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Special Repeat Project on

Indian Partnership Act, 1932 till 2008

Project submitted to:

Dr. Y. Paparao

(Faculty of Law of Contract II)

Project submitted by:

Ashutosh Biswas

Sec- “A”

Roll no.- 33

Semester - II

Hidayatullah National Law University, Atal Nagar, Raipur, 492-002; Chhattisgarh

Date : 10/05/2019
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DECLARATION

I, Ashutosh Biswas, do hereby declare that, the special project work entitled,

“Indian Partnership Act, 1932 till 2008” submitted to Hidayattullah

National Law University, Raipur is record of original work done by me under the able guidance

of Dr. Y. Paparao, Faculty Member of Law of Contract II, HNLU, Raipur.

NAME: ASHUTOSH BISWAS

ROLL NO.: 033

SECTION – ‘A’

B.A. LL.B (Hons.)

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CERTIFICATE

This is to certify that Ashutosh Biswas of Hidayatullah National Law University has completed
her Project file on the topic “Indian Partnership Act, 1932 till 2008” under my supervision. He
has taken proper care and shown utmost sincerity in completion of this assignment. I certify that
this project is up to my expectations and as per the latest guidelines issued by the university.

TEACHER’S SIGNATURE
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ACKNOWLEDGEMENT

I Ashutosh Biswas feel highly elated to work on the topic “Indian Partnership Act, 1932 till
2008”. The practical realization of this project has obligated the assistance of many persons. I
express my deepest regard and gratitude for Dr. Y Paparao, Faculty of Law of Contract. His
consistent supervision, constant inspiration and invaluable guidance have been of immense help
in understanding and carrying out the nuances of the project report. I would like to thank my
family and friends without whose support and encouragement, this project would not have been a
reality.

I take this opportunity to also thank the university and the vice chancellor for providing
extensive database resources in the library and through Internet. I would like to thank the staff of
the printing department for their cooperation and help. I would be grateful to further to receive
comments and suggestions to further improve this project report.
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Research Methodology

The doctrinal method of research has been used in this project, which involves collection of data

from both primary and secondary sources; primary sources like conventions and Secondary

sources like books written by various eminent authors and articles found in the journals and

websites, e-journals, etc. Use of internet also became very relevant to obtain the most updated,

relevant and apt information which helped me in exploring the subject from various dimensions.
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OBJECTIVES

 To study the Features of Partnership Act, 1932

 To understand the Definition of Partnership Act
 To study the Essentials to form Partnership
 To study the Advantages and Disadvantages of Partnership
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Table of Contents

1. Declaration................................................................................................................ 2
2. Certificate.................................................................................................................. 3
3. Acknowledgement.................................................................................................... 4
4. Research methodology.............................................................................................. 5
5. Objectives.................................................................................................................. 6
6. Chapterization
a) Chapter 1- Introduction ...............................................................................
b) Chapter 2- Features and Definitions of Partnership Act ………………….
c) Chapter 3- Essentials of Partnership ………………………………………
d) Chapter 4- Law of Partnership is an Extention to Law of Agency ……….
e) Chapter 5- Advantages and Disadvantages of Partnership ……………….

7. Conclusion................................................................................................................ 14
8. Bibliography............................................................................................................. 16
9. References................................................................................................................ 17
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CHAPTER -1

INTRODUCTION

One of the forms in which business can be carried on is ‘partnership’, where two or more persons
join together to form the partnership and run the business. The Indian Partnership Act, 1932 is an
act enacted by the Parliament of India to regulate partnership firms in India. Since public at large
would be dealing with the partnership as customers, suppliers, creditors, lenders, employees or
any other capacity, it is also very important for them to know the legal consequences of their
transactions and other actions in relation with the partnership.

A partnership is mean of bringing together the person who can contribute capital skill for
expansion of business.

THE INDIAN PARTNERSHIP ACT, 1932:

The Indian Partnership Act, 1932 received the assent of the Governor-General on 8 April, 1932
and came into force on 1 October 1932, except section 69 which came into force on the 1st Day
of October, 1933. Before the enactment of this act, partnerships were governed by the provisions
of the Indian Contract Act (Chapter IX - sections 239 to 266). It was derived from English
Partnership Act, 1890. The act is administered through the Ministry of Corporate Affairs. The act
is not applicable to Limited Liability Partnerships, since they are governed by the Limited
liability Partnership Act, 2008.
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CHAPTER – 2

2.1 Features of the Act1:

Act complimentary to Contract Act- The Indian Partnership Act is complimentary to Contract
Act. Basic provisions of Contract Act apply to contract of partnership also. Basic requirements of
contract i.e. legally enforceable agreement, mutual consent, parties competent to contract; free
consent, lawful object, consideration etc. apply to partnership contract also.

