 Sathappa v. Subrahmanyam 101 IC 17
25 Maung Tha Hurjum v. Ma Than Yeikh (1900) ILR 28 Cal.

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to dissolution.26
2. By the insolvency of all the partners but one
Through the insolvency of one or more partners would only dissolve the
partnership so that it would be open to the remaining partners to enter into a
special agreement for continuing the business of the firm provided there be
at least two solvent partners left, yet if all partners but one have become
insolvent there must necessarily be a dissolution of the firm.
Section 41, Cl (a) of the Indian Partnership Act:
(a) by the adjudication of all the partners or of all the partners but one as
insolvent.
3. By business becoming illegal
Whether it is a partnership at will or for fixed period, if the business of the
partnership is prohibited by law or becomes illegal, then partnership gets
dissolved.27 It is possible that the business may be prohibited or become
illegal if, for example by the declaration of war, the partners become alien
enemies. Where the partners of the firm find that they are nationals of State
which have declared war on each other, all contract entered into before the
declaration of war would be abrogated if they ensure to the benefit of the
enemy or involve dealing with the enemy.28 After one of the partners
becomes an alien enemy if the other partner is now dissolved firm continues
the business making use of the capital of the erstwhile partner of firm, the
enemy partner can claim his share earned after the dissolution payment
being suspended while the war is on.29 Section 41, Clause (b) provides :
26 Agarwal Jorwarmall v. Kasam AIR 1937 Nag.
27 Rodriguez v. Speyer Bros. (1919) AC 59
28 Marshal & Co. v. Naginchand (1918) ILR 42

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(b) by happening of any event which makes it unlawful for the business of
the firm to be carried on or for partners to carry it on in partnership
4. By notice of dissolution
A partnership at will, weather originally so, or subsequently becoming one,
by a partnership for a term being continued beyond the stipulated period,
may be dissolved at any time by any of the partners giving notice of
dissolution to the other partners.30 This right of a partner to dissolve a
partnership at will by giving notice simplicities is a statutory right and is not
affected by his conduct or credentials. The right must however be exercised
in a bona fide and the partner giving notice will not allowed to gain any
particular advantage to himself by giving notice at an unreasonable
moment.31 Notice once given cannot be withdrawn expect with the consent
of the other partners.32
Section 43 of Indian Partnership Act provides thus:
(1)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.
(2) 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
notice.
If the partner giving notice dies while it is in course in the post, it has been
held that the dissolution is by death and not by notice.33
29 Hugh Stevenson & Sons v. Aktiengesellschaft (1918) AC 239
30 Ram Singh v. Ram Chand (1923) ILR 5 Lah. 23
31 Burdon v. Barkus (1862) 4 De GF
32 Jones v. Llyod (1874) LR 18 Eq. 265.
33 McLeod v. Dowling (1927) 43 TLR 655.

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