Beruflich Dokumente
Kultur Dokumente
LAW OF
CONTRACT
INDIAN
PARTNERSHIP ACT ,
1932
GUIDED BY:
SUBMITTED BY:
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
TABLE OF TREATISE
The law of Contracts & Tenders, Sixth Edition, T.S Venkatesa Iyer
Contract-II, Dr. R.K Bangia
TABLE OF ABBREVIATIONS
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 This act superseded the
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
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.
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,
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
3 See Sec. 30(1). The position of a minor has been discussed in details in Chapter 3.
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.
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
7 (1860) 8 HLC 268 : 125 RR 148
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
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
8 Arunachalam & Co. v. M. Sadasivam AIR 1985 Mad. 345
9 Gobardhan Chakraborty v. Abani Mohan AIR 1991 Cal. 195.
10 Sec. 32(10)(c)
11 Sec 43(1)
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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.
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.
13 AIR 2008 Cal. 103.
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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
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.
14 Peacock v Peacock (1808) 33 ER 902
15 Burton v. Wookey (1822) 56 ER 1131
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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.
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.
22 Hukumchand v. Hansraj (1938) @ MLJ 966
23 Reghunandan v. Hormasjee (1927) 51 ILR Bom 342.
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