Partnership Contract is a ‘Concurrent subject’ - ‘Contract, including partnership contract’ is a

‘concurrent subject, covered in Entry 7 of List III (Seventh Schedule to Constitution). Indian
Partnership Act is a Central Act, but State Government can also pass legislation on this issue.
Though Partnership Act is a Central Act, it is administered by State Governments, i.e. work of
registration of firms and related matters are looked after by each State Government. The Act is
not applicable to Jammu and Kashmir.

Partnership Firm is not a legal entity - It may be surprising but true that a Partnership Firm is not
a legal entity. Under partnership law, a partnership firm is not a legal entity, but only consists of
individual partners for the time being. It is not a distinct legal entity apart from the partners
constituting it - Malabar Fisheries Co. v. CIT2

Firm legal entity for the purpose of Taxation - For tax law, income-tax as well as sales tax,
partnership firm is a legal entity - State of Punjab v. Jullender Vegetables Syndicate - CIT v. A
W Figgies - CIT v. G Parthasarthy Naidu. Though a partnership firm is not a juristic person,
Civil Procedure Code enables the partners of a partnership firm to sue or to be sued in the name
of the firm. - Ashok Transport Agency v. Awadhesh Kumar

1
S.D. Singh & J.P.Gupta, Law of Partnerships in India, Orient Law House, Third Revised Edition,(1988), at p.8.
2
1979) 120 ITR 49 = 2 Taxman 409 (SC).
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2.2 Definition

DEFINITION:

The term 'Partnership' is defined under section 4 of Indian partnership act 1932 as under:

"Partnership is an agreement between two or more persons who have agreed to share profits of
the business carried on by all or any one of them acting upon all."

Sir Frederick Pollock defines

“Partnership” as:

“The relation which subsists between persons who have agreed to share the profits of a business
carried on by all or any of them on behalf of all of them”.

Meaning of ‘Partner’ ‘Firm’ and ‘Firm Name’

Section 4 of Indian Partnership Act, 1932 provides that:

“Persons who have entered into partnership with one another are individually called partners and
collectively called a firm and the name under which their business is carried on is called firm
name.”“Partnership is thus Invisibility which binds the partners together and firm is the visible
form of those partners who are thus bound together”.

Examples:

1. A and B buy 100 bales of cotton to sell later on profit which they agree to share equally. A and
B are partners in respect of such cotton.

2. A and B buy 100 bales of cotton together for personal use. There is no partnership between A
and B.

3. A, a goldsmith, agrees with B to buy and provide gold to B to work on an ornament and to sell
and that they shall share the profit. A and B are partners.
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4. A and B are carpenters working together. They agree that A will keep all the profits and will
pay B a wage. They are not partners.

5. A and B jointly own a ship. This circumstance does not make them partners.

In Helper Girdharbhai vs Saiyed M Kadri and others7, J. Sabyasachi of Supreme Court identified
that the following elements must be there in order to establish a partnership –

“There must be an agreement entered into by all the parties concerned, the agreement must be to
share profits of the business, and the business must be carried on by all or any of the person
concerned for all”.
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CHAPTER – 3

ESSENTIALS OF PARTNERSHIP:

1. Agreement.

2. Agreement between two or more persons

3. Business.

4. Sharing of Profits.

5. Business carried on by all or any of them acting for all. (Mutual Agency)

1. Agreement:

There has to be an agreement between two or more people to enter into partnership. The
agreement is the source of the partnership. It is not necessary that the agreement be formal or
written. An agreement can be express or implied. Further, such agreement must follow all the
requirements of a valid contract given by Indian Contract Act 1872. This includes the parties
must be competent to contract and the object of the agreement should be legal as Section 5 of
IPA 1932 provides that the relation of partnership arises from contract and not from status. Thus,
if there is no specific contract, there can be no partnership.

The Supreme Court, in Tarsem Singh v Sukhminder Singh9, has held that it is not necessary
under the law that every contract must be in writing. There can be an equally binding contract
between the parties on the basis of oral agreement, unless there is a law which requires the
agreement to be in writing.

2. Agreement between two or more persons:

The term ‘person’ as used in Sec.4 does not include a firm. This is because a firm is not a
separate legal entity. As such two partnership firms cannot enter into partnership, though all the
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partners of the two firms may form a partnership out of their separate firms provided their
number does not exceed the statutory limit.

