THE NATURE OF

PARTNERSHIP IN INDIA
WITH SPECIAL REFERENCE
TO THE CASE OF COX VS
HICKMAN
(1860) 8 H. L. C. 268
NISHTHA RATHOD & SRUSHTI VAIDYA
B040 & B053
TABLE OF CONTENT
The flow of the presentation is as follows- The details of the English
landmark case while be discussed followed by the Indian case having similar
background then a comparison the both the cases followed by concluding
remarks.

01 02 03 04
COX VS N.R. Wadia & COMPARISON CONCLUSION
HICKMAN Co. vs
(1860) 8 H. L. Commissioner
C. 268: Of Income-
Tax, Bombay
(1960) 62
BOMLR 685
 COX VS HICKMAN
(1860) 8 H. L. C. 268:

BRIEF FACTS AND PROCEDURAL HISTORY

ISSUE BEFORE THE COURT
DECISION OF THE COURT
PRINCIPLES LAID
BRIEF FACTS AND PROCEDURAL HISTORY
Under the name of B Smith & Son, Benjamin Smith and Josiah Timmis Smith carried on a
business of iron and maize traders. They owed large amounts of money to the creditors of the
company. They executed a deed of arrangement in favor of the creditors.
The party to the first part of the deed was S & S; to the second part were five creditors including
Cox and Wheatcroft. The party to the third part of the deed were the general body creditors of
S & S. The party to the second part was to carry the business under the name of The Stanton
Iron Company as a trustee.
This deed also contained a provision that stated that they would not sue Smiths for their debts.
Cox never acted as a trustee; Wheatcroft had resigned six weeks later after the deed. No other
trustees were appointed in place of Cox and Wheatcroft.
Hickman drew three bills of exchange for the goods supplied to him after Wheatcroft had
resigned. These bills were received on behalf of the Stanton Iron Company by one of the three
creditors. Hickman sued Cox and Wheatcroft and stated that they both were liable because they
were the original parties to the second part of the deed.
ISSUE BEFORE THE COURT

Is there any partnership between the merchants

who were in the essence of the creditors of the
company?
 DECISION OF THE COURT
The execution of the deed did not make the creditors partners in the Stanton
Iron Company. The deed is only an arrangement to pay debts out of the existing
and future profits. The creditors were given special powers as per the deed. To
make rules to carry out the trade and to decide whether to continue the
business. The creditors let the trustees carry out the trade instead of them. This
act of the creditors did not make them partners. The trustees would not have
accepted the bills of exchange if the creditors had chosen to carry out the trade.
The agreement did not constitute the relations of partners between the
creditors and trustees. Therefore, the creditors are not liable because they are
not the principals of the trustees. However, the trustees are liable because they
are the agent of the contract.
Hence, the defendants are not held liable and overturned the decision of the
Court of Common Pleas.
PRINCIPLES LAID:
Sharing of Profit and Losses Mutual Agency

The argument that mere sharing of

the profits constitutes the The fact that the business was
partnership is a misconception. The carried on by the person acting on
right to share the profits does not his behalf is the actual ground for
cause liability for the debts of the the liability.
business.
 N.R. WADIA & CO. VS
COMMISSIONER OF
INCOME-TAX, BOMBAY
(1960) 62 BOMLR 685
BRIEF FACTS
ISSUES BEFORE THE COURT
FINDINGS OF THE COURT
 BRIEF FACTS AND PROCEDURAL HISTORY

Wadia, Dadachanji and Vakil are three architects and surveyors by

profession. Wadia and Dadachanji were carrying on business in
partnership as architects, engineers and surveyors in the name of "N.
R. Wadia & Co." on terms and conditions which were recorded in 1935 in
an agreement of partnership. Later on they agreed "to admit into
partnership with them" Vakil and the three persons reduced the terms
and conditions of their arrangement to writing in an agreement
executed on November 6, 1952. In that agreement they stated in terms
that the third partner Vakil was being admitted into partnership with
them.
 BRIEF FACTS AND PROCEDURAL HISTORY
The material terms of that agreement are as under
The partnership The partnership Each partner shall In each year during the continuance
shall commence business shall be attend to and carry out of the partnership, partnership
from January 1, that of Architects, the work secured by accounts shall be made up in the
1953 Civil Engineers and him and in respect of manner following that is to say an
(subsequently Surveyors. such work shall keep account shall be taken of the bills
changed to April 1, and maintain a recovered by each partner from his
1953). The business shall separate work-book, client. The office expenseshall be
be carried on in the bill-book and other deducted out of the total of the bills
firm name and style necessary books. recovered by the three partners in
of 'N. R. Wadia & the proportion of the gross recoveries
Co.' Each partner shall of each partner and the balance shall
recover bills in respect be divided between the partners in
of work done for his the proportion of their own respective
own clients. gross recoveries.
QUESTION BEFORE THE COURT

