DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY

2018-19

CONTRACT LAW-II

‘MINOR AS A PARTNER’

SUBMITTED TO: SUBMITTED BY:

DR. VISALAKSHI VEGESNA NISHI TRIPATHI

ASSOCIATE PROFESSOR (LAW) III SEM., 2ND YEAR

170101091

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 ACKNOWLEDGEMENT

I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals. I would like to extend my sincere thanks to all of them.

I am highly indebted to Dr. Visalakshi Vegesna mam for her guidance and constant
supervision as well as for providing necessary information regarding the project & also for
their support in completing the project.
I would like to express my gratitude towards my family for their kind co-operation and
encouragement which help me in completion of this project.
My thanks and appreciations also go to my friends in developing the project and people who
have willingly helped me out with their abilities.

Nishi Tripathi
170101091

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 Table of Contents

INTRODUCTION ................................................................................................ 4

MINORS – ADMITTED ONLY TO BENEFITS ................................................ 4

RIGHTS AND LIABILITIES OF A MINOR ...................................................... 6

Rights of a Minor Partner .................................................................................. 7

Liabilities of a Minor Partner............................................................................. 8

POSITION OF MINOR ON ATTAINING MAJORITY ..................................... 8

CONCLUSION ................................................................................................... 12

REFRENCES ...................................................................................................... 13

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 INTRODUCTION

A minor is a person who hasn’t yet attained the age of majority according to the
Indian Majority Act of 1875.1 Section 32 of the Indian Majority Act states that a
person who is domiciled in India will attain majority at the age of eighteen.

Section 30 of the Indian Partnership Act3 governs the admittance of a minor into
a partnership. This section deals with the rights and liabilities of a minor who is
admitted into a partnership and is entitled to the benefits of a partnership. A
deeper reading of the provision, specifically sub-section (1)4 of the provision
makes it very clear that a minor can’t be a full-fledged partner in a partnership.
But with the consent of all the partners, a minor can be admitted to the benefits
of a partnership.

MINORS – ADMITTED ONLY TO BENEFITS

The general principle which has been laid down in Section 11 5 of the Indian
Contract Act, 1872, states that a person has to attain the age of majority and
should be of sound mind and not disqualified to enter into a contract to be a
competent party. The Indian Partnership Act, 1932 was drafted by a Special
Committee. Before the enactment of this statute, the provisions relating to
partnerships was enshrined in the Indian Contract Act itself. While drafting the
Act, the Special Committee felt that no major changes were required in the
Partnership Act, and they believed that there was no reason to deviate from the
principle of incapability of a minor to enter into a contract as provided by Section
11 of the Contract Act. Following this, the Committee did not allow minors to
become a partner in a partnership, although they allowed a minor to be admitted

1
http://admis.hp.nic.in/himpol/Citizen/LawLib/C0141.html.
2
Indian Majority Act, § 3.
3
https://indiankanoon.org/doc/1921150/.
4
Id.
5
http://comtax.up.nic.in/Miscellaneous%20Act/the-indian-contract-act-1872.pdf.
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to the benefits of a partnership.6 In the judicial pronouncement of S.C. Mandal v.
Krishnadhan,7 It was observed that under Section 4 of the Indian Partnership Act,
a firm means a group of person who has entered into a contract of partnership
among themselves and reading it with Section 11 of the Indian Contract Act, it
can be interpreted that a minor cannot be a part of the contract of partnership. A
minor can only be admitted to the benefits of a partnership, and that partnership
has to exist independently. Also, there cannot be a contract between two
minors. In simple words, there should be a partnership between two major
partners before a minor can be admitted to its benefits.

In the case of H.R.G Ram v. Commissioner of Income Tax,8 It was held by the
High Court of Allahabad that any partnership deed which divides the obligations
and rights between the major and minor partners equally will be invalid as it will
be in contravention of Section 30 of the Partnership Act because in such a case
not only the benefits are given to the minor, but liabilities are also being imposed
upon the minor. There was some confusion regarding this proposition of law as
in some cases, different high Courts of the country opined that even if a minor is
made a full-fledged partner in a partnership firm, the partnership deed is to be
interpreted in a liberal manner, and the obligations of the minor will be limited to
the extent provided in Section 30 of the Partnership Act.