In agreement associated between two or more persons, the number of partners in a firm shall not
exceed 20 and a partnership having more than 20 persons is illegal. If the partnership is between
the Karta and member of Hindu undivided family the members of the joint Hindu family will not
be taken into account.

A company is a ‘person’ and being an entity distinct from its members; enter into a contract of
partnership if it is authorized by its Memorandum of Association.

The following can enter into a partnership:

Individual

Firm

Hindu undivided family

Company

Trustees

Individual: An individual, who is competent to contract, can become a partner in the

partnership firm. If there are more than two partners in a firm, an individual can be a partner in
his individual capacity as well as in a representative capacity as Karta of the Hindu undivided
family.

Firm: A partnership firm is not a person and therefore a firm cannot enter into partnership
with any firm or individual. But a partner of the partnership firm can enter into partnership with
other persons and he can share the profits of the said firm with his other co-partners of the parent
firm.
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Hindu undivided family: A Karta of the Hindu undivided family can become a partner in a
partnership in his individual capacity, provided the member has contributed his self-acquired or
personal skill and labour.

Company: A company is a juristic person and therefore can become a partner in a partnership
firm, if it is authorized to do so by its objects.

Trustees: Trustees of private religious trust, family trust and trustees of Hindu mutts or other
religious endowments are juristic persons and can therefore enter into partnership, unless their
constitution or objects forbid.

3. Business:

They must intend to start or do a business. A business is a very wide term and includes any trade,
occupation, or profession. Business may not be of long duration or permanent and even a single
activity may be considered a business. Thus, if two persons are not partners, they can engage in a
transaction with an intention to share profits and can become partners in respect of that
transaction.

For example, if two advocates are appointed to jointly plead a case and if they agree to divide the
profits, they are partners in respect to that case.

Section 8 of the Act also mentions that a person may become partner with another in particular
adventures of undertaking. It is however necessary that a business exists. If a business is simply
contemplated and has not been started, the partnership is not considered to be in existence.
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Ram Priya Saran vs Ghanshyam Das

Fact:

Two persons agreed that after their tender is passed they will construct the dam in partnership. In
order to deposit earnest money, the plaintiff gave 2000 Rs. The tender was not accepted.

Held:

It was held that since a business was only contemplated and not started, there was no partnership
and so the plaintiff was entitled to get 2000 Rs from the defendant.

Khan Vs Miah:

Fact:

Two persons obtained loan from the bank to start a restaurant. They also entered into a contract
to purchase equipment and laundry for the restaurant. But their relationship terminated before the
opening of the restaurant. It was held that there is no rule of law that parties to a joint venture do
not become partners until they actually embark on the activity in question. It is necessary to
identify the venture in order to decide whether the parties have actually embarked upon it but it
is not necessary to attach any name to it. Many businesses require a lot of investment and
activities before the actual trading begins. This does not mean that the business has not started
until the trading begins.

Held:

It was held that in this case the activity of the business had begun and so the partnership was in
existence.
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4. Sharing of profits:

Normally, an activity is done in partnership with a goal to make profits. Thus, for a valid
partnership to exist, the partners must agree to share the profits according to their investment.
Here, profits include losses as well. The partners may agree to share profits out of partnership
business, but not share the losses. Sharing of losses is not necessary to constitute the partnership.
The partners may agree to share the profits of the business in any way they like.

The honorable apex Court of the nation has reiterated the provision in Section 6 of the Act in
Girdharbhai v. Saiyed Mohmad Mirasaheb Kadri14:

that in determining whether a group of persons is a firm or not, the real intention of the parties
has to be taken into consideration. The Supreme Court had laid down the elements to determine a
partnership as

(a) there must be an agreement entered into by all parties concerned;

(b) the agreement so entered into must be to share profits of a business;

(c) the business must be carried on by all or any one for all.

5. Mutual Agency:

The present definition replaces Section 239, Indian Contract Act which defined ‘Partnership’ as
under:

‘Partnership is the relation which subsists between persons who have agreed to combine their
property, labour or skill in some business, and to share the profits thereof between them.’

The present definition is wider than the one contained in the Indian Contract Act in so far as it
includes the important element of ‘mutual agency‘, which was absent in the old definition.

According to Pollock, ‘Partnership is the relation which subsists between persons who have
agreed to share the profits of a business carried on by all or any way of them on behalf of all of
them.’
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The firm must be managed by the partners and thus when any partner acts; he acts on behalf of
the firm and thus on behalf of other partners. Therefore, a partner is considered an agent of
others. In absence of such mutual right of agency, a partnership cannot exist.