Is there any partnership between the

merchants who were in the essence of the
creditors of the company?
 DECISION OF THE COURT
The provisions of the Indian Partnership Act give recognition to that law - that to constitute a
partnership in law, there must be three elements : (i) there must be an agreement entered into by
all the persons concerned; (ii) the agreement must be to share the profits of a business; and (iii)
the business must be carried on by all or any of the persons concerned acting for all. Section 6 of
that Act gives a comprehensive statement of the rule as to the nature of a partnership.
The definition of partnership shows that the business must be carried on by the partners or some
of them acting for all. It is this element of agency which distinguishes partnership from various
other legal relations and it is this element which brings of the firm are agents as well as
principals. It also indicates that if the essential element of agency is lacking, the relation of
partnership cannot be said to exist.
The true test for determining whether a person deriving income from a business in the form of
profits is or is not a partner is to examine whether the business was carried on by the others
acting for him; whether there relation of principal and agent subsisted between them, i.e.,
whether one was authorized to work on behalf of another and not merely whether there was any
arrangement of sharing the profits. The question is always one of agency and authority.”
 COMPARISON
Comparing both the cases, the stand and principles is
similar and the Indian case is backing the principles laid
down in the English landmark case (Cox vs. Hickman).
Moreover, the English landmark case has almost decided
a century before the Indian case and still the concepts
and principles are yet the same.
Also, as the Indian statue governing partnerships i.e.
Indian Partnership Act, 1932 is formed after the
landmark judgement and the test laid down for
partnership is inculcated in the Act itself in form of
Section 6.
The English case has laid down a solid foundation in the
Act itself for determining the partnership which
moreover lessens the work load of the Courts in
determining the partnership in every case in other words
it acts as a necessary condition for the legality of the
partnership firm.
 CONCLUSION
In our opinion, a partnership is very important and the role of Section 6
i.e. that is determining the existence of a partnership is an integral part
of it. So, while sharing of profit is and important factor in determining
the partnership but it can be solely considered as the test of
determining partnership. It is said that the truest test of determining the
partnership is mutual agency but in opinion both sharing of profit and
mutual agency should be cumulatively consider while determining the
test.
We enter into partnership agreements frequently and there may be
cases arising which may appear to be a partnership agreement but in
reality, it isn’t. With the help of the various case laws and the situations
that arose during the time, it is therefore concluded that mutual agency
is the decisive part of determining the existence of partnerships.
Thus, we can conclude that Section 6 has done a good job of protecting
the interest of the concerned parties. It is not simple as it appears but
almost all the situation which have caused difficulty in determining the
mode of existence of Partnership has been talked about.
ANY QUESTIONS?
 SVKM’S

PRAVIN GANDHI COLLEGE OF LAW

THE NATURE OF PARTNERSHIP IN INDIA WITH SPECIAL

REFERENCE TO THE CASE OF COX VS HICKMAN (1860) 8 H. L. C. 268

SUBMITTED BY: NISHTHA RATHOD & SRUSHTI VAIDYA

ROLL NO: B040 & B053

CLASS: 4TH YEAR

SEMESTER 8

INTERNAL ASSESSMENT

SUBMITTED TO: DR. KAVITA RAI

FACULTY INCHARGE (CONTRACT-II)

COX VS HICKMAN (1860) 8 H. L. C. 268:

EQUIVALENT CITATION

(1860) 8 HLC 268

BENCH
Lord Cranworth & Lord Wensleydale

RELEVANT ACT/ SECTION

The Indian Partnership Act, 1932

BRIEF FACTS AND PROCEDURAL HISTORY

Under the name of B Smith & Son, Benjamin Smith and Josiah Timmis Smith carried on a business
of iron and maize traders. They owed large amounts of money to the creditors of the company. A
meeting was held between S & S and the creditors that included Cox and Wheatcroft. They
executed a deed of arrangement in favor of the creditors. The party to the first part of the deed was
S & S; to the second part were five creditors including Cox and Wheatcroft. The party to the third
part of the deed were the general body creditors of S & S. The party to the second part was to carry
the business under the name of The Stanton Iron Company as a trustee. This deed also contained
a provision that stated that they would not sue Smiths for their debts. Cox never acted as a trustee;
Wheatcroft had resigned six weeks later after the deed. No other trustees were appointed in place
of Cox and Wheatcroft.