But in the landmark case of Commissioner of Income Tax v. D Khetan and

Co.9The Apex Court made the legal stand clear on this issue by stating that where
a minor is made a full-fledged partner in the firm, the firm could not be registered
by the Income Tax Department. In case the Income Tax Department do register
such a partnership firm, a new contract is to be made where the minor is admitted

6
http://www.legalindia.com/minority-and-partnership/.
7
(1922) 49 Cal 560,570.
8
[1950] 18 ITR 106 (All).
9
AIR 1961 SC 680.
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only to the benefits of the firm, and the original contract will be rendered invalid
by registration of the new contract. Therefore, the proposition of the law is very
clear. The partnership deed has to make it specifically clear that the minor is
admitted only to the benefits of the firm and is not personally liable for the losses.
In the judicial pronounce of Banka Mal Lajja Ram & Co. v. Commissioner of
Income Tax, Delhi,10 It was held by the Court that even if the other partners
consent, a minor still can’t become a full-fledged partner in a firm through his or
her guardian. In the case of CIT v. Kedarmall v Keshardeo,11 it was held by the
Court that a contract deed is valid when a guardian enters into a partnership on
behalf of the minor, provided the minor is not made liable for the losses of the
partnership, and the Guardian still had the right of being the guardian of the minor
when the contract was entered into. Also, the income of a minor from a
partnership will not be considered for the purpose of income tax.

RIGHTS AND LIABILITIES OF A MINOR

Sub-section (2)12 of section 30 of the Partnership Act states that a minor is entitled
to share of profits and the property of the firm which may have decided at the
time the minor was admitted to the benefits of the partnership. Under this
provision, a minor also has the right to access and inspects the accounts of the
firm. But this right is limited to the access and inspection only of the accounts of
the firm and not any other document of the firm. Under sub-section (3) of the
provision, it is stated that the minor is liable to the extent of his share in the
partnership and cannot be made personally liable for the losses of the firm. In the
case of S.C Mandal v. Asutosh Ghose,13 It was held by the Court that the creditors
of the firm can only recover the amount from a minor to the extent of his share in

10
AIR 1953 Punj 270 (DB).
11
AIR 1968 Assam 68.
12
http://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf.
13
AIR 1915 Cal 482.
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 the firm, but they can’t sue the minor personally. The full-fledged partners do not
enjoy this benefit as they can be made personally liable. In the case of S.R Patil
v. C.N. Sedalge,14 It was opined by the Court that a minor who has been admitted
to the benefits of a partnership can’t be declared insolvent even if the other
partners are declared as insolvent.

Sub-section (4) of the provision states that the minor can sue other partners to get
the benefits of the partnership, but this right to sue is limited by the provision.
The minor gets the right to sue other partners to recover the benefits only if the
minor sever all ties with partnership firm. This provision further states that in the
case the minor sever all ties with the firm, valuation of his share is to be done by
section 4815 of the Act, as far as possible.

To summarise;

Rights of a Minor Partner

i. A minor partner will obviously have the right to his share of the profits of the
firm. But the minor partner is not liable for any losses beyond his interests in
the firm. So a minor partner’s personal assets cannot be liquidated to pay the
firms liabilities.

ii. He can also like any other partner inspect the books of accounts of the firm.
He can demand a copy of the books as well.

iii. If necessary he can sue any or all of the other partners for his share of the
profits or benefits.

14
AIR 1965 SC 212.
15
Indian Partnership Act, § 48.
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iv. A minor partner on attaining majority has the right to become a partner of the
firm. He has six months from attaining majority to decide if he will execute
this right. Whether he decides to become a partner or not he must give public
notice about the same.

Liabilities of a Minor Partner

i. A minor cannot be held personally liable for the losses of the firm. And if the
firm declares insolvency the minor’s share is kept with the Official Receiver

ii. After turning 18 the minor partner can choose to become a partner of the firm.
But he may choose to not become a partner. In this case, the minor partner has
to give a public notice about this decision. And the notice has to be given
within 6 months of gaining majority. If such a notice is not given even after 6
months then the minor partner will become liable for all acts done by the other
partners till the date of such notice.

iii. Should the minor partner choose to become a partner he will be liable to all
the third parties for the acts done by any and all partners since he was admitted
to the benefits of the partnership.

iv. If he becomes a full-time partner he will be treated as a normal partner and

have all the liabilities of one. His share in the profits and property of the firm
will remain the same as it was when he was a minor partner.

POSITION OF MINOR ON ATTAINING MAJORITY

Under sub-section (5), the minor has an option to either become a full-fledged
partner of the firm or severe his connections with the same. He may, within six
months of attaining eighteen years of age, choose to become or not, become a

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partner and signify the same by way of a public notice as described under Section
72. Failing to do the same, results in his ispo facto becoming a partner in the
firm.16The minor need not issue a public notice in case he wants to continue being
a partner because he would anyway, by default, become a partner on the expiry
of six months.17 The minor does continue to enjoy the rights, which he had
enjoyed as a minor, after he turns into a major till he decides to either continue or
repudiate the partnership or the expiry of the period six months, whichever is
earlier.18 If the minor did not have the knowledge that he was entitled to benefits
of the partnership, he may signify his will to repudiate the said contract within
six months of his attaining knowledge of the fact that of he was entitled to benefits
of the partnership in question.