For example: An author receiving a royalty from publishers is not a partner because there is no
mutual agency between them.
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CHAPTER – 4

THE LAW OF PARTNERSHIP IS AN EXTENSION OF THE LAW OF AGENCY:

Firstly it is important to discuss something about Agency:

Definition: Sec 182 of Indian Contract Act, 1872 defines an ‘Agent’ as “a person employed to
do any act for another or to represent another in dealings with third person”. The person for
whom such act is done or who is represented is called the “principal”. The relationship between
the agent and the principal is called “agency”.

The common law principle in operation is usually represented in the Latin phrase, “qui facit per
alium, facit per se , i.e. the one who acts through another, acts in his or her own interests” and it
is a parallel concept to vicarious liability and strict liability in which one person is held liable in
Criminal law or Tort for the acts or omissions of another.

Principles of Agency: Contracts of agency are based on two important principles, namely:

a) Whatever a person can do personally shall also be allowed to be done through an agent except
in case of contracts involving personal services such as painting, marriage, singing, etc.

b) He who does not act through a duly authorized agent does it by himself, i.e., the act of the
agent are considered the acts of the principal (Sec. 226).

Essential features of agency: Agency has certain essential features. They are as follows:

(i) Agency implies that one person (i.e. an agent) brings two other persons (i.e. a principal and a
third person) into contractual relationship - That means an agent is a connecting link between the
principal and the third person.

(ii) An agent is not mere a connecting link between the principal and the third party. He also
creates a legal relationship between the principal and the
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third party - That is he makes the principal answerable to the third party for his acts and also
entitles the principal to all the benefits accruing from his acts.

(iii)An agency can be established to do any act which the principal could do lawfully - That
means an agency can be established only for lawful acts. If an agency is established for an
unlawful act it cannot be enforced by law.

(iv)Agency can be created only for those acts which can be delegated by a person to another -
That means agency cannot be created for acts which must be done by a person himself and
cannot be delegated to an agent say painting, marrying, singing.

(v) The agency relationship may be established by a contract between the principal and the agent
which may be written or oral, or may be established by implications, as in the case of husband
and wife, master and servant etc.

(vi)Though a valid contract requires that both the contracting parties must be competent to
contract, for a contract of agency, it is enough if only the principal is competent to contract - The
agent need not be competent to contract. In other words an agent may be incompetent to contract,
say a minor, lunatic, idiot etc.

(vii) There should be the intention on the part of the agent to act on behalf of the principal - As
such, if a person intends to act on behalf of another an agency arises even if the contract between
the parties provides that there is no such relationship. On the other hand if a person intends to act
on his own behalf and not on behalf of another there cannot arise any agency, even if the person
contends that he is an agent.

(viii) No consideration is necessary to create an agency - The fact that the principal has agreed to
be represented by the agent is a sufficient detriment to the principal to support the contract the
contract of agency. Though no consideration is necessary to support a contract of agency, an
agent may be paid for. That means an agent may be paid for his services.

(ix) An agent is appointed with specific instructions and is authorized to act within the scope of
the instructions (i.e. the authority) - As such the agents within the scope of his authority are
regarded as the acts of the principal and such acts bind the principal as if the principal has done
them himself.
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Who may employee an agent- Any person who is of the age of majority according to the law
to which he is subject, and who is of sound mind, may employee an agent (Sec. 183). Thus any
person competent to contract can appoint an agent.

Who may be an agent- As between the principal and third person any person can become an
agent, but no person who is not of the age of majority and of sound mind can become an agent,
so as to be responsible to his principal according to the provisions in that behalf herein contained
(Sec. 184).

The concept of “agency” has been thus explained by RAMSWAMI J. of the Madras High
Court in Krishna v Ganapathi15; ―In the legal phraseology, every person who acts for another is
not an agent. A domestic servant renders to his master a personal service; a person may till
another’s field or tend his flocks or work in his shop or mine; one may for another in aiding in
the performance of his legal or contractual obligations of third persons…. In none of these
capacities he is an agent and he is not acting for another in dealings with third persons….
Representative character and derivative authority may briefly be said to be the distinguishing
feature of an agent.

In Shivraj Reddy & Bros v S. Raghu Raj Reddy it was held that “A person can become a
partner in a firm, which is the position of an agent, without making any capital contribution16.”
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CHAPTER – 5

ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP:

Following are the advantages of the Partnership:

1) Better decisions: The partners are the owners of the business. Each of them has equal right to
participate in the management of the business. In case of any conflict, they can sit together to
solve the problem. Since all partners participate in the decision-making process, there is less
scope for reckless and hasty decisions.