Hickman – a businessman, drew three bills of exchange for the goods supplied to him after
Wheatcroft had resigned. These bills were received on behalf of the Stanton Iron Company by one
of the three creditors. Hickman sued Cox and Wheatcroft and stated that they both were liable
because they were the original parties to the second part of the deed.
The case was tried before Lord Jervis, who ruled it in favor of the defendants. The action went to
the Exchequer Chamber, where three judges wanted to reverse the decision, whereas the other
three judges asked to uphold the judgment.
ISSUE BEFORE THE COURT

Is there any partnership between the merchants who were in the essence of the creditors of the
company?

DECISION OF THE COURT

The execution of the deed did not make the creditors partners in the Stanton Iron Company. The
deed is only an arrangement to pay debts out of the existing and future profits. The creditors were
given special powers as per the deed. To make rules to carry out the trade and to decide whether
to continue the business. The creditors let the trustees carry out the trade instead of them. This act
of the creditors did not make them partners. The trustees would not have accepted the bills of
exchange if the creditors had chosen to carry out the trade. The agreement did not constitute the
relations of partners between the creditors and trustees. Therefore, the creditors are not liable
because they are not the principals of the trustees. However, the trustees are liable because they
are the agent of the contract.

Hence, the defendants are not held liable and overturned the decision of the Court of Common
Pleas.

PRINCIPLES LAID:

1. The argument that mere sharing of the profits constitutes the partnership is a
misconception. The right to share the profits does not cause liability for the debts of the
business. (Sharing of Profit and Losses)
2. The fact that the business was carried on by the person acting on his behalf is the actual
ground for the liability. (Mutual Agency)

N.R. Wadia & Co. vs Commissioner Of Income-Tax, Bombay

(1960) 62 BOMLR 685

BRIEF FACTS

Wadia, Dadachanji and Vakil are three architects and surveyors by profession. Wadia and
Dadachanji were carrying on business in partnership as architects, engineers and surveyors in the
name of "N. R. Wadia & Co." on terms and conditions which were recorded in 1935 in an
agreement of partnership. Later on they agreed "to admit into partnership with them" Vakil and the
three persons reduced the terms and conditions of their arrangement to writing in an agreement
executed on November 6, 1952. In that agreement they stated in terms that the third partner Vakil
was being admitted into partnership with them.

The material terms of that agreement are as under:

1. The partnership shall commence from January 1, 1953 (subsequently changed to April 1,
1953).
2. The partnership business shall be that of Architects, Civil Engineers and Surveyors.
3. The business shall be carried on in the firm name and style of 'N. R. Wadia & Co.'
4. Each partner shall attend to and carry out the work secured by him and in respect of such
work shall keep and maintain a separate work-book, bill-book and other necessary books.
5. Each partner shall recover bills in respect of work done for his own clients.
6. As soon as after March 31 as convenient in each year during the continuance of the
partnership, partnership accounts shall be made up in the manner following that is to say
an account shall be taken of the bills recovered by each partner from his client. The office
expenses including office rent, establishment and other charges and expenses including
travelling and motor expenses shall be deducted out of the total of the bills recovered by
the three partners in the proportion of the gross recoveries of each partner and the balance
shall be divided between the partners in the proportion of their own respective gross
recoveries.

QUESTION BEFORE THE COURT:

The crucial question is and must be whether the element of agency which is a prime requirement
of the existence of partnership has been established in this case.