Under sub-section (6), the burden of proving that the minor did not have
knowledge that he was in fact entitled to the benefits of partnership rests with the
party asserting the same. If the person asserting so is the minor himself, then he
would have the onus to prove the same in accordance with Section 10619 and if it
is someone else then Section 10120 and Section 10321 will throw the onus on
him.22

Under sub-section (7), clause (a), the minor, who has either chosen to continue as
a full-fledged partner post attainment of majority or fails to signify his will to
repudiate under sub-section (5), becomes a full-fledged partner and such a minor
can be held liable for not only the debts incurred by the partnership after his
becoming a partner, but also the ones which had been incurred ever since he was
entitled to benefits of the partnership. Thus, the minor in a way becomes

16
Desai 231.
17
Singh 458.
18
HK Saharay (‘Saharay’), Indian Partnership and Sales of Goods Acts 97 (2000).
19
The Indian Evidence Act, § 106.
20
The Indian Evidence Act, § 101.
21
The Indian Evidence Act, § 103.
22
Singh 458.
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retrospectively liable. This is a major departure from English Law, wherein the
creditors are in a less favourable position.23 In English Law, the minor would be
liable only for debts incurred by the firm since he attained majority.24

A minor’s share in the profits, on his joining the firm as a full-fledged partner
post attainment of majority, remains the same as was set out in the deed.25 This is
in line with the view taken in Bhogilal v. Commissioner of Income-tax26 (sub-
section (7), clause (b)) that there is no break in the continuity of a partnership in
the case where the minor elects to become a partner and hence a new partnership
does not come into existence.

In Shivgouda Rajiv Patil v. Chandrakant Neelkanth Sedalge27 the question arose

as to whether the minor partner (Chandrakant) who had attained majority
subsequent to commitment of acts of insolvency by the other partners could be
held to be personally liable for the debts of the firm. The Supreme Court held that
it was legally impossible for the Court to hold the Chandrakant liable for the debts
of a partnership that had already been dissolved before he attained
majority.28 This establishes that a minor who was entitled to benefits of a
partnership cannot be held personally liable for the debts of the firm when it had
already been dissolved before he attained majority, i.e., attained the capacity to
be a party to losses of the firm along with profits.

Under sub-section (8), the minor who elects not to be a partner his share in the
firm will be liable to the extent of losses and debts incurred until he gave public
notice about his intention to sever his connections with the firm.29 He might

23
Harmohan v. Sudarshan (1920) 25 CWN 847 as cited in Desai 232.
24
Godde v. Harrison (1821) 5 B & Ald. 147, p. 157 as cited in Desai 232.
25
Imadadali Tayabali v. C.I.T., Poona 1972 Mah LJ 285.
26
AIR 1956 Bom 411 as cited in Desai 231.
27
AIR 1965 SC 212.
28
Id.
29
S.D. Singh 459
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thereafter bring a suit to enforce this quasi-contract like contract to receive his
share.30 Sub-section (9) states that the two sub-sections which immediately
precede sub-section (9) do not in any way affect the rights of the party to whom
the minor after attaining majority might have misrepresented himself as a partner.
He will be liable for “holding out”.31

30
Id.
31
Desai 233.
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 CONCLUSION

This project deals with the rights and liabilities of a minor with respect to a
partnership, under S.30 of the Indian Contract Act. A minor, while not being a
full-fledged partner in any case, can only avail the benefits of such partnership
via consent of all partners, not all of which can be minors. The position of law
stands – minor partners are not personally liable for the losses suffered by the
firm. A guardian may contract on the minor’s behalf to enter the partnership – as
long as it is not detriment to the minor’s interest. Furthermore, a minor’s income
under a partnership cannot be brought under the head of earning income and
hence cannot be considered for purposes of income tax. After attaining majority,
the minor can choose to stay with the partnership and subsequently become liable
for losses, or severe relations altogether.

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 REFRENCES

 lawctopus.com/academike/minors-and-partnership-rights/
 sol.du.ac.in/mod/book/view.php?id=1569&chapterid=1558
 toppr.com/guides/business-laws/the-indian-partnership-act/minors-
admitted-to-benefits-of-partnership/
 blog.ipleaders.in/rights-minor-partnership/
 SCC OnLine
 Indian Partnership Act, 1932
 Indian Majority Act, 1875
 Indian Contract Act, 1872

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