2) Flexibility in operations: A partnership firm is a flexible organization. At any time, the

partners can decide to change the size or nature of the business or area of it’s operation. There is
no need to follow any legal procedure. Only the consent of all the partners is required.

3) Easy to form: Like sole proprietorships, partnership businesses can be formed easily without
any compulsory legal formalities. It is not necessary to get the firm registered. A simple
agreement or partnership deed, either oral or in writing, is sufficient to create a partnership.

4) Availability of large resources: Since two or more partners join hands to start a partnership
business, it may be possible to pool together more resources as compared to a sole
proprietorship. The partners can contribute more capital, more effort and more time for the
business.

DISADVANTAGES

Following are the advantages of the Partnership:

1) Unlimited liability: All the partners are jointly liable for the debt of the firm. They can share
the liability among themselves or any one can be asked to pay all the debts even from his
personal properties depending on the arrangement made between the partners.
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2) Uncertain life: The partnership firm has no legal existence separate from its partners. It comes
to an end with death, insolvency, incapacity or the retirement of a partner. Further, any
unsatisfied or discontent partner can also give notice at any time for the dissolution of the
partnership.

3) No transferability of share: If you are a partner in any firm, you cannot transfer your share or
part of the company to outsiders, without the consent of other partners. This creates
inconvenience for the partner who wants to leave the firm or sell part of his share to others.

4) Lack of harmony: In a partnership firm every partner has an equal right to participate in the
management. Also, every partner can place his or her opinion or viewpoint before the
management regarding any matter at any time. Because of this, sometimes there is a possibility
of friction and discontent among the partners. Difference of opinion may lead to the end of the
partnership and the business.

5) Limited capital: Since the total number of partners cannot exceed 20 (10 for Banking
business), the capital to be raised is always limited. It may not be possible to start a very large
business in partnership form.
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CONCLUSION

It can be said that, a partnership is a form of business. It has at least two members who joined
capital or services for prosecuting of some business. Partnership is very important because in day
to day activities we enter into partnership agreements and by making partners big goals are
achieved with the help of joint and more number of people. The joint efforts of all the member
results in successful accomplishment of tasks and that task or job can be easily afforded.
Division of work leads to increase in efficiency at work among different partners.

When some job is done by consent of all the members and if some profit is earned then it is
shared among the different partners. And similar is the case when some loss occurs then that is
also beard among all the members and it’s not that only one has to take responsibility or give
compensation. So in my view Partnership is a good form of doing business than a company
which is owned by a single person. Partnership is one of the oldest forms of business
relationships. Though limited liability companies have replaced partnership firms in complex
businesses, partnerships are still preferred by professionals and small trading and business
enterprises in India and abroad.

The Indian partnership act of 1932 provides for a general form of partnership which is the most
prevalent form in India, but, over time the general form of partnership has lost its charm because
of the inherent disadvantages in it, the most important is the unlimited liability of all partners for
business debts and legal consequences, regardless of their holding, as the firm is not a legal
entity.

General partners are also jointly and severally liable for tortuous acts of co-partners. Each
partner has the exposure of their personal assets being appropriated and liquidated to meet
partnership dues. These are statutory position, which cannot be altered by contract inter-se,
though at times subterfuges are resorted to by unscrupulous partners to avoid personal liability.
General partnership holdings are not easy to transfer; typically all other partners have to agree.
Yet partnership is preferred in India, because of the ease of formation and lack of compliances
involved.
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BIBLIOGRAPHY

Dr. S.K. Kapoor, Contract – II, Central Law Agency, Twelfth Edition, 2012

S.D. Singh & J.P.Gupta, Law of Partnerships in India, Orient Law House, Third Revised
Edition,(1988), at p.8.

Justice K. Sukumaran, Mulla The Indian Partnership Act, Pollock & Mulla, Lexis Nexis
Butterworths, Sixth Edition.

H.R. Gokhale & Y.S. Chithale, The Sale of Goods & Partnership Act, Pollock & Mulla,
Tripathi, Fourth Edition.

G.C.V. Subba Rao’s , Special Contracts, s.gogia & company, 12th edition 2012

REFERENCE

www.studymode.com/

www.hanumant.com/

www.freellbnotes.blogspot.in

www.indiankanoon.org

www.google.com

www.wikipedia.com