FINDING OF THE COURT:

1. PARA 5:
“It is well-settled law - and the provisions of the Indian Partnership Act give recognition to
that law - that to constitute a partnership in law, there must be three elements : (i) there
must be an agreement entered into by all the persons concerned; (ii) the agreement must be
to share the profits of a business; and (iii) the business must be carried on by all or any of
 the persons concerned acting for all. All these three elements must be present before a
group of persons can be held to be partners. This can be gathered from the definition of
"partnership" in the Indian Partnership Act. Section 6 of that Act gives a comprehensive
statement of the rule as to the nature of a partnership. In determining whether a person is
or is not a partner in a firm, the court must have regard to the real relation between the
parties. Whether the relation of partnership does or does not exist must depend on the real
intention and contract of the parties as appearing from the whole facts of the case and not
merely on their expressed intention. A and B may in a written agreement have stated
expressly that they are not partners, yet they have been held to be partners; or they may
have stated that they are partners and have been held not to be partners. These principles
are so firmly established that it is not necessary to elaborate them and we have merely
recapitulated here what one of us had occasion to say in another place.”
2. PARA 18
“The crucial question is and must be whether the element of agency which is a prime
requirement of the existence of partnership has been established in this case. Of the three
elements already mentioned by us, it is true that in the case before us there is an agreement
entered into by the three persons concerned and described as an agreement of partnership.
It is difficult to see from the facts set out in the two statements of the case that there was
an agreement to share the profits of a business and even if we were persuaded to hold that
there was an agreement to share the profits of a business, we would have found it
impossible to accede to the further submission that the requirement of agency is satisfied
in this case. That third element in the definition of partnership shows that the business must
be carried on by the partners or some of them acting for all. It is this element of agency
which distinguishes partnership from various other legal relations and it is this element
which brings of the firm are agents as well as principals. It also indicates that if the essential
element of agency is lacking, the relation of partnership cannot be said to exist. Section
6 of the Partnership Act recites the rules for determining the existence of partnership. In
determining whether in a particular case partnership does or does not exist - which is at
times a matter of some difficulty - the court will examine all the incidents of the relation
between the parties and will have regard to the real relation between them. The court will
consider all the relevant facts separately and together and then draw conclusion without
 attaching undue importance to any of the evidentiary facts or any particular aspect of the
matter. I have said on more occasions than one that even complicated cases become less
difficult of solution if the elements of carrying on a business and of mutual agency are
clearly kept in view. It is true that a rather in congruous situation has arisen in this case but
the assessee is not primarily responsible for that. There can be no question here of any
acquiescence or holding our or estoppel and registration of the firm under the Partnership
Act, as we have already observed, is not terminative of the matter. There are no cogent
facts and no circumstances to be gathered from the two statements of the case from which
existence of mutual agency between the three persons can be said to be inferable. Treating
this even as a case of some difficulty we do not see how we would be justified in saying
that the element of agency has been established. The true test for determining whether a
person deriving income from a business in the form of profits is or is not a partner is to
examine whether the business was carried on by the others acting for him; whether there
relation of principal and agent subsisted between them, i.e., whether one was authorized to
work on behalf of another and not merely whether there was any arrangement of sharing
the profits. The question is always one of agency and authority.”

COMPARISON:

Comparing both the cases, the stand and principles is similar and the Indian case is backing the
principles laid down in the English landmark case (Cox vs. Hickman). Moreover, the English
landmark case has almost decided a century before the Indian case and still the concepts and
principles are yet the same. Also, as the Indian statue governing partnerships i.e. Indian Partnership
Act, 1932 is formed after the landmark judgement and the test laid down for partnership is
inculcated in the Act itself in form of Section 6. The English case has laid down a solid foundation
in the Act itself for determining the partnership which moreover lessens the work load of the Courts
in determining the partnership in every case in other words it acts as a necessary condition for the
legality of the partnership firm.

CONCLUSION:

In my opinion, a partnership is very important and the role of Section 6 i.e. that is determining the
existence of a partnership is an integral part of it. So, while sharing of profit is and important factor
in determining the partnership but it can be solely considered as the test of determining partnership.
It is said that the truest test of determining the partnership is mutual agency but in opinion both
sharing of profit and mutual agency should be cumulatively consider while determining the test.

We enter into partnership agreements frequently and there may be cases arising which may appear
to be a partnership agreement but in reality, it isn’t. With the help of the various case laws and the
situations that arose during the time, it is therefore concluded that mutual agency is the decisive
part of determining the existence of partnerships.

Thus, we can conclude that Section 6 has done a good job of protecting the interest of the
concerned parties. It is not simple as it appears but almost all the situation which have caused
difficulty in determining the mode of existence of Partnership has been talked about.